Arcosa(ACA) - 2021 Q4 - Annual Report

Part I Business Arcosa, Inc. provides infrastructure products and solutions across North America through its Construction Products, Engineered Structures, and Transportation Products segments, focusing on growth and strategic acquisitions - Arcosa was established in 2018 following its separation from Trinity Industries, Inc. and is listed on the New York Stock Exchange[5] - The company's strategy is aligned with key market trends, including aging transportation infrastructure, the shift to renewable power, and the expansion of transmission and telecommunications infrastructure[5] Construction Products The Construction Products segment produces aggregates and specialty materials, with 2021 growth driven by acquisitions and public infrastructure spending, shipping 34 million tons of materials - The segment's product portfolio includes natural aggregates (sand, gravel, limestone), recycled aggregates from crushed concrete, specialty materials (lightweight aggregates, plasters), and construction site support equipment (trench shields)[8][9] - The company expanded its natural aggregates platform in 2021 through the acquisitions of StonePoint and Southwest Rock[8] - In 2021, the segment shipped approximately 34 million tons of aggregates and specialty materials, with Texas accounting for about 50% of segment revenues[11] - The company estimates it has 1.2 billion tons of proven and probable natural aggregates and specialty materials reserves[13] Engineered Structures The Engineered Structures segment manufactures steel infrastructure components, benefiting from grid upgrades and renewable energy, with GE as a key customer and steel price volatility managed through various strategies - Products include utility structures, structural wind towers, traffic structures, telecommunication structures, and storage tanks[15] - Demand for wind towers has been supported by the Renewable Electricity Production Tax Credit (PTC), which was extended for projects starting in 2021[18] - General Electric Company (GE) is a significant customer, representing 9.5% of consolidated revenues in 2021, down from 15.3% in 2020 and 18.2% in 2019[19] - The primary raw material is steel, and the company mitigates price volatility through contract-specific purchasing, supplier commitments, and price escalation provisions[20] Transportation Products The Transportation Products segment manufactures inland barges and railcar components, anticipating long-term demand from an aging U.S. barge fleet despite near-term steel price impacts, with rail components showing recovery - The segment holds a leading market position in the U.S. for manufacturing inland barges (dry cargo and tank barges) and fiberglass barge covers[22] - The barge replacement cycle is expected to be strong long-term, as approximately 35% of the hopper fleet and 25% of the tank fleet are over 20 years old[23] - The steel component business, which serves the North American railcar industry, is showing signs of recovery with an expected increase in new railcar deliveries in 2022[23] Unsatisfied Performance Obligations (Backlog) As of December 31, 2021, Arcosa's total backlog for Engineered Structures and Transportation Products was approximately $552.2 million, with utility and wind structures increasing and inland barges decreasing Backlog of Firm Orders as of December 31, 2021 | Segment | Product | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | :--- | | Engineered Structures | Utility, wind, and related structures | $437.5 | $334.0 | | Engineered Structures | Storage tanks | $22.0 | $15.6 | | Transportation Products | Inland barges | $92.7 | $175.5 | - Approximately 90% of the utility, wind, and related structures backlog is expected to be delivered in 2022[27] Human Capital As of December 31, 2021, Arcosa employed approximately 6,170 people, prioritizing employee health, safety, and diversity through initiatives like ARC 100 and the WEAR Employee Resource Group Employee Headcount by Segment (as of Dec 31, 2021) | Segment | Employees | | :--- | :--- | | Construction Products | 1,755 | | Engineered Structures | 3,470 | | Transportation Products | 855 | | Corporate | 90 | | Total | 6,170 | - The company launched the ARC 100 safety initiative in 2019 to improve its safety culture and performance[31] - In 2021, Arcosa advanced its diversity and inclusion efforts by electing two women to the Board of Directors, naming a female CFO, and establishing its first Employee Resource Group, WEAR: Women of Arcosa[32] Risk Factors Arcosa faces diverse risks including COVID-19 impacts, economic cyclicality, intense competition, supply chain disruptions, raw material price volatility, international operations, regulatory changes, and financial liabilities - The COVID-19 pandemic continues to pose risks to operations, supply chains, and customer demand[48] - The business is subject to economic cyclicality, intense competition, and potential disruptions from equipment failures or natural disasters[49][52] - Fluctuations in the price and supply of raw materials, especially steel, and reliance on a limited number of suppliers pose significant risks to manufacturing and profitability[60] - The loss of a major customer, GE, which accounted for 9.5% of 2021 consolidated revenues, could materially affect results[57] - Changes in or expiration of government tax credits, such as the PTC for wind energy, could reduce demand for certain products[59] - The company faces risks related to its operations in Mexico, including political instability, regulatory changes, and trade barriers[55] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[84] Properties Arcosa owns and leases facilities across the U.S. and Mexico, reporting 1.2 billion tons of proven and probable mineral reserves and 127.5 million tons of mineral resources as of year-end 2021 Production Capacity Utilization (FY 2021) | Segment | Production Capacity Utilized | | :--- | :--- | | Construction Products | 70% | | Engineered Structures | 65% | | Transportation Products | 35% | - As of December 31, 2021, the company controlled an estimated 1.2 billion tons of proven and probable mineral reserves, primarily for natural aggregates and specialty materials[93][95] - The company also controlled an estimated 127.5 million tons of mineral resources (exclusive of reserves) as of December 31, 2021[96] Legal Proceedings Information regarding legal proceedings is detailed in Note 15 of the Consolidated Financial Statements - For details on legal proceedings, the report refers to Note 15 of the Consolidated Financial Statements[97] Mine Safety Disclosures Information concerning mine safety violations and other regulatory matters is included in Exhibit 95 to the Form 10-K - Mine safety disclosures required by the Dodd-Frank Act are included in Exhibit 95 of this Form 10-K[98] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Arcosa's common stock trades on the NYSE under "ACA", with its performance outperforming the S&P Small Cap 600 Index since its 2018 spin-off, and a $50 million share repurchase program authorized through December 2022 - The company's common stock is listed on the New York Stock Exchange under the ticker symbol "ACA"[100] - A $100 investment in Arcosa stock on November 1, 2018, would have been worth $194 by December 31, 2021, compared to $152 for the S&P Small Cap 600 Index[103] - In December 2020, the Board authorized a $50 million share repurchase program effective through December 31, 2022, with approximately $40.6 million remaining available as of Q4 2021[104] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2021, Arcosa's revenues grew 5.2% to $2.0 billion, while operating profit declined 29.3% to $107.3 million, driven by segment performance and strategic acquisitions, maintaining strong liquidity with a positive outlook for construction and engineered structures Financial Highlights (FY 2021 vs FY 2020) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Revenues | $2.0 billion | $1.9 billion | +5.2% | | Operating Profit | $107.3 million | $151.8 million | -29.3% | | Net Income | $69.6 million | $106.6 million | -34.7% | - The company is incurring less than $1 million per quarter in incremental costs related to COVID-19 safety protocols[109] Results of Operations In fiscal year 2021, consolidated revenues increased 5.2% to $2.036 billion, but operating profit decreased 29.3% to $107.3 million, primarily due to an 88.3% drop in Transportation Products' profitability, with the effective tax rate at 16.7% Revenues by Segment (in millions) | Segment | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Construction Products | $796.8 | $593.6 | $439.7 | | Engineered Structures | $934.1 | $877.7 | $836.6 | | Transportation Products | $305.6 | $466.5 | $465.7 | | Consolidated Total | $2,036.4 | $1,935.6 | $1,736.9 | Operating Profit by Segment (in millions) | Segment | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Construction Products | $83.2 | $74.7 | $52.7 | | Engineered Structures | $88.0 | $80.2 | $100.7 | | Transportation Products | $6.4 | $54.6 | $46.8 | | Corporate | $(70.3) | $(57.7) | $(47.3) | | Consolidated Total | $107.3 | $151.8 | $152.9 | - The effective tax rate decreased to 16.7% in 2021 from 22.9% in 2020, largely due to true-ups of apportionment rates impacting prior year state taxes[125] Segment Discussion In 2021, Construction Products revenue grew 34.2%, Engineered Structures revenue rose 6.4%, while Transportation Products revenue fell 34.5% with an 88.3% operating profit decline, and corporate overhead increased 21.8% due to acquisition costs and a legal settlement - Construction Products revenue increased 34.2%, with acquisitions contributing approximately 25% of the growth, and operating profit rose 11.4%[128][129] - Engineered Structures revenue increased 6.4% and operating profit grew 9.7%, driven by utility structures and storage tanks, despite lower wind tower volumes, with backlog growing to $437.5 million from $334.0 million in 2020[133][134][138] - Transportation Products revenue decreased 34.5% and operating profit fell 88.3% due to a 43.0% drop in inland barge revenues, with backlog decreasing to $92.7 million from $175.5 million in 2020[139][140][144] - Corporate overhead costs increased by $12.6 million (21.8%), primarily due to $6.9 million in acquisition-related costs and an $8.7 million legal settlement[145][146] Liquidity and Capital Resources Arcosa's 2021 liquidity was supported by $166.5 million cash from operations, offset by $570.3 million in investing activities, primarily acquisitions, and $380.9 million from financing, including $400 million in senior notes, while maintaining a $500 million revolving credit facility Summary of Cash Flows (in millions) | Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Operating Activities | $166.5 | $259.9 | $358.8 | | Investing Activities | $(570.3) | $(528.2) | $(109.4) | | Financing Activities | $380.9 | $123.7 | $(108.4) | - In April 2021, the company issued $400 million in 4.375% senior notes due 2029 to fund the StonePoint acquisition[154][268] - As of Dec 31, 2021, the company had $125 million outstanding on its revolving credit facility and $346.4 million available[154] Contractual Obligations as of Dec 31, 2021 (in millions) | Obligation | Total | Next 12 Months | Beyond 12 Months | | :--- | :--- | :--- | :--- | | Debt | $669.4 | $7.5 | $661.9 | | Operating leases | $28.1 | $5.9 | $22.2 | | Finance leases | $17.4 | $6.9 | $10.5 | | Purchase obligations | $166.1 | $157.1 | $9.0 | | Total | $881.0 | $177.4 | $703.6 | Critical Accounting Policies and Estimates Arcosa's critical accounting policies involve significant management judgment and estimates, particularly in business combinations, impairment assessments of long-lived assets and goodwill, and the valuation of contingencies and deferred tax assets - Business Combinations: The allocation of purchase price to acquired assets (like mineral reserves and customer relationships) and liabilities requires significant estimates regarding future cash flows, useful lives, and discount rates[161] - Goodwill: Goodwill of $934.9 million was tested for impairment as of December 31, 2021, with no impairment charges deemed necessary, and no reporting units were considered at risk of failing the test[166] - Long-lived Assets: The company periodically evaluates property, plant, and equipment (38% of total assets) and intangible assets (7% of total assets) for impairment, recording a $2.9 million impairment charge in 2021 for assets held for sale[163] - Contingencies and Litigation: The company accrued $9.9 million for probable and estimable losses from claims and lawsuits as of December 31, 2021[303] Quantitative and Qualitative Disclosures About Market Risk Arcosa faces market risk from interest rate and foreign currency fluctuations; a one-percentage-point interest rate increase would raise annual interest expense by $1.7 million and decrease the fair value of $400 million fixed-rate senior notes by $24.0 million - A one percentage point increase in average interest rates would increase annual interest expense by an estimated $1.7 million, after considering interest rate hedges[179] - The fair value of the $400.0 million fixed-rate senior notes would decrease by approximately $24.0 million if market interest rates rose by one percentage point[179] Financial Statements and Supplementary Data This section presents Arcosa, Inc.'s audited consolidated financial statements for fiscal years 2021, 2020, and 2019, including the independent auditor's report and comprehensive notes on accounting policies and financial details Consolidated Statements of Operations For the year ended December 31, 2021, Arcosa reported revenues of $2.036 billion, operating profit of $107.3 million, net income of $69.6 million, and diluted EPS of $1.42 Consolidated Statement of Operations Highlights (in millions, except per share data) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenues | $2,036.4 | $1,935.6 | $1,736.9 | | Total operating profit | $107.3 | $151.8 | $152.9 | | Net income | $69.6 | $106.6 | $113.3 | | Diluted EPS | $1.42 | $2.18 | $2.32 | Consolidated Balance Sheets As of December 31, 2021, Arcosa's total assets increased to $3.188 billion, driven by acquisitions, while total liabilities rose to $1.235 billion due to higher debt, with total stockholders' equity at $1.953 billion Consolidated Balance Sheet Highlights (in millions) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $767.9 | $664.9 | | Property, plant, and equipment, net | $1,201.9 | $913.3 | | Goodwill | $934.9 | $794.0 | | Total Assets | $3,188.1 | $2,646.7 | | Total Current Liabilities | $364.0 | $310.3 | | Debt (non-current) | $664.7 | $248.2 | | Total Liabilities | $1,234.8 | $754.5 | | Total Stockholders' Equity | $1,953.3 | $1,892.2 | Consolidated Statements of Cash Flows For the year ended December 31, 2021, net cash from operating activities was $166.5 million, investing activities used $570.3 million (primarily acquisitions), and financing activities provided $380.9 million, resulting in a year-end cash balance of $72.9 million Consolidated Statement of Cash Flows Highlights (in millions) | Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $166.5 | $259.9 | $358.8 | | Net cash from investing activities | $(570.3) | $(528.2) | $(109.4) | | Net cash from financing activities | $380.9 | $123.7 | $(108.4) | | Net change in cash | $(22.9) | $(144.6) | $141.0 | | Cash at end of period | $72.9 | $95.8 | $240.4 | Notes to Consolidated Financial Statements The notes provide detailed explanations of Arcosa's accounting policies and financial data, covering key areas such as acquisitions, segment information, goodwill, debt, income taxes, and contingencies, essential for comprehensive financial understanding - Note 2 (Acquisitions): Details the 2021 acquisitions of Southwest Rock for $149.7 million and StonePoint for $372.8 million, both expanding the Construction Products segment[234][236] - Note 7 (Debt): As of Dec 31, 2021, total debt was $679.5 million, including a $144.4 million term loan, $125.0 million on the revolving credit facility, and $400.0 million in senior notes issued in 2021[267] - Note 15 (Commitments and Contingencies): Discloses a legal settlement with T&B (ABB Installation Products) in February 2022, resolving a breach of contract lawsuit related to a 2014 asset purchase, with the company having accrued $9.9 million for all contingencies as of year-end 2021[303][304] Controls and Procedures Management concluded that Arcosa's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with the independent auditor issuing an unqualified opinion, though recent acquisitions were excluded from the assessment - Management concluded that disclosure controls and procedures were effective as of December 31, 2021[308] - Management's assessment of internal control over financial reporting excluded the recently acquired StonePoint and Southwest Rock businesses, which represented 17% of total assets and 7% of revenues for 2021[309] - The independent registered public accounting firm, Ernst & Young LLP, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[313] Part III Directors, Executive Officers and Corporate Governance This section incorporates by reference information from the company's 2022 Proxy Statement regarding its directors, executive officers, and corporate governance practices, including the audit committee and code of ethics - Information regarding directors, executive officers, the audit committee, and the Code of Business Conduct and Ethics is incorporated by reference from the company's 2022 Proxy Statement[320] Executive Compensation This section incorporates by reference information from the company's 2022 Proxy Statement regarding executive and director compensation, compensation committee interlocks, and the compensation committee report - Information regarding executive compensation is incorporated by reference from the company's 2022 Proxy Statement[321] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership is incorporated by reference from the 2022 Proxy Statement, detailing 1,191,840 securities to be issued and 1,815,062 available for future issuance under equity compensation plans as of December 31, 2021 Equity Compensation Plan Information as of Dec 31, 2021 | Plan Category | Securities to be Issued Upon Exercise (a) | Securities Remaining for Future Issuance (c) | | :--- | :--- | :--- | | Approved by security holders | 1,191,840 | 1,815,062 | | Not approved by security holders | 0 | 0 | | Total | 1,191,840 | 1,815,062 | Certain Relationships and Related Transactions, and Director Independence This section incorporates by reference information from the company's 2022 Proxy Statement regarding related person transactions and director independence - Information regarding related party transactions and director independence is incorporated by reference from the company's 2022 Proxy Statement[326] Principal Accountant Fees and Services This section incorporates by reference information from the company's 2022 Proxy Statement regarding the fees paid to and services provided by the principal accountant - Information regarding principal accountant fees and services is incorporated by reference from the company's 2022 Proxy Statement[327] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including key agreements like the separation agreement, acquisition agreements, debt indentures, and compensation plans - This section provides a comprehensive list of all exhibits filed with the Form 10-K, including governance documents, material contracts, and certifications[329][330][331][332]