ITEM 1. BUSINESS
Unless the context otherwise requires, "we," "us," "our" or "RailWorks" refers to the business of RailWorks Corporation and its subsidiaries.
COMPANY OVERVIEW
Our company was formed in March 1998. In August 1998, we acquired in separate concurrent transactions 14 groups of companies engaged principally in the rail system services and products business and we consummated our initial public offering, which we refer to as the IPO. We refer to these groups of companies as the Founding Companies. Since August 1998 through December 31, 2001, we acquired an additional 21 companies or groups of companies. At December 31, 2000, we streamlined the structure of RailWorks by reducing the number of individual operating companies through various mergers and dissolutions.
We are a leading provider of integrated rail system services and products to a diverse base of customers throughout North America. We provide a full range of rail-related services and products on a "turnkey" basis throughout North America and offer rail system solutions under the "RailWorks" brand. We provide:
- track construction, rehabilitation, repair and maintenance; - installation of electrification, communication and signaling equipment and systems for rail applications; and - related products and services.
We provide these services to a wide variety of customers, including Class I, regional and shortline railroads, passenger rail and rail transit authorities and commercial and industrial companies. We also provide non-rail products and services such as electrical contracting, bridge and highway support structures and related concrete products to public agencies, commercial, power and industrial customers.
On September 20, 2001 (the "Filing Date"), the Company and twenty-two of its domestic subsidiaries (collectively, the "Debtors") filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Maryland (Baltimore Division). The filings have been consolidated for the purpose of joint administration as Case No. 01-6-4463. Our Canadian subsidiaries were not included in the filings and continue to operate in the normal course of business outside of bankruptcy. Under Chapter 11, except for certain statutory exceptions and for relief that might otherwise be granted by the Bankruptcy Court, claims against the Debtors in existence prior to the Filing Date (including claims secured by the Debtors' assets) are stayed while the Debtors continue business operations as debtors-in-possession. The Bankruptcy Court through March 15, 2002, has authorized various motions for the payment of prepetition claims totaling approximately $67.9 million, through various orders, of which $40.5 million has been paid. Additional claims may arise subsequent to the filing date resulting from rejection of executory contracts, including leases and construction contracts, and from the determination by the Bankruptcy Court (or agreed to by the parties in interest) of allowed claims for contingencies and other disputed amounts.
On March 15, 2002, we filed a plan of reorganization in the United States Bankruptcy Court for the District of Maryland (Baltimore Division) for the Company and twenty-two of our domestic subsidiaries. See Item 3. "Legal Proceedings."
SERVICES AND PRODUCTS
We operate in three business lines:
- transit services; - rail track services; and - rail products and services.
Information with respect to segment operations and segment financial conditions as of and for the years ended December 31, 1999, 2000 and 2001 is set forth in Note 19 of our Consolidated Financial Statements, which is incorporated herein by reference.
Transit Services
Our transit services business includes all products and services that we provide to rail-based public transit agencies and authorities in various U.S. metropolitan markets. We typically contract with these agencies to install:
- electric train traction power systems (by means of third rail or overhead catenary wiring), - train control and signal systems, - train, station and control center communications systems, - general electrical installations for lighting and other applications, and - tunnel and station track.
Projects for new public transit lines generally include the installation of all of these systems. These projects may also involve track installation including excavation, grading, paving and drainage improvements as well as other rehabilitation projects.
In addition, we leverage our knowledge of transit systems to provide cost-effective mechanical services, including installation of heating and air conditioning systems, ventilating and pump rooms, fan chambers, elevators and escalators. We have experience with rubber tired vehicular people mover systems, for which we have installed concrete guided trackway, power guide beams, central guidance rails, walkways and handrails.
The duration and size of our transit contracts vary greatly depending on the scope of the project. Contracts for work on large-scale transit projects can exceed $100 million in value and take four or more years to complete. We have performed installations for most of the country's major transit authorities, including those in Atlanta, Boston, Chicago, Los Angeles, New York, Philadelphia, Portland (Oregon), San Diego, San Francisco, St. Louis and Washington, D.C. We generally perform our services as either a prime contractor directly to the transit agencies or as a subcontractor to large civil engineering companies or equipment manufacturers.
Contracts with transit authorities are competitively bid and awarded on a fixed price basis generally to the lowest bidder. As a result, we focus our business to:
- provide accurate bid estimating to both win contracts and ensure a profit, and - monitor costs to ensure that projects are completed on time and within budget.
As an outgrowth of our transit-related business, we also perform commercial real estate electrical installation work in the New York City metropolitan area and industrial electrical installation work throughout the United States. Contracts for these projects are pursued on an opportunistic basis; that is, when we have resources available and can realize attractive returns.
Rail Track Services
Our rail track services business consists of providing rail design, construction and maintenance services to Class I, regional and shortline railroads and industrial companies with on-site rail infrastructure. Rail design is a highly specialized discipline and only a limited number of companies provide these services. We utilize our rail design capabilities to facilitate access to rail track construction and maintenance projects. By having the ability to provide integrated design-build services, we have been successful in increasing our project flow.
Our rail track services primarily involve the construction of main line segments, passing sidings, rail yards, connector segments between railroads and industrial sites, turnouts and track and road intersections. Track maintenance is generally provided under annual and multi-year contracts with customers. Maintenance contracts provide recurring revenues and give us access to new track projects from the same customer. Additional rail track services include the removal of tracks that are no longer in use, switch grinding, railcar switching and track equipment repair for railroads and rail transit agencies.
Rail construction and maintenance are highly complex processes that usually involve numerous separate parties that design, supply and construct the different elements of the track. Following the design stage, construction entails:
- site preparation and grading, - the laying of gravel ballast or concrete surfacing to provide a solid track fixation medium, - the positioning of cross ties, - securing rail with high precision using metal plates, spikes and clamps, - installing complex track crossings and turnouts, and - installing other track related systems such as signal, communications and automatic train control and safety devices.
We believe that our ability to bundle these services on a turnkey basis gives us a significant competitive advantage.
We provide our rail services on a nationwide basis through a network of regional operating centers. In contrast, most of our rail track services competitors are focused on one geographic region. We believe that this results in a competitive advantage for us due to our presence in virtually all regional markets and our ability to direct equipment and labor resources to regions with higher demand. We also maintain track and track material inventory at most of our locations. By coordinating information across our network we are able to maximize inventory utilization and improve supply for projects in different regions.
Rail Products and Services
Our rail products and services business consists of specialty wood and concrete products, rail fastening systems and specialized track maintenance services. We sell our rail products and services directly to contractors (including our own subsidiaries) and to Class I, regional and shortline railroads that perform their own track installation and maintenance. Some of our products are used in non-rail applications such as highway construction (precast concrete structures) and decorative landscaping (used wood ties).
We provide full service handling of specialty wood products used by railroads. Our wood products, which we manufacture in five of our facilities, include cross ties and switch and bridge timbers. Our wood treating operations consist of pressure-treating pre-cut hardwood beams to provide weather-proofing. Treated cross-ties and timbers are used for securing rail for tracks or assembled to construct bridge support structures. In addition, we operate five facilities that prepare used, treated wood products for disposition utilizing a proprietary technology.
We manufacture concrete products, which consist primarily of pre-cast structural components for bridges and other support structures. Our concrete operations consist of pouring mixed concrete into large molds to create specialized structural support components.
We also design and manufacture rail fastening systems, which are primarily used in overhead and portal crane rail applications.
ACQUISITIONS/DISPOSITIONS
We believe that, through the acquisition program that has been executed by RailWorks since its formation, we have established RailWorks as one of the few companies capable of providing its range of products and services throughout North America. In September 2000, we suspended our active acquisition program and re-directed our efforts to optimizing the efficiency of our operations and improving strategic focus. As a result, we have determined that those operations which do not enhance the opportunity for achievement of our long-term strategic goals should be sold.
During 2001, we disposed of the following companies or divisions:
SOURCES OF SUPPLY
Our transit services group purchases equipment from a limited number of suppliers. These suppliers include primarily manufacturers of communications, electrification, signaling and control equipment and systems for rail applications. Our rail track services business sources rail and other track materials (primarily metal components such as plates and spikes) from
- the reclamation of existing track that is no longer in use,
- track materials brokers and
- manufacturers
We purchase new rail from a limited number of suppliers. New rail is generally installed only on main lines, where the track may carry high volumes of heavy traffic at high speeds. Over time, rail is removed, inspected and, if in the appropriate condition, refurbished for sale as "re-lay" rail. Re-lay rail is typically installed on secondary (non-main line) tracks, as well as yard or branch tracks. Total rail life before scrapping may be as long as 60 years. We also purchase a large volume of re-lay rail that is refurbished by third parties for resale.
Similarly, we regularly purchase entire sections of track that are removed and subsequently disassembled at our facilities. We inspect the various track components -- rail, ties and accessories -- and place items into our inventory (either in their "as removed" condition or after being refurbished by third parties) or sell these items for scrap.
We also process creosote-treated wooden ties. These operations include the purchase of raw lumber, trimming the lumber to specified sizes, pressurized impregnation of the lumber with creosote preservative and finishing of the ties (which could include the pre-drilling of spike holes and the attachment of plates, as specified by the customer).
We believe we can purchase materials in sufficient quantities to permit us to realize purchasing economies and discounts from our suppliers. Historically, the cost of the lumber used to produce wooden ties, steel used to produce rail and copper used to produce electrical wiring has fluctuated significantly due to market and industry conditions. Increasing demand for these raw materials may result in cost increases. We may not be able to recoup any such increases by increasing the prices of our products. Further, a reduction in availability of lumber, steel or copper could have an adverse effect on our business, financial condition and results of operations.
SALES AND MARKETING
We maintain a targeted national sales program to assist in the development of the business of each of our operating companies. The focus of this initiative is on the Class I railroads and other large industrial companies with facilities in several geographic regions. Prior to their acquisition by us, our operating companies had been unable to serve such customers on a comprehensive, nationwide basis. Our expansive geographic coverage enables customers to use our services and products in multiple locations rather than dealing with numerous regional or local companies. In addition, our ability to offer electrical installation services together with rail construction, rehabilitation, repair and maintenance services and related products provides us with opportunities to cross-sell our services to large industrial companies.
BIDDING AND CONTRACTS
Our transit services group derives a substantial portion of its revenue from contracts entered into through a competitive bidding process. Public agencies, such as the New York City Transit Authority, which we refer to as "NYCTA," that solicit bids are generally required to accept the lowest cost proposal. In some cases, the party that submitted the low bid must first pass a technical qualification before being awarded a project. Following the acceptance of a bid, we typically enter into a contract with the customer. The activities of our rail track services and rail products and services groups usually do not involve long-term contracts.
Many projects that are competitively bid require the company that is awarded the project to post a bond, which varies according to the size of the project. Each company has a bonding limit, which is based on the company's working capital, net worth and work in progress. The bond provides the customer with insurance in the event that the company is unable to complete the project. Our size, as compared to our operating companies on a stand-alone basis, facilitates increased bonding limits for each operating company and thereby improves their ability to bid on and undertake significantly larger projects. We believe that our bonding capacity permits us to bid on and undertake more projects than smaller companies in our industry. Our inability to obtain sufficient bonding in the future may prevent us from bidding on certain contracts.
CUSTOMERS
The following table lists our top four customers for 2001 (by revenue recognized) for each of our lines of business:
We derived approximately 37.8% of our revenue for the year ended December 31, 2001 from our top ten customers. Approximately 17.9% of our 2001 revenue was derived from projects undertaken for the NYCTA. These projects were undertaken under a number of separate contracts. If the NYCTA were to significantly reduce the amount of business that it does with us or determine not to do business with us in the future, it would have a material adverse effect on our business, financial condition and results of operations. No customer other than NYCTA accounted for more than 3.2% of our revenue for the year ended December 31, 2001.
BACKLOG
At December 31, 2001, our total order backlog was approximately $687.0 million, of which 73.3% represents backlog under transit services group contracts. At December 31, 2000, our total order backlog was approximately $897.0 million, of which 78.1% represented backlog under transit services group contracts. Our backlog is not necessarily indicative of total future revenue.
COMPETITION
The rail system services and products industry is highly competitive, and projects are often awarded through competitive bidding. We compete with other rail system services, rehabilitation and maintenance companies, electrical contractors and suppliers of products. Certain competitors have significantly greater resources than we do, provide a broad range of services and products and have sufficient bonding capacity to undertake large projects. We compete on the basis of our breadth of services and products, ability to take on large projects and nationwide presence. Any inability to compete successfully against future competitors would have a material adverse effect on our business, results of operations and financial condition. Moreover, we may depend in part upon opportunities for consolidation in the rail system services and products industry in order to execute effectively our business strategy. If our customers do not respond favorably to our strategy, they have numerous alternative sources of services and supply.
RISK MANAGEMENT AND SAFETY
Because our business is labor intensive, workers' compensation is a significant operating expense for us. We could be exposed to liability for the acts or negligence of our employees who cause personal injury or damage while on assignment, as well as claims of misuse of customer proprietary information or theft of client property. We have adopted policies and procedures intended to reduce our exposure to these risks.
We maintain insurance against these risks with policy limits that we consider sufficient and consistent with industry standards. We have established a risk management department that is responsible for claims management and the establishment of appropriate reserves for the deductible portion of claims. We hold regular meetings with the presidents of our operating companies at which safety issues are discussed. We also conduct routine safety inspections of local work sites. Even with these policies and procedures in place, certain accidents may occur and liabilities may arise which could have a material adverse impact on the Company.
EQUIPMENT
We own and maintain specialized equipment used in rail construction, rehabilitation, repair and maintenance. This equipment may be moved between job sites and, consequently, we are seeking to increase the sharing of equipment between our subsidiary operating companies where it is appropriate and cost effective. For example, during the winter months, our operating companies located in the Northern United States could relocate their equipment to our operating companies located in the South. Each of our subsidiary operating companies generally performs its own equipment maintenance.
GOVERNMENT REGULATION
Overview. In addition to the environmental, safety and other regulations generally applicable to all businesses, our business is impacted by regulations that are administered by the Surface Transportation Board (STB), the successor to the Interstate Commerce Commission (ICC), the Federal Transit Administration (FTA), the Federal Railroad Administration (FRA) and by regulatory agencies in the various states in which we and our customers do business. Since 1980, there has been a significant relaxation in regulations governing the sale, leasing or other transfer of railroad properties, and this change has favorably affected the operations of many of our customers. Various interests in the United States have sought and continue to seek re-imposition of government controls on the railroad industry in areas deregulated in whole or in part since 1980, including stricter rate regulation and more onerous labor protection conditions for rail line transfers.
Railroad Regulations. The ICC Termination Act, which was enacted on December 29, 1995, eliminated the ICC as an independent agency and created the STB, a new agency within the Department of Transportation that began functioning on January 1, 1996. The ICC Termination Act changed the procedure and timing for federal approval of railroad projects, including abandonments, line sales, mergers, rates and tariffs, simplifying and streamlining the abandonment process. The FRA regulates railroad safety and equipment standards, including track maintenance and train speed standards, special procedures for handling hazardous shipments, locomotive and railcar inspection and repair requirements, operating practices and crew qualifications. The Roadway Worker Protection Rules, which were promulgated by the FRA, apply to rail contractors and establish certain safety criteria that must be complied with on rail projects.
Transit Regulations. The FTA regulates certain aspects of rail transit operations and provides significant funding for rail transit construction and operations. On June 9, 1998, the former President signed the Transportation Equity Act for the 21st Century ("TEA 21"), a six-year surface transportation program that represents a significant development in federal funding of rail transit programs. TEA 21, the largest infrastructure funding bill in U.S. history, authorizes funding for transit in the amount of $42 billion through 2003. This authorization is over 50% more than the funding under the 1991 Intermodal Surface Transportation Efficiency Act, whose funding has expired.
State Regulatory Agencies. State regulatory agencies no longer have authority to engage in economic regulation of railroads that are part of the interstate network. State and local governments generally retain jurisdiction over local rail safety matters, such as the installation of grade crossings and grade crossing warning devices.
ENVIRONMENTAL MATTERS
Our operations and properties are subject to environmental laws and regulations relating to pollution and protection of the environment and public and employee health and safety. The principal environmental regulatory requirements applicable to our operations relate to the use of creosote to treat lumber, and the generation, storage, transportation, treatment and disposal of solid and hazardous wastes. We believe that our operations have all required environmental permits and currently are in compliance, in all material respects, with applicable regulatory requirements.
We have had environmental assessments performed for recent acquisitions. Based on these reports and available information, we are not aware of any significant environmental exposures or claims against us. However, the historical and current uses of our facilities may have resulted in spills or releases of various hazardous materials, which now, or in the future, could require remediation or special monitoring. We also may be subject to requirements related to remediation of hazardous materials that have been released into the environment at properties that we own or operate, or owned or operated in the past or at properties to which we send, or may have sent, hazardous materials for treatment or disposal. Such remediation requirements generally are imposed without regard to fault, and liability for any required environmental remediation can be substantial.
EMPLOYEES
As of December 31, 2001, we employed approximately 3,850 employees. Approximately 29% of our employees are members of labor unions and are employed pursuant to collective bargaining agreements. Certain of our operating companies are parties to collective bargaining agreements with the International Brotherhood of Electrical Workers, Laborers' International Union of North America, the International Union of Operating Engineers, United Brotherhood of Carpenters and Joiners of America and the United Brotherhood of Teamsters. Certain of our customers only hire unionized labor. Our largest collective bargaining agreement, covering approximately 430 employees, expires in May 2002. We have not experienced any work stoppages in the past five years.
INFORMATION TECHNOLOGY SYSTEMS
We have installed the basic elements of an integrated information technology system that is being utilized by each of our operating companies for a variety of purposes; including monitoring inventory levels, tracking the progress of construction projects and integrating our financial reporting, general ledger, payables and receivables functions. In addition, we have networked our corporate offices to the offices of our operating companies and are currently working on the upgrade of selected features of the system. We expect upgrading of our information technology systems to be a continuous process.
ITEM 2.
ITEM 2. PROPERTIES
Our corporate offices currently consist of approximately 5,000 square feet of leased space in Baltimore, Maryland. In addition to our corporate offices, we lease or own numerous facilities throughout the United States and Canada. These facilities consist of local offices, storage yards, distribution facilities, warehouses and manufacturing and wood processing plants. We believe our existing facilities are sufficient to meet the existing demand for our services and that our facilities are in good condition.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On September 6, 2001, the Company and the former Chairman of the Board were named as defendants in a class action filed in the United States District Court for the District of Maryland (Baltimore Division), alleging securities fraud claims under the Securities Act of 1934, as amended. The plaintiffs are seeking an undetermined amount of damages. As a result of the bankruptcy filings on September 20, 2001, the District Court has stayed this action as to all defendants and administratively closed the case pending further order of the District Court. The Company believes the suit is without merit and intends to defend itself vigorously if the action is reopened.
On September 20, 2001, the Company and twenty-two of its domestic subsidiaries (collectively, the "Debtors") filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Maryland (Baltimore Division). The Debtors are currently operating as a debtors-in-possession under the supervision of the Bankruptcy Court. The following are certain of the material orders entered by the Bankruptcy Court since the bankruptcy filing by the Debtors:
- On September 21, 2001, the Debtors received approval from the Bankruptcy Court to obtain emergency post-petition financing from debtor-in-possession lenders in amount of up to $10 million.
- On October 23, 2001 the Bankruptcy Court issued its final approval of the debtor-in-possession financing (collectively, as amended, restated or replaced, the "DIP Facility"), described in the "Liquidity and Capital Resources" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations," thereby authorizing the Company to utilize all commitments related to the Transit Revolver, the Bonding Facility, the Bond Support Facility and the TP&S Revolver (as defined below). The DIP Facility matures on September 30, 2002. On February 1, 2002 and March 5, 2002, respectively, the Bankruptcy Court authorized the amendment and restatement of the Transit Revolver and the replacement of the TP&S Revolver, respectively, as described in the "Liquidity and Capital Resources" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations." As of March 15, 2002, approximately $45.0 million was outstanding under the Transit Revolver, consisting of $30.0 million of borrowings and a $15.0 million letter of credit; $21.3 million was outstanding under the TP&S Revolver, consisting of $15.6 million of borrowings and $5.7 million of letters of credit; and we had approximately $10.6 million of collateral outstanding under the Bonding Facility.
- The Bankruptcy Court has also entered orders: (a) authorizing the payment of prepetition employee wages and benefits; (b) authorizing the Company to assume certain construction project contracts that were bonded by Travelers Casualty and Surety Company of America ("Travelers") prior to the Filing Date and to cure certain prepetition obligations of vendors and subcontractors related thereto; and (c) authorizing the Company to make payments to certain critical vendors and subcontractors in respect of prepetition claims upon the creditors' agreement to provide certain trade terms to the Company.
- On March 15, 2002, the Debtors filed a plan of reorganization (the "Plan") in the U.S. Bankruptcy Court for the District of Maryland in Baltimore for itself and twenty-two of its domestic debtor subsidiaries. The Plan contemplates full repayment of claims under the DIP Facility, satisfaction of secured claims held by certain of the Debtors' pre-petition secured lenders through the issuance of a new secured note or their reinstatement, and satisfaction of the balance of claims held by the Debtors' pre-petition secured lenders through the conversion of such claims into substantially all of the equity of the reorganized company. The Plan also provides that holders of the Company's 11 1/2% Senior Subordinated Notes due in 2009 and unsecured creditors, whose prepetition claims were not authorized for payment by the Bankruptcy Court, will receive 3% of the stock of the reorganized company and that the interests of the current equity holders of the Company will be eliminated. Confirmation of the Plan, which remains subject to supplementation, modification and amendment, also remains subject to Bankruptcy Court approval and certain other conditions.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock began trading on the Nasdaq National Market on July 29, 1998, under the symbol of "RWKS". On September 21, 2001, the Nasdaq Listing Qualifications Staff halted trading in our Common Stock due to our filing of voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. Our Common Stock was delisted from the Nasdaq National Market shortly thereafter. Since October 17, 2001, our Common Stock has been trading under the symbol of "RWKSQ.OB" on the OTC Bulletin Board.
The following table sets forth the range of high and low closing prices for the Common Stock on the Nasdaq National Market from January 1, 2000 through September 21, 2001 and on the OTC Bulletin Board from October 17, 2001 through December 31, 2001 for the periods indicated:
As of March 15, 2002, there were 141 holders of record of our Common Stock.
We have not paid dividends on our Common Stock since inception. The payment of dividends in the future, if any, will be determined by the Board of Directors.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data with respect to the Company and is qualified by reference to the Consolidated Financial Statements and Notes thereto included in Part IV hereof.
(1) The selected historical consolidated financial data as of and for the fiscal year ended December 31, 1997 is derived from the financial statements of Comstock Holdings, Inc., and its predecessor, L. K. Comstock & Company, Inc., for the respective period. For accounting and financial statement purposes, Comstock Holdings, Inc. (one of the Founding Companies, as defined below) was identified as the "Accounting Acquirer" consistent with the requirements of SAB No. 97 of the SEC. All other acquisitions have been accounted for as purchases in accordance with APB No. 16.
(2) The selected historical consolidated financial data as of and for the year ended December 31, 1998 are derived from our Consolidated Financial Statements, which are comprised of financial data of: - Comstock Holdings, Inc., the Accounting Acquirer, for the year ended December 31, 1998; - the 14 groups of companies which are engaged principally in the rail system services and products business and which were acquired in August 1998 in separate concurrent transactions (the "Founding Companies"), other than Comstock Holdings, Inc., for the period from August 1, 1998 through December 31, 1998; and - the two companies we acquired in November 1998 (the "1998 Acquired Companies") from each of their respective dates of acquisition through December 31, 1998.
(3) The selected historical consolidated financial data as of and for the year ended December 31, 1999 are derived from our Consolidated Financial Statements, which are comprised of financial data of all companies that we owned as of January 1, 1999 and companies we acquired during 1999 from each of their respective dates of acquisition through December 31, 1999.
(4) The selected historical consolidated financial data as of and for the year ended December 31, 2000 are derived from our Consolidated Financial Statements, which are comprised of financial data of all companies that we owned as of January 1, 2000 and companies we acquired during 2000 from each of their respective dates of acquisition through December 31, 2000.
(5) The selected historical consolidated financial data as of and for the year ended December 31, 2001 are derived from our Consolidated Financial Statements, which are comprised of financial data of all companies that we owned as of January 1, 2001 and companies we disposed of during 2001 from January 1, 2001 through their respective dates of disposal.
(6) During the third and fourth quarters of 2000, the Company's management and Board of Directors conducted and completed a strategic review of RailWorks' operations. The resulting restructuring plan (the "2000 Restructuring Plan") contemplated systems integration, rationalization of real estate, equipment and inventory and maximization of human resource productivity around three lines of business. During the year ended December 31, 2000, the Company incurred $63.3 million in restructuring and other unusual charges in connection with the 2000 Restructuring Plan. During the year ended December 31, 2001, the Company incurred an additional $27.6 million of restructuring and other special charges for the impairment of goodwill and other charges related to obtaining amendments to its prepetition Credit Agreement.
(7) Reorganization items consist primarily of professional and advisory fees incurred that are directly associated with the reorganization proceedings under the Company's Chapter 11 filings and other costs associated with
the rejection of executory and construction contracts, net of interest income earned on accumulated cash resulting from the Chapter 11 proceedings.
(8) Working capital is the sum of cash, accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts, inventories, net deferred taxes and other current assets, less the sum of cash overdrafts, current maturities of long-term debt, accounts payable and accrued liabilities, accrued payroll and related withholdings, billings in excess of costs and estimated earnings on uncompleted contracts and other current liabilities. Working capital as of December 31, 2001 does not reflect a reduction for current liabilities classified as subject to compromise of approximately $455.1 million.
(9) In addition to the DIP facility, total debt as of December 31, 2001 includes approximately $369.2 million of debt that has been classified as liabilities subject to compromise on the balance sheet. This includes approximately $173.1 million of senior subordinated notes, $97.5 million related to the revolving credit facility, a $94.3 million term loan and approximately $4.3 million of fixed asset and other notes payable.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the Notes thereto included in Part IV hereof.
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 in 2000, we 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.
During 2001, we sold FCM Rail, Ltd. and certain assets and liabilities associated with the civil and maintenance divisions of RailWorks W.T. Byler L.P. (the "2001 Dispositions"). Our consolidated balance sheet as of December 31, 2001 includes all companies that we owned as of December 31, 2001. Our consolidated statements of operations and cash flows for the year ended December 31, 2001 include the results of operations and cash flows of all companies owned as of December 31, 2001 and the 2001 Dispositions through their respective dates of disposal. There were no acquisitions during the year ended December 31, 2001. Our consolidated balance sheet as of December 31, 2000 includes all companies that were owned as of December 31, 2000. Our consolidated statements of operations and cash flows for the year ended December 31, 2000 includes 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 2000 Acquired Companies from each of their respective dates of acquisition during the period. Our consolidated statements of operations and cash flows for the year ended December 31, 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 1999 Acquired Companies from each of their respective dates of acquisition during the period.
On September 20, 2001 (the "Filing Date"), RailWorks Corporation and twenty-two of its domestic subsidiaries (collectively, the "Debtors") filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Maryland (Baltimore Division). The filings have been consolidated for the purpose of joint administration as case No. 01-6-4463, but the cases have not been deemed
consolidated for Plan purposes by the Bankruptcy Court. Our Canadian subsidiaries were not included in the filings and continue to operate in the normal course of business outside of bankruptcy. Under Chapter 11, except for certain statutory exceptions and for relief that might otherwise be granted by the Bankruptcy Court, claims against the Debtors in existence prior to the Filing Date (including claims secured by the Debtors' assets) are stayed while the Debtors continue business operations as debtors-in-possession. Additional claims may arise subsequent to the filing date resulting from rejection of executory contracts, including leases and construction contracts, and from the determination by the Bankruptcy Court (or agreed to by the parties in interest) of allowed claims for contingencies and other disputed amounts.
Our ability to continue as a going concern is contingent upon, among other things, confirmation of a plan of reorganization, future profitable operations, the ability to comply with the terms of the DIP facility and the ability to generate sufficient cash flow from operations and financing arrangements to meet ongoing operations. There can be no assurance that we will be able to confirm a plan or comply with the terms of the DIP Facility or the credit facilities under the proposed Plan. As of March 15, 2002, the amount outstanding under the Company's Transit Revolver totaled $45 million, the maximum amount permitted under the facility, of which $30 million relates to outstanding borrowings and $15 million is a letter of credit supporting the Company's commercial insurance. No further borrowing capacity presently exists under the Transit Revolver. The lack of additional availability under the Transit Revolver will require that the transit services segment internally generate the cash necessary to fund its operations and its share of the administrative costs of reorganization, but there is no assurance that it will be able to do so. Failure to do so coupled with a failure to obtain additional funding for the transit services segment could result in the discontinuation of this business segment.
Since the Filing Date, the Bankruptcy Court has approved, on a final basis, the Debtors' debtor-in-possession financing arrangements (collectively, as amended, restated and/or replaced, the "DIP Facility") with Bank of America, N.A. (BOA), for itself and as agent for a syndicate of lenders, CSFB Global Opportunities Advisers, LLC (CSFB), for itself and Stonehill Capital Management, and Travelers Casualty & Surety Company of America ("Travelers"). The DIP Facility includes an Amended and Restated DIP Transit Revolving Credit Agreement (the "Transit Revolver") for up to $30 million in borrowings and a $15 million letter of credit in support of our company wide liability and casualty insurance (see MD&A) in connection with the Debtors' rail transit division; a DIP Transit Bonding Facility (the "Bonding Facility") for up to $100 million in bonding commitment to support our project bonding requirements; a DIP Bond Support Credit Agreement (the "Bond Support Facility") with CSFB for up to $40 million of collateral support for the transit services division's project surety bonds underwritten by Travelers; and a DIP Financing Agreement, as replaced on March 5, 2002 (the "TP&S Revolver") with certain lenders represented by BOA as administrative agent for up to $35 million of financing and letter of credit commitments to support the track services and products and services divisions' operating cash obligations and project bonding requirements. The Debtors intend to utilize the DIP Facility and existing cash flow to fund ongoing operations during the Chapter 11 proceedings. As of March 15, 2002 approximately $45.0 million was outstanding under the Transit Revolver, consisting of $30.0 million of borrowings and a $15 million letter of credit; $21.3 million was outstanding under the TP&S Revolver, consisting of $15.6 in borrowings and $5.7 million of letters of credit outstanding; and we had $10.6 million of collateral outstanding under the Bonding Facility. Refer to the liquidity and capital resources section below for a more complete discussion of the DIP Facility.
On March 15, 2002, the Debtors filed a plan of reorganization in the U.S. Bankruptcy Court for the District of Maryland in Baltimore. The Plan contemplates full repayment of debtor-in-possession or DIP claims, satisfaction of secured claims held by certain of the Company's pre-petition secured lenders through the issuance of a new secured note, and satisfaction of the balance of claims held by the Company's pre-petition secured lenders through the conversion of such claims into substantially all of the equity of the reorganized company. The Plan also provides that holders of the Company's $173.1 million 11 1/2% senior subordinated notes due in 2009 and unsecured creditors that were not authorized by the Bankruptcy Court to be paid as critical vendors will receive 3% of the stock of the reorganized company and that the interests of the current equity holders of the Company will be eliminated. Confirmation of the Plan, which remains subject to supplementation, modification and amendment, also remains subject to Bankruptcy Court approval and certain other conditions.
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial Condition and Results of Operations discusses RailWorks' consolidated financial statements and results of operations by segment, which have been prepared in
accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and assumptions, including those related to contract revenue, anticipated contract costs, bad debts, inventories, intangible assets, income taxes, retirement benefits, and contingencies and litigation. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making assumptions about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are more fully described in Note 3 to our consolidated financial statements included in Part IV hereof; however, management believes the following critical accounting policies affect its more significant estimates and assumptions used in the preparation of its financial statements.
REVENUE RECOGNITION
The recognition of revenues and costs in accordance with the American Institute of Certified Public Accountants Statement of Position 81-1: "Accounting for Performance of Construction-Type and Certain Production Type Contracts" ("SOP 81-1") involves considerable use of estimates and is complicated by the need to evaluate continually the uncertainties inherent in the performance of contracts and by the need to rely on estimates of revenues, costs and the extent of progress toward completion of contracts. Operating in Chapter 11 bankruptcy and certain related problems with subcontractors and customers provides even more risk and uncertainty in the estimates. Changes in these estimates can cause significant volatility in the Company's financial results.
We recognize revenue from fixed price contracts using the percentage-of-completion method in accordance with SOP 81-1, measured by the percentage of costs incurred to date to management's estimate of total cost for each contract. This method is used because management considers total cost to be the best available measure of progress on the contracts. Revenue from time-and-material contracts is recognized currently as the work is performed.
Contract revenue recognition inherently involves estimation. Examples of estimates include the contemplated level of effort to accomplish the tasks under contract, the costs of the effort, and an ongoing assessment of progress toward completing the contract. We utilize a number of management processes to monitor contract performance and revenue estimates, including monthly in-process reviews that cover, among other matters, outstanding action items, progress against schedule, effort and staffing, quality, risks and other issues, subcontractor management, costs, and commitments. From time to time, as part of the normal management processes, facts develop that require revisions to estimated total costs or revenues expected. The cumulative effect of any such revisions is recorded in the period in which the facts requiring revisions become known. The full amount of anticipated losses on any type of contract are recognized in the period in which they become known.
Disputes may arise in the normal course of our business on projects when we are contesting with customers for collection of funds because of events such as delays, changes in contract specifications, and questions of cost allowability or collectibility. Such disputes, whether claims or unapproved change orders in the process of negotiation, are recorded at the lesser of their estimated net realizable value or actual cost incurred, and only when realization is probable and can be reliably estimated (see Note 8).
With regard to the rail products and services segment, we recognize revenue when products are delivered to customers pursuant to shipping agreements. Cost of goods sold includes the raw materials cost, labor and overhead costs of producing the product.
The SEC issued SAB No. 101, "Revenue Recognition in Financial Statements" ("SAB 101") in December 1999. SAB 101 summarizes certain of the SEC staff's views in applying accounting principles generally accepted in the United States to revenue recognition in financial statements. The Company adopted SAB 101, as amended, in the fourth quarter of 2000 and determined there was no material impact on annual revenue and earnings or the timing of revenue and profit recognition between quarters.
In accordance with industry practice, the Company classifies as current all assets and liabilities related to the performance of long-term contracts. The contracting cycle for certain long-term contracts may extend beyond one year and, accordingly, collection or payment of amounts related to these contracts may extend beyond one year.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. Inventory consists of stored materials and parts to be used in long-term construction contracts and raw materials and finished goods produced by the rail products and services segment. RailWorks writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
BANKRUPTCY
The consolidated financial statements of the Company have been presented in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7: "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7") and have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going concern. These principles, except as otherwise disclosed, assume that assets will be realized and liabilities will be discharged in the normal course of business. The uncertainty regarding the eventual outcome of the reorganization cases, the liquidity constraints at the transit services segment, the financial feasibility of the Plan, related problems with subcontractors and customers and the effect of other unknown adverse factors could threaten the Company's existence as a going concern.
SOP 90-7 states, among other things, that revenues, expenses, realized gains and losses, and provisions from losses resulting from the reorganization and the restructuring of the business should be reported separately as reorganization items in the statement of operations. The balance sheet should distinguish between prepetition liabilities that are subject to compromise and those that are not such as fully secured liabilities that are not expected to be compromised. If there is uncertainty about whether a secured claim is undersecured, or will be impaired under the reorganization plan, the entire amount of the claim should be included with liabilities subject to compromise. See Note 5 to the consolidated financial statements for more information on liabilities classified as subject to compromise and amounts recorded as reorganization items.
Pursuant to SOP 90-7, approval of the Plan by the Bankruptcy Court may entail adoption by the Debtors of fresh-start accounting. Under fresh-start accounting, the Debtors must allocate their reorganization value to their assets in accordance with the rules for purchase accounting set forth in Accounting Principles Board Opinion No. 16, "Business Combinations" (APB No. 16). Any excess of reorganization value that cannot be allocated to specific tangible or identified intangible assets must be reported as the intangible asset "reorganization value in excess of amounts allocable to identifiable assets". All liabilities existing at the Plan confirmation date, other than deferred taxes, are required to be stated at present values of amounts to be paid. The Company is currently assessing this matter and has not yet determined the effect that the adoption of fresh start accounting might have on the financial statements.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations," which requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. We believe that the impact of this statement will not have a material effect on our financial statements.
In June 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible Assets," which states that goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair value based test, with any adjustments thereto resulting in a separate charge to earnings in the period in which the impairment took place. It also requires that an acquired intangible asset be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, regardless of the acquirer's intent to do so. This standard becomes effective on January 1, 2002 for goodwill and intangible assets existing as of June 30, 2001 and immediately for goodwill and intangible assets acquired after June 30, 2001. Further, we will be required under SFAS No. 142 to write off and recognize as the effect of a change in accounting principle effective January 1, 2002, any excess of acquired net assets over cost (negative goodwill). As of December 31, 2001, we had negative goodwill of approximately $5.3 million recorded as a liability in the consolidated balance sheet. For the year ended December 31, 2001, we recognized approximately $5.5 million in amortization of goodwill which is included in selling, general and administrative expenses in the statement of operations. We estimate that goodwill amortization in 2002 before any impairment charges would be approximately $5.5 million. We are assessing the effects of this statement and currently believe that this statement will require a material impairment charge related to goodwill on our financial statements during 2002, but we have not determined the amount of the charge.
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The statement is effective for financial statements issued
for fiscal years beginning after June 15, 2002. We believe that the impact of this statement will not have a material effect on our financial statements.
In June 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment for Disposal of Long-Lived Assets." This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. We believe that the impact of this statement will not have a material effect on our financial statements.
RESULTS OF OPERATIONS
Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000.
Revenue. Revenue increased $2.6 million, or 0.4%, from $614.0 million for the year ended December 31, 2000 to $616.6 million for the year ended December 31, 2001. Revenue increased $9.6 million for the year ended December 31, 2001 as a result of the inclusion of revenue from the 2000 Acquisitions for the full year in 2001. Additionally, revenue increased in the transit services segment due to the addition of several new projects during 2001 as discussed below. These increases were offset by a decrease in revenue of approximately $32.6 million related primarily to the 2001 Dispositions and the effects of bankruptcy.
Transit services revenue increased $39.2 million, or 13.2%, from $297.3 million for the year ended December 31, 2000 to $336.5 million for the year ended December 31, 2001. This increase arises primarily from two new power and electrical related contracts that generated approximately $19.0 million of revenue. Additional increases were realized from two existing station track related contracts of approximately $25.0 million, three existing commercial contracts of approximately $28.0 million, and one existing construction contract of approximately $8.0 million. These increases were partially offset by decreased revenues resulting from several projects that were active for the full year of 2000, but were completed during 2001. In addition, these increases were partially offset by decreased revenue during the third and fourth quarter of 2001 as a result of project slowdowns and delays caused by liquidity constraints. Our inability to generate sufficient cash flow had a negative effect on revenue by preventing material shipments, initiating subcontractor stoppages, and adversely affecting management of labor.
Rail track services revenue decreased $21.3 million, or 10.8%, from $198.0 million for the year ended December 31, 2000 to $176.7 million for the year ended December 31, 2001. Revenue in the rail track services segment decreased approximately $27.4 million for the year ended December 31, 2001 as a result of the sale of the civil and maintenance divisions of RailWorks W.T. Byler L.P. in June 2001. The remaining increase in revenue is due to growth in the segment.
Rail products and services revenue decreased $15.3 million, or 12.9%, from $118.7 million for the year ended December 31, 2000 to $103.4 million for the year ended December 31, 2001. Approximately $5.2 million of the decrease in revenue for the year ended December 31, 2001 was due to the sale of FCM Rail, Ltd during February 2001 offset by the addition of approximately $8.3 million of revenue from the inclusion of a full year of revenue in 2001 related to the acquisition of Hovey Industries, Ltd and certain assets of the Western Tar Corporation during 2000. The rail products and services segment experienced additional decreases in revenue as a result of liquidity constraints in 2001 which caused delayed material shipments.
Gross Profit. Gross profit decreased $89.2 million or 78.7% from $113.4 million for the year ended December 31, 2000 to $24.2 million for the year ended December 31, 2001. Gross profit decreased in the transit services segment, the rail products and services segment and the rail track services segment primarily as a result of liquidity constraints and other financial difficulties as a consequence of operating in bankruptcy as well as decreased gross profit from the 2001 Dispositions. The gross profit percentage decreased from 18.5% for the year ended December 31, 2000 to 3.9% for the year ended December 31, 2001. This decrease was due primarily to the financial difficulties mentioned above.
Transit services gross profit decreased $57.2 million from $47.8 million for the year ended December 31, 2000 to a loss of $9.4 million for the year ended December 31, 2001. Of the overall decrease in gross profit, approximately $19.0 million was attributable to changes in management's estimates of cost to complete due to
operational deficiencies in project management, labor productivity, and cost overruns which were primarily caused by the liquidity constraints that the company experienced in 2001. An additional decrease in gross profit of approximately $20.0 million was a result of the establishment of additional reserves based on revised estimates of the recoverability of accounts receivable, pending change orders and the settlement of claims. A general slowdown in revenue recognition, and other consequences of operating in bankruptcy, such as project delays and difficulties managing our subcontractor and vendor relationships led to further deterioration of our gross profit. As a result of the forgoing, the gross profit percentage decreased from 16.1% for the year ended December 31, 2000 to negative 2.8% for the year ended December 31, 2001.
Rail track services gross profit decreased $18.0 million, or 47.6%, from $37.8 million for the year ended December 31, 2000 to $19.8 million for the year ended December 31, 2001. A portion of the decrease in gross profit for the year ended December 31, 2001 is primarily due to the decrease in revenue previously described and liquidity constraints experienced during 2001. The remaining decrease is due to additional reserves established and charges taken in the third and fourth quarter of 2001 for inventory and revised estimates of costs to complete as well as the sale of the civil and maintenance divisions of RailWorks W.T. Byler L.P. during June 2001. The gross profit percentage decreased from 19.1% for the year ended December 31, 2000 to 11.2% for the year ended December 31, 2001. The decrease in gross profit percentage for the rail track services segment was due primarily to liquidity constraints and additional reserves mentioned above.
Rail products and services gross profit decreased $14.0 million, or 50.4%, from $27.8 million for the year ended December 31, 2000 to $13.8 million for the year ended December 31, 2001. The decrease in gross profit for the year ended December 31, 2001 was primarily due to the decrease in revenue previously described and liquidity constraints, which caused delayed material shipments during 2001. Additionally, gross profit decreased by approximately $4.7 million as a result of the sale of FCM Rail, Ltd. during February 2001 offset by additional gross profit from the acquisition of Western Tar Corporation during 2000. The gross profit percentage decreased from 23.4% for the year ended December 31, 2000 to 13.3% for the year ended December 31, 2001. The decrease in gross profit percentage for the rail products and services segment is primarily the result of the decreased gross profit related to liquidity constraints mentioned above.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $5.9 million or 8.2%, from $71.6 million for the year ended December 31, 2000 to $77.5 million for the year ended December 31, 2001. The increase in selling, general and administrative expenses for the year ended December 31, 2001 was primarily due to the growth of the transit services segment, additional insurance costs and certain charges taken for accounts receivable in the track services division as discussed below. Additionally, selling, general and administrative expenses increased as a result of the inclusion of selling, general and administrative expense of the 2000 Acquired Companies for the full year in 2001 offset by decreased selling, general and administrative expense from the 2001 Dispositions. As a percentage of revenue, selling, general and administrative expenses increased from 11.7% for the year ended December 31, 2000 to 12.6% for the year ended December 31, 2001. This increase was the result of increased selling, general and administrative expenses on a relatively flat revenue base.
Transit services selling, general and administrative expenses increased $5.4 million or 24.0%, from $22.5 million for the year ended December 31, 2000 to $27.9 million for the year ended December 31, 2001. Approximately $2.8 million of the increase in selling, general and administrative expenses for the year ended December 31, 2001 was due to the addition of a full year of selling, general and administrative expenses from the two transit services companies acquired during 2000. The remaining increase is the result of the increased insurance costs across the division as well as the overall growth of the segment in 2001. As a percentage of segment revenue, selling, general and administrative expenses increased from 7.6% for the year ended December 31, 2000 to 8.3% for the year ended December 31, 2001 as a result of the items mentioned above.
Rail track services selling, general and administrative expenses increased $0.8 million, or 3.9%, from $20.3 million for the year ended December 31, 2000 to $21.1 million for the year ended December 31, 2001. The increase in selling, general and administrative expenses for the year ended December 31, 2001 was primarily due to additional charges taken in the third and fourth quarters of 2001 for accounts receivable offset by decreased selling, general and administrative expenses resulting from the sale of the civil and maintenance divisions of RailWorks W.T. Byler L.P. in June 2001. As a percentage of segment revenue, selling, general and administrative expenses increased from 10.3% for the year ended December 31, 2000 to 11.9% for the year ended December 31, 2001. This percentage increase was primarily the result of decreased revenue as discussed above.
Rail products and services selling, general and administrative expenses decreased $3.1 million, or 17.9%, from $17.3 million for the year ended December 31, 2000 to $14.2 million for the year ended December 31, 2001. The decrease in selling, general and administrative expenses for the year ended December 31, 2001 was due primarily to the sale of FCM Rail, Ltd. during February 2001, decreased selling, general and administrative expenses resulting from winding down the operations of Neosho Construction, and additional savings related to the development of a centralized hub for our rail services operations. These decreases were partially offset by the addition of a full year of selling, general and administrative expenses from the two rail products and services companies acquired during 2000 and additional charges taken during the year to reserve for bad debts. As a percentage of segment revenue, selling, general and administrative expenses decreased from 14.6% for the year ended December 31, 2000 to 13.7% for the year ended December 31, 2001 as a result of the items mentioned above.
Corporate selling, general and administrative expenses increased $2.8 million, or 24.3%, from $11.5 million for the year ended December 31, 2000 to $14.3 million for the year ended December 31, 2001. The increase in selling, general and administrative expenses for the year ended December 31, 2001 was due primarily to increased insurance expenses and the increased level of professional fees paid during 2001. As a percentage of total revenue, selling, general and administrative expenses increased from 1.9% for the year ended December 31, 2000 to 2.3% for the year ended December 31, 2001. This percentage increase was primarily the result of decreased revenue in the rail track services and rail products and services segments as discussed above.
Operating Loss. Operating loss increased $59.4 million, or 276.3%, from $21.5 million for the year ended December 31, 2000 to $80.9 million for the year ended December 31, 2001. This increase was mostly a result of the items mentioned above as well as additional restructuring and other unusual charges of approximately $27.6 million, which includes approximately $24.4 million for the write off of unamortized goodwill associated with the acquisitions of Neosho Incorporated, Twigg Corporation and Hovey Industries, Ltd.
Interest Expense. Interest expense decreased $5.9 million, or 15.6%, from $37.9 million for the year ended December 31, 2000 to $32.0 million for the year ended December 31, 2001. The decrease in interest expense for the year ended December 31, 2001 was due primarily to the Company discontinuing to accrue approximately $10.3 million of interest expense after the Filing Date related to prepetition debt in accordance with SOP 90-7. This decrease was partially offset by increased interest expense prior to the Filing Date as a result of an increase in our average total debt outstanding prior to the Filing Date.
Reorganization Items. Reorganization items of approximately $10.1 million for the year ended December 31, 2001, consist primarily of professional and advisory fees incurred that are directly associated with the reorganization proceedings under the Company's Chapter 11 filings and other costs associated with the rejection of construction contracts, net of interest income earned on accumulated cash resulting from the Chapter 11 proceedings.
Taxes. The Company has recorded an income tax provision of $4.1 million for year ended December 31, 2001. This provision reflects revised estimates of state and foreign income taxes payable after consideration of the losses incurred in the second quarter as a result of the sale of certain assets of our RailWorks W.T. Byler L.P. subsidiary and the losses incurred during the year associated with cash flow constraints and other consequences of operating in bankruptcy. In addition, due to uncertainty as to the realizability of the Company's deferred tax asset, an additional valuation allowance of approximately $2.8 million against the Company's deferred tax asset was recorded in the current provision during the second quarter of 2001.
Net Loss. Net loss increased $80.7 million, from a loss of $60.0 million for the year ended December 31, 2000 to a loss of $140.7 million for the year ended December 31, 2001, primarily as a result of the items mentioned above, including losses of approximately $14.6 million related to the 2001 Dispositions and an extraordinary gain from the extinguishment of bonds of approximately $0.5 million.
Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999.
Revenue. Revenue increased $145.9 million, or 31.2%, from $468.1 million for the year ended December 31, 1999 to $614.0 million for the year ended December 31, 2000. The increase in revenue for the year ended
December 31, 2000 was due primarily to the 1999 Acquired Companies being included for the full year in 2000, as well as the addition of revenues from the 2000 Acquired Companies.
Transit services revenue increased $52.4 million, or 21.4%, from $244.9 million for the year ended December 31, 1999 to $297.3 million for the year ended December 31, 2000. The increase in revenue for the year ended December 31, 2000 was due primarily to the addition of revenue from the acquisition of Twigg Corporation, which was acquired in December 0f 1999, and the acquisitions of HSQ Technology Corporation and Breaking Technologies, Inc during 2000.
Rail track services revenue increased $57.4 million, or 40.8%, from $140.6 million for the year ended December 31, 1999 to $198.0 million for the year ended December 31, 2000. The increase in revenue for the year ended December 31, 2000 was due primarily to the addition of a full year of revenue from W. T. Byler Company, Inc., which was acquired in October of 1999.
Rail products and services revenue increased $36.1 million, or 43.7%, from $82.6 million for the year ended December 31, 1999 to $118.7 million for the year ended December 31, 2000. The increase in revenue for the year ended December 31, 2000 was due primarily to the addition of revenue from the acquisition of DuraWood LLC and the Pandrol Jackson switch grinding operation, which were acquired in December of 1999, the acquisition of Wood Waste Energy, Inc, which was acquired in August of 1999, as well as the acquisitions of Western Tar Corporation and Hovey Industries, Ltd. during 2000.
Gross Profit. Gross profit increased $14.4 million or 14.5% from $99.0 million for the year ended December 31, 1999 to $113.4 million for the year ended December 31, 2000. The increase in gross profit for the year ended December 31, 2000 was due primarily to gross profit from the 1999 Acquired Companies being included for the full year in 2000 as well as additional gross profit from the 2000 Acquired Companies, offset by the gross profit associated with a 1999 NYCTA project in the transit services segment. This project accounted for $5 million of gross profit in 1999. The gross profit percentage decreased from 21.2% for the year ended December 31, 1999 to 18.5% for the year ended December 31, 2000. This decrease was due primarily to the referenced NYCTA project.
Transit services gross profit increased $6.5 million or 15.7% from $41.3 million for the year ended December 31, 1999 to $47.8 million for the year ended December 31, 2000. The increase in gross profit for the year ended December 31, 2000 was due primarily to the addition of gross profit from the two transit services companies acquired during 2000 offset by the reduction in gross profit for the NYCTA project mentioned above. The gross profit percentage decreased from 16.9% for the year ended December 31, 1999 to 16.1% for the year ended December 31, 2000, due primarily to the NYCTA project mentioned above.
Rail track services gross profit increased $1.6 million, or 4.4%, from $36.2 million for the year ended December 31, 1999 to $37.8 million for the year ended December 31, 2000. The increase in gross profit for the year ended December 31, 2000 was due primarily to the addition of gross profit from W. T. Byler Company, Inc. The gross profit percentage decreased from 25.7% for the year ended December 31, 1999 to 19.1% for the year ended December 31, 2000. This decrease was due to an overall increase in competitive pressures resulting from a general slowing of the Class I Railroad market, as well as adverse weather conditions during the fourth quarter of 2000.
Rail products and services gross profit increased $6.3 million, or 29.3%, from $21.5 million for the year ended December 31, 1999 to $27.8 million for the year ended December 31, 2000. The increase in gross profit for the year ended December 31, 2000 was due primarily to the addition of gross profit from the two rail products and services companies acquired during 2000. The gross profit percentage decreased from 26.0% for the year ended December 31, 1999 to 23.4% for the year ended December 31, 2000. This decrease was the result of the general slowing of 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 $21.2 million or 42.1%, from $50.4 million for the year ended December 31, 1999 to $71.6 million for the year ended December 31, 2000. The increase in selling, general and administrative expenses for the year ended December 31, 2000 was due primarily to the selling, general and administrative expense of the 1999 Acquired Companies being included for the full year in 2000 as well as the addition of the 2000 Acquired Companies. As a percentage of revenue, selling, general and administrative expenses increased from 10.8% for the year ended
December 31, 1999 to 11.7% for the year ended December 31, 2000. This increase was the result of the addition of the higher selling, general and administrative cost structures of the 2000 Acquired Companies.
Transit services selling, general and administrative expenses increased $4.5 million or 25.0%, from $18.0 million for the year ended December 31, 1999 to $22.5 million for the year ended December 31, 2000. The increase in selling, general and administrative expenses for the year ended December 31, 2000 was due primarily to the addition of selling, general and administrative expenses from the two transit services companies acquired during 2000. As a percentage of segment revenue, selling, general and administrative expenses increased from 7.3% for the year ended December 31, 1999 to 7.6% for the year ended December 31, 2000 primarily due to the addition of the higher selling, general and administrative costs structures of the 2000 Acquired Companies.
Rail track services selling, general and administrative expenses increased $7.5 million, or 58.6%, from $12.8 million for the year ended December 31, 1999 to $20.3 million for the year ended December 31, 2000. The increase in selling, general and administrative expenses for the year ended December 31, 2000 was due primarily to the addition of selling, general and administrative expenses from the acquisition of W.T. Byler Company, Inc. coupled with the initial development expenses to create a centralized administration for the geographic regions of the business. As a percentage of segment revenue, selling, general and administrative expenses increased from 9.1% for the year ended December 31, 1999 to 10.3% for the year ended December 31, 2000. This percentage increase was primarily the result of W. T. Byler Company, Inc. having a slightly larger selling, general and administrative cost structure than the existing companies.
Rail products and services selling, general and administrative expenses increased $5.2 million, or 43.0%, from $12.1 million for the year ended December 31, 1999 to $17.3 million for the year ended December 31, 2000. The increase in selling, general and administrative expenses for the year ended December 31, 2000 was due primarily to the addition of selling, general and administrative expenses from the two rail products and services companies acquired during 2000. As a percentage of segment revenue, selling, general and administrative expenses remained constant at 14.6%.
Corporate selling, general and administrative expenses increased $4.0 million, or 53.3%, from $7.5 million for the year ended December 31, 1999 to $11.5 million for the year ended December 31, 2000. The increase in selling, general and administrative expenses for the year ended December 31, 2000 was due primarily to the increased level of overhead to administer the larger operations in 2000. As a percentage of total revenue, selling, general and administrative expenses increased from 1.6% for the year ended December 31, 1999 to 1.9% for the year ended December 31, 2000. The increase in percentage results from the development of a larger overhead structure compared to the prior year in order to manage the anticipated increased size and complexity of the Company's operations.
Operating Income/Loss. Operating income decreased $70.1 million from $48.6 million for the year ended December 31, 2000 to a loss of $21.5 million for the year ended December 31, 2001. This decrease was primarily the result of the items mentioned above as well as the restructuring and other unusual charges of approximately $63.3 million that were recorded during the year. These restructuring and other unusual charges included approximately $2.2 million of charges for employee termination benefits and $.7 million of charges for lease exit costs in accordance with Emerging Issues Task Force No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit".. Also included in restructuring and other unusual charges was approximately $21.2 million of goodwill impairment charges related to the acquisitions of Neosho Incorporated and FCM Rail, Ltd, $28.3 million of charges to reflect the anticipated net realizable value of accounts receivable and costs in excess of billings related to construction claims under revised settlement scenarios, $4.2 million associated with abandoned acquisition and other transaction costs and $6.7 million for the settlement of other non-contract related claims against the company, moving expenses paid, non-recurring compensation expense and costs associated with the amendment of the Company's credit agreement.
Interest Expense. Interest expense increased $17.8 million, or 88.6%, from $20.1 million for the year ended December 31, 1999 to $37.9 million for the year ended December 31, 2000. The increase in interest expense for the year ended December 31, 2000 was due primarily to the increase in average total debt outstanding of $165.0 million for the year ended December 31, 1999 at an effective interest rate of 10.31% to $348.7 million for the year ended December 31, 2000 at an effective interest rate of 10.48%. The increase in the effective rate was the result of
having a full year of high yield debt outstanding in 2000 at an effective rate of 11.9%. General interest rates have also risen during this period, which adversely affects our variable rate debt.
Taxes. Income taxes decreased $8.2 million from a provision of $11.1 million for the year ended December 31, 1999 to a provision of $2.9 million for the year ended December 31, 2000. The decrease in income taxes is primarily related to elimination of a federal income tax provision due to losses generated by the $63.3 million restructuring and other unusual charges mentioned above. The remaining $2.9 million provision reflects a provision for state, local and foreign income taxes.
Net Income. Net income decreased $80.1 million, from a profit of $20.1 million for the year ended December 31, 1999 to a loss of $60.0 million for the year ended December 31, 2000, as a result of the items mentioned above.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
We experience 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 seasonality, 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 and may be particularly pronounced, and net losses have been and may be 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.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital. At December 31, 2001, we had $2.8 million in cash and cash equivalents offset by a cash overdraft of $3.0 million resulting in a negative net cash position of $0.2 million compared to $7.1 million in cash and cash equivalents offset by a cash overdraft of $16.8 million resulting in a negative net cash position of $9.7 million as of December 31, 2000. Net cash used in operating activities for the year ended December 31, 2001 was approximately $39.0 million. Net cash provided by investing activities for the year ended December 31, 2001 was approximately $10.9 million, which consisted primarily of cash proceeds from the sales of a subsidiary and a division offset by cash payments for capital expenditures and earnout obligations. Net cash provided by financing activities for the year ended December 31, 2001 was approximately $24.6 million, which included borrowings of approximately $55.8 million offset by debt and cash overdraft repayments of approximately $26.6 million and loan fees of $4.6 million.
We had working capital of $141.3 million as of December 31, 2001, which does not include liabilities subject to compromise of approximately $455.1 million which otherwise would be recorded as current. These liabilities represent claims in existence prior to the Filing Date, which are generally stayed while the Debtors continue business operations as debtors-in-possession under Chapter 11 of the Bankruptcy Code. Including such liabilities subject to compromise as current liabilities, our working capital deficit as of December 31, 2001 would be $313.8 million. Our working capital as of December 31, 2000 was $120.0 million.
The Debtors have determined that insufficient collateral exists to cover the interest portion of scheduled payments on their prepetition debt obligations, including the obligations under the Credit Agreement and the senior subordinated notes, and therefore have discontinued accruing interest on these obligations. Contractual interest on these obligations amounts to approximately $42.3 million for the year ended December 31, 2001. These amounts exceed the recorded amount of interest expense by approximately $10.3 million due to the cessation of accruing interest on prepetition debt after the Filing Date.
Capital expenditures were $11.0 million, $27.3 million and $15.8 million in fiscal 2001, 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 revenues, are expected to decrease compared to those of the past two fiscal years.
In connection with certain acquisitions, we have agreed to pay additional consideration based on operating results of the acquired entity. The payment of any such contingent consideration could result in an increase in the purchase prices of such acquisitions and, as a result, additional goodwill. Additional consideration recorded as goodwill as of December 31, 2001 relating to 2000 operating performance amounted to approximately $13.8 million as adjusted based on finalized earn-out calculations. Through December 31, 2001, we paid approximately $4.0 million of such additional consideration and $4.6 million was forgiven as partial consideration in the sale of the civil and maintenance divisions of RailWorks W.T. Byler L.P. leaving the balance of $5.2 million of such consideration payable as of December 31, 2001. Additional consideration recorded as goodwill as of December 31, 2001 relating to 2001 operating performance amounted to approximately $4.7 million. As a result of the Chapter 11 filings, all additional consideration payable related to our domestic subsidiaries has been classified as a liability subject to compromise.
Indebtedness. As of December 31, 2001, we had a total of $411.1 million of indebtedness outstanding, which includes approximately $191.8 million outstanding under our Amended and Restated Credit Agreement (the "Credit Agreement"), $173.1 million of 11 1/2% Senior Subordinated Notes (the "Notes"), $36.4 million under the DIP Facility, $5.0 million under our Canadian credit agreement and $4.8 million of fixed asset and other notes payable.
Of the $191.8 million of borrowings outstanding under the Credit Agreement, $94.3 million was borrowed under a term loan payable through 2006 and $97.5 million was borrowed under the revolving credit commitment. In connection with the Credit Agreement, the Company granted to BOA a security interest in essentially all of the assets, including receivables, of the Company.
On February 13, 2001 we entered into a second amendment (the "Second Amendment") to the Credit Agreement pursuant to which we were granted approval to execute the sale for cash of the capital stock of our wholly owned subsidiary, FCM Rail, Ltd. As a result of this sale the revolving credit facility was reduced by $4.9 million and the available revolving credit commitment under the revolving credit facility was reduced by $3.9 million to $96.1 million by the portion of the sale proceeds applicable to the revolving credit commitment. Similarly, the term loan facility was reduced by prepayments totaling $4.5 million, which were applied in inverse order of maturities to the final scheduled principal repayment of the term loan. The Second Amendment also revised two leverage ratios and established a new minimum net worth covenant in order to accommodate the impact on certain financial covenants of the disposition of FCM Rail, Ltd. There was no interest pricing increase nor were any fees payable in connection with obtaining the Second Amendment.
Effective June 18, 2001, we entered into a third amendment to the Credit Agreement (the "Third Amendment") pursuant to which the available revolving credit commitment was increased to $111.0 million through September 30, 2001. In connection with the Third Amendment, we agreed to pay an amendment fee of approximately $0.4 million and to issue to the lenders under the Credit Agreement (the "Lenders") warrants to purchase our common stock in an amount equal to two percent (2.0%) of our fully diluted and outstanding equity as of June 18, 2001 (or 379,359 shares) at an exercise price of $0.01 per share. The warrants have customary anti-dilution protection for stock splits, dividends and distributions. The warrants became exercisable in four equal monthly increments beginning on September 30, 2001 and ending on December 31, 2001, and will expire on July 18, 2011. We agreed to certain demand and piggyback registration rights with respect to the common stock issuable upon exercise of the warrants.
Under the Third Amendment, all amounts outstanding under the Credit Agreement bore interest at a per annum rate one-half percent (0.5%) higher than previously applicable, or 4.0% above the prime rate for the term loan and 3.0% above the prime rate on the revolving credit commitment. We were not allowed to enter into any LIBOR contracts during the term of the Third Amendment period, which expired on September 30, 2001, and were required to continue to have prime rate-based borrowings during such term. Under the Third Amendment the Lenders waived our noncompliance with certain of the financial covenants in the Credit Agreement for the period ended June 30, 2001. Pursuant to the Third Amendment we were required to achieve minimum earnings before interest, taxes, depreciation and amortization (EBITDA) of $15.0 million for the quarter ended June 30, 2001. We failed to achieve such minimum EBITDA for the quarter ended June 30, 2001. In addition, we had exceeded the permitted borrowing base under the Credit Agreement.
As a result of the foregoing, on August 7, 2001, we sought a waiver from our Lenders for our noncompliance with the EBITDA covenant under the Third Amendment, our exceeding the permitted borrowing base under the Credit Agreement and our noncompliance with certain other covenants in the Third Amendment. Our noncompliance with certain of these covenants under the Third Amendment and the Credit Agreement provided the Lenders with the right to accelerate payment of all amounts owed by us under the Credit Agreement and prohibited us from effecting any further borrowings under the revolving credit commitment. On August 13, 2001, the Lenders notified us that they had declined to provide the waivers sought.
On June 18, 2001, we exchanged 140,326 shares of $0.01 par value common stock for $1.0 million of the Notes outstanding. In connection with this transaction, we have recorded an extraordinary gain on the extinguishment of debt of approximately $0.5 million.
As a result of our noncompliance with the Credit Agreement and our inability to generate sufficient working capital to fund operations, on September 20, 2001 we filed a voluntary petition for protection under Chapter 11 of the bankruptcy code. As a result of the Chapter 11 filings, approximately $369.2 million of our total debt outstanding has been classified as liabilities subject to compromise. This includes the $191.8 million of borrowings under the Credit Agreement and $173.1 million of Senior Subordinated Notes outstanding. It does not include the debt of our Canadian subsidiaries or the DIP Facility obtained after the Filing Date, as discussed below. In addition, we have not made interest payments on our obligations under the Credit Agreement since July of 2001 and did not make our semi-annual interest payment due October 15, 2001 under the Notes. As a result, approximately $12.4 million of prepetition accrued interest related to the Credit Agreement and the Notes has been included in liabilities subject to compromise. We have not accrued any interest on our prepetition debt obligations since the Filing Date.
On October 5, 2001 and October 9, 2001 we entered into the DIP Facility that was subsequently amended and partially replaced, which includes: 1) the Transit Revolver with CSFB for up to $30 million (subsequently increased to $45 million, as discussed below) of financing supporting the transit services division's operations; 2) the Bond Support Facility with CSFB for up to $40 million of collateral supporting the transit services division's project surety bonds underwritten by Travelers; 3) the Bonding Facility with Travelers for up to $100 million of surety bond commitment supporting the Debtor's project bonding requirements; and 4) the TP&S Revolver with certain lenders represented by BOA as administrative agent for up to $35 million of financing and letter of credit commitments supporting the track services and products & services divisions' operating cash obligations and project bonding requirements.
Under the Transit Revolver (as amended and restated), we are obligated to pay: 1) an up-front fee of 3.00% of the aggregate commitments; 2) an unused commitment fee of 0.50% per annum on the average daily unused portion of the commitment; and 3) an additional fee of $900,000 (together, with the Additional Fee for the TP&S Revolver referred to below, the "Additional Fees") if we do not have a plan of reorganization acceptable to CSFB, BOA and Travelers confirmed by the Bankruptcy Court by April 30, 2002 and/or consummated by May 15, 2002. Borrowings under the Transit Revolver bear interest at the prime rate plus 3.00%.
Under the Bond Support Facility we are obligated to pay: 1) an up-front fee of 3.00% of the aggregate commitments; 2) an unused commitment fee of 0.50% per annum on the average daily unused portion of the commitment; and 3) a letter of credit fee of 1.50%; and a fronting and negotiation issuer fee of 0.125% per annum, both calculated on the average daily maximum amount to be drawn under the letters of credit from the date of issuance to the date of expiration.
Under the Bonding Facility we are obligated to pay: 1) to Travelers all premiums due for bonds issued within 60 days of issuance; 2) any broker's fees or commissions for all bond issuances; and 3) to Travelers a monthly management fee of $10,000. In connection with the issuance of any bond under the Bonding Facility, and as a necessary condition precedent thereto, we must obtain collateral or letters of credit in an amount of 40% of the penal sum of such bond as security for such bond.
Under the TP&S Revolver, we are obligated to pay: 1) an up-front fee of 3.00% of the aggregated commitment amount; 2) an administrative fee of $125,000; 3) a letter of credit fee of 1.50%; and a fronting and negotiation issuer fee of 0.125% per annum, both calculated on the average daily maximum amount to be drawn under the letters of credit from the date of issuance to the date of expiration; 4) a monthly adequate protection payment of $500,000; and 5) an Additional Fee of $750,000 if we do not have a plan of reorganization acceptable to
CSFB, BOA and Travelers confirmed by the Bankruptcy Court by April 30, 2002 and/or consummated by May 15, 2002. Borrowings under the TP&S Revolver bear interest at the prime rate plus 3.00%.
On October 5, 2001, the Bankruptcy Court approved, on an interim basis, up to $81 million of the DIP Facility, or approximately half of the commitments related to the Transit Revolver, the Bonding Facility, the Bond Support Facility and the TP&S Revolver. On October 23, 2001, the Bankruptcy Court issued its final approval of the DIP Facility, thereby authorizing the Debtors to utilize all commitments related to the Transit Revolver, the Bonding Facility, the Bond Support Facility and the TP&S Revolver. The DIP Facility matures on September 30, 2002.
On February 1, 2002, the Bankruptcy Court authorized the amendment and restatement of the Transit Revolver to, among other things, provide for an increase in the amount of the commitment thereunder from $30 million to $45 million, of which $15 million represents a letter of credit to secure certain of the Company's insurance obligations. In connection with the amendment, the Company is obligated to pay a letter of credit issuance fee equal to $225,000, payable in four equal quarterly installments beginning on March 31, 2002. On March 5, 2002, the Bankruptcy Court authorized the Debtors to replace the TP&S Revolver with a substantially identical revolving facility. In connection with the replacement of the TP&S Revolver, the lenders under both the Transit Revolver and the TP&S Revolver agreed to extend the triggering deadlines for the payment of the Additional Fees referred to above to the dates indicated above. Also, in connection with the replacement of the TP&S Revolver, the minimum EBITDA covenants for 2001 for the rail track services and the rail products and services divisions were eliminated. As of March 15, 2002, approximately $45.0 million was outstanding under the Transit Revolver, consisting of $30.0 million of borrowings and a $15.0 million letter of credit; $21.3 million was outstanding under the TP&S Revolver, consisting of $15.6 million of borrowings and $5.7 million of letters of credit; and we had approximately $10.6 million of collateral outstanding under the Bonding Facility.
Our obligations under the DIP Facility are jointly and severally guaranteed by each of the other Debtors. Generally, pursuant to the DIP Facility agreements, we have granted to the DIP Facility lenders first priority liens and security interests (subject to valid, perfected, enforceable and non-avoidable liens existing as of the Filing Date and other carve-outs and exceptions as fully described in the DIP Facility and the Bankruptcy Court orders related thereto) in all of the Debtors' property. The DIP Facility agreements limit, among other things, our ability to incur additional indebtedness or obligations, to permit additional liens, to make additional acquisitions, to sell or dispose of assets, to create or incur liens on assets, and to merge or consolidate with any other entity. The DIP Facility also limits our ability to file certain "Material Pleadings" in our Chapter 11 case, unless we first obtain the consent of BOA, CSFB and Travelers. Pleadings requiring the consent of BOA, CSFB and Travelers include, among others, a plan of reorganization and disclosure statement, material asset sale motions, and an employee retention plan motion. The DIP Facility contains customary representations, warranties and covenants, including certain financial covenants and DIP Facility usage covenants. The breach of any such provisions, to the extent not cured or waived within applicable grace or cure periods, could result in our inability to obtain further advances under the DIP Facility and the potential exercise of remedies by the lenders under the DIP Facility, which could materially impair our ability to reorganize under Chapter 11 and could force us into a liquidation. In a liquidation, holders of our public and unsecured debt and holders of our equity would likely receive no value for their respective interests. There can be no assurance that the funding provided by the DIP Facilities will be sufficient to satisfy our working capital needs or that we will be able to secure additional financing if needed. As of December 31, 2001, the Company's track services and products and services divisions were not in compliance with the minimum EBITDA covenant established under the original TP&S Revolver. As discussed above, the TP&S Revolver was subsequently replaced with an identical facility that, among other things, cured any defaults existing under the previous facility. We are currently in compliance with the covenants under the DIP Facility.
Contractual Obligations and Commitments. The following table presents projected payments and expirations under our contractual obligations and commercial commitments as of December 31, 2001 (in thousands):
(a) Long-term debt includes approximately $173.1 million of Notes due in 2009, $94.3 million under the term loan portion of the Credit Agreement payable through 2006 and $2.0 million of seller notes due through 2002 related to the purchase of one of our subsidiaries. As a result of the bankruptcy, these obligations have been classified as liabilities subject to compromise in the consolidated balance sheet as of December 31, 2001 and have been included as due in less than one year for purposes of this schedule.
(b) As a result of the bankruptcy, all of our capital lease obligations, with the exception the capital lease obligations of our non-debtor Canadian subsidiaries, have been classified as liabilities subject to compromise in the consolidated balance sheet as of December 31, 2001 and have been included as due in less than one year for purposes of this schedule.
(c) We lease various office buildings, machinery, equipment and vehicles under operating leases expiring at various dates. Most of the real property leases have escalation clauses related to increases in real property taxes. Rent expense for all of our operating leases for the years ended December 31, 2001, 2000, and 1999 was approximately $12.0 million, $7.9 million and $6.5 million, respectively.
(d) Lines of credit include $97.5 million under the revolving credit portion of the Credit Agreement due in 2004, $36.4 million under the DIP facility due in 2002 and $5.0 million under our Canadian credit facility which is payable on demand with no set final maturity. As a result of the bankruptcy, the amount due under the revolving credit portion of the Credit Agreement has been classified as a liability subject to compromise in the consolidated balance sheet as of December 31, 2001 and has been included as due in less than one year for purposes of this schedule.
(e) As of December 31, 2001, we had letters of credit and other collateral outstanding of approximately $0.3 million under our Credit Agreement and approximately $4.0 million under the DIP Facility.
Certain of our subsidiaries lease their operating facilities from former Founding Company owners who remained employees or directors of the Company. Total rent paid to related parties during 2001, 2000 and 1999 amounted to $1.9 million, $1.6 million and $1.1 million, respectively. We believe the rents to be the fair market rental value of the property.
Certain executives of RailWorks have entered into employment agreements with the Company. In general, the employment agreements provide that, in the event of a termination of employment without cause, such employee will be entitled to receive from us an amount in cash equal to the employee's then current annual base salary for the remainder of the term.
The Company's operations are subject to extensive federal, state and local regulations under environmental laws and regulations concerning, among other things, emissions to the air, discharges to waters and the generation, handling, storage, transportation, treatment and disposal of waste, hazardous substances, underground and aboveground storage tanks and soil and groundwater contamination. We are also subject to certain federal, state and local environmental laws and regulations relating to the use of creosote. Creosote is used in certain of our manufacturing processes to treat wood railroad ties so that they can withstand exposure to outside elements. Creosote, a coal tar treated derivative, has been recognized by the environmental regulating agencies as a hazardous material. We believe that we are in compliance with all of the various regulations applicable to our business and we have not been notified of any violations by regulatory agencies.
INFLATION
We do not believe that inflation has had a material effect on our results of operations in recent years. However, there can be no assurance that our business will not be affected by inflation in the future.
RISK FACTORS
This annual report to our stockholders 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 of this report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as in other sections. 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.
Forward-looking statements include, without limitation, our expectations and estimates as to development of our services and products and expansion of our customer base, future financial performance, including growth in revenues and earnings and the effect on new acquisitions on our financial position and results of operations, cash flows from operations, acquisitions, capital expenditures, the availability of funds from credit facilities and the sale of securities. 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. Copies of these filings are available from us free of charge.
Some factors that may cause actual results to differ from projected results are:
Under the Plan of Reorganization, Holders of Common Stock Will Receive No Value and Holders of the Publicly-Traded Debt Will Receive Minimal Value. You are likely lose all or part of your investment in the Company's Common Stock or debt. The Bankruptcy Code requires that all debts be paid in full before stockholders
can receive any recovery in our restructuring. We cannot assure you that our restructuring will ultimately result in any value for our stockholders. In the event of our liquidation, we believe that our equity would have no value. Furthermore, we cannot predict the value of any recovery to the holders of our debt. The holders of our unsecured debt will likely receive substantially less than the holders of our secured debt. All of our assets and the assets of all of our subsidiaries are pledged to secure our debt obligations under various secured debt facilities. Under applicable law, collateral for secured claims must be used first to satisfy secured claims. Our Plan which we filed with the Bankruptcy Court on March 15, 2002, provides that the holders of our public and other unsecured debt will receive 3% of the stock of the reorganized company and that the holders of equity will be eliminated entirely. Confirmation of the Plan, which remains subject to supplementation, modification and amendment, also remains subject to Bankruptcy Court approval and certain other conditions.
Bankruptcy Cases. Our commencement of Chapter 11 cases in the Bankruptcy Court, and other factors such as our recurring losses, raise substantial doubt as to our ability to continue as a going-concern. The financial statements contained herein have been prepared assuming that we will continue as a going-concern with the realization of assets and the settlement of liabilities and commitments in the normal course of business. However, as a result of the bankruptcy cases and circumstances relating to this event, including our leveraged financial structure and losses from operations, such realization of assets and liquidation of liabilities and the ability to complete our contracts and process them in an efficient manner is subject to significant uncertainty. In addition, our relationships with our customers and suppliers may suffer as a result of our bankruptcy. While in Chapter 11, we may sell or otherwise dispose of assets (subject to provisions of the DIP Facility and Bankruptcy Court approval), and liquidate or settle liabilities and claims, for amounts other than those reflected in the financial statements. Further, a plan of reorganization could materially change the amounts reported in the financial statements. Additionally, deadlines have been established for the assertion of pre-Filing Date claims against the Company (commonly referred to as bar dates), including contingent, unliquidated or disputed claims, which claims could result in an increase in liabilities subject to compromise as reported in the financial statements. Our ability to continue as a going-concern is contingent upon, among other things, confirmation of a plan of reorganization, future profitable operations, the ability to comply with the terms of the DIP Facility and the ability to generate sufficient cash flow from operations and financing arrangements to meet ongoing obligations. There can be no assurance that we will be able to confirm a plan or comply with the terms of the DIP Facility. On March 15, as discussed previously, the Company filed a plan of reorganization in the U.S. Bankruptcy Court for the District of Maryland in Baltimore for itself and twenty-two of its domestic debtor subsidiaries. The Plan is subject to confirmation and Bankruptcy Court approval and requires the Debtors to have sufficient funds on hand on the effective date to comply with claim treatments as proposed in the Plan. There can be no assurance that the Company will in fact have such sufficient funds or that the Bankruptcy Court will approve the Plan.
Potential Breach of DIP Financing. The DIP Facility imposes on us operating and financial restrictions. These restrictions significantly limit or prohibit, among other things, our ability to incur additional indebtedness or create liens on our assets, pay dividends, sell assets, engage in mergers or acquisitions, or make investments. The DIP Facility also imposes certain financial covenants as well as reporting requirements and other non-financial covenants. Absent a waiver, failure to comply with any of these restrictions or covenants could result in a default under the DIP Facility. Following a default, the lenders under the DIP Facility may be able to accelerate the indebtedness and exercise certain remedies without further Bankruptcy Court approval. Of the entire $45.0 million which is outstanding under the Transit Revolver, $30.0 million consists of borrowings and $15.0 million consists of a letter of credit; $21.3 million was outstanding under the TP&S Revolver; consisting of $15.6 million of borrowings and $5.7 million of letters of credit; and we had approximately $10.6 million of collateral outstanding under the Bonding Facility. There can be no assurance that the funding provided by the DIP Facility will be sufficient to satisfy our working capital needs or that we will be able to secure additional financing if needed. We may not have the funds to repay the DIP Facility debt upon acceleration, which would significantly impede our ability to remain in Chapter 11 and could force us into a liquidation. In a liquidation, holders of our public and other unsecured debt and holders of our equity would likely receive no value for their respective interests.
Our Access to Capital Markets and Timely Financial Reporting May be Impaired if We Need to Engage a New Independent Public Accounting Firm. On March 14, 2002, RailWorks' independent public accountant, Arthur Andersen, was indicted on federal obstruction of justice charges arising from the government's investigation of Enron. Arthur Andersen has indicated that it intends to contest vigorously the indictment. The SEC has said that it will continue accepting financial statements audited by Arthur Andersen, and interim financial statements reviewed
by it, so long as Arthur Andersen is able to make certain representations to its clients. RailWorks' access to the capital markets and its ability to make timely SEC filings could be impaired if the SEC ceases accepting financial statements audited by Arthur Andersen, if Arthur Andersen becomes unable to make the required representations to RailWorks or if for any other reason Arthur Andersen is unable to perform required audit-related services for RailWorks. In such case, RailWorks would promptly seek to engage a new independent public accounting firm or take such other actions as may be necessary to enable RailWorks to maintain access to the capital markets and to file timely its financial reports. Any such transition between accounting firms could cause us to incur substantial unforeseen costs, could delay our access to capital markets and could impair our ability to make timely SEC filings.
Posting of Bonds. Our transit services group derives a substantial portion of its revenue from contracts entered into through a competitive bid process. Many projects that are competitively bid require us to post a bond to provide the customer with insurance in the event we are unable to complete the project. Prior to the Filing Date, Travelers furnished almost all of the bonding for such projects. In May 2001, Travelers indicated that, if it were to continue furnishing payment and performance bonds in support of our projects, it would be necessary for Travelers and our lenders to enter into an Inter-creditor Agreement by August 1, 2001. No inter-creditor agreement was reached prior to the Filing Date. Under the DIP Facility, Travelers has agreed to provide up to $100 million in postpetition payment and performance bonds in support of the Company's projects. The Company's ability to continue to secure new business will be significantly and adversely affected absent continued bonding from Travelers or another source because a large percentage of our business (particularly in the Transit Systems Group) is dependent upon the ability to furnish such bonds to owners and general contractors.
Illiquidity of Common Stock. A liquid public market for our Common Stock does not exist, which may make it difficult for you to sell our Common Stock. Our Common Stock is traded on the NASD OTC Bulletin Board Market. There may be very limited demand for our Common Stock.
Substantial Leverage. We have a substantial amount of debt outstanding (most of which is subject to compromise), which could adversely affect our financial health. Our substantial amount of debt could have important consequences for you. For example, it could:
- limit our ability to obtain additional financing, if we need it, for working capital, capital expenditures, acquisitions, debt service requirements or other purposes;
- increase our vulnerability to adverse economic and industry conditions;
- require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, future business opportunities or other purposes;
- limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and
- place us at a competitive disadvantage compared to our competitors that have less debt.
Losses. With the exception of the year ended December 31, 1999, we have reported net losses since our inception in August 1998. Even if the reorganized company achieves its projected results, we expect to have net losses until December 31, 2002.
Lack of Combined Operating History. Our company was founded in March 1998 but conducted no operations and generated no revenue until we completed the initial public offering, or IPO, of our common stock in August 1998. We acquired 14 groups of companies concurrently with the completion of our IPO and have acquired an additional 21 operating companies, or groups of companies, since the IPO through December 31, 2001. The integration of our operating companies, while allowing them to retain decentralized operations and management, is important to our operating and growth strategies and the achievement of efficiencies in our combined operations. We may not be able to integrate the operations or the necessary systems and procedures, including accounting and financial reporting systems and project management systems, to effectively manage the combined enterprise. Certain members of our management group have only recently joined our company and there can be no assurance that the management group will be able to implement our operating strategies. We cannot assure you that we will be able to establish, maintain or increase the profitability of the operating companies. Our financial statements include results of operations for certain operating companies when they were not under common control or management. As a result, our financial statements may not be indicative of our future results of operations. Any failure by our management group to implement our strategies, integrate the operating companies without substantial costs, delays
or other operational or financial difficulties, dispose of non-strategic subsidiaries or effectively oversee the combined entity could have a material adverse effect on our business, financial condition and results of operations.
Internal Growth. Our ability to grow will be affected by various factors, including demand for rail system services and products, our success in bidding on new projects, the success of our cross-selling efforts and our ability to develop a national accounts program. Our growth may also depend on increased outsourcing by rail system operators. Many of these factors are beyond our control. Our strategies may not be successful or we may be unable to generate cash flow adequate for combined operations and to support internal growth. The senior managers of the operating companies retain responsibility for day-to-day operations. If proper business controls are not implemented and maintained, this decentralized operating strategy could result in inconsistent operating and financial practices of the operating companies, which could have a material adverse effect on our business, financial condition and results of operations.
Dependence on Certain Customers. We derived approximately 37.8% of our revenue for the year ended December 31, 2001 from our top ten customers. Approximately 17.9% of our 2001 revenue was derived from projects undertaken for the New York City Transit Authority, which we refer to as NYCTA. These projects were undertaken under a number of separate contracts. If the NYCTA were to significantly reduce the amount of business that it does with us or determine not to do business with us in the future, it would have a material adverse effect on our business, financial condition and results of operations. In addition, we rely on timely and regular payments from our customers on ordinary course business terms. The failure of our top ten customers to pay on ordinary course business terms may have a material adverse effect on our business, financial condition and results of operations.
Competition. The rail system services and products industry is highly competitive. Numerous companies provide services to transit authorities, construct and repair rail systems or sell related products or supplies, and some of these companies operate in more than one of these lines of business. Some of our competitors have greater resources than we have, may also provide a broad range of services and products, and may have sufficient bonding capacity and other resources to undertake large projects. Any inability to compete successfully against our existing and future competitors would have a material adverse effect on our business, financial condition and results of operations. Certain of our operating companies also provide electrical contracting services to non-rail industrial and commercial customers. While we believe that we currently compete effectively in the non-rail electrical contracting business, this industry is highly competitive and is served by small, owner-operated private companies, public companies and several large regional companies. Additionally, we could face competition in the future from other competitors entering our markets. The effect of us operating in Chapter 11 could also put us at a significant competitive disadvantage.
Public Sector Contracts and Funding. The rail system services and products business involves contracts that are supported by funding from federal, state and local governmental agencies, as well as contracts with such agencies, which we refer to as public sector contracts. Public sector contracts are subject to detailed regulatory requirements and public policies, as well as funding priorities. These contracts may be conditioned upon the continuing availability of public funds; the availability of public funds depends upon lengthy and complex budgetary procedures. These contracts may also be subject to significant pricing constraints. Moreover, public sector contracts may generally be terminated for reasons beyond the control of the contractor, including when such termination is in the best interests of the governmental agency. We cannot assure you that these factors or others unique to public sector contracts will not have a material adverse effect on our business, financial condition and results of operations.
Fixed Price Contracts. Fixed price contracts are typically awarded in the rail system services industry pursuant to a competitive bidding process. In compiling our bid on a particular project, we must estimate the time it will take to complete the project, along with the project's labor and supply costs. These costs may be affected by a variety of factors, some of which may be beyond our control. If we cannot accurately predict the costs of fixed price contracts, certain projects could have lower margins than anticipated or we could suffer losses on the projects. From time to time we may incur unanticipated additional contract costs for which we seek recovery from customers. Recovery of such amounts involves various uncertainties and may require extended periods of negotiation, litigation or other costs. As a result of these uncertainties, amounts ultimately realized from these contracts may not be known for a significant period following completion of a contract, and lower contract margins or losses may result. Lower margins and losses could have a material adverse effect on our business, financial condition and results of operations.
Reliance on Subcontractors and Suppliers. When we perform a contract for transit signaling and communication systems, it may be as a subcontractor to the company that designs the systems and manufactures or purchases the necessary equipment. In other instances, we act as the prime contractor and subcontract the design of the signal or communication system and necessary equipment. When we are a prime contractor for such projects, we generally require subcontractors to post performance bonds. We may not require a subcontractor to post a performance bond in situations where (1) the subcontractor has strong experience with a specific type of project and demonstrates financial stability and (2) the customer does not require bonds from us as prime contractor. We sometimes depend upon the subcontractor to perform design and other services and provide equipment. For certain projects only a limited number of companies can perform the subcontract if the initial subcontractor defaults. As a result, we depend upon our subcontractors to perform under the subcontracts. Further, the major components of signaling and communication systems for transit authorities are manufactured to specifications and require long lead times for production. If a subcontractor or supplier defaults, or if a supplier refuses or cannot do business with us, it could have a material adverse effect on our business, financial condition and results of operations. While we have obtained authority from the Bankruptcy Court to pay prepetition claims of certain vendors and subcontractors, we have not yet paid a significant portion of such claims. The failure or inability to make these payments likely will have a material adverse effect on the business and our relationships with subcontractors and suppliers.
Unionized Workforce. As of December 31, 2001, approximately 29.0% of our employees were covered under collective bargaining agreements. Approximately 11.0% of our employees were covered under our largest collectively bargaining agreement. We cannot assure you that future work stoppages will not affect us. In addition, labor agreements are generally negotiated on an industry-wide basis and the terms and conditions of future labor agreements could be beyond our control. We may be subject to terms and conditions in future labor agreements that could have a material adverse effect on our business, financial condition and results of operations.
Environmental and Other Government Regulation. Our operations are subject to extensive federal, state and local regulation under environmental laws and regulations. Among other things, these laws and regulations cover emissions to the air, discharges to waters and the generation, handling, storage, transportation, treatment and disposal of waste, underground and aboveground storage tanks and remediation of soil and groundwater contamination. Environmental liability can extend to previously owned or operated properties, leased properties and properties owned by third parties, as well as to properties currently owned and used by us. Environmental liabilities may also arise from claims asserted by adjacent landowners or other third parties in toxic tort litigation. We could incur significant ongoing costs associated with environmental regulatory compliance. Further, we sometimes use hazardous materials in connection with our operations. Although we believe that we materially comply with all of the various environmental regulations applicable to our business, we cannot assure you that requirements will not change in the future or that we will not incur significant costs to comply with such requirements.
In addition to safety, health and other regulations of general applicability, our operations may be significantly affected by regulations of the Surface Transportation Board, the Federal Railroad Administration, the Occupational Safety and Health Administration, state departments of transportation and other state and local regulatory agencies. Changes in regulation of the rail and transit industries through legislative, administrative, judicial or other action could have a material adverse effect on our business, financial condition and results of operations.
Dependence on Key Personnel. Our success depends to a significant extent upon the efforts and abilities of certain key senior managers at Company headquarters and at various of the Company's operations. While we have entered into employment agreements with certain of these senior managers, we cannot be sure that such individuals will remain with us throughout the terms of their agreements, or thereafter. The loss of the services of one or more of these key employees before we are able to attract and retain qualified replacement personnel could have a material adverse effect on our business, financial condition and results of operations.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to market risk associated principally with changes in interest rates. Interest rate exposure has been principally limited to the $228.2 million of long-term debt under our revolving credit facility, term loan agreement and DIP Facility outstanding at December 31, 2001. All of that debt is priced at interest rates that float with the market. A 50 basis point movement in the interest rate on our floating rate debt could result in an approximately $1.1 million 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 December 31, 2001.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of our Company and our subsidiaries, together with the report thereon of Arthur Andersen LLP, dated March 15, 2002 and all Notes to such Consolidated Financial Statements are attached hereto as an exhibit and are hereby incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Election of Directors" in the subsections entitled "What is the Background of This Years Nominees?", "Who are the Directors Continuing in Office Until 2002?" and "Who are the Directors Continuing in Office Until 2003?" in our Proxy Statement for the Annual Meeting of Stockholders to be held in May 2002 is hereby incorporated by reference for information regarding our directors.
The information under the caption "Business Experience of Our Officers" in our Proxy Statement for the Annual Meeting of Stockholders to be held in May 2002 is hereby incorporated herein by reference.
The information under the caption "16(a) Beneficial Ownership Reporting Compliance" in our Proxy Statement for the Annual Meeting of Stockholders to be held in May 2002 is hereby incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information under (1) the caption "Election of Directors" in the subsection entitled "How are Directors Compensated?" and (2) the caption "Executive Compensation" in the subsections entitled "Summary Compensation Table" and "Employment Agreements" in our Proxy Statement for the Annual Meeting of Stockholders to be held in May 2002 is hereby incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain Beneficial Owners" in our Proxy Statement for the Annual Meeting of Stockholders to be held in May 2002 is hereby incorporated herein by reference
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and Related Party Transactions" in our Proxy Statement for the Annual Meeting of Stockholders to be held in May 2002 is hereby incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The following Consolidated Financial Statements of our company and our subsidiaries and the Report of the Independent Auditors, are filed as part of this report:
Consolidated Balance Sheets as of December 31, 2001 and 2000 Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 Report of Independent Public Accountants Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS (In Thousands)
(1) Deductions represent uncollectible balances of accounts receivable written off, net of recoveries.
All other schedules are omitted because they are not applicable or not required.
3. EXHIBITS
The list of exhibits to this Report is set forth on the accompanying Index to Exhibits to this Annual Report and such list is incorporated herein by reference.
(B) REPORTS ON FORM 8-K
A current Report on Form 8-K, which included and reported "Other events" under item 5, was filed on January 22, 2002 and announced the resignation of Edward M. Cumberledge as a Vice President and the Chief Financial Officer of the Company and the election of Eric Schless as the acting Chief Financial Officer of the Company
A current Report on Form 8-K, which included and reported "Other events" under item 5, was filed on March 26, 2002 and announced the Company's filing of a Plan of Reorganization in the United States Bankruptcy Court for the District of Maryland (Baltimore Division) for itself and twenty-two of its domestic debtor subsidiaries.
(C) See Item 14(a)(3) and separate Exhibit Index attached hereto.
(D) See Item 14(a)(2).
SIGNATURES
Pursuant to requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 12, 2002
RAILWORKS CORPORATION
By: /s/ John Kennedy ---------------------------------------- John Kennedy Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
INDEX TO EXHIBITS
* Previously filed; incorporated herein by reference. + Filed herewith