<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
==============================
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 17, 1999
RAILWORKS CORPORATION
----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
Delaware 0-24639 58-2382378
- ----------------------------- ------------------ ----------------------
<S> <C> <C>
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No. )
1104 Kenilworth Drive, Suite 301, Baltimore, Maryland 21204
- ----------------------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(410) 512-0500
----------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
(Former name of former address, if changed since last report)
The Exhibit Index is at page 61.
<PAGE> 2
Item 5. Other Events
RailWorks Corporation, a Delaware corporation (the "Company"),
is a leading nationwide provider of rail system services, including
construction and rehabilitation, repair and maintenance, and related products.
The Company is filing this report to disseminate to the public the following
financial statements:
<TABLE>
<CAPTION>
Page
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RAILWORKS CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants........................................................ 4
Consolidated Balance Sheets as of December 31, 1998 and 1997.................................... 5
Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997
and 1996..................................................................................... 6
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1998, 1997 and 1996.......................................................................... 7
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997
and 1996..................................................................................... 8
Notes to Consolidated Financial Statements...................................................... 9
RAILWORKS CORPORATION UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Unaudited Pro Forma Financial Statements -- Basis of Presentation............................... 26
Unaudited Pro Forma Balance Sheet as of December 31, 1998....................................... 27
Unaudited Pro Forma Statement of Operations for the Year Ended December 31, 1998................ 29
Notes to Unaudited Pro Forma Financial Statements............................................... 30
GANTREX GROUP
Report of Independent Chartered Accountants..................................................... 32
Combined Balance Sheet as of December 31, 1998.................................................. 33
Combined Statement of Income and Retained Earnings for the Year Ended December 31, 1998......... 34
Combined Statement of Cash Flows for the Year Ended December 31, 1998........................... 35
Notes to Combined Financial Statements.......................................................... 36
MID WEST RAILROAD CONSTRUCTION AND MAINTENANCE CORPORATION OF
WYOMING
Report of Independent Public Accountants........................................................ 40
Balance Sheet as of December 31, 1998........................................................... 41
Statement of Operations and Retained Earnings for the Year Ended December 31, 1998.............. 42
Statement of Cash Flows for the Year Ended December 31, 1998................................... 43
Notes to Financial Statements................................................................... 44
F & V METRO CONTRACTING CORP. AND AFFILIATES
Report of Independent Public Accountants........................................................ 48
Combined Statement of Net Liabilities as of November 30, 1998................................... 49
Combined Statement of Operations for the Year Ended November 30, 1998........................... 50
Combined Statement of Cash Flows for the Year Ended November 30, 1998........................... 51
Notes to Combined Financial Statements.......................................................... 52
</TABLE>
2
<PAGE> 3
Item 7. Financial Statements and Exhibits
(c) Exhibits.
The following exhibits are filed part of this Report:
27.1 Financial Data Schedule (for SEC purposes only)
3
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To RailWorks Corporation:
We have audited the accompanying consolidated balance sheets of RailWorks
Corporation (a Delaware corporation) and Subsidiaries and its predecessor entity
(the "Company"), as of December 31, 1998 and 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and the disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1998 and 1997 and the results of its operations and its cash
flows for the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Stamford, Connecticut
February 8, 1999
4
<PAGE> 5
RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 2,846 $ 1,120
Accounts receivable, net of allowance for doubtful
accounts of $442 and $58................................ 77,181 46,436
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 24,792 17,149
Inventories:
Raw materials........................................... 7,535 1,240
Finished goods.......................................... 1,550 --
Deferred tax asset........................................ 870 1,020
Other current assets...................................... 3,401 977
-------- -------
Total current assets............................... 118,175 67,942
-------- -------
PROPERTY, PLANT AND EQUIPMENT............................... 14,514 448
LESS ACCUMULATED DEPRECIATION AND
AMORTIZATION.............................................. 1,122 56
-------- -------
PROPERTY, PLANT AND EQUIPMENT, NET.......................... 13,392 392
-------- -------
OTHER ASSETS:
Excess of cost over net assets acquired, net of
amortization............................................ 93,845 --
Deferred tax asset........................................ 85 --
Loans to officers......................................... 959 --
Other..................................................... 2,180 18
-------- -------
Total other assets................................. 97,069 18
-------- -------
$228,636 $68,352
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt...................... $ 931 $ 2,555
Accounts payable and accrued liabilities.................. 35,436 22,547
Accrued payroll and related withholdings.................. 3,777 4,711
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 5,958 8,510
Other current liabilities................................. 4,682 3,119
-------- -------
Total current liabilities.......................... 50,784 41,442
-------- -------
Long-term debt............................................ 50,573 12,449
Excess of acquired net assets over cost, net of
amortization............................................ 8,662 10,210
Other liabilities......................................... 8,609 2,813
-------- -------
Total long-term liabilities........................ 67,844 25,472
-------- -------
Total liabilities.................................. 118,628 66,914
-------- -------
Stockholders' Equity:
Series A, convertible preferred stock, $1.00 par value,
authorized 10,000,000 shares, 13,700 shares issued and
outstanding............................................. 14 --
Common stock, $0.01 par value, authorized 100,000,000
shares, 13,703,530 shares issued and outstanding in
1998, 2,959,291 issued and outstanding in 1997.......... 137 30
Additional paid-in capital................................ 121,296 --
Retained earnings (deficit)............................... (11,439) 1,408
-------- -------
Total stockholders' equity......................... 110,008 1,438
-------- -------
$228,636 $68,352
======== =======
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Revenue.................................................... $ 212,533 $ 153,610 $188,767
Cost of revenue............................................ 182,817 136,678 169,303
---------- ---------- --------
Gross profit............................................... 29,716 16,932 19,464
Selling, general and administrative expenses............... 17,040 13,733 15,053
Non-recurring expenses..................................... 19,965 -- --
Transaction fees........................................... 1,281 -- --
Depreciation and amortization expense...................... 2,105 (213) 1,365
---------- ---------- --------
Operating (loss) income.................................... (10,675) 3,412 3,046
---------- ---------- --------
Other income(expense):
Interest expense......................................... (2,334) (1,761) (2,023)
Interest and other income................................ 1,634 975 476
Management fee to former parent.......................... -- -- (941)
---------- ---------- --------
Other expense, net....................................... (700) (786) (2,488)
---------- ---------- --------
(Loss) income before income taxes.......................... (11,375) 2,626 558
Provision for income taxes................................. 1,472 1,198 500
---------- ---------- --------
Net (loss) income.......................................... $ (12,847) $ 1,428 $ 58
========== ========== ========
Basic and diluted (loss) earnings per share................ $ (1.67) $ .48
========== ==========
Weight average shares used in computing (loss) earnings per
share.................................................... 7,694,267 2,959,291
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 7
RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL
--------------- --------------- PAID-IN RETAINED EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ ------ ------ ------ --------------- ----------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
BALANCE, DECEMBER 31, 1995................. 1,200 $ -- -- $-- $ 22,114 $ (1,547) $ 20,567
Capital contribution..................... -- -- -- -- 1,110 -- 1,110
Transfer of note receivable.............. -- -- -- -- (4,745) -- (4,745)
Net income............................... -- -- -- -- -- 58 58
------ ---- -- --- -------- -------- --------
BALANCE DECEMBER 31, 1996.................. 1,200 $ -- -- $-- $ 18,479 $ (1,489) $ 16,990
====== ==== == === ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 1, 1997.................... -- $ -- -- $-- $ -- $ -- $ --
Capital contribution..................... 111 1 -- -- 9 -- 10
Recapitalization......................... 2,849 29 -- -- (9) (20) --
Net income............................... -- -- -- -- -- 1,428 1,428
------ ---- -- --- -------- -------- --------
BALANCE DECEMBER 31, 1997.................. 2,960 30 -- -- -- 1,408 1,438
Issuance of common stock................. 5,908 59 -- -- 54,023 -- 54,082
Non-cash compensation charge............. 1,206 12 -- -- 14,861 -- 14,873
Initial public offering, net of
underwriting discount and offering
expenses............................... 5,000 50 -- -- 52,412 -- 52,462
Issuance of preferred stock.............. (1,370) (14) 14 14 -- -- --
Net loss................................. -- -- -- -- -- (12,847) (12,847)
------ ---- -- --- -------- -------- --------
BALANCE, DECEMBER 31, 1998................. 13,704 $137 14 $14 $121,296 $(11,439) $110,008
====== ==== == === ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
7
<PAGE> 8
RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
1998 1997 1996
-------- -------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................................... $(12,847) $ 1,428 $ 58
Adjustments to reconcile net (loss) income to net cash used
in operating activities:
Depreciation and amortization............................. 2,105 (213) 1,365
Non-cash compensation charge.............................. 14,873 -- --
Deferred taxes............................................ 65 664 --
Gain on sale of division.................................. (861) -- --
Gain on sale of equipment................................. (3) (194) (39)
Change in contract reserves............................... -- -- (3,000)
Change in operating assets and liabilities:
Accounts receivable and costs and estimated earnings in
excess of billings on uncompleted contracts............ (15,236) (8,176) (6,231)
Inventory............................................... (274) 296 (947)
Other current assets.................................... (1,066) (271) (4,209)
Accounts payable and accrued liabilities................ 2,726 (1,159) (1,772)
Accrued payroll and related withholdings................ (1,269) 549 365
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. (4,458) 3,320 2,307
Other current liabilities............................... (1,252) 909 (103)
Other assets............................................ (1,145) (18) (3)
Other liabilities....................................... 4,713 (336) 257
-------- -------- --------
Net cash used in operating activities............... (13,929) (3,201) (11,952)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of division............................ 1,000 -- --
Proceeds from sale of equipment........................... 32 194 130
Purchase of equipment and leasehold improvements.......... (1,280) (448) (690)
Acquisition of subsidiaries, net of cash acquired......... (52,535) -- --
Contingent earnout payment................................ (1,600) -- --
-------- -------- --------
Net cash used in investing activities............... (54,383) (254) (560)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan origination fee........................... (1,615) -- --
Proceeds from issuance of common stock, net............... 52,462 -- 1,110
Proceeds from contingent promissory notes................. -- 14,608 --
Repayment of contingent promissory notes.................. -- (157) --
Loans to officers......................................... (959) -- --
Proceeds from note payable................................ -- 4,000 --
Repayments of note payable................................ -- (4,000) --
Proceeds from long-term borrowing......................... 61,325 16,937 7,961
Repayment of long-term borrowing.......................... (41,175) (26,823) (2,312)
-------- -------- --------
Net cash provided by financing activities........... 70,038 4,565 6,759
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 1,726 1,110 (5,753)
CASH AND CASH EQUIVALENTS, beginning of year................ 1,120 10 9,924
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year...................... $ 2,846 $ 1,120 $ 4,171
======== ======== ========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest.................... $ 2,107 $ 1,478 $ 1,305
======== ======== ========
Cash paid during the year for income taxes................ $ 392 $ 188 $ 57
======== ======== ========
</TABLE>
NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES: The Company issued
8,867,648 shares of common stock in exchange for 100% of the outstanding common
stock of the Subsidiaries.
See Notes to Consolidated Financial Statements.
8
<PAGE> 9
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
RailWorks Corporation, a Delaware corporation, ("RailWorks" or the
"Company"), was formed in March 1998 to acquire, integrate and facilitate the
growth of similar and complementary companies in the rail system services and
products industry.
On July 29, 1998, RailWorks announced the initial public offering ("IPO")
of 5,000,000 shares of its common stock at a price of $12.00 per share. The
initial public offering was consummated on August 4, 1998. The capital raised by
this offering was $55,800,000 net of underwriting discounts.
Concurrent with the consummation of the IPO, the Company acquired 14 groups
of companies (the "Founding Companies") in the rail system services and related
products industry. The aggregate consideration paid by the Company to acquire
these companies was approximately $51,100,000 in cash and 8,867,648 shares of
RailWorks common stock.
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
acquisitions of the remaining Founding Companies were accounted for using the
purchase method of accounting and accordingly, the purchase price has been
allocated to the assets acquired and the liabilities assumed based upon the fair
values at the date of acquisition. The acquisitions of the Founding Companies
resulted in the recording of goodwill of approximately $94,817,000, which is
being amortized over 40 years.
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 Frankfurt, Indiana. The aggregate price paid for
these acquisitions was approximately $3,100,000 in cash. The acquisitions of
Sheldon and Armcore were accounted for using the purchase method of accounting.
The estimated goodwill associated with these acquisitions aggregated
approximately $2,449,000.
Comstock was incorporated on November 20,1996 as a Delaware corporation for
the purpose of acquiring L.K. Comstock & Company, Inc. (the "Predecessor
Company"). Comstock had no operations from incorporation through January 1,
1997.
Effective January 1, 1997, Comstock purchased the stock of the Predecessor
Company. The financial statements, including those of the Predecessor Company
prior to its acquisition, have been prepared by Comstock management and present
the financial position and results of operations of Comstock as of and for the
year ended December 31, 1997 and of the Predecessor Company for the periods
prior to January 1, 1997. Accordingly, the financial information for periods
prior to 1997 do not reflect the significant impact of the Predecessor Company
acquisition or of the purchase accounting adjustments on the financial position
and results of operations of Comstock.
The Predecessor Company was acquired by Comstock through various agreements
(the "Agreements") entered into with Comstock Group, Inc. ("Group", the
Predecessor Company's former parent), Spie Group Inc. ("Spie", the parent of
Group), Spie Enertrans SA ("Enertrans", the former parent of Spie) and Schneider
Electric Comstock Inc. ("Schneider", parent of Spie). The Agreements principally
called for: (1) the sale of the common stock of the Predecessor Company to
Comstock (the "Sale"), (2) the issuance of various contingent promissory notes
by Comstock to Enertrans and Group in exchange for approximately $18,903,000,
(3) the transfer of
9
<PAGE> 10
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
various intangible assets of Spie to Comstock, (4) the provision for various
income tax elections and indemnifications, and (5) certain other
indemnifications and cooperative understandings. The effects of the Agreements
have been accounted for as a purchase in the accompanying financial statements
as of and for the year ended December 31, 1997. In connection with the IPO of
RailWorks, Group agreed to accept a one-time payment of $1,600,000 to satisfy
all potential contingent payments owed in connection with the Agreements. Such
payment was made by RailWorks on September 8, 1998.
As part of the Agreements, certain intangible assets (recorded at no value)
were assigned to Comstock. In addition, Comstock issued a promissory note (the
"Contingent Promissory Note"), collateralized by certain investments related to
customer contracts involving claims and an investment in a joint venture (the
"Investments"). The remaining balance of the Contingent Promissory Note of
$12,240,000 at December 31, 1998 is payable only from amounts collected by
Comstock relating to the Investments until April 3, 2007, at which time the note
is cancelled. As such, Enertrans and any successor to it or creditor may not
look to any other Comstock assets to satisfy this indebtedness. Accordingly,
management believes a right of offset exists for financial reporting purposes
and the Investments and the Contingent Promissory Note have been offset in the
accompanying balance sheets at December 31, 1998 and 1997 in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
In connection with the Sale, $5,095,000 of cash from the Predecessor
Company was used by Comstock to fund its acquisition of the Predecessor Company.
Accordingly, and as a result of the purchase price adjustments, the fair value
of the net assets acquired exceeds the purchase price funded solely by Comstock.
In accordance with Accounting Principles Board Opinion No. 16 "Business
Combinations", the excess of the cost of net assets acquired first reduced the
non current assets to zero with the remainder allocated to "Excess of Acquired
Net Assets Over Cost", (negative goodwill) which amount is being amortized over
40 years.
2. NATURE OF BUSINESS
RailWorks was formed to become a leading nationwide provider of rail system
services, including construction and rehabilitation, repair and maintenance, and
related products. The Company provides contracting services and rail related
products to a broad range of customers including Class I railroads, transit
authorities and commuter railroads, municipalities, industrial companies and
commercial enterprises. RailWorks operates principally in the United States.
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. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. RailWorks evaluates performance
based on profit or loss from operations before income taxes, interest income and
expense, and non-recurring gains and losses.
10
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RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated.
The Company accounts for intersegment sales and transfers as if the sales
or transfers were to third parties, utilizing current market prices and arms
length terms and conditions.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes revenues from fixed-fee contracts using the
percentage-of-completion method, measured by the percentage of cost incurred to
date to management's estimated total cost for each contract. This method is used
because management considers total cost to be the best available measure of
progress on the contracts. Changes in job performance, job conditions and
estimated profitability may result in revisions to cost and income, which are
recognized in the period in which the revisions are determined. Revenues from
time-and-material contracts are recognized currently as the work is performed.
Contract costs include all direct material, labor and equipment costs and
those indirect costs related to contract performance and are charged to cost of
revenues as incurred. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
With regard to the rail products segment, the Company recognizes revenue
when products are delivered to customers pursuant to shipping agreements. Cost
of goods sold includes the raw materials cost, labor and overhead costs of
producing the product.
In accordance with industry practice, the Company classifies as current all
assets and liabilities related to the performance of long-term contracts. The
contracting cycle for certain long-term contracts may extend beyond one year
and, accordingly, collection or payment of amounts related to these contracts
may extend beyond one year.
CASH AND CASH EQUIVALENTS
The Company considers cash and cash equivalents to include cash on hand and
temporary cash investments purchased with an original maturity of three months
or less.
11
<PAGE> 12
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method. Inventory consists of stored materials
and parts to be used in long-term construction contracts and raw materials and
finished goods produced by the rail products segment companies.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Included in machinery
and equipment is specialty construction tools and other equipment which,
although purchased in connection with a particular contract, is expected to be
used in future contracts. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Building and improvements................................... 15 - 30 years
Machinery and equipment..................................... 3 - 7 years
Office furniture and equipment.............................. 5 - 7 years
Transportation equipment.................................... 5 - 7 years
</TABLE>
Leasehold improvements are capitalized and amortized over the shorter of
the estimated useful lives of the assets or the terms of the related leases.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with SFAS No. 109. Under this method, deferred income taxes are
recorded based upon differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the underlying assets or liabilities are received or
settled. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized.
12
<PAGE> 13
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 of
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997
-------- ------
<S> <C> <C>
Net (loss) income........................................... $(12,847) $1,428
======== ======
Shares used for determining basic EPS....................... 7,694 2,960
Dilutive effect of:
Stock options............................................. * --
Convertible preferred shares.............................. * --
-------- ------
Shares used for determining diluted EPS..................... 7,694 2,960
======== ======
Basic EPS................................................... $ (1.67) $ .48
======== ======
Diluted EPS................................................. $ (1.67) $ .48
======== ======
</TABLE>
- ---------------
* Outstanding stock options and convertible preferred shares would be
antidilutive in 1998 and therefore were excluded.
No stock options or convertible preferred shares were outstanding in 1997.
INTANGIBLE ASSETS
Intangible assets consist primarily of excess purchase price over net
assets acquired (goodwill), which is being amortized over its estimated useful
life of 40 years. In conformance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
the Company's management regularly evaluates whether events and circumstances
indicate that the remaining balance of intangibles or other long-lived assets
may not be recoverable.
The Excess of Acquired Net Assets Over Cost (negative goodwill) was
generated from the acquisition of the Predecessor Company. The amortization
period of the negative goodwill is 40 years. During 1998, the negative goodwill
was reduced by the additional $1,600,000 purchase price paid to Group.
Amortization expense, including negative amortization of $252,000 in 1998
and $269,000 in 1997, of the years ended December 31, 1998, 1997 and 1996
amounted to $965,000, $(269,000) and $16,000, respectively.
13
<PAGE> 14
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCOUNTS RECEIVABLE AND CONTRACTS IN PROGRESS
Accounts receivable at December 31, 1998 and 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Billed...................................................... $58,702 $31,400
Retainages.................................................. 18,479 15,036
------- -------
$77,181 $46,436
======= =======
</TABLE>
Retainages of approximately $5,783,000 and $4,388,000 at December 31, 1998
and 1997 are invested in U.S. government obligations and municipal bonds. The
Company anticipates that 47% of all retainages at December 31, 1998 will be
collected within one year.
Costs and estimated earnings in excess of billings on uncompleted contracts
arise when revenues have been recorded but the amounts cannot be billed
currently under the terms of the contracts. Such amounts are recoverable from
customers upon various measures of performance, including achievement of certain
milestones, completion of specified units or completion of the contract. The
Company anticipates that substantially all amounts, other than unanticipated
additional contract costs (see below), will be billed and collected within one
year.
The Company has recorded as costs and estimated earnings in excess in
billings on uncompleted contracts amounts that it seeks or will seek to collect
from customers or others for error or changes in contract specifications or
design, contract change orders in dispute or unapproved as to both scope and
price, or other customer-related causes of unanticipated additional contract
costs (pending change orders or claims). These amounts are recorded at their
estimated net realizable value when realization is probable and can be
reasonably estimated. No profit is recognized on the construction costs incurred
in connection with these amounts. Pending change orders and claims involve the
use of estimates and it is reasonably possible that revisions to the estimated
recoverable amounts of recorded pending change orders and claims may be made in
the near-term. Claims made by the Company involve negotiation and, in certain
cases litigation. The Company expenses such costs as incurred, although it may
seek to recover these costs as part of the claim. The Company believes that it
has established legal bases for pursuing recovery of recorded claims and it is
management's intention to pursue and litigate these claims, if necessary, until
a decision or settlement is reached.
The Company is pursuing unanticipated additional contract costs on certain
completed contracts. Costs and estimated earnings in excess of billings on
uncompleted contracts includes unbilled revenues of approximately $11,054,000
and $3,915,000 at December 31, 1998 and 1997, respectively, related to these
contracts. In addition, billed accounts receivable and retainages include
contractually billed amounts related to these contracts of approximately
$3,105,000 and $2,257,000 at December 31, 1998 and 1997, respectively. Certain
contractually billed amounts related to these contracts may not be paid by the
customer to the Company until final resolution of the contract. At December 31,
1998 and 1997, the Company had reserves of approximately $4,500,00 and
$2,285,000, respectively, related to unbilled revenue and estimated legal costs
to settle.
14
<PAGE> 15
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Costs and estimated earnings at December 31, 1998 and 1997, on uncompleted
contracts and related amounts billed are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Costs....................................................... $429,114 $363,561
Estimated earnings.......................................... 47,575 46,027
-------- --------
476,689 409,588
Billings.................................................... 457,855 400,949
-------- --------
$ 18,834 $ 8,639
======== ========
</TABLE>
Such amounts are included in the accompanying consolidated balance sheets
under the following captions (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $24,792 $17,149
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (5,958) (8,510)
------- -------
$18,834 $ 8,639
======= =======
</TABLE>
At December 31, 1998, 1997 and 1996, earned revenues from government
related funding sources were 40%, 66% and 61%, respectively, of total earned
revenues. Approximately 27%, 30% and 27% of total earned revenues for 1998, 1997
and 1996, respectively, were from a single government customer.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31,
1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- ----
<S> <C> <C>
Land and buildings.......................................... $ 1,780 $ --
Transportation equipment.................................... 2,121 --
Machinery and equipment..................................... 10,038 448
Office furniture and equipment.............................. 326 --
Leasehold improvements...................................... 249 --
------- ----
14,514 448
Less accumulated depreciation and amortization.............. 1,122 56
------- ----
Property, plant and equipment, net.......................... $13,392 $392
======= ====
</TABLE>
Depreciation and amortization expense on property, plant and equipment
charged to operations for the years ended December 31, 1998, 1997 and 1996 was
approximately $1,140,000, $56,000 and $1,349,000, respectively.
15
<PAGE> 16
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Revolving credit agreement(a)............................... $49,300 $ --
Revolving credit agreement(b)............................... -- 12,057
Temporary revolver(c)....................................... -- 550
Promissory note(d).......................................... -- 1,700
Fixed asset notes........................................... 2,204 697
------- -------
51,504 15,004
Less current portion........................................ 931 2,555
------- -------
$50,573 $12,449
======= =======
</TABLE>
- ---------------
(a) On August 4, 1998, the Company entered into a secured $75,000,000 revolving
credit agreement with NationsBank, N.A. (the "Credit Facility"). The Credit
Facility expires on August 4, 2001; however, the Company may request the
bank to extend the agreement for two, one-year periods. The proceeds of the
Credit Facility are to be utilized for working capital, future acquisitions
and letters of credit. The aggregate amount of letter of credit obligations
that can be drawn against the Credit Facility shall not exceed $20,000,000.
There were no letters of credit outstanding at December 31, 1998. Interest
on loans, commitment fees, and letter of credit fees are based upon
consolidated leverage ratios in a pricing matrix which may be based on
prime or LIBOR. The annual interest rates in effect at December 31, 1998,
for prime and LIBOR borrowings were 8.5% and 7.26%, respectively. A one
time facility fee of 2% was paid on the total Credit Facility.
(b) On April 4, 1997, the Company entered into a secured revolving credit
agreement (the "Revolver") with a maximum aggregate principal amount of
$15,000,000 (the "Commitment"). Interest on Base Rate loans was at a rate
of 1% plus the Base Rate, as defined (approximately prime rate); interest
on Eurodollar loans was at 3.25% plus the Eurodollar Rate, as defined
(approximately LIBOR). An annual facility fee of 1% and a commitment fee of
1/2 of 1% were payable on the total Commitment and the total unused
Commitment, respectively. Up to $10,000,000 of letters of credit could be
drawn against the Commitment, $2,911,655 of which was drawn at December 31,
1997. This obligation was repaid in its entirety on August 4, 1998.
(c) On December 11, 1997, the Company entered into a short-term secured
revolving credit agreement (the "Temporary Revolver") with a maximum
principal amount of $2,000,000. Interest on the unpaid principal was at a
rate of 2% plus the Base Rate (approximately prime rate). The Temporary
Revolver was extended from its original maturity and was repaid in its
entirety on August 4, 1998.
(d) Interest on this agreement was payable semi-annually at a rate of 8.5%.
This obligation was repaid in its entirety on August 4, 1998.
The Credit Facility is secured by a first lien on all of the capital stock
of the Company's subsidiaries and on all accounts receivable of the Company and
its subsidiaries. In addition, the Credit Facility contains a negative pledge on
all other assets of the Company and its subsidiaries. The Credit Facility
contains restrictive covenants that, among other things impose limitations on
the Company with respect to its ability to incur additional indebtedness, make
certain investments, sell assets or pay dividends. The Credit Facility also
contains various financial
16
<PAGE> 17
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
covenants which require the Company to meet certain targets including, but not
limited to, the maintenance of net worth, earnings before interest, taxes,
depreciation and amortization (EBITDA) to debt ratio and fixed charge coverage
ratio.
7. INCOME TAXES
The Company files a consolidated federal income tax return. The Predecessor
Company's results were included in the consolidated federal income tax return of
Spie.
The income tax provision in the accompanying consolidated statements of
operations for the years ended December 31, 1998, 1997 and 1996 consists of (in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
1998 1997 1996
------ ------ -----------
<S> <C> <C> <C>
Current:
Federal.................................................. $ -- $ -- $150
State.................................................... 895 132 268
------ ------ ----
895 132 418
------ ------ ----
Deferred:
Federal.................................................. 503 941 70
State.................................................... 74 125 12
------ ------ ----
577 1,066 82
------ ------ ----
$1,472 $1,198 $500
====== ====== ====
</TABLE>
Factors accounting for the variation from U.S. statutory income tax rates
relating to continuing operations for the years ended December 31, 1998, 1997
and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
1998 1997 1996
------- ------ -----------
<S> <C> <C> <C>
Federal income taxes at the statutory rate................ $(3,981) $ 893 $189
Benefit of NOL............................................ -- -- (189)
Federal alternative minimum tax........................... -- -- 150
State and local taxes..................................... (680) 206 242
Other..................................................... 229 99 108
Valuation allowance....................................... 5,904 -- --
------- ------ ----
$ 1,472 $1,198 $500
======= ====== ====
</TABLE>
17
<PAGE> 18
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred income tax asset in the accompanying
consolidated balance sheets at December 31, 1998 and 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................... $ 3,005 $ 317
Excess of amounts expensed for financial statement
purposes over amounts deducted for income tax
purposes............................................... 4,097 1,451
State and local income taxes, net of federal tax
benefits............................................... 915 481
------- ------
Total deferred tax asset.................................... 8,017 2,249
------- ------
Deferred tax liability,
Costs capitalized for financial statement purposes and
deducted for income tax purposes....................... 1,158 1,229
------- ------
Total deferred tax liability................................ 1,158 1,229
------- ------
Net deferred tax asset before valuation allowance........... 6,859 1,020
Valuation allowance for net deferred tax asset.............. (5,904) --
------- ------
$ 955 $1,020
======= ======
</TABLE>
8. PREFERRED STOCK
The Company has authorized 10,000,000 shares of Series A convertible
preferred stock. The stock has no voting rights, shares dividends ratably with
the common stock, is non-cumulative and has a liquidation preference over shares
of common stock. Each share of preferred stock is convertible into 100 shares of
the Company's common stock.
On October 8, 1998, the Company issued 13,700 shares of its nonvoting
Series A convertible preferred stock in exchange for 1,370,000 shares of common
stock. Each share of Series A convertible preferred stock is convertible to 100
shares of common stock upon five days prior written notice from the holder,
subject to certain conditions.
9. STOCK OPTION PLAN
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.
During 1998 options covering an aggregate of 30,000 shares of common stock
were issued under the Plan. Two non-employee directors were each issued options
to purchase 10,000 shares of common stock at the IPO price. Options to purchase
10,000 shares were also issued to a President of one of the Subsidiaries at the
price of the common stock on the date of the grant. The options expire ten years
after the date of grant.
18
<PAGE> 19
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, 30,000 options were outstanding:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------ ----------------
<S> <C> <C>
Balance at inception........................................ -- $ --
Granted..................................................... 30,000 10.02
Exercised................................................... -- --
------ ------
Balance, December 31, 1998.................................. 30,000 $10.02
====== ======
Exercisable, December 31, 1998.............................. -- $ --
====== ======
</TABLE>
The weighted average fair value of options granted in 1998 at market value
was $4.79.
The fair value of each stock option grant is estimated as of the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions:
<TABLE>
<S> <C>
Risk-free interest rate at date of grants................... 5.25 - 5.79%
Expected lives.............................................. 3 to 6 years
Expected volatility......................................... 44.0%
Expected dividend yield..................................... 0%
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS WEIGHTED WEIGHTED
OUTSTANDING AT AVERAGE REMAINING AVERAGE
EXERCISE PRICE DECEMBER 31, 1998 CONTRACTUAL LIFE EXERCISE PRICE
- -------------- ----------------- ----------------- --------------
<S> <C> <C> <C>
$6.06 to 12.00............................ 30,000 9.59 $10.02
====== ==== ======
</TABLE>
The Company applies APB No. 25 and related interpretations in accounting
for its stock option plans. Accordingly, no compensation cost has been
recognized in the accompanying consolidated statements of operations for the
year ended December 31, 1998 for options granted during that year. Had
compensation expense for all stock options granted in 1998 been determined
consistent with SFAS No. 123, the Company's net income per share would have been
as follows:
<TABLE>
<S> <C>
Net loss:
As Reported............................................... $(12,847)
========
Pro Forma................................................. $(12,864)
========
Net loss per share:
As Reported -- basic and diluted.......................... $ (1.67)
========
Pro Forma -- basic and diluted............................ $ (1.67)
========
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts and additional awards in future years are
anticipated.
10. EMPLOYEE BENEFIT PLANS
Certain of the acquired companies have qualified defined contribution
employee benefit plans (the "Plans"), the majority of which allowed for
voluntary pretax contributions by employees. The Subsidiaries paid all general
and administrative expenses of the Plans and in some cases, the Subsidiaries
made matching and discretionary contributions to the Plans. The
19
<PAGE> 20
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subsidiaries currently offer no post-employment or post-retirement benefits. The
expense incurred related to the Plans by the Company was approximately $367,000,
$321,000 and $337,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Prior to 1997, Comstock was generally self insured for its automobile and
general liability insurance and, to a lesser extent, for workers' compensation.
Included primarily in accrued payroll and related withholdings, and other
liabilities at December 31, 1998 and 1997 are reserves of $2,348,000 and
$3,574,000, respectively, relating to these insurance liabilities. The Company,
including Comstock, currently participates in a paid indemnity plan for these
insurance coverages.
Comstock sponsored an unfunded, fully insured postretirement medical plan
covering eligible retirees and their dependents which it elected to terminate
effective December 31, 1997. In 1996 Comstock offered, at group rates,
comprehensive medical care benefits to retirees and their covered dependents.
Comstock contributed approximately one-half of the total premium medical cost.
Under the plan, employees were eligible to enroll on the first day of the month
following retirement from Comstock after age 55 and ten years of service. Upon
adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits
other than Pensions" the accumulated postretirement benefit obligation was
$943,000. This amount was amortized over 20 years.
The postretirement benefit cost for 1996 included the following items (in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
1996
-----------
<S> <C>
Service cost................................................ $ 42
Interest cost............................................... 81
Transition amortization..................................... 47
----
$170
====
</TABLE>
The assumed discount rate used to measure the accumulated postretirement
benefit obligation was 7.25% in 1996. The assumed health care cost trend rate
was 9.5% in December 31, 1996, gradually decreasing to an ultimate rate of 5% in
2004 for participants under age 65. For those above age 65, a rate of 7.5% was
used in 1996, gradually decreasing to an ultimate rate of 5% in 2004. A one
percent increase in the assumed health care cost trend rate would increase costs
by $25,000 in 1996. This plan was discontinued in 1997.
The Company also has nonqualified defined benefit plans covering certain
current and former employees of one of the Subsidiaries which provide benefits
based on years of service and compensation. In aggregate, at December 31, 1998
and 1997 approximately $3,007,000 and $1,518,000, respectively relating to these
programs is included in the accompanying balance sheets.
The Company's self-insurance programs and certain employee benefit plan
liabilities are estimated using actuarial estimates and management assumptions.
These estimates are based on historical information, along with certain
assumptions about future events. Changes in assumptions, as well as changes in
actual experience could cause these estimates to change.
The Company has established two bonus incentive plans (the "Plans")
covering certain employees. The first bonus pool consists of 10% of the
Company's pre-tax profits and the second bonus pool consists of 15% of the
amount by which the Company's net income exceeds certain benchmarks. No benefits
were earned or paid under either of the Plans during 1998.
20
<PAGE> 21
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. LEASE COMMITMENTS
The Company and its subsidiaries lease various office buildings, machinery,
equipment, and vehicles under operating leases expiring at various dates through
2004. Most of the real property leases have escalation clauses related to
increases in real property taxes. Future minimum lease payments under operating
leases are as follows (in thousands):
<TABLE>
<S> <C>
Years Ending December 31
1999...................................................... $2,163
2000...................................................... 1,252
2001...................................................... 1,070
2002...................................................... 1,046
2003...................................................... 930
</TABLE>
Rent expense for all operating leases, including amounts charged to cost of
revenues, for the year ended December 31, 1998, 1997 and 1996 was approximately
$3,047,000, $2,685,000 and $3,527,000, respectively.
12. RELATED-PARTY TRANSACTIONS
LEASING TRANSACTIONS
Certain of the subsidiaries lease their operating facilities from former
Founding Company owners who remained employees or directors of the Company.
Total rent paid to related parties for 1998 was $330,000. The Company believes
the rents to be the fair market rental value of the property.
13. COMMITMENTS AND CONTINGENCIES
PERFORMANCE BONDS
The Company's performance under certain construction contracts is secured
by performance bonds for which the Company pays a separate fee.
EMPLOYMENT CONTRACTS
Certain executives of the Company have entered into employment agreements
with the Company. In general, the employment agreements provide that, in the
event of a termination of employment by the Company without cause, such employee
will be entitled to receive from the Company an amount in cash equal to the
employee's then current annual base salary for the remainder of the term.
CONTINGENT PURCHASE PRICE FOR ACQUISITIONS
The sellers of Sheldon and Armcore are eligible to receive additional cash
amounts ("earnouts"), consisting of cash, as adjustments to the purchase prices
paid for those companies. Such cash payments are contingent upon the achievement
of earnings targets for 1999, 2000 and 2001.
ENVIRONMENTAL
The Company's operations are subject to extensive federal, state and local
regulations under environmental laws and regulations concerning, among other
things, emissions to the air, discharges to waters and the generation, handling,
storage, transportation, treatment and disposal of waste, hazardous substances,
underground and aboveground storage tanks and soil and
21
<PAGE> 22
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
groundwater contamination. The Company is also subject to certain Federal, state
and local environmental laws and regulations relating to the use of creosote.
Creosote is used in certain of the Company's manufacturing processes to treat
wood railroad ties so that they can withstand exposure to outside elements.
Creosote, a coal tar treated derivative, has been recognized by the
environmental regulating agencies as a hazardous material. The Company believes
that it is in material compliance with all of the various regulations applicable
to their businesses and has not been notified of any violations by regulatory
agencies.
LITIGATION
The Company is involved in legal proceedings and claims, asserted by and
against the Company, which have arisen in the ordinary course of business. The
Company believes it has a number of valid defenses to these actions and the
Company intends to vigorously defend or assert these claims. Management
believes, upon advice of outside counsel, that none of these actions will have a
material adverse effect on the financial position or results of operations of
the Company.
14. 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 stock grants.
These loans have a term of five years, are interest bearing and are
collateralized by the stock granted.
15. FINANCIAL INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or a
liability measured at its fair value. SFAS 133 requires that changes in each
derivative's fair value be recognized into earnings unless specific hedge
accounting criteria are met. The Company does not anticipate that SFAS 133 will
have a material impact upon its operations.
INTEREST RATE SWAPS
The Company has entered into an interest rate swap agreement to manage
exposure to interest rate fluctuations. The outstanding agreement involves the
exchange of floating rate interest payments for fixed rate interest payments
over a specified time period without the exchange of any underlying principal
amounts. The Company's credit exposure is limited to the fair value of the
agreements, and the Company only enters into agreements with highly rated
counterparties. The Company does not enter into interest rate swap agreements
for trading or speculative purposes and matches the terms and contract notional
amounts to existing debt. The net amounts paid or received under interest rate
swap agreements are recognized as an adjustment to interest expense.
At December 31, 1998, the Company had an interest rate swap agreement with
a total notional value of $10,000,000, expiring December 7, 2001 or December 7,
2000 at the counterparties' option. The agreements effectively convert floating
rate obligations to a fixed rate of 4.85 percent. If the Company were to
terminate its existing interest rate swap agreements, any resulting gain or loss
would be deferred and recognized over the remaining life of the related debt.
22
<PAGE> 23
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RailWorks uses the following methods and assumptions in estimating the fair
value of its financial instruments:
Cash and Cash Equivalents -- The carrying amount is equal to fair
market value due to their short-term nature.
U.S. Government and Municipal Bonds -- These securities are classified
as held to maturity and are valued at cost which approximates market value.
Debt -- The Company's bank loans and floating rate debt approximate
fair value. The fair value of fixed rate long-term debt is based upon
quoted market prices for these or similar issues, or rates currently
available to the Company for debt with similar terms and maturities.
Interest Rate Swap Agreements -- The fair value of interest rate swap
agreements is based upon the estimated cost to terminate the agreements,
taking into account current interest rates and creditworthiness of the
counterparties. The fair value at December 31, 1998 was approximately
$10,500.
16. SEGMENT REPORTING
Comstock and the Predecessor Company operated in one reportable segment:
transit services. Accordingly, no additional disclosures are required under SFAS
No. 131. The following matrix presents operational and financial condition data
as of and for the year ended December 31, 1998 for analysis by reportable
segment (in thousands):
<TABLE>
<CAPTION>
TRANSIT RAIL PRODUCTS RAIL OTHER/
SERVICES AND SUPPLIES CONSTRUCTION CORPORATE TOTAL
-------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers...................... $165,989 $11,195 $37,184 $ -- $214,368
Intersegmental revenue........... -- 952 883 -- 1,835
Depreciation/amortization........ (17) 192 709 1,221 2,105
Segment operating profit
(loss)......................... 6,084 1,683 4,596 (23,038) (10,675)
Costs and estimated earnings in
excess of billings on
uncompleted contracts.......... 22,897 -- 1,895 -- 24,792
Segment assets................... 58,224 8,299 26,676 159,677 252,876
Capital Expenditures............. 676 29 490 85 1,280
</TABLE>
23
<PAGE> 24
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's reconciliation of segment totals to enterprise values are as
follows (in thousands):
<TABLE>
<S> <C>
REVENUES:
Total revenues for reportable segments.................... $214,368
Elimination of intersegment revenues...................... (1,835)
--------
Consolidated revenues..................................... $212,533
========
OPERATING PROFIT OR LOSS:
Total profit or loss for reportable segments.............. $(10,675)
========
ASSETS:
Total assets for reportable segments...................... $252,876
Elimination of intercompany receivables/payables.......... (826)
Elimination of investments in subsidiaries................ (23,414)
--------
Consolidated assets....................................... $228,636
========
</TABLE>
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly financial information for the years ended December 31, 1998 and
1997 are summarized as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues.......................................... $41,628 $44,752 $53,077 $73,076
Operating income (loss)........................... 1,237 1,172 (18,404) 5,320
Net income (loss)................................. 666 456 (19,036) 5,067
Basic EPS......................................... .23 .15 (1.72) .37
Diluted EPS....................................... .23 .15 (1.72) .34
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues.......................................... $32,401 $34,739 $41,197 $45,273
Operating income.................................. 604 1,105 992 711
Net income........................................ 440 418 467 103
Basic EPS......................................... .15 .14 .16 .03
Diluted EPS....................................... .15 .14 .16 .03
</TABLE>
18. SUBSEQUENT EVENTS (UNAUDITED)
On January 7, 1999, the Company acquired all the stock of Mid West Railroad
Construction Maintenance Corporation of Wyoming (Mid West) 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. On
February 1, 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 acquisitions were accounted for using the
24
<PAGE> 25
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase method of accounting and accordingly, the purchase price has been
allocated to the assets acquired and the liabilities assumed based upon the fair
values at the date of acquisition. The combined purchase price was $26,000,000
in cash, $8,833,000 of promissory notes payable and 100,000 shares of Common
Stock, plus the potential to receive earnouts if targeted revenue and profit
goals are achieved over the next 5 years. The estimated fair market value of
assets purchased was approximately $6,300,000 and the estimated goodwill was
$29,500,000. Any additional purchase price paid will increase the goodwill
reported. The estimated fair market values reflected above are based on
preliminary estimates and assumptions and are subject to revision.
25
<PAGE> 26
RAILWORKS CORPORATION
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to
the acquisitions by RailWorks of the Founding Companies and the Acquired
Companies. The unaudited pro forma balance sheet reflects the
acquisition of the 1999 Acquired Companies as if each had occurred on December
31, 1998. The unaudited pro forma statement of operations presents the statement
of operations data from the Consolidated Financial Statements of the Company for
the year ended December 31, 1998 combined with (1) the results of operations for
the Founding Companies (other than Comstock Holdings, Inc.) from January 1, 1998
through July 31, 1998 and (2) the results of operations of the 1998 Acquired
Companies from January 1, 1998 through November 4, 1998, two of the 1999
Acquired Companies from January 1, 1998 through December 31, 1998 and two of the
1999 Acquired Companies from December 1, 1997 through November 30, 1998.
The Company has analyzed the savings that it expects to realize from
reductions in salaries, bonuses and certain benefits to the owners of the
Founding Companies and the Acquired Companies. To the extent the owners of the
Founding Companies and the Acquired Companies have contractually agreed to
changes in salaries, bonuses, benefits and lease payments, these changes have
been reflected in the unaudited pro forma statement of operations.
Certain pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate and may be
revised as additional information becomes available. The pro forma financial
data do not purport to represent what the Company's combined financial position
or results of operations would actually have been if such transactions had in
fact occurred on those dates and are not necessarily representative of the
Company's combined financial position or results of operations for any future
period. Since the acquired entities were not under common control or management
prior to their acquisition by the Company, historical combined results may not
be comparable to, or indicative of, future performance. The unaudited pro forma
combined financial statements should be read in conjunction with the Company's
historical Consolidated Financial Statements and Notes thereto included
elsewhere herein.
26
<PAGE> 27
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RAILWORKS CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RAILWORKS 1999
CORPORATION ACQUIRED PRO FORMA
HISTORICAL COMPANIES ADJUSTMENTS PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash........................................ $ 2,846 $ 2,157 $(5,003)(a) $ --
Accounts receivables........................ 77,181 22,781 99,962
Marketable securities....................... 7,981 7,981
Lease receivables........................... 511 511
Cost and estimated earnings in excess of
billings on uncompleted contracts......... 24,792 3,349 28,141
Inventories................................. 9,085 3,274 12,359
Prepaid expenses and other current assets... 4,271 444 4,715
-------- ------- ------- --------
Total current assets.................. 118,175 40,497 (5,003) 153,669
Property, plant and equipment, net............ 13,392 15,233 28,625
Other Assets:
Goodwill.................................... 93,845 29,485(b) 123,330
Other....................................... 3,224 278 3,502
Investments................................. 603 603
-------- ------- ------- --------
$228,636 $56,611 $24,482 $309,729
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt........ $ 931 $11,284 $ 4,943(b) $ 12,155
(5,003)(a)
Accounts payable and accrued liabilities.... 35,436 14,274 49,710
Accrued payroll and related withholdings.... 3,777 986 4,763
Billings in excess of costs and estimated
earnings on uncompleted contracts......... 5,958 9,702 15,660
Other current liabilities................... 4,682 1,335 6,017
-------- ------- ------- --------
Total current liabilities............. 50,784 37,581 (60) 88,305
Long-term Liabilities:
Long-term debt.............................. 50,573 11,874 26,000(b) 88,447
Excess of acquired net assets over cost, net
of amortization........................... 8,662 8,662
Senior subordinated notes................... --
Promissory notes............................ 3,890(b) 3,890
Other liabilities........................... 8,609 808 9,417
-------- ------- ------- --------
Total long-term liabilities........... 67,844 12,682 29,890 110,416
-------- ------- ------- --------
Total liabilities..................... 118,628 50,263 29,830 198,721
-------- ------- ------- --------
Stockholders' Equity:
Preferred stock............................. 14 14
Common stock................................ 137 267 (266)(b) 138
Additional paid-in capital.................. 121,296 607 392(b) 122,295
Retained earnings (deficit)................. (11,439) 5,474 (5,474)(b) (11,439)
-------- ------- ------- --------
Total stockholders' equity............ 110,008 6,348 (5,348) 111,008
-------- ------- ------- --------
$228,636 $56,611 $24,482 $309,729
======== ======= ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Balance Sheet.
27
<PAGE> 28
RAILWORKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RAILWORKS CORPORATION
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
a. To record the repayment of $5,003,000 of indebtedness from cash on hand
as of December 31, 1998. In management's opinion, the Company does not need to
maintain a significant cash balance for working capital needs.
b. To record goodwill and the Company's financing of the 1999 Acquired
Companies.
The adjustments related to the 1999 Acquired Companies are based on
preliminary estimates of the allocation of the purchase price and are subject to
revision.
28
<PAGE> 29
RAILWORKS CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOUNDING
COMPANIES PRO FORMA
RAILWORKS (THROUGH FOR
CORPORATION JULY 31, PRO FORMA FOUNDING ACQUIRED PRO FORMA
HISTORICAL 1998) ADJUSTMENTS COMPANIES COMPANIES(1) ADJUSTMENTS
----------- --------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................... $ 212,533 $56,965 $ $269,498 $81,367 $ --
Cost of revenue.................. 182,817 45,892 (800)(2) 227,052 63,191 (443)(2)
(857)(3)
--------- ------- -------- -------- ------- -------
Gross profit..................... 29,716 11,073 1,657 42,446 18,176 443
--------- ------- -------- -------- ------- -------
Selling, general and
administrative expenses........ 17,040 9,033 (2,379)(3) 19,317 9,949 (3,480)(3)
(785)(4) (231)(2)
(2,000)(2) (1,639)(5)
(1,592)(5)
Non-recurring expenses........... 19,965 400 (14,470)(6) -- --
(803)(7)
(5,092)(8)
Transaction fees................. 1,281 -- (1,281)(9) -- --
Loss guarantee................... -- 1,491 (1,491)(10)
Depreciation and amortization.... 2,105 1,595 1,689(11) 5,389 2,928 735(11)
--------- ------- -------- -------- ------- -------
Operating (loss) income.......... (10,675) 45 28,370 17,740 3,808 6,549
Other income (expense):
Interest income................ 1,634 108 -- 1,742 (777) 200
Interest expense............... (2,334) (378) 137(12) (2,575) (1,631) 179(12)
--------- ------- -------- -------- ------- -------
(Loss) income before income
taxes.......................... (11,375) (225) 28,507 16,907 1,400 6,928
Provision for income taxes....... 1,472 453 6,170(13) 8,095 275 2,642(13)
--------- ------- -------- -------- ------- -------
Net (loss) income................ $ (12,847) $ (678) $ 22,337 $ 8,812 $ 1,125 $ 4,286
========= ======= ======== ======== ======= =======
EBITDA(14)....................... $ (8,570) $ 1,640 $ 30,059 $ 23,129 $ 6,735 $ 7,284
========= ======= ======== ======== ======= =======
<CAPTION>
PRO FORMA FOR
FOUNDING
COMPANIES
AND ACQUIRED
COMPANIES
-------------
<S> <C>
Revenue.......................... $350,865
Cost of revenue.................. 289,800
--------
Gross profit..................... 61,065
--------
Selling, general and
administrative expenses........ 23,916
Non-recurring expenses........... --
Transaction fees................. --
Loss guarantee................... --
Depreciation and amortization.... 9,052
--------
Operating (loss) income.......... 28,097
Other income (expense):
Interest income................ 1,165
Interest expense............... (4,027)
--------
(Loss) income before income
taxes.......................... 25,235
Provision for income taxes....... 11,012
--------
Net (loss) income................ $ 14,223
========
EBITDA(14)....................... $ 37,149
========
</TABLE>
See Notes to Unaudited Pro Forma Statement of Operations.
29
<PAGE> 30
RAILWORKS CORPORATION
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
1. Excludes results of operations of the 1998 Acquired Companies from
November 4, 1998 to December 31, 1998 because they are included in the
Consolidated Financial Statements of RailWorks for the year ended December 31,
1998.
2. To reflect the reduction of insurance and benefit costs realized by the
Company compared to the combined historical cost incurred by the Founding
Companies and the Acquired Companies.
3. To reduce compensation expense to the level the owners of the Founding
Companies and the Acquired Companies have contractually agreed to receive
subsequent to the acquisition of their companies. The employment agreements are
generally for three years. This amount is net of incremental corporate expenses
of $1,200,000.
4. To reflect the savings realized on a lease renewal by Comstock and a
reduction of compensation expense related to personnel of Comstock's former
parent.
5. To eliminate acquisition-related costs incurred by the Founding
Companies and the Acquired Companies in anticipation of their acquisition by
RailWorks.
6. To record the issuance of 1,205,872 shares of restricted common stock
(with no cash impact to the Company) to management, based on the IPO price of
$12.00 per share.
7. To eliminate non-cash compensation expense recorded as a result of the
transfer of common stock from certain operating company managers to other
employees of such operating companies at the price per share in effect on the
date of transfer.
8. To eliminate non-recurring expenses of RailWorks consisting of
restricted common stock granted to the Company's officers, settlement of
employee benefit obligations, relocation costs of one of the operating companies
and transfers of common stock made by certain operating company managers to
other employees of such operating companies.
9. To eliminate offering expenses incurred in connection with the IPO.
10. To eliminate the loss related to the specific contract performance of
an unrelated venture which was guaranteed by one of the acquired companies.
11. To record goodwill amortization expense using a 40-year estimated life,
other intangible assets amortization using a 10-year estimated life and loan
origination costs amortization using a 3-year estimated life.
12. To reduce interest expense to reflect debt at the rates that would have
been in effect for RailWorks in 1998.
13. To record the incremental provision for federal and state income taxes
at an assumed 39.0% effective tax rate increased by the effect of goodwill
amortization which is not deductible for income tax purposes.
30
<PAGE> 31
RAILWORKS CORPORATION
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS -- (CONTINUED)
14. EBITDA is the sum of earnings before interest, income taxes,
depreciation and amortization expense. Included in EBITDA is income earned on
contract retainages pursuant to contractual agreements with certain customers.
EBITDA is presented because management believes that it is a widely accepted
financial indicator of a company's ability to service indebtedness. However,
EBITDA does not represent net income or cash flow from operations as defined by
generally accepted accounting principles, is not necessarily indicative of cash
available to fund all cash flow needs, should not be considered as an
alternative to net income or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) and
should not be construed as an indication of a company's operating performance or
as a measure of liquidity. EBITDA is not necessarily comparable with
similarly-titled measures presented by other companies.
The adjustments related to the 1999 Acquired Companies are based on
preliminary estimates of the allocation of the purchase price and are subject to
revision.
31
<PAGE> 32
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
To the Shareholders of
Gantrex Group Limited, Norapco Limited,
Gantrex Holding Corporation and Gantrex Systems Inc.:
We have audited the combined balance sheet of GANTREX GROUP LIMITED,
NORAPCO LIMITED, GANTREX HOLDING CORPORATION AND GANTREX SYSTEMS INC. as at
December 31, 1998 and the combined statements of income and retained earnings
and cash flows for the year then ended. These combined financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these combined financial statements present fairly, in all
material respects, the combined financial position of Gantrex Group Limited,
Norapco Limited, Gantrex Holding Corporation and Gantrex Systems Inc. as at
December 31, 1998 and the combined results of their operations and their cash
flows for the year then ended in accordance with generally accepted accounting
principles.
Arthur Andersen LLP
March 15, 1999
Mississauga, Canada
32
<PAGE> 33
GANTREX GROUP LIMITED, NORAPCO LIMITED,
GANTREX HOLDING CORPORATION AND GANTREX SYSTEMS INC.
COMBINED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 571,872
Accounts receivable....................................... 3,225,328
Inventories (Note 2)...................................... 1,392,711
Prepaid expenses.......................................... 93,089
Deferred income taxes..................................... 15,573
Income taxes receivable................................... 114,744
Other current assets...................................... 102,729
----------
5,516,046
CAPITAL ASSETS (Note 3)..................................... 1,071,567
TRADEMARKS, net of accumulated amortization of $15,648...... 11,162
PATENTS, net of accumulated amortization of $92,234......... 28,588
OTHER LONG-TERM ASSETS...................................... 83,628
----------
$6,710,991
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank demand loan (Note 4)................................. $ 206,607
Accounts payable and accrued liabilities.................. 2,724,081
----------
2,930,688
----------
DEFERRED INCOME TAXES....................................... 18,841
----------
SHAREHOLDERS' EQUITY
Share capital (Note 5).................................... 259,446
Retained earnings......................................... 3,502,016
----------
3,761,462
----------
$6,710,991
==========
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
33
<PAGE> 34
GANTREX GROUP LIMITED, NORAPCO LIMITED,
GANTREX HOLDING CORPORATION AND GANTREX SYSTEMS INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
NET SALES................................................... $13,944,643
COST OF SALES............................................... 10,106,384
-----------
GROSS PROFIT................................................ 3,838,259
-----------
EXPENSES
Selling, general and administrative....................... 4,230,800
Depreciation and amortization............................. 33,254
Interest income, net...................................... (25,951)
Other income.............................................. (376,483)
-----------
3,861,620
-----------
LOSS BEFORE RECOVERY OF INCOME TAXES........................ (23,361)
RECOVERY OF INCOME TAXES.................................... 73,461
-----------
NET INCOME.................................................. 50,100
RETAINED EARNINGS, beginning of year........................ 3,451,916
-----------
RETAINED EARNINGS, end of year.............................. $ 3,502,016
===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
34
<PAGE> 35
GANTREX GROUP LIMITED, NORAPCO LIMITED,
GANTREX HOLDING CORPORATION AND GANTREX SYSTEMS INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES:
Net income.................................................. $ 50,100
Items not affecting cash -
Depreciation and amortization............................. 145,870
Deferred income taxes..................................... (82,775)
Changes in non-cash working capital items................... (137,248)
---------
(24,053)
INVESTING ACTIVITY
Purchase of capital assets................................ (64,785)
FINANCING ACTIVITY
Decrease in bank demand loan.............................. (44,280)
---------
DECREASE IN CASH DURING THE YEAR............................ (133,118)
CASH AND CASH EQUIVALENTS, beginning of year................ 704,990
---------
CASH AND CASH EQUIVALENTS, end of year...................... $ 571,872
=========
</TABLE>
The accompanying notes are an integral part of this combined statement.
35
<PAGE> 36
GANTREX GROUP LIMITED, NORAPCO LIMITED,
GANTREX HOLDING CORPORATION AND GANTREX SYSTEMS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The parent companies and their subsidiaries employ accounting policies and
standards of financial disclosure which are in accordance with the
recommendations of the Canadian Institute of Chartered Accountants.
All significant intercompany accounts and transactions have been
eliminated.
The combined financial statements include the accounts of:
1. GANTREX GROUP LIMITED consolidated with its wholly owned
subsidiaries:
Cranequip Limited
Gantrex Limited
Gantrex Systems Limited
2. NORAPCO LIMITED
3. GANTREX HOLDING CORPORATION consolidated with its wholly owned
subsidiary, Gantrex Corporation
4. GANTREX SYSTEMS INC.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
revenues and expenses during the reporting period as well as disclosure of
contingencies at the date of the financial statements. Actual results could
differ from those estimates.
INVENTORIES
Inventories are valued at the lower of cost and net realizable value with
cost being determined on a first-in, first-out basis.
CAPITAL ASSETS
The Companies record their capital assets at cost. Depreciation and
amortization are provided in order to allocate the costs over the estimated
useful lives of the capital assets as follows:
<TABLE>
<S> <C>
Building.................................................... 5% straight line
Equipment and machinery..................................... 10% - 30% straight line
Furniture and fixtures...................................... 20% straight line
Computer hardware........................................... 30% declining balance
Computer software........................................... 50% straight line
Trademarks.................................................. 5% straight line
Tooling..................................................... 50% straight line
</TABLE>
36
<PAGE> 37
GANTREX GROUP LIMITED, NORAPCO LIMITED,
GANTREX HOLDING CORPORATION AND GANTREX SYSTEMS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
TRANSLATION OF FOREIGN CURRENCIES
All foreign companies and their subsidiaries included in the combined group
are treated as integrated foreign operations for combination purposes.
Accordingly, their monetary assets and liabilities have been converted to United
States dollars using the exchange rate in effect at the balance sheet date. All
other assets and liabilities are converted at historical rates. Revenues and
expenses are translated at average exchange rates prevailing during the year.
The resulting exchange gain/loss on translation is included in net income.
INCOME TAXES
The Companies follow the deferral method of tax allocation in accounting
for income taxes. Under this method timing differences between accounting and
taxable income result in the recording of deferred income taxes.
2. INVENTORIES
<TABLE>
<S> <C>
Finished goods.............................................. $1,273,318
Raw materials............................................... 119,393
----------
$1,392,711
==========
</TABLE>
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
---------- ------------ ----------
<S> <C> <C> <C>
Land....................................................... $ 130,095 $ -- $ 130,095
Building................................................... 746,287 238,636 507,651
Equipment and machinery.................................... 1,467,965 1,225,235 242,730
Furniture and fixtures..................................... 406,484 299,478 107,006
Computer hardware.......................................... 505,442 423,922 81,520
Computer software.......................................... 77,953 75,388 2,565
---------- ---------- ----------
$3,334,226 $2,262,659 $1,071,567
========== ========== ==========
</TABLE>
4. BANK DEMAND LOAN
The Companies have operating lines of credit totalling $1,100,000 bearing
interest at rates not exceeding the bank's prime rate of interest plus 1% per
annum. Accounts receivable, inventories and certain other assets of subsidiaries
have been pledged as collateral under the bank lines of credit. As at December
31, 1998 the Companies had unused and available operating lines of credit of
approximately $900,000.
37
<PAGE> 38
GANTREX GROUP LIMITED, NORAPCO LIMITED,
GANTREX HOLDING CORPORATION AND GANTREX SYSTEMS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. SHARE CAPITAL
As at December 31, 1998, the authorized share capital of the Companies
consisted of the following:
<TABLE>
<S> <C>
GANTREX GROUP LIMITED:
Class A
Unlimited................................................... shares
Class B
Unlimited................................................... shares
Class C
Unlimited................................................... shares
Unlimited................................................... Common shares
NORAPCO LIMITED:
Class A
Unlimited................................................... shares
Class B
Unlimited................................................... shares
Class C
Unlimited................................................... shares
Class D
Unlimited................................................... shares
</TABLE>
<TABLE>
<S> <C>
GANTREX HOLDING CORPORATION:
10,235 Common shares........................................
GANTREX SYSTEMS INC.:
3,000 Common shares.........................................
</TABLE>
As at December 31, 1998 the following shares had been issued and remained
outstanding:
<TABLE>
<S> <C>
GANTREX GROUP LIMITED:
14,730,404 Class A shares................................... $101,834
1,068,171 Class B shares.................................... 20,372
10,792 Common shares........................................ 204
--------
$122,410
========
NORAPCO LIMITED:
955,085 Class A shares...................................... $127,500
1,043,361 Class B shares.................................... 8,415
10,544 Class D shares....................................... 85
--------
$136,000
========
GANTREX HOLDING CORPORATION:
3,500 Preferred shares...................................... $ 850
10,235 Common shares........................................ 86
--------
$ 936
========
GANTREX SYSTEMS INC.:
100 Common shares........................................... $ 100
========
</TABLE>
38
<PAGE> 39
GANTREX GROUP LIMITED, NORAPCO LIMITED,
GANTREX HOLDING CORPORATION AND GANTREX SYSTEMS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS
At December 31, 1998, the Companies had commitments under lease contracts
for the rental of real estate, expiring in 2001, requiring annual rental
payments as follows:
<TABLE>
<S> <C>
1999........................................................ $ 73,447
2000........................................................ 64,447
2001........................................................ 42,965
--------
$180,859
========
</TABLE>
7. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
Most entities depend on computerized systems and therefore are exposed to
the Year 2000 conversion risk, which, if not properly addressed, could affect an
entity's ability to conduct normal business operations. Management is addressing
this issue, however, given the nature of this risk, it is not possible to be
certain that all aspects of the Year 2000 Issue affecting the Company and those
with whom it deals such as customers, suppliers or other third parties, will be
fully resolved without having an adverse impact on the Company's operations.
8. SUBSEQUENT EVENT
On January 26, 1999, the shareholders of the Companies sold all of the
outstanding shares to RailWorks Corporation.
39
<PAGE> 40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mid West Railroad Construction and Maintenance Corporation of Wyoming:
We have audited the accompanying balance sheet of MID WEST RAILROAD
CONSTRUCTION AND MAINTENANCE CORPORATION OF WYOMING (a Wyoming corporation) as
of December 31, 1998, and the related statements of operations, retained
earnings and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MID WEST RAILROAD
CONSTRUCTION AND MAINTENANCE CORPORATION OF WYOMING as of December 31, 1998, and
the results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Stamford, Connecticut
March 12, 1999
40
<PAGE> 41
MID WEST RAILROAD CONSTRUCTION AND MAINTENANCE CORPORATION OF WYOMING
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 264,261
Accounts receivable....................................... 1,145,048
Due from employees, current portion....................... 15,679
Inventory................................................. 140,866
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 63,772
Prepaid expenses.......................................... 29,262
Income tax refund receivable.............................. 161,365
----------
Total current assets.............................. 1,820,253
----------
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 69,715
Building.................................................. 408,950
Locomotives............................................... 494,340
Construction equipment.................................... 1,990,961
Vehicles.................................................. 401,981
Leasehold improvements.................................... 119,248
Office equipment.......................................... 68,946
----------
3,554,141
Less accumulated depreciation.......................... 983,477
----------
Property, plant and equipment, net........................ 2,570,664
----------
OTHER ASSETS,
Due from employees, non-current........................... 6,721
----------
$4,397,638
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 500,640
Accounts payable.......................................... 657,269
Accrued expenses.......................................... 96,241
Accrued payroll and payroll taxes......................... 32,007
Deferred income taxes..................................... 42,000
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 83,054
----------
Total current liabilities......................... 1,411,211
----------
OTHER LIABILITIES:
Long-term debt, net of current portion.................... 1,089,725
Deferred income taxes..................................... 232,000
----------
Total other liabilities........................... 1,321,725
----------
STOCKHOLDERS' EQUITY:
Common Stock, no par value; authorized 1,000 shares;
issued and outstanding 1,000 shares.................... 1,000
Additional paid-in capital................................ 606,780
Retained earnings......................................... 1,056,922
----------
Total stockholders' equity........................ 1,664,702
----------
$4,397,638
==========
</TABLE>
See Notes to Financial Statements.
41
<PAGE> 42
MID WEST RAILROAD CONSTRUCTION AND MAINTENANCE CORPORATION OF WYOMING
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
EARNED REVENUE.............................................. $13,219,410
COST OF EARNED REVENUE...................................... 11,064,566
-----------
Gross profit.............................................. 2,154,844
GENERAL AND ADMINISTRATIVE EXPENSES......................... 1,646,408
-----------
INCOME FROM OPERATIONS...................................... 508,436
-----------
OTHER INCOME (EXPENSE):
Loss on sale of fixed assets.............................. (35,981)
Other income.............................................. 1,356
Interest expense.......................................... (155,402)
Interest income........................................... 17,402
Net rental income......................................... 2,921
-----------
OTHER EXPENSE, NET.......................................... (169,704)
-----------
INCOME BEFORE PROVISION FOR INCOME TAXES.................... 338,732
PROVISION FOR INCOME TAXES.................................. 2,635
-----------
NET INCOME.................................................. $ 336,097
RETAINED EARNINGS, BEGINNING................................ 720,825
-----------
RETAINED EARNINGS, ENDING................................... $ 1,056,922
===========
</TABLE>
See Notes to Financial Statements.
42
<PAGE> 43
MID WEST RAILROAD CONSTRUCTION AND MAINTENANCE CORPORATION OF WYOMING
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 336,097
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 391,391
Loss on sale of fixed assets.............................. 35,981
Deferred income taxes..................................... (121,000)
Change in operating assets and liabilities:
Accounts receivables................................... 1,967,778
Due from employees..................................... (11,800)
Inventory.............................................. (25,002)
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. 2,227,390
Prepaid expenses and other assets...................... (3,141)
Income tax refund receivable........................... (161,365)
Accounts payable....................................... (3,657,189)
Accrued expenses....................................... (133,589)
Billings in excess of costs and estimated earnings on
uncompleted contracts................................. (93,717)
Accrued payroll and payroll taxes...................... (4,363)
-----------
Net cash provided by operating activities......... 747,471
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment........................... 13,087
Purchases of equipment.................................... (805,605)
-----------
Net cash used in investing activities............. (792,518)
-----------
CASH FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................. 1,010,823
Principal payments of long-term debt...................... (1,006,942)
-----------
Net cash provided by financing activities......... 3,881
-----------
NET DECREASE IN CASH........................................ (41,166)
CASH AND CASH EQUIVALENTS, beginning of year................ 305,427
-----------
CASH AND CASH EQUIVALENTS, end of year...................... $ 264,261
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................. $ 164,262
===========
Income taxes.............................................. $ 455,000
===========
</TABLE>
See Notes to Financial Statements.
43
<PAGE> 44
MID WEST RAILROAD CONSTRUCTION AND MAINTENANCE CORPORATION OF WYOMING
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Mid West Railroad Construction and Maintenance of Wyoming ("the Company")
is a Wyoming corporation which was formed in 1988. The Company operates in
Wyoming, Utah and Colorado and other western U.S. states.
The Company performs contracts for repair, maintenance and construction of
privately owned railroad tracks, contracts to move railroad cars on private
railroad tracks to and from common carrier interchange points and provides
railroad track engineering.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from the estimates that were assumed
in preparing the financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable and accounts payable
approximate fair value because of their short-term nature. The carrying amount
of long-term debt approximates fair value based on the borrowing rates currently
available to the Company for bank loans with similar terms and maturities.
REVENUE AND COST RECOGNITION
The Company recognizes revenues from fixed-fee construction contracts using
the percentage-of-completion method, measured by the ratio of cost incurred to
date to management's estimated total cost for each contract. That method is used
because management considers total cost to be the best available measure of
progress on the contracts. Changes in job performance, job conditions and
estimated profitability may result in revisions to cost and income, which are
recognized in the period in which the revisions are determined.
Revenues from time-and-material contracts are recognized as the work is
performed.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance. General and administrative costs
are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
INVENTORY
Inventory, principally materials and supplies, is stated at the lower of
cost or net realizable value. Cost is determined by the first-in, first-out
method.
44
<PAGE> 45
MID WEST RAILROAD CONSTRUCTION AND MAINTENANCE CORPORATION OF WYOMING
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is provided
principally by use of the straight-line method over the estimated useful life of
the related asset. Accelerated methods are used for income tax reporting
purposes.
INCOME TAXES
Deferred income taxes are determined based on the difference between the
financial statement and income tax basis of assets and liabilities using tax
rates expected to be in effect in the years in which the differences are
expected to reverse. The temporary differences related primarily to the
reporting of revenue recognition on long-term contracts, depreciation and net
operating loss carryforwards.
CASH
From time to time, the Company's cash balance with financial institutions
exceeds the maximum FDIC insured balance of $100,000. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk on cash.
For the reporting of cash flows, the Company considers savings accounts and
certificate of deposits with original maturities of three months or less to be
cash.
3. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1998, consisted of the following:
<TABLE>
<S> <C>
Contract receivables........................................ $1,117,358
Retainage................................................... 27,690
----------
$1,145,048
==========
</TABLE>
Contract retainages have been billed but are not due pursuant to contract
provisions until contract completion. Such contract retainage is expected to be
collected within the following year.
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Information with respect to contracts in process at December 31, 1998, are
as follows:
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts..................... $1,084,103
Estimated earnings.......................................... 114,805
----------
1,198,908
Less billings to date....................................... 1,218,190
----------
$ (19,282)
==========
</TABLE>
Included in the balance sheet under the following captions:
<TABLE>
<S> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 63,772
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (83,054)
--------
$(19,282)
========
</TABLE>
45
<PAGE> 46
MID WEST RAILROAD CONSTRUCTION AND MAINTENANCE CORPORATION OF WYOMING
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
Long-term debt at December 31, 1998 consisted of the following:
<TABLE>
<S> <C>
Notes payable to Grand National Bank, principal and interest
at rates from 9.15% to 9.90%, payable monthly, maturing
from May 2000 to May 2001, secured by all inventory,
accounts receivable, contract rights, equipment, general
intangibles, fixtures and the personal guarantees of the
shareholders.............................................. $ 961,050
Vehicle and equipment notes payable, principal and interest
at rates from 7.90% to 18.20%, payable monthly, maturing
from May 1999 to December 2003, secured by vehicles and
equipment................................................. 568,867
Mortgage note payable in monthly installments of $1,661
including interest at 9.04%, maturing in June 1999,
secured by real property.................................. 8,119
Mortgage note payable in monthly installments of $1,349
including interest at 9.40%, maturing in November 2002,
secured by real Property.................................. 52,329
----------
1,590,365
Less current maturities..................................... 500,640
----------
$1,089,725
==========
</TABLE>
Aggregate principal payments as of December 31, 1998, on long-term debt are
as follows:
<TABLE>
<S> <C>
Year Ending December 31
1999...................................................... $ 500,640
2000...................................................... 645,453
2001...................................................... 240,697
2002...................................................... 91,688
2003...................................................... 111,887
----------
$1,590,365
==========
</TABLE>
Long-term debt contains certain restrictive covenants which place some
requirements and restrictions on the Company regarding the maintenance of
certain financial ratios measured on an annual basis.
6. LEASE AGREEMENTS
The Company leases certain vehicles under the classification of operating
leases. The following is a schedule of future minimum lease payments for
operating leases as of December 31, 1998:
<TABLE>
<S> <C>
Period Ending December 31
1999...................................................... $ 5,500
==========
</TABLE>
Rent expense under operating leases totaled $24,660 for the year ended
December 31, 1998.
7. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401k plan (the "Plan") covering certain of its
employees. The Plan provides for contributions by the Company in such amounts as
the Board of Directors may annually determine. Contributions to the Plan
amounted to $8,126 for the year ended December 31, 1998.
46
<PAGE> 47
MID WEST RAILROAD CONSTRUCTION AND MAINTENANCE CORPORATION OF WYOMING
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The income tax provision (benefit) as reported in the combined statements
of operations differs from the amounts computed by applying federal statutory
rates due to the following:
<TABLE>
<S> <C>
Federal income tax at statutory rate........................ $ 118,556
State income taxes, net of federal income tax benefit....... 8,402
Benefit of previously unrecognized alternative minimum tax
credits................................................... (126,198)
Other....................................................... 1,875
---------
Income tax provision........................................ $ 2,635
=========
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets at December 31, 1998 consisted of the following:
<TABLE>
<S> <C>
Deferred tax assets:
Depreciation.............................................. $232,000
Other, primarily deferred contract income................. 42,000
--------
Total deferred tax liabilities.................... $274,000
========
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Company rents a building from a shareholder on a month to month basis.
The rent requires monthly payments of $2,447, plus real estate taxes. Rent
expense for the year ended December 31, 1998 was $30,417.
10. COMMITMENTS AND CONTINGENCIES
The Company is engaged in various lawsuits arising in the ordinary course
of business. In the opinion of management, based upon the advice of counsel, the
ultimate outcome of these lawsuits will not have a material impact on the
Company's financial statements.
11. SUBSEQUENT EVENT
On January 7, 1999, the stockholders of the Company sold all of the
outstanding stock to RailWorks Corporation.
47
<PAGE> 48
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Stockholders
F & V Metro Contracting Corp. and Affiliates
We have audited the accompanying combined statement of net liabilities of F
& V METRO CONTRACTING CORP. AND AFFILIATES at November 30, 1998, and the related
combined statements of operations and cash flows for the year then ended. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of F & V METRO
CONTRACTING CORP. AND AFFILIATES at November 30, 1998 and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Stamford, Connecticut
March 15, 1999
48
<PAGE> 49
F & V METRO CONTRACTING CORP. AND AFFILIATES
COMBINED STATEMENT OF NET LIABILITIES
NOVEMBER 30, 1998
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 1,335,528
Marketable securities..................................... 7,846,300
Contract receivables...................................... 14,459,447
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 3,285,554
Inventory................................................. 1,740,873
Advances to and equity in joint ventures.................. 2,059,983
Advances to stockholders.................................. 71,378
Advances to affiliates.................................... 1,295,719
Prepaid expenses and other current assets................. 190,894
-----------
Total current assets.............................. 32,285,676
-----------
PROPERTY AND EQUIPMENT, net................................. 546,999
-----------
OTHER ASSET:
Security deposits........................................... 53,978
-----------
Total assets...................................... 32,886,653
-----------
LIABILITIES
Current Liabilities:
Notes payable - banks..................................... $ 4,653,333
Loans payable - other..................................... 239,148
Current maturities of long-term debt...................... 47,685
Accounts payable.......................................... 11,534,641
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 9,620,264
Accrued expenses and other current liabilities............ 871,189
-----------
Total current liabilities......................... 26,966,260
-----------
Long-Term Liabilities:
Notes payable -- banks.................................... 111,111
Long-term debt, less current maturities................... 69,397
Long-term advances........................................ 7,532,724
-----------
Total liabilities................................. 34,679,492
-----------
Excess of liabilities over assets................. $(1,792,839)
===========
</TABLE>
See independent auditors' report and notes to combined financial statements.
49
<PAGE> 50
F & V METRO CONTRACTING CORP. AND AFFILIATES
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<S> <C>
Contract Revenues........................................... $46,039,928
Contract Costs.............................................. 42,227,163
-----------
Gross Profit................................................ 3,812,765
General and Administrative Expenses......................... 2,307,228
Other Income (Expense):
Interest income........................................... 375,043
Interest expense.......................................... (541,753)
Loss from joint ventures.................................. (578,279)
Loss on guarantee of project.............................. (1,490,646)
Other income.............................................. 54,944
-----------
Total other expense............................... (2,180,691)
-----------
Loss Before Income Taxes.................................... (675,154)
Income Taxes................................................ --
-----------
Net Loss.................................................... $ (675,154)
===========
</TABLE>
See independent auditors' report and notes to combined financial statements.
50
<PAGE> 51
F & V METRO CONTRACTING CORP. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<S> <C>
NET LOSS.................................................... $ (675,154)
-----------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Depreciation and amortization............................. 121,884
Loss on disposal of fixed assets.......................... 16,651
Equity in loss from joint ventures........................ 578,279
Changes in assets (increase) decrease:
Marketable securities.................................. (495,000)
Contract receivables................................... (1,049,331)
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. (1,500,742)
Inventory.............................................. (1,640,873)
Prepaid expenses and other current assets.............. 378,816
Security deposits...................................... 26,375
Changes in liabilities increase (decrease):
Accounts payable....................................... (2,098,124)
Billings in excess of costs and estimated earnings on
uncompleted contracts................................. 7,038,393
Accrued expenses and other current liabilities......... 224,363
-----------
Total adjustments................................. 1,600,691
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 925,537
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.............. 147,756
Purchase of property and equipment........................ (112,282)
Advances to joint ventures................................ (2,638,262)
-----------
NET CASH USED IN INVESTING ACTIVITIES............. (2,602,788)
-----------
</TABLE>
<TABLE>
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term advances........................................ $ 5,184,814
Repayment of advances to stockholders..................... 460,328
Repayment of advances to affiliates....................... 100,078
Advances to affiliates.................................... (1,295,719)
Advances to stockholders.................................. (71,378)
Repayment of advances from stockholders................... (128,886)
Distributions to stockholders............................. (579,417)
Principal payments of long-term borrowings................ (81,002)
Repayment of notes payable -- bank........................ (1,013,334)
Repayment of advances from affiliates..................... (962,295)
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 1,613,189
-----------
NET DECREASE IN CASH........................................ (64,060)
CASH, BEGINNING OF PERIOD................................... 1,399,588
-----------
CASH, END OF PERIOD......................................... $ 1,335,528
===========
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired through long-term
financing.............................................. $ 38,388
===========
</TABLE>
See independent auditors' report and notes to combined financial statements.
51
<PAGE> 52
F & V METRO CONTRACTING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
F & V Metro Contracting Corp. and Affiliates (the "Companies") serve as
contractors for governmental, institutional and commercial projects, primarily
in the New York City Metropolitan area. Construction work is generally performed
under fixed-price and unit-price contracts. These contracts are undertaken by
the Companies or in partnership with other contractors through joint ventures.
The length of the Companies' contracts varies but typically ranges from one to
three years.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of F & V Metro
Contracting Corp., V & R Electrical Contractors, Inc., F & V Mechanical/V & R
Electrical -- A Joint Venture, Impulse Enterprises of N.Y., Inc. and Impulse
Enterprises of N.Y., Inc. and F & V Mechanical Plumbing & Heating Corp. A Joint
Venture, which are related by virtue of common ownership. All intercompany
balances and transactions have been eliminated in the combined financial
statements.
The balance sheet dates for the entities included in the combined report
are as follows:
<TABLE>
<S> <C>
F&V Metro Contracting Corp.................................. 11/30/98
V&R Electrical Contractors, Inc............................. 12/31/98
F&V Mechanical/V&R Electrical a Joint Venture............... 12/31/98
Impulse Enterprises of N.Y., Inc............................ 10/31/98
Impulse Enterprises of N.Y., Inc. and F&V Mechanical a Joint
Venture................................................... 10/31/98
</TABLE>
REVENUE AND COST RECOGNITION
Revenues from fixed-price and unit-price, long-term construction contracts
are recognized under the percentage of completion method. Under this method,
progress towards completion is recognized according to the ratio of incurred
costs to estimated total costs.
Contract costs include all direct material and labor costs and all other
direct and indirect costs related to contract performance. General and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions and estimated
profitability, including those arising from settlements, may result in revisions
to costs and income and are recognized in the period in which the revisions are
determined. Because of the inherent uncertainty in estimating the costs to
complete on contracts in process, it is at least reasonably possible that the
estimates used will change in the near term. Profit incentives are included in
revenues when their realization is reasonably assured. An amount equal to
contract costs attributable to claims is included in revenues when realization
is probable and the amount can be reliably estimated.
The Asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The Liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
In accordance with normal construction industry practice, the Companies
classify as current all assets and liabilities related to the performance of
long-term construction contracts. The
52
<PAGE> 53
F & V METRO CONTRACTING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
contracting cycle may extend beyond one year and, accordingly, collection or
payment of amounts related to these contracts may extend beyond one year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Companies consider securities with original maturities of three months
or less to be cash equivalents.
MARKETABLE SECURITIES
The Companies determine cost of marketable securities using the average
cost method for purposes of calculating realized gains or losses.
INVENTORY
Inventory is valued at the lower of cost or market, with cost determined
using the first-in, first-out method and with market defined as the lower of
replacement cost or realizable value.
CONCENTRATION OF CREDIT RISK
Substantially all of the Companies' business activity is with customers
located within the New York City metropolitan area. Substantially all of the
Companies' cash is maintained in two financial institutions, each of which are
in excess of the Federal Deposit Insurance Corporation (FDIC) insured limits of
$100,000. The Companies believe they are not exposed to any significant credit
risk on cash and cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. The costs of additions and
betterments are capitalized and expenditures for repairs and maintenance are
expensed in the period incurred. When items of property and equipment are sold
or retired, the related costs and accumulated depreciation are removed from the
accounts and any gain or loss is included in income.
Depreciation and amortization of property and equipment is provided
utilizing accelerated methods over the estimated useful lives of the respective
assets as follows:
<TABLE>
<S> <C>
Building.................................................... 31.5 years
Transportation equipment.................................... 5 years
Office equipment............................................ 3 to 5 years
Furniture and fixtures...................................... 5 to 7 years
</TABLE>
Leasehold improvements are amortized over the shorter of the remaining term
of the lease or the useful life of the improvement utilizing the straight-line
method.
53
<PAGE> 54
F & V METRO CONTRACTING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Federal income taxes have not been provided because the stockholders have
elected to have F & V Metro Contracting Corp., V & R Electrical Contractors,
Inc., and Impulse Enterprises of N.Y., Inc. treated as S corporations for income
tax purposes as provided in Section 1362(a) of the Internal Revenue Code. As
such, the Corporations' income or loss and credits are passed through to the
stockholders and reported on their individual income tax returns.
Generally, income taxes are not payable or provided by the Partnerships, F
& V Mechanical/V & R Electrical -- A Joint Venture and Impulse Enterprises of
N.Y., Inc. and F & V Mechanical Plumbing and Heating Corp. -- A Joint Venture.
Partners are taxed individually on their share of partnership earnings. The
partnership net income or loss is allocated to the partners based upon their
profit and loss percentages. The partnerships are subject to the New York City
unincorporated business tax for which no amounts are due for 1998.
PENSION PLANS
Union employees are covered by collectively bargained employee benefit
plans under which the Companies make contributions on a monthly basis based upon
hours worked.
PROFIT SHARING PLAN
The Companies sponsor a 401(k) plan covering all eligible salaried
employees who have met age and service requirements. Annual contributions to the
plan are discretionary and are determined by the Board of Directors. No Company
contributions were made in 1998.
3. MARKETABLE SECURITIES
The Companies' investments in marketable securities are classified as held
to maturity and are valued at cost, which approximates market value.
MARKETABLE DEBT SECURITIES
<TABLE>
<S> <C>
Municipal bonds............................................. $7,630,000
Cash........................................................ 216,300
----------
$7,846,300
==========
</TABLE>
The marketable securities have various maturity dates ranging from
December, 1998 to July, 2004 with interest rates ranging from 3.75% to 6.75% per
annum.
Bonds maturing after November 30, 1998 were replaced with similar
securities.
The Companies have substituted certain of their municipal bonds in lieu of
retainage totaling $7,902,788, related to certain uncompleted and completed
contracts.
54
<PAGE> 55
F & V METRO CONTRACTING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. CONTRACT RECEIVABLES
Contract receivables are summarized as follows:
<TABLE>
<S> <C>
Completed contracts......................................... $ 1,459,506
Contracts in process........................................ 10,740,881
Retainage................................................... 2,377,957
-----------
14,578,344
Less: Allowance for doubtful accounts....................... 118,897
-----------
$14,459,447
===========
</TABLE>
The Companies anticipate that approximately 55% of retainage at November
30, 1998 will be collected within one year.
5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings in excess of billings on uncompleted contracts
arise when revenues have been recorded but the amounts cannot be billed
currently under the terms of the contracts. Such amounts are recoverable from
customers upon various measures of performance, including achievement of certain
milestones, completion of specified units or completion of the contract. The
Companies anticipate that substantially all amounts, will be billed and
collected within one year.
Costs and estimated earning on uncompleted contracts are as follows:
<TABLE>
<S> <C>
Contract costs incurred..................................... $83,533,894
Estimated earnings.......................................... 10,442,645
-----------
93,976,539
Less: Billings to date...................................... 100,311,249
-----------
$(6,334,710)
===========
</TABLE>
Such amounts are included in the accompanying combined balance sheet under
the following captions:
<TABLE>
<S> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 3,285,554
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (9,620,264)
-----------
$(6,334,710)
===========
</TABLE>
6. JOINT VENTURES
F & V Metro Contracting Corp. and Affiliates, in the normal conduct of its
business, has entered into four joint venture partnership agreements with third
parties. The joint venture agreements, which require the participants to
contribute additional capital as needed, provide that the Companies will receive
from the joint ventures their proportionate share of any profits or losses
realized from the contracts. The Companies have 50% or less participation in
these joint ventures and account for them under the equity method. The
investment is included in the balance "Advances to and equity in joint
ventures."
55
<PAGE> 56
F & V METRO CONTRACTING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Companies fulfill certain joint venture contractual
obligations and are reimbursed for all related costs incurred. During the year
ended November 30, 1998, the Companies received management fees from joint
ventures totaling $162,500, which is included in contract revenues.
7. RELATED PARTY TRANSACTIONS
Advances to and from affiliates and stockholders are summarized as follows:
<TABLE>
<S> <C>
ADVANCES TO AFFILIATES
Balance, beginning of period.............................. $ 100,078
Advances to affiliates.................................... 1,295,719
Repayment of advances..................................... (100,078)
----------
Balance, end of period.................................... $1,295,719
==========
ADVANCES TO STOCKHOLDERS
Balance, beginning of period.............................. $ 460,328
Advances to Stockholders.................................. 71,378
Repayment of advances..................................... (460,328)
----------
Balance, end of period.................................... $ 71,378
==========
ADVANCES FROM STOCKHOLDERS
Balance, beginning of period.............................. $ 128,886
Repayment of advances..................................... (128,886)
----------
Balance, end of period.................................... $ --
==========
</TABLE>
Advances between affiliates are repaid periodically throughout the year and
are non-interest bearing. The Companies anticipate that these advances will be
repaid within one year.
The Companies lease their office and warehouse facilities from an affiliate
on a month-to-month tenancy. Rent expense charged to operations for the year
ended November 30, 1998 amounted to $302,160, of which $47,520 is included in
contract costs.
The Companies have various loans receivable from related parties in the
amount of $85,310. These loans are unsecured, non-interest bearing and have no
specific repayment terms. The Companies anticipate these loans to be repaid
within one year. Such loans are included in the caption "Prepaid expenses and
other current assets."
8. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<S> <C>
Transportation equipment.................................... $ 983,113
Office equipment............................................ 42,973
Furniture and fixtures...................................... 31,928
Leasehold improvements...................................... 250,604
----------
1,308,618
Less: Accumulated depreciation and amortization............. 761,619
----------
$ 546,999
==========
</TABLE>
Depreciation and amortization expense related to property and equipment
amounted to $121,884, of which $68,771 is included in contract costs for the
year ended November 30, 1998.
56
<PAGE> 57
F & V METRO CONTRACTING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. NOTES PAYABLE -- BANKS
Pursuant to an agreement with its bank, the Companies may borrow up to
$2,300,000 under an unsecured line of credit. The agreement contains financial
covenants related to the Companies' working capital, net worth and bank
borrowings. The agreement also contains a 30-day clean-up provision and is
personally guaranteed by the stockholders of the Companies. Interest is payable
at 1/2% above the bank's prime rate (for a total rate of 8.25% at November 30,
1998). The line of credit expires on May 31, 1999.
The outstanding balance on the above mentioned line of credit totaled
$2,220,000 at November 30, 1998. Subsequent to November 30, 1998, the Companies
repaid $1,817,908 of this balance.
Pursuant to an agreement with another bank, the Companies have borrowed
$2,300,000 under a term loan agreement. The agreement contains financial
covenants related to the Companies' working capital, net worth and bank
borrowings. The agreement also contains a provision whereby the Companies will
repay $40,000 per month, plus interest, towards the balance of the loan. The
loan is personally guaranteed by the stockholders of the Companies. Interest is
payable at 1/2% above the bank's prime rate (for a total rate of 8.25% at
November 30, 1998). The term loan expires on May 31, 1999.
The outstanding balance on the above mentioned term loan totals $2,100,000
at November 30, 1998. Subsequent to November 30, 1998, the Companies repaid
$160,000 of this balance.
In addition, the Companies have entered into agreements with the banks for
two, $500,000 term loans. Each loan is to be repaid in equal monthly
installments of $13,889, plus interest through March, 2000. These loans are
secured by the fixed assets of the Companies and are personally guaranteed by
the stockholders of the Companies. Interest is payable at 3/4% above the banks'
prime rate (for a combined rate of 8.50% at November 30, 1998).
The outstanding balances on the above mentioned term loans total $444,444
at November 30, 1998, of which $111,111 is long-term. Subsequent to November 30,
1998, the Companies repaid all outstanding balances relating to these term
loans.
Aggregate maturities of notes payable -- banks are as follows:
<TABLE>
<CAPTION>
YEARS ENDING NOVEMBER 30:
- -------------------------
<S> <C>
1999........................................................ $4,653,333
2000........................................................ 111,111
----------
$4,764,444
==========
</TABLE>
10. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<S> <C>
Installment loans payable -- in equal monthly installments
totaling $4,670 including interest ranging from 7.9% to
9.9% per annum through varying periods from October, 1999
through October, 2002, secured by related transportation
equipment................................................. $117,082
Less: Current maturities.................................... 47,685
--------
Long-Term Debt.............................................. $ 69,397
========
</TABLE>
57
<PAGE> 58
F & V METRO CONTRACTING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEARS ENDING NOVEMBER 30:
- -------------------------
<S> <C>
1999........................................................ $ 47,685
2000........................................................ 38,830
2001........................................................ 23,896
2002........................................................ 6,671
--------
$117,082
========
</TABLE>
11. PAYABLE -- OTHER
The Companies have various other loans payable to a related party which are
unsecured, non-interest bearing and have no specific repayment terms. The
Companies anticipate repaying these loans within one year.
12. LONG-TERM ADVANCES
The Companies have received various advances from a joint venture partner
which have been used to finance certain contracts unrelated to such joint
venture. Such amounts are non-interest bearing and have no specific repayment
terms. The Companies do not anticipate repaying such amounts within one year.
13. STOCKHOLDERS' EQUITY
Stockholders' equity of the Companies on a non-combined basis are
summarized as follows:
<TABLE>
<S> <C>
F & V METRO CONTRACTING CORP.
Common stock -- no par value; 400 shares authorized; 280
shares issued and outstanding.......................... $ 50,350
Retained earnings......................................... 605,638
-----------
Total Stockholders' Equity at November 30, 1998... $ 655,988
===========
V & R ELECTRICAL CONTRACTORS, INC.
Common stock -- no par value; 200 shares authorized, 100
shares issued and outstanding.......................... $ 10,000
Accumulated deficit....................................... (210,224)
-----------
Total Stockholders' Deficit at December 31,
1998............................................. $ (200,224)
===========
IMPULSE ENTERPRISES OF N.Y., INC.
Common stock -- no par value; 200 shares authorized,
issued and outstanding................................. $ 241,000
Accumulated deficit....................................... (2,489,603)
-----------
Total Stockholders' Deficit at October 31, 1998... $(2,248,603)
===========
</TABLE>
The changes in combined excess of liabilities over assets for the year
ended November 30, 1998 are as follows:
<TABLE>
<S> <C>
Net liabilities, beginning of year.......................... $ (538,268)
Net loss.................................................... (675,154)
Distributions to stockholders............................... (579,417)
-----------
Net liabilities, end of year................................ $(1,792,839)
===========
</TABLE>
58
<PAGE> 59
F & V METRO CONTRACTING CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES
The Companies have guaranteed a loan agreement entered into by a
non-combined affiliated company and its bank. The amount outstanding on this
loan agreement totals $664,444 at November 30, 1998.
The Companies are contingently liable to their surety under a general
indemnity agreement. Under this agreement, the Companies agree to indemnify the
surety for any payments made on their behalf and on behalf of their joint
ventures. The Companies believe that all contingent liabilities will be
satisfied by their performance on the specific contracts covered by the
agreement.
F & V Metro Contracting Corp., in an unrelated business transaction, has
entered into an agreement with another general contractor as a guarantor on one
of its projects. F&V Metro Contracting Corp. had no equity interest in the
project and was entitled to a fee based on the profit of the project. Each party
is jointly and severally liable to the surety under a general indemnity
agreement. Included in other expenses is $1,490,646, which represents amounts
reimbursed to the surety and vendors and the anticipated remaining cost to
complete the contract. F & V Metro Contracting Corp. will seek recovery of all
amounts from the general contractor; however, no amounts have been recorded as
ultimate collection is uncertain. It is reasonably possible that F & V Metro
Contracting Corp. will have to reimburse the surety for additional amounts under
the indemnity. Any such additional reimbursement cannot be estimated at November
30, 1998.
The Companies are involved in various legal proceedings which have been
filed against them. In the opinion of management and legal counsel, the outcome
of this litigation will not materially affect the Companies' financial position.
15. INCOME TAXES
The net deferred tax benefits in the accompanying combined balance sheet
include the following components:
<TABLE>
<S> <C>
Tax benefit from net operating loss carryforward............ $600,321
Valuation allowance......................................... (600,321)
--------
Net deferred tax asset...................................... $ --
========
</TABLE>
As of November 30, 1998, the Companies have New York State and New York
City net operating loss carryforwards of approximately $10,000,000, subject to
review by taxing authorities, expiring at varying dates ranging from October,
2007 to December, 2012.
16. SUBSEQUENT EVENT
On February 1, 1999, the stockholders of the Companies entered into an
agreement with RailWorks Corporation. Under the terms of the agreement, the
stockholders agreed to exchange their stock and ownership interests in the
Companies for cash and promissory notes. The transaction was completed on March
15, 1999.
59
<PAGE> 60
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
(Registrant)
Date: March 17, 1999 By:/s/ Harold C. Kropp, Jr.
---------------------------
Harold C. Kropp, Jr.
Vice President and Chief
Accounting Officer
60
<PAGE> 61
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
27.1 Financial Data Schedule (for SEC purposes only)
</TABLE>
61
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE RAILWORKS CORPORATION FOR THE YEAR ENDED DECEMBER
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,846
<SECURITIES> 0
<RECEIVABLES> 101,973
<ALLOWANCES> 0
<INVENTORY> 9,085
<CURRENT-ASSETS> 118,175
<PP&E> 14,514
<DEPRECIATION> 1,122
<TOTAL-ASSETS> 13,392
<CURRENT-LIABILITIES> 50,784
<BONDS> 50,573
0
14
<COMMON> 137
<OTHER-SE> 109,857
<TOTAL-LIABILITY-AND-EQUITY> 110,008
<SALES> 0
<TOTAL-REVENUES> 212,533
<CGS> 0
<TOTAL-COSTS> 182,817
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,334
<INCOME-PRETAX> (11,375)
<INCOME-TAX> 1,472
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,847)
<EPS-PRIMARY> (1.67)
<EPS-DILUTED> (1.67)
</TABLE>
