<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 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 August 4, 2000.
1
<PAGE> 2
RailWorks Corporation
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 2000
(unaudited) and December 31, 1999 3
Consolidated Statements of Operations for the three months ended
June 30, 2000 (unaudited) and 1999 (unaudited) 4
Consolidated Statements of Operations for the six months ended
June 30, 2000 (unaudited) and 1999 (unaudited) 5
Consolidated Statements of Stockholders' Equity for the six months
ended June 30, 2000 (unaudited) and 1999 (unaudited) 6
Consolidated Statements of Cash Flows for six months ended
June 30, 2000 (unaudited) and 1999 (unaudited) 7
Notes to Consolidated Financial Statements (unaudited) 8-22
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 22-28
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 28
PART II - OTHER INFORMATION
Items 1 through 6 29-30
Signatures 31
EXHIBIT INDEX 32
</TABLE>
2
<PAGE> 3
RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,482 $ 4,617
Accounts receivable, net of allowance for doubtful accounts of $1,478 and $965 164,660 153,084
Costs and estimated earnings in excess of billings on uncompleted contracts 75,591 56,295
Inventories:
Raw materials 19,332 19,197
Finished goods 10,647 4,562
Deferred tax asset 2,426 2,426
Prepaid federal taxes 4,163 4,163
Other current assets 13,363 7,372
-------- --------
Total current assets 291,664 251,716
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 81,627 73,897
-------- --------
OTHER ASSETS:
Excess of cost over net assets acquired, net of amortization 262,222 223,886
Loans to officers 6,735 6,735
Other 13,016 15,423
-------- --------
Total other assets 281,973 246,044
-------- --------
TOTAL $655,264 $571,657
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 22,307 $ 19,740
Accounts payable and accrued liabilities 60,484 74,558
Accrued payroll and related withholdings 3,675 3,626
Accrued interest payable 5,436 5,104
Billings in excess of costs and estimated earnings on uncompleted contracts 21,131 20,070
Other current liabilities 12,620 9,348
-------- --------
Total current liabilities 125,653 132,446
-------- --------
LONG-TERM DEBT 345,715 274,691
DEFERRED TAX LIABILITY 8,071 8,071
EXCESS OF ACQUIRED NET ASSETS OVER COST, NET OF AMORTIZATION 8,320 8,434
OTHER LIABILITIES 12,640 12,134
-------- --------
Total long-term liabilities 374,746 303,330
-------- --------
Total liabilities 500,399 435,776
-------- --------
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,
15,369,761 shares issued and outstanding at June 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 265 175
Retained earnings 16,394 8,647
-------- --------
Total stockholders' equity 154,865 135,881
-------- --------
TOTAL $655,264 $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 JUNE 30, 2000 AND 1999
(In thousands, except share and per share data) (Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Revenue $ 154,664 $ 115,810
Cost of revenue 120,773 91,998
------------ ------------
Gross profit 33,891 23,812
Selling, general and administrative expenses 13,733 11,434
Depreciation and amortization expense 3,273 1,579
------------ ------------
Operating income 16,885 10,799
------------ ------------
Other income (expense):
Interest expense (8,430) (4,845)
Interest and other income 1,058 662
------------ ------------
Other expense, net (7,372) (4,183)
------------ ------------
Income before income taxes 9,513 6,616
Provision for income taxes 4,091 2,481
------------ ------------
Net income $ 5,422 $ 4,135
============ ============
Basic earnings per share $ .38 $ .30
============ ============
Diluted earnings per share $ .35 $ .27
============ ============
Weighted average shares used in computing basic
earnings per share 14,366,234 13,886,028
============ ============
Weighted average shares used in computing
diluted earnings per share 15,739,153 15,276,698
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(In thousands, except share and per share data) (Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Revenue $ 280,028 $ 188,483
Cost of revenue 222,109 152,072
------------ ------------
Gross profit 57,919 36,411
Selling, general and administrative expenses 23,108 19,207
Depreciation and amortization expense 6,202 2,570
------------ ------------
Operating income 28,609 14,634
------------ ------------
Other income (expense):
Interest expense (16,391) (6,458)
Interest and other income 1,522 1,061
------------ ------------
Other expense, net (14,869) (5,397)
------------ ------------
Income before income taxes 13,740 9,237
Provision for income taxes 5,993 3,466
------------ ------------
Net income $ 7,747 $ 5,771
============ ============
Basic earnings per share $ .54 $ .42
============ ============
Diluted earnings per share $ .50 $ .38
============ ============
Weighted average shares used in computing
basic earnings per share 14,359,567 13,831,195
============ ============
Weighted average shares used in computing
diluted earnings per share 15,734,808 15,209,696
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
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RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In thousands) (Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER RETAINED
COMMON STOCK PREFERRED STOCK PAID-IN COMPREHENSIVE EARNINGS COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (DEFICIT) INCOME
------ ------ ------ ------ ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 13,704 $ 137 14 $ 14 $121,296 $ -- $(11,439) $ --
Issuance of common stock
for acquisitions 193 2 -- -- 1,998 -- -- --
Stock option compensation -- -- -- -- 37 -- -- --
Stock issuance costs -- -- -- -- (58) -- -- --
Foreign currency
translation adjustment -- -- -- -- -- 105 -- 105
Net income -- -- -- -- -- -- 5,771 5,771
------ ------ -- ------ --------- ------ -------- ------
BALANCE, JUNE 30, 1999 13,897 $ 139 14 $ 14 $123,273 $ 105 $ (5,668) $5,876
====== ====== == ====== ========= ====== ======== ======
</TABLE>
RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(In thousands) (Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON STOCK PREFERRED STOCK PAID-IN COMPREHENSIVE RETAINED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME EARNINGS INCOME
------ ------ ------ ------ ---------- ------------- ---------- -------------
<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 -- -- -- -- -- 90 -- 90
Net income -- -- -- -- -- -- 7,747 7,747
------ ------ -- ---- -------- ---- ------- -------
BALANCE, JUNE 30, 2000 15,369 $ 153 14 $ 14 $138,039 $265 $16,394 $ 7,837
====== ====== == ==== ======== ==== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 7
RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(In thousands, except share data) (Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,747 $ 5,771
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 10,468 5,144
Deferred taxes -- (81)
Bond discount amortization 33 --
Gain on sale of equipment (280) (10)
Change in operating assets and liabilities:
Accounts receivable and costs and estimated earnings in
excess of billings on uncompleted contracts (25,282) (14,151)
Inventory (1,374) (472)
Other current assets (5,313) 1,969
Accounts payable and accrued liabilities (2,814) (11,950)
Accrued interest payable 332 --
Accrued payroll and related withholdings (169) (335)
Billings in excess of costs and estimated earnings on
uncompleted contracts (1,640) (5,521)
Other current liabilities (60) 594
Other assets 114 2,278
Other liabilities (10,032) (5,073)
--------- ---------
Net cash used in operating activities (28,270) (21,837)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 8,590 1,917
Purchase of equipment and leasehold improvements (15,353) (7,402)
Loans to officers -- (5,805)
Acquisitions of subsidiaries, net of cash acquired (18,613) (72,695)
Additional purchase consideration and contingent earn-out payments (17,372) --
--------- ---------
Net cash used in investing activities (42,748) (83,985)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net activity on revolving line of credit 9,826 --
Proceeds from long-term borrowing 8,994 141,246
Debt issuance costs (236) (4,160)
Payment of loan origination fees (2,606) --
Proceeds from term loan borrowings 100,000 --
Repayment of term loan (29,925) --
Repayment of seller notes (6,550) --
Proceeds from issuance of senior subordinated notes -- 125,000
Repayment of long-term borrowing (11,710) (155,366)
--------- ---------
Net cash provided by financing activities 67,793 106,720
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,225) 898
EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS 90 105
CASH AND CASH EQUIVALENTS, beginning of period 4,617 2,846
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 1,482 $ 3,849
========= =========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 12,970 $ 2,300
========= =========
Cash paid during the period for income taxes $ 4,319 $ 1,180
========= =========
</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 six months ended June 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 as of June 30, 2000 and 1999 (in thousands,
except per share data):
The following is the computation for the three months ended June 30, 2000 and
1999:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Net income $ 5,422 $ 4,135
======== ========
Shares used for determining basic EPS 14,366 13,886
Dilutive effect of:
Stock options 3 21
Convertible preferred shares 1,370 1,370
-------- --------
Shares used for determining diluted EPS 15,739 15,277
======== ========
Basic EPS $ .38 $ .30
======== ========
Diluted EPS $ .35 $ .27
======== ========
</TABLE>
8
<PAGE> 9
The following is a computation for the six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Net income $ 7,747 $ 5,771
======== ========
Shares used for determining basic EPS 14,360 13,831
Dilutive effect of:
Stock options 5 9
Convertible preferred shares 1,370 1,370
-------- --------
Shares used for determining diluted EPS 15,735 15,210
======== ========
Basic EPS $ .54 $ .42
======== ========
Diluted EPS $ .50 $ .38
======== ========
</TABLE>
4. 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
June 30, 2000 and 1999 and for the three and six-month periods ended June 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.
9
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RAILWORKS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 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 $ 2,803 $ (1,956) $ 635 $ -- $ 1,482
Accounts receivable, net -- 159,198 9,837 (4,375)(a) 164,660
Costs and estimated earnings in
excess of billings on uncompleted
contracts -- 74,406 1,185 -- 75,591
Inventories:
Raw materials -- 14,301 5,031 -- 19,332
Finished goods -- 9,945 702 -- 10,647
Deferred tax asset -- 2,426 -- -- 2,426
Prepaid federal taxes -- 3,913 250 -- 4,163
Due (to)/from parent company 73,388 (70,669) (2,719) -- --
Other current assets 7,782 4,461 1,120 -- 13,363
---------- ---------- ---------- --------- ----------
Total current assets 83,973 196,025 16,041 (4,375) 291,664
---------- ---------- ---------- --------- ----------
INVESTMENT IN SUBSIDIARIES 393,855 -- -- (393,855)(b) --
---------- ---------- ---------- --------- ----------
PROPERTY, PLANT AND
EQUIPMENT, NET 819 71,873 8,935 -- 81,627
---------- ---------- ---------- --------- ----------
OTHER ASSETS:
Excess of cost over acquired net
assets, net of amortization -- 245,564 16,658 -- 262,222
Loans to officers 6,735 -- -- -- 6,735
Other 8,393 4,457 166 -- 13,016
---------- ---------- ---------- --------- ----------
Total other assets 15,128 250,021 16,824 -- 281,973
---------- ---------- ---------- --------- ----------
TOTAL $ 493,775 $ 517,919 $ 41,800 $(398,230) $ 655,264
========== ========== ========== ========= ==========
</TABLE>
(a) Elimination of inter-company receivables/payable.
(b) Elimination of investments in subsidiaries.
10
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RAILWORKS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 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 $ 8,265 $ 11,982 $ 2,060 $ -- $ 22,307
Accounts payable and accrued liabilities 367 60,024 4,468 (4,375)(a) 60,484
Accrued payroll and related withholdings 339 2,579 757 -- 3,675
Accrued interest payable 5,421 3 12 -- 5,436
Billings in excess of costs and estimated
earnings on uncompleted contracts -- 20,792 339 -- 21,131
Other current liabilities 7,933 3,284 1,403 -- 12,620
---------- ---------- ---------- ---------- ----------
Total current liabilities 22,325 98,664 9,039 (4,375) 125,653
---------- ---------- ---------- ---------- ----------
LONG TERM DEBT 331,826 11,092 2,797 -- 345,715
DEFERRED TAX LIABILITIES -- 8,071 -- -- 8,071
EXCESS OF ACQUIRED NET ASSETS OVER COST,
NET OF AMORTIZATION -- 8,320 -- -- 8,320
OTHER LIABILITIES 4,478 7,739 423 -- 12,640
---------- ---------- ---------- ---------- ----------
Total long-term liabilities 336,304 35,222 3,220 -- 374,746
---------- ---------- ---------- ---------- ----------
Total liabilities 358,629 133,886 12,259 (4,375) 500,399
---------- ---------- ---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Series A, convertible preferred stock 14 -- -- -- 14
Common stock 123 3,435 378 (3,783)(b) 153
Additional paid-in capital 138,038 293,143 24,290 (317,432)(b) 138,039
Accumulated other comprehensive income -- -- 265 -- 265
Retained earnings (deficit) (3,029) 87,455 4,608 (72,640)(b) 16,394
---------- ---------- ---------- ---------- ----------
Total stockholders' equity (deficit) 135,146 384,033 29,541 (393,855) 154,865
---------- ---------- ---------- ---------- ----------
TOTAL $ 493,775 $ 517,919 $ 41,800 $ (398,230) $ 655,264
========== ========== ========== ========== ==========
</TABLE>
(a) Elimination of inter-company receivables/payables.
(b) Elimination of investments in subsidiaries.
11
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RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 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 $ -- $ 147,847 $ 11,944 $ (5,127)(a) $ 154,664
Cost of revenue -- 117,253 8,647 (5,127)(a) 120,773
---------- ---------- ---------- ---------- ----------
Gross profit -- 30,594 3,297 -- 33,891
Selling, general and
administrative expenses 1,704 10,980 1,049 -- 13,733
Depreciation and amortization
expense 250 2,901 122 -- 3,273
---------- ---------- ---------- ---------- ----------
Operating income (1,954) 16,713 2,126 -- 16,885
Equity in earnings of 12,070 -- -- (12,070)(b) --
subsidiaries
Interest expense (7,866) (469) (95) -- (8,430)
Interest and other income -- 1,075 (17) -- 1,058
---------- ---------- ---------- ---------- ----------
Income before income taxes 2,250 17,319 2,014 (12,070) 9,513
Provision for income taxes -- 3,187 904 -- 4,091
---------- ---------- ---------- ---------- ----------
Net income $ 2,250 $ 14,132 $ 1,110 $ (12,070) $ 5,422
========== ========== ========== ========== ==========
</TABLE>
(a) Elimination of inter-company revenue.
(b) Elimination of equity in earnings in subsidiaries.
12
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RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 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 $ -- $ 274,035 $ 16,418 $ (10,425)(a) $ 280,028
Cost of revenue -- 220,395 12,139 (10,425)(a) 222,109
---------- ---------- ---------- --------- ----------
Gross profit -- 53,640 4,279 -- 57,919
Selling, general and
administrative expenses 2,746 18,570 1,792 -- 23,108
Depreciation and amortization
expense 74 5,766 362 -- 6,202
---------- ---------- ---------- --------- ----------
Operating income (2,820) 29,304 2,125 -- 28,609
Equity in earnings of
subsidiaries 20,504 -- -- (20,504)(b) --
Interest expense (15,168) (1,074) (149) -- (16,391)
Interest and other income 2 1,474 46 -- 1,522
---------- ---------- ---------- --------- ----------
Income before income taxes 2,518 29,704 2,022 (20,504) 13,740
Provision for income taxes -- 4,979 1,014 -- 5,993
---------- ---------- ---------- --------- ----------
Net income $ 2,518 $ 24,725 $ 1,008 $ (20,504) $ 7,747
========== ========== ========== ========= ==========
</TABLE>
(a) Elimination of inter-company revenue.
(b) Elimination of equity in earnings in subsidiaries.
13
<PAGE> 14
RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 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 $ 2,518 $ 24,725 $ 1,008 $ (20,504)(a) $ 7,747
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 273 9,290 905 -- 10,468
Bond discount amortization 33 -- -- -- 33
Equity in earnings of subsidiaries (20,504) -- -- 20,504 (a) --
(Gain) loss on sale of equipment -- (310) 30 -- (280)
Changes in operating assets and liabilities:
Accounts receivable and costs and
estimated earnings in excess of billings
on uncompleted contracts 205 (24,045) (1,442) -- (25,282)
Inventory -- (1,502) 128 -- (1,374)
Other current assets (5,001) 228 (540) -- (5,313)
Accounts payable and accrued liabilities 368 (3,936) 754 -- (2,814)
Accrued interest payable 339 (19) 12 -- 332
Accrued payroll and related withholdings (33) (555) 419 -- (169)
Billings in excess of costs and estimated
earnings on uncompleted contracts -- (1,220) (420) -- (1,640)
Other current liabilities 1,177 (2,086) 849 -- (60)
Other assets 398 (223) (61) -- 114
Other liabilities (447) (9,431) (154) -- (10,032)
Due (to)/from parent company (10,201) 14,885 (4,684) -- --
---------- -------- -------- -------- ----------
Net cash (used in) provided by operating
activities (30,875) 5,801 (3,196) -- (28,270)
---------- -------- -------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment -- 8,477 113 -- 8,590
Purchase of equipment and leasehold improvements (713) (12,869) (1,771) -- (15,353)
Acquisitions of subsidiaries, net of cash acquired (18,658) 45 -- -- (18,613)
Additional purchase consideration and contingent
earn-out payments (17,372) -- -- -- (17,372)
---------- -------- -------- -------- ----------
Net cash used in investing activities (36,743) (4,347) (1,658) -- (42,748)
---------- -------- -------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net activity on revolving line of credit 9,826 -- -- -- 9,826
Proceeds from long-term borrowing 100,000 (94,009) 3,003 -- 8,994
Direct financing costs paid (236) -- -- -- (236)
Payment of loan origination fees (2,606) -- -- -- (2,606)
Proceeds from term loan borrowings -- 100,000 -- -- 100,000
Repayment of term loan (29,925) -- -- -- (29,925)
Repayment of seller notes (6,550) -- -- -- (6,550)
Repayment of long-term borrowing (75) (10,589) (1,046) -- (11,710)
---------- -------- -------- -------- ----------
Net cash provided by (used in)
financing activities 70,434 (4,598) 1,957 -- 67,793
---------- -------- -------- -------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,816 (3,144) (2,897) -- (3,225)
EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS -- -- 90 -- 90
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR (13) 1,188 3,442 -- 4,617
---------- -------- -------- -------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,803 $ (1,956) $ 635 $ -- $ 1,482
========== ======== ======== ======== ==========
</TABLE>
(a) Elimination of equity in earnings of subsidiary.
14
<PAGE> 15
RAILWORKS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 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 $ 176 $ 3,381 $ 292 $ -- $ 3,849
Accounts receivable, net -- 116,200 8,423 (4,610)(a) 120,013
Costs and estimated earnings in
excess of billings on uncompleted
contracts -- 49,189 502 -- 49,691
Inventories:
Raw materials -- 10,240 3,816 -- 14,056
Finished goods -- 4,177 863 -- 5,040
Deferred tax asset -- 951 -- -- 951
Prepaid federal taxes -- -- -- -- --
Due (to)/from parent company 56,185 (51,432) (4,753) -- --
Other current assets 2,467 2,770 215 -- 5,452
---------- ---------- ---------- ---------- ----------
Total current assets 58,828 135,476 9,358 (4,610) 199,052
---------- ---------- ---------- ---------- ----------
INVESTMENT IN SUBSIDIARIES 248,986 -- -- (248,986)(b) --
---------- ---------- ---------- ---------- ----------
PROPERTY, PLANT AND
EQUIPMENT, NET 132 56,074 4,043 -- 60,249
---------- ---------- ---------- ---------- ----------
OTHER ASSETS:
Excess of cost over acquired net
assets, net of amortization -- 159,034 11,096 -- 170,130
Deferred tax asset 85 -- -- -- 85
Loans to officers 6,764 -- -- -- 6,764
Other 5,150 1,119 69 -- 6,338
---------- ---------- ---------- ---------- ----------
Total other assets 11,999 160,153 11,165 -- 183,317
---------- ---------- ---------- ---------- ----------
TOTAL $ 319,945 $ 351,703 $ 24,566 $ (253,596) $ 442,618
========== ========== ========== ========== ==========
</TABLE>
(a) Elimination of inter-company receivables/payable.
(b) Elimination of investments in subsidiaries.
15
<PAGE> 16
RAILWORKS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 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>
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current maturities of long-term debt $ 4,750 $ 5,239 $ 204 $ -- $ 10,193
Accounts payable and accrued liabilities 5,082 49,457 4,091 (4,610)(a) 54,020
Accrued payroll and related withholdings 76 3,972 180 -- 4,228
Accrued interest payable -- -- -- -- --
Billings in excess of costs and estimated
earnings on uncompleted contracts -- 11,965 -- -- 11,965
Other current liabilities 4,903 10,238 1,409 -- 16,550
---------- ---------- ---------- ---------- ----------
Total current liabilities 14,811 80,871 5,884 (4,610) 96,956
---------- ---------- ---------- ---------- ----------
LONG TERM DEBT 192,050 16,273 2,100 -- 210,423
DEFERRED TAX LIABILITIES -- -- -- --
EXCESS OF ACQUIRED NET ASSETS OVER COST,
NET OF AMORTIZATION -- 8,548 -- -- 8,548
OTHER LIABILITIES 4,361 4,467 -- -- 8,828
---------- ---------- ---------- ---------- ----------
Total long-term liabilities 196,411 29,288 2,100 -- 227,799
---------- ---------- ---------- ---------- ----------
Total liabilities 211,222 110,159 7,984 (4,610) 324,755
---------- ---------- ---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Series A, convertible preferred stock 14 -- -- -- 14
Common stock 109 2,113 122 (2,205)(b) 139
Additional paid-in capital 123,273 216,475 15,003 (231,478)(b) 123,273
Accumulated other comprehensive income -- -- 105 -- 105
Retained earnings (deficit) (14,673) 22,956 1,352 (15,303)(b) (5,668)
---------- ---------- ---------- ---------- ----------
Total stockholders' equity (deficit) 108,723 241,544 16,582 (248,986) 117,863
---------- ---------- ---------- ---------- ----------
TOTAL $ 319,945 $ 351,703 $ 24,566 $ (253,596) $ 442,618
========== ========== ========== ========== ==========
</TABLE>
(a) Elimination of inter-company receivables/payables.
(b) Elimination of investments in subsidiaries.
16
<PAGE> 17
RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 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 $ -- $ 110,274 $ 10,449 $ (4,913)(a) $ 115,810
Cost of revenue -- 90,062 6,849 (4,913)(a) 91,998
---------- ---------- ---------- -------- ----------
Gross profit -- 20,212 3,600 -- 23,812
Selling, general and
administrative expenses 2,366 7,481 1,587 -- 11,434
Depreciation and amortization
expense 144 1,350 85 -- 1,579
---------- ---------- ---------- -------- ----------
Operating income (2,510) 11,381 1,928 -- 10,799
Equity in earnings of subsidiaries 9,706 -- -- (9,706)(b) --
Interest expense (4,511) (267) (67) -- (4,845)
Interest and other income 150 499 13 -- 662
---------- ---------- ---------- -------- ----------
Income before income taxes 2,835 11,613 1,874 (9,706) 6,616
Provision for income taxes -- 1,687 794 -- 2,481
---------- ---------- ---------- --------- ----------
Net income $ 2,835 $ 9,926 $ 1,080 $ (9,706) $ 4,135
========== ========== ========== ======== ==========
</TABLE>
(a) Elimination of inter-company revenue.
(b) Elimination of equity in earnings in subsidiaries.
17
<PAGE> 18
RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 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 $ -- $ 181,323 $ 12,725 $ (5,565)(a) $ 188,483
Cost of revenue -- 149,694 7,943 (5,565)(a) 152,072
-------- ---------- ---------- ---------- ----------
Gross profit -- 31,629 4,782 -- 36,411
Selling, general and
administrative expenses 3,218 13,659 2,330 -- 19,207
Depreciation and amortization
expense 281 2,194 95 -- 2,570
-------- ---------- ---------- ---------- ----------
Operating income (3,499) 15,776 2,357 -- 14,634
Equity in earnings of subsidiaries 12,391 -- -- (12,391)(b) --
Interest expense (5,856) (535) (67) -- (6,458)
Interest and other income 153 895 13 -- 1,061
-------- ---------- ---------- ---------- ----------
Income before income taxes 3,189 16,136 2,303 (12,391) 9,237
Provision for income taxes -- 2,515 951 -- 3,466
-------- ---------- ---------- ---------- ----------
Net income $ 3,189 $ 13,621 $ 1,352 $ (12,391) $ 5,771
======== ========== ========== ========== ==========
</TABLE>
(a) Elimination of inter-company revenue.
(b) Elimination of equity in earnings in subsidiaries.
18
<PAGE> 19
RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 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 $ 3,189 $ 13,621 $ 1,352 $ (12,391)(a) $ 5,771
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 281 4,594 269 -- 5,144
Equity in earnings of subsidiaries (12,391) -- -- 12,391 (a) --
Deferred tax assets (81) -- -- -- (81)
(Gain) loss on sale of equipment -- (10) -- -- (10)
Changes in operating assets and liabilities:
Accounts receivable and costs and
estimated earnings in excess of billings
on uncompleted contracts -- (11,293) (2,858) -- (14,151)
Inventory -- (313) (159) -- (472)
Other current assets (1,319) 3,297 (9) -- 1,969
Accounts payable and accrued liabilities 4,692 (17,907) 1,265 -- (11,950)
Accrued payroll and related withholdings 76 (395) (16) -- (335)
Billings in excess of costs and estimated
earnings on uncompleted contracts -- (5,521) -- -- (5,521)
Other current liabilities 976 (1,039) 657 -- 594
Other assets 133 2,156 (11) -- 2,278
Other liabilities (4,450) 1,472 (2,095) -- (5,073)
Due (to)/from parent company (40,757) 36,004 4,753 -- --
---------- ---------- ---------- ---------- ----------
Net cash (used in) provided by operating
activities (49,651) 24,666 3,148 -- (21,837)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment -- 1,917 -- -- 1,917
Purchase of equipment and leasehold improvements (63) (6,739) (600) -- (7,402)
Loans to officers (5,805) -- -- -- (5,805)
Acquisition of subsidiaries, net of cash acquired (78,145) -- -- 5,450 (b) (72,695)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities (84,013) (4,822) (600) 5,450 (83,985)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowing 137,198 1,948 2,100 -- 141,246
Direct financing costs paid (4,160) -- -- -- (4,160)
Proceeds from issuance of senior subordinated notes 125,000 -- -- -- 125,000
Repayment of long-term borrowing (124,198) (26,439) (4,729) -- (155,366)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities 133,840 (24,491) (2,629) -- 106,720
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 176 (4,647) (81) 5,450 898
EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS -- -- 105 -- 105
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR -- 8,028 268 (5,450)(b) 2,846
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 176 $ 3,381 $ 292 $ -- $ 3,849
========== ========== ========== ========== ==========
</TABLE>
(a) Elimination of equity in earnings of subsidiary.
(b) Elimination of cash acquired.
19
<PAGE> 20
5. CAPITAL STOCK AND STOCK INCENTIVE PLAN
The Stock Incentive Plan reserves for issuance 2,000,000 shares of
common stock of the Company. In general, the terms of the option awards
(including vesting schedules) will be established by the Compensation Committee
of the Company's board of directors.
During the second quarter of 2000 options covering an aggregate of
145,000 shares of common stock were issued under the Plan. Various key
management employees were issued options on shares of common stock with an
exercise price equal to the market price of the common stock on the dates of
each of the respective grants. In all cases, the options expire ten years after
the date of grant.
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 June 30,
2000, the Company had completed its allocation of purchase price for all of the
companies acquired during the second quarter of 1999. As a result of these
items, approximately $12.0 million of additional goodwill was recorded as of
June 30, 2000, primarily relating to the final quantification of contracts,
asset valuation and litigation uncertainties.
On April 17, 2000, the Company acquired all of the outstanding capital
stock of Breaking Technology and Equipment, Inc. and Breaking Technology
Corporation (collectively "Breaking Tech"), which specializes in demolition
services in the rail transit industry in the New York City metropolitan area. On
May 31, 2000, the Company acquired certain assets and liabilities of Western Tar
Corporation ("Western Tar"), which manufactures cross ties and switch ties which
it sells to class I railroads, regional railroads, transit authorities and
railroad contractors. On June 8, 2000, the Company acquired all of the
outstanding capital stock of Hovey Industries, Ltd. ("Hovey"), which
manufactures railway switch heaters and railroad equipment shelters. On June 30,
2000, the Company acquired all of the outstanding capital stock of HSQ
Technologies, Inc. ("HSQ"), which provides turnkey systems solutions for
rail-oriented transportation authorities and other large institutions. The
combined purchase price for these second quarter 2000 acquisitions was
$18,246,551 in cash and 1,014,677 shares of the Company's common stock having an
aggregate market value (as of the date of issuance) of $10,146,770, plus, for
several acquisitions, the potential to receive earn-out payments over the next 3
years if targeted revenue and profit goals are achieved. The estimated fair
market value of assets purchased was approximately $9,781,000 and the estimated
goodwill recorded was approximately $18,612,000. The estimated fair market
values reflected above are based on preliminary estimates and assumptions and
are subject to revision.
7. SEGMENT REPORTING
The following table presents certain financial data as of and for the
three months ended June 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 $ 74,169 $ 22,660 $ 62,963 $ -- $ 159,792
Inter-segmental revenue 2,253 1,164 1,711 -- 5,128
Depreciation/amortization 239 1,107 2,382 1,897 5,625
Segment operating profit (loss) 8,662 3,177 7,000 (1,954) 16,885
Costs and estimated earnings in excess of
billings on uncompleted contracts 63,383 -- 12,208 -- 75,591
Segment assets 148,283 65,239 93,923 517,694 825,139
</TABLE>
20
<PAGE> 21
The Company's reconciliation of segment totals to enterprise values is
as follows (in thousands):
<TABLE>
<S> <C>
REVENUES:
Total revenues for reportable segments $ 159,792
Elimination of inter-segment revenues (5,128)
---------
Consolidated revenues $ 154,664
=========
OPERATING PROFIT OR LOSS:
Total profit or loss for reportable segments $ 16,885
=========
ASSETS:
Total assets for reportable segments $ 825,139
Elimination of inter-company receivables/payables (4,375)
Elimination of investments in subsidiaries (165,500)
---------
Consolidated assets $ 655,264
=========
</TABLE>
The Company's Canadian operations had revenues for the three-month
period ended June 30, 2000 of $11,944,301. The net book value of long-lived
assets relating to the Canadian operations amounted to $8,934,429 as of June 30,
2000.
The following table presents certain financial data as of and for the
three months ended June 30, 1999 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 $ 69,150 $ 13,812 $ 37,761 $ -- $ 120,723
Inter-segmental revenue 1,686 1,363 1,864 -- 4,913
Depreciation/amortization 57 759 1,169 1,205 3,190
Segment operating profit (loss) 4,975 2,864 6,120 (3,160) 10,799
Costs and estimated earnings in excess of
billings on uncompleted contracts 37,992 -- 11,699 -- 49,691
Segment assets 104,474 29,945 74,733 323,207 532,359
</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 $ 120,723
Elimination of inter-segment revenues (4,913)
----------
Consolidated revenues $ 115,810
==========
OPERATING PROFIT OR LOSS:
Total profit for reportable segments $ 10,799
==========
ASSETS:
Total assets for reportable segments $ 532,359
Elimination of inter-company receivables/payables (4,610)
Elimination of investments in subsidiaries (85,131)
----------
Consolidated assets $ 442,618
==========
</TABLE>
The Company's Canadian operations had revenues for the three month
period ended June 30, 1999 of $8,366,300. The net book value of long-lived
assets relating to the Canadian operations amounted to $3,458,318 as of June 30,
1999.
The following table presents certain financial data as of and for the
six months ended June 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 $137,941 $38,372 $114,140 $ -- $ 290,453
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C> <C> <C> <C> <C>
Inter-segmental revenue 5,685 2,201 2,539 -- 10,425
Depreciation/amortization 421 2,207 4,736 3,104 10,468
Segment operating profit (loss) 13,781 5,849 11,799 (2,820) 28,609
Costs and estimated earnings in excess of
billings on uncompleted contracts 63,383 -- 12,208 -- 75,591
Segment assets 148,283 65,239 93,923 517,694 825,139
</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 $ 290,453
Elimination of inter-segment revenues (10,425)
----------
Consolidated revenues $ 280,028
==========
OPERATING PROFIT OR LOSS:
Total profit or loss for reportable segments $ 28,609
==========
ASSETS:
Total assets for reportable segments $ 825,139
Elimination of inter-company receivables/payables (4,375)
Elimination of investments in subsidiaries (165,500)
----------
Consolidated assets $ 655,264
==========
</TABLE>
The Company's Canadian operations had revenues for the six-month period
ended June 30, 2000 of $17,214,476. The net book value of long-lived assets
relating to the Canadian operations amounted to $8,934,429 as of June 30, 2000.
The following table presents certain financial data as of and for the
six months ended June 30, 1999 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 $ 117,908 $ 22,053 $ 54,087 $ -- $ 194,048
Inter-segmental revenue 1,686 1,697 2,182 -- 5,565
Depreciation/amortization 89 1,188 1,734 2,133 5,144
Segment operating profit (loss) 6,781 4,372 7,307 (3,826) 14,634
Costs and estimated earnings in excess of
billings on uncompleted contracts 37,992 -- 11,699 -- 49,691
Segment assets 104,474 29,945 74,733 323,207 532,359
</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 $ 194,048
Elimination of inter-segment revenues (5,565)
----------
Consolidated revenues $ 188,483
==========
OPERATING PROFIT OR LOSS:
Total profit for reportable segments $ 14,634
==========
ASSETS:
Total assets for reportable segments $ 532,359
Elimination of inter-company receivables/payables (4,610)
Elimination of investments in subsidiaries (85,131)
----------
Consolidated assets $ 442,618
==========
</TABLE>
The Company's Canadian operations had revenues for the six month period
ended June 30, 1999 of $10,016,447. The net book value of long-lived assets
relating to the Canadian operations amounted to $3,458,318 as of June 30, 1999.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
22
<PAGE> 23
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 June 30, 2000, we had
acquired four 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 June 30, 2000 includes all companies that
we acquired as of June 30, 2000. Our statement of operations and statement of
cash flows for the six months ended June 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 six months ended June 30, 1999 include the
results of operations and cash flows of all companies 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 June 30, 2000 Compared to the Three Months Ended June 30,
1999.
Revenue. Revenue increased $38.9 million, or 33.6%, from $115.8 million for the
three months ended June 30, 1999 to $154.7 million for the three months ended
June 30, 2000. The increase in revenue for the three months ended June 30, 2000
was due primarily to the addition of revenue from five 1999 Acquired Companies
that were acquired subsequent to June 30, 1999 and the four 2000 Acquired
Companies. Revenue for the three months ended June 30, 1999 included revenue
attributable to all of the Founding Companies, the 1998 Acquired Companies, four
of the 1999 Acquired Companies for the entire quarter and five of the 1999
Acquired Companies from the date of their acquisition during the quarter (the
"1999 Base Companies").
Transit services revenue increased $4.5 million, or 6.7%, from $67.4 million for
the three months ended June 30, 1999 to $71.9 million for the three months ended
June 30, 2000. The increase in revenue for the three months ended June 30, 2000
was due primarily to the addition of revenue from one of the 1999 Acquired
Companies that was acquired subsequent to June 30, 1999 and two 2000 Acquired
Companies. Revenue for the three months ended June 30, 1999 included revenue
attributable to two of the Founding Companies, one of the 1998 Acquired
Companies, one of the 1999 Acquired Companies for the entire quarter and one of
the 1999 Acquired Companies from the date of its acquisition during the quarter
(the "Transit Segment 1999 Base Companies").
Rail products and supplies revenue increased $9.0 million, or 72.0%, from $12.5
million for the three months ended June 30, 1999 to $21.5 million for the three
months ended June 30, 2000. The increase in revenue for the three months ended
June 30, 2000 was due primarily to the addition of revenue from two of the 1999
Acquired Companies that were acquired subsequent to June 30, 1999 and two 2000
Acquired Companies. Revenues for the three months ended June 30, 1999 included
revenue attributable to three of the Founding Companies, one of the 1999
Acquired Companies for the entire quarter and one of the 1999 Acquired Companies
from the date of its acquisition during the quarter (the "Rail Products Segment
1999 Base Companies").
Rail track services revenue increased $25.4 million, or 70.8%, from $35.9
million for the three months ended June 30, 1999 to $61.3 million for the three
months ended June 30, 2000. The increase in revenue for the three months ended
June 30, 2000 was due primarily to the addition of revenue from two of the 1999
Acquired Companies that were acquired subsequent to June 30, 1999. Revenues for
the three months ended June 30, 1999 included revenue attributable to nine of
the Founding Companies, one of the 1998 Acquired Companies, two of the 1999
Acquired Companies for the entire quarter and three of the 1999 Acquired
Companies from the date of their acquisition during the quarter (the "Rail Track
Segment 1999 Base Companies").
23
<PAGE> 24
Gross Profit. Gross profit increased $10.1 million, or 42.4%, from $23.8 million
for the three months ended June 30, 1999 to $33.9 million for the three months
ended June 30, 2000. The increase in gross profit for the three months ended
June 30, 2000 was due primarily to the addition of gross profit from five 1999
Acquired Companies that were acquired subsequent to June 30, 1999 and the four
2000 Acquired Companies. Gross profit reported for the three months ended June
30, 1999 included gross profit only from the 1999 Base Companies. The gross
profit percentage increased from 20.6% for the three months ended June 30, 1999
to 21.9% for the three months ended June 30, 2000. This increase was the result
of higher profitability associated with the mix and type of work performed by
the 1999 Acquired Companies and the 2000 Acquired Companies during the second
quarter of 2000 compared to the mix and type of work performed by the 1999 Base
Companies during the second quarter of 1999.
Transit services gross profit increased $4.4 million, or 48.4%, from $9.1
million for the three months ended June 30, 1999 to $13.5 million for the three
months ended June 30, 2000. The increase in gross profit for the three months
ended June 30, 2000 was due primarily to the addition of gross profit from one
of the 1999 Acquired Companies that was acquired subsequent to June 30, 1999 and
two 2000 Acquired Companies. Gross profit reported for the three months ended
June 30, 1999 included only gross profit from the Transit Segment 1999 Base
Companies during the quarter. The gross profit percentage increased from 13.5%
for the three months ended June 30, 1999 to 18.8% for the three months ended
June 30, 2000. This increase was the result of higher profitability associated
with the mix and type of work performed during the second quarter of 2000
compared to the mix and type of work performed by the Transit Segment 1999 Base
Companies during the second quarter of 1999.
Rail products and supplies gross profit increased $1.7 million, or 34.0%, from
$5.0 million for the three months ended June 30, 1999 to $6.7 million for the
three months ended June 30, 2000. The increase in gross profit for the three
months ended June 30, 2000 was due primarily to the addition of gross profit
from two 1999 Acquired Companies that were acquired subsequent to June, 30 1999
and two 2000 Acquired Companies. Gross profit for the three months ended June
30, 1999 included only gross profit from the Rail Products Segment 1999 Base
Companies during the quarter. The gross profit percentage decreased from 40.0%
for the three months ended June 30, 1999 to 31.2% for the three months ended
June 30, 2000. This decrease was the result of lower profitability associated
with the mix and type of work performed during the second quarter of 2000
compared to the mix and type of work performed by the Rail Products Segment 1999
Base Companies during the second quarter of 1999.
Rail track services gross profit increased $2.9 million, or 29.9%, from $9.7
million for the three months ended June 30, 1999 to $12.6 million for the three
months ended June 30, 2000. The increase in gross profit for the three months
ended June 30, 2000 was due primarily to the addition of gross profit from two
1999 Acquired Companies that were acquired subsequent to June 30, 1999. Gross
profit for the three months ended June 30, 1999 included only gross profit from
the Rail Track Segment 1999 Base Companies during the quarter. The gross profit
percentage decreased from 27.0% for the three months ended June 30, 1999 to
20.6% for the three months ended June 30, 2000. This decrease was the result of
lower profitability associated with the mix and type of work performed during
the second quarter of 2000 compared to the mix and type of work performed by the
Rail Track Segment 1999 Base Companies during the second quarter of 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4.0 million, or 30.8%, from $13.0 million for
the three months ended June 30, 1999 to $17.0 million for the three months ended
June 30, 2000. The increase in selling, general and administrative expenses for
the three months ended June 30, 2000 was due primarily to the addition of
selling, general and administrative expenses from five 1999 Acquired Companies
that were acquired subsequent to June 30, 1999 and the four 2000 Acquired
Companies. Selling, general and administrative expenses for the three months
ended June 30, 1999 included only selling, general and administrative expenses
from the 1999 Base Companies during the quarter. As a percentage of revenue,
selling, general and administrative expenses decreased from 11.2% for the three
months ended June 30, 1999 to 11.0% for the three months ended June 30, 2000.
This decrease was the result of the addition of the lower selling, general and
administrative cost structures of the 1999 Acquired Companies that were acquired
after June 30, 1999 and the 2000 Acquired Companies as compared to the selling,
general and administrative cost structures of the 1999 Base Companies.
Transit services selling, general and administrative expenses increased $1.0
million, or 25.6%, from $3.9 million for the three months ended June 30, 1999 to
$4.9 million for the three months ended June 30, 2000. The increase in selling,
general and administrative expenses for the three months ended June 30, 2000 was
due primarily to the addition of selling, general and administrative expenses
from one of the 1999 Acquired Companies that was acquired subsequent to June 30,
1999 and two 2000 Acquired Companies. Transit Services selling, general and
administrative expenses for the three months ended June 30, 1999 included only
selling, general and administrative expenses from the Transit Services Segment
1999 Base Companies during the quarter. As a percentage of segment revenue,
selling, general and administrative expenses increased from 5.8% for the three
months ended June 30, 1999 to 6.8% for the three months ended June 30, 2000.
This increase was a result of the transit services related 1999 Acquired
Companies that were
24
<PAGE> 25
acquired after June 30, 1999 and the transit services related 2000 Acquired
Companies having higher overhead selling, general and administrative cost
structures than the Transit Services Segment 1999 Base Companies.
Rail products and supplies selling, general and administrative expenses
increased $1.1 million, or 55.0%, from $2.0 million for the three months ended
June 30, 1999 to $3.1 million for the three months ended June 30, 2000. The
increase in selling, general and administrative expenses for the three months
ended June 30, 2000 was due primarily to the addition of selling, general and
administrative expenses from two 1999 Acquired Companies that were acquired
subsequent to June 30, 1999 and two 2000 Acquired Companies. Selling, general
and administrative expenses for the three months ended June 30, 1999 included
only selling, general and administrative expenses from the Rail Products Segment
1999 Base Companies during the quarter. As a percentage of segment revenue,
selling, general and administrative expenses decreased from 16.0% for the three
months ended June 30, 1999 to 14.4% for the three months ended June 30, 2000.
This decrease was a result of the rail products related 1999 Acquired Companies
that were acquired after June 30, 1999 and the rail products related 2000
Acquired Companies having lower overhead selling, general and administrative
cost structures than the Rail Products Segment 1999 Base Companies.
Rail track services selling, general and administrative expenses increased $1.9
million, or 54.3%, from $3.5 million for the three months ended June 30, 1999 to
$5.4 million for the three months ended June 30, 2000. The increase in selling,
general and administrative expenses for the three months ended June 30, 2000 was
due primarily to the addition of selling, general and administrative expenses
from two 1999 Acquired Companies that were acquired subsequent to June 30, 1999.
Selling, general and administrative expenses for the three months ended June 30,
1999 included only selling, general and administrative expenses from the Rail
Track Segment 1999 Base Companies during the quarter. As a percentage of segment
revenue, selling, general and administrative expenses decreased from 9.7% for
the three months ended June 30, 1999 to 8.8% for the three months ended June 30,
2000. This percentage decrease was a result of the rail track services 1999
Acquired Companies that were acquired after June 30, 1999 having lower overhead,
selling, general and administrative cost structures than the Rail Track Segment
1999 Base Companies.
Corporate selling, general and administrative expenses remained constant at $3.6
million for the three months ended June 30, 1999 and for the three months ended
June 30, 2000. As a percentage of total revenue, selling, general and
administrative expenses decreased from 3.1% for the three months ended June 30,
1999 to 2.3% for the three months ended June 30, 2000. The decrease in
percentage resulted from spreading our corporate overhead structure over a
larger revenue base.
Net Income. Net income increased $1.3 million or 31.7%, from $4.1 million for
the three months ended June 30, 1999 to $5.4 million for the three months ended
June 30, 2000, as a result of the items mentioned above.
Six Months Ended June 30, 2000 Compared to the Six Months Ended June 30, 2000.
Revenue. Revenue increased $91.5 million, or 48.5%, from $188.5 million for the
six months ended June 30, 1999 to $280.0 million for the six months ended June
30, 2000. The increase in revenue for the six months ended June 30, 2000 was due
primarily to the addition of revenue from five 1999 Acquired Companies that were
acquired subsequent to June 30, 1999 and the four 2000 Acquired Companies.
Revenue for the six months ended June 30, 1999 included revenue attributable to
all of the Founding Companies, the 1998 Acquired Companies and nine of the 1999
Acquired Companies from the date of their acquisition during the period (the
"Six Month 1999 Base Companies").
Transit services revenue increased $16.0 million, or 13.8%, from $116.2 million
for the six months ended June 30, 1999 to $132.2 million for the six months
ended June 30, 2000. The increase in revenue for the six months ended June 30,
2000 was due primarily to the addition of revenue from one of the 1999 Acquired
Companies that was acquired subsequent to June 30, 1999 and two 2000 Acquired
Companies. Revenue for the six months ended June 30, 1999 included revenue
attributable to two of the Founding Companies, one of the 1998 Acquired
Companies and two of the 1999 Acquired Companies from the date of their
acquisition during the period (the "Six Month Transit Segment 1999 Base
Companies").
Rail products and supplies revenue increased $15.8 million, or 77.5%, from $20.4
million for the six months ended June 30, 1999 to $36.2 million for the six
months ended June 30, 2000. The increase in revenue for the six months ended
June 30, 2000 was due primarily to the addition of revenue from two of the 1999
Acquired Companies that were acquired subsequent to June 30, 1999 and two 2000
Acquired Companies. Revenues for the six months ended June 30, 1999 included
revenue attributable to three of the Founding Companies and two of the 1999
Acquired Companies from the date of their acquisition during the period (the
"Six Month Rail Products Segment 1999 Base Companies").
25
<PAGE> 26
Rail track services revenue increased $59.8 million, or 115.2%, from $51.9
million for the six months ended June 30, 1999 to $111.7 million for the six
months ended June 30, 2000. The increase in revenue for the six months ended
June 30, 2000 was due primarily to the addition of revenue from two of the 1999
Acquired Companies that were acquired subsequent to June 30, 1999. Revenues for
the six months ended June 30, 1999 included revenue attributable to nine of the
Founding Companies, one of the 1998 Acquired Companies and five of the 1999
Acquired Companies from the date of their acquisition during the period (the
"Six Month Rail Track Segment 1999 Base Companies").
Gross Profit. Gross profit increased $21.5 million, or 59.1%, from $36.4 million
for the six months ended June 30, 1999 to $57.9 million for the six months ended
June 30, 2000. The increase in gross profit for the six months ended June 30,
2000 was due primarily to the addition of gross profit from five 1999 Acquired
Companies that were acquired subsequent to June 30, 1999 and the four 2000
Acquired Companies. Gross profit reported for the six months ended June 30, 1999
included gross profit only from the Six Month 1999 Base Companies. The gross
profit percentage increased from 19.3% for the six months ended June 30, 1999 to
20.7% for the six months ended June 30, 2000. This increase was the result of
higher profitability associated with the mix and type of work performed by the
1999 Acquired Companies and the 2000 Acquired Companies during the six months
ended June 30, 2000 compared to mix and type of work performed by the Six Month
1999 Base Companies for the six months ended June 30, 1999.
Transit services gross profit increased $7.5 million, or 48.4%, from $15.5
million for the six months ended June 30, 1999 to $23.0 million for the six
months ended June 30, 2000. The increase in gross profit for the six months
ended June 30, 2000 was due primarily to the addition of gross profit from one
of the 1999 Acquired Companies that was acquired subsequent to June 30, 1999 and
two 2000 Acquired Companies. Gross profit reported for the six months ended June
30, 1999 included only gross profit from the Six Month Transit Segment 1999 Base
Companies during the period. The gross profit percentage increased from 13.3%
for the six months ended June 30, 1999 to 17.4% for the six months ended June
30, 2000. This increase was the result of higher profitability associated with
the mix and type of work performed during the six months ended June 30, 2000
compared to the mix and type of work performed by the Six Month Transit Segment
1999 Base Companies for the six months ended June 30, 1999.
Rail products and supplies gross profit increased $4.5 million, or 57.7%, from
$7.8 million for the six months ended June 30, 1999 to $12.3 million for the six
months ended June 30, 2000. The increase in gross profit for the six months
ended June 30, 2000 was due primarily to the addition of gross profit from two
1999 Acquired Companies that were acquired subsequent to June 30, 1999 and two
2000 Acquired Companies. Gross profit for the six months ended June 30, 1999
included only gross profit from the Six Month Rail Products Segment 1999 Base
Companies during the period. The gross profit percentage decreased from 38.2%
for the six months ended June 30, 1999 to 34.0% for the six months ended June
30, 2000. This decrease was the result of lower profitability associated with
the mix and type of work performed during the six months ended June 30, 2000
compared to the mix and type of work performed by the Six Month Rail Products
Segment 1999 Base Companies during the six months ended June 30, 1999.
Rail track services gross profit increased $8.4 million, or 64.1%, from $13.1
million for the six months ended June 30, 1999 to $21.5 million for the six
months ended June 30, 2000. The increase in gross profit for the six months
ended June 30, 2000 was due primarily to the addition of gross profit from two
1999 Acquired Companies that were acquired subsequent to June 30, 1999. Gross
profit for the six months ended June 30, 1999 included only gross profit from
the Six Month Rail Track Segment 1999 Base Companies during the period. The
gross profit percentage decreased from 25.2% for the six months ended June 30,
1999 to 19.2% for the six months ended June 30, 2000. This decrease was the
result of lower profitability associated with the mix and type of work performed
during the six months ended June 30, 2000 compared to the mix and type of work
performed by the Six Month Rail Track Segment 1999 Base Companies during the six
months ended June 30, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $7.5 million, or 34.4%, from $21.8 million for
the six months ended June 30, 1999 to $29.3 million for the six months ended
June 30, 2000. The increase in selling, general and administrative expenses for
the six months ended June 30, 2000 was due primarily to the addition of selling,
general and administrative expenses from five 1999 Acquired Companies that were
acquired subsequent to June 30, 1999 and the four 2000 Acquired Companies.
Selling, general and administrative expenses for the six months ended June 30,
1999 included only selling, general and administrative expenses from the Six
Month 1999 Base Companies during the period. As a percentage of revenue,
selling, general and administrative expenses decreased from 11.6% for the six
months ended June 30, 1999 to 10.5% for the six months ended June 30, 2000. This
decrease was the result of the addition of the lower selling, general and
administrative cost structures of the 1999 Acquired Companies that were acquired
after June 30, 1999 and the 2000 Acquired Companies as compared to the selling,
general and administrative cost structures of the Six Month 1999 Base Companies.
26
<PAGE> 27
Transit services selling, general and administrative expenses increased $1.4
million, or 18.7%, from $7.5 million for the six months ended June 30, 1999 to
$8.9 million for the six months ended June 30, 2000. The increase in selling,
general and administrative expenses for the six months ended June 30, 2000 was
due primarily to the addition of selling, general and administrative expenses
from one of the 1999 Acquired Companies that was acquired subsequent to June 30,
1999 and two 2000 Acquired Companies. Transit Services selling, general and
administrative expenses for the six months ended June 30, 1999 included only
selling, general and administrative expenses from the Six Month Transit Services
Segment 1999 Base Companies during the period. As a percentage of segment
revenue, selling, general and administrative expenses increased from 6.5% for
the six months ended June 30, 1999 to 6.7% for the six months ended June 30,
2000. This increase was a result of the transit services related 1999 Acquired
Companies and the transit services related 2000 Acquired Companies having higher
overhead selling, general and administrative cost structures than the Six Month
Transit Services Segment 1999 Base Companies.
Rail products and supplies selling, general and administrative expenses
increased $2.4 million, or 72.7%, from $3.3 million for the six months ended
June 30, 1999 to $5.7 million for the six months ended June 30, 2000. The
increase in selling, general and administrative expenses for the six months
ended June 30, 2000 was due primarily to the addition of selling, general and
administrative expenses from two 1999 Acquired Companies that were acquired
subsequent to June 30, 1999 and two 2000 Acquired Companies. Selling, general
and administrative expenses for the six months ended June 30, 1999 included only
selling, general and administrative expenses from the Six Month Rail Products
Segment 1999 Base Companies during the period. As a percentage of segment
revenue, selling, general and administrative expenses decreased from 16.2% for
the six months ended June 30, 1999 to 15.7% for the six months ended June 30,
2000. This decrease was a result of the rail products related 1999 Acquired
Companies that were acquired subsequent to June 30, 1999 and the rail products
related 2000 Acquired Companies having lower overhead selling, general and
administrative cost structures than the Six Month Rail Products Segment 1999
Base Companies.
Rail track services selling, general and administrative expenses increased $3.0
million, or 53.6%, from $5.6 million for the six months ended June 30, 1999 to
$8.6 million for the six months ended June 30, 2000. The increase in selling,
general and administrative expenses for the six months ended June 30, 2000 was
due primarily to the addition of selling, general and administrative expenses
from two 1999 Acquired Companies that were acquired subsequent to June 30, 1999.
Selling, general and administrative expenses for the six months ended June 30,
1999 included only selling, general and administrative expenses from the Six
Month Rail Track Segment 1999 Base Companies during the period. As a percentage
of segment revenue, selling, general and administrative expenses decreased from
10.8% for the six months ended June 30, 1999 to 7.7% for the six months ended
June 30, 2000. This decrease was a result of the rail track services 1999
Acquired Companies that were acquired subsequent to June 30, 2000 having lower
overhead, selling, general and administrative cost structures than the Six Month
Rail Track Segment 1999 Base Companies.
Corporate selling, general and administrative expenses increased $700,000, or
13.0%, from $5.4 million for the six months ended June 30, 1999 to $6.1 million
for the six months ended June 30, 2000. The increase was due to the fact that
the selling, general and administrative expenses for the six months ended June
30, 1999 was that of an overhead structure to support the fourteen Founding
Companies, the 1998 Acquired Companies and nine of the 1999 Acquired Companies.
The selling, general and administrative expenses for the six months ended June
30, 2000 was that of an overhead structure to support the Founding Companies,
the 1998 Acquired Companies, all fourteen 1999 Acquired Companies and the four
2000 Acquired Companies. As a percentage of total revenue, selling, general and
administrative expenses decreased from 2.9% for the six months ended June 30,
1999 to 2.2% for the six months ended June 30, 2000. This decrease resulted from
spreading our corporate overhead structure over a larger revenue base.
Net Income. Net income increased $1.9 million or 32.8%, from $5.8 million for
the six months ended June 30, 1999 to $7.7 million for the six months ended June
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,
27
<PAGE> 28
generally due to adverse weather conditions. We expect to continue to experience
such quarterly fluctuations in operating results, including possible net losses.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, we had working capital of approximately $166.0
million. Net cash used in operating activities for the six months ended June 30,
2000 was approximately $28.3 million. Net cash used in investing activities for
the six months ended June 30, 2000 was approximately $42.7 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 six months ended June 30, 2000 was
approximately $67.8 million, which included borrowings of approximately $118.8
million, offset by debt repayment of approximately $48.2 million.
Capital expenditures were $15.4 million and $7.4 million for the six
months ended June 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.
Cash for acquisitions and working capital are financed by funds
generated 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 on all of our accounts receivable 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.
We believe that funds generated from operations, together with existing
cash and borrowings under our revolving credit facility, will be sufficient to
finance our current operations, planned capital expenditures, potential
acquisitions and internal growth. If we were to make a significant acquisition
for cash, it may be necessary to obtain additional debt or equity financing.
There can be no assurance that we will be able to obtain any such financing on
terms satisfactory to us, if at all.
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to market risk associated principally with changes in interest
rates. As of June 30, 2000, interest rate exposure has been principally limited
to the $57.0 million of long-term debt outstanding at June 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 $285,000 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 June 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:
28
<PAGE> 29
- 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.
(iii) Recent Sales of Unregistered Securities
On June 30, 2000, we issued 1,014,677 shares of unregistered
Common Stock of the Company to the owners of HSQ Technologies
Inc. as partial consideration for 100% of the outstanding
stock of HSQ Technologies, Inc. in that acquisition. The stock
was issued in reliance on an exemption from registration under
Section 4(2) of the Securities Act of 1933.
During the three months ended June 30, 2000, we also issued to
four employees of RailWorks options to purchase a combined
total of 145,000 shares of the Company's common stock. The
exercise price of the options was the market price of the
stock on the date of grant. The options expire ten years after
the date of grant.
Item 3. Default Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On May 18, 2000 the Company held its annual meeting of
stockholders and two proposals were considered. All such
proposals were approved by the stockholders.
The first proposal was to elect the three nominees to the
Board of Directors. The following is a separate tabulation
with respect to the vote for each nominee:
<TABLE>
<S> <C> <C> <C>
Michael R. Azarela: For: 11,097,373 Against: 0 Abstain: 504,873
</TABLE>
29
<PAGE> 30
<TABLE>
<S> <C> <C> <C>
Kenneth R. Burk: For: 11,097,373 Against: 0 Abstain: 504,873
Donald P. Traviss: For: 11,097,373 Against: 0 Abstain: 504,873
</TABLE>
Messrs. John Larkin, Scott Brace, Ronald W. Drucker, R. C. Matney and
John Kennedy, whose terms have not expired, continued as directors.
The second proposal was to approve and ratify the Board of Directors'
appointment of Arthur Andersen LLP as the Company's independent
accountants for the 2000 fiscal year. The following is a breakdown of
the vote on such matter:
<TABLE>
<S> <C> <C>
For: Against: Abstained
11,600,345 301 1,600
</TABLE>
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.
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RailWorks Corporation
/s/ Michael R. Azarela
--------------------------------
By: Michael R. Azarela
Executive Vice President and
Chief Financial Officer
Date: August 11, 2000
31
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
------ ------- -------------
<S> <C> <C>
27.1 -- Financial Data Schedule (for SEC filing purposes only) 34
</TABLE>
32
