Exhibit 1.01
Conflict Minerals Report of Arcosa, Inc.
in Accordance with Rule 13p-1 under the Securities Exchange Act of 1934
Background and Overview
This is the Conflict Minerals Report of Arcosa, Inc. (Arcosa, Company, we, or our) for the reporting year ended December 31, 2019 presented to comply with Rule 13p-1 (the Rule) under the Securities Exchange Act of 1934 (the 1934 Act). The Rule imposes certain reporting obligations on Securities and Exchange Commission (SEC) registrants whose manufactured or contracted to manufacture products contain conflict minerals necessary to the functionality or production of their products. Conflict minerals are defined as columbite-tantalite, also known as coltan (the metal ore from which tantalum is extracted); cassiterite (the metal ore from which tin is extracted); wolframite (the metal ore from which tungsten is extracted); and gold (collectively, 3TGs) for the purposes of this report. These requirements apply to all registrants regardless of the geographic origin of the conflict minerals and whether or not they fund armed conflict in the Covered Countries defined as the Democratic Republic of the Congo or an adjoining country (Covered Countries). Please refer to the Rule, Form SD, and the 1934 Act Release No. 34-67716 for definitions of the terms and phrases used in this report, unless otherwise defined herein.
Arcosa is a provider of infrastructure-related products and solutions with leading positions in construction, energy, and transportation markets. As further described in the Company’s Form 10-K filed with the SEC on February 27, 2020, Arcosa reports operating results in three principal business segments: Construction Products, Energy Equipment, and Transportation Products. Our manufacturing operations are located in the U.S., Canada, and Mexico.
This Report covers the period from January 1, 2019 through December 31, 2019.
Arcosa does not knowingly purchase raw materials containing 3TGs that could benefit armed groups in the Covered Countries. Arcosa is committed to ethical and compliant business practices in all that we do, including all activities involving our supply chain.
We manufacture certain products that may contain small amounts of 3TGs necessary to their functionality and/or production. Arcosa does not directly purchase materials from the Covered Countries and, as a diversified industrial manufacturer with an extensive supply chain, the Company is far removed from the actual mining of any 3TGs. Due to the scale and extent of our supply chain, we rely on our direct suppliers to provide information on the origin of 3TGs which may be contained in materials we may use to manufacture our products.
As described more fully below, Arcosa’s conflict minerals program and due diligence framework are consistent with the five steps of the Organisation for Economic Co-operation and Development (OECD) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD Framework), an internationally recognized due diligence framework.
Establishment of strong company management systems
•Establishment of a Conflict Minerals policy and communication of the policy to selected suppliers whose materials were determined to potentially contain 3TGs;
•Establishment of a Business Ethics & Compliance Committee, comprised of the Company’s key executive management;
•A conflict minerals team comprised of representatives from Arcosa’s corporate office and all of Arcosa’s business segments, including executive level support, with representation from various functions such as supply chain management, engineering, legal, compliance, and accounting;
•Conflict minerals training to designated employees, including a summary of the relevant requirements of the Rule, Arcosa’s obligations under the Rule, and the processes Arcosa designed to evaluate and respond to the risk of 3TGs in its supply chain; and
•A toll-free integrity helpline and website through which employees or third parties may anonymously report any concerns about or violation of the policy with respect to the sourcing of 3TGs.
Arcosa conducts a reasonable country of origin inquiry (RCOI) to identify raw material inventory items potentially containing 3TGs, including a conflict minerals assessment of applicability to determine which business units have manufactured or contracted to manufacture products having a likelihood of a presence of 3TGs that are necessary to the functionality or production of their products. As necessary, based on the results of the aforementioned processes, Arcosa performs certain due diligence efforts in compliance with the OECD Framework.
The application and results of this program for the year ended December 31, 2019, as well as additional risk mitigation efforts, are described more fully below.
Reasonable Country of Origin Inquiry
We conducted Arcosa’s RCOI as follows:
Identified and assessed risk in the supply chain
•Performed an assessment of the applicability of the Rule to each of Arcosa’s three business segments and:
◦Determined that the Rule does not apply to Arcosa’s specialty materials and construction aggregates business units included in the Construction Products segment because those operations source raw stone and aggregate materials entirely within the U.S. and Canada and do not add additives with 3TGs content.
◦Performed procedures for all other Arcosa businesses to determine the presence of 3TGs.
◦Identified materials supplied to Arcosa that potentially contain 3TGs necessary to the functionality and/or production of a product. We developed knowledge of our supply chain and the list of suppliers to survey for 2019 based on data from supplier surveys in prior years and internal examination of this data by management of the applicable business units, as described below.
◦Concentrated survey efforts on relevant suppliers by (i) reviewing the listing of materials received during 2019 from those suppliers that have previously reported that their materials do not contain 3TGs, and (ii) determining which suppliers’ materials we believe do not potentially contain 3TGs. The suppliers meeting that criterion were not surveyed for 2019.
◦Management of the applicable business units reviewed the listing of materials received during 2019 to identify those materials potentially containing 3TGs necessary to the functionality and/or production of our manufactured products.
◦Stratified the Company’s list of potential 3TGs suppliers to identify and focus efforts on the suppliers that make up the top 99.8% of the total potential 3TGs spend.
◦Conducted a supply chain survey using the Conflict Minerals Reporting Template (CMRT) developed by the Responsible Minerals Initiative (RMI), requesting identified suppliers of materials potentially containing 3TGs necessary to the functionality and/or production of our manufactured products to identify smelters and refiners and country of origin of the 3TGs contained in materials they supply to Arcosa.
▪90% of the surveyed suppliers responded to the request, representing 99.5% of the top 99.8% of the total potential 3TGs spend.
▪61% of the respondents confirmed that their materials did not contain 3TGs or were made from recycled or scrap materials.
▪7% of the respondents indicated their materials contained 3TGs necessary for the production of their materials; however, the 3TGs did not originate from the Covered Countries.
▪7% of the respondents indicated their materials contained 3TGs from independent third-party audit certified conflict-free facilities in the Democratic Republic of the Congo (see “Independent third-party audit of supply chain due diligence at identified point in the supply chain” below).
▪The remaining respondents (25%) were unable to determine the source of 3TGs in their materials.
▪No respondents indicated the 3TGs in the materials we purchased came from the Covered Countries other than possibly the 7% of the respondents which had materials from certified conflict-free facilities.
•Based upon responses from identified suppliers described above, a very small portion (potentially approximately 1%) of the total cost of raw material inventory items purchased by the Company from these suppliers during 2019 may contain 3TGs from an undeterminable source.
Due Diligence
Design of the due diligence framework
Arcosa's due diligence processes, consistent with the OECD Framework, are described below.
Description of the due diligence efforts performed
Designed and implemented a strategy to respond to identified risks
•Assessed the CMRTs received from our suppliers for completeness and reasonableness.
•Contacted respondents to obtain additional clarifying information in certain instances where survey responses were incomplete or contained possibly inaccurate information.
•We have access to the findings of the Responsible Minerals Assurance Process (RMAP), formerly the Conflict-Free Smelter Program (CFSP), to gain insight into the country of origin, chain of custody, and conflict status of our 3TGs. Established by members of the Responsible Business Alliance, formerly the Electronic Industry Citizenship Coalition, and the Global e-Sustainability Initiative (GeSI), RMAP is a voluntary program in which an independent third party evaluates smelters’ and refiners’ procurement and inventory practices and determines whether the smelter or refiner has demonstrated that all the materials it processed originated from conflict free sources.
•Regularly reported to designated senior management the findings of the supply chain risk assessment, such as suppliers’ reporting status.
•Designed and implemented a follow-up system for non-responsive suppliers.
•Provided supplier communication, training, and escalation processes to improve due diligence data accuracy and completion by partnering with an online conflict minerals tool provider.
•Provided all identified suppliers with access to a Conflict Minerals Supplier Success Center and provided access to training for suppliers who initially failed to respond.
Independent third-party audit of supply chain due diligence at identified points in the supply chain
•Arcosa does not have a direct relationship with any 3TGs smelters or refiners, nor do we perform direct audits of those entities that may provide 3TGs to our supply chain. However, we do rely upon the industry initiatives (such as the RMI), as well as industry efforts to influence smelters and refiners to be certified through independent third-party audit programs.
Report on supply chain due diligence
•Report on our supply chain due diligence policies and practices on an annual basis by filing a Form SD and Conflict Minerals Report, if necessary, with the SEC as required and made publicly available on our website, ir.arcosa.com.
Maintain records
•Arcosa maintains relevant documentation consistent with its record retention practices.
Due Diligence Results
After conducting the due diligence procedures described previously, we are not able to determine at this time all the smelters and refineries used to process all necessary 3TGs, nor are we able to determine the country of origin of all necessary 3TGs contained in our products. However, our efforts are ongoing, and no respondents indicated the 3TGs in the materials we purchased came from the Covered Countries other than possibly the 7% of the respondents which had materials from certified conflict-free facilities.
Product Information
We determined that some, but not all, types of storage and distribution tanks, structural wind towers, utility structures, and barges may contain very small amounts of 3TGs.
During the due diligence process described in this report, the Company was unable to validate that the smelters and refiners identified by suppliers actually provided 3TGs used in the manufacturing of our products. Therefore, we are unable to identify the facilities used to process the 3TGs in our products, the country of origin of the necessary 3TGs in these products or the mine or location of origin with the greatest possible specificity. Consequently, we have not presented any smelter or refiner names in this report.
Risk Management Plan
The Company continues to take the following steps in efforts to further mitigate the risk that its use of necessary 3TGs benefit armed groups:
•Periodically evaluate and continue to communicate its policy to suppliers;
•Monitor conformity with the OECD Framework;
•Analyze program results and identify opportunities for improvement;
•Implement improvements to 3TGs data collection, analysis and reporting tools, including additional tools or resources as appropriate;
•Engage suppliers to obtain current, accurate and complete information about the supply chain, smelters, and refiners;
•Ongoing dialog with suppliers about expectations to continue due diligence efforts to determine the sources of 3TGs; and
•Participate in industry initiatives to promote responsible sourcing of 3TGs.
Additional Risk Factors
The statements above are based on the RCOI process, due diligence performed in good faith by Arcosa, and the information available at the time we performed our procedures. The following non-exclusive factors could introduce errors or omissions or otherwise affect Arcosa’s conflict minerals status: 1) gaps in supplier data, 2) gaps in smelter data, 3) errors or omissions by suppliers or smelters, 4) all instances of 3TGs necessary to the functionality or manufacturing of Arcosa’s products possibly not yet having been identified, 5) gaps in supplier education and knowledge, 6) timeliness of data, 7) public data or information not discovered during a reasonable search or errors in such public data or information, 8) language barriers and translation, 9) supplier and smelter unfamiliarity with the relevant protocols, 10) oversights or errors in conflict-free smelter audits, 11) Covered Countries sourced materials being declared secondary materials, 12) companies going out of business in 2019, 13) certification programs being not equally advanced for all industry segments and metals, and 14) smuggling of 3TGs from the Covered Countries to countries beyond the Covered Countries.
Independent Private Sector Audit
Pursuant to the Rule, no independent private sector audit was required for the 2019 period.
Forward-Looking Statements
This document contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 regarding Arcosa’s plans to take additional actions as set forth in this report, including, but not limited to, under section Risk Management Plan. Arcosa’s reporting obligations under the Dodd-Frank Act may change in the future, and its ability to implement certain processes may differ materially from those anticipated or implied in this report. Arcosa undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made.
