<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ________________ to __________________
Commission file number 0-24639
RailWorks Corporation
(Exact name of registrant as specified in its governing instrument)
Delaware 58-2382378
(State of Organization) (IRS Employer Identification No.)
1104 Kenilworth Drive, Suite 301, Baltimore, Maryland 21204
(Address of principal executive office) (Zip Code)
(Registrant's telephone number, including area code) (410) 512-0500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
13,897,372 shares of Common Stock were outstanding as of August 6,
1999.
- -------------------------------------------------------------------------------
<PAGE> 2
RailWorks Corporation
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998
Consolidated Statements of Income for the three months
ended June 30, 1999 (unaudited) and 1998 (unaudited)
Consolidated Statements of Income for the six months ended
June 30, 1999 (unaudited) and 1998 (unaudited)
Consolidated Statements of Stockholders' Equity for the six months
ended June 30, 1999 (unaudited) and June 30, 1998 (unaudited)
Consolidated Statements of Cash Flows for six months ended
June 30, 1999 (unaudited) and 1998 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations:
Introduction
Historical Results of Operations
Liquidity and Capital Resources
Year 2000
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
PART II - OTHER INFORMATION
Items 1 through 6
Signatures
<PAGE> 3
Item 1 - Consolidated Financial Statements
RailWorks Corporation
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
June 30, December 31,
1999 1998
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash ..................................................................... $ 3,849 $ 2,846
Accounts receivable, net of allowance for doubtful accounts of
$592 and $442 at June 30, 1999 and December 31, 1998, respectively ...... 120,013 77,181
Costs and estimated earnings in excess of
billings on uncompleted contracts ...................................... 49,691 24,792
Inventories:
Raw materials .......................................................... 14,056 7,535
Finished goods ......................................................... 5,040 1,550
Deferred tax asset ....................................................... 951 870
Other current assets ..................................................... 5,452 3,401
--------- ---------
Total current assets ...................................... 199,052 118,175
--------- ---------
PROPERTY, PLANT AND EQUIPMENT ............................................... 66,680 14,514
LESS - ACCUMULATED DEPRECIATION AND AMORTIZATION ............................ 6,431 1,122
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, Net .......................................... 60,249 13,392
--------- ---------
OTHER ASSETS:
Excess of cost over acquired net assets, net of amortization ............. 170,130 93,845
Deferred tax asset ....................................................... 85 85
Loans to officers ........................................................ 6,764 959
Other .................................................................... 6,338 2,180
--------- ---------
Total other assets ........................................ 183,317 97,069
--------- ---------
Total .............. $ 442,618 $ 228,636
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ..................................... $ 10,193 $ 931
Accounts payable and accrued liabilities ................................. 54,020 35,436
Accrued payroll and related withholdings ................................. 4,228 3,777
Billings in excess of costs and estimated
earnings on uncompleted contracts ...................................... 11,965 5,958
Other current liabilities ................................................ 16,550 4,682
--------- ---------
Total current liabilities ................................ 96,956 50,784
--------- ---------
LONG-TERM DEBT .............................................................. 210,423 50,573
EXCESS OF ACQUIRED NET ASSETS OVER COST, net of amortization ................ 8,548 8,662
OTHER LIABILITIES ........................................................... 8,828 8,609
--------- ---------
Total long-term liabilities .............................. 227,799 67,844
--------- ---------
Total liabilities ............................... 324,755 118,628
--------- ---------
STOCKHOLDERS' EQUITY:
Series A, convertible preferred stock, $1.00 par value, authorized
10,000,000 shares, 13,700 shares issued and outstanding ................ 14 14
Common stock, $0.01 par value, authorized
100,000,000 shares, 13,897,372 issued and outstanding at June 30, 1999,
13,703,530 issued and outstanding at December 31, 1998 ................. 139 137
Additional paid-in capital .............................................. 123,273 121,296
Accumulated other comprehensive income .................................. 105 --
Retained earnings (deficit) ............................................. (5,668) (11,439)
--------- ---------
Total stockholders' equity ...................... 117,863 110,008
--------- ---------
Total ............... $ 442,618 $ 228,636
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE> 4
RailWorks Corporation
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(in thousands, except share and per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30
-------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Revenues ............................................... $ 115,810 $ 44,752
Contract costs ......................................... 91,998 39,938
------------ -----------
Gross profit ........................................... 23,812 4,814
Selling, general and administrative expenses ........... 11,434 3,662
Depreciation and amortization expense .................. 1,579 (19)
Interest expense ....................................... 4,845 438
Interest and other (income) expense, net ............... (662) 5
------------ -----------
Income before income taxes ............................. 6,616 728
Provision for income taxes ............................. 2,481 273
------------ -----------
Net income ............................................. $ 4,135 $ 455
============ ===========
Basic earnings per share ............................... $ .30 $ .15
============ ===========
Diluted earnings per share.............................. $ .27 $ .15
------------ -----------
Weighted average shares used in computing basic earnings
per share ........................................... 13,886,028 2,959,291
============ ===========
Weighted average shares used in computing diluted earnings
per share ........................................... 15,276,698 2,959,291
============ ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE> 5
RailWorks Corporation
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(in thousands, except share and per share data)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Revenues ................................................. $ 188,483 $ 86,380
Contract costs ........................................... 152,072 77,143
------------ -----------
Gross profit ............................................. 36,411 9,237
Selling, general and administrative expenses ............. 19,207 6,886
Depreciation and amortization expense .................... 2,570 (58)
Interest expense ......................................... 6,458 858
Interest and other (income) expense, net ................. (1,061) (287)
------------ -----------
Income before income taxes ............................... 9,237 1,838
Provision for income taxes ............................... 3,466 717
------------ -----------
Net income ............................................... $ 5,771 $ 1,121
============ ===========
Basic earnings per share ................................. $ .42 $ .38
============ ===========
$ .38 $ .38
Diluted earnings per share................................ ============ ===========
Weighted average shares used in computing basic earnings
per share ............................................. 13,831,195 2,959,291
============ ===========
Weighted average shares used in computing diluted earnings
per share ............................................. 15,209,696 2,959,291
============ ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE> 6
RailWorks Corporation
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER RETAINED
COMMON STOCK PREFERRED STOCK PAID-IN COMPREHENSIVE EARNINGS COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (DEFICIT) INCOME
------ ------ ------ ------ ------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 ................ 13,704 $137 14 $14 $ 121,296 $ -- $(11,439) $ --
Issuance of common stock for acquisition 193 2 -- -- 1,998 -- -- --
Stock option compensation .............. -- -- -- -- 37 -- -- --
Stock issuance costs ................... -- -- -- -- (58) -- -- --
Foreign currency translation adjustment -- -- -- -- -- 105 -- 105
Net income ............................. -- -- -- -- -- -- 5.771 5,771
------ ---- -- --- --------- ------- -------- ------
BALANCE, JUNE 30, 1999 ................. 13,897 $139 14 $14 $ 123,273 $ 105 $ (5,668) $5,876
====== ==== == === ========= ======= ======== ======
</TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1998
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER RETAINED
COMMON STOCK PREFERRED STOCK PAID-IN COMPREHENSIVE EARNINGS COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (DEFICIT) INCOME
------ ------ ------ ------ ------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 2,959 $30 -- $ -- $ -- $ -- $1,408 $ --
Net income ........... -- -- -- -- -- -- 1,121 1,121
----- --- --- ------ -------- ---- ------ ------
BALANCE, JUNE 30, 1998 2,959 $30 -- $ -- $ -- $ -- $2,529 $1,121
===== === === ====== ======== ==== ====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE> 7
RailWorks Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
------------------------
1999 1998
--------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................................... $ 5,771 $ 1,121
Adjustments to reconcile net income to net
Cash used in operating activities:
Depreciation and amortization ................................................. 5,144 (58)
Deferred taxes ................................................................ (81) --
Gain on sale of equipment ..................................................... (10) (8)
Change in assets and liabilities:
Accounts receivable and costs and estimated
earnings in excess of billings on uncompleted contracts ................... (14,151) (6,016)
Inventory .................................................................... (472) 471
Other current assets ......................................................... 1,969 (303)
Accounts payable and accrued liabilities ..................................... (11,950) 5,069
Accrued payroll and related withholdings ..................................... (335) (624)
Billings in excess of costs and estimated earnings on uncompleted contracts .. (5,521) (2,503)
Other current liabilities .................................................... 594 1,143
Other assets ................................................................. 2,278 (188)
Other liabilities ............................................................ (5,073) (5)
--------- -------
Net cash used in operating activities ................................... (21,837) (1,901)
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment .............................................. 1,917 8
Purchase of equipment and leasehold improvements ............................. (7,402) (163)
Loans to officers ............................................................ (5,805) --
Acquisition of subsidiaries, net of cash acquired ............................ (72,695) --
--------- -------
Net cash used in investing activities ................................... (83,985) (155)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings ............................................ 141,246 8,986
Debt issuance costs ........................................................... (4,160) --
Proceeds from issuance of Senior Subordinated Notes ........................... 125,000 --
Repayment of long-term borrowings ............................................. (155,366) (7,931)
--------- -------
Net cash provided by financing activities ............................... 106,720 1,055
--------- -------
EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS .................................... 105 --
NET INCREASE (DECREASE) IN CASH....................................................... 898 (1,001)
CASH, beginning of period ............................................................ 2,846 1,120
--------- -------
CASH, end of period .................................................................. $ 3,849 $ 119
========= =======
SUPPLEMENTARY DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest ........................................... $ 2,300 $ 588
========= =======
Cash paid during the period for income taxes ....................................... $ 1,180 $ 66
========= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE> 8
NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
In January 1999, the Company issued 100,000 shares of common stock as
partial consideration for 100% of the outstanding common stock in the FCM Rail,
Ltd. acquisition. In April 1999, the Company issued 93,842 shares of common
stock as partial consideration for 100% of the outstanding common stock in the
McCord Treated Wood, Inc. and Birmingham Wood, Inc. acquisitions.
During the first quarter of 1999, the Company issued an aggregate
amount of $9,000,000 in promissory notes and deferred payments as partial
consideration for the Midwest Railroad Construction & Maintenance Corporation of
Wyoming, FCM Rail, Ltd., F&V Metro Contracting Corp. and Affiliates and Gantrex
Group acquisitions. During the second quarter of 1999, the Company also issued
an aggregate amount of $1,500,000 and $2,500,000 in promissory notes and
deferred payments as partial consideration for the Pacific Northern Rail
Contractors, Inc. and M-Track Enterprises, Inc. acquisitions, respectively.
See Accompanying Notes to Consolidated Financial Statements.
<PAGE> 9
RailWorks Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included in the accompanying unaudited
consolidated financial statements. Operating results for the six months ended
June 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
NOTE 2 - ORGANIZATION
RailWorks Corporation ("RailWorks" or the "Company") was incorporated in
Delaware on March 20, 1998 and was initially capitalized on such date through
the sale of 10 shares of Common Stock for an aggregate purchase price of $100.
RailWorks seeks to become a leading nationwide provider of rail system
services, including construction and rehabilitation, repair and maintenance,
and related products. RailWorks' strategy is to provide a full range of rail
related services and products on a national basis and offer integrated rail
system solutions. To accomplish this objective, RailWorks acquired, effective
August 4, 1998, (the "Acquisitions") fourteen U.S. businesses (the "Founding
Companies"), completed an initial public offering (the "Offering") of five
million shares of its Common Stock on the same date (taken together "the
Consolidation") and, subsequent to the Consolidation, acquired, through merger
or purchase similar companies to expand its operations. RailWorks and the
Founding Companies merged together upon consummation of the Offering.
On November 4, 1998, the Company acquired substantially all of the net
assets of Sheldon Electric, Inc. ("Sheldon"). Also, on November 4, 1998, the
Company acquired the stock of Armcore Railroad Contractors, Inc.
("Armcore"), an Indiana corporation, located in Frankfort, Indiana.
On January 7, 1999, the Company acquired all the stock of MidWest Railroad
Construction & Maintenance Corporation of Wyoming ("MidWest") which specializes
in construction, repair and maintenance of railroad tracks in various western
states. On January 26, 1999, the Company acquired all the stock of Gantrex Group
("Gantrex") which manufactures and supplies crane rail fastening systems
including pad manufacturing, extrusion and continuous vulcanizing capabilities.
On January 29, 1999, the Company acquired all the stock of FCM Rail, Ltd.
("FCM") which provides customized leasing services to users of on track rail
equipment. In March 1999, the Company acquired all of the stock of F&V Metro
Contracting Corp. and Affiliates ("F&V") which performs electrical and
mechanical installations for transit and transportation agencies in the
metropolitan New York City area. The combined purchase price for these first
quarter 1999 acquisitions was $33,649,000 in cash, $9,000,000 of promissory
notes payable and deferred payments and 100,000 shares of RailWorks Common Stock
at an aggregate value of $1,000,000, plus the potential to receive earnouts if
targeted revenue and profit goals are achieved over the next five years. The
fair market value of assets purchased was $9,704,000 and the preliminary
goodwill was approximately $33,945,000. Assets acquired and liabilities assumed
have been recorded at their estimated fair values, and are subject to adjustment
when additional information concerning asset and liability valuations is
finalized.
On April 12, 1999, the Company acquired all the stock of McCord Treated
Wood, Inc. and Birmingham Wood, Inc. ("McCord") which supply creosote treated
wooden cross ties throughout the Southeastern United States. On April 30, 1999,
the Company acquired all the stock of M-Track Enterprises, Inc. ("M-Track")
which specializes in rail transit construction, repair and maintenance of track
in the metropolitan New York City area. In May 1999, the Company acquired all of
the stock of Pacific Northern Rail Contractors, Inc. ("PNR") which specializes
in construction, repair and maintenance of railroad tracks throughout Canada. On
June 3, 1999, the Company acquired all the stock of Neosho, Incorporated
("Neosho") which provides track and transit construction, repair and maintenance
to public and private industrial customers nationally. On June 30, 1999, the
company acquired all the stock of Earl Campbell Construction Company, Inc.
("Campbell") which specializes in construction, repair and maintenance of
railroad tracks in various Southern states. The combined purchase price for
these second quarter 1999 acquisitions was $40,794,000 in cash, $4,000,000 of
promissory notes payable and deferred payments and 93,842 shares of common
stock, plus the potential to receive earnouts if targeted revenue and profit
<PAGE> 10
goals are achieved over the next five years. The fair market value of assets
purchased for the second quarter 1999 acquisitions was approximately $9,145,000
and the preliminary goodwill recorded was approximately $36,649,000. Assets
acquired and liabilities assumed have been recorded at their estimated fair
values, and are subject to adjustment when additional information concerning
asset and liability valuations is finalized.
For accounting and financial statement purposes, Comstock Holdings, Inc.
(one of the Founding Companies) ("Comstock" or the "Accounting Acquirer") has
been identified as the accounting acquirer consistent with Staff Accounting
Bulletin ("SAB") No. 97 of the Securities and Exchange Commission. The
historical financial statements of RailWorks prior to August 4, 1998, are those
of Comstock. The acquisitions of the remaining Founding Companies and
subsequent acquired companies have been accounted for as purchases in
accordance with Accounting Principles Board ("APB") Statement No. 16 "Business
Combinations". Each purchase price has been allocated to the assets and the
liabilities assumed based upon the estimated fair values at the date of
acquisition.
NOTE 3 - SENIOR SUBORDINATED NOTES
On April 1, 1999, the Company sold $125 million of Senior Subordinated
Notes. The notes were sold in a private placement under Rule 144A under the
Securities Act of 1933 and were thereafter exchanged for similar notes which
were registered under such Act. The net proceeds from the offering were used to
repay approximately $100 million of indebtedness with the remaining proceeds
available for general corporate purposes including future acquisitions. The
notes have an interest rate of 11.50%, payable semi-annually and are due in
2009 with no interim amortization requirements.
On April 4, 1999, RailWorks negotiated the termination of the previously
disclosed $10,000,000 interest rate swap with First Union Bank. The Bank agreed
to pay a Termination Fee of $32,100 to RailWorks Corporation, which was
recorded as a reduction in interest expense and which nullified the swap
transaction.
NOTE 4 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share". This statement supersedes APB Opinion No. 15,
"Earnings per Share" and simplifies the computation of earnings per share
("EPS"). Primary EPS is replaced with a presentation of basic EPS. Basic EPS
includes no dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Fully diluted EPS is replaced with diluted EPS. Diluted EPS
reflects the potential dilution if certain securities are converted and also
includes certain shares that are contingently issuable.
The following is the computation for the three months ended June 30, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net income ............................................................. $ 4,135,000 $ 455,000
=========== ==========
Shares used for calculating basic EPS .................................. 13,886,028 2,959,291
Dilutive effect of:
Stock options ................................................ 20,670 *
Convertible preferred shares ................................. 1,370,000 *
----------- ----------
Shares used for calculating diluted EPS ................................ 15,276,698 2,959,291
=========== ==========
Basic EPS ......................................................... $ .30 $ .15
=========== ==========
Diluted EPS ....................................................... $ .27 $ .15
=========== ==========
</TABLE>
* There were no stock options and convertible preferred shares issued and
outstanding during the three months ended June 30, 1998.
<PAGE> 11
The following is the computation for the six months ended June 30, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net income ............................ $ 5,771,000 $ 1,121,000
=========== ==============
Shares used for calculating basic EPS.. 13,831,195 2,959,291
Dilutive effect of:
Stock options ............... 8,501 *
Convertible preferred shares. 1,370,000 *
----------- --------------
Shares used for calculating diluted EPS 5,209,696 2,959,291
=========== ==============
Basic EPS ........................ $ .42 $ .38
=========== ==============
Diluted EPS ...................... $ .38 $ .38
=========== ==============
</TABLE>
* There were no stock options and convertible preferred shares issued and
outstanding during the six months ended June 30, 1998.
NOTE 5 - SEGMENT REPORTING
During 1998, the Company adopted SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131"). In accordance with
SFAS No. 131, the Company has three reportable segments: (1) transit services,
(2) rail construction, rehabilitation, repair and maintenance services and (3)
rail products and supplies. The transit services segment provides transit
construction and rehabilitation services, as well as installation of signaling,
communications and electrical systems. The rail construction services segment
provides design, engineering, construction, rehabilitation and repair and
maintenance of track systems. The rail products and supplies segment provides a
broad range of rail related products, including treated wood ties. RailWorks
evaluates performance based on profit or loss from operations before income
taxes, interest income and expense, and non-recurring gains and losses. Each of
the segments follow a uniform set of accounting policies.
The following matrix presents operational and financial condition data as
of and for the three months ended June 30, 1999 for analysis by reportable
segment (in thousands). For the three months ended June 30, 1998 Comstock
operated in one reportable segment: Transit Services. Accordingly, no
additional disclosures are required under SFAS No. 131.
<TABLE>
<CAPTION>
TRANSIT RAIL PRODUCTS RAIL OTHER/
SERVICES AND SUPPLIES CONSTRUCTION CORPORATE TOTAL
-------- ------------ ------------ --------- -----
<S> <C> <C> <C> <C> <C>
Revenues from external
Customers ..................................... $ 69,150 $13,812 $37,761 $ -- $120,723
Inter-segmental revenue ......................... 1,686 1,363 1,864 -- 4,913
Depreciation/amortization ....................... 57 759 1,169 1,205 3,190
Segment operating profit (loss) ................. 4,975 2,864 6,120 (3,160) 10,799
Segment assets .................................. 104,474 29,945 74,733 323,207 532,359
</TABLE>
The Company's reconciliation of segment totals to enterprise values are as
follows (in thousands):
<TABLE>
<CAPTION>
REVENUES:
<S> <C>
Total revenues for reportable segments ............ $ 120,723
Elimination of intersegment revenues .............. (4,913)
---------
Consolidated revenues ............................. $ 115,810
=========
OPERATING PROFIT OR LOSS:
Total profit or loss for reportable segments ...... $ 10,799
=========
</TABLE>
<PAGE> 12
<TABLE>
<S> <C>
ASSETS:
Total assets for reportable segments .............. $ 532,359
Elimination of intercompany receivables/payables .. (4,610)
Elimination of investments in subsidiaries ........ (85,131)
---------
Consolidated assets ............................... $ 442,618
=========
</TABLE>
The following matrix presents operational and financial condition data as
of and for the six months ended June 30, 1999 for analysis by reportable
segment (in thousands). For the six months ended June 30, 1998 Comstock
operated in one reportable segment: Transit Services. Accordingly, no
additional disclosures are required under SFAS No. 131.
<TABLE>
<CAPTION>
TRANSIT RAIL PRODUCTS RAIL OTHER/
SERVICES AND SUPPLIES CONSTRUCTION CORPORATE TOTAL
-------- ------------ ------------ --------- -----
<S> <C> <C> <C> <C> <C>
Revenues from external
Customers ..................................... $117,908 $22,053 $54,087 $ -- $194,048
Inter-segmental revenue ......................... 1,686 1,697 2,182 -- 5,565
Depreciation/amortization ....................... 89 1,188 1,734 2,133 5,144
Segment operating profit (loss) ................. 6,781 4,372 7,307 (3,826) 14,634
Segment assets .................................. 104,474 29,945 74,733 323,207 532,359
</TABLE>
The Company's reconciliation of segment totals to enterprise values are as
follows (in thousands):
<TABLE>
<CAPTION>
REVENUES:
<S> <C>
Total revenues for reportable segments ............ $ 194,048
Elimination of intersegment revenues .............. (5,565)
---------
Consolidated revenues ............................. $ 188,483
=========
OPERATING PROFIT OR LOSS:
Total profit or loss for reportable segments ...... $ 14,634
=========
ASSETS:
Total assets for reportable segments .............. $ 532,359
Elimination of intercompany receivables/payables .. (4,610)
Elimination of investments in subsidiaries ........ (85,131)
---------
Consolidated assets ............................... $ 442,618
=========
</TABLE>
NOTE 6 - CAPITAL STOCK AND STOCK OPTIONS
The Company issued 93,842 shares of common stock as partial
consideration for 100% of the outstanding common stock in the McCord Treated
Wood, Inc. and Birmingham Wood, Inc. acquisitions.
On August 13, 1998, the Company approved the 1998 Stock Incentive Plan
(the "Plan") which provides for the granting or awarding of stock options and
stock appreciation rights to non-employee directors, officers and other key
employees (including officers of the Subsidiaries) and consultants. The Plan
reserves for issuance 2,000,000 shares of common stock. In general, the terms
of the option awards (including vesting schedules) will be established by the
Compensation Committee of the Company's board of directors.
<PAGE> 13
During the three months ended June 30, 1999 the Company issued options to
purchase 100,000 shares of common stock to a president at one of the subsidiary
companies. The exercise price of the options was the market price of the stock
on the date of grant. The options expire ten years after the date of grant.
Also during the quarter , the Company issued options to purchase 300,000 shares
of common stock to two employees of RailWorks. The exercise price of the
options was the market price of the stock on the dates of grant. The options
expire ten years after the date of grant.
NOTE 7 - LOANS TO OFFICERS
Pursuant to their employment agreements, certain officers of the Company
have been granted loans for the payment of income taxes related to the stock
grants. These loans have a term of five years, are interest bearing and are
collateralized by the stock grant.
NOTE 8 - SUBSEQUENT EVENT
ACQUISITION
On August 3, 1999, the Company acquired all the stock of Wood Waste
Energy, Inc. ("Wood Waste") which collects used cross ties along the railroad
rights of way and processes them into fuel which is sold to industrial
customers.
CREDIT FACILITY
On August 5, 1999 the Company expanded its $75 million Senior
Revolving Credit Facility (the "Credit Facility") to $105 million, including a
$15 million Canadian Credit Facility. This expansion was accomplished as an
amendment to the Company's existing Revolving Credit Facility with all terms
and conditions remaining essentially the same. Also included in the Credit
Facility is a $5 million Swingline Revolving Facility (the "Swingline"). The
Swingline allows for borrowings and repayments within the Company's existing
Credit Facility in increments of $1 with Bank of America, formerly NationsBank,
directly. The Credit Facility expires on August 5, 2002, however RailWorks may
request Bank of America to extend the agreement for a one-year period. The
proceeds of any borrowings under the Credit Facility are to be utilized for
working capital, future acquisitions and letters of credit.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
INTRODUCTION
RailWorks Corporation was incorporated on March 20, 1998. Concurrently
with the consummation of the Company's initial public offering (the "Offering")
on August 4, 1998, the Company acquired 14 companies (the "Founding Companies")
each of which has been operating as a separate independent entity providing
rail construction, rehabilitation, repair and maintenance and related products.
For accounting and financial statement purposes, Comstock Holdings, Inc.
("Comstock" one of the Founding Companies) has been identified as the
accounting acquirer consistent with Staff Accounting Bulletin ("SAB") No. 97 of
the Securities and Exchange Commission because its owners received the largest
portion, 34.6%, of the shares of Common Stock issued to the owners of the
Founding Companies in the consolidation. The historical financial statements
prior to August 4, 1998 are those of Comstock. The Balance Sheet as of June 30,
1999, includes all companies acquired through that date. The Results of
Operations for the six months ended June 30, 1999 and the Statement of Cash
Flows for the six months ended June 30, 1999, include the results of Comstock
for the entire period plus all other acquired companies from their date of
acquisition.
This Quarterly Report on Form 10-Q contains forward-looking statements
made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 ("Forward-Looking Statements"), which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the Forward-Looking Statements. Factors that
might cause such a difference include the risks described under the caption
"Management's Discussion and Analysis of Financial Condition
<PAGE> 14
and Results of Operations" in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998. Such factors may also cause substantial
volatility in the market price of the Company's Common Stock.
HISTORICAL RESULTS OF OPERATIONS
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998.
Revenue. Revenue increased $71.1 million, or 158.8%, from $44.8 million
for the three months ended June 30, 1998 to $115.8 million for the three months
ended June 30, 1999. The increase was due to the fact that the 1998 data is
that of Comstock alone. The 1999 data includes Comstock as well as the other
twenty-four companies that now comprise RailWorks Corporation.
Gross Profit. Gross profit increased $19.0 million or 394.6% from $4.8
million for the three months ended June 30, 1998 to $23.8 million for the three
months ended June 30, 1999. The increase was due to the fact that the 1998 data
is that of Comstock alone. The 1999 data includes Comstock as well as the other
twenty-four companies that now comprise RailWorks Corporation. The gross profit
percentage increased from 10.8% for the three months ended June 30, 1998 to
20.6% for the three months ended June 30, 1999. This increase was the result of
higher profitability associated with the mix and type of work performed during
the second quarter of 1999 by the consolidated group as compared to historical
Comstock margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $7.8 million or 212.2%, from $3.7 million for
the three months ended June 30, 1998 to $11.4 million for the three months
ended June 30, 1999. The increase is due to the fact that the 1998 data is that
of Comstock alone. The 1999 data includes Comstock as well as the twenty-four
other companies that now comprise RailWorks Corporation. As a percentage of
revenue, selling, general and administrative expenses increased from 8.2% for
the three months ended June 30, 1998 to 9.9% for the three months ended June
30, 1999. This percentage increase was a result of acquired companies having
higher overhead selling, general and administrative cost structures than
Comstock.
Net Income. Net income increased $3.7 million, or 808.8%, from $455,000
for the three months ended June 30, 1998 to $4.1 million for the three months
ended June 30, 1999, as a result of the items mentioned above.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998.
Revenue. Revenue increased $102.1 million, or 118.2%, from $86.4 million
for the six months ended June 30, 1998 to $188.5 million for the six months
ended June 30, 1999. The increase was due to the fact that the 1998 data is
that of Comstock alone. The 1999 data includes Comstock as well as the other
twenty-four companies that now comprise RailWorks Corporation.
Gross Profit. Gross profit increased $27.2 million or 294.2% from $9.2
million for the six months ended June 30, 1998 to $36.4 million for the six
months ended June 30, 1999. The increase was due to the fact that the 1998 data
is that of Comstock alone. The 1999 data includes Comstock as well as the other
twenty-four companies that now comprise RailWorks Corporation. The gross profit
percentage increased from 10.7% for the six months ended June 30, 1998 to 19.3%
for the six months ended June 30, 1999. This increase was the result of higher
profitability associated with the mix and type of work performed during the
second quarter of 1999 by the consolidated group as compared to historical
Comstock margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $12.3 million or 178.9%, from $6.9 million
for the six months ended June 30, 1998 to $19.2 million for the six months
ended June 30, 1999. The increase is due to the fact that the 1998 data is that
of Comstock alone. The 1999 data includes Comstock as well as the twenty-four
other companies that now comprise RailWorks Corporation. As a percentage of
revenue, selling, general and administrative expenses increased from 8.0% for
the six months ended June 30, 1998 to 10.2% for the six months ended June 30,
1999. This percentage increase was a result of acquired companies having higher
overhead selling, general and administrative cost structures than Comstock.
Net Income. Net income increased $4.7 million, or 414.8%, from $1.1
million for the six months ended June 30, 1998 to $5.8 million for the six
months ended June 30, 1999, as a result of the items mentioned above.
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999 RailWorks had working capital of approximately $102.1
million, a $34.7 million increase from December 31, 1998 when working capital
was $67.4 million. Net cash used in operating activities was approximately
$21.8 million for the six months ended June 30, 1999. Net cash used in
investing activities was approximately $84.0 million for the six months ended
June 30, 1999 which included $72.7 million of cash for acquisitions. Net cash
provided by financing activities for the six months ended June 30, 1999 was
approximately $106.7 million, which included $125 million from the issuance of
Senior Subordinated Notes. Also included in financing activities was $141.2
million from the issuance of long-term borrowings, offset by debt repayment of
approximately $155.4 million.
As of July 30, 1999, RailWorks had borrowings outstanding of $64.5 million
pursuant to the Credit Facility and $416,968 on the Swingline. Availability of
borrowings will be subject to a borrowing base formula. The Credit Facility is
secured by a first lien on all of the capital stock of RailWorks' subsidiaries
and on all accounts receivable of RailWorks and its subsidiaries. The credit
agreement (the "Credit Agreement") governing the Credit Facility contains a
negative pledge on all other assets of RailWorks and its Subsidiaries and other
usual and customary covenants and events of default for transactions of the
type contemplated by the Credit Facility. RailWorks may also finance future
acquisitions with shares of Common Stock.
The Company believes that funds generated from operations, together with
existing cash and borrowings under the amended and expanded Credit Facility,
will be sufficient to finance its current operations, planned capital
expenditures, pending acquisitions and internal growth for the foreseeable
future. If the Company were to make a significant acquisition for cash, it may
be necessary for the Company to obtain additional debt or equity financing.
YEAR 2000
The Company has developed a plan to address Year 2000 issues. The plan
addresses three main areas: (a) information systems; (b) embedded chips; and
(c) supply chain readiness (including customers as well as inventory and
non-inventory suppliers). To oversee the process, the Company has established a
committee comprised of accounting and information systems personnel who are
reporting regularly to the board of directors and the Audit Committee.
The Company has completed evaluation and testing of its internal
information systems and has substantially completed remediation and upgrading
of these systems. With respect to other equipment with date sensitive operating
controls, such as manufacturing equipment, HVAC, security and other similar
systems, the Company has substantially completed remediation or replacement of
these items. The Company is continuing the process of identifying and
contacting suppliers, both inventory and non-inventory and customers to
determine the state of their Year 2000 readiness.
Based upon the Company's current estimates, incremental out-of-pocket
costs of its Year 2000 program are expected to not exceed $50,000. As of June
30, 1999, approximately $25,000 of these funds had been spent. These costs are
expected to include limited use of third party consultants, remediation of
existing computer software and/or replacement. These costs do not include
internal management time and the deferral of other projects, the effects of
which are not expected to be material to the Company's results of operations or
financial condition.
At this stage of the process, the Company believes that it is difficult to
specifically identify the most reasonably likely worst case Year 2000 scenario.
As with all manufacturers and service providers, a reasonably likely worst case
scenario would be the result of failures of third parties (including, without
limitation, governmental entities and entities with which the Company has no
direct involvement) that continue for more than several days in various
geographic areas where the Company provides services, its products are produced
or from which the Company's raw materials and components are sourced. In
connection with its manufacturing and supply of raw materials and components,
the Company is considering various contingency plans. Any such plans would
necessarily be limited to matters over which the Company can reasonably
control.
The Company's Year 2000 efforts are ongoing and its overall plan, as well
as the consideration of contingency plans, will continue to evolve, as new
information becomes available. While the Company anticipates continuity of its
business activities, that continuity will be dependent upon its ability, and
the ability of third parties upon whom the Company relies on directly or
indirectly, to be Year 2000 compliant.
<PAGE> 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to market risk associated principally with changes
in interest rates. Interest rate exposure has been principally limited to the
$62.3 million of long-term debt under the Company's revolving credit agreement
outstanding at June 30, 1999. All of that debt is priced at interest rates that
float with the market. A 50 basis point movement in the interest rate on the
floating rate debt would have resulted in an approximate $312,000 annualized
increase or decrease in interest expense and cash flows. The remaining debt is
fixed rate debt. The Company will from time to time enter into interest rate
swaps on its debt, when it believes there is a clear financial advantage for
doing so. The Company does not use derivative financial or commodity
instruments for trading purposes and the use of such instrument is subject to
strict approval levels by senior officers. Typically, the use of such
derivative instruments is, in the aggregate, not material to the company's
financial position, results of operations and cash flows. At June 30, 1999
there were no swaps outstanding.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
(i) Changes in Securities
None.
(ii) Use of Proceeds
None.
(iii) Recent Sales of Unregistered Securities
On April 12, 1999, 93,842 shares of unregistered Common Stock were issued
to the owners of McCord Treated Wood, Inc. and Birmingham Wood, Inc., as
partial consideration for 100% of the outstanding stock in that acquisition.
The stock was issued in reliance on the exemption from registration under
Section 4(2) of the Securities Act of 1933.
During the three months ended June 30, 1999, the Company issued options to
purchase 100,000 shares of common stock to a president at one of the subsidiary
companies. The exercise price of the options was the market price of the stock
on the date of grant. The options expire ten years after the date of grant.
Also during the quarter, the Company issued options to purchase 300,000 shares
of common stock to two employees of RailWorks. The exercise price of the
options was the market price of the stock on the dates of grant. The options
expire ten years after the date of grant.
<PAGE> 17
Item 3. Default Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On May 27, 1999 the Company held its annual meeting of stockholders
and two proposals were considered. All such proposals were approved
by the stockholders.
The first proposal was to elect the three nominees to the Board of
Directors. The following is a separate tabulation with respect to the
vote for each nominee.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Peter Alan Pasch: For: 12,029,270 Against: 0 Abstain: 9,800
Ronald Drucker: For: 12,029,270 Against: 0 Abstain: 9,800
John Kennedy: For: 12,029,270 Against: 0 Abstain: 9,800
</TABLE>
Messrs. John Larkin, Michael Azarela, Scott Brace, R.C. Matney, Steve
Goggin and Lambertus Tameling, whose terms have not expired,
continued as directors. See Item 5 for information regarding a
subsequent change in directors.
The second proposal was to approve and ratify the Board of Directors'
appointment of Arthur Andersen LLP as the Company's independent
accountants for the 1999 fiscal year. The following is a breakdown of
the vote on such matter.
Abstained For: Against:
--------- ---- --------
6,000 12,023,270 9,800
Item 5. Other Information
Following the May 27, 1999 Annual Meeting of Stockholders, Mr. Steve
Goggin and Mr. Lambertus Tameling resigned as members of the
Company's Board of Directors. On July 27, 1999, the Board of
Directors elected Mr. Kenneth R. Burk and Mr. Donald P. Traviss to
fill the vacancies on the Board of Directors.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit List:
27.1 Financial Data Schedule (for SEC filing purposes only)
<PAGE> 18
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.
RailWorks Corporation
/s/ Michael R. Azarela
---------------------------
By: Michael R. Azarela
Executive Vice President and
Chief Financial Officer
Date: August 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RAILWORKS CORPORATION FOR THE SIX MONTHS ENDED JUNE 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,849,000
<SECURITIES> 0
<RECEIVABLES> 120,605,000
<ALLOWANCES> 592,000
<INVENTORY> 19,096,000
<CURRENT-ASSETS> 199,052,000
<PP&E> 66,680,000
<DEPRECIATION> 6,431,000
<TOTAL-ASSETS> 442,618,000
<CURRENT-LIABILITIES> 96,956,000
<BONDS> 0
0
14,000
<COMMON> 139,000
<OTHER-SE> 117,710,000
<TOTAL-LIABILITY-AND-EQUITY> 442,618,000
<SALES> 188,483,000
<TOTAL-REVENUES> 188,483,000
<CGS> (152,072,000)
<TOTAL-COSTS> (152,072,000)
<OTHER-EXPENSES> (21,777,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,458,000)
<INCOME-PRETAX> 9,237,000
<INCOME-TAX> (3,466,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,771,000
<EPS-BASIC> .42
<EPS-DILUTED> .38
</TABLE>
