<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _____________ to ______________
Commission file number 0-24639
RAILWORKS CORPORATION
(Exact name of registrant as specified in its governing instrument)
Delaware 58-2382378
(State of Organization) (IRS Employer Identification No.)
6225 Smith Avenue, Suite 200, Baltimore, Maryland 21209
(Address of principal executive office) (Zip Code)
(Registrant's telephone number, including area code) (410) 580-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
15,369,761 shares of Common Stock were outstanding as of November 3, 2000.
<PAGE> 2
RailWorks Corporation
CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
<S> <C>
Item 1 - Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 2000 (unaudited)
and December 31, 1999 3
Consolidated Statements of Operations for the three months ended
September 30, 2000 (unaudited) and 1999 (unaudited) 4
Consolidated Statements of Operations for the nine months ended
September 30, 2000 (unaudited) and 1999 (unaudited) 5
Consolidated Statements of Stockholders' Equity for the nine months
ended September 30, 2000 (unaudited) and 1999 (unaudited) 6
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 (unaudited) and 1999 (unaudited) 7
Notes to Consolidated Financial Statements (unaudited) 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
PART II - OTHER INFORMATION
Items 1 through 6
Signatures
EXHIBIT INDEX
</TABLE>
2
<PAGE> 3
RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
ASSETS 2000 1999
------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 14,841 $ 4,617
Accounts receivable, net of allowance for doubtful accounts of $1,062 and $965 190,384 153,084
Costs and estimated earnings in excess of billings on uncompleted contracts 33,502 56,295
Inventories:
Raw materials 20,231 19,197
Finished goods 10,577 4,562
Deferred tax asset 2,694 2,426
Prepaid federal taxes 6,797 4,163
Other current assets 7,465 7,372
---------- ----------
Total current assets 286,491 251,716
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET 81,280 73,897
---------- ----------
OTHER ASSETS:
Excess of cost over net assets acquired, net of amortization 248,908 223,886
Loans to officers 3,469 6,735
Other 11,885 15,423
---------- ----------
Total other assets 264,262 246,044
---------- ----------
TOTAL $ 632,033 $ 571,657
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 17,811 $ 19,740
Accounts payable and accrued liabilities 62,357 74,558
Accrued payroll and related withholdings 4,142 3,626
Accrued interest payable 11,062 5,104
Billings in excess of costs and estimated earnings on uncompleted contracts 26,221 20,070
Other current liabilities 12,231 9,348
---------- ----------
Total current liabilities 133,824 132,446
---------- ----------
LONG-TERM DEBT 363,907 274,691
DEFERRED TAX LIABILITY 8,292 8,071
EXCESS OF ACQUIRED NET ASSETS OVER COST, NET OF AMORTIZATION 5,513 8,434
OTHER LIABILITIES 13,540 12,134
---------- ----------
Total long-term liabilities 391,252 303,330
---------- ----------
Total liabilities 525,076 435,776
---------- ----------
STOCKHOLDERS' EQUITY:
Series A, convertible preferred stock, $1.00 par value, authorized
10,000,000 shares, 13,700 shares issued and outstanding 14 14
Common stock, $0.01 par value, authorized 100,000,000 shares,
15,369,761shares issued and outstanding at September 30, 2000,
14,255,705 shares issued and outstanding at December 31, 1999 153 142
Additional paid-in capital 138,039 126,903
Accumulated other comprehensive income 280 175
Retained earnings (deficit) (31,529) 8,647
---------- ----------
Stockholders' equity, net 106,957 135,881
---------- ----------
TOTAL $ 632,033 $ 571,657
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(In thousands, except share and per share data) (Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Revenue $ 163,882 $ 137,425
Cost of revenue 135,254 105,970
----------- -----------
Gross profit 28,628 31,455
Selling, general and administrative expenses 17,202 12,082
Restructuring and other unusual charges 48,045
Depreciation and amortization expense 3,838 1,802
----------- -----------
Operating income (loss) (40,457) 17,571
----------- -----------
Other (expense) income:
Interest expense (10,583) (5,913)
Interest and other income 85 651
----------- -----------
Other expense, net (10,498) (5,262)
----------- -----------
Income (loss) before income taxes (50,955) 12,309
Provision (benefit) for income taxes (3,032) 4,616
----------- -----------
Net income (loss) $ (47,923) $ 7,693
=========== ===========
Basic (loss) earnings per share $ (3.12) $ .55
=========== ===========
Diluted (loss) earnings per share $ (3.12) $ .50
=========== ===========
Weighted average shares used in computing basic
earnings per share 15,369,761 13,939,220
=========== ===========
Weighted average shares used in computing
diluted earnings per share 15,369,761 15,311,523
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(In thousands, except share and per share data) (Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Revenue $ 443,911 $ 325,908
Cost of revenue 357,364 258,043
----------- -----------
Gross profit 86,547 67,865
Selling, general and administrative expenses 40,311 31,290
Restructuring and other unusual charges 48,045 --
Depreciation and amortization expense 10,040 4,372
----------- -----------
Operating income (loss) (11,849) 32,203
----------- -----------
Other (expense) income:
Interest expense (26,974) (12,370)
Interest and other income 1,653 1,713
----------- -----------
Other expense, net (25,321) (10,657)
----------- -----------
Income (loss) before income taxes (37,170) 21,546
Provision for income taxes 3,006 8,080
----------- -----------
Net income (loss) $ (40,176) $ 13,466
=========== ===========
Basic (loss) earnings per share $ (2.73) $ .97
=========== ===========
Diluted (loss) earnings per share $ (2.73) $ .88
=========== ===========
Weighted average shares used in computing basic
earnings per share 14,698,756 13,867,599
=========== ===========
Weighted average shares used in computing
diluted earnings per share 14,698,756 15,244,892
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(In thousands) (Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER RETAINED
COMMON STOCK PREFERRED STOCK PAID-IN COMPREHENSIVE EARNINGS COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (DEFICIT) INCOME
------------ ------ --------- ------ ---------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 13,704 $137 14 $14 $ 121,296 $ -- $(11,439) $ --
Issuance of common stock
for acquisitions 252 2 -- -- 2,698 -- -- --
Stock option compensation -- -- -- -- 37 -- -- --
Stock issuance costs -- -- -- -- (58) -- -- --
Foreign currency
translation adjustment -- -- -- -- -- 123 -- 123
Net income -- -- -- -- -- -- 13,466 13,466
------ ---- -- --- --------- ---- -------- -------
BALANCE, SEPTEMBER 30, 1999 13,956 $139 14 $14 $ 123,973 $123 $ 2,027 $13,589
====== ==== == === ========= ==== ======== =======
</TABLE>
RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(In thousands) (Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER RETAINED
COMMON STOCK PREFERRED STOCK PAID-IN COMPREHENSIVE EARNINGS COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (DEFICIT) LOSS
------ ------ ------ ------- ---------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 2000 14,256 $142 14 $14 $ 126,903 $175 $ 8,647 $ --
Issuance of common stock
for acquisitions 1,113 11 -- -- 11,136 -- --
Foreign currency
translation adjustment -- -- -- -- -- 105 -- 105
Net loss -- -- -- -- -- -- (40,176) (40,176)
------ ---- -- --- --------- ---- -------- --------
BALANCE, SEPTEMBER 30, 2000 15,369 $153 14 $14 $ 138,039 $280 $(31,529) $(40,071)
====== ==== == === ========= ==== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 7
RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(In thousands, except share data) (Unaudited)
<TABLE>
<CAPTION>
2000 1999
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(40,176) $ 13,466
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Depreciation and amortization 17,019 9,241
Goodwill impairment 11,462 --
Non-cash restructuring and other unusual charges 24,237 --
Deferred taxes -- (81)
Bond discount amortization 52 --
Loss (gain) on sale of equipment 15 (25)
Changes in operating assets and liabilities:
Accounts receivable and costs and estimated earnings in excess of billings
on uncompleted contracts (30,718) (31,230)
Inventory (2,192) 571
Other current assets 623 1,922
Accounts payable and accrued liabilities (1,055) (11,453)
Accrued interest payable 5,958 9,489
Accrued payroll and related withholdings 292 (1,240)
Billings in excess of costs and estimated earnings on uncompleted contracts 3,450 (4,052)
Other current liabilities (4,189) (2,892)
Other assets 838 1,728
Other liabilities (5,823) (9,969)
-------- ---------
Net cash used in operating activities (20,207) (24,525)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 10,371 2,062
Purchase of equipment and leasehold improvements (20,890) (11,810)
Loans to officers -- (5,805)
Payment of abandoned acquisition costs (820) --
Acquisitions of subsidiaries, net of cash acquired (19,956) (89,180)
Additional purchase consideration and contingent earn-out payments (17,372) --
-------- ---------
Net cash used in investing activities (48,667) (104,733)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net activity on revolving line of credit 32,926 (19,300)
Proceeds from long-term borrowings 14,638 28,576
Debt issuance costs (236) (5,150)
Payment of loan origination fees (2,607) (532)
Payment of abandoned transaction costs (2,322) --
Proceeds from term loan borrowings 100,000 --
Repayment of term loan (30,175) --
Repayment of seller notes (7,510) --
Proceeds from issuance of senior subordinated notes -- 173,938
Repayment of long-term borrowings (25,721) (45,925)
------- ---------
Net cash provided by financing activities 78,993 131,607
------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 10,119 2,349
EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS 105 123
CASH AND CASH EQUIVALENTS, beginning of period 4,617 2,846
-------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 14,841 $ 5,318
======== =========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 17,979 $ 4,698
======== =========
Cash paid during the period for income taxes $ 5,363 $ 5,769
======== =========
</TABLE>
NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES: On June 30,
2000, the Company issued 1,014,677 shares of common stock as partial
consideration in exchange for 100% of the outstanding stock in the HSQ
Technologies, Inc. acquisition.
See Notes to Consolidated Financial Statements.
7
<PAGE> 8
RAILWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included in the accompanying unaudited
consolidated financial statements. Operating results for the nine months ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.
2. NATURE OF THE BUSINESS
The Company 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 and Canada.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
131, the Company has three reportable segments: (1) transit services, (2) rail
track 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
track 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 Company evaluates performance based on profit or loss
from operations before income taxes, interest income and expense, and
non-recurring gains and losses.
3. EARNINGS PER SHARE
In accordance with SFAS No. 128, the Company reports its earnings per share
(EPS) in basic and diluted earnings per share. 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. 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 for the three and nine months ended
September 30, 2000 and 1999 (in thousands, except per share data):
The following is the computation for the three months ended September 30,
2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
----------- ---------
<S> <C> <C>
Net income (loss) $ (47,923) $ 7,693
=========== =========
Shares used for determining basic EPS 15,370 13,939
Dilutive effect of:
Stock options * 2
Convertible preferred shares * 1,370
----------- ---------
Shares used for determining diluted EPS 15,370 15,311
=========== =========
Basic EPS $ (3.12) $ .55
=========== =========
Diluted EPS $ (3.12) $ 50
=========== =========
</TABLE>
* Outstanding stock options and convertible preferred shares would be
anti-dilutive in 2000 and therefore were excluded.
8
<PAGE> 9
The following is a computation for the nine months ended September 30, 2000
and 1999:
<TABLE>
<CAPTION>
2000 1999
-------- ---------
<S> <C> <C>
Net income (loss) $(40,176) $ 13,466
======== =========
Shares used for determining basic EPS 14,699 13,868
Dilutive effect of:
Stock options *
7
Convertible preferred shares * 1,370
-------- ---------
Shares used for determining diluted EPS 14,699 15,245
======== =========
Basic EPS $ (2.73) $ .97
======== =========
Diluted EPS $ (2.73) $ .88
======== =========
</TABLE>
* Outstanding stock options and convertible preferred shares would be
anti-dilutive in 2000 and therefore were excluded.
4. RESTRUCTURING AND OTHER UNUSUAL CHARGES
During the third quarter of 2000, the Company's management and Board
of Directors substantially completed a strategic review of RailWorks'
operations. The resulting restructuring plan (the "Plan") will involve systems
integration, rationalization of real estate, equipment and inventory and
maximization of human resource productivity around four operating units. The
Company intends to reduce its headcount, consolidate certain facilities and
identify other synergies and cost reduction opportunities.
Restructuring costs include costs directly related to the Company's
Plan. The Emerging Issues Task Force Issue No. 94-3 ("EITF 94-3") provides
specific requirements as to the appropriate recognition of costs associated
with employee termination benefits and other exit costs. Employee termination
costs are recognized when benefit arrangements are communicated to affected
employees in sufficient detail to enable the employees to determine the amount
of benefits to be received on termination. Other exit costs that do not benefit
future activities are recognized at the date of commitment to the Plan.
These costs must be either incremental to the Plan or represent amounts
under contractual obligations which existed prior to the commitment date and
have no future economic benefit or result in a penalty to cancel the
obligation. Other costs directly related to the restructuring of the Company
which are not eligible for recognition at the commitment date, such as
relocation and other integration costs, are expensed as incurred.
During the three months ended September 30, 2000, the Company incurred
$48.0 million restructuring and other unusual charges in connection with the
Plan and other events. These charges included approximately $1.9 million of
employee termination benefits for those employees who had been identified and
notified in accordance with EITF 94-3. These charges also include exit costs
related to leased property that will be vacated as part of the Plan and
approximately $.6 million for non-cancelable lease costs in excess of the
expected sublet income. The Company expects additional charges in the fourth
quarter for employee termination benefits and costs of relocation of personnel
and facilities.
In connection with the Plan and in accordance with SFAS 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of", the Company also evaluated the future undiscounted cash flows of
its businesses to which goodwill relates in order to determine if the carrying
value of the goodwill had been impaired. Management's evaluation resulted in a
write-off of approximately $14.2 million of goodwill related to two of the
Company's acquired businesses because the estimated fair value of these
subsidiaries was less than their carrying value.
The Company's Plan also includes a focus on increasing internal cash
flow, which will involve, among other things, the acceleration of the settlement
of previously disclosed construction claims and other contract exposures,
primarily related to contracts completed by RailWorks' predecessor company,
Comstock Holdings, Inc. Management has estimated the recoverability of the
recognized accounts receivable and costs and estimated earnings in excess of
billings on these contracts under revised settlement scenarios and, as a
result, has recorded a charge of approximately $23.2 million to reflect their
anticipated net realizable value. The charge also includes the anticipated cost
of arbitration/litigation related to these matters and is net of the write off
of approximately $2.8 million of negative goodwill related to the now closed
west coast operations of the Company's predecessor, which performed a majority
of the construction claim projects.
9
<PAGE> 10
The Company's Plan includes the suspension of its acquisition
program. As such, approximately $1.1 million of due diligence costs related
to several acquisitions that were not consummated have been expensed in the
three months ended September 30, 2000.
Also during the three months ended September 30, 2000, the Company
terminated discussions regarding the potential sale of the Company to an
investor group. Approximately $3.1 million of costs associated with this
potential transaction were expensed in September 2000.
In connection with various agreements, (the "Agreements") certain
officers and executives of the Company (the "Executives") have issued
promissory notes to the Company in the aggregate amount of $6.7 million (the
"Notes"), which are included in Other Assets in the accompanying balance sheet.
Such Notes are collateralized solely by shares of the Company's common stock
owned by the Executives. The Notes are due June 30, 2005. Generally, repayment
of the Notes is not required until or unless the per share price of the
Company's common stock achieves 1.5 times its initial public offering price, or
approximately $18 per share. The Notes bear interest at the Company's
incremental borrowing rate, as defined in the Agreements. Payment of interest
for 1999 was forgiven by the Company, and, the Company has not recorded
interest income relating to the Notes during 2000. The Executives have certain
rights, as defined in the Agreements, including forgiveness of the indebtedness
in connection with a change in control of the Company, and certain personal
income tax indemnifications.
The recent decline in market price of the Company's common stock has
increased the uncertainty regarding the ultimate repayment of the Notes.
Pending completion of the restructuring plan of the Company, no decision
regarding any further modification of the Agreements terms has been made;
however, due to the uncertainty regarding the ultimate realizability of the
Notes, the Company has recorded a valuation allowance of $3.3 million to
reflect its current estimate of the fair value of the promissory notes. The
charge is included in the restructuring and other unusual charges.
Also included in the restructuring and other unusual charges is
approximately $.6 million for settlement of certain non-contract related claims
against the Company and the uninsured portion of a third quarter fire loss
incurred at one of the Company's facilities.
The calculation of the restructuring and other unusual charges is
based on estimates using the best information currently available to
management. The Company's restructuring plan is not complete and changes in
estimates may be possible in the near term.
5. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The Company conducts a significant portion of its business through its
subsidiaries. All of the Company's domestic subsidiaries (the "Subsidiary
Guarantors") have fully and unconditionally guaranteed the Company's 11.5%
Senior Subordinated Notes (the "Notes"). The Company's non-U.S. subsidiaries
(the "Non-Guarantor Subsidiaries") have not guaranteed the Notes. The Notes are
effectively subordinated in right of payment to all indebtedness and other
liabilities (including trade payables) of the Non-Guarantor Subsidiaries.
Set forth below are condensed consolidating financial statements for
the Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries as of
September 30, 2000 and 1999 and for the three and nine-month periods ended
September 30, 2000 and 1999. The equity method of accounting has been used by
the Company to report its investments in subsidiaries. Separate financial
statements for the Subsidiary Guarantors are not presented based on
management's determination that they do not provide additional information that
is material to investors.
10
<PAGE> 11
RAILWORKS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2000
(In Thousands) (Unaudited)
<TABLE>
<CAPTION>
RAILWORKS
CORPORATION NON-
(PARENT GUARANTOR GUARANTOR
COMPANY ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------------ --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,461 $ 2,824 $ (444) $ -- $ 14,841
Accounts receivable, net -- 190,760 8,264 (8,640) (a) 190,384
Costs and estimated earnings in excess
of billings on uncompleted -- 33,293 209 -- 33,502
contracts
Inventories:
Raw materials -- 14,877 5,354 -- 20,231
Finished goods -- 10,174 403 -- 10,577
Deferred tax asset -- 2,694 -- -- 2,694
Prepaid federal taxes -- 6,797 -- -- 6,797
Due (to)/from parent company 63,389 (64,385) 996 -- --
Other current assets 3,237 1,885 2,343 -- 7,465
--------- --------- ------- --------- ---------
Total current assets 79,087 198,919 17,125 (8,640) 286,491
--------- --------- ------- ---------- ---------
INVESTMENT IN SUBSIDIARIES 366,576 -- -- (366,576) --
--------- --------- ------- ----------- ---------
PROPERTY, PLANT AND
EQUIPMENT, NET 872 71,417 8,991 -- 81,280
--------- --------- ------- --------- ---------
OTHER ASSETS:
Excess of cost over net assets
acquired, net of amortization -- 232,204 16,704 -- 248,908
Loans to officers 3,469 -- -- -- 3,469
Other 9,125 2,596 164 -- 11,885
--------- --------- ------- --------- ---------
Total other assets 12,594 234,800 16,868 -- 264,262
--------- --------- ------- --------- ---------
TOTAL $ 459,129 $ 505,136 $42,984 $(375,216) $ 632,033
========= ========= ======= ========== =========
</TABLE>
(a) Elimination of inter-company receivables/payables.
(b) Elimination of investment in subsidiaries.
11
<PAGE> 12
RAILWORKS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2000
(In Thousands) (Unaudited)
<TABLE>
<CAPTION>
RAILWORKS
CORPORATION NON-
(PARENT GUARANTOR GUARANTOR
COMPANY ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 8,230 $ 8,863 $ 718 $ -- $ 17,811
Accounts payable and accrued liabilities 1,314 67,765 1,918 (8,640) (a) 62,357
Accrued payroll and related withholdings 554 2,984 604 -- 4,142
Accrued interest payable 11,020 2 40 -- 11,062
Billings in excess of costs and estimated
earnings on uncompleted contracts -- 25,690 531 -- 26,221
Other current liabilities 6,974 4,021 1,236 -- 12,231
---------- ---------- --------- ---------- ----------
Total current liabilities 28,092 109,325 5,047 (8,640) 133,824
---------- ---------- --------- ---------- ----------
LONG-TERM DEBT 347,001 9,457 7,449 -- 363,907
DEFERRED TAX LIABILITY -- 8,292 -- -- 8,292
EXCESS OF NET ASSETS ACQUIRED OVER COST,
NET OF AMORTIZATION -- 5,513 -- -- 5,513
OTHER LIABILITIES -- 13,157 383 -- 13,540
---------- ---------- --------- ---------- ----------
Total long-term liabilities 347,001 36,419 7,832 -- 391,252
---------- ---------- --------- ---------- ----------
Total liabilities 375,093 145,744 12,879 (8,640) 525,076
---------- ---------- --------- ---------- ----------
STOCKHOLDERS' EQUITY:
Series A, convertible preferred stock 14 -- -- -- 14
Common stock 123 3,436 378 (3,784) (b) 153
Additional paid-in capital 138,038 294,049 24,449 (318,497) (b) 138,039
Accumulated other comprehensive income -- -- 280 -- 280
Retained earnings (deficit) (54,139) 61,907 4,998 (44,295) (b) (31,529)
---------- ---------- --------- ---------- ----------
Total stockholders' equity (deficit) 84,036 359,392 30,105 (366,576) 106,957
---------- ---------- --------- ---------- ----------
TOTAL $ 459,129 $ 505,136 $ 42,984 $ (375,216) $ 632,033
========== ========== ========= ========== ==========
</TABLE>
(a) Elimination of inter-company receivables/payables.
(b) Elimination of investment in subsidiaries.
12
<PAGE> 13
RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
(In Thousands) (Unaudited)
<TABLE>
<CAPTION>
RAILWORKS
CORPORATION NON-
(PARENT CO. GUARANTOR GUARANTOR
ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue $ -- $ 158,458 $ 11,823 $ (6,399)(a) $ 163,882
Cost of revenue -- 132,434 9,219 (6,399)(a) 135,254
---------- ---------- ---------- -------------- ----------
Gross profit -- 26,024 2,604 -- 28,628
Selling, general and
administrative expenses 3,886 12,345 971 -- 17,202
Restructuring and other unusual charges 8,632 38,748 665 -- 48,045
Depreciation and amortization expense 294 3,376 168 -- 3,838
---------- ---------- ---------- -------------- ----------
Operating income (loss) (12,812) (28,445) 800 -- (40,457)
Equity in earnings of subsidiaries (28,344) -- -- 28,344 (b) --
Interest expense (9,965) (455) (163) -- (10,583)
Interest and other income 11 31 43 -- 85
---------- ---------- ---------- -------------- ----------
Income (loss) before income taxes (51,110) (28,869) 680 28,344 (50,955)
Provision (benefit) for income taxes -- (3,322) 290 -- (3,032)
---------- ---------- ---------- -------------- ----------
Net income (loss) $ (51,110) $ (25,547) $ 390 $ 28,344 $ (47,923)
========== ========== ========== ============== ==========
</TABLE>
(a) Elimination of inter-company revenue.
(b) Elimination of equity in earnings of subsidiaries.
13
<PAGE> 14
RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(In Thousands) (Unaudited)
<TABLE>
<CAPTION>
RAILWORKS
CORPORATION NON-
(PARENT CO. GUARANTOR GUARANTOR
ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue $ -- $ 432,494 $ 28,241 $ (16,824)(a) $ 443,911
Cost of revenue -- 352,830 21,358 (16,824)(a) 357,364
---------- ---------- ---------- --------------- ----------
Gross profit -- 79,664 6,883 -- 86,547
Selling, general and
administrative expenses 6,632 30,916 2,763 -- 40,311
Restructuring and other unusual charges 8,632 38,748 665 -- 48,045
Depreciation and amortization expense 368 9,142 530 -- 10,040
---------- ---------- ---------- --------------- ----------
Operating income (loss) (15,632) 858 2,925 -- (11,849)
Equity in earnings of subsidiaries (7,840) -- -- 7,840 (b) --
Interest expense (25,133) (1,529) (312) -- (26,974)
Interest and other income 13 1,505 135 -- 1,653
---------- ---------- ---------- --------------- ----------
Income (loss) before income taxes (48,592) 834 2,748 7,840 (37,170)
Provision (benefit) for income taxes -- 1,338 1,668 -- 3,006
---------- ---------- ---------- --------------- ----------
Net income (loss) $ (48,592) $ (504) $ 1,080 $ 7,840 $ (40,176)
========== ========== ========== =============== ==========
</TABLE>
(a) Elimination of inter-company revenue.
(b) Elimination of equity in earnings of subsidiaries.
14
<PAGE> 15
RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(In Thousands) (Unaudited)
<TABLE>
<CAPTION>
RAILWORKS
CORPORATION NON-
(PARENT CO. GUARANTOR GUARANTOR
ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(48,592) $ (822) $ 1,398 $ 7,840 (a) $(40,176)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 723 14,822 1,474 -- 17,019
Goodwill impairment -- 11,462 -- -- 11,462
Non-cash restructuring and other unusual charges 3,265 20,307 665 -- 24,237
Bond discount amortization 52 -- -- -- 52
Equity in earnings of subsidiaries 7,840 -- -- (7,840)(a) --
(Gain) loss on sale of equipment -- 5 10 -- 15
Changes in operating assets and liabilities:
Accounts receivable and costs and estimated
earnings in excess of billings on uncompleted
contracts 205 (32,030) 1,107 -- (30,718)
Inventory -- (2,296) 104 -- (2,192)
Other current assets 2,686 (550) (1,513) -- 623
Accounts payable and accrued liabilities 1,315 (574) (1,796) -- (1,055)
Accrued interest payable 5,938 (20) 40 -- 5,958
Accrued payroll and related withholdings 182 (156) 266 -- 292
Billings in excess of costs and estimated
earnings on uncompleted contracts -- 3,678 (228) -- 3,450
Other current liabilities 218 (4,424) 17 -- (4,189)
Other assets (723) 1,620 (59) -- 838
Other liabilities (447) (5,182) (194) -- (5,823)
Due (to)/from parent company (4,679) 13,079 (8,400) -- --
-------- -------- ------- -------- --------
Net cash (used in) provided by operating (32,017) 18,919 (7,109) -- (20,207)
activities -------- -------- ------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment -- 10,206 165 -- 10,371
Purchase of equipment and leasehold improvements (826) (17,750) (2,314) -- (20,890)
Payment of abandoned acquisitions costs (820) -- -- -- (820)
Acquisitions of subsidiaries, net of cash
acquired (19,722) (95) -- (139)(b) (19,956)
Additional purchase consideration and contingent
earn-out payments (17,372) -- -- -- (17,372)
-------- -------- ------- -------- --------
Net cash used in investing activities (38,740) (7,639) (2,149) (139) (48,667)
-------- -------- ------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net activity on revolving line of credit 26,156 -- 6,770 -- 32,926
Proceeds from long-term borrowings -- 11,556 3,082 -- 14,638
Direct financing costs paid (236) -- -- -- (236)
Payment of loan origination fees (2,607) -- -- -- (2,607)
Payment of abandoned transaction costs (2,322) -- -- -- (2,322)
Proceeds from term loan borrowings 100,000 -- -- -- 100,000
Repayment of old term loan (30,175) -- -- -- (30,175)
Repayment of seller notes (7,510) -- -- -- (7,510)
Repayment of long-term borrowings (75) (21,061) (4,585) -- (25,721)
-------- -------- ------- -------- --------
Net cash provided by (used in) financing
activities 83,231 (9,505) 5,267 -- 78,993
-------- -------- ------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS 12,474 1,775 (3,991) (139)(b) 10,119
EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS -- -- 105 -- 105
CASH AND CASH EQUIVALENTS, beginning of
year (13) 1,049 3,442 139 (b) 4,617
-------- -------- ------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $ 12,461 $ 2,824 $ (444) $ -- $ 14,841
======== ======== ======= ======== ========
==================================================================================================================================
</TABLE>
(a) Elimination of equity in earnings of subsidiaries.
(b) Elimination of cash acquired.
15
<PAGE> 16
RAILWORKS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1999
(In Thousands) (Unaudited)
<TABLE>
<CAPTION>
RAILWORKS
CORPORATION NON-
(PARENT GUARANTOR GUARANTOR
COMPANY ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,546 $ 1,450 $ 2,322 $ -- $ 5,318
Accounts receivable, net -- 129,560 10,920 (6,121)(a) 134,359
Costs and estimated earnings in
excess of billings on uncompleted
contracts -- 52,662 -- -- 52,662
Inventories:
Raw materials -- 10,278 2,753 -- 13,031
Finished goods -- 3,393 1,422 -- 4,815
Deferred tax asset -- 951 -- -- 951
Due (to)/from parent company 64,377 (59,504) (4,873) -- --
Other current assets 71 5,570 116 -- 5,757
-------- -------- --------- --------- --------
Total current assets 65,994 144,360 12,660 (6,121) 216,893
-------- -------- --------- --------- --------
INVESTMENT IN SUBSIDIARIES 270,148 -- -- (270,148)(b) --
-------- -------- --------- --------- --------
PROPERTY, PLANT AND
EQUIPMENT, NET 156 61,859 3,994 -- 66,009
-------- -------- --------- --------- --------
OTHER ASSETS:
Excess of cost over acquired net
assets, net of amortization -- 163,593 19,744 -- 183,337
Deferred tax asset -- 85 -- -- 85
Loans to officers 6,764 -- -- -- 6,764
Other 6,532 1,717 72 -- 8,321
-------- -------- --------- --------- --------
Total other assets 13,296 165,395 19,816 -- 198,507
-------- -------- --------- --------- --------
TOTAL $349,594 $371,614 $ 36,470 $(276,269) $481,409
======== ======== ========= ========= ========
</TABLE>
(a) Elimination of inter-company receivables/payables.
(b) Elimination of investment in subsidiaries.
16
<PAGE> 17
RAILWORKS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1999
(In Thousands) (Unaudited)
<TABLE>
<CAPTION>
RAILWORKS
CORPORATION NON-
(PARENT GUARANTOR GUARANTOR
COMPANY ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C> <C> <C> <C>
Current maturities of long-term debt $ 5,750 $ 6,034 $ -- $ -- $ 11,784
Accounts payable and accrued liabilities 3,500 52,780 4,093 (6,121)(a) 54,252
Accrued payroll and related withholdings 18 3,495 143 -- 3,656
Accrued interest payable 9,707 -- -- -- 9,707
Billings in excess of costs and estimated
earnings on uncompleted contracts -- 11,617 1,817 -- 13,434
Other current liabilities 2,251 10,486 1,559 -- 14,296
-------- -------- ------- --------- --------
Total current liabilities 21,226 84,412 7,612 (6,121) 107,129
-------- -------- ------- --------- --------
LONG-TERM DEBT 210,688 16,722 2,100 -- 229,510
DEFERRED TAX LIABILITIES -- -- -- -- --
EXCESS OF ACQUIRED NET ASSETS OVER COST,
NET OF AMORTIZATION -- 8,491 -- -- 8,491
OTHER LIABILITIES 4,026 5,730 247 -- 10,003
-------- -------- ------- --------- --------
Total long-term liabilities 214,714 30,943 2,347 -- 248,004
-------- -------- ------- --------- --------
Total liabilities 235,940 115,355 9,959 (6,121) 355,133
-------- -------- ------- --------- --------
STOCKHOLDERS' EQUITY:
Series A, convertible preferred stock 14 -- -- -- 14
Common stock 109 2,116 122 (2,208)(b) 139
Additional paid-in capital 123,973 214,022 23,892 (237,914)(b) 123,973
Accumulated other comprehensive income -- -- 123 -- 123
Retained earnings (deficit) (10,442) 40,121 2,374 (30,026)(b) 2,027
-------- -------- ------- --------- --------
Total stockholders' equity (deficit) 113,654 256,259 26,511 (270,148) 126,276
-------- -------- ------- --------- --------
TOTAL $349,594 $371,614 $36,470 $(276,269) $481,409
======== ======== ======= ========= ========
</TABLE>
(a) Elimination of inter-company receivables/payables.
(b) Elimination of investment in subsidiaries.
17
<PAGE> 18
RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(In Thousands) (Unaudited)
<TABLE>
<CAPTION>
RAILWORKS
CORPORATION NON-
(PARENT CO. GUARANTOR GUARANTOR
ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenue $ -- $128,671 $12,823 $ (4,069)(a) $137,425
Cost of revenue -- 101,331 8,708 (4,069)(a) 105,970
------- -------- ------- -------- --------
Gross profit -- 27,340 4,115 -- 31,455
Selling, general and
administrative expenses 3,586 7,082 1,414 -- 12,082
Depreciation and amortization expense 179 1,452 171 -- 1,802
------- -------- ------- -------- --------
Operating (loss) income (3,765) 18,806 2,530 -- 17,571
Equity in earnings of
subsidiaries 12,094 -- -- (12,094)(b) --
Interest expense (5,297) (561) (55) -- (5,913)
Interest and other income 1,200 (607) 58 -- 651
------- -------- ------- -------- --------
Income before income taxes 4,232 17,638 2,533 (12,094) 12,309
Provision for income taxes -- 3,231 1,385 -- 4,616
------- -------- ------- -------- --------
Net income $ 4,232 $ 14,407 $ 1,148 $(12,094) $ 7,693
======= ======== ======= ======== ========
</TABLE>
(a) Elimination of inter-company revenue.
(b) Elimination of equity in earnings of subsidiaries.
18
<PAGE> 19
RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(In Thousands) (Unaudited)
<TABLE>
<CAPTION>
RAILWORKS
CORPORATION NON-
(PARENT CO. GUARANTOR GUARANTOR
ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenue $ -- $309,993 $25,548 $ (9,633)(a) $325,908
Cost of revenue -- 251,024 16,652 (9,633)(a) 258,043
------- -------- ------- -------- --------
Gross profit -- 58,969 8,896 -- 67,865
Selling, general and
administrative expenses 7,012 20,622 3,656 -- 31,290
Depreciation and amortization expense 274 3,646 452 -- 4,372
------- -------- ------- -------- --------
Operating (loss) income (7,286) 34,701 4,788 -- 32,203
Equity in earnings of subsidiaries 24,494 -- -- (24,494)(b) --
Interest expense (11,152) (1,096) (122) -- (12,370)
Interest and other income 1,365 275 73 -- 1,713
------- -------- ------- -------- --------
Income before income taxes 7,421 33,880 4,739 (24,494) 21,546
Provision for income taxes -- 5,714 2,366 -- 8,080
------- -------- ------- -------- --------
Net income $ 7,421 $ 28,166 $ 2,373 $(24,494) $ 13,466
======= ======== ======= ======== ========
</TABLE>
(a) Elimination of inter-company revenue.
(b) Elimination of equity in earnings of subsidiaries.
19
<PAGE> 20
RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(In Thousands) (Unaudited)
<TABLE>
<CAPTION>
RAILWORKS
CORPORATION NON-
(PARENT CO. GUARANTOR GUARANTOR
ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 7,421 $ 28,166 $ 2,373 $(24,494)(a) $ 13,466
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 28 8,504 709 -- 9,241
Equity in earnings of subsidiaries (24,494) -- -- 24,494(a) --
Deferred tax assets -- (81) -- (81)
Gain on sale of equipment -- (16) (9) -- (25)
Changes in operating assets and liabilities:
Accounts receivable and costs and estimated
earnings in excess of billings on uncompleted
contracts -- (26,378) (4,852) -- (31,230)
Inventory -- 226 345 -- 571
Other current assets 1,077 754 91 -- 1,922
Accounts payable and accrued liabilities (172) (12,548) 1,267 -- (11,453)
Accrued payroll and related withholdings 17 (1,204) (53) -- (1,240)
Accrued interest payable 9,489 -- -- -- 9,489
Billings in excess of costs and estimated
earnings on uncompleted contracts -- (5,869) 1,817 -- (4,052)
Other current liabilities 1,823 (5,523) 808 -- (2,892)
Other assets 557 1,185 (14) -- 1,728
Other liabilities (739) (7,380) (1,850) -- (9,969)
Due (to)/from parent company (41,915) 37,042 4,873 -- --
-------- -------- -------- -------- --------
Net cash (used in) provided by operating
activities (46,908) 16,878 5,505 -- (24,525)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment -- 2,005 57 -- 2,062
Purchase of equipment and leasehold improvements (103) (10,908) (799) -- (11,810)
Loans to officers (5,805) -- -- -- (5,805)
Acquisition of subsidiaries, net of cash acquired (94,594) -- -- 5,414(b) (89,180)
-------- -------- -------- -------- --------
Net cash used in investing activities (100,502) (8,903) (742) 5,414 (104,733)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net activity on revolving line of credit (19,300) -- -- -- (19,300)
Direct financing costs paid (532) -- -- -- (532)
Proceeds from long-term borrowings -- 26,476 2,100 -- 28,576
Debt issuance costs (5,150) -- -- -- (5,150)
Proceeds from issuance of senior subordinated
notes 173,938 -- -- -- 173,938
Repayment of long-term borrowings -- (40,992) (4,933) -- (45,925)
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities 148,956 (14,516) (2,833) -- 131,607
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,546 (6,541) 1,930 5,414 2,349
EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS -- -- 123 -- 123
CASH AND CASH EQUIVALENTS, beginning of period -- 7,992 268 (5,414)(b) 2,846
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of period $ 1,546 $ 1,451 $ 2,321 $ -- $ 5,318
======== ======== ======== ======== ========
</TABLE>
(a) Elimination of equity in earnings of subsidiary.
(b) Elimination of cash acquired.
20
<PAGE> 21
6. ACQUISITIONS
Assets acquired and liabilities assumed are recorded at their estimated fair
values at the time of acquisition. The excess of the purchase price over the net
fair value is allocated to goodwill. The estimated fair values of acquired
assets and liabilities are subject to adjustment pending finalization of, among
other things, certain fixed asset appraisals and the quantification of contract
and/or litigation uncertainties based on information which was not available at
the time of acquisition but subsequently obtained. Goodwill is adjusted as these
items are resolved as well as when, and if, additional contingent purchase price
is paid. The Company evaluates periodically whether events and circumstances
indicate that any goodwill is impaired. At September 30, 2000, the Company had
completed its allocation of purchase price for all of the companies acquired
during the third quarter of 1999. As a result of these items, no additional
goodwill was recorded as of September 30, 2000.
During the quarter ended September 30, 2000, additional goodwill was
recorded in connection with the Twigg Corporation in the amount of $1.7 million
primarily related to the quantification of contract uncertainties.
In July, 2000, the Company acquired all of the outstanding capital stock of
Advanced Railroad Specialties, Inc., which specializes in construction, repair
and maintenance of railroad tracks in various southwestern states.
7. SEGMENT REPORTING
The following table presents certain financial data as of and for the three
months ended September 30, 2000 by reportable segment (in thousands):
<TABLE>
<CAPTION>
TRANSIT RAIL PRODUCTS RAIL OTHER/
SERVICES AND SUPPLIES TRACK CORPORATE TOTAL
----------- ------------------ -------- -------------- --------
<S> <C> <C> <C> <C> <C>
Total revenues for reportable segments $77,150 $ 24,438 $ 68,693 $ -- $170,281
Inter-segmental revenue 2,765 834 2,800 -- 6,399
Depreciation/amortization 293 1,209 2,369 2,589 6,460
Segment operating profit (loss) 5,055 2,877 6,132 (54,521) (40,457)
Costs and estimated earnings in
excess of billings on uncompleted
contracts 29,508 -- 3,994 -- 33,502
Segment assets 130,469 64,274 98,751 517,094 810,588
</TABLE>
The Company's reconciliation of segment totals to enterprise values is as
follows (in thousands):
<TABLE>
<S> <C>
REVENUES:
Total revenues for reportable segments $ 170,281
Elimination of inter-segment revenues (6,399)
---------
Consolidated revenues $ 163,882
=========
ASSETS:
Total assets for reportable segments $ 810,588
Elimination of inter-company
receivables/payables (8,640)
Elimination of investments in subsidiaries (169,915)
---------
Consolidated assets $ 632,033
=========
</TABLE>
The Company's Canadian operations had revenues for the three-month period
ended September 30, 2000 of approximately $11,823,000. The net book value of
long-lived assets relating to the Canadian operations amounted to approximately
$8,991,000 as of September 30, 2000.
The following table presents certain financial data as of and for the three
months ended September 30, 1999 by reportable segment (in thousands):
21
<PAGE> 22
<TABLE>
<CAPTION>
TRANSIT RAIL PRODUCTS RAIL OTHER/
SERVICES AND SUPPLIES TRACK CORPORATE TOTAL
----------- ------------------ -------- -------------- --------
<S> <C> <C> <C> <C> <C>
Total revenues for reportable segments $ 65,554 $ 15,451 $ 60,489 $ -- $ 141,494
Inter-segmental revenue 1,020 1,557 1,492 --
4,069
Depreciation/amortization 133 1,067 1,532 1,365
4,097
Segment operating profit (loss) 11,849 3,247 6,377 (3,902) 17,571
Costs and estimated earnings in
excess of billings on uncompleted
contracts 43,286 -- 9,376 -- 52,662
Segment assets 109,268 36,178 83,385 356,255 585,086
</TABLE>
The Company's reconciliation of segment totals to enterprise values is as
follows (in thousands):
<TABLE>
<S> <C>
REVENUES:
Total revenues for reportable segments $ 141,494
Elimination of inter-segment revenues (4,069)
----------
Consolidated revenues $ 137,425
==========
ASSETS:
Total assets for reportable segments $ 585,086
Elimination of inter-company
receivables/payables (6,121)
Elimination of investments in subsidiaries (97,556)
----------
Consolidated assets $ 481,409
==========
</TABLE>
The Company's Canadian operations had revenues for the three month period
ended September 30, 1999 of approximately $12,823,000. The net book value of
long-lived assets relating to the Canadian operations amounted to approximately
$3,994,000 as of September 30, 1999.
The following table presents certain financial data as of and for the nine
months ended September 30, 2000 by reportable segment (in thousands):
<TABLE>
<CAPTION>
TRANSIT RAIL PRODUCTS RAIL OTHER/
SERVICES AND SUPPLIES TRACK CORPORATE TOTAL
---------- ------------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Total revenues for reportable segments $215,092 $ 62,810 $182,833 $ -- $ 460,735
Inter-segmental revenue 8,450 3,035 5,339 -- 16,824
Depreciation/amortization 714 3,416 7,105 5,693 16,928
Segment operating profit (loss) 18,651 9,356 18,067 (57,923) (11,849)
Costs and estimated earnings in
excess of billings on uncompleted
contracts 29,508 -- 3,994 -- 33,502
Segment assets 130,469 64,274 98,751 517,094 810,588
</TABLE>
The Company's reconciliation of segment totals to enterprise values is as
follows (in thousands):
<TABLE>
<S> <C>
REVENUES:
Total revenues for reportable segments $ 460,735
Elimination of inter-segment revenues (16,824)
---------
Consolidated revenues $ 443,911
=========
ASSETS:
Total assets for reportable segments $ 810,588
Elimination of inter-company
receivables/payables (8,640)
Elimination of investments in subsidiaries (169,915)
---------
Consolidated assets $ 632,033
=========
</TABLE>
The Company's Canadian operations had revenues for the nine-month period
ended September 30, 2000 of approximately $28,241,000. The net book value of
long-lived assets relating to the Canadian operations amounted to
approximately $8,991,000 as of September 30, 2000.
The following table presents certain financial data as of and for the nine
months ended September 30, 1999 by reportable segment (in thousands):
22
<PAGE> 23
<TABLE>
<CAPTION>
TRANSIT RAIL PRODUCTS RAIL OTHER/
SERVICES AND SUPPLIES TRACK CORPORATE TOTAL
----------- ------------------ -------- --------------- ------
<S> <C> <C> <C> <C> <C>
Total revenues for reportable segments $ 183,462 $ 37,504 $114,575 $ -- $ 335,541
Inter-segmental revenue 2,706 3,254 3,673 -- 9,633
Depreciation/amortization 222 2,255 3,266 3,498 9,241
Segment operating profit (loss) 18,630 7,619 13,684 (7,730) 32,203
Costs and estimated earnings in
excess of billings on uncompleted
contracts 43,286 -- 10,376 -- 52,662
Segment assets 109,268 36,178 83,385 356,255 585,086
</TABLE>
The Company's reconciliation of segment totals to enterprise values is as
follows (in thousands):
<TABLE>
<S> <C>
REVENUES:
Total revenues for reportable segments $ 335,541
Elimination of inter-segment revenues (9,633)
----------
Consolidated revenues $ 325,908
==========
ASSETS:
Total assets for reportable segments $ 585,086
Elimination of inter-company
receivables/payables (6,121)
Elimination of investments in subsidiaries (97,556)
----------
Consolidated assets $ 481,409
==========
</TABLE>
The Company's Canadian operations had revenues for the nine month period
ended September 30, 1999 of approximately $25,548,000. The net book value of
long-lived assets relating to the Canadian operations amounted to approximately
$3,994,000 as of September 30, 1999.
8. INCOME TAXES
The Company's provisions for income tax for the three and nine months ended
September 30, 2000 reflect US state, local and foreign income taxes,
substantially all of which are current. As a result of a net operating loss for
financial reporting purposes of approximately $30.0 million for the nine months
ended September 30, 2000, no provision has been recorded for US federal income
taxes. In accordance with SFAS No. 109, a full valuation allowance has been
recorded for such loss carry-forwards of the Company, the benefit of which will
be recognized as they become realizable in future periods.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
We were formed in March 1998 to become a leading nationwide provider of rail
system services, including construction and rehabilitation, repair and
maintenance, and related products. We primarily perform services pursuant to
contracts for the completion of specific projects, some of which take up to five
years to complete. On most projects, we contract directly with rail system
operators, while on other projects we act as a subcontractor.
In August 1998, we acquired in separate concurrent transactions fourteen
companies (the "Founding Companies") engaged principally in the rail system
services and products business and we consummated our initial public offering
("IPO") of Common Stock. In November 1998, we acquired two companies (the "1998
Acquired Companies"), in 1999, we acquired fourteen companies or groups of
companies (the "1999 Acquired Companies"), and as of September 30, 2000, we had
acquired five companies or groups of companies (the "2000 Acquired Companies").
Except for the acquisition of Comstock Holdings, Inc. ("Comstock"), a Founding
Company, all of our acquisitions have been accounted for as purchases in
accordance with APB No. 16. Comstock has been identified as the accounting
acquirer for accounting and financial statement purposes consistent with Staff
Accounting Bulletin No. 97 of the SEC because its owners received the largest
portion, 34.6%, of the shares of Common Stock issued to the owners of the
Founding Companies at the time of their acquisition.
Our consolidated balance sheet as of September 30, 2000 includes all companies
that we acquired as of September 30, 2000. Our statement of operations and
statement of cash flows for the nine months ended September 30, 2000 include the
results of operations and cash flows of all companies acquired as of December
31, 1999 and the results of operations and cash flows of the applicable 2000
Acquired Companies from each of their respective dates of acquisition during the
period. Our consolidated balance sheet as of December 31, 1999 includes all
companies that we acquired through December 31, 1999. Our statement of
operations and statement of cash flows for the nine months ended September 30,
1999 include the results of operations and cash flows of all companies
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acquired as of December 31, 1998 and the results of operations and cash flows of
the applicable 1999 Acquired Companies from each of their respective dates of
acquisition during the period.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 Compared to the Three Months Ended
September 30, 1999.
Revenue. Revenue increased $26.5 million, or 19.3%, from $137.4 million for the
three months ended September 30, 1999 to $163.9 million for the three months
ended September 30, 2000. The increase in revenue for the three months ended
September 30, 2000 was due primarily to the addition of revenue from four 1999
Acquired Companies that were acquired subsequent to September 30, 1999 and the
five 2000 Acquired Companies.
Transit services revenue increased $9.9 million, or 15.3%, from $64.5 million
for the three months ended September 30, 1999 to $74.4 million for the three
months ended September 30, 2000. The increase in revenue for the three months
ended September 30, 2000 was due primarily to the addition of revenue from the
Twigg Corporation, HSQ Technologies, Inc. and Breaking Technologies, Inc.
acquisitions.
Rail products and supplies revenue increased $9.7 million, or 69.8%, from $13.9
million for the three months ended September 30, 1999 to $23.6 million for the
three months ended September 30, 2000. The increase in revenue for the three
months ended September 30, 2000 was due primarily to the addition of revenue
from the DuraWood LLC, Western Tar Corporation, Pandrol Jackson switch grinding
operation and Hovey Industries, LTD. acquisitions.
Rail track services revenue increased $6.9 million, or 11.7%, from $59.0 million
for the three months ended September 30, 1999 to $65.9 million for the three
months ended September 30, 2000. The increase in revenue for the three months
ended September 30, 2000 was due primarily to the addition of revenue from the
W.T. Byler, Inc. acquisition which accounted for an increase of $20.0 million
for the quarter offset by a decrease of $8.5 million in revenue related to the
downsizing of the current southwestern civil operations. The remaining decrease
is a result of the general slowdown in the Class I Railroad market coupled with
fewer large construction projects in the Western region.
Gross Profit. Gross profit decreased $2.9 million, or 9.2%, from $31.5 million
for the three months ended September 30, 1999 to $28.6 million for the three
months ended September 30, 2000. The decrease in gross profit for the three
months ended September 30, 2000 was due primarily to the reduction in gross
profit associated with a NYCTA project in the Transit Segment that occurred
during the third quarter of 1999. This project accounted for a $5.0 million
reduction in gross profit from 1999 to 2000. The gross profit percentage
decreased from 22.9% for the three months ended September 30, 1999, to 17.4% for
the three months ended September 30, 2000. This decrease was the result of the
NYCTA project mentioned above.
Transit services gross profit decreased $5.0 million, or 32.1%, from $15.6
million for the three months ended September 30, 1999 to $10.6 million for the
three months ended September 30, 2000. The decrease in gross profit for the
three months ended September 30, 2000 was due primarily to the reduction in
gross profit associated with a NYCTA project that occurred during the third
quarter of 1999. This project accounted for a $5.0 million reduction in gross
profit from 1999 to 2000. The gross profit percentage decreased from 24.2% for
the three months ended September 30, 1999 to 14.2% for the three months ended
September 30, 2000. This decrease was the result of the NYCTA project mentioned
above.
Rail products and supplies gross profit increased $1.2 million, or 22.6%, from
$5.3 million for the three months ended September 30, 1999 to $6.5 million for
the three months ended September 30, 2000. The increase in gross profit for the
three months ended September 30, 2000 was due primarily to the addition of gross
profit from the DuraWood LLC, Western Tar Corporation, Pandrol Jackson switch
grinding operation and Hovey Industries, LTD. acquisitions. The gross profit
percentage decreased from 38.1% for the three months ended September 30, 1999 to
27.5% for the three months ended September 30, 2000. This decrease was the
result of the general slowing in the Class I Railroad market and the overall
increase in competitive pressures that such a slowdown creates.
Rail track services gross profit increased $.9 million, or 8.5%, from $10.6
million for the three months ended September 30, 1999 to $11.5 million for the
three months ended September 30, 2000. The increase in gross profit for the
three months ended September 30, 2000 was due primarily to the addition of gross
profit from the W.T. Byler, Inc. acquisition which accounted for an increase of
$2.6 million for the quarter offset by a decrease of $1.0 million in gross
profit related to the downsizing of the current southwestern civil
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operations. The remaining decrease is a result of the general slowdown in the
Class I Railroad market coupled with fewer large construction projects in the
Western region. The gross profit percentage decreased from 18.0% for the three
months ended September 30, 1999 to 17.5% for the three months ended September
30, 2000. This decrease was the result of general slowdown in the Class I
Railroad market and the overall increase in competitive pressures that such a
slowdown creates.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $55.2 million, or 397.1%, from $13.9 million
for the three months ended September 30, 1999 to $69.1 million for the three
months ended September 30, 2000. The increase in selling, general and
administrative expenses for the three months ended September 30, 2000 was due
primarily to the restructuring and other unusual charges of $48.0 million
(discussed below) that were recorded during the three months ended September 30,
2000. The remaining $7.2 million increase in selling, general and administrative
expenses for the three months ended September 30, 2000 was due to the addition
of selling, general and administrative expenses from the nine acquired companies
mentioned above. As a percentage of total revenue, selling, general and
administrative expenses increased from 10.1% for the three months ended
September 30, 1999 to 12.9% for the three months ended September 30, 2000,
exclusive of the $48.0 million restructuring and other unusual charges. This
increase was the result of the addition of the higher selling, general and
administrative cost structures of the acquired companies.
Transit services selling, general and administrative expenses increased $1.8
million, or 48.6%, from $3.7 million for the three months ended September 30,
1999 to $5.5 million for the three months ended September 30, 2000. The increase
in selling, general and administrative expenses for the three months ended
September 30, 2000 was due primarily to the addition of selling, general and
administrative expenses from the three acquired companies mentioned above. As a
percentage of segment revenue, selling, general and administrative expenses
increased from 5.7% for the three months ended September 30, 1999 to 7.4% for
the three months ended September 30, 2000. This increase was the result of the
addition of higher selling, general and administrative cost structures of the
acquired companies.
Rail products and supplies selling, general and administrative expenses
increased $1.7 million, or 85.0%, from $2.0 million for the three months ended
September 30, 1999 to $3.7 million for the three months ended September 30,
2000. The increase in selling, general and administrative expenses for the three
months ended September 30, 2000 was due primarily to the addition of selling,
general and administrative expenses from the four acquisitions mentioned above.
As a percentage of segment revenue, selling, general and administrative expenses
increased from 14.4% for the three months ended September 30, 1999 to 15.7% for
the three months ended September 30, 2000. This increase was a result of the
acquired companies having higher overhead selling, general and administrative
cost structures than the existing companies coupled with the initial development
expenses to create a centralized administration for the wood division.
Rail track services selling, general and administrative expenses increased $1.2
million, or 28.6%, from $4.2 million for the three months ended September 30,
1999 to $5.4 million for the three months ended September 30, 2000. The increase
in selling, general and administrative expenses for the three months ended
September 30, 2000 was due primarily to the addition of selling, general and
administrative expenses from the W.T. Byler, Inc. acquisition coupled with the
initial development expenses to create centralized administration for the
geographic regions of the business. As a percentage of segment revenue, selling,
general and administrative expenses increased from 7.1% for the three months
ended September 30, 1999 to 8.2% for the three months ended September 30, 2000.
This percentage increase was a result of the acquisition and the centralization
efforts mentioned above.
Corporate selling, general and administrative expenses increased $2.5 million,
or 62.5%, from $4.0 million for the three months ended September 30, 1999 to
$6.5 million for the three months ended September 30, 2000, exclusive of the
$48.0 million restructuring and other unusual charges discussed below. As a
percentage of total revenue, selling, general and administrative expenses
increased from 2.9% for the three months ended September 30, 1999 to 4.0% for
the three months ended September 30, 2000. The increase in percentage resulted
from the development of a much larger overhead structure compared to the prior
year in order to manage the anticipated increased size and complexity of the
Company's operation.
Our overhead structure has been analyzed and is a focal point of our human
resource efficiency program. One component of the charge mentioned below
reflects adjustments and cutbacks to our overhead structure which are expected
to result in an overall annual savings of approximately $5.0 million company
wide beginning in 2001.
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Restructuring and Other Unusual Charges. During the third quarter of 2000, the
Company's management and Board of Directors substantially completed a strategic
review of RailWorks' operations. The resulting restructuring plan (the "Plan")
will involve systems integration, rationalization of real estate, equipment and
inventory and maximization of human resource productivity around four operating
units. The Company intends to reduce its headcount, consolidate certain
facilities and identify other synergies and cost reduction opportunities.
Restructuring costs include costs directly related to the Company's Plan.
Employee termination costs are recognized when benefit arrangements are
communicated to affected employees in sufficient detail to enable the employees
to determine the amount of benefits to be received on termination. Other exit
costs that do not benefit future activities are recognized at the date of
commitment to the Plan. These costs must be either incremental to the Plan or
represent amounts under contractual obligations which existed prior to the
commitment date and have no future economic benefit or result in a penalty to
cancel the obligation. Other costs directly related to the restructuring of the
Company which are not eligible for recognition at the commitment date, such as
relocation and other integration costs, are expensed as incurred. Accordingly,
the Company expects additional charges in the fourth quarter for employee
termination benefits and costs of relocation of personnel and facilities of
approximately $2.5 million.
During the three months ended September 30, 2000, the Company incurred $48.0
million restructuring and other unusual charges in connection with the Plan and
other events. These charges included approximately $1.9 million of employee
termination benefits for those employees who had been identified and notified.
These charges also include exit costs related to leased property that will be
vacated as part of the Plan and approximately $.6 million for non-cancelable
lease costs in excess of the expected sublet income.
In connection with the Plan and in accordance with SFAS 121 "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of", the
Company also evaluated the future undiscounted cash flows of its businesses to
which goodwill relates in order to determine if the carrying value of the
goodwill had been impaired. Management's evaluation resulted in a write-off of
approximately $14.2 million of goodwill related to two of the Company's acquired
businesses, including the downsizing of certain civil operations, because the
estimated fair value of these subsidiaries was less than their carrying value.
The Company's Plan also includes a focus on increasing internal cash flow, which
will involve, among other things, the acceleration of the settlement of
previously disclosed construction claims and other contract exposures, primarily
related to contracts completed by RailWorks' predecessor company, Comstock
Holdings, Inc. Management has estimated the recoverability of the recognized
accounts receivable and costs and estimated earnings in excess of billings on
these contracts under revised settlement scenarios and, as a result, has
recorded a charge of approximately $23.2 million to reflect their anticipated
net realizable value. The charge also includes the anticipated cost of
arbitration/litigation related to these matters and is net of the write off of
approximately $2.8 million of negative goodwill related to the now closed west
coast operations of the Company's predecessor, which performed a majority of the
construction claim projects.
The Company's Plan includes the suspension of its acquisition program. As such,
approximately $1.1 million of due diligence costs related to several
acquisitions that were not consummated have been expensed in the three months
ended September 30, 2000.
Also during the three months ended September 30, 2000, the Company terminated
discussions regarding the potential sale of the Company to an investor group.
Approximately $3.1 million of costs associated with this potential transaction
were expensed in September 2000.
In connection with various agreements, (the "Agreements") certain officers and
executives of the Company (the "Executives") have issued promissory notes to the
Company in the aggregate amount of $6.7 million (the "Notes"), which are
included in Other Assets in the accompanying balance sheet. Such Notes are
collateralized solely by shares of the Company's common stock owned by the
Executives. The Notes are due June 30, 2005. Generally, repayment of the Notes
is not required until or unless the per share price of the Company's common
stock achieves 1.5 times its initial public offering price, or approximately $18
per share. The Notes bear interest at the Company's incremental borrowing rate,
as defined in the Agreements. Payment of interest for 1999 was forgiven by the
Company, and, the Company has not recorded interest income relating to the Notes
during 2000. The Executives have certain rights, as defined in the Agreements,
including forgiveness of the indebtedness in connection with a change in control
of the Company, and certain personal income tax indemnifications
The recent decline in market price of the Company's common stock has increased
the uncertainty regarding the ultimate repayment of the Notes. Pending
completion of the restructuring plan of the Company, no decision regarding any
further modification of the
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Agreements terms has been made; however, due to the uncertainty regarding the
ultimate realizability of the Notes, the Company has recorded a valuation
allowance of $3.3 million to reflect its current estimate of the fair value of
the promissory notes. The charge is included in the restructuring and other
unusual charges.
Also included in the restructuring and other unusual charges is approximately
$.6 million for settlement of certain non-contract related claims against the
Company and the uninsured portion of a third quarter fire loss incurred at one
of the Company's facilities.
The calculation of the restructuring and other unusual charges is based on
estimates using the best information currently available to management. The
Company's restructuring plan is not complete and changes in estimates may be
possible in the near term.
Interest Expense. Interest expense increased $4.7 million, or 79.7%, from $5.9
million for the three months ended September 30, 1999 to $10.6 million for the
three months ended September 30, 2000. The increase in interest expense for the
three months ended September 30, 2000 was due primarily to the increase in
average total debt outstanding of $231.0 million for the three months ended
September 30, 1999 at an effective combined interest rate of 10.2% to $375.0
million for the three months ended September 30, 2000 at an effective interest
rate of 11.3%. The increase in the effective rate was the result of having a
full quarter of high yield debt in 2000 at an effective interest rate of 11.5%
compared to $50.0 million of debt at the lower revolver debt interest rates
during 1999. General interest rates have risen during this period also which
adversely effects our variable rate debt.
Taxes. Income taxes decreased $7.6 million from a provision of $4.6 million for
the three months ended September 30, 1999 to a benefit of $3.0 million for the
three months ended September 30, 2000. The decrease in income taxes is primarily
related to a revised overall tax provision for the year, considering the $48.0
million restructuring and other unusual charges recorded in the third quarter of
2000.
Net Income. Net income decreased $55.6 million from a profit of $7.7 million for
the three months ended September 30, 1999 to a loss of $47.9 million for the
three months ended September 30, 2000, as a result of the items mentioned above.
Nine Months Ended September 30, 2000 Compared to the Nine Months Ended September
30, 1999.
Revenue. Revenue increased $118.1 million, or 36.2%, from $ 325.9 million for
the nine months ended September 30, 1999 to $444.0 million for the nine months
ended September 30, 2000. The increase in revenue for the nine months ended
September 30, 2000 was due primarily to the addition of revenue from four 1999
Acquired Companies that were acquired subsequent to September 30, 1999 and the
five 2000 Acquired Companies.
Transit services revenue increased $25.8 million, or 14.3%, from $180.8 million
for the nine months ended September 30, 1999 to $206.6 million for the nine
months ended September 30, 2000. The increase in revenue for the nine months
ended September 30, 2000 was due primarily to the addition of revenue from the
Twigg Corporation, HSQ Technologies, Inc. and Breaking Technologies, Inc.
acquisitions.
Rail products and supplies revenue increased $25.6 million, or 74.9%, from $34.2
million for the nine months ended September 30, 1999 to $59.8 million for the
nine months ended September 30, 2000. The increase in revenue for the nine
months ended September 30, 2000 was due primarily to the addition of revenue
from the DuraWood LLC, Western Tar Corporation, Pandrol Jackson switch grinding
operation and Hovey Industries, LTD. acquisitions.
Rail track services revenue increased $66.7 million, or 60.1%, from $110.9
million for the nine months ended September 30, 1999 to $177.6 million for the
nine months ended September 30, 2000. The increase in revenue for the nine
months ended September 30, 2000 was due primarily to the addition of revenue
from the W.T. Byler, Inc. acquisition.
Gross Profit. Gross profit increased $18.6 million, or 27.4%, from $67.9 million
for the nine months ended September 30, 1999 to $86.5 million for the nine
months ended September 30, 2000. The increase in gross profit for the nine
months ended September 30, 2000 was due primarily to the addition of gross
profit from the four 1999 Acquired Companies that were acquired subsequent to
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September 30, 1999 and the five 2000 Acquired Companies, offset by the reduction
in gross profit associated with a NYCTA project in the Transit Segment that
occurred during the third quarter of 1999. This project accounted for a $5.0
million reduction in gross profit from 1999 to 2000. The gross profit percentage
decreased from 20.8% for the nine months ended September 30, 1999 to 19.5% for
the nine months ended September 30, 2000. This decrease was the result of the
NYCTA project mentioned above.
Transit services gross profit increased $2.5 million, or 8.0% from $31.1 million
for the nine months ended September 30, 1999 to $33.6 million for the nine
months ended September 30, 2000. The increase in gross profit for the nine
months ended September 30, 2000 was due primarily to the addition of gross
profit from the three acquired companies offset by the reduction in gross profit
for the NYCTA project mentioned above. The gross profit percentage decreased
from 17.2% for the nine months ended September 30, 1999 to 16.3% for the nine
months ended September 30, 2000. This decrease was the result of the NYCTA
project mentioned above.
Rail products and supplies gross profit increased $5.7 million, or 43.5%, from
$13.1 million for the nine months ended September 30, 1999 to $18.8 million for
the nine months ended September 30, 2000. The increase in gross profit for the
nine months ended September 30, 2000 was due primarily to the addition of gross
profit from the DuraWood LLC, Western Tar Corporation, Pandrol Jackson switch
grinding operation and Hovey Industries, LTD. acquisitions. The gross profit
percentage decreased from 38.3% for the nine months ended September 30, 1999 to
31.4% for the nine months ended September 30, 2000. This decrease was the result
of the general slowing in the Class I Railroad market and the overall increase
in competitive pressures that such a slowdown creates.
Rail track services gross profit increased $9.3 million, or 39.2%, from $23.7
million for the nine months ended September 30, 1999 to $33.0 million for the
nine months ended September 30, 2000. The increase in gross profit for the nine
months ended September 30, 2000 was due primarily to the addition of gross
profit from the W.T. Byler, Inc. acquisition. The gross profit percentage
decreased from 21.4% for the nine months ended September 30, 1999 to 18.6% for
the nine months ended September 30, 2000. This decrease was the result of the
general slowdown in the Class I Railroad market and the overall increase in
competitive pressures that such a slowdown creates.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $62.7 million, or 175.6%, from $35.7 million
for the nine months ended September 30, 1999 to $98.4 million for the nine
months ended September 30, 2000. The increase in selling, general and
administrative expenses for the nine months ended September 30, 2000 was due
primarily to the restructuring and other unusual charges of $48.0 million
(discussed above) that were recorded during the nine months ended September 30,
2000. The remaining $14.7 million increase in selling, general and
administrative expenses for the nine months ended September 30, 2000 was due to
the addition of selling, general and administrative expenses from the nine
acquisitions mentioned above. As a percentage of revenue, selling, general and
administrative expenses increased from 11.0% for the nine months ended September
30, 1999 to 11.4% for the nine months ended September 30, 2000, exclusive of the
$48 million restructuring and other unusual charges. This increase was the
result of the addition of the higher selling, general and administrative cost
structures of the acquired companies.
Transit services selling, general and administrative expenses increased $3.2
million, or 28.6%, from $11.2 million for the nine months ended September 30,
1999 to $14.4 million for the nine months ended September 30, 2000. The increase
in selling, general and administrative expenses for the nine months ended
September 30, 2000 was due primarily to the addition of selling, general and
administrative expenses from the three acquired companies mentioned above. As a
percentage of segment revenue, selling, general and administrative expenses
increased from 6.2% for the nine months ended September 30, 1999 to 7.0% for the
nine months ended September 30, 2000. This increase was the result of the
addition of higher selling, general and administrative cost structures of the
acquired companies.
Rail products and supplies selling, general and administrative expenses
increased $4.1 million, or 77.4%, from $5.3 million for the nine months ended
September 30, 1999 to $9.4 million for the nine months ended September 30, 2000.
The increase in selling, general and administrative expenses for the nine months
ended September 30, 2000 was due primarily to the addition of selling, general
and administrative expenses from the four acquisitions mentioned above. As a
percentage of segment revenue, selling, general and administrative expenses
increased from 15.5% for the nine months ended September 30, 1999 to 15.7% for
the nine months ended September 30, 2000. This increase was a result of the
acquired companies having higher overhead selling, general and administrative
cost structures than the existing companies coupled with the initial development
expenses to create a centralized administration for the wood division.
Rail track services selling, general and administrative expenses increased $4.2
million, or 42.9%, from $9.8 million for the nine months ended September 30,
1999 to $14.0 million for the nine months ended September 30, 2000. The increase
in selling, general
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and administrative expenses for the nine months ended September 30, 2000 was due
primarily to the addition of selling, general and administrative expenses from
the W.T. Byler, Inc. acquisition coupled with the initial development expenses
to create centralized administration for the geographic regions of the business.
As a percentage of segment revenue, selling, general and administrative expenses
decreased from 8.8% for the nine months ended September 30, 1999 to 7.9% for the
nine months ended September 30, 2000. This decrease was a result of reduced
headcount associated with our southwestern civil operation as well as the
benefits derived from generating a higher volume of sales with fixed or reducing
overhead.
Corporate selling, general and administrative expenses increased $3.2 million,
or 34.0%, from $9.4 million for the nine months ended September 30, 1999 to
$12.6 million for the nine months ended September 30, 2000, exclusive of the $48
million of restructuring and other unusual charges mentioned above. The increase
was due to the fact that the selling, general and administrative expenses for
the nine months ended September 30, 2000, was due primarily to the increased
level of overhead assembled to administrate the larger operation in 2000 and
going forward with anticipated expansion and continued acquisition plans than
had existed in 1999. As a percentage of total revenue, selling, general and
administrative expenses remained relatively constant at 2.9% for the nine months
ended September 30, 1999 and 2.8% for the nine months ended September 30, 2000,
exclusive of the $48 million of restructuring and other unusual charges
mentioned above.
Restructuring and Other Unusual Charges. During the third quarter of 2000, the
Company's management and Board of Directors substantially completed a strategic
review of RailWorks' operations and recorded restructuring and other unusual
charges of $48.0 million as discussed above.
Interest Expense. Interest expense increased $14.6 million, or 117.7%, from
$12.4 million for the nine months ended September 30, 1999 to $27.0 million for
the nine months ended September 30, 2000. The increase in interest expense for
the nine months ended September 30, 2000 was due primarily to the increase in
average total debt outstanding of $191.0 million for the nine months ended
September 30, 1999 at an effective combined interest rate of 8.7% to $353.0
million for the nine months ended September 30, 2000 at an effective interest
rate of 10.2%. The increase in the effective rate was the result of having a
full year of high yield debt in 2000 at an effective interest rate of 11.5%
compared to debt at the lower revolver debt interest rates during 1999. General
interest rates have risen during this period also which adversely effects our
variable rate debt.
Taxes. Income taxes decreased $5.1 million from a provision of $8.1 million for
the nine months ended September 30, 1999 to a provision of $3.0 million for the
nine months ended September 30, 2000. The decrease in income taxes is primarily
related to a revised overall tax provision for the year, considering the $48.0
million restructuring and other unusual charges recorded in the third quarter of
2000. The remaining $3.0 million provision reflects state, local and foreign
income tax.
Net Income. Net income decreased $53.7 million, from a profit of $13.5 million
for the nine months ended September 30, 1999 to a net loss of $40.2 million for
the nine months ended September 30, 2000, as a result of the items mentioned
above.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
In the past we have experienced quarterly variations in revenue, operating
income (including operating losses), net income (including net losses) and cash
flows (including operating cash flow deficits) as a result of various factors,
including projects commenced and completed during a quarter, the number of
business days in a quarter and the size and scope of projects. A variation in
the number of projects, progress on projects or the timing of the initiation or
completion of projects can cause periods in which certain operating resources
are not generating revenue and can cause significant variations in operating
results between reporting periods. Negative fluctuations have been particularly
pronounced, and net losses have been incurred, in the first and fourth calendar
quarters, generally due to adverse weather conditions. We expect to continue to
experience such quarterly fluctuations in operating results, including possible
net losses.
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LIQUIDITY AND CAPITAL RESOURCES
Working Capital. At September 30, 2000, we had working capital of approximately
$152.7 million. Net cash used in operating activities for the nine months ended
September 30, 2000 was approximately $20.2 million. Net cash used in investing
activities for the nine months ended September 30, 2000 was approximately $48.7
million, which consisted primarily of cash payments for acquisitions and cash
payments in satisfaction of earn-out obligations related to prior acquisitions.
Net cash provided by financing activities for the nine months ended September
30, 2000 was approximately $79.0 million, which included borrowings of
approximately $147.6 million, offset by debt repayment of approximately $63.4
million.
Capital expenditures were $20.9 million and $11.8 million for the nine months
ended September 30, 2000 and 1999, respectively. Historically, capital
expenditures have been, and future expenditures are anticipated to be, primarily
to support expansion of our operations, including our management information
systems. Our capital expenditures over the next several years, as a percentage
of revenue, are expected to decrease compared to those of the past three fiscal
years.
Working capital is, and acquisitions have been, financed with funds from
operations together with borrowings under our credit facilities. We have a $100
million amortizing term loan that matures on September 30, 2006 and a $150
million revolving credit facility that matures on November 5, 2004. The credit
facilities are secured by a first lien on all of the capital stock of our
subsidiaries and certain assets of our domestic subsidiaries. The credit
facilities contain a negative pledge on all of our domestic subsidiaries' assets
as well as other usual and customary covenants and events of default for
transactions of the type contemplated by the credit facilities. Borrowings under
the credit facilities bear interest, at our option, at an interest rate equal to
(1) LIBOR plus the applicable margin for LIBOR loans, which ranges from 125
basis points to 250 basis points based on the ratio of Funded Debt to EBITDA (as
such terms are defined in the credit facility) or (2) the Alternate Base Rate
(defined as the higher of (a) the Bank of America prime rate and (b) the Federal
Funds rate plus 50 basis points) plus up to 125 basis points based on the ratio
of Funded Debt to EBITDA. We may also finance future acquisitions with shares of
common stock and other contingent consideration. Borrowings under the term loan
interest, at our option, at an interest rate equal to (1) LIBOR plus 350 basis
points or (2) the Alternative Base Rate (ABR) plus 1.75%.
Credit Agreement. On April 28, 2000, the Company entered into a $250.0 million
Amended and Restated Credit Agreement (the "Credit Agreement"). At September 30,
2000, the Company had an aggregate of $173.1 million of borrowings outstanding
under the Credit Agreement, which bore interest at a weighted average rate of
9.75% per annum at such date, and had aggregate borrowing availability under the
Credit Agreement of $76.4 million.
Because the Company would have been in violation of three financial covenants in
the Credit Agreement as of September 30, 2000, the Company obtained a waiver of
these covenants from the lenders that was effective from October 10, 2000,
through November 10, 2000 ("the First Waiver"). Pursuant to the First Waiver,
the Company was granted a $5 million increase in funding availability under an
adjusted borrowing base. The First Waiver also increased the interest cost for
all borrowings under the Credit Agreement by 0.75% per annum. It was
subsequently determined that the Company might also not be in compliance with
the minimum net worth and borrowing base requirements of the Credit Agreement,
as of September 30, 2000. As a result the Company obtained a second waiver that
is effective from September 30, 2000 through December 15, 2000 ("the Second
Waiver"). Pursuant to the Second Waiver, the Company has been granted a $10
million increase in funding availability under an adjusted borrowing base. The
Second Waiver maintains the increase in interest cost that was established in
the First Waiver but adds an "over-advance premium" of 1.25% per annum on any
borrowings that exceed the borrowing base. The Company has paid to the lenders
fees aggregating $750,000 in connection with the First and Second Waivers, which
will be credited against any fees payable to the lenders in connection with any
amendment. As a result of the foregoing, the Company is not currently in
violation of any covenants contained in the Credit Agreement.
The Company is in the process of negotiating an amendment to the Credit
Agreement. Although the Company believes that it will be able to negotiate the
necessary amendment with its lenders, there can be no assurance that it will be
able to do so or that the terms of an amended Credit Agreement will be as
favorable as those currently contained in the Credit Agreement. Any amendment to
the Credit Agreement must be approved by lenders holding more than 50% of the
commitments under the Credit Agreement. In the absence of a further waiver or an
amendment to the Credit Agreement, after December 15, 2000, the lenders would be
entitled to exercise all of their rights under the Credit Agreement including,
without limitation, declaring all amounts outstanding under the Credit Agreement
immediately due and payable and/or exercising their rights with respect to the
collateral which consists of, among other things, substantially all of the real
and personal property of the Company and its subsidiaries. If the Company is
unable to obtain a further waiver or amendment to the Credit Agreement, the
Company may not have sufficient cash to meet its working capital, debt service
and capital expenditure needs beyond December 15, 2000, in which case the
Company may be required to obtain financing from other sources. There can be no
assurance that such financing will be available or, if available, that it will
be on terms satisfactory to the Company. Consequently, the inability to obtain
any such waiver, amendment or alternative financing would have a material
adverse effect on the Company's financial condition and results of operations.
30
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Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to market risk associated principally with changes in interest
rates. As of September 30, 2000, interest rate exposure has been principally
limited to approximately $173.1 million of long-term debt outstanding at
September 30, 2000 under our credit facilities. All of that debt bears interest
at rates that float with the market. A 50 basis point movement in the interest
rate on our floating rate debt would have resulted in an approximately $866,000
annualized increase or decrease in interest expense and cash flows. We will from
time to time enter into interest rate swaps on our debt, when we believe there
is a clear financial advantage for doing so. We do not use derivative financial
or commodity instruments for trading purposes and the use of such instruments is
subject to strict approval levels by senior officers. Typically, the use of such
derivative instruments is limited to interest rate swaps on our outstanding
long-term debt. Our exposure related to such derivative instruments is, in the
aggregate, not material to our financial position, results of operations and
cash flows. There were no swap agreements in effect as of September 30, 2000.
CAUTIONARY STATEMENTS
This quarterly report contains forward-looking statements within the meaning of
the Securities Act of 1933 and the Securities Exchange Act of 1934. You can find
discussions containing forward-looking statements in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" as well as elsewhere herein. We use the words "believes,"
"anticipates," "expects", "estimates," "plans," "intends" and similar
expressions so as to identify forward-looking statements. All forward-looking
statements involve substantial risks and uncertainties. There may be events in
the future that we are not accurately able to predict, or over which we have no
control. Some factors that may cause actual results to differ from projected
results are:
- the absence of a combined operating history of our operating companies
and difficulties in integrating their operations;
- unanticipated difficulties or delays in implementing our acquisition
program;
- cyclicality in the demand for rail systems services and products;
- availability of capital, including our ability to service or refinance
indebtedness;
- the unanticipated decrease in public sector contracts and funding;
- changes in our relationships with major customers;
- effects of changes in general economic conditions;
- actions by competitors;
- ability to retain qualified personnel;
- the resolution of former West Coast operations' contract claims or
litigation uncertainties.
Consequently, you should regard forward-looking statements only as our current
plans, estimates and beliefs. We do not promise to notify you if we learn that
our assumptions or projections are wrong for any reason. Additional information
concerning the risk and uncertainties listed above, and other factors that you
may wish to consider, are contained in our filings with the Securities and
Exchange Commission, including our Annual Report of Form 10-K. Copies of these
filings are available from us free of charge.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
(i) Changes in Securities
None.
(ii) Use of Proceeds
None.
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<PAGE> 32
(iii) Recent Sales of Unregistered Securities
None.
Item 3. Default Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit List:
27.1 - Financial Data Schedule (for SEC filing purposes only)
b) Reports on Form 8-K
None.
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<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RailWorks Corporation
/s/ Edward M. Cumberledge
--------------------------
By: Edward M. Cumberledge
Senior Vice President and
Chief Financial Officer
Date: November 10, 2000
33
<PAGE> 34
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
------ ------- -----------------
<S> <C> <C>
27.1 -- Financial Data Schedule (for SEC filing purposes only) 34
</TABLE>
34
