ARCOSA, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is intended to provide a reader of our financial statements
with a narrative from the perspective of our management on our financial
condition, results of operations, liquidity, and certain other factors that may
affect our future results. Our MD&A is presented in the following sections:
•Company Overview
•Potential Impact of COVID-19 on our Business
•Executive Overview
•Results of Operations
•Liquidity and Capital Resources
•Recent Accounting Pronouncements
•Forward-Looking Statements
Our MD&A should be read in conjunction with the Consolidated Financial
Statements of Arcosa, Inc. and subsidiaries ("Arcosa ," "Company," "we," or
"our") and related Notes in Part I, Item 1 of this Quarterly Report on Form 10-Q
and the Consolidated 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, 2020 ("2020 Annual Report on Form 10-K").
Company Overview
Arcosa , headquartered in Dallas, Texas , is a provider of infrastructure-related
products and solutions with leading brands serving construction, engineered
structures, and transportation markets in North America . Arcosa is a Delaware
corporation and was incorporated in 2018 in connection with the separation (the
"Separation") of Arcosa from Trinity Industries, Inc. ("Trinity" or "Former
Parent") on November 1, 2018 as an independent, publicly-traded company, listed
on the New York Stock Exchange .
Potential Impact of COVID-19 on our Business
Our highest priority is the health and safety of our employees and communities.
Our businesses support critical infrastructure sectors, pursuant to the
Department of Homeland Security's Cybersecurity and Infrastructure Security
Agency standards. Our plants have continued to operate throughout the COVID-19
crisis. However, as of the date of this filing, uncertainty exists concerning
the potential magnitude of the impact and duration of the COVID-19 pandemic. The
following possible events related to the COVID-19 pandemic may potentially
adversely impact our business, liquidity and financial condition, or results of
operations: customer demand for our products and services may decrease;
reductions in our customers' capex spending; our supply chain may have
disruption preventing us from obtaining the necessary materials and equipment to
manufacture our products and provide services; our employees' ability to
continue to work may be impacted because of COVID-19 related illness or local,
state, or federal orders requiring them to stay at home; the effect of
governmental regulations imposed in response to the COVID-19 pandemic may result
in shutdowns of our operations; limitations on the ability of our customers to
conduct their business and purchase our products and services; disruptions to
our customers' supply chains or purchasing patterns; and limitations on the
ability of our customers to pay us on a timely basis.
We believe that, based on the various standards published to date, our employees
are part of the Essential Critical Infrastructure Workforce, and the work they
perform is critical, essential, and life-sustaining. We will continue to
actively monitor the situation and may take further actions that alter our
business operations as may be required by federal, state, or local authorities
or that we determine are in the best interests of our employees, customers,
suppliers, and shareholders.
In addition to the extensive health and safety protocols already in place across
our plants, we estimate that we are incurring less than $1 million per quarter
of incremental costs related to COVID-19 for personal protective equipment,
health screenings, deep cleaning services, and facilities re-configurations. We
do not anticipate that the enhanced health and safety protocols will have a
material impact on the productivity of our plants.
The preparation of the Company's Consolidated Financial Statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements as well as the reported amounts of revenues
and expenses during 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 the COVID-19 pandemic. However, due to the factors discussed
above, we are unable to determine or predict the overall impact the COVID-19
pandemic will have on our business, results of operations, liquidity, or capital
resources.
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Market Outlook
•Within our Construction Products segment, we have experienced better than
anticipated construction demand since the outbreak of the COVID-19 pandemic as
construction activity in Texas has remained resilient, when seasonal weather
conditions have been normal, and other states have reopened for business.
However, we did experience a softening of demand for our specialty materials and
shoring products businesses during 2020 following the outbreak. Our shoring
products business and lightweight aggregates business within specialty materials
have recovered to pre-pandemic demand levels in 2021, while other areas of
specialty materials have shown signs of improvement. The outlook for public and
private construction activity has improved as expectations for U.S. economic
growth have increased following the roll-out of vaccines and associated
re-opening of the economy, but the environment continues to be uncertain.
•Within our Engineered Structures segment, our backlog as of June 30, 2021
provides a healthy level of production visibility for the remainder of 2021, but
at a lower level than at the same period last year. Our customers remain
committed to taking delivery of these orders. In utility structures, order and
inquiry activity remains strong, as customers remain focused on grid hardening
and reliability initiatives. We continue to actively work with our wind tower
customers on new order inquiries; however, we expect a lower level of wind tower
production in 2021 as the wind industry continues to transition from 100%
Production Tax Credit ("PTC") support. In 2021, we will benefit from a full-year
of revenues from the newly acquired traffic and telecom structures businesses,
where demand conditions are favorable. Order and inquiry activity in the storage
tank business is very strong, after taking a pause initially at the onset of
COVID-19, as certain customers deferred new tank installations.
•Within our Transportation Products segment, our backlog for inland barges as of
June 30, 2021 is 60% lower than the backlog level at first quarter 2020 during
the onset of the pandemic and provides a low base level of production visibility
into 2022. Our customers remain committed to taking delivery of these orders.
Barge order levels fell sharply in the second and third quarters of 2020 as our
customers' barge utilization rates declined from the COVID-19 related economic
slowdown and have remained low through the second quarter of 2021. Lower demand
for refined products, including gasoline and jet fuel, and low, but increasing,
oil prices negatively impacted order quantities for liquid barges in 2020 and
inquiries remain very low thus far in 2021. Conversely, the underlying
fundamentals for a dry barge replacement cycle remain in place, evidenced by
strong order levels in the fourth quarter of 2020 at a level consistent with
pre-pandemic demand. However, a sharp and sustained increase in steel prices
since the end of 2020 has negatively impacted 2021 order levels and the
near-term outlook for dry barge demand. We have reduced our capacity in all
three barge operating plants to align with lower production levels into 2022 and
will idle our Madisonville, Louisiana facility in the third quarter to further
reduce our cost structure. We continue to remain flexible to allow time for
fundamentals to recover. Demand for steel components, which was softening
pre-COVID-19 due to a weakening North American rail transportation market,
remains depressed but is showing early signs of recovery as the outlook for the
new railcar market is improving.
Executive Overview
Recent Developments
In August 2021 , we completed the stock acquisition of Southwest Rock Products,
LLC and affiliated entities (collectively "Southwest Rock"), which will be
included in our Construction Products segment for a total purchase price of
approximately $150 million . The acquisition will be recorded as a business
combination and was funded with cash on hand and $100.0 million of borrowings
under our revolving credit facility.
In April 2021 , we completed the stock acquisition of StonePoint Ultimate
Holding, LLC and affiliated entities (collectively "StonePoint"), a top 25 U.S.
construction aggregates company, which is included in our Construction Products
segment for a total purchase price of approximately $374.8 million . The
acquisition was recorded as a business combination and was funded with proceeds
from a private offering of $400.0 million of 4.375% senior unsecured notes that
closed on April 6, 2021 .
Financial Operations and Highlights
•Revenues for the three months ended June 30, 2021 increased by 3.3% to $515.1
million as increased revenue in Construction Product and Engineered Structures
were largely offset by decreased volumes in Transportation Products. Revenues
for the six months ended June 30, 2021 decreased by 3.2% to $955.5 million
compared to the same period in 2020, primarily due to lower volumes in
Transportation Products, partially offset by increased volumes in Construction
Products.
•Operating profit for the three and six months ended June 30, 2021 totaled $31.3
million and $54.2 million , respectively, representing a decrease of
$16.5 million and $38.7 million , respectively, from the same periods in 2020,
primarily driven by additional costs from acquired businesses in Construction
Products and Engineered Structures and lower volumes in Transportation Products.
•Selling, general, and administrative expenses increased by 23.2% and 16.2%,
respectively, for the three and six months ended June 30, 2021 when compared to
the prior year periods largely due to increased acquisition-related expenses,
including $7.5 million in corporate costs for the six months ended June 30,
2021 , and additional costs from acquired businesses. As a
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percentage of revenue, selling, general, and administrative expenses increased
to 12.9% for the three and six months ended June 30, 2021 , compared to 10.8% and
10.7%, respectively, for the same periods in 2020.
•The effective tax rate for the three and six months ended June 30, 2021 was
16.8% and 19.0%, respectively, compared to 26.2% and 25.5%, respectively, for
the same periods in 2020. The decrease in the tax rate for the three and six
months ended June 30, 2021 is primarily due to decreased state taxes and
compensation-related expenses in the current period. See Note 10 Income Taxes of
the Consolidated Financial Statements.
•Net income for the three and six months ended June 30, 2021 was $20.8 million
and $36.7 million , respectively, compared to $33.3 million and $64.9 million ,
respectively, for the same periods in 2020.
Our Engineered Structures and Transportation Products segments operate in
cyclical industries. Additionally, results in our Construction Products segment
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 June 30, 2021 and 2020, our unsatisfied performance obligations, or
backlog, were as follows:
June 30, December 31, June 30,
2021 2020 2020
(in millions)
Engineered Structures:
Utility, wind, and related structures $ 348.5 $ 334.0 $ 352.2
Storage tanks 30.3 15.6 15.5
Transportation Products:
Inland barges $ 139.4 $ 175.5 $ 258.7
Approximately 93% of the unsatisfied performance obligations for our utility,
wind, and related structures in our Engineered Structures segment are expected
to be delivered during 2021, with the remainder expected to be delivered during
2022. All of the unsatisfied performance obligations for our storage tanks
business in our Engineered Structures segment are expected to be delivered
during 2021. Approximately 66% of unsatisfied performance obligations for inland
barges in our Transportation Products segment are expected to be delivered
during 2021, with the remainder expected to be delivered during 2022.
Results of Operations
Overall Summary
Revenues
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(in millions) Percent Change (in millions) Percent Change
Construction Products $ 204.5 $ 148.2 38.0 % $ 357.7 $ 297.6 20.2 %
Engineered Structures 242.5 222.8 8.8 449.5 446.0 0.8
Transportation Products 68.2 128.2 (46.8) 148.4 245.2 (39.5)
Segment Totals before Eliminations 515.2 499.2 3.2 955.6 988.8 (3.4)
Eliminations (0.1) (0.7) (0.1) (2.1)
Consolidated Total $ 515.1 $ 498.5 3.3 $ 955.5 $ 986.7 (3.2)
2021 versus 2020
•Revenues for the three months ended June 30, 2021 increased by 3.3%. Revenues
for the six months ended June 30, 2021 decreased by 3.2%.
•Revenues from Construction Products increased primarily due to higher natural
and recycled aggregates volumes from acquired businesses as well as in our
legacy natural aggregates business.
•Revenues from Engineered Structures increased primarily due to increased
pricing in all product lines driven by higher steel prices, higher volumes in
utility structures and storage tanks, and a one-time resolution of a customer
dispute from 2019 in our wind towers business.
•Revenues from Transportation Products decreased primarily due to lower volumes
in inland barge and steel components.
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Operating Costs
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(in millions) Percent Change (in millions) Percent Change
Construction Products $ 186.6 $ 123.9 50.6 % $ 324.0 $ 256.5 26.3 %
Engineered Structures 213.4 201.9 5.7 402.9 400.2 0.7
Transportation Products 66.9 112.3 (40.4) 143.0 215.0 (33.5)
Segment Totals before Eliminations and
Corporate Expenses 466.9 438.1 6.6 869.9 871.7 (0.2)
Corporate 17.0 13.3 27.8 31.5 24.2 30.2
Eliminations (0.1) (0.7) (0.1) (2.1)
Consolidated Total $ 483.8 $ 450.7 7.3 $ 901.3 $ 893.8 0.8
2021 versus 2020
•Operating costs for the three and six months ended June 30, 2021 increased by
7.3% and 0.8%, respectively.
•Cost of revenues for Construction Products increased primarily due to higher
volumes from the acquired StonePoint business, including $4.7 million for the
cost impact of the fair market value write-up of acquired inventory.
•Cost of revenues for Engineered Structures increased primarily due to higher
volumes in our utilities structures, storage tanks, and other recently acquired
businesses.
•Cost of revenues for Transportation Products decreased primarily due to lower
volumes in all product lines.
•As a percentage of revenues, selling, general, and administrative expenses,
including Corporate expenses, increased to 12.9% for the three and six months
ended June 30, 2021 , compared to 10.8% and 10.7%, respectively, for the same
periods in 2020. The increase is largely due to higher acquisition-related
transaction and integration costs in corporate and additional costs from
acquired businesses.
Operating Profit (Loss)
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(in millions) Percent Change (in millions) Percent Change
Construction Products $ 17.9 $ 24.3 (26.3) % $ 33.7 $ 41.1 (18.0) %
Engineered Structures 29.1 20.9 39.2 46.6 45.8 1.7
Transportation Products 1.3 15.9 (91.8) 5.4 30.2 (82.1)
Segment Totals before Corporate Expenses 48.3 61.1 (20.9) 85.7 117.1 (26.8)
Corporate (17.0) (13.3) 27.8 (31.5) (24.2) 30.2
Consolidated Total $ 31.3 $ 47.8 (34.5) $ 54.2 $ 92.9 (41.7)
2021 versus 2020
•Operating profit for the three and six months ended June 30, 2021 decreased by
34.5% and 41.7%, respectively.
•Operating profit in Construction Products decreased primarily due additional
costs from acquired StonePoint business and the impact of adverse weather
conditions in the first half of the year.
•Operating profit in Engineered Structures increased primarily due to improved
margins in our storage tank business and a one-time resolution of a customer
dispute from 2019 in our wind towers business.
•Operating profit in Transportation Products decreased primarily due to lower
volumes in all product lines.
For a further discussion of revenues, costs, and the operating results of individual segments, see Segment Discussion below.
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Other Income and Expense
Other, net (income) expense consists of the following items:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(in millions)
Interest income $ (0.1) $ (0.1) $ (0.1) $ (0.3)
Foreign currency exchange transactions (0.1) 0.2 0.5 0.2
Other (0.1) (0.2) (0.2) (0.2)
Other, net (income) expense $ (0.3) $ (0.1) $ 0.2 $ (0.3)
Income 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 six
months ended June 30, 2021 was 16.8% and 19.0%, respectively, compared to 26.2%
and 25.5%, respectively, for the same periods in 2020. The decrease in the tax
rates for the three and six months ended June 30, 2021 is primarily due to
decreased state taxes and increased compensation-related deductions.
Our effective tax rate reflects the Company's estimate for its state income tax
expense, excess tax benefits related to equity compensation, and the impact of
foreign tax benefits. See Note 10 of the Notes to Consolidated Financial
Statements for further discussion of income taxes.
In response to the COVID-19 pandemic, on March 27, 2020 the U.S. Congress passed
the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which
includes certain tax relief and benefits that may impact the Company.
Approximately $15 million of federal and state income tax payments deferred
during the first half of 2020 were paid during the third quarter of 2020. As of
June 30, 2021 , the Company has deferred $9.7 million in payroll-related taxes in
accordance with the provisions of the CARES Act. We expect to pay $4.9 million
during the year ending December 31, 2021 , with the remainder to be paid during
2022.
Segment Discussion
Construction Products
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 Percent 2021 2020 Percent
($ in millions) Change ($ in millions) Change
Revenues:
Aggregates and specialty materials
37.4 %$ 316.8 $ 264.2 19.9 % Other 23.0 16.1 42.9 40.9 33.4 22.5 Total revenues 204.5 148.2 38.0 357.7 297.6 20.2 Operating costs: Cost of revenues 162.7 107.1 51.9 281.6 222.1 26.8 Selling, general, and administrative expenses 23.9 16.8 42.3 42.4 34.4 23.3 Operating profit$ 17.9 $ 24.3 (26.3)$ 33.7 $ 41.1 (18.0) Depreciation, depletion, and amortization(1)$ 22.5 $ 13.9 61.9$ 39.6 $ 27.7 43.0
(1) Depreciation, depletion, and amortization are components of operating profit.
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Three Months Ended June 30, 2021 versus Three Months Ended June 30, 2020
•Revenues increased 38.0% primarily driven by the acquisition of StonePoint,
which increased segment revenues by approximately 25%. Demand was generally
stronger across our natural and recycled aggregates businesses serving
construction end markets, but higher than normal adverse weather days during the
quarter impacted sales volumes, especially operations in Texas and other areas
along the Gulf Coast . Revenues from our specialty materials businesses increased
due to strong volumes in our lightweight aggregates business and other product
lines serving building products end markets, offset by continued pockets of
suppressed demand from COVID-related challenges in certain other product lines.
Revenues from our trench shoring business increased 42.9% as volumes have
recovered to pre-pandemic levels.
•Cost of revenues increased 51.9% due to higher volumes from the acquired
StonePoint business, including $4.7 million for the cost impact of the fair
market value write-up of acquired inventory. As a percent of revenues, cost of
revenues increased to 79.6% compared to 72.3% due to reduced production from
abnormally high adverse weather days, higher fuel prices, and other
inflationary-related increases.
•Selling, general, and administrative costs increased due to additional costs
from acquired businesses. Selling, general, and administrative costs in the
legacy businesses were slightly lower than the previous period as a percent of
revenues.
•Operating profit decreased 26.3% due to amortization of the fair value write-up
of inventory from the acquisition of StonePoint and lower revenues and cost
absorption from a higher number of adverse weather days, partially offset by
improvement in our specialty materials and shoring products businesses. We
estimate the reduction in operating profit from the adverse weather was $3-4
million during the quarter.
•Depreciation, depletion, and amortization expense increased primarily due to
the acquired StonePoint business.
Six Months Ended June 30, 2021 versus Six Months Ended June 30, 2020
•Revenues increased 20.2% compared to last year primarily driven by the
acquisition of StonePoint, which increased segment revenues by approximately
10%. The additional increase in revenue was partially driven by continued demand
improvement for construction aggregates despite numerous weather-related
challenges in the first half of the year, partially offset by reduced volumes in
plants serving oil and gas markets. Revenues from our trench shoring business
increased 22.5% due to a continued recovery in demand following the outbreak of
the pandemic.
•Cost of revenues increased 26.8% primarily due to higher volumes from the
acquired StonePoint business, including $4.7 million for the cost impact of the
fair market value write-up of acquired inventory. As a percent of revenues, cost
of revenues excluding depreciation, depletion, and amortization expense
increased slightly year over year due to higher fuel prices and other
inflationary-related increases.
•Selling, general, and administrative costs increased due to additional costs
from acquired businesses.
•Operating profit decreased 18.0% due to amortization of the fair value write-up
of inventory from the acquisition of StonePoint, the impact of Winter Storm Uri
in the first quarter, and abnormally high adverse weather days in the second
quarter.
•Depreciation, depletion, and amortization expense increased primarily due to
recently acquired businesses.
Engineered Structures
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 Percent 2021 2020 Percent
($ in millions) Change ($ in millions) Change
Revenues:
Utility, wind, and related structures
8.3 %$ 355.6 $ 353.3 0.7 % Storage tanks 50.9 45.9 10.9 93.9 92.7 1.3 Total revenues 242.5 222.8 8.8 449.5 446.0 0.8 Operating costs: Cost of revenues 193.4 183.7 5.3 364.5 364.7 (0.1) Selling, general, and administrative expenses 20.0 18.2 9.9 38.4 35.5 8.2 Operating profit$ 29.1 $ 20.9 39.2$ 46.6 $ 45.8 1.7
Depreciation and amortization(1) $ 8.4
3.7$ 16.8 $ 15.5 8.4
(1) Depreciation and amortization are components of operating profit.
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Three Months Ended June 30, 2021 versus Three Months Ended June 30, 2020
•Revenues increased 8.8% due to increased pricing across all product lines
driven by higher steel prices and higher volumes in utility structures, storage
tanks, and acquired traffic and telecom structures businesses. During the
quarter, we recognized $7.7 million of revenue related to a one-time resolution
of a customer dispute from 2019 in our wind towers business. The associated
towers were removed from backlog in 2020 and we continue to have a good
commercial relationship with this customer.
•Cost of revenues increased 5.3% driven by higher volumes in our utility
structures business, acquired traffic and telecom structures businesses, and
increased steel prices.
•Selling, general, and administrative costs increased 9.9% primarily due to
additional costs from acquired businesses.
•Operating profit increased 39.2% primarily due to improved margins in our
storage tank business and a one-time resolution of a customer dispute in our
wind towers business.
Six Months Ended June 30, 2021 versus Six Months Ended June 30, 2020
•Revenues were substantially unchanged as a one-time resolution of a customer
dispute in the second quarter and increased volumes in utility structures,
storage tank, and acquired traffic and telecom structures businesses were offset
by lower wind tower volumes, partially due to the temporary idling of a facility
earlier in the year.
•Cost of revenues were flat as increased volumes in utility structures, storage
tank, and acquired traffic and telecom structures businesses were offset by
lower wind tower volumes. Cost of revenues also decreased due to a gain of $3.9
million recognized on the sale of a non-operating facility in the first quarter.
•Selling, general, and administrative costs increased 8.2% primarily due to
additional costs from acquired businesses.
•Operating profit increased 1.7% primarily due to improved margins in our
storage tank business, a one-time resolution of a customer dispute, and the gain
on the sale of a non-operating facility. This increase was partially offset by
Winter Storm Uri that impacted production in our Texas and Oklahoma plants for
approximately one week in the first quarter and the temporary idling of a wind
tower facility earlier in the year.
Unsatisfied Performance Obligations (Backlog)
As of June 30, 2021 , the backlog for utility, wind, and related structures was
$348.5 million , compared to $334.0 million and $352.2 million as of December 31,
2020 and June 30, 2020 , respectively, approximately 93% of which is expected to
be delivered during the year ending December 31, 2021 with the remainder
expected to be delivered in 2022. Future wind tower orders are subject to
uncertainty as PTC eligibility for new wind farm projects is currently in a
phase-out period that extends until 2025. Pricing of orders and individual order
quantities reflect a market transitioning from PTC incentives. As of June 30,
2021 , the backlog for our storage tank business was $30.3 million , all of which
is expected to be delivered during the year ending December 31, 2021 .
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Transportation Products
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 Percent 2021 2020 Percent
($ in millions) Change ($ in millions) Change
Revenues:
Inland barges $ 49.0 $ 107.0 (54.2) % $ 106.9 $ 196.0 (45.5) %
Steel components 19.2 21.2 (9.4) 41.5 49.2 (15.7)
Total revenues 68.2 128.2 (46.8) 148.4 245.2 (39.5)
Operating costs:
Cost of revenues 61.4 106.7 (42.5) 132.5 203.4 (34.9)
Selling, general, and administrative
expenses 5.5 5.6 (1.8) 10.5 11.6 (9.5)
Operating profit $ 1.3 $ 15.9 (91.8) $ 5.4 $ 30.2 (82.1)
Depreciation and amortization (1)
(4.3)$ 9.1 $ 9.1 - (1) Depreciation and amortization are components of operating profit. Three Months EndedJune 30, 2021 versus Three Months EndedJune 30, 2020 •Revenues decreased 46.8%. Revenues from inland barges decreased 54.2% due to lower hopper and tank barge deliveries as demand has weakened from the COVID-19 pandemic and increased steel prices. Steel component revenues decreased 9.4% due to decreased deliveries and lower contractual pricing as the North American railcar market remains depressed. •Cost of revenues decreased 42.5% driven by lower volumes in all product lines. •Selling, general, and administrative costs were substantially unchanged. •Operating profit decreased by 91.8% due to lower volumes and declines in operational efficiencies from reduced capacity utilization. Six Months EndedJune 30, 2021 versus Six Months EndedJune 30, 2020 •Revenues decreased 39.5%. Revenues from inland barges decreased 45.5% due to lower hopper and tank barge deliveries as demand has weakened from the COVID-19 pandemic and increased steel prices. Steel component revenues decreased 15.7% due to decreased deliveries and lower contractual pricing as the North American railcar market remains depressed. •Cost of revenues decreased 34.9% driven by lower volumes in all product lines. •Selling, general, and administrative costs decreased 9.5% due to lower compensation costs. •Operating profit decreased 82.1% due to lower volumes and declines in operational efficiencies from reduced capacity utilization. Unsatisfied Performance Obligations (Backlog) As ofJune 30, 2021 , the backlog for inland barges was$139.4 million , compared to$175.5 million and$258.7 million as ofDecember 31, 2020 andJune 30, 2020 , respectively. Approximately 66% of unsatisfied performance obligations for inland barges are expected to be delivered during the year endingDecember 31, 2021 with the remainder expected to be delivered in 2022. Corporate Three Months Ended June 30, Six Months Ended June 30, 2021 2020 Percent 2021 2020 Percent (in millions) Change (in millions) Change Corporate overhead costs $ 17.0$ 13.3 27.8 %$ 31.5 $ 24.2 30.2 % 30
-------------------------------------------------------------------------------- Table of Contents 2021 versus 2020 •Corporate overhead costs increased 27.8% and 30.2% for the three and six months endedJune 30, 2021 , respectively. The increase primarily related to higher acquisition-related transaction and integration costs of$5.8 million and$7.5 million for the three and six months endedJune 30, 2021 , respectively, compared to$0.7 million and$1.6 million for the same periods in 2020. •We estimate full-year corporate costs of approximately$13-14 million per quarter, excluding non-recurring acquisition and integration expenses, for the remainder of 2021. Acquisition and related integration costs are expected to be approximately$2 million in each of the third and fourth quarters of 2021. Liquidity and Capital ResourcesArcosa's primary liquidity requirement consists of funding our business operations, including capital expenditures, working capital investment, and disciplined acquisitions. Our primary sources of liquidity include cash flow from operations, our existing cash balance, availability under the revolving credit facility, and, as necessary, the issuance of additional long-term debt or equity. To the extent we have available liquidity, we may also consider undertaking new capital investment projects, executing additional strategic acquisitions, returning capital to stockholders, or funding other general corporate purposes. Cash Flows The following table summarizes our cash flows from operating, investing, and financing activities for the six months endedJune 30, 2021 and 2020: Six Months Ended June 30, 2021 2020 (in millions) Total cash provided by (required by): Operating activities$ 51.1 $ 120.3 Investing activities (419.1) (350.5) Financing activities 372.5 138.2
Net increase (decrease) in cash and cash equivalents
Operating Activities. Net cash provided by operating activities for the six months endedJune 30, 2021 was$51.1 million compared to$120.3 million for the six months endedJune 30, 2020 . •The changes in current assets and liabilities resulted in a net use of cash of$52.3 million for the six months endedJune 30, 2021 compared to a net use of cash of$6.9 million for the six months endedJune 30, 2020 . The current year activity was primarily driven by increased receivables and inventories. Investing Activities. Net cash required by investing activities for the six months endedJune 30, 2021 was$419.1 million compared to$350.5 million for the six months endedJune 30, 2020 . •Capital expenditures for the six months endedJune 30, 2021 were$41.5 million compared to$43.6 million for the same period last year. Full-year capital expenditures are expected to be approximately$110 to$120 million in 2021. We expect maintenance capital expenditures of approximately$90 million and capital expenditures related to additional growth to be$20 to$30 million in 2021. •Proceeds from the sale of property, plant, and equipment and other assets totaled$11.1 million for the six months endedJune 30, 2021 , compared to$7.0 million for the same period in 2020. •Cash paid for acquisitions, net of cash acquired, was$388.7 million for the six months endedJune 30, 2021 compared to cash paid for acquisitions, net of cash acquired, of$313.9 million for the same period in 2020. There was no divestiture activity for the six months endedJune 30, 2021 and 2020. Financing Activities. Net cash provided by financing activities during the six months endedJune 30, 2021 was$372.5 million compared to net cash provided by financing activities of$138.2 million for the same period in 2020. •Current year to date activity primarily related to net proceeds from the issuance of the$400 million Senior Notes. Prior year to date activity was primarily related to proceeds from the issuance of the$150 million term loan. 31 -------------------------------------------------------------------------------- Table of Contents Other Investing and Financing Activities Revolving Credit Facility and Senior Notes OnJanuary 2, 2020 , the Company entered into an Amended and Restated Credit Agreement to increase the revolving credit facility to$500.0 million and added a term loan facility of$150.0 million , in each case with a maturity date ofJanuary 2, 2025 . The entire term loan was advanced onJanuary 2, 2020 in connection with the closing of the acquisition of Cherry. As ofJune 30, 2021 , the term loan had a remaining balance of$148.1 million . As ofJune 30, 2021 , we had$100.0 million of outstanding loans borrowed under the revolving credit facility and there were approximately$28.5 million of letters of credit issued, leaving$371.5 million available for borrowing. OnAugust 4, 2021 , we borrowed an additional$100.0 million under our revolving credit facility to fund the acquisition of Southwest Rock. The interest rates under the revolving credit facility and term loan are variable based on LIBOR or an alternate base rate plus a margin. A commitment fee accrues on the average daily unused portion of the revolving facility. The margin for borrowing and commitment fee rate are determined based onArcosa's leverage as measured by a consolidated total indebtedness to consolidated EBITDA ratio. The margin for borrowing ranges from 1.25% to 2.00% and was set at LIBOR plus 1.25% as ofJune 30, 2021 . The commitment fee rate ranges from 0.20% to 0.35% and was set at 0.20% as ofJune 30, 2021 . The Company's revolving credit and term loan facilities require the maintenance of certain ratios related to leverage and interest coverage. As ofJune 30, 2021 , we were in compliance with all such financial covenants. Borrowings under the credit agreement are guaranteed by certain wholly-owned subsidiaries of the Company. In order to increase liquidity in anticipation of the acquisition of StonePoint the Company entered into an unsecured 364-Day Credit Agreement onMarch 26, 2021 providing for a revolving line of credit of$150.0 million , with an outside maturity date ofMarch 25, 2022 , with pricing, covenants, and guarantees substantially similar to the Company's existing revolving credit and term loan facilities. Per the terms of the facility, it terminated onApril 6, 2021 upon the closing of the Company's private offering of$400 million in senior notes. OnApril 6, 2021 , the Company issued$400.0 million aggregate principal amount of 4.375% senior notes (the "Notes") that mature inApril 2029 . Interest on the Notes is payable semiannually commencingOctober 2021 . The Notes are senior unsecured obligations of the Company and are guaranteed on a senior unsecured basis by each of the Company's domestic subsidiaries that is a guarantor under our revolving credit and term loan facilities. We believe, based on our current business plans, that our existing cash, available liquidity, and cash flow from operations will be sufficient to fund necessary capital expenditures and operating cash requirements for the foreseeable future. The Company further believes that its financial resources will allow it to manage the anticipated impact of COVID-19 on the Company's business operations for the foreseeable future. The macroeconomic uncertainties posed by COVID-19 are evolving. Consequently, the Company will continue to evaluate its financial position in light of future developments, particularly those relating to COVID-19. Dividends and Repurchase Program InMay 2021 , the Company declared a quarterly cash dividend of$0.05 per share that was paid onJuly 31, 2021 . InDecember 2020 , the Company's Board of Directors authorized a new$50 million share repurchase program effectiveJanuary 1, 2021 throughDecember 31, 2022 to replace a program of the same amount that expired onDecember 31, 2020 . Under the program, the Company repurchased 71,712 shares at a cost of$4.4 million during the six months endedJune 30, 2021 . As ofJune 30, 2021 , the Company had a remaining authorization of$45.6 million under the program. See Note 1 of the Notes to the Consolidated Financial Statements. Derivative Instruments InDecember 2018 , the Company entered into an interest rate swap instrument, effective as ofJanuary 2, 2019 and expiring in 2023, to reduce the effect of changes in the variable interest rates associated with borrowings under the Amended and Restated Credit Agreement. The instrument carried an initial notional amount of$100.0 million , thereby hedging the first$100.0 million of borrowings. The instrument effectively fixes the LIBOR component of the borrowings at a monthly rate of 2.71%. As ofJune 30, 2021 , the Company has recorded a liability of$5.5 million for the fair value of the instrument, all of which is recorded in accumulated other comprehensive loss. See Note 3 and Note 7 of the Notes to the Consolidated Financial Statements. Off-Balance Sheet Arrangements As ofJune 30, 2021 , we had letters of credit issued under our revolving credit facility in an aggregate principal amount of$28.5 million , of which$23.6 million are expected to expire in 2021, with the remainder in 2022. The majority of our letters of credit obligations support the Company's various insurance programs and generally renew by their terms each year. See Note 7 of the Notes to the Consolidated Financial Statements. 32 -------------------------------------------------------------------------------- Table of Contents Recent Accounting Pronouncements See Note 1 of the Notes to the Consolidated Financial Statements for information about recent accounting pronouncements. 33 -------------------------------------------------------------------------------- Table of Contents 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 and involve risks and uncertainties. These forward-looking statements include expectations, beliefs, plans, objectives, future financial performances, estimates, projections, goals, and forecasts.Arcosa uses the words "anticipates," "assumes," "believes," "estimates," "expects," "intends," "forecasts," "may," "will," "should," and similar expressions to identify these forward-looking statements. Potential factors, which could cause our actual results of operations to differ materially from those in the forward-looking statements 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 our business products and services; •the cyclical nature of the industries in which we compete; •variations in weather in areas where our construction products are sold, used, or installed; •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; •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 our manufacturing businesses; •availability and costs of steel, component parts, supplies, and other raw materials; •changing technologies; •surcharges and other fees added to fixed pricing agreements for steel, component parts, supplies and other raw materials; •interest rates and capital costs; •counter-party risks for financial instruments; •long-term funding of our operations; •taxes; •the stability of the governments and political and business conditions in certain foreign countries, particularlyMexico ; •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 our products with mandated specifications, standards, or testing criteria and obligations to remove and replace our products following installation or to recall our products and install different products manufactured by us or our competitors; •actions by the executive and legislative branches of theU.S. government relative to federal government budgeting, taxation policies, government expenditures,U.S. borrowing/debt ceiling limits, and trade policies, including tariffs, and border closures; •the inability to sufficiently protect our intellectual property rights; •the improper use of social and other digital media to disseminate false, misleading, and/or unreliable or inaccurate information about the Company or demonstrate actions that negatively reflect on the Company; •if the Company's ESG efforts are not favorably received by stockholders; •if the Company does not realize some or all of the benefits expected to result from the Separation, or if such benefits are delayed; •if the distribution of shares ofArcosa resulting from the Separation, together with certain related transactions, does not qualify as a transaction that is generally tax-free forU.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 Separation 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.Arcosa undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made. For a discussion of risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see Item 1A, "Risk Factors" in our 2020 Annual Report on Form 10-K and future Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. 34
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