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. At September 30, 2023, the reasonably possible loss for such matters, taking into consideration our rights in indemnity and recourse to third parties is approximately $1.1 million.
The Company evaluates its exposure to such claims and suits periodically and establishes accruals for these contingencies when a range of lossprobable losses can be reasonably estimated. The range of reasonably possible losses for such matters, taking into consideration our rights in indemnity and recourse to third parties is $1.3 million to $11.5 million. At September 30, 2018, total accruals of $5.22023, the Company accrued $1.5 million including environmental and workplace matters described below,in liabilities for these contingencies, which are includedrecorded 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 andenvironment. Included in the workplace. Thebalance above, the Company has reserved $1.1$0.4 million of liabilities, as of September 30, 2018, included in our total accruals of $5.22023, related to which it has also recorded a $0.4 million discussed above,indemnification asset from third parties, 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, estimatesmatters.
On November 1, 2018, Arcosa became an independent publicly-traded company through the pro rata distribution by TrinityIn 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
•Market Outlook
•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 Statement2022 (“2022 Annual Report on Form 10 filed with the Securities and Exchange Commission ("SEC") on September 27, 2018 (“Form 10”10-K”).
Executive Summary Company Overview
Spin-off Transaction
On December 12, 2017, Trinity Industries, Inc. (togetherArcosa, headquartered in Dallas, Texas, is a provider of infrastructure-related products and solutions with its subsidiaries, "Trinity") announced its intention to separate its infrastructure-related businesses, which includes itsleading positions in construction, products, energy equipment,engineered structures, and transportation products businesses, from the rest of Trinity by means ofmarkets in North America. Arcosa is a spin-off. On September 25,Delaware corporation and was incorporated in 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 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 changeswe may not be able to accurately predict, including the impact of new COVID-19 variants and the response to any potential reoccurrence. We strive to continuously improve our procedures, processes, and management systems regarding employee health and safety, and we do not anticipate that any enhanced health and safety protocols will occur in Arcosa's operating structure and its capitalization ashave a resultmaterial impact on the productivity of our plants.
The preparation of the spin-off from Trinity.
Arcosa’s CombinedCompany's Consolidated Financial Statements include its direct expenses for costrequires management to make estimates and assumptions that affect the reported amounts of goods sold, salesassets and marketing,liabilities and distributiondisclosure of contingent assets and administrationliabilities at the date of the financial statements as well as allocationsthe reported amounts of certain selling, engineering,revenues and administrative expenses provided by Trinityduring the reporting period. At this time, we have not observed any material impairments of our assets or a significant change in the fair value of assets due to Arcosa and allocationsthe COVID-19 pandemic. However, due to the factors discussed above, we are unable to determine or predict the overall impact the COVID-19 pandemic may have on our business, results of related assets, liabilities, and Parent’s investment, as applicable. The allocationsoperations, liquidity, or capital resources.
Market Outlook
•Within our Construction Products segment, market demand remains healthy overall when seasonal weather conditions have been determinednormal, supported by increased infrastructure spending and private non-residential activity. The outlook for single-family residential housing continues to be impacted by higher interest rates and home affordability, which has negatively impacted volumes. We have been successful in managing inflationary cost pressures through proactive price increases and are monitoring potential impacts on a reasonable basis; however,overall demand as leading economic indicators indicate the amounts are not necessarily representativepotential for an economic slowdown over the next twelve months.
•Within our Engineered Structures segment, our backlog as of September 30, 2023 provides good production visibility for the remainder of 2023. 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 passage of the amountsInflation Reduction Act ("IRA") on August 16, 2022, which included a long-term extension of the Production Tax Credit (“PTC”) for new wind farm projects and introduced new Advanced Manufacturing Production ("AMP") tax credits for companies that would have been reflecteddomestically manufacture and sell clean energy equipment in the financial statements had Arcosa been an entity that operated independentlyU.S., is a significant catalyst for our wind towers business. As demonstrated by more than $1.1 billion of Trinity. Related party allocations are further described in Note 1, “Overview and Summary of Significant Accounting Policies” tonew orders for delivery through 2028, which we have received since the Combined Financial Statements. Trinity will continue to provide somepassage of the services relatedIRA, our wind tower business is at the beginning stages of a market recovery. A large portion of these orders will support wind energy expansion projects in the Southwest. As a result, we plan to these general and administrative functions onopen a transitional basis for a fee following the spin-off. These servicesnew plant in New Mexico, with production at this facility expected to begin in mid-2024. We anticipate 2023 will be received undera transition year as new wind projects ramp up and expect a multi-year rebound in volumes beginning in 2024.
•Within our Transportation Products segment, our backlog for inland barges as of September 30, 2023 was $240.4 million, up 87.0% compared to September 30, 2022. Our customers remain committed to taking delivery of these orders. Barge order levels fell sharply at 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 subsidiariesonset of the Company. See "Liquiditypandemic and Capital Resources."
Definitive Agreement to Acquire ACG Materials
On November 14, 2018,ensuing high steel prices further negatively impacted demand. In 2022, we reduced capacity in our two active barge operating plants and completed the Company entered into a definitive agreement with an affiliateidling 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 closeour Louisiana facility in the fourth quarter of 2018 or first quarter2021 to further reduce our cost structure. While high steel prices have impacted order levels, the underlying fundamentals for a dry barge replacement cycle remain in place. The fleet continues to age, new builds have not kept pace with scrapping, and utilization rates are high. As a result, order inquiries have been strong, and our backlog extends into mid-2024.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 indicates a stable level of 2019.replacement demand.
Executive Overview
Financial Operations and Operational Highlights
The Company's revenues•Revenues for the three and nine months ended September 30, 2018 were $378.62023 decreased by 2.0% and 1.0% to $591.7 million and $1,086.0$1,725.7 million, respectively, representing an increase of 3.5% and a decrease of 2.6%, respectively, compared tofrom the same periods in 2017. 2022, as higher revenues in Construction Products and Transportation Products were offset by lower revenues in Engineered Structures resulting from the divestiture of the storage tanks business on October 3, 2022.
•Operating profit for the three months ended September 30, 2023 was relatively flat at $48.4 million as higher operating profit in Construction Products and Transportation Products was offset by lower operating profit in Engineered Structures primarily due to the storage tanks divestiture. For the nine months ended September 30, 2023, operating profit increased by $33.6 million to $174.5 million driven by increases in Construction Products and Transportation Products, partially supported by $22.6 million of asset sale gains recognized in Construction Products in the first quarter of 2023, which more than offset a $36.6 million decrease in operating profit in Engineered Structures largely due to the storage tanks divestiture.
•As a percentage of revenues, selling, general, and administrative expenses were 10.4% and 11.3% for the three and nine months ended September 30, 2018 totaled $6.4 million2023, respectively, compared to 11.2% and $68.2 million, respectively, representing a decrease of 81.0% and 37.2%, respectively,11.3% for the same periods in 2017. When compared to the same periods in 2017, revenues2022, respectively. Selling, general, and operating profit in our Construction Products Group increasedadministrative expenses decreased by 9.6% and 1.1% for the three and nine months ended September 30, 2018 primarily due to increased volumes, partially due to an acquisition. The Energy Equipment Group recorded lower revenues and operating profit 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 when2023, 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 resultinglargely due to the elimination of costs from lower compensation-related expenses.the storage tanks business.
•The Company's effective tax rate for the three and nine months ended September 30, 20182023 was 51.5%17.4% and 27.5%17.1%, respectively, compared to 39.1%21.2% and 39.1%21.6%, respectively, for the same periods in 2017, respectively. The increase in the tax rate for the three months ended September 30, 2018 was primarily related to a portion2022. See Note 10 of the $23.2 million impairment charge recorded in the third quarter of 2018 relatedNotes to foreign operations for which taxes are not provided. The decrease in the tax rate for the nine months ended September 30, 2018 is primarily due to the impact of the Tax Cuts and Jobs Act ("the Act"). See Note 8 of the CombinedConsolidated Financial Statements.
•Net income for the three and nine months ended September 30, 20182023 was $3.2$35.5 million and $48.0$132.1 million, respectively, compared with $20.6to $32.0 million and $66.1$91.2 million, respectively, for the same periods in 2017.2022.
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, 20182023, December 31, 2022, and 2017September 30, 2022, our unsatisfied performance obligations, or backlog, were as follows:
| | | | | | | | | | | | | | | | | |
| September 30,
2023 | | December 31,
2022 | | September 30,
2022 |
| | | | | |
| | (in millions) |
| Engineered Structures: | | | | | |
| Utility, wind, and related structures | $ | 1,450.8 | | | $ | 671.3 | | | $ | 370.4 | |
| | | | | |
| Transportation Products: | | | | | |
| Inland barges | $ | 240.4 | | | $ | 225.1 | | | $ | 128.9 | |
|
| | | | | | | |
| | September 30,
2018 | | September 30,
2017 |
| | (in millions) |
| Wind towers and utility structures | $ | 700.3 |
| | $ | 972.0 |
|
| Inland barges | $ | 210.4 |
| | $ | 126.0 |
|
Approximately 23%15% of the unsatisfied performance obligations for utility, wind, towers and utilityrelated structures in our Engineered Structures segment are expected to be delivered during the year ending December 31, 2018 withfourth quarter of 2023, 33% are expected to be delivered during 2024 and the remainder are expected to be delivered through 2020.2028. Approximately 21%26% of the unsatisfied performance obligations for inland barges in our Transportation Products segment are expected to be delivered during the year ending December 31, 2018 withfourth quarter of 2023 and the remainder are expected to be delivered through 2020.during 2024.
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. On October 31, 2018 and November 5, 2018, the Company completed the divestiture of these businesses, which accounted for approximately $20 million of revenues 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. See Note 2 to our Combined Financial Statements for further information regarding these divestitures.
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, |
| | 2023 | | 2022 | | Percent Change | | 2023 | | 2022 | | Percent Change |
| | (in millions) | | | (in millions) | |
| Construction Products | $ | 262.1 | | | $ | 244.2 | | | 7.3 | % | | $ | 763.0 | | | $ | 701.6 | | | 8.8 | % |
| Engineered Structures | 222.5 | | | 277.0 | | | (19.7) | | | 637.2 | | | 796.1 | | | (20.0) | |
| Transportation Products | 107.1 | | | 82.7 | | | 29.5 | | | 325.5 | | | 244.8 | | | 33.0 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Consolidated Total | $ | 591.7 | | | $ | 603.9 | | | (2.0) | | | $ | 1,725.7 | | | $ | 1,742.5 | | | (1.0) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 decreased by 2.0% and 1.0% during the three months ended September 30, 2018 increased by 3.5% 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, 2018 due to the required adoption 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 for the nine months ended September 30, 2018 decreased by 2.6% from the prior year period2023, respectively, primarily due to a planned reduction inthe divestiture of the storage tanks business.
•Revenues from Construction Products increased primarily due to higher pricing across most of our aggregates and specialty material businesses and additional revenues from our recent trench shoring acquisition.
•Revenues from Engineered Structures decreased due to the sale of our storage tanks business.
•Revenues from Transportation Products increased due to higher volumes in our Energy Equipment Group, partially offsetboth inland barge and steel components.
Operating Costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | Percent Change | | 2023 | | 2022 | | Percent Change |
| | | | | | | | | |
| | (in millions) | | | (in millions) | |
| Construction Products | $ | 231.8 | | | $ | 216.6 | | | 7.0 | % | | $ | 648.8 | | | $ | 629.2 | | | 3.1 | % |
| Engineered Structures | 203.8 | | | 239.9 | | | (15.0) | | | 566.9 | | | 689.2 | | | (17.7) | |
| Transportation Products | 93.0 | | | 81.7 | | | 13.8 | | | 289.7 | | | 237.6 | | | 21.9 | |
| | | | | | | | | | | |
| Segment Totals before Corporate Expenses | 528.6 | | | 538.2 | | | (1.8) | | | 1,505.4 | | | 1,556.0 | | | (3.3) | |
| Corporate | 14.7 | | | 16.7 | | | (12.0) | | | 45.8 | | | 45.6 | | | 0.4 | |
| | | | | | | | | | | |
| Consolidated Total | $ | 543.3 | | | $ | 554.9 | | | (2.1) | | | $ | 1,551.2 | | | $ | 1,601.6 | | | (3.1) | |
| | | | | | | | | | | |
Depreciation, depletion, and amortization(1) | $ | 40.5 | | | $ | 39.6 | | | 2.3 | | | $ | 118.8 | | | $ | 116.9 | | | 1.6 | |
(1)Depreciation, depletion, and amortization are components of operating costs.
2023 versus 2022
•Operating costs decreased by increased steel component deliveries in our Transportation Products Group2.1% and increased production volumes3.1% during the three and impact of acquisitions in our Construction Products Group. Revenues in our Energy Equipment Group was also lower for the nine months ended September 30, 2018 due to the required adoption of new revenue accounting rules. See Note 1 of the Combined Financial Statements.2023, respectively.
|
| | | | | | | | | | | | | | | | | | | | | |
| | 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 costs for the three months ended September 30, 2018 increased by 12.0% over the same period in 2017. The increase in our Construction Products Group wasincreased primarily due to higher shipment levels in our construction aggregates and otheradditional costs from recently acquired businesses. Operating costs for the Energy Equipment Group were higher for the three months ended September 30, 2018, primarily due to the impactAsset gains of a $23.2$22.6 million impairment charge recordedrecognized in the thirdfirst quarter of 2018. Operating costs2023 from the sale of the Transportation Products Group were higher for the three months ended September 30, 2018 due to higher barge deliveries.
Operatingdepleted land largely offset increased operating costs for the nine months ended September 30, 20182023.
•Operating costs for Engineered Structures decreased primarily due to the impact of the storage tanks divestiture.
•Operating costs for Transportation Products increased by 1.1% over the same period in 2017. The increase in our Construction Products Group was primarily due to higher shipment levelsvolumes in our construction aggregatesinland barge and other businesses. Operating costssteel components.
•Depreciation, depletion, and amortization expense was relatively flat as increases from recent acquisitions and organic growth investments were largely offset by the impact of the storage tanks divestiture.
•Selling, general, and administrative expenses decreased 9.6% and 1.1% for the Energy Equipment Groupthree and nine months ended September 30, 2023, compared to the same periods in the prior year, largely due to the elimination of costs from the storage tanks business. As a percentage of revenues, selling, general, and administrative expenses were lower10.4% and 11.3% for the three and nine months ended September 30, 2023, respectively, compared to 11.2% and 11.3% for the same periods in 2022, respectively.
Operating Profit (Loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | Percent Change | | 2023 | | 2022 | | Percent Change |
| | (in millions) | | | (in millions) | |
| Construction Products | $ | 30.3 | | | $ | 27.6 | | | 9.8 | % | | $ | 114.2 | | | $ | 72.4 | | | 57.7 | % |
| Engineered Structures | 18.7 | | | 37.1 | | | (49.6) | | | 70.3 | | | 106.9 | | | (34.2) | |
| Transportation Products | 14.1 | | | 1.0 | | | 1,310.0 | | | 35.8 | | | 7.2 | | | 397.2 | |
| | | | | | | | | | | |
| Segment Totals before Corporate Expenses | 63.1 | | | 65.7 | | | (4.0) | | | 220.3 | | | 186.5 | | | 18.1 | |
| Corporate | (14.7) | | | (16.7) | | | (12.0) | | | (45.8) | | | (45.6) | | | 0.4 | |
| | | | | | | | | | | |
| Consolidated Total | $ | 48.4 | | | $ | 49.0 | | | (1.2) | | | $ | 174.5 | | | $ | 140.9 | | | 23.8 | |
2023 versus 2022
•Operating profit was relatively flat for the three months ended September 30, 2023 and increased by 23.8% for the nine month period.
•Operating profit in Construction Products increased primarily due to higher pricing across the segment and increased volumes in shoring products. For the nine months ended September 30, 2018, primarily2023, the increase in operating profit was also due to a plannedthe land sale gain and the reduction in volumes in our wind tower product line, partially offset bya holdback obligation owed on a previous acquisition.
•Excluding the impact of a $23.2 million impairment charge recordedthe storage tanks divestiture, operating profit 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.
Selling, engineering, and administrative expenses, including Corporate expenses,Engineered Structures decreased for the three and nine months ended September 30, 2018,2023 due to lower margins in our utility structures business and a decline in volumes in our wind towers business, partially offset by 4.3% and 2.9%, respectively, as a resultthe recognition of lower compensation-related expenses. As a percentage of revenue, selling, engineering, and administrative expenses were 10.6% and 10.8%, respectively,the AMP tax credits.
•Operating profit in Transportation Products increased for the three and nine months ended September 30, 2018 as compared to 11.5% and 10.8%, respectively, for the same periods in 2017.
|
| | | | | | | | | | | | | | | | | | | | | |
| | 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 | ) |
Operating profit for the three months ended September 30, 2018 decreased2023 driven by 81.0% when compared to the same period in 2017. Operating profit in the Construction Products Group increased for the three months ended September 30, 2018 when compared to the prior year period primarily due to higher volumes and improved margins in our construction aggregates businessboth inland barge 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, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (in millions) |
| Interest income | $ | (1.7) | | | $ | — | | | $ | (4.3) | | | $ | (0.1) | |
| Foreign currency exchange transactions | 0.4 | | | — | | | (1.3) | | | 1.5 | |
| Other | — | | | (0.2) | | | (0.2) | | | (0.3) | |
| Other, net (income) expense | $ | (1.3) | | | $ | (0.2) | | | $ | (5.8) | | | $ | 1.1 | |
|
| | | | | | | | | | | | | | | |
| | 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, 20182023 was 51.5%17.4% and 27.5%17.1%, respectively, compared to 39.1%21.2% and 39.1%21.6%, respectively, for the same periods in 2017, respectively.2022. The decrease in the tax rate for the three and nine months ended September 30, 2023 is primarily due to AMP tax credits, excess tax benefits related to equity compensation, and reduced foreign taxes, partially offset by increased state income taxes.
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)DepreciationOn August 16, 2022, the IRA was enacted to reduce inflation and amortization are componentspromote 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 operating profit.
Revenues$1 billion and costimposes a 1% excise tax on the fair market value of revenues increased 4.6%stock repurchases made by covered corporations after December 31, 2022. The IRA also provides for certain manufacturing, production, and 3.1%, respectively,investment tax credit incentives, including new AMP tax credits for companies that domestically manufacture and sell clean energy equipment, including wind towers. Certain provisions of the three months ended September 30, 2018, when comparedIRA, including the AMP tax credits for wind towers, remain subject to the same period in 2017 primarily from higher volumesissuance of additional guidance and clarification. We have considered the applicable current IRA tax law changes in our other product lines as a result of our trench shoring products acquisition in the third quarter of 2017. Selling, engineering and administrative costs for the three months ended September 30, 2018 remained unchanged compared to the same period in 2017.
Revenues and cost of revenues increased by 16.4% and 20.0%, respectively, for the nine months ended September 30, 2018, when compared to the same period in 2017 primarily from higher volumes from acquisitions in both our lightweight aggregates business and trench shoring products business in 2017. Selling, engineering, and administrative costs increased by 13.2% for the nine months ended September 30, 2018, compared to the same period in 2017, primarily due to the trench shoring acquisition in the third quarter of 2017.
Energy Equipment Group
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | Percent | | 2018 | | 2017 | | Percent |
| | ($ 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 $6.1 million reserve on finished goods inventory related to an order for a single customer in our utility structures business.
Selling, engineering, and administrative costs decreased by 1.7% and 4.6%, respectively,tax provision for the three and nine months ended September 30, 2018 compared2023, and continue to evaluate the same periodsimpact of these tax law changes on future periods.
Segment Discussion
Construction Products | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | Percent | | 2023 | | 2022 | | Percent |
| | ($ in millions) | | Change | | ($ in millions) | | Change |
| Revenues: | | | | | | | | | | | |
| Aggregates and specialty materials | $ | 227.8 | | | $ | 216.8 | | | 5.1 | % | | $ | 665.9 | | | $ | 620.9 | | | 7.2 | % |
| Construction site support | 34.3 | | | 27.4 | | | 25.2 | | | 97.1 | | | 80.7 | | | 20.3 | |
| Total revenues | 262.1 | | | 244.2 | | | 7.3 | | | 763.0 | | | 701.6 | | | 8.8 | |
| | | | | | | | | | | |
| Operating costs: | | | | | | | | | | | |
| Cost of revenues | 209.2 | | | 193.1 | | | 8.3 | | | 593.6 | | | 557.1 | | | 6.6 | |
| Selling, general, and administrative expenses | 25.2 | | | 25.4 | | | (0.8) | | | 81.0 | | | 76.6 | | | 5.7 | |
| Gain on disposition of property, plant, equipment, and other assets | (2.6) | | | (1.9) | | | | | (25.8) | | | (4.5) | | | |
| Operating profit | $ | 30.3 | | | $ | 27.6 | | | 9.8 | | | $ | 114.2 | | | $ | 72.4 | | | 57.7 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Depreciation, depletion, and amortization(1) | $ | 28.4 | | | $ | 26.3 | | | 8.0 | | | $ | 83.1 | | | $ | 77.2 | | | 7.6 | |
(1)Depreciation, depletion, and amortization are components of operating profit.
Three Months Ended September 30, 2023 versus Three Months Ended September 30, 2022
•Revenues increased 7.3% primarily driven by increased pricing across our product lines in 2017our aggregates and specialty materials businesses and higher volumes of natural aggregates, partially offset by lower recycled aggregate and specialty materials volumes. Revenues from our trench shoring business increased 25.2%, driven primarily by revenue from the acquisition completed in the first quarter of 2023 and higher organic volumes.
•Cost of revenues increased 8.3% primarily due to increased costs from the recently acquired shoring business, higher volumes in natural aggregates, and operating inefficiencies in our specialty materials business. As a percent of revenues, cost of revenues increased to 79.8% in the current period, compared to 79.1% in the prior period.
•Selling, general, and administrative expenses were relatively flat as additional costs from recently acquired businesses were offset by lower costs across our legacy businesses. Selling, general, and administrative expenses decreased bad debtas a percentage of revenues to 9.6%, compared to 10.4% in the prior period.
•Operating profit increased 9.8%, outpacing the increase in revenue, driven by increased pricing across the segment, higher volumes in our natural aggregates and shoring businesses, partially offset by operating inefficiencies in our specialty materials business.
•Depreciation, depletion, and amortization expense increased primarily due to recent acquisitions and organic growth investments.
Nine Months Ended September 30, 2023 versus Nine Months Ended September 30, 2022
•Revenues increased 8.8% primarily driven by increased pricing across our product lines in our aggregates and specialty materials businesses and higher volumes of recycled aggregates, partially offset by lower natural aggregate and specialty materials volumes. Revenues from our trench shoring business increased 20.3% driven primarily by revenue from the acquisition completed in the first quarter of 2023 and higher organic volumes.
•Cost of revenues increased 6.6% due to higher recycled aggregates volumes, operating inefficiencies in our specialty materials business, and increased costs from the acquired shoring business. These costs were partially offset by lower natural aggregate and specialty materials volumes and a $5.0 million reduction in a holdback obligation owed on a previous acquisition. As a percent of revenues, cost of revenues decreased to 77.8% in the current period, compared to 79.4% in the prior period.
•Selling, general, and administrative expenses increased 5.7% primarily due to additional costs from acquired businesses. Selling, general, and administrative expenses decreased as a percentage of revenues to 10.6%, compared to 10.9% in the prior period.
•Operating profit increased 57.7%, partially due to gains recognized on sales of depleted land. Excluding the gain, operating profit increased 30.2% driven by increased pricing across the segment, higher volumes in our recycled aggregates and shoring businesses, and the benefit recognized on a holdback obligation, partially offset by operating inefficiencies in our specialty materials business.
•Depreciation, depletion, and amortization expense increased primarily due to recent acquisitions and organic growth investments.
Engineered Structures | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | Percent | | 2023 | | 2022 | | Percent |
| | ($ in millions) | | Change | | ($ in millions) | | Change |
| Revenues: | | | | | | | | | | | |
| Utility, wind, and related structures | $ | 222.5 | | | $ | 211.2 | | | 5.4 | % | | $ | 637.2 | | | $ | 608.5 | | | 4.7 | % |
| Storage tanks | — | | | 65.8 | | | (100.0) | | | — | | | 187.6 | | | (100.0) | |
| Total revenues | 222.5 | | | 277.0 | | | (19.7) | | | 637.2 | | | 796.1 | | | (20.0) | |
| | | | | | | | | | | |
| Operating costs: | | | | | | | | | | | |
| Cost of revenues | 188.2 | | | 219.3 | | | (14.2) | | | 524.9 | | | 633.2 | | | (17.1) | |
| Selling, general, and administrative expenses | 15.6 | | | 20.4 | | | (23.5) | | | 48.4 | | | 58.0 | | | (16.6) | |
| Gain on sale of storage tanks business | — | | | — | | | | | (6.4) | | | — | | | |
| Gain on disposition of property, plant, equipment, and other assets | — | | | 0.2 | | | | | — | | | (2.0) | | | |
| | | | | | | | | | | |
| Operating profit | $ | 18.7 | | | $ | 37.1 | | | (49.6) | | | $ | 70.3 | | | $ | 106.9 | | | (34.2) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Depreciation and amortization(1) | $ | 6.7 | | | $ | 8.1 | | | (17.3) | | | $ | 19.7 | | | $ | 24.1 | | | (18.3) | |
(1)Depreciation and amortization are components of operating profit.
Three Months Ended September 30, 2023 versus Three Months Ended September 30, 2022
•Revenues decreased 19.7% resulting from the sale of our storage tanks business, which was completed in October 2022. Revenue from utility, wind, and related structures increased 5.4% primarily due to increased volumes in our utility structures business, partially offset by lower pricing due to product mix, and lower volumes in our wind towers business.
•Cost of revenues decreased 14.2% largely due to the elimination of costs from our storage tanks business. Cost of revenues from utility, wind, and related structures increased due to higher volumes in our utility structures business, partially offset by lower volumes as well as AMP tax credits recognized in our wind towers business.
•Selling, general, and administrative expenses decreased 23.5% largely due to the elimination of costs from our storage tanks business. Selling, general, and administrative expenses from utility, wind, and related structures decreased primarily due to lower compensation-related costs.
•The storage tanks business contributed $16.6 million to operating profit in the prior period. Excluding the impact of the divestiture, operating profit declined due to lower margins in our utility structures business driven by project mix, negative foreign currency impacts, and reduced wind tower volumes, partially offset by $5.6 million of net benefit recognized from AMP tax credits in our wind towers business.
Nine Months Ended September 30, 2023 versus Nine Months Ended September 30, 2022
•Revenues decreased 20.0% primarily due to the decline in revenue from our divested storage tanks business. Revenue from utility, wind, and related structures increased 4.7% driven by higher volumes in our utility structures business, partially offset by lower utility structures pricing driven by product mix, and lower volumes in our wind towers business.
•Cost of revenues decreased 17.1% largely due to the elimination of costs from our storage tanks business. Cost of revenues from utility, wind, and related structures increased due to higher volumes in our utility structures business, partially offset by lower volumes and AMP tax credits recognized in our wind towers business.
•Selling, general, and administrative expenses decreased 16.6% largely due to the elimination of costs from our storage tanks business. Selling, general, and administrative expenses from utility, wind, and related structures increased primarily due to higher compensation-related costs.
•The storage tanks business contributed $6.4 million in operating profit in the nine months ended September 30, 2023, related to an additional gain on sale recorded in the same singlefirst quarter of 2023, compared to $40.8 million of operating profit in the prior year period, resulting in a net decrease of $34.4 million year-over-year. Excluding the impact of the divestiture in both periods, operating profit declined due to lower margins in our utility structures customer.business, driven by project mix, and decreased wind tower volumes, partially offset by $14.7 million of net benefit recognized from AMP tax credits in our wind towers business.
The Company recorded an impairment charge
Unsatisfied Performance Obligations (Backlog)
As of $23.2September 30, 2023, the backlog for utility, wind, and related structures was $1,450.8 million, compared to $671.3 million and $370.4 million as of December 31, 2022 and September 30, 2022, respectively. Approximately 15% of these unsatisfied performance obligations are expected to be delivered during the year ending December 31, 2023, approximately 33% during the year ending December 31, 2024, with the remainder expected to be delivered through 2028.
Transportation Products | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | Percent | | 2023 | | 2022 | | Percent |
| | ($ in millions) | | Change | | ($ in millions) | | Change |
| Revenues: | | | | | | | | | | | |
| Inland barges | $ | 67.3 | | | $ | 50.9 | | | 32.2 | % | | $ | 207.9 | | | $ | 151.7 | | | 37.0 | % |
| Steel components | 39.8 | | | 31.8 | | | 25.2 | | | 117.6 | | | 93.1 | | | 26.3 | |
| Total revenues | 107.1 | | | 82.7 | | | 29.5 | | | 325.5 | | | 244.8 | | | 33.0 | |
| | | | | | | | | | | |
| Operating costs: | | | | | | | | | | | |
| Cost of revenues | 87.2 | | | 76.4 | | | 14.1 | | | 270.4 | | | 221.1 | | | 22.3 | |
| Selling, general, and administrative expenses | 5.8 | | | 5.3 | | | 9.4 | | | 19.3 | | | 16.5 | | | 17.0 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Operating profit | $ | 14.1 | | | $ | 1.0 | | | 1,310.0 | | | $ | 35.8 | | | $ | 7.2 | | | 397.2 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Depreciation and amortization (1) | $ | 4.1 | | | $ | 3.9 | | | 5.1 | | | $ | 12.1 | | | $ | 11.8 | | | 2.5 | |
(1) Depreciation and amortization are components of operating profit.
Three Months Ended September 30, 2023 versus Three Months Ended September 30, 2022
•Revenues increased 29.5% due to higher volumes and improved pricing of inland barges and steel components.
•Cost of revenues increased 14.1% reflecting the higher volumes during the current period. As a percent of revenues, cost of revenues decreased to 81.4% in the third quartercurrent period, compared to 92.4% in the prior period.
•Selling, general, and administrative expenses increased 9.4%, primarily due to increased compensation-related costs, but decreased as a percentage of 2018revenues to 5.4%, compared to 6.4% in the prior period.
•Operating profit increased significantly, outpacing the percentage increase in revenues, driven by enhanced operating leverage associated with the write-downhigher volumes and improved margins across both businesses.
Nine Months Ended September 30, 2023 versus Nine Months Ended September 30, 2022
•Revenues increased 33.0% due to higher volumes and improved pricing of inland barges and steel components.
•Cost of revenues increased 22.3% reflecting the net assetsincreased volumes during the current period. As a percent of revenues, cost of revenues decreased to 83.1% in the current period, compared to 90.3% in the prior period.
•Selling, general, and administrative expenses increased 17.0%, primarily due to increased expenses from participation in trade remedy proceedings involving certain businesses classifiedimports of freight rail couplers from China and Mexico, as heldwell as higher compensation-related costs, but decreased as a percentage of revenues to 5.9%, compared to 6.7% in the prior period.
•Operating profit increased significantly, outpacing the percentage increase in revenues, driven by enhanced operating leverage associated with the higher volumes and improved margins across both businesses.
Unsatisfied Performance Obligations (Backlog)
As of September 30, 2023, the backlog for sale. See Note 2inland barges was $240.4 million, compared to the Combined Financial Statements for further information about the impairment charge.
In addition to the changes described above, revenues and operating profit were also higher by $8.3$225.1 million and $2.6$128.9 million respectively,as of December 31, 2022 and September 30, 2022, respectively. Approximately 26% of unsatisfied performance obligations for inland barges are expected to be delivered during the year ending December 31, 2023 and the remainder are expected to be delivered in 2024.
Corporate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | Percent | | 2023 | | 2022 | | Percent |
| | (in millions) | | Change | | (in millions) | | Change |
| Corporate overhead costs | $ | 14.7 | | | $ | 16.7 | | | (12.0) | % | | $ | 45.8 | | | $ | 45.6 | | | 0.4 | % |
2023 versus 2022
•Corporate overhead costs decreased 12.0% for the three months ended September 30, 20182023 primarily due to lower insurance-related costs and lower by $6.4acquisition and divestiture-related expenses of $0.5 million and $1.0for the three months ended September 30, 2023, compared to $1.6 million respectively,for the same period in 2022.
•Corporate overhead costs were relatively flat for the nine months ended September 30, 2018 due2023 as higher compensation-related expenses were largely offset by lower acquisition and divestiture-related expenses of $1.4 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$5.0 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, 2018 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 2017.2022.
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 additional costs will range from $10.0 million to $15.0 million in fiscal year 2019.
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, 20182023 and 2017:2022:
| | | | | | | | | | | |
| | Nine Months Ended
September 30, |
| | 2023 | | 2022 |
| | | |
| | (in millions) |
| Total cash provided by (required by): | | | |
| Operating activities | $ | 198.8 | | | $ | 182.6 | |
| Investing activities | (131.5) | | | (129.5) | |
| Financing activities | (72.4) | | | (12.0) | |
| Net increase (decrease) in cash and cash equivalents | $ | (5.1) | | | $ | 41.1 | |
|
| | | | | | | |
| | 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, 20182023 was $118.5$198.8 million, compared to net cash provided by operating activities of $134.3$182.6 million for the nine months ended September 30, 2017.2022.
Receivables at•The changes in current assets and liabilities resulted in a net use of cash of $43.8 million for the nine months ended September 30, 2018 decreased2023, compared to a net use of cash of $34.2 million for the nine months ended September 30, 2022. 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 Grouphigher volumes and AMP tax credits, partially offset by higher trade receivables 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 adequacyaccounts payable.
Investing Activities. Net cash required by investing activities for the nine months ended September 30, 20182023 was $55.4$131.5 million, compared to $91.3$129.5 million for the nine months ended September 30, 2017. 2022.
•Capital expenditures for the nine months ended September 30, 20182023 were $33.0$144.8 million, compared to $45.9$85.9 million for the same period last year. year with the increase primarily driven by investments in two new facilities supporting expansion in our wind tower and utility structures businesses as well as various growth projects within the Construction Products segment. Full-year capital expenditures are expected to be approximately $200 to $210 million in 2023.
•Proceeds from the sale of property, plant, and equipment and other assets totaled $2.6$30.1 million for the nine months ended September 30, 2018,2023, compared to $2.1$31.5 million for the same period in 2017. Net2022.
•Cash paid for acquisitions, net of cash required related to acquisitions amounted to $25.0 million and $47.5acquired, was $18.8 million for the nine months ended September 30, 2018 and 2017, respectively. There was no divestiture activity2023, compared to $75.1 million for the same period in 2022. Proceeds from the sale of the storage tanks business were $2.0 million during the nine months ended September 30, 20182023 and 2017.related to the resolution in 2023 of certain contingencies from the sale that closed in October 2022. There was no divestiture activity during the nine months ended September 30, 2022.
Financing Activities. Net cash required by financing activities during the nine months ended September 30, 20182023 was $59.5$72.4 million, compared to $46.8 million ofnet cash required by financing activities of $12.0 million for the same period in 2017. Net transfers2022.
•Current year activity was primarily driven by the full repayment of the Company's term loan partially offset by borrowings under the revolving credit facility, for a net repayment of $42.0 million, as well as a $10.0 million holdback payment related to Trinity totaled $56.3a previous acquisition.
•Prior year activity primarily related to net borrowings under the revolving credit facility offset by $15.0 million of share repurchases and the purchase of shares to satisfy employee taxes on vested stock.
Other Investing and Financing Activities
Revolving Credit Facility and Senior Notes
On August 23, 2023, the Company entered into a Second Amended and Restated Credit Agreement to increase the revolving credit facility from $500.0 million to $600.0 million, extend the maturity date from January 2, 2025 to August 23, 2028, and refinance and repay in full the remaining balance of the term loan then outstanding under the Amended and Restated Credit Agreement.
As of September 30, 2023, we had $100.0 million of outstanding loans borrowed under the revolving credit facility that were advanced to repay the term loan during the quarter, and there were approximately $22.0 million of letters of credit issued, leaving $478.0 million available for borrowing. Of the outstanding letters of credit as of September 30, 2023, all are expected to expire in 2024. The majority of our letters of credit obligations support the Company’s various insurance programs and generally renew by their terms each year.
The interest rates under the revolving credit facility are variable based on the daily simple or term Secured Overnight Financing Rate ("SOFR"), plus a 10-basis point credit spread adjustment, or an alternate base rate, in each case plus a margin for borrowing. 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 based on SOFR ranges from 1.25% to 2.00% and was set at 1.50% as of September 30, 2023. The commitment fee rate ranges from 0.20% to 0.35% and was set at 0.25% as of September 30, 2023.
The Company's revolving credit facility requires the maintenance of certain ratios related to leverage and interest coverage. As of September 30, 2023, we were in compliance with all such financial covenants. Borrowings under the credit agreement are guaranteed by certain wholly-owned subsidiaries of the Company.
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 in April and October of each year. 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 facility.
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.
Dividends and Repurchase Program
In September 2023, the Company declared a quarterly cash dividend of $0.05 per share that was paid on October 31, 2023.
In December 2022, the Company’s Board of Directors authorized a new $50.0 million share repurchase program effective January 1, 2023 through December 31, 2024 to replace a program of the same amount that expired on December 31, 2022. For the three and nine months ended September 30, 2023, the Company did not repurchase any shares, leaving the full amount of the $50.0 million authorization available as of September 30, 2023. See Note 1 of the Notes to Consolidated Financial Statements.
Derivative Instruments
In December 2018, comparedthe Company entered into a $100.0 million interest rate swap instrument, effective as of January 2, 2019, to $47.3reduce the effect of changes in the variable interest rates associated with the first $100.0 million of borrowings under the Company's committed credit facility. In conjunction with the replacement of LIBOR with SOFR as a benchmark for borrowings under the Amended and Restated Credit Agreement, on July 1, 2023 the swap instrument transitioned from LIBOR to SOFR. The instrument effectively fixed the SOFR component of borrowings under the revolving credit facility at a monthly rate of 2.71% until such instrument's termination. As of September 30, 2023, the Company has recorded an asset of $0.5 million for the nine months ended September 30, 2017.fair value of the instrument, all of which is recorded in accumulated other comprehensive income. The interest rate swap instrument expired in October 2023. See Note 3 and Note 7 of the Notes to 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 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 and seasonal 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;
•material nonpayment or nonperformance by any of our key customers;
•the stability of the governments and political and business conditions in certain foreign countries, particularly Mexico;
•public infrastructure expenditures;
•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 certain provisions of the spin-off, or if such benefits are delayed;
Arcosa's ongoing businesses may be adversely affected andIRA, including the AMP tax credits for wind towers, which remain subject to certain risksthe issuance of additional guidance and consequences as a result of the spin-off transaction;clarification;
•if the distribution of shares of Arcosa resulting from the separation of Arcosa from Trinity Industries, Inc. in November 2018 (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 2022 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, 20172022 as set forth in our 2022 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, 2018.2023.
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 or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) with the SEC,Securities and Exchange Commission (“SEC”), to process, summarize, and disclose this information within the time periods specified in the rules of the SEC.SEC, and that such information is accumulated and communicated to management, including our Chief Executive and Chief Financial Officers, in a timely fashion. The Company’s Chief Executive and Chief Financial Officers are responsible for establishing and maintaining these disclosure controls and procedures and as required by the rules of the SEC, evaluating their effectiveness.effectiveness (as defined in Rule 13(a)-15l under the Exchange Act). 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 disclosure controls and 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.were effective.
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.
PART II
Item 1.Legal Proceedings
The information provided inSee Note 1115 of the CombinedNotes to Consolidated 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 2022 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, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2023 through July 31, 2023 | | — | | | $ | — | | | — | | | $ | 50,000,000 | |
| August 1, 2023 through August 31, 2023 | | 40 | | | $ | 77.73 | | | — | | | $ | 50,000,000 | |
| September 1, 2023 through September 30, 2023 | | 314 | | | $ | 75.35 | | | — | | | $ | 50,000,000 | |
| Total | | 354 | | | $ | 75.62 | | | — | | | $ | 50,000,000 | |
(1) These columns include the following transactions during the three months ended September 30, 2023: (i) the surrender to the Company of 354 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 2022, the Company’s Board of Directors authorized a new $50.0 million share repurchase program effective January 1, 2023 through December 31, 2024 to replace a program of the same amount that expired on December 31, 2022.
Among other things, the IRA imposes a 1% excise tax on the fair market value of stock repurchases made by covered corporations after December 31, 2022. We have evaluated these new provisions, concluded there is no impact for the three and nine months ended September 30, 2023, and continue to evaluate the impact of these tax law changes on future periods.
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.During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits
|
| | | | | | | |
| NO. | | DESCRIPTION |
| 3.1 | | |
| 3.2 | | |
31.14.1 | | |
| 10.1 | | Second Amended and Restated Credit Agreement dated as of August 23, 2023 among Arcosa, Inc., as borrower, the lenders thereto, JPMorgan Chase Bank, National Association, as administrative agent, Bank of America, N.A., as syndication agent, and PNC Bank, National Association, and Wells Fargo Bank, National Association, as co-documentation agents (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed August 25, 2023, File No. 1-38494). |
| 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.
| | | | | | | | |
| Arcosa, Inc. |
| (Registrant) |
| | |
ARCOSA, INC.November 2, 2023 | ByBy: | /s/ Scott BeasleyGail M. Peck |
Registrant | | Gail M. Peck |
| | Scott Beasley |
| | Chief Financial Officer |
| | November 14, 2018 |
