##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

|  |  |                                                                                          
|- |  | -----------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
|  |  |                                                                                          
|  |  | For the quarterly period ended June 30, 2002                                             
|  |  |                                                                                          
|  |  | OR                                                                                       
|  |  |                                                                                          
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
|  |  |                                                                                          
|  |  | For the transition period from  to                                                       

Commission file number 0-24639

RAILWORKS CORPORATION
(Exact name of registrant as specified in its governing instrument)

|                                                                                          |  |                                             
|----------------------------------------------------------------------------------------- |  | --------------------------------------------
|Delaware
(State of
Organization)                                                          |  | 58-2382378
(IRS Employer
Identification No.)
|                                                                                         
|6225 Smith Avenue, Suite 200, Baltimore, Maryland
(Address of principal executive office) |  | 21209
(Zip Code)                            

(Registrants telephone number, including area code) (410) 580-6000

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.   
Yes   x   
No   o

14,383,551 shares of Common Stock were outstanding as of August 1, 2002.





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TABLE OF CONTENTS



|                                     |                                                                                               |  |  |  |  |  |  | 
|------------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I.  FINANCIAL INFORMATION     
|                                     | Item 1. Consolidated Financial Statements                                                    
|                                     | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                     | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|PART II.  OTHER INFORMATION        
|                                     | Item 1. Legal Proceedings                                                                    
|                                     | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                          
|INDEX TO EXHIBITS                   
|DISCLOSURE STATEMENT                
|SECTION 906 CERTIFICATION OF THE CEO
|SECTION 906 CERTIFICATION OF THE CFO



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##### Table of Contents



TABLE OF CONTENTS

|                                |                                                                                               |  |      |    | 
|------------------------------- | --------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                |                                                                                               |  | page
|                                |                                                                                               |  |     
|PART I.  FINANCIAL INFORMATION |                                                                                               |  | 2    |   
|                                | Item 1. Consolidated Financial Statements                                                     |  |      | 2  | 
|                                | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  |      | 28 | 
|                                | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  |      | 49 | 
|PART II.  OTHER INFORMATION    |                                                                                               |  | 50   |   
|                                | Item 1. Legal Proceedings                                                                     |  |      | 50 | 
|                                | Item 6. Exhibits and Reports on Form 8-K                                                      |  |      | 51 | 





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##### Table of Contents






PART I.  FINANCIAL INFORMATION




Item 1. Consolidated Financial Statements

RAILWORKS CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (Unaudited)JUNE 30, 2002 AND DECEMBER 31, 2001

(in thousands, except share and per share data)

|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |       |          |         |         |  
|-------------------------------------- | ----------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------- | -------- | ------- | ------- | ----- | -------- | ------- | ------- | -
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          | 2002    |         | 2001 
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|ASSETS                                 |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|CURRENT ASSETS:                        |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|                                       |                   | Cash and cash equivalents                                                                                                                                |                                                              | $                                           | 1,269    |         |         | $     | 2,830    |        
|                                       |                   | Accounts receivable, net of allowance for doubtful accounts of $14,770 and
$14,170, respectively                                                         |                                                              |                                             | 171,983  |         |         |       | 174,429  |        
|                                       |                   | Costs and estimated earnings in excess of billings on uncompleted contracts                                                                              |                                                              |                                             | 36,083   |         |         |       | 40,693   |        
|                                       |                   | Inventories:                                                                                                                                             |                                                              |                                             |          |         |         |       |          |        
|                                       |                   |                                                                                                                                                          |                                                              | Raw materials                               |          |         | 11,058  |       |          |         | 10,192  |  
|                                       |                   |                                                                                                                                                          |                                                              | Finished goods                              |          |         | 13,735  |       |          |         | 12,578  |  
|                                       |                   | Other current assets                                                                                                                                     |                                                              |                                             | 9,976    |         |         |       | 12,250   |        
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|                                       |                   |                                                                                                                                                          |                                                              | Total current assets                        |          |         | 244,104 |       |          |         | 252,972 |  
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|PROPERTY, PLANT AND EQUIPMENT, NET     |                   |                                                                                                                                                          | 48,800                                                       |                                             |          |         | 50,963  |      
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|OTHER ASSETS:                          |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|                                       |                   |                                                                                                                                                          | Excess of cost over net assets acquired, net of amortization |                                             |          | 205,315 |         |       |          | 204,812 |        
|                                       |                   |                                                                                                                                                          | Other                                                        |                                             |          | 267     |         |       |          | 9,106   |        
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|                                       |                   |                                                                                                                                                          |                                                              | Total other assets                          |          |         | 205,582 |       |          |         | 213,918 |  
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|                                       |                   |                                                                                                                                                          |                                                              | TOTAL                                       |          | $       | 498,486 |       |          | $       | 517,853 |  
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|LIABILITIES AND STOCKHOLDERS DEFICIT  |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|Liabilities Not Subject to Compromise: |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|Current Liabilities:                   |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|                                       |                   | Cash overdraft                                                                                                                                           |                                                              | $                                           | 1,238    |         |         | $     | 2,995    |        
|                                       |                   | Current maturities of long-term debt                                                                                                                     |                                                              |                                             | 55,399   |         |         |       | 41,523   |        
|                                       |                   | Accounts payable                                                                                                                                         |                                                              |                                             | 47,849   |         |         |       | 30,341   |        
|                                       |                   | Accrued payroll and related withholdings                                                                                                                 |                                                              |                                             | 7,690    |         |         |       | 6,650    |        
|                                       |                   | Accrued interest payable                                                                                                                                 |                                                              |                                             | 1,658    |         |         |       | 477      |        
|                                       |                   | Billings in excess of costs and estimated earnings on uncompleted contracts                                                                              |                                                              |                                             | 18,834   |         |         |       | 13,809   |        
|                                       |                   | Other accrued liabilities                                                                                                                                |                                                              |                                             | 19,925   |         |         |       | 15,865   |        
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|                                       |                   |                                                                                                                                                          |                                                              | Total current liabilities                   |          |         | 152,593 |       |          |         | 111,660 |  
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|                                       |                   | Long-term debt, net of current maturities                                                                                                                |                                                              |                                             | 730      |         |         |       | 346      |        
|                                       |                   | Deferred tax liability                                                                                                                                   |                                                              |                                             | 568      |         |         |       | 551      |        
|                                       |                   | Excess of acquired net assets over cost, net of amortization                                                                                             |                                                              |                                             |         |         |         |       | 5,323    |        
|                                       |                   | Other liabilities                                                                                                                                        |                                                              |                                             | 4,026    |         |         |       | 4,978    |        
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|                                       |                   |                                                                                                                                                          |                                                              | Total long-term liabilities                 |          |         | 5,324   |       |          |         | 11,198  |  
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|                                       |                   |                                                                                                                                                          |                                                              | Total liabilities not subject to compromise |          |         | 157,917 |       |          |         | 122,858 |  
|                                       |                   | Liabilities subject to compromise                                                                                                                        |                                                              |                                             | 428,876  |         |         |       | 455,065  |        
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|                                       |                   |                                                                                                                                                          |                                                              | Total liabilities                           |          |         | 586,793 |       |          |         | 577,923 |  
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|                                       | Minority interest |                                                                                                                                                          |                                                              | 1,944                                       |          |         |         | 1,749 |         
|Stockholders Deficit:                 |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|                                       |                   | Series A, convertible preferred stock, $1.00 par value, authorized
10,000,000 shares, 13,700 shares issued and outstanding                               |                                                              |                                             | 14       |         |         |       | 14       |        
|                                       |                   | Common stock, $0.01 par value, authorized 100,000,000 shares, 15,512,585 shares issued and
14,383,551 outstanding at June 30, 2002 and December 31, 2001 |                                                              |                                             | 155      |         |         |       | 155      |        
|                                       |                   | Treasury Stock                                                                                                                                           |                                                              |                                             | (2,667   | )       |         |       | (2,667   | )      
|                                       |                   | Officer Loans, net                                                                                                                                       |                                                              |                                             |         |         |         |       | (1,876   | )      
|                                       |                   | Additional paid-in capital                                                                                                                               |                                                              |                                             | 136,572  |         |         |       | 136,572  |        
|                                       |                   | Accumulated other comprehensive loss                                                                                                                     |                                                              |                                             | (965     | )       |         |       | (1,969   | )      
|                                       |                   | Retained deficit                                                                                                                                         |                                                              |                                             | (223,360 | )       |         |       | (192,048 | )      
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|                                       |                   |                                                                                                                                                          |                                                              | Total stockholders deficit                 |          |         | (90,251 | )     |          |         | (61,819 | )
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      
|                                       |                   |                                                                                                                                                          |                                                              | TOTAL                                       |          | $       | 498,486 |       |          | $       | 517,853 |  
|                                       |                   |                                                                                                                                                          |                                                              |                                             |          |         |         |      

See Notes to Consolidated Financial Statements.





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RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001

(in thousands, except share and per share data)

|                                                                                         |                                     |   |             |        |      |   |            |         |  
|---------------------------------------------------------------------------------------- | ----------------------------------- | - | ----------- | ------ | ---- | - | ---------- | ------- | -
|                                                                                         |                                     |   | (Unaudited)
|                                                                                         |                                     |   | 2002        |        | 2001
|                                                                                         |                                     |   |             |        |     
|Revenue                                                                                  |                                     | $ | 144,157     |        |      | $ | 198,280    |        
|Costs of revenue                                                                         |                                     |   | 125,793     |        |      |   | 191,113    |        
|                                                                                         |                                     |   |             |        |      |   |            |        
|Gross profit                                                                             |                                     |   | 18,364      |        |      |   | 7,167      |        
|Selling, general and administrative expenses                                             |                                     |   | 19,438      |        |      |   | 17,324     |        
|Restructuring and other unusual charges                                                  |                                     |   |            |        |      |   | 650        |        
|                                                                                         |                                     |   |             |        |      |   |            |        
|Operating loss                                                                           |                                     |   | (1,074      | )      |      |   | (10,807    | )      
|                                                                                         |                                     |   |             |        |      |   |            |        
|                                                                                         | Interest expense                    |   |             | (2,377 | )    |   |            | (10,258 | )
|                                                                                         | Interest and other (expense) income |   |             | (219   | )    |   |            | 153     |  
|                                                                                         | Loss on sale of subsidiary          |   |             |       |      |   |            | (13,964 | )
|                                                                                         |                                     |   |             |        |      |   |            |        
|Loss before reorganization items, income taxes, minority interest and
extraordinary item |                                     |   | (3,670      | )      |      |   | (34,876    | )      
|Reorganization items                                                                     |                                     |   | (17,599     | )      |      |   |           |        
|                                                                                         |                                     |   |             |        |      |   |            |        
|Loss before income taxes, minority interest and extraordinary item                       |                                     |   | (21,269     | )      |      |   | (34,876    | )      
|Provision for income taxes                                                               |                                     |   | 473         |        |      |   | 3,244      |        
|                                                                                         |                                     |   |             |        |      |   |            |        
|Loss before minority interest and extraordinary item                                     |                                     |   | (21,742     | )      |      |   | (38,120    | )      
|Minority interest, net of tax                                                            |                                     |   | (161        | )      |      |   | 60         |        
|                                                                                         |                                     |   |             |        |      |   |            |        
|Net loss before extraordinary item                                                       |                                     |   | (21,903     | )      |      |   | (38,060    | )      
|Extraordinary gain on extinguishment of debt, net of tax                                 |                                     |   |            |        |      |   | 537        |        
|                                                                                         |                                     |   |             |        |      |   |            |        
|Net loss                                                                                 |                                     | $ | (21,903     | )      |      | $ | (37,523    | )      
|                                                                                         |                                     |   |             |        |      |   |            |        
|Basic and diluted loss per share before extraordinary item                               |                                     | $ | (1.52       | )      |      | $ | (2.48      | )      
|Basic and diluted earnings per share from extinguishment of debt                         |                                     |   |            |        |      |   | .04        |        
|Basic and diluted loss per share                                                         |                                     | $ | (1.52       | )      |      | $ | (2.44      | )      
|                                                                                         |                                     |   |             |        |      |   |            |        
|Weighted average shares used in computing basic income (loss) per share                  |                                     |   | 14,383,551  |        |      |   | 15,354,450 |        
|                                                                                         |                                     |   |             |        |      |   |            |        
|Weighted average shares used in computing diluted income (loss) per share                |                                     |   | 14,383,551  |        |      |   | 15,354,450 |        
|                                                                                         |                                     |   |             |        |      |   |            |        

See Notes to Consolidated Financial Statements.





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RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(in thousands, except share and per share data)

|                                                                                                                         |                                     |   |             |        |      |   |            |         |  
|------------------------------------------------------------------------------------------------------------------------ | ----------------------------------- | - | ----------- | ------ | ---- | - | ---------- | ------- | -
|                                                                                                                         |                                     |   | (Unaudited)
|                                                                                                                         |                                     |   | 2002        |        | 2001
|                                                                                                                         |                                     |   |             |        |     
|Revenue                                                                                                                  |                                     | $ | 255,435     |        |      | $ | 368,668    |        
|Costs of revenue                                                                                                         |                                     |   | 225,738     |        |      |   | 331,391    |        
|                                                                                                                         |                                     |   |             |        |      |   |            |        
|Gross profit                                                                                                             |                                     |   | 29,697      |        |      |   | 37,277     |        
|Selling, general and administrative expenses                                                                             |                                     |   | 37,200      |        |      |   | 36,078     |        
|Restructuring and other unusual charges                                                                                  |                                     |   |            |        |      |   | 881        |        
|                                                                                                                         |                                     |   |             |        |      |   |            |        
|Operating income (loss)                                                                                                  |                                     |   | (7,503      | )      |      |   | 318        |        
|                                                                                                                         |                                     |   |             |        |      |   |            |        
|                                                                                                                         | Interest expense                    |   |             | (4,827 | )    |   |            | (20,493 | )
|                                                                                                                         | Interest and other (expense) income |   |             | (50    | )    |   |            | 527     |  
|                                                                                                                         | Loss on sale of subsidiary          |   |             |       |      |   |            | (14,576 | )
|                                                                                                                         |                                     |   |             |        |      |   |            |        
|Loss before reorganization items, income taxes, minority interest, extraordinary
item and change in accounting principle |                                     |   | (12,380     | )      |      |   | (34,224    | )      
|Reorganization items                                                                                                     |                                     |   | (23,709     | )      |      |   |           |        
|                                                                                                                         |                                     |   |             |        |      |   |            |        
|Loss before income taxes, minority interest, extraordinary item and
change in accounting principle                       |                                     |   | (36,089     | )      |      |   | (34,224    | )      
|Provision for income taxes                                                                                               |                                     |   | 385         |        |      |   | 3,744      |        
|                                                                                                                         |                                     |   |             |        |      |   |            |        
|Loss before minority interest, extraordinary item and change in accounting principle                                     |                                     |   | (36,474     | )      |      |   | (37,968    | )      
|Minority interest, net of tax                                                                                            |                                     |   | (161        | )      |      |   | 60         |        
|                                                                                                                         |                                     |   |             |        |      |   |            |        
|Net loss before extraordinary item and change in accounting principle                                                    |                                     |   | (36,635     | )      |      |   | (37,908    | )      
|Extraordinary gain on extinguishment of debt, net of tax                                                                 |                                     |   |            |        |      |   | 537        |        
|                                                                                                                         |                                     |   |             |        |      |   |            |        
|Net loss before change in accounting principle                                                                           |                                     |   | (36,635     | )      |      |   | (37,371    | )      
|Effect of change in accounting principle, net of tax                                                                     |                                     |   | 5,323       |        |      |   |           |        
|                                                                                                                         |                                     |   |             |        |      |   |            |        
|Net loss                                                                                                                 |                                     | $ | (31,312     | )      |      | $ | (37,371    | )      
|                                                                                                                         |                                     |   |             |        |      |   |            |        
|Basic and diluted loss per share before extraordinary item
and change in accounting principle                            |                                     | $ | (2.55       | )      |      | $ | (2.47      | )      
|Basic and diluted earnings per share from extinguishments of debt                                                        |                                     |   |            |        |      |   | .04        |        
|Basic and diluted earnings per share from change in accounting principle                                                 |                                     |   | 0.37        |        |      |   |           |        
|                                                                                                                         |                                     |   |             |        |      |   |            |        
|Basic and diluted loss per share                                                                                         |                                     | $ | (2.18       | )      |      | $ | (2.43      | )      
|                                                                                                                         |                                     |   |             |        |      |   |            |        
|Weighted average shares used in computing basic income (loss) per share                                                  |                                     |   | 14,383,551  |        |      |   | 15,362,063 |        
|                                                                                                                         |                                     |   |             |        |      |   |            |        
|Weighted average shares used in computing diluted income (loss) per share                                                |                                     |   | 14,383,551  |        |      |   | 15,362,063 |        
|                                                                                                                         |                                     |   |             |        |      |   |            |        





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RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001

(in thousands) (Unaudited)

|                                                                            |                                                   |                                                                                                     |                                                     |                                                     |        |             |         |        |         |        |        |  
|--------------------------------------------------------------------------- | ------------------------------------------------- | --------------------------------------------------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ------ | ----------- | ------- | ------ | ------- | ------ | ------ | -
|                                                                            |                                                   |                                                                                                     |                                                     |                                                     |        | (Unaudited)
|                                                                            |                                                   |                                                                                                     |                                                     |                                                     |        | 2002        |         | 2001  
|                                                                            |                                                   |                                                                                                     |                                                     |                                                     |        |             |         |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |                                                   |                                                                                                     |                                                     |                                                     |        |             |         |       
|Net loss                                                                    |                                                   | $                                                                                                   | (31,312                                             | )                                                   |        | $           | (37,371 | )     
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                   |                                                                                                     |                                                     |                                                     |        |             |         |       
|                                                                            | Depreciation and amortization                     |                                                                                                     |                                                     | 6,450                                               |        |             |         | 10,523 |        
|                                                                            | Deferred tax valuation allowance                  |                                                                                                     |                                                     |                                                    |        |             |         | 2,964  |        
|                                                                            | Non-cash gain on extinguishment of bonds          |                                                                                                     |                                                     |                                                    |        |             |         | (537   | )      
|                                                                            | Non-cash reorganization items                     |                                                                                                     |                                                     | 8,787                                               |        |             |         |       |        
|                                                                            | Effect of change in accounting principle          |                                                                                                     |                                                     | (5,323                                              | )      |             |         |       |        
|                                                                            | Minority interest                                 |                                                                                                     |                                                     | 161                                                 |        |             |         |       |        
|                                                                            | Bond discount amortization                        |                                                                                                     |                                                     |                                                    |        |             |         | 36     |        
|                                                                            | Loss (gain) on sale of equipment                  |                                                                                                     |                                                     | 271                                                 |        |             |         | (128   | )      
|                                                                            | Loss on sale of subsidiary                        |                                                                                                     |                                                     |                                                    |        |             |         | 14,576 |        
|                                                                            | Other non-cash charges                            |                                                                                                     |                                                     | 1,876                                               |        |             |         | (630   | )      
|                                                                            | Change in operating assets and liabilities:       |                                                                                                     |                                                     |                                                     |        |             |         |        |        
|                                                                            |                                                   | Accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts |                                                     |                                                     | 7,056  |             |         |        | (28,093 | )     
|                                                                            |                                                   | Inventories                                                                                         |                                                     |                                                     | (2,411 | )           |         |        | 872     |       
|                                                                            |                                                   | Other current assets                                                                                |                                                     |                                                     | 2,274  |             |         |        | (1,000  | )     
|                                                                            |                                                   | Accounts payable                                                                                    |                                                     |                                                     | (8,781 | )           |         |        | 29,337  |       
|                                                                            |                                                   | Accrued payroll and related withholdings                                                            |                                                     |                                                     | 1,040  |             |         |        | 3,624   |       
|                                                                            |                                                   | Accrued interest payable                                                                            |                                                     |                                                     | 1,180  |             |         |        | (601    | )     
|                                                                            |                                                   | Billings in excess of costs and estimated earnings on uncompleted contracts                         |                                                     |                                                     | 5,025  |             |         |        | (5,672  | )     
|                                                                            |                                                   | Other accrued liabilities                                                                           |                                                     |                                                     | 4,641  |             |         |        | 2,680   |       
|                                                                            |                                                   | Other assets                                                                                        |                                                     |                                                     | 965    |             |         |        | 827     |       
|                                                                            |                                                   | Other liabilities                                                                                   |                                                     |                                                     | (960   | )           |         |        | (1,198  | )     
|                                                                            |                                                   |                                                                                                     |                                                     |                                                     |        |             |         |       
|                                                                            |                                                   |                                                                                                     |                                                     | Net cash used in operating activities               |        |             | (9,061  | )      |         |        | (9,791 | )
|                                                                            |                                                   |                                                                                                     |                                                     |                                                     |        |             |         |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |                                                   |                                                                                                     |                                                     |                                                     |        |             |         |       
|                                                                            | Proceeds from sale of equipment                   |                                                                                                     |                                                     | 509                                                 |        |             |         | 351    |        
|                                                                            | Purchase of equipment and leasehold improvements  |                                                                                                     |                                                     | (4,469                                              | )      |             |         | (6,378 | )      
|                                                                            | Proceeds from sale of subsidiary                  |                                                                                                     |                                                     |                                                    |        |             |         | 23,126 |        
|                                                                            | Acquisition of subsidiaries, net of cash acquired |                                                                                                     |                                                     |                                                    |        |             |         | (48    | )      
|                                                                            | Distribution from minority interest               |                                                                                                     |                                                     | 34                                                  |        |             |         |       |        
|                                                                            | Contingent earn-out payments                      |                                                                                                     |                                                     | (1,098                                              | )      |             |         | (3,239 | )      
|                                                                            |                                                   |                                                                                                     |                                                     |                                                     |        |             |         |       
|                                                                            |                                                   |                                                                                                     |                                                     | Net cash provided by (used in) investing activities |        |             | (5,024  | )      |         |        | 13,812 |  
|                                                                            |                                                   |                                                                                                     |                                                     |                                                     |        |             |         |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                       |                                                   |                                                                                                     |                                                     |                                                     |        |             |         |       
|                                                                            | Net change in cash overdraft                      |                                                                                                     |                                                     | (1,757                                              | )      |             |         | (7,717 | )      
|                                                                            | Net activity on revolving line of credit          |                                                                                                     |                                                     | (500                                                | )      |             |         | 10,635 |        
|                                                                            | Payment of loan origination fees                  |                                                                                                     |                                                     |                                                    |        |             |         | (171   | )      
|                                                                            | Net change in debtor-in-possession funding        |                                                                                                     |                                                     | 14,355                                              |        |             |         |       |        
|                                                                            | Proceeds from fixed asset borrowings              |                                                                                                     |                                                     | 508                                                 |        |             |         | 284    |        
|                                                                            | Repayments of fixed asset borrowings              |                                                                                                     |                                                     | (416                                                | )      |             |         | (3,877 | )      
|                                                                            | Repayments of term loan                           |                                                                                                     |                                                     |                                                    |        |             |         | (4,972 | )      
|                                                                            | Repayments of sellers notes                       |                                                                                                     |                                                     |                                                    |        |             |         | (3,457 | )      
|                                                                            | Proceeds from exercise of stock options           |                                                                                                     |                                                     |                                                    |        |             |         | 4      |        
|                                                                            |                                                   |                                                                                                     |                                                     |                                                     |        |             |         |       
|                                                                            |                                                   |                                                                                                     | Net cash provided by (used in) financing activities |                                                     |        | 12,190      |         |        |         | (9,271 | )     
|                                                                            |                                                   |                                                                                                     |                                                     |                                                     |        |             |         |       
|EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS                           |                                                   |                                                                                                     | 334                                                 |                                                     |        |             | (327    | )     
|                                                                            |                                                   |                                                                                                     |                                                     |                                                     |        |             |         |       
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                   |                                                   |                                                                                                     | (1,561                                              | )                                                   |        |             | (5,577  | )     
|CASH AND CASH EQUIVALENTS, beginning of period                              |                                                   |                                                                                                     | 2,830                                               |                                                     |        |             | 7,138   |       
|                                                                            |                                                   |                                                                                                     |                                                     |                                                     |        |             |         |       
|CASH AND CASH EQUIVALENTS, end of period                                    |                                                   | $                                                                                                   | 1,269                                               |                                                     |        | $           | 1,561   |       
|                                                                            |                                                   |                                                                                                     |                                                     |                                                     |        |             |         |       

See Notes to Consolidated Financial Statements.





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##### Table of Contents



RAILWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included in the accompanying unaudited
consolidated financial statements. Operating results for the three or six
months ended June 30, 2002 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2002.

On September 20, 2001, RailWorks Corporation and twenty-two of its
domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Maryland (Baltimore Division) (See Note 2). The Companys 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 its debtor-in-possession (DIP) financing
and the ability to generate sufficient cash flow from operations and financing
arrangements to fund ongoing operations. There can be no assurance that the
Company will be able to confirm a plan or comply with the terms of the DIP
Facility. As of August 1, 2002, the amount outstanding under the Companys
Transit Revolver (as defined below) totaled $45.0 million, the maximum amount
permitted under the facility, of which $30.0 million was outstanding borrowings
and $15.0 million was a letter of credit supporting the Companys commercial
insurance. At that date, the amount outstanding under the TP&S Revolver (as
defined below) was $31.7 million, consisting of $21.2 million of outstanding
borrowings and $10.5 million of letters of credit outstanding. We had $11.7
million of collateral outstanding under the Bonding Facility (as defined
below). 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. These financial statements do not include adjustments related to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities or any other adjustments that might result should
the Company be unable to continue as a going concern.

Nature of the Business

RailWorks Corporation (the Company) was formed to become a leading
nationwide provider of rail system services, including construction and
rehabilitation, repair and maintenance, and related products. The Company
provides contracting services and rail related products to a broad range of
customers including Class I railroads, transit authorities and commuter
railroads, municipalities, industrial companies and commercial enterprises.
RailWorks operates principally in the United States and Canada.





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##### Table of Contents



In accordance with Statement of Financial Accounting Standards (SFAS)
No. 131, the Company has three reportable segments: (1) transit services, (2)
rail track services and (3) rail products and services. The transit services
segment provides transit construction and rehabilitation services, general
electrical contracting, power generation facilities contracting, as well as
installation of signaling, communications and electrical systems. The rail
track services segment provides design, engineering, construction,
rehabilitation and repair and maintenance of track systems. The rail products
and services segment provides a broad range of rail related products, including
treated wood ties. The Company evaluates performance based on profit or loss
from operations before income taxes, interest income and expense, and
non-recurring gains and losses.

Chapter 11 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, 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 consolidated statement of operations. The
consolidated balance sheets at June 30, 2002 and December 31, 2001 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 under
secured, or will be impaired under the reorganization plan, the entire amount
of the claim is included with liabilities subject to compromise. See Note 2
for more information on liabilities classified as subject to compromise and
amounts recorded as reorganization items.

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.
Implementation of this statement did not have an effect on the Companys
financial statements.

In June 2001, the Financial Accounting Standards Board approved Statement
of Financial Accounting Standard No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142), which requires companies to cease amortizing
goodwill. SFAS No. 142 also establishes a new method of testing goodwill for
impairment on an annual basis or on an interim basis if an event occurs or
circumstances change that would reduce the fair value of a reporting unit below
its carrying value. The adoption of SFAS No. 142 resulted in the
discontinuation of amortization of goodwill commencing January 1, 2002, which
resulted in the Company not recording approximately $1.3 million and $2.7
million of amortization expense during the three and six months ended June 30,
2002, respectively. Had the Company adopted SFAS No. 142 effective January 1,
2001, the Company would not have recorded approximately $1.7 million and $3.1
million of amortization expense during the three and six months ended June 30,
2001, respectively.





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##### Table of Contents



The following table provides the comparable effects of adoption of SFAS
No. 142 for the three months ended June 30, 2002 and 2001 (in thousands, except
per share data).

|                                                                    |  |             |         |      |  |   |         |  
|------------------------------------------------------------------- |  | ----------- | ------- | ---- |  | - | ------- | -
|                                                                    |  | (Unaudited)
|                                                                    |  | 2002        |         | 2001
|                                                                    |  |             |         |     
|Reported net loss before extraordinary item                         |  | $           | (21,903 | )    |  | $ | (38,060 | )
|Add back: goodwill amortization (net of tax)                        |  |             |        |      |  |   | 1,734   |  
|                                                                    |  |             |         |      |  |   |         |  
|Adjusted net loss before extraordinary item                         |  | $           | (21,903 | )    |  | $ | (36,326 | )
|                                                                    |  |             |         |      |  |   |         |  
|Reported basic and diluted loss per share before extraordinary item |  | $           | (1.52   | )    |  | $ | (2.48   | )
|Add back: goodwill amortization (net of tax)                        |  |             |        |      |  |   | .11     |  
|                                                                    |  |             |         |      |  |   |         |  
|Adjusted basic and diluted loss per share before extraordinary item |  | $           | (1.52   | )    |  | $ | (2.37   | )
|                                                                    |  |             |         |      |  |   |         |  

The following table provides the comparable effects of adoption of SFAS
No. 142 for the six months ended June 30, 2002 and 2001 (in thousands, except
per share data).

|                                                                                                       |  |             |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------ |  | ----------- | ------- | ---- |  | - | ------- | -
|                                                                                                       |  | (Unaudited)
|                                                                                                       |  | 2002        |         | 2001
|                                                                                                       |  |             |         |     
|Reported net loss before extraordinary item and change in accounting principle                         |  | $           | (36,635 | )    |  | $ | (37,908 | )
|Add back: goodwill amortization (net of tax)                                                           |  |             |        |      |  |   | 3,097   |  
|                                                                                                       |  |             |         |      |  |   |         |  
|Adjusted net loss before extraordinary item and change in accounting principle                         |  | $           | (36,635 | )    |  | $ | (34,811 | )
|                                                                                                       |  |             |         |      |  |   |         |  
|Reported basic and diluted loss per share before extraordinary item and
change in accounting principle |  | $           | (2.55   | )    |  | $ | (2.47   | )
|Add back: goodwill amortization (net of tax)                                                           |  |             |        |      |  |   | .20     |  
|                                                                                                       |  |             |         |      |  |   |         |  
|Adjusted basic and diluted loss per share before extraordinary item and
change in accounting principle |  | $           | (2.55   | )    |  | $ | (2.27   | )
|                                                                                                       |  |             |         |      |  |   |         |  

The Company is currently in the process of testing goodwill for impairment
under SFAS No. 142. The first step of the process, which was required to be
completed by June 30, 2002, requires the Company to determine whether the
carrying value of its reporting units exceeds the fair value of those reporting
units. As of June 30, 2002, the Company has identified seven reporting units
with associated goodwill and has determined that the carrying value exceeds the
fair value for each of these reporting
units. The second step of the process requires the Company to determine the measurement of the impairment. The
Company expects to complete such impairment analysis by December 31, 2002.
While the Company has not determined the measurement of the impairment as of
June 30, 2002, it believes that this statement will require a material
impairment charge on the Companys financial statements upon final
implementation. Further, upon emergence from Chapter 11 Bankruptcy, the Company may be required to record an additional charge to write off
the goodwill to the extent that it exceeds excess reorganization value of the
Company upon emergence.

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.
The Company does not believe this statement will have a material impact on its
results of operations.

In August 2001, the FASB issued SFAS No. 144 Accounting for the
Impairment or 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.
Implementation of this statement did not have a material impact on the
Companys financial statements.





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##### Table of Contents



On May 1, 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 143 is effective for the Companys fiscal year
beginning January 1, 2003. The Company is in the process of evaluating what
impact, if any, this standard will have on the Companys financial statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 is effective for
the Companys fiscal year beginning January 1, 2003. The Company is in the
process of evaluating what impact, if any, this standard will have on the
Companys Consolidated Financial Statements.

The Company has
already adopted or will adopt the above accounting pronouncements
upon emergence from bankruptcy.

Officers Loans

The Company has
loans, which are secured by RailWorks common stock, outstanding to
current or former offices of the Company. During the third quarter of
2001, the Company forgave both the principal and interest on certain
of these loans, which were extended to former officers, through
foreclosure of the Company's stock, which was held as collateral.
This stock has been classified as treasury stock in the accompanying
consolidated balance sheets. During the three months ended
June 30, 2002, the Company recorded additional compensation
expense of approximately $1.8 million to establish a reserve for
the entire balance of the remaining officer loans outstanding. This
charge has been included in selling, general and administrative
expenses on the consolidated statements of operations for the three
and six months ended June 30, 2002.

Use of Estimates

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. Actual results could differ from those estimates.

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 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.

Revenue Recognition

The Company recognizes revenues from fixed-fee contracts using the
percentage-of-completion method in accordance with SOP 81-1, measured by the
percentage of cost 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. Revenues from
time-and-material contracts are 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. The Company utilizes 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,





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##### Table of Contents



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 the Companys business on
projects when the Company is 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.

With regard to the rail products and services segment, the Company
recognizes revenue when products are delivered to customers pursuant to
shipping agreements. Cost of goods sold includes the raw materials cost, labor
and overhead costs of producing the product.

The asset, Costs and estimated earnings in excess of billings on
uncompleted contracts, represents revenues recognized in excess of amounts
billed. The liability, Billings in excess of costs and estimated earnings on
uncompleted contracts, represents billings in excess of revenues recognized.
In accordance with 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. The Company 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.

2. PETITION FOR REORGANIZATION UNDER CHAPTER 11

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 Bankruptcy Court). 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 reorganization 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. The
consolidated financial statements of the Company have been presented in
accordance with 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, related problems with subcontractors and customers and the effect of
other unknown adverse factors could threaten the Companys existence as a going
concern.





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##### Table of Contents



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.

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, Matlin
Patterson Global Opportunities Fund L.P. (Matlin Patterson), for itself and
Stonehill Capital Management, and Travelers Casualty & Surety Company of
America (Travelers). Matlin Patterson, a private investment fund formerly
known as CSFB Global Opportunities Advisers, LLC, was spun off by Credit Suisse
First Boston on July 16, 2002. Credit Suisse First Boston no longer has any
affiliation with Matlin Patterson other than as a limited partner. Matlin
Patterson Global Partners LLC is the general partner of Matlin Patterson and
Matlin Patterson Global Advisors LLC is its investment advisor. The DIP
Facility includes an Amended and Restated DIP Transit Revolving Credit
Agreement (the Transit Revolver) for up to $30.0 million in borrowings and a
$15.0 million letter of credit in support of our company-wide liability and
casualty insurance in connection with the Debtors rail transit division; a DIP
Transit Bonding Facility (the Bonding Facility) for up to $100.0 million in
bonding commitment to support our project bonding requirements; a DIP Bond
Support Credit Agreement (the Bond Support Facility) with Matlin Patterson
for up to $40.0 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 $35.0 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
August 1, 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; $31.7 million was outstanding under the TP&S Revolver, consisting of
$21.2 million in borrowings and $10.5 million of letters of credit outstanding;
and we had $11.7 million of collateral outstanding under the Bonding Facility.
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.

Under the Transit Revolver (as amended and restated), the Company is
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 it does not have a plan of reorganization acceptable to Matlin Patterson,
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 the Company is 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.





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Under the Bonding Facility the Company is 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, the
Company 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, the Company is 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 it does not have a plan of reorganization
acceptable to Matlin Patterson, 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%.

The Additional Fees discussed above became due on May 7, 2002. As of the
date of this filing, the Company has not paid the Additional Fees. A liability
for these fees is included in other accrued liabilities on the accompanying
consolidated balance sheet as of June 30, 2002.

Since the Filing Date, the Debtors also have received approval from the
Bankruptcy Court to pay or otherwise honor certain prepetition claims,
including employee wages and benefits, and unsecured claims resulting from
contract assumptions and critical vendor orders. The Debtors intend to remain
in possession of their assets and continue in the management and operation of
their businesses and properties, and to pay postpetition claims of their
various vendors and subcontractors in the ordinary course of business.

The Debtors have determined that insufficient financial resources exist to
cover the interest portion of scheduled payments on their prepetition debt
obligations and therefore in accordance with SOP 90-7 have discontinued
accruing interest on these obligations. Contractual interest on these
obligations, which has not been accrued for, amounts to approximately $9.0
million and $18.0 million for the three and six months ended June 30, 2002,
respectively.

On March 15, 2002, the Debtors filed a plan of reorganization (as the same
has been or may be amended, the Plan) in the U.S. Bankruptcy Court for the
District of Maryland in Baltimore. On June 18, 2002, the Debtors filed a first
amended version of the Plan, and on August 2, 2002, the Debtors filed a second
amended version of the Plan. 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 certain preferred stock, 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
$174.0 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 (if their Plan class votes to accept the Plan) 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.





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Liabilities Subject to Compromise

The principal categories of claims reclassified in the consolidated
balance sheets and included in liabilities subject to compromise at June 30,
2002 and December 31, 2001 are identified below (in thousands). These amounts
may be subject to further adjustments depending on Bankruptcy Court actions,
further developments with respect to disputed claims, whether or not such
claims are secured, and the value of any security interests securing such
claims or other events.

|                                                    |  |               |         |                   |  |   |         | 
|--------------------------------------------------- |  | ------------- | ------- | ----------------- |  | - | ------- | 
|                                                    |  | June 30, 2002 |         | December 31, 2001
|                                                    |  |               |         |                  
|Senior subordinated notes due 2009                  |  | $             | 174,000 |                   |  | $ | 173,073 | 
|Revolving credit agreement due 2004                 |  |               | 97,513  |                   |  |   | 97,513  | 
|Term note due through 2006                          |  |               | 94,278  |                   |  |   | 94,278  | 
|Accounts payable                                    |  |               | 31,959  |                   |  |   | 58,249  | 
|Accrued interest                                    |  |               | 12,400  |                   |  |   | 12,400  | 
|Deferred earnout obligations                        |  |               | 7,672   |                   |  |   | 7,672   | 
|Other accrued liabilities                           |  |               | 3,648   |                   |  |   | 4,166   | 
|Fixed asset and other notes payable                 |  |               | 2,083   |                   |  |   | 2,382   | 
|Other long-term liabilities                         |  |               | 2,140   |                   |  |   | 2,149   | 
|Promissory notes payable in 2002                    |  |               | 1,972   |                   |  |   | 1,972   | 
|Warrants payable                                    |  |               | 1,211   |                   |  |   | 1,211   | 
|                                                    |  |               |         |                   |  |   |         | 
|Total prepetition liabilities subject to compromise |  | $             | 428,876 |                   |  | $ | 455,065 | 
|                                                    |  |               |         |                   |  |   |         | 

Under the Bankruptcy Code, the Debtors may elect to assume or reject real
estate leases, employment contracts, personal property leases, service
contracts, construction contracts and other unexpired executory prepetition
contracts, subject to Bankruptcy Court approval. As of June 30, 2002 the
Debtors have rejected certain construction and executory contracts with
approval from the Bankruptcy Court. The Debtors cannot presently determine
with certainty the ultimate aggregate liability that will result from the
filing of claims relating to such contracts that have been rejected or may be
rejected in the future.

Reorganization Expenses

The Company has incurred reorganization related charges of approximately
$17.6 million and $23.7 million for the three and six months ended June 30,
2002, respectively, which, in accordance with SOP 90-7, have been reflected in
the reorganization items line of the consolidated statements of operations.
Reorganization costs for the three months ended June 30, 2002 consist of
approximately $6.8 million of professional and advisory fees incurred that are
directly associated with the reorganization proceedings under the Companys
Chapter 11 filings, $1.5 million of adequate protection fees paid to the
Companys prepetition secured lenders and $9.3 million related to the write off
of deferred financing costs and issuance discounts related to the Companys
prepetition debt.

3. EARNINGS PER SHARE

The Company reports its earnings (loss) per share in basic and diluted
earnings per share. Basic earnings per share (EPS) is calculated using the
weighted average number of shares outstanding during the period. Diluted
earnings per share (Diluted EPS) includes the potentially dilutive effect of
contingently issuable shares and the dilutive effect, if any, which would occur
if outstanding options and warrants to purchase common stock were exercised.
Approximately 1.4 million of contingently issuable common shares were
outstanding during both the three and six months ended June 30, 2002 and 2001
but were not included in the computation of Diluted EPS as the effect would be
anti-dilutive. Certain options to purchase shares of common stock were
outstanding during both the three and six months ended June 30, 2002 and 2001
but were not included in the computation of Diluted EPS because the
options exercise price was greater than the average market price of the common
shares.





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4. RESTRUCTURING AND OTHER UNUSUAL CHARGES

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. The Company reduced its headcount, consolidated certain facilities
and identified other synergies and cost reduction opportunities as a result of
the 2000 Restructuring Plan.

As of December 31, 2001, approximately $0.6 million remained as accrued
restructuring costs for employee termination benefits under the 2000
Restructuring Plan. There has been no activity in this accrual during the six
months ended June 30, 2002.

5. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

The following table presents supplemental cash flow information for the
six months ended June 30, 2002 and 2001, respectively (in thousands):

|                                                  |  |             |       |      |  |   |        | 
|------------------------------------------------- |  | ----------- | ----- | ---- |  | - | ------ | 
|                                                  |  | (Unaudited)
|                                                  |  | 2002        |       | 2001
|                                                  |  |             |       |     
|Cash paid during the period for interest          |  | $           | 794   |      |  | $ | 12,970 | 
|Cash paid during the period for income taxes      |  |             | 387   |      |  |   | 4,319  | 
|Reorganization items paid, net of interest earned |  |             | 7,801 |      |  |   |       | 

6. LONG-TERM DEBT

Due to the Companys failure to comply with certain financial covenants
and the commencement of the Chapter 11 cases, the Company is in default on
substantially all of its prepetition debt obligations except those held by the
Canadian subsidiaries. Except as otherwise may be determined by the Bankruptcy
Court, and subject to any statutory exceptions, the automatic stay afforded by
the Chapter 11 filings prevents any action from being taken with regard to any
of the defaults under the Companys prepetition debt obligations. These
prepetition debt obligations related to the Company and its domestic
subsidiaries are classified as liabilities subject to compromise at June 30,
2002 and December 31, 2001. See Note 2 for additional information on these
prepetition debt obligations.

Long-term debt consisted of the following at June 30, 2002 and December
31, 2001 (in thousands):

|                                    |  |             |        |      |  |   |        | 
|----------------------------------- |  | ----------- | ------ | ---- |  | - | ------ | 
|                                    |  | (Unaudited) |        |      |  |  
|                                    |  | 2002        |        | 2001
|                                    |  |             |        |     
|Debtor-in-possession financing      |  | $           | 50,755 |      |  | $ | 36,400 | 
|Canadian credit facility            |  |             | 4,500  |      |  |   | 5,000  | 
|Fixed asset and other notes payable |  |             | 873    |      |  |   | 469    | 
|                                    |  |             |        |      |  |   |        | 
|                                    |  |             | 56,128 |      |  |   | 41,869 | 
|Less current portion                |  |             | 55,398 |      |  |   | 41,523 | 
|                                    |  |             |        |      |  |   |        | 
|                                    |  | $           | 730    |      |  | $ | 346    | 
|                                    |  |             |        |      |  |   |        | 





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7. CAPITAL STOCK AND STOCK INCENTIVE PLAN

The Stock Incentive Plan reserves for issuance 2,000,000 shares of common
stock of the Company. In general, the terms of the option awards (including
vesting schedules) will be established by the Compensation Committee of the
Companys Board of Directors. During the second quarter of 2002, there were no
options issued under the Stock Incentive Plan.

8. COMPREHENSIVE LOSS

The following table summarizes the components of comprehensive loss for
the three months ended June 30, 2002 and 2001 (in thousands):

|                                         |  |             |         |      |  |   |         |  
|---------------------------------------- |  | ----------- | ------- | ---- |  | - | ------- | -
|                                         |  | (Unaudited)
|                                         |  | 2002        |         | 2001
|                                         |  |             |         |     
|TOTAL COMPREHENSIVE LOSS:                |  |             |         |      |  |   |         |  
|Net loss                                 |  | $           | (21,903 | )    |  | $ | (37,523 | )
|Foreign currency translation gain (loss) |  |             | 1,192   |      |  |   | 324     |  
|                                         |  |             |         |      |  |   |         |  
|Total comprehensive loss                 |  | $           | (20,711 | )    |  | $ | (37,199 | )
|                                         |  |             |         |      |  |   |         |  

The following table summarizes the components of comprehensive loss for
the six months ended June 30, 2002 and 2001 (in thousands):

|                                         |  |             |         |      |  |   |         |  
|---------------------------------------- |  | ----------- | ------- | ---- |  | - | ------- | -
|                                         |  | (Unaudited)
|                                         |  | 2002        |         | 2001
|                                         |  |             |         |     
|TOTAL COMPREHENSIVE LOSS:                |  |             |         |      |  |   |         |  
|Net loss                                 |  | $           | (31,312 | )    |  | $ | (37,371 | )
|Foreign currency translation gain (loss) |  |             | 1,004   |      |  |   | (597    | )
|                                         |  |             |         |      |  |   |         |  
|Total comprehensive loss                 |  | $           | (30,308 | )    |  | $ | (37,968 | )
|                                         |  |             |         |      |  |   |         |  

9. SEGMENT REPORTING

The following table presents certain financial data as of and for the
three months ended June 30, 2002 by reportable segment (in thousands)
(Unaudited):

|                                                                            |  |          |         |               |  |          |         |           |  |       |         |  |  |  |        |   |  |  |         |  
|--------------------------------------------------------------------------- |  | -------- | ------- | ------------- |  | -------- | ------- | --------- |  | ----- | ------- |  |  |  | ------ | - |  |  | ------- | -
|                                                                            |  |          |         |               |  |          |         |           |  | RAIL  |         |  |  |  |        |   |  | 
|                                                                            |  | TRANSIT  |         | RAIL PRODUCTS |  | TRACK    |         | OTHER/    |  |       |         | 
|                                                                            |  | SERVICES |         | AND SERVICES  |  | SERVICES |         | CORPORATE |  | TOTAL
|                                                                            |  |          |         |               |  |          |         |           |  |      
|Total revenues for reportable segments                                      |  |          | 79,920  |               |  |          | 25,430  |           |  |       | 40,776  |  |  |  |       |   |  |  | 146,126 |  
|Inter-segmental revenue                                                     |  |          |        |               |  |          | 1,573   |           |  |       | 396     |  |  |  |       |   |  |  | 1,969   |  
|Depreciation/amortization                                                   |  |          | 388     |               |  |          | 1,068   |           |  |       | 1,596   |  |  |  | 120    |   |  |  | 3,172   |  
|Segment operating profit (loss)                                             |  |          | 357     |               |  |          | 1,154   |           |  |       | 2,164   |  |  |  | (4,749 | ) |  |  | (1,074  | )
|Costs and estimated earnings in
excess of
billings on uncompleted contracts |  |          | 29,166  |               |  |          | 307     |           |  |       | 6,610   |  |  |  |       |   |  |  | 36,083  |  
|Segment assets                                                              |  |          | 223,157 |               |  |          | 133,100 |           |  |       | 171,665 |  |  |  | 31,736 |   |  |  | 559,658 |  

The Companys reconciliation of segment totals to enterprise values is as
follows (in thousands):

|          |                                          |  |  |         |  
|--------- | ---------------------------------------- |  |  | ------- | -
|REVENUES: |                                          |  |  |        
|          | Total revenues for reportable segments   |  |  | 146,126 |  
|          | Elimination of inter-segment revenues    |  |  | (1,969  | )
|          |                                          |  |  |        
|          | Consolidated revenues                    |  |  | 144,157 |  
|          |                                          |  |  |        
|ASSETS:   |                                          |  |  |        
|          | Total assets for reportable segments     |  |  | 559,658 |  
|          | Elimination of inter-segment receivables |  |  | (61,172 | )
|          |                                          |  |  |        
|          | Consolidated assets                      |  |  | 498,486 |  
|          |                                          |  |  |        





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The Companys Canadian operations produced revenues for the three month
period ended June 30, 2002 of approximately $9.4 million. The net book value of
long-lived assets relating to the Canadian operations amounted to approximately
$24.6 million as of June 30, 2002.

The following table presents certain financial data as of and for the
three months ended June 30, 2001 by reportable segment (in thousands)
(Unaudited):

|                                                                            |  |          |         |               |  |          |         |           |  |       |         |  |  |   |        |   |  |   |         |  
|--------------------------------------------------------------------------- |  | -------- | ------- | ------------- |  | -------- | ------- | --------- |  | ----- | ------- |  |  | - | ------ | - |  | - | ------- | -
|                                                                            |  |          |         |               |  |          |         |           |  | RAIL  |         |  |  |   |        |   |  |  
|                                                                            |  | TRANSIT  |         | RAIL PRODUCTS |  | TRACK    |         | OTHER/    |  |       |         | 
|                                                                            |  | SERVICES |         | AND SERVICES  |  | SERVICES |         | CORPORATE |  | TOTAL
|                                                                            |  |          |         |               |  |          |         |           |  |      
|Total revenues for reportable segments                                      |  | $        | 112,868 |               |  | $        | 31,513  |           |  | $     | 55,956  |  |  | $ |       |   |  | $ | 200,337 |  
|Inter-segmental revenue                                                     |  |          |        |               |  |          | 1,622   |           |  |       | 435     |  |  |   |       |   |  |   | 2,057   |  
|Depreciation/amortization                                                   |  |          | 1,197   |               |  |          | 1,086   |           |  |       | 2,645   |  |  |   | 351    |   |  |   | 5,279   |  
|Segment operating profit (loss)                                             |  |          | (14,784 | )             |  |          | 2,079   |           |  |       | 4,139   |  |  |   | (2,241 | ) |  |   | (10,807 | )
|Costs and estimated earnings in
excess of
Billings on uncompleted contracts |  |          | 46,260  |               |  |          | 437     |           |  |       | 8,398   |  |  |   |       |   |  |   | 55,095  |  
|Segment assets                                                              |  |          | 280,841 |               |  |          | 131,265 |           |  |       | 177,075 |  |  |   | 25,523 |   |  |   | 614,704 |  

The segment data presented above as of and for the three months ended June
30, 2001 has been restated to reflect changes in the organization of the
Companys segment structure.

The Companys reconciliation of segment totals to enterprise values is as
follows (in thousands):

|          |                                          |  |   |         |  
|--------- | ---------------------------------------- |  | - | ------- | -
|REVENUES: |                                          |  |   |        
|          | Total revenues for reportable segments   |  | $ | 200,337 |  
|          | Elimination of inter-segment revenues    |  |   | (2,057  | )
|          |                                          |  |   |        
|          | Consolidated revenues                    |  | $ | 198,280 |  
|          |                                          |  |   |        
|ASSETS:   |                                          |  |   |        
|          | Total assets for reportable segments     |  | $ | 614,704 |  
|          | Elimination of inter-segment receivables |  |   | (45,046 | )
|          |                                          |  |   |        
|          | Consolidated assets                      |  | $ | 569,658 |  
|          |                                          |  |   |        

The Companys Canadian operations produced revenues for the three month
period ended June 30, 2001 of $10.1 million. The net book value of long-lived
assets relating to the Canadian operations amounted to $26.9 million as of June
30, 2001.

The following table presents certain financial data as of and for the six
months ended June 30, 2002 by reportable segment (in thousands) (Unaudited):

|                                                                            |  |          |         |               |  |          |         |           |  |       |         |   |  |  |        |   |  |  |         |  
|--------------------------------------------------------------------------- |  | -------- | ------- | ------------- |  | -------- | ------- | --------- |  | ----- | ------- | - |  |  | ------ | - |  |  | ------- | -
|                                                                            |  |          |         |               |  |          |         |           |  | RAIL  |         |   |  |  |        |   |  | 
|                                                                            |  | TRANSIT  |         | RAIL PRODUCTS |  | TRACK    |         | OTHER/    |  |       |         |  
|                                                                            |  | SERVICES |         | AND SERVICES  |  | SERVICES |         | CORPORATE |  | TOTAL
|                                                                            |  |          |         |               |  |          |         |           |  |      
|Total revenues for reportable segments                                      |  |          | 146,920 |               |  |          | 43,461  |           |  |       | 68,214  |   |  |  |       |   |  |  | 258,595 |  
|Inter-segmental revenue                                                     |  |          |        |               |  |          | 2,576   |           |  |       | 584     |   |  |  |       |   |  |  | 3,160   |  
|Depreciation/amortization                                                   |  |          | 904     |               |  |          | 2,067   |           |  |       | 3,144   |   |  |  | 335    |   |  |  | 6,450   |  
|Segment operating profit (loss)                                             |  |          | 1,002   |               |  |          | 588     |           |  |       | (1,445  | ) |  |  | (7,648 | ) |  |  | (7,503  | )
|Costs and estimated earnings in
excess of
billings on uncompleted contracts |  |          | 29,166  |               |  |          | 307     |           |  |       | 6,610   |   |  |  |       |   |  |  | 36,083  |  
|Segment assets                                                              |  |          | 223,157 |               |  |          | 133,100 |           |  |       | 171,665 |   |  |  | 31,736 |   |  |  | 559,658 |  





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##### Table of Contents



The Companys reconciliation of segment totals to enterprise values is as
follows (in thousands):

|          |                                          |  |  |         |  
|--------- | ---------------------------------------- |  |  | ------- | -
|REVENUES: |                                          |  |  |        
|          | Total revenues for reportable segments   |  |  | 258,595 |  
|          | Elimination of inter-segment revenues    |  |  | (3,160  | )
|          |                                          |  |  |        
|          | Consolidated revenues                    |  |  | 255,435 |  
|          |                                          |  |  |        
|ASSETS:   |                                          |  |  |        
|          | Total assets for reportable segments     |  |  | 559,658 |  
|          | Elimination of inter-segment receivables |  |  | (61,172 | )
|          |                                          |  |  |        
|          | Consolidated assets                      |  |  | 498,486 |  
|          |                                          |  |  |        

The Companys Canadian operations produced revenues for the six month
period ended June 30, 2002 of approximately $14.6 million. The net book value
of long-lived assets relating to the Canadian operations amounted to
approximately $24.6 million as of June 30, 2002.

The following table presents certain financial data as of and for the six
months ended June 30, 2001 by reportable segment (in thousands) (Unaudited):

|                                                                            |  |          |         |               |  |          |         |           |  |       |         |  |  |   |        |   |  |   |         | 
|--------------------------------------------------------------------------- |  | -------- | ------- | ------------- |  | -------- | ------- | --------- |  | ----- | ------- |  |  | - | ------ | - |  | - | ------- | 
|                                                                            |  |          |         |               |  |          |         |           |  | RAIL  |         |  |  |   |        |   |  |  
|                                                                            |  | TRANSIT  |         | RAIL PRODUCTS |  | TRACK    |         | OTHER/    |  |       |         | 
|                                                                            |  | SERVICES |         | AND SERVICES  |  | SERVICES |         | CORPORATE |  | TOTAL
|                                                                            |  |          |         |               |  |          |         |           |  |      
|Total revenues for reportable segments                                      |  | $        | 216,118 |               |  | $        | 57,239  |           |  | $     | 99,937  |  |  | $ |       |   |  | $ | 373,294 | 
|Inter-segmental revenue                                                     |  |          |        |               |  |          | 3,151   |           |  |       | 1,475   |  |  |   |       |   |  |   | 4,626   | 
|Depreciation/amortization                                                   |  |          | 2,022   |               |  |          | 2,376   |           |  |       | 5,427   |  |  |   | 698    |   |  |   | 10,523  | 
|Segment operating profit (loss)                                             |  |          | (3,509  | )             |  |          | 3,951   |           |  |       | 5,022   |  |  |   | (5,146 | ) |  |   | 318     | 
|Costs and estimated earnings in
excess of
Billings on uncompleted contracts |  |          | 46,260  |               |  |          | 437     |           |  |       | 8,398   |  |  |   |       |   |  |   | 55,095  | 
|Segment assets                                                              |  |          | 280,841 |               |  |          | 131,265 |           |  |       | 177,075 |  |  |   | 25,523 |   |  |   | 614,704 | 

The segment data presented above as of and for the six months ended June
30, 2001 has been restated to reflect changes in the organization of the
Companys segment structure.

The Companys reconciliation of segment totals to enterprise values is as
follows (in thousands):

|          |                                          |  |   |         |  
|--------- | ---------------------------------------- |  | - | ------- | -
|REVENUES: |                                          |  |   |        
|          | Total revenues for reportable segments   |  | $ | 373,294 |  
|          | Elimination of inter-segment revenues    |  |   | (4,626  | )
|          |                                          |  |   |        
|          | Consolidated revenues                    |  | $ | 368,668 |  
|          |                                          |  |   |        
|ASSETS:   |                                          |  |   |        
|          | Total assets for reportable segments     |  | $ | 614,704 |  
|          | Elimination of inter-segment receivables |  |   | (45,046 | )
|          |                                          |  |   |        
|          | Consolidated assets                      |  | $ | 569,658 |  
|          |                                          |  |   |        

The Companys Canadian operations produced revenues for the six month
period ended June 30, 2001 of $16.3 million. The net book value of long-lived
assets relating to the Canadian operations amounted to $26.9 million as of June
30, 2001.





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10. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES

The Company conducts a significant portion of its business through its
subsidiaries. All of the Companys domestic subsidiaries (the Subsidiary
Guarantors) have fully and unconditionally guaranteed the Companys 11.5%
Senior Subordinated Notes (the Notes). The Companys non-U.S. subsidiaries
(the Non-Guarantor Subsidiaries) have not guaranteed the Notes. The Notes are
effectively subordinated in right of payment to all indebtedness and other
liabilities (including trade payables) of the Non-Guarantor Subsidiaries.

Set forth below are condensed consolidating financial statements for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries as of
June 30, 2002 and for the three and six month periods ended June 30, 2002 and
2001. The equity method of accounting has been used by the Company to report
its investments in subsidiaries. Separate financial statements for the
Subsidiary Guarantors are not presented based on managements determination
that they do not provide additional information that is material to investors.

In accordance with SOP 90-7, the Company is required to report combined
financial statements of the Debtors. The parent company and Subsidiary
Guarantors included in the condensed consolidating financial statements set
forth below represent the Debtors. The Non-Guarantor Subsidiaries (which are
the Canadian subsidiaries) were not included in the filings with the Bankruptcy
Court and are therefore not Debtors under the provisions of Chapter 11 of the
Bankruptcy Code.





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RAILWORKS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2002

(In Thousands) (Unaudited)

|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |         |         |        |          |  
|----------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------- | - | --------------------- | -------- | ------------ | ------- | ------------ | ------- | ------------ | ------ | ------------ | -------- | ------- | ---- | ------- | -------- | ------- | ------- | ------ | -------- | -
|                                                |                                                                             |                                              |                                                                             |                                               |   | DEBTORS-IN-POSSESSION |          |              |         |              |         |              |        |              |          |         |      |        
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |        
|                                                |                                                                             |                                              |                                                                             |                                               |   | RAILWORKS             |          |              |         |              |         |              |        |              |          |         |      |         |          |         |         |       
|                                                |                                                                             |                                              |                                                                             |                                               |   | CORPORATION           |          |              |         |              |         | NON-         |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             |                                               |   | (PARENT CO.           |          | GUARANTOR    |         | GUARANTOR    |         |              |        |              |          |         |      |        
|                                                |                                                                             |                                              |                                                                             |                                               |   | ONLY)                 |          | SUBSIDIARIES |         | SUBSIDIARIES |         | ELIMINATIONS |        | CONSOLIDATED
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |             
|ASSETS:                                         |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|CURRENT ASSETS:                                 |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                | Cash and cash equivalents                                                   |                                              | $                                                                           | 436                                           |   |                       | $        | 567          |         |              | $       | 266          |        |              | $        |        |      |         | $        | 1,269   |        
|                                                | Accounts receivable, net                                                    |                                              |                                                                             |                                              |   |                       |          | 166,686      |         |              |         | 5,297        |        |              |          |        |      |         |          | 171,983 |        
|                                                | Costs and estimated earnings in excess of
billings on uncompleted contracts |                                              |                                                                             |                                              |   |                       |          | 35,251       |         |              |         | 832          |        |              |          |        |      |         |          | 36,083  |        
|                                                | Inventories:                                                                |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |         |        
|                                                |                                                                             |                                              |                                                                             | Raw materials                                 |   |                       |         |              |         |              | 7,698   |              |        |              | 3,360    |         |      |         |         |         |         |        | 11,058   |  
|                                                |                                                                             |                                              |                                                                             | Finished goods                                |   |                       |         |              |         |              | 12,480  |              |        |              | 1,255    |         |      |         |         |         |         |        | 13,735   |  
|                                                | Due from affiliates                                                         |                                              |                                                                             |                                              |   |                       |          |             |         |              |         | 3,965        |        |              |          | (3,965  | )(a) |         |          |        |        
|                                                | Due from parent company                                                     |                                              |                                                                             | 12,897                                        |   |                       |          |             |         |              |         |              |        |              |          | (12,897 | )(a) |         |          |        |        
|                                                | Other current assets                                                        |                                              |                                                                             | 4,091                                         |   |                       |          | 4,055        |         |              |         | 1,830        |        |              |          |        |      |         |          | 9,976   |        
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Total current assets                          |   |                       | 17,424   |              |         |              | 226,737 |              |        |              | 16,805   |         |      |         | (16,862  | )       |         |        | 244,104  |  
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|INVESTMENT IN SUBSIDIARIES                      |                                                                             |                                              | 347,628                                                                     |                                               |   |                       |         |              |         |              |        |              |        |              | (347,628 | )(b)    |      |         |         |        
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|PROPERTY, PLANT AND EQUIPMENT, NET              |                                                                             |                                              | 822                                                                         |                                               |   |                       | 40,400   |              |         |              | 7,578   |              |        |              |         |         |      |         | 48,800   |        
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|OTHER ASSETS:                                   |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             | Excess of cost over acquired net assets, net |                                                                             |                                               |  |                       |          |              | 188,441 |              |         |              | 16,874 |              |          |         |     |         |          |         | 205,315 |       
|                                                |                                                                             | Other                                        |                                                                             |                                               |  |                       |          |              | 248     |              |         |              | 19     |              |          |         |     |         |          |         | 267     |       
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Total other assets                            |   |                       |         |              |         |              | 188,689 |              |        |              | 16,893   |         |      |         |         |         |         |        | 205,582  |  
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Total                                         |   | $                     | 365,874  |              |         | $            | 455,826 |              |        | $            | 41,276   |         |      | $       | (364,490 | )       |         | $      | 498,486  |  
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |         |        
|LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY: |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|LIABILITIES NOT SUBJECT TO COMPROMISE:          |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|CURRENT LIABILITIES:                            |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              | Cash overdraft                                                              |                                               | $ | (4,329                | )        |              | $       | 5,567        |         |              | $      |             |          |         | $    |        |          |         | $       | 1,238  |         
|                                                |                                                                             |                                              | Current maturities of long-term debt                                        |                                               |   | 50,755                |          |              |         |             |         |              |        | 4,644        |          |         |      |        |          |         |         | 55,399 |         
|                                                |                                                                             |                                              | Accounts payable                                                            |                                               |   | 225                   |          |              |         | 45,165       |         |              |        | 2,459        |          |         |      |        |          |         |         | 47,849 |         
|                                                |                                                                             |                                              | Accrued payroll and related withholdings                                    |                                               |   |                      |          |              |         | 7,061        |         |              |        | 629          |          |         |      |        |          |         |         | 7,690  |         
|                                                |                                                                             |                                              | Accrued interest payable                                                    |                                               |   | 1,584                 |          |              |         | 58           |         |              |        | 16           |          |         |      |        |          |         |         | 1,658  |         
|                                                |                                                                             |                                              | Billings in excess of costs and estimated
earnings on uncompleted contracts |                                               |   |                      |          |              |         | 18,561       |         |              |        | 273          |          |         |      |        |          |         |         | 18,834 |         
|                                                |                                                                             |                                              | Due to parent company                                                       |                                               |   |                      |          |              |         | 10,038       |         |              |        | 2,859        |          |         |      | (12,897 | )(a)     |         |         |       |         
|                                                |                                                                             |                                              | Due to affiliates                                                           |                                               |   |                      |          |              |         | 3,965        |         |              |        |             |          |         |      | (3,965  | )(a)     |         |         |       |         
|                                                |                                                                             |                                              | Other accrued liabilities                                                   |                                               |   | 13,502                |          |              |         | 4,514        |         |              |        | 1,909        |          |         |      |        |          |         |         | 19,925 |         
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Total current liabilities                     |   |                       | 61,737   |              |         |              | 94,929  |              |        |              | 12,789   |         |      |         | (16,862  | )       |         |        | 152,593  |  
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|LONG TERM DEBT, NET                             |                                                                             |                                              |                                                                            |                                               |   |                       |         |              |         |              | 730     |              |        |              |         |         |      |         | 730      |        
|DEFERRED TAX LIABILITY                          |                                                                             |                                              |                                                                            |                                               |   |                       |         |              |         |              | 568     |              |        |              |         |         |      |         | 568      |        
|OTHER LIABILITIES                               |                                                                             |                                              |                                                                            |                                               |   |                       | 4,001    |              |         |              | 25      |              |        |              |         |         |      |         | 4,026    |        
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Total long-term liabilities                   |   |                       |         |              |         |              | 4,001   |              |        |              | 1,323    |         |      |         |         |         |         |        | 5,324    |  
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Total liabilities not subject to compromise   |   |                       | 61,737   |              |         |              | 98,930  |              |        |              | 14,112   |         |      |         | (16,862  | )       |         |        | 157,917  |  
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|LIABILITIES SUBJECT TO COMPROMISE               |                                                                             |                                              | 391,069                                                                     |                                               |   |                       | 37,807   |              |         |              |        |              |        |              |          |         |      |         | 428,876  |        
|                                                |                                                                             |                                              |                                                                             | Total liabilities                             |   |                       | 452,806  |              |         |              | 136,737 |              |        |              | 14,112   |         |      |         | (16,862  | )       |         |        | 586,793  |  
|MINORITY INTEREST                               |                                                                             |                                              |                                                                            |                                               |   |                       | 1,944    |              |         |              |        |              |        |              |         |         |      |         | 1,944    |        
|STOCKHOLDERS (DEFICIT) EQUITY:                 |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Series A, convertible preferred stock         |   |                       | 14       |              |         |              |        |              |        |              |         |         |      |         |         |         |         |        | 14       |  
|                                                |                                                                             |                                              |                                                                             | Common stock                                  |   |                       | 125      |              |         |              | 2,816   |              |        |              | 378      |         |      |         | (3,164   | )(b)    |         |        | 155      |  
|                                                |                                                                             |                                              |                                                                             | Treasury stock                                |   |                       | (2,667   | )            |         |              |        |              |        |              |         |         |      |         |         |         |         |        | (2,667   | )
|                                                |                                                                             |                                              |                                                                             | Officer loans, net                            |   |                       |         |              |         |              |        |              |        |              |         |         |      |         |         |         |         |        |         |  
|                                                |                                                                             |                                              |                                                                             | Additional paid-in capital                    |   |                       | 136,572  |              |         |              | 364,248 |              |        |              | 24,221   |         |      |         | (388,469 | )(b)    |         |        | 136,572  |  
|                                                |                                                                             |                                              |                                                                             | Accumulated other comprehensive income (loss) |   |                       |         |              |         |              |        |              |        |              | (965     | )       |      |         |         |         |         |        | (965     | )
|                                                |                                                                             |                                              |                                                                             | Retained earnings (deficit)                   |   |                       | (220,976 | )            |         |              | (49,919 | )            |        |              | 3,530    |         |      |         | 44,005   | (b)     |         |        | (223,360 | )
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Total stockholders (deficit) equity          |   |                       | (86,932  | )            |         |              | 317,145 |              |        |              | 27,164   |         |      |         | (347,628 | )       |         |        | (90,251  | )
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Total                                         |   | $                     | 365,874  |              |         | $            | 455,826 |              |        | $            | 41,276   |         |      | $       | (364,490 | )       |         | $      | 498,486  |  
|                                                |                                                                             |                                              |                                                                             |                                               |   |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |         |        



|(a) |  | Elimination of inter-company receivables.  
|--- |  | -------------------------------------------
|(b) |  | Elimination of investments in subsidiaries.





---



##### Table of Contents



RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2002

(In Thousands) (Unaudited)

|                                                                     |  |                       |         |              |  |              |         |              |  |              |       |   |  |   |      |      |  |   |         |  
|-------------------------------------------------------------------- |  | --------------------- | ------- | ------------ |  | ------------ | ------- | ------------ |  | ------------ | ----- | - |  | - | ---- | ---- |  | - | ------- | -
|                                                                     |  | DEBTORS-IN-POSSESSION |         |              |  |              |         |              |  |              |       |   |  |  
|                                                                     |  |                       |         |              |  |              |         |              |  |              |       |   |  |  
|                                                                     |  | RAILWORKS             |         |              |  |              |         | NON-         |  |              |       |   |  |   |      |     
|                                                                     |  | CORPORATION           |         | GUARANTOR    |  | GUARANTOR    |         |              |  |              |       |   |  |  
|                                                                     |  | (PARENT CO. ONLY)     |         | SUBSIDIARIES |  | SUBSIDIARIES |         | ELIMINATIONS |  | CONSOLIDATED
|                                                                     |  |                       |         |              |  |              |         |              |  |             
|Revenue                                                              |  | $                     |        |              |  | $            | 135,482 |              |  | $            | 9,424 |   |  | $ | (749 | )(a) |  | $ | 144,157 |  
|Cost of revenue                                                      |  |                       |        |              |  |              | 119,213 |              |  |              | 7,329 |   |  |   | (749 | )(a) |  |   | 125,793 |  
|                                                                     |  |                       |         |              |  |              |         |              |  |              |       |   |  |   |      |      |  |   |         |  
|Gross profit                                                         |  |                       |        |              |  |              | 16,269  |              |  |              | 2,095 |   |  |   |     |      |  |   | 18,364  |  
|Selling, general and administrative
expenses                         |  |                       | 4,692   |              |  |              | 13,663  |              |  |              | 1,083 |   |  |   |     |      |  |   | 19,438  |  
|                                                                     |  |                       |         |              |  |              |         |              |  |              |       |   |  |   |      |      |  |   |         |  
|Operating (loss) income                                              |  |                       | (4,692  | )            |  |              | 2,606   |              |  |              | 1,012 |   |  |   |     |      |  |   | (1,074  | )
|Equity in earnings (loss) of subsidiaries                            |  |                       | (315    | )            |  |              |        |              |  |              |      |   |  |   | 315  | (b)  |  |   |        |  
|Interest expense                                                     |  |                       | (2,127  | )            |  |              | (50     | )            |  |              | (200  | ) |  |   |     |      |  |   | (2,377  | )
|Interest and other (expense) income                                  |  |                       | (274    | )            |  |              | 64      |              |  |              | (9    | ) |  |   |     |      |  |   | (219    | )
|                                                                     |  |                       |         |              |  |              |         |              |  |              |       |   |  |   |      |      |  |   |         |  
|Income (loss) before reorganization items,
income taxes and minority |  |                       | (7,408  | )            |  |              | 2,620   |              |  |              | 803   |   |  |   | 315  |      |  |   | (3,670  | )
|Reorganization items                                                 |  |                       | (17,599 | )            |  |              |        |              |  |              |      |   |  |   |     |      |  |   | (17,599 | )
|                                                                     |  |                       |         |              |  |              |         |              |  |              |       |   |  |   |      |      |  |   |         |  
|Income (loss) before income taxes and
minority interest              |  |                       | (25,007 | )            |  |              | 2,620   |              |  |              | 803   |   |  |   | 315  |      |  |   | (21,269 | )
|Provision for income taxes                                           |  |                       |        |              |  |              | 80      |              |  |              | 393   |   |  |   |     |      |  |   | 473     |  
|                                                                     |  |                       |         |              |  |              |         |              |  |              |       |   |  |   |      |      |  |   |         |  
|Income (loss) before minority interest                               |  |                       | (25,007 | )            |  |              | 2,540   |              |  |              | 410   |   |  |   | 315  |      |  |   | (21,742 | )
|Minority interest, net                                               |  |                       |        |              |  |              | (161    | )            |  |              |      |   |  |   |     |      |  |   | (161    | )
|                                                                     |  |                       |         |              |  |              |         |              |  |              |       |   |  |   |      |      |  |   |         |  
|Net income (loss)                                                    |  | $                     | (25,007 | )            |  | $            | 2,379   |              |  | $            | 410   |   |  | $ | 315  |      |  | $ | (21,903 | )
|                                                                     |  |                       |         |              |  |              |         |              |  |              |       |   |  |   |      |      |  |   |         |  



|(a) |  | Elimination of inter-company revenue.             
|--- |  | --------------------------------------------------
|(b) |  | Elimination of equity in earnings of subsidiaries.





---



##### Table of Contents



RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002

(In Thousands) (Unaudited)

|                                                                                                                        |  |                       |         |              |  |              |         |              |  |              |        |   |  |   |        |      |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------- |  | --------------------- | ------- | ------------ |  | ------------ | ------- | ------------ |  | ------------ | ------ | - |  | - | ------ | ---- |  | - | ------- | -
|                                                                                                                        |  | DEBTORS-IN-POSSESSION |         |              |  |              |         |              |  |              |        |   |  |  
|                                                                                                                        |  |                       |         |              |  |              |         |              |  |              |        |   |  |  
|                                                                                                                        |  | RAILWORKS             |         |              |  |              |         | NON-         |  |              |        |   |  |   |        |     
|                                                                                                                        |  | CORPORATION           |         | GUARANTOR    |  | GUARANTOR    |         |              |  |              |        |   |  |  
|                                                                                                                        |  | (PARENT CO. ONLY)     |         | SUBSIDIARIES |  | SUBSIDIARIES |         | ELIMINATIONS |  | CONSOLIDATED
|                                                                                                                        |  |                       |         |              |  |              |         |              |  |             
|Revenue                                                                                                                 |  | $                     |        |              |  | $            | 242,387 |              |  | $            | 14,575 |   |  | $ | (1,527 | )(a) |  | $ | 255,435 |  
|Cost of revenue                                                                                                         |  |                       |        |              |  |              | 215,365 |              |  |              | 11,900 |   |  |   | (1,527 | )(a) |  |   | 225,738 |  
|                                                                                                                        |  |                       |         |              |  |              |         |              |  |              |        |   |  |   |        |      |  |   |         |  
|Gross profit                                                                                                            |  |                       |        |              |  |              | 27,022  |              |  |              | 2,675  |   |  |   |       |      |  |   | 29,697  |  
|Selling, general and administrative
expenses                                                                            |  |                       | 7,564   |              |  |              | 27,520  |              |  |              | 2,116  |   |  |   |       |      |  |   | 37,200  |  
|                                                                                                                        |  |                       |         |              |  |              |         |              |  |              |        |   |  |   |        |      |  |   |         |  
|Operating (loss) income                                                                                                 |  |                       | (7,564  | )            |  |              | (498    | )            |  |              | 559    |   |  |   |       |      |  |   | (7,503  | )
|Equity in earnings (loss) of subsidiaries                                                                               |  |                       | (6,299  | )            |  |              |        |              |  |              |       |   |  |   | 6,299  | (b)  |  |   |        |  
|Interest expense                                                                                                        |  |                       | (4,466  | )            |  |              | (83     | )            |  |              | (278   | ) |  |   |       |      |  |   | (4,827  | )
|Interest and other (expense) income                                                                                     |  |                       | (279    | )            |  |              | 177     |              |  |              | 52     |   |  |   |       |      |  |   | (50     | )
|                                                                                                                        |  |                       |         |              |  |              |         |              |  |              |        |   |  |   |        |      |  |   |         |  
|Income (loss) before reorganization items,
income taxes, minority interest and
effect
of change in accounting principle |  |                       | (18,608 | )            |  |              | (404    | )            |  |              | 333    |   |  |   | 6,299  |      |  |   | (12,380 | )
|Reorganization items                                                                                                    |  |                       | (23,709 | )            |  |              |        |              |  |              |       |   |  |   |       |      |  |   | (23,709 | )
|                                                                                                                        |  |                       |         |              |  |              |         |              |  |              |        |   |  |   |        |      |  |   |         |  
|Income (loss) before income taxes,
minority
interest and effect of change in
accounting principle                       |  |                       | (42,317 | )            |  |              | (404    | )            |  |              | 333    |   |  |   | 6,299  |      |  |   | (36,089 | )
|Provision for income taxes                                                                                              |  |                       |        |              |  |              | 160     |              |  |              | 225    |   |  |   |       |      |  |   | 385     |  
|                                                                                                                        |  |                       |         |              |  |              |         |              |  |              |        |   |  |   |        |      |  |   |         |  
|Income (loss) before minority interest and
effect of change in accounting principle                                     |  |                       | (42,317 | )            |  |              | (564    | )            |  |              | 108    |   |  |   | 6,299  |      |  |   | (36,474 | )
|Minority interest, net                                                                                                  |  |                       |        |              |  |              | (161    | )            |  |              |       |   |  |   |       |      |  |   | (161    | )
|                                                                                                                        |  |                       |         |              |  |              |         |              |  |              |        |   |  |   |        |      |  |   |         |  
|Income (loss) before effect of change in
accounting principle                                                           |  |                       | (42,317 | )            |  |              | (725    | )            |  |              | 108    |   |  |   | 6,299  |      |  |   | (36,635 | )
|Effect of change in accounting principle,
net                                                                           |  |                       |        |              |  |              | 5,323   |              |  |              |       |   |  |   |       |      |  |   | 5,323   |  
|                                                                                                                        |  |                       |         |              |  |              |         |              |  |              |        |   |  |   |        |      |  |   |         |  
|Net income (loss)                                                                                                       |  | $                     | (42,317 | )            |  | $            | 4,598   |              |  | $            | 108    |   |  | $ | 6,299  |      |  | $ | (31,312 | )
|                                                                                                                        |  |                       |         |              |  |              |         |              |  |              |        |   |  |   |        |      |  |   |         |  



|(a) |  | Elimination of inter-company revenue.            
|--- |  | -------------------------------------------------
|(b) |  | Elimination of equity in earnings of subsidiaries





---



##### Table of Contents



RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002

(In Thousands) (Unaudited)

|                                                                                                   |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |   |   |         |        |        |        |  
|-------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ----- | --------------------- | ------- | ------------ | ------ | ------------ | ----- | ------------ | ------ | ------------ | --- | ------ | ---- | - | - | ------- | ------ | ------ | ------ | -
|                                                                                                   |                                                                                                     |                                                     |                                                     |       | DEBTORS-IN-POSSESSION |         |              |        |              |       |              |        |              |     |        |      |  
|                                                                                                   |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |  
|                                                                                                   |                                                                                                     |                                                     |                                                     |       | RAILWORKS             |         |              |        |              |       | NON-         |        |              |     |        |      |   |   |        
|                                                                                                   |                                                                                                     |                                                     |                                                     |       | CORPORATION           |         | GUARANTOR    |        | GUARANTOR    |       |              |        |              |     |        |      |  
|                                                                                                   |                                                                                                     |                                                     |                                                     |       | (PARENT CO. ONLY)     |         | SUBSIDIARIES |        | SUBSIDIARIES |       | ELIMINATIONS |        | CONSOLIDATED
|                                                                                                   |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |             
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                              |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |   |   |         |       
|Net income (loss)                                                                                  |                                                                                                     | $                                                   | (42,317                                             | )     |                       | $       | 4,598        |        |              | $     | 108          |        |              | $   | 6,299  | (a)  |   | $ | (31,312 | )     
|Adjustments to reconcile net income (loss) to net cash
provided (used in) by operating activities: |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |   |   |         |       
|Depreciation and amortization                                                                      |                                                                                                     |                                                     | 335                                                 |       |                       |         | 5,238        |        |              |       | 877          |        |              |     |       |      |   |   | 6,450   |       
|Non-cash reorganization items                                                                      |                                                                                                     |                                                     | 8,787                                               |       |                       |         |             |        |              |       |             |        |              |     |       |      |   |   | 8,787   |       
|Effect of change in accounting principle                                                           |                                                                                                     |                                                     |                                                    |       |                       |         | (5,323       | )      |              |       |             |        |              |     |       |      |   |   | (5,323  | )     
|Minority interest in losses                                                                        |                                                                                                     |                                                     |                                                    |       |                       |         | 161          |        |              |       |             |        |              |     |       |      |   |   | 161     |       
|Equity in earnings of subsidiaries                                                                 |                                                                                                     |                                                     | 6,299                                               |       |                       |         |             |        |              |       |             |        |              |     | (6,299 | )(a) |   |   |        |       
|Loss (gain) on sale of equipment                                                                   |                                                                                                     |                                                     | 270                                                 |       |                       |         | 36           |        |              |       | (35          | )      |              |     |       |      |   |   | 271     |       
|Other non-cash charges                                                                             |                                                                                                     |                                                     | 1,876                                               |       |                       |         |             |        |              |       |             |        |              |     |       |      |   |   | 1,876   |       
|Changes in operating assets and liabilities:                                                       |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |   |   |         |       
|                                                                                                   | Accounts receivable and costs and estimated earnings
in excess of billings on uncompleted contracts |                                                     |                                                     |      |                       |         |              | 7,508  |              |       |              | (452   | )            |     |        |     |   |   |         | 7,056  |       
|                                                                                                   | Inventories                                                                                         |                                                     |                                                     |      |                       |         |              | (2,667 | )            |       |              | 256    |              |     |        |     |   |   |         | (2,411 | )     
|                                                                                                   | Other current assets                                                                                |                                                     |                                                     | 2,898 |                       |         |              | (643   | )            |       |              | 19     |              |     |        |     |   |   |         | 2,274  |       
|                                                                                                   | Accounts payable                                                                                    |                                                     |                                                     | 80    |                       |         |              | (9,885 | )            |       |              | 1,024  |              |     |        |     |   |   |         | (8,781 | )     
|                                                                                                   | Accrued payroll and related withholdings                                                            |                                                     |                                                     |      |                       |         |              | 795    |              |       |              | 245    |              |     |        |     |   |   |         | 1,040  |       
|                                                                                                   | Accrued interest payable                                                                            |                                                     |                                                     | 1,142 |                       |         |              | 37     |              |       |              | 1      |              |     |        |     |   |   |         | 1,180  |       
|                                                                                                   | Billings in excess of costs and estimated
earnings on uncompleted contracts                         |                                                     |                                                     |      |                       |         |              | 5,906  |              |       |              | (881   | )            |     |        |     |   |   |         | 5,025  |       
|                                                                                                   | Other accrued liabilities                                                                           |                                                     |                                                     | 6,292 |                       |         |              | (1,702 | )            |       |              | 51     |              |     |        |     |   |   |         | 4,641  |       
|                                                                                                   | Other assets                                                                                        |                                                     |                                                     | 975   |                       |         |              | (14    | )            |       |              | 4      |              |     |        |     |   |   |         | 965    |       
|                                                                                                   | Other liabilities                                                                                   |                                                     |                                                     |      |                       |         |              | (960   | )            |       |              |       |              |     |        |     |   |   |         | (960   | )     
|                                                                                                   | Due (to/from affiliates                                                                             |                                                     |                                                     |      |                       |         |              | 1,938  |              |       |              | (1,938 | )            |     |        |     |   |   |         |       |       
|                                                                                                   | Due (to)/from parent company                                                                        |                                                     |                                                     | 480   |                       |         |              | (1,592 | )            |       |              | 1,112  |              |     |        |     |   |   |         |       |       
|                                                                                                   |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |   |   |         |       
|                                                                                                   |                                                                                                     |                                                     | Net cash provided (used in) by operating activities |       |                       | (12,883 | )            |        |              | 3,431 |              |        |              | 391 |        |      |   |  |         |        |        | (9,061 | )
|                                                                                                   |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |   |   |         |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                              |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |   |   |         |       
|Proceeds from sale of equipment                                                                    |                                                                                                     |                                                     |                                                    |       |                       |         | 194          |        |              |       | 315          |        |              |     |       |      |   |   | 509     |       
|Purchase of equipment and leasehold improvements                                                   |                                                                                                     |                                                     | (17                                                 | )     |                       |         | (3,320       | )      |              |       | (1,132       | )      |              |     |       |      |   |   | (4,469  | )     
|Distribution from minority interest                                                                |                                                                                                     |                                                     |                                                    |       |                       |         | 34           |        |              |       |             |        |              |     |       |      |   |   | 34      |       
|Contingent earn-out payments                                                                       |                                                                                                     |                                                     |                                                    |       |                       |         |             |        |              |       | (1,098       | )      |              |     |       |      |   |   | (1,098  | )     
|                                                                                                   |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |   |   |         |       
|                                                                                                   |                                                                                                     | Net cash provided by (used in) investing activities |                                                     |       | (17                   | )       |              |        | (3,092       | )     |              |        | (1,915       | )   |        |      |  |   |         |        | (5,024 | )     
|                                                                                                   |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |   |   |         |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                              |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |   |   |         |       
|Net change in cash overdraft                                                                       |                                                                                                     |                                                     | (4,329                                              | )     |                       |         | 2,572        |        |              |       |             |        |              |     |       |      |   |   | (1,757  | )     
|Net activity on revolving line of credit                                                           |                                                                                                     |                                                     |                                                    |       |                       |         |             |        |              |       | (500         | )      |              |     |       |      |   |   | (500    | )     
|Net change in debtor-in-possession funding                                                         |                                                                                                     |                                                     | 14,355                                              |       |                       |         |             |        |              |       |             |        |              |     |       |      |   |   | 14,355  |       
|Proceeds from fixed asset borrowings                                                               |                                                                                                     |                                                     |                                                    |       |                       |         |             |        |              |       | 508          |        |              |     |        |      |   |   | 508     |       
|                                                                                                   |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |   |   |         |       
|Repayment of fixed asset borrowings                                                                |                                                                                                     |                                                     |                                                    |       |                       |         | (368         | )      |              |       | (48          | )      |              |     |       |      |   |   | (416    | )     
|                                                                                                   |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |   |   |         |       
|                                                                                                   |                                                                                                     | Net cash provided by (used in) financing activities |                                                     |       | 10,026                |         |              |        | 2,204        |       |              |        | (40          | )   |        |      |  |   |         |        | 12,190 |       
|                                                                                                   |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |   |   |         |       
|EXCHANGE RATE ON CASH                                                                              |                                                                                                     |                                                     |                                                    |       |                       |         |             |        |              |       | 334          |        |              |     |       |      |   |   | 334     |       
|                                                                                                   |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |   |   |         |       
|NET (DECREASE) INCREASE IN CASH                                                                    |                                                                                                     |                                                     | (2,874                                              | )     |                       |         | 2,543        |        |              |       | (1,230       | )      |              |     |       |      |   |   | (1,561  | )     
|CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD                                                     |                                                                                                     |                                                     | 3,310                                               |       |                       |         | (1,976       | )      |              |       | 1,496        |        |              |     |       |      |   |   | 2,830   |       
|                                                                                                   |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |   |   |         |       
|CASH AND CASH EQUIVALENTS,
END OF PERIOD                                                           |                                                                                                     | $                                                   | 436                                                 |       |                       | $       | 567          |        |              | $     | 266          |        |              | $   |       |      |   | $ | 1,269   |       
|                                                                                                   |                                                                                                     |                                                     |                                                     |       |                       |         |              |        |              |       |              |        |              |     |        |      |   |   |         |       



|(a) |  | Elimination of equity in earnings of subsidiaries.
|--- |  | --------------------------------------------------





---



##### Table of Contents



RAILWORKS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001

(In Thousands) (Unaudited)

|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |         |         |        |          |  
|----------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------- | ----- | --------------------- | -------- | ------------ | ------- | ------------ | ------- | ------------ | ------ | ------------ | -------- | ------- | ---- | ------- | -------- | ------- | ------- | ------ | -------- | -
|                                                |                                                                             |                                              |                                                                             |                                               |       | DEBTORS-IN-POSSESSION |          |              |         |              |         |              |        |              |          |         |      |        
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |        
|                                                |                                                                             |                                              |                                                                             |                                               |       | RAILWORKS             |          |              |         |              |         |              |        |              |          |         |      |         |          |         |         |       
|                                                |                                                                             |                                              |                                                                             |                                               |       | CORPORATION           |          |              |         |              |         | NON-         |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             |                                               |       | (PARENT CO.           |          | GUARANTOR    |         | GUARANTOR    |         |              |        |              |          |         |      |        
|                                                |                                                                             |                                              |                                                                             |                                               |       | ONLY)                 |          | SUBSIDIARIES |         | SUBSIDIARIES |         | ELIMINATIONS |        | CONSOLIDATED
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |             
|ASSETS:                                         |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|CURRENT ASSETS:                                 |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                | Cash and cash equivalents                                                   |                                              | $                                                                           | 3,310                                         |       |                       | $        | (1,976       | )       |              | $       | 1,496        |        |              | $        |        |      |         | $        | 2,830   |        
|                                                | Accounts receivable, net                                                    |                                              |                                                                             |                                              |       |                       |          | 169,208      |         |              |         | 5,221        |        |              |          |        |      |         |          | 174,429 |        
|                                                | Costs and estimated earnings in excess of
billings on uncompleted contracts |                                              |                                                                             |                                              |       |                       |          | 40,237       |         |              |         | 456          |        |              |          |        |      |         |          | 40,693  |        
|                                                | Inventories:                                                                |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |         |        
|                                                |                                                                             |                                              |                                                                             | Raw materials                                 |       |                       |         |              |         |              | 6,191   |              |        |              | 4,001    |         |      |         |         |         |         |        | 10,192   |  
|                                                |                                                                             |                                              |                                                                             | Finished goods                                |       |                       |         |              |         |              | 11,708  |              |        |              | 870      |         |      |         |         |         |         |        | 12,578   |  
|                                                | Due from affiliates                                                         |                                              |                                                                             |                                              |       |                       |          |             |         |              |         | 2,027        |        |              |          | (2,027  | )(a) |         |          |        |        
|                                                | Due from parent company                                                     |                                              |                                                                             | 13,377                                        |       |                       |          |             |         |              |         |             |        |              |          | (13,377 | )(a) |         |          |        |        
|                                                | Other current assets                                                        |                                              |                                                                             | 6,989                                         |       |                       |          | 3,412        |         |              |         | 1,849        |        |              |          |        |      |         |          | 12,250  |        
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Total current assets                          |       |                       | 23,676   |              |         |              | 228,780 |              |        |              | 15,920   |         |      |         | (15,404  | )       |         |        | 252,972  |  
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|INVESTMENT IN SUBSIDIARIES                      |                                                                             |                                              | 353,926                                                                     |                                               |       |                       |         |              |         |              |        |              |        |              | (353,926 | )(b)    |      |         |         |        
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|PROPERTY, PLANT AND EQUIPMENT, NET              |                                                                             |                                              | 1,410                                                                       |                                               |       |                       | 42,146   |              |         |              | 7,407   |              |        |              |         |         |      |         | 50,963   |        
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|OTHER ASSETS:                                   |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             | Excess of cost over acquired net assets, net |                                                                             |                                               |      |                       |          |              | 188,440 |              |         |              | 16,372 |              |          |         |     |         |          |         | 204,812 |       
|                                                |                                                                             | Other                                        |                                                                             |                                               | 8,835 |                       |          |              | 246     |              |         |              | 25     |              |          |         |     |         |          |         | 9,106   |       
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Total other assets                            |       |                       | 8,835    |              |         |              | 188,686 |              |        |              | 16,397   |         |      |         |         |         |         |        | 213,918  |  
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Total                                         |       | $                     | 387,847  |              |         | $            | 459,612 |              |        | $            | 39,724   |         |      | $       | (369,330 | )       |         | $      | 517,853  |  
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |         |        
|LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY: |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|LIABILITIES NOT SUBJECT TO COMPROMISE:          |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|CURRENT LIABILITIES:                            |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              | Cash overdraft                                                              |                                               | $     |                      |          |              | $       | 2,995        |         |              | $      |             |          |         | $    |        |          |         | $       | 2,995  |         
|                                                |                                                                             |                                              | Current maturities of long-term debt                                        |                                               |       | 36,400                |          |              |         | 66           |         |              |        | 5,057        |          |         |      |        |          |         |         | 41,523 |         
|                                                |                                                                             |                                              | Accounts payable                                                            |                                               |       | 126                   |          |              |         | 28,780       |         |              |        | 1,435        |          |         |      |        |          |         |         | 30,341 |         
|                                                |                                                                             |                                              | Accrued payroll and related withholdings                                    |                                               |       |                      |          |              |         | 6,266        |         |              |        | 384          |          |         |      |        |          |         |         | 6,650  |         
|                                                |                                                                             |                                              | Accrued interest payable                                                    |                                               |       | 442                   |          |              |         | 20           |         |              |        | 15           |          |         |      |        |          |         |         | 477    |         
|                                                |                                                                             |                                              | Billings in excess of costs and estimated
earnings on uncompleted contracts |                                               |       |                      |          |              |         | 12,655       |         |              |        | 1,154        |          |         |      |        |          |         |         | 13,809 |         
|                                                |                                                                             |                                              | Due to parent company                                                       |                                               |       |                      |          |              |         | 11,630       |         |              |        | 1,747        |          |         |      | (13,377 | )(a)     |         |         |       |         
|                                                |                                                                             |                                              | Due to affiliates                                                           |                                               |       |                      |          |              |         | 2,027        |         |              |        |             |          |         |      | (2,027  | )(a)     |         |         |       |         
|                                                |                                                                             |                                              | Other accrued liabilities                                                   |                                               |       | 7,210                 |          |              |         | 5,695        |         |              |        | 2,960        |          |         |      |        |          |         |         | 15,865 |         
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Total current liabilities                     |       |                       | 44,178   |              |         |              | 70,134  |              |        |              | 12,752   |         |      |         | (15,404  | )       |         |        | 111,660  |  
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|LONG TERM DEBT, NET                             |                                                                             |                                              |                                                                            |                                               |       |                       |         |              |         |              | 346     |              |        |              |         |         |      |         | 346      |        
|DEFERRED TAX LIABILITY                          |                                                                             |                                              |                                                                            |                                               |       |                       |         |              |         |              | 551     |              |        |              |         |         |      |         | 551      |        
|EXCESS OF ACQUIRED NET ASSETS OVER
COST, NET    |                                                                             |                                              |                                                                            |                                               |       |                       | 5,323    |              |         |              |        |              |        |              |         |         |      |         | 5,323    |        
|OTHER LIABILITIES                               |                                                                             |                                              |                                                                            |                                               |       |                       | 4,954    |              |         |              | 24      |              |        |              |         |         |      |         | 4,978    |        
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Total long-term liabilities                   |       |                       |         |              |         |              | 10,277  |              |        |              | 921      |         |      |         |         |         |         |        | 11,198   |  
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Total liabilities not subject to compromise   |       |                       | 44,178   |              |         |              | 80,411  |              |        |              | 13,673   |         |      |         | (15,404  | )       |         |        | 122,858  |  
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|LIABILITIES SUBJECT TO COMPROMISE               |                                                                             |                                              | 390,161                                                                     |                                               |       |                       | 64,904   |              |         |              |        |              |        |              |          |         |      |         | 455,065  |        
|                                                |                                                                             |                                              |                                                                             | Total liabilities                             |       |                       | 434,339  |              |         |              | 145,315 |              |        |              | 13,673   |         |      |         | (15,404  | )       |         |        | 577,923  |  
|MINORITY INTEREST                               |                                                                             |                                              |                                                                            |                                               |       |                       | 1,749    |              |         |              |        |              |        |              |          |         |      |         | 1,749    |        
|STOCKHOLDERS (DEFICIT) EQUITY:                 |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Series A, convertible preferred stock         |       |                       | 14       |              |         |              |        |              |        |              |         |         |      |         |         |         |         |        | 14       |  
|                                                |                                                                             |                                              |                                                                             | Common stock                                  |       |                       | 125      |              |         |              | 2,816   |              |        |              | 378      |         |      |         | (3,164   | )(b)    |         |        | 155      |  
|                                                |                                                                             |                                              |                                                                             | Treasury stock                                |       |                       | (2,667   | )            |         |              |        |              |        |              |         |         |      |         |         |         |         |        | (2,667   | )
|                                                |                                                                             |                                              |                                                                             | Officer loans, net                            |       |                       | (1,876   | )            |         |              |        |              |        |              |         |         |      |         |         |         |         |        | (1,876   | )
|                                                |                                                                             |                                              |                                                                             | Additional paid-in capital                    |       |                       | 136,572  |              |         |              | 364,248 |              |        |              | 24,221   |         |      |         | (388,469 | )(b)    |         |        | 136,572  |  
|                                                |                                                                             |                                              |                                                                             | Accumulated other comprehensive income (loss) |       |                       |         |              |         |              |        |              |        |              | (1,969   | )       |      |         |         |         |         |        | (1,969   | )
|                                                |                                                                             |                                              |                                                                             | Retained earnings (deficit)                   |       |                       | (178,660 | )            |         |              | (54,516 | )            |        |              | 3,421    |         |      |         | 37,707   | (b)     |         |        | (192,048 | )
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Total stockholders (deficit) equity          |       |                       | (46,492  | )            |         |              | 312,548 |              |        |              | 26,051   |         |      |         | (353,926 | )       |         |        | (61,819  | )
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |        
|                                                |                                                                             |                                              |                                                                             | Total                                         |       | $                     | 387,847  |              |         | $            | 459,612 |              |        | $            | 39,724   |         |      | $       | (369,330 | )       |         | $      | 517,853  |  
|                                                |                                                                             |                                              |                                                                             |                                               |       |                       |          |              |         |              |         |              |        |              |          |         |      |         |          |         |        



|(a) |  | Elimination of inter-company receivables.  
|--- |  | -------------------------------------------
|(b) |  | Elimination of investments in subsidiaries.





---



##### Table of Contents



RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2001

(In Thousands) (Unaudited)

|                                                                            |                             |   |                   |   |              |   |              |       |              |   |              |     |  |   |        |      |  |   |         |       | 
|--------------------------------------------------------------------------- | --------------------------- | - | ----------------- | - | ------------ | - | ------------ | ----- | ------------ | - | ------------ | --- |  | - | ------ | ---- |  | - | ------- | ----- | 
|                                                                            |                             |   | RAILWORKS         |   |              |   |              |       | NON-         |   |              |     |  |   |        |      | 
|                                                                            |                             |   | CORPORATION       |   | GUARANTOR    |   | GUARANTOR    |       |              |   |              |     |  |   |       
|                                                                            |                             |   | (PARENT CO. ONLY) |   | SUBSIDIARIES |   | SUBSIDIARIES |       | ELIMINATIONS |   | CONSOLIDATED
|                                                                            |                             |   |                   |   |              |   |              |       |              |   |             
|Revenue                                                                     |                             | $ |                  |   |              | $ | 189,255      |       |              | $ | 10,090       |     |  | $ | (1,065 | )(a) |  | $ | 198,280 |      
|Cost of revenue                                                             |                             |   |                  |   |              |   | 184,521      |       |              |   | 7,657        |     |  |   | (1,065 | )(a) |  |   | 191,113 |      
|                                                                            |                             |   |                   |   |              |   |              |       |              |   |              |     |  |   |        |      |  |   |         |      
|Gross profit                                                                |                             |   |                  |   |              |   | 4,734        |       |              |   | 2,433        |     |  |   |       |      |  |   | 7,167   |      
|Selling, general and administrative expenses                                |                             |   | 3,515             |   |              |   | 12,816       |       |              |   | 993          |     |  |   |       |      |  |   | 17,324  |      
|Restructuring and other unusual charges                                     |                             |   | 1,514             |   |              |   | (864         | )     |              |   |             |     |  |   |       |      |  |   | 650     |      
|                                                                            |                             |   |                   |   |              |   |              |       |              |   |              |     |  |   |        |      |  |   |         |      
|Operating income (loss)                                                     |                             |   | (5,029            | ) |              |   | (7,218       | )     |              |   | 1,440        |     |  |   |       |      |  |   | (10,807 | )    
|Equity in loss of subsidiaries                                              |                             |   | (29,958           | ) |              |   |             |       |              |   |             |     |  |   | 29,958 | (b)  |  |   |        |      
|Interest expense                                                            |                             |   | (10,030           | ) |              |   | (135         | )     |              |   | (93          | )   |  |   |       |      |  |   | (10,258 | )    
|Other (expense) income                                                      |                             |   | 1                 |   |              |   | 162          |       |              |   | (10          | )   |  |   |       |      |  |   | 153     |      
|Loss on sale of subsidiary                                                  |                             |   | 1,247             |   |              |   | (15,211      | )     |              |   |             |     |  |   |       |      |  |   | (13,964 | )    
|                                                                            |                             |   |                   |   |              |   |              |       |              |   |              |     |  |   |        |      |  |   |         |      
|Income (loss) before income taxes, minority interest and extraordinary item |                             |   | (43,769           | ) |              |   | (22,402      | )     |              |   | 1,337        |     |  |   | 29,958 |      |  |   | (34,876 | )    
|                                                                            | Provision for income taxes  |   |                   |  |              |   |              | 2,726 |              |   |              | 518 |  |   |        |     |  |   |         | 3,244 | 
|                                                                            |                             |   |                   |   |              |   |              |       |              |   |              |     |  |   |        |      |  |   |         |      
|Income (loss) before minority interest and extraordinary item               |                             |   | (43,769           | ) |              |   | (25,128      | )     |              |   | 819          |     |  |   | 29,958 |      |  |   | (38,120 | )    
|                                                                            | Minority interest in losses |   |                   |  |              |   |              | 60    |              |   |              |    |  |   |        |     |  |   |         | 60    | 
|                                                                            |                             |   |                   |   |              |   |              |       |              |   |              |     |  |   |        |      |  |   |         |      
|Income (loss) before extraordinary item                                     |                             |   | (43,769           | ) |              |   | (25,068      | )     |              |   | 819          |     |  |   | 29,958 |      |  |   | (38,060 | )    
|Extraordinary gain on extinguishment of debt                                |                             |   | 537               |   |              |   |             |       |              |   |             |     |  |   |       |      |  |   | 537     |      
|                                                                            |                             |   |                   |   |              |   |              |       |              |   |              |     |  |   |        |      |  |   |         |      
|Net income (loss)                                                           |                             | $ | (43,232           | ) |              | $ | (25,068      | )     |              | $ | 819          |     |  | $ | 29,958 |      |  | $ | (37,523 | )    
|                                                                            |                             |   |                   |   |              |   |              |       |              |   |              |     |  |   |        |      |  |   |         |      



|(a) |  | Elimination of intercompany revenue.              
|--- |  | --------------------------------------------------
|(b) |  | Elimination of equity in earnings of subsidiaries.





---



##### Table of Contents



RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001

(In Thousands) (Unaudited)

|                                                                            |                             |   |                   |   |              |   |              |       |              |   |              |     |  |   |        |      |  |   |         |       | 
|--------------------------------------------------------------------------- | --------------------------- | - | ----------------- | - | ------------ | - | ------------ | ----- | ------------ | - | ------------ | --- |  | - | ------ | ---- |  | - | ------- | ----- | 
|                                                                            |                             |   | RAILWORKS         |   |              |   |              |       | NON-         |   |              |     |  |   |        |      | 
|                                                                            |                             |   | CORPORATION       |   | GUARANTOR    |   | GUARANTOR    |       |              |   |              |     |  |   |       
|                                                                            |                             |   | (PARENT CO. ONLY) |   | SUBSIDIARIES |   | SUBSIDIARIES |       | ELIMINATIONS |   | CONSOLIDATED
|                                                                            |                             |   |                   |   |              |   |              |       |              |   |             
|Revenue                                                                     |                             | $ |                  |   |              | $ | 354,195      |       |              | $ | 16,267       |     |  | $ | (1,794 | )(a) |  | $ | 368,668 |      
|Cost of revenue                                                             |                             |   |                  |   |              |   | 320,494      |       |              |   | 12,691       |     |  |   | (1,794 | )(a) |  |   | 331,391 |      
|                                                                            |                             |   |                   |   |              |   |              |       |              |   |              |     |  |   |        |      |  |   |         |      
|Gross profit                                                                |                             |   |                  |   |              |   | 33,701       |       |              |   | 3,576        |     |  |   |       |      |  |   | 37,277  |      
|Selling, general and administrative expenses                                |                             |   | 6,160             |   |              |   | 27,545       |       |              |   | 2,373        |     |  |   |       |      |  |   | 36,078  |      
|Restructuring and other unusual charges                                     |                             |   | 1,745             |   |              |   | (864         | )     |              |   |             |     |  |   |       |      |  |   | 881     |      
|                                                                            |                             |   |                   |   |              |   |              |       |              |   |              |     |  |   |        |      |  |   |         |      
|Operating (loss) income                                                     |                             |   | (7,905            | ) |              |   | 7,020        |       |              |   | 1,203        |     |  |   |       |      |  |   | 318     |      
|Equity in loss of subsidiaries                                              |                             |   | (22,623           | ) |              |   |             |       |              |   |             |     |  |   | 22,623 | (b)  |  |   |        |      
|Interest expense                                                            |                             |   | (19,872           | ) |              |   | (389         | )     |              |   | (232         | )   |  |   |       |      |  |   | (20,493 | )    
|Other (expense) income                                                      |                             |   | (8                | ) |              |   | 455          |       |              |   | 80           |     |  |   |       |      |  |   | 527     |      
|Loss on sale of subsidiary                                                  |                             |   | 635               |   |              |   | (15,211      | )     |              |   |             |     |  |   |       |      |  |   | (14,576 | )    
|                                                                            |                             |   |                   |   |              |   |              |       |              |   |              |     |  |   |        |      |  |   |         |      
|Income (loss) before income taxes, minority interest and extraordinary item |                             |   | (49,773           | ) |              |   | (8,125       | )     |              |   | 1,051        |     |  |   | 22,623 |      |  |   | (34,224 | )    
|                                                                            | Provision for income taxes  |   |                   |  |              |   |              | 3,313 |              |   |              | 431 |  |   |        |     |  |   |         | 3,744 | 
|                                                                            |                             |   |                   |   |              |   |              |       |              |   |              |     |  |   |        |      |  |   |         |      
|Income (loss) before minority interest and extraordinary item               |                             |   | (49,773           | ) |              |   | (11,438      | )     |              |   | 620          |     |  |   | 22,623 |      |  |   | (37,968 | )    
|                                                                            | Minority interest in losses |   |                   |  |              |   |              | 60    |              |   |              |    |  |   |        |     |  |   |         | 60    | 
|                                                                            |                             |   |                   |   |              |   |              |       |              |   |              |     |  |   |        |      |  |   |         |      
|Income (loss) before extraordinary item                                     |                             |   | (49,773           | ) |              |   | (11,378      | )     |              |   | 620          |     |  |   | 22,623 |      |  |   | (37,908 | )    
|Extraordinary gain on extinguishment of debt                                |                             |   | 537               |   |              |   |             |       |              |   |             |     |  |   |       |      |  |   | 537     |      
|                                                                            |                             |   |                   |   |              |   |              |       |              |   |              |     |  |   |        |      |  |   |         |      
|Net income (loss)                                                           |                             | $ | (49,236           | ) |              | $ | (11,378      | )     |              | $ | 620          |     |  | $ | 22,623 |      |  | $ | (37,371 | )    
|                                                                            |                             |   |                   |   |              |   |              |       |              |   |              |     |  |   |        |      |  |   |         |      



|(a) |  | Elimination of inter-company revenue.             
|--- |  | --------------------------------------------------
|(b) |  | Elimination of equity in earnings of subsidiaries.





---



##### Table of Contents



RAILWORKS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001

(In Thousands) (Unaudited)

|                                                                                                                 |                                                                                                     |                                                     |         |             |         |              |         |              |         |              |        |              |        |   |         |      |   |   |         |         |        |  
|---------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ------- | ----------- | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------ | ------------ | ------ | - | ------- | ---- | - | - | ------- | ------- | ------ | -
|                                                                                                                 |                                                                                                     |                                                     |         | RAILWORKS   |         |              |         |              |         |              |        |              |        |   |         |      |   |   |         |        
|                                                                                                                 |                                                                                                     |                                                     |         | CORPORATION |         |              |         |              |         | NON-         |        |              |        |   |         |      |   |  
|                                                                                                                 |                                                                                                     |                                                     |         | (PARENT CO. |         | GUARANTOR    |         | GUARANTOR    |         |              |        |              |        |   |         |     
|                                                                                                                 |                                                                                                     |                                                     |         | ONLY)       |         | SUBSIDIARIES |         | SUBSIDIARIES |         | ELIMINATIONS |        | CONSOLIDATED
|                                                                                                                 |                                                                                                     |                                                     |         |             |         |              |         |              |         |              |        |             
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                            |                                                                                                     |                                                     |         |             |         |              |         |              |         |              |        |              |        |   |         |      |   |   |         |        
|Net (loss) income                                                                                                |                                                                                                     | $                                                   | (49,236 | )           |         | $            | (11,378 | )            |         | $            | 620    |              |        | $ | 22,623  | (a)  |   | $ | (37,371 | )      
|Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:               |                                                                                                     |                                                     |         |             |         |              |         |              |         |              |        |              |        |   |         |      |   |   |         |        
|Depreciation and amortization                                                                                    |                                                                                                     |                                                     | 687     |             |         |              | 8,605   |              |         |              | 1,231  |              |        |   |        |      |   |   | 10,523  |        
|Deferred tax valuation allowance                                                                                 |                                                                                                     |                                                     |        |             |         |              | 2,964   |              |         |              |       |              |        |   |         |      |   |   | 2,964   |        
|Non-cash gain on extinguishment of bonds                                                                         |                                                                                                     |                                                     | (537    | )           |         |              |        |              |         |              |       |              |        |   |         |      |   |   | (537    | )      
|Non-cash restructuring and other special charges                                                                 |                                                                                                     |                                                     | 234     |             |         |              | (864    | )            |         |              |       |              |        |   |         |      |   |   | (630    | )      
|Provision for accounts receivable, claims, loss contracts
and costs and estimated earnings in excess of billings |                                                                                                     |                                                     |        |             |         |              | 21,115  |              |         |              |       |              |        |   |         |      |   |   | 21,115  |        
|Bond discount amortization                                                                                       |                                                                                                     |                                                     | 36      |             |         |              |        |              |         |              |       |              |        |   |        |      |   |   | 36      |        
|Equity in earnings of subsidiaries                                                                               |                                                                                                     |                                                     | 22,623  |             |         |              |        |              |         |              |       |              |        |   | (22,623 | )(a) |   |   |        |        
|Gain on sale of equipment                                                                                        |                                                                                                     |                                                     |        |             |         |              | (55     | )            |         |              | (73    | )            |        |   |        |      |   |   | (128    | )      
|Loss on sale of subsidiary                                                                                       |                                                                                                     |                                                     | (635    | )           |         |              | 15,211  |              |         |              |       |              |        |   |        |      |   |   | 14,576  |        
|Changes in operating assets and liabilities:                                                                     |                                                                                                     |                                                     |         |             |         |              |         |              |         |              |        |              |        |   |         |      |   |   |         |        
|                                                                                                                 | Accounts receivable and costs and estimated earnings
In excess of billings on uncompleted contracts |                                                     |         |            |         |              |         | (48,956      | )       |              |        | (252         | )      |   |         |     |   |   |         | (49,208 | )     
|                                                                                                                 | Inventories                                                                                         |                                                     |         |            |         |              |         | 320          |         |              |        | 552          |        |   |         |     |   |   |         | 872     |       
|                                                                                                                 | Other current assets                                                                                |                                                     |         | 7           |         |              |         | (1,445       | )       |              |        | 438          |        |   |         |     |   |   |         | (1,000  | )     
|                                                                                                                 | Accounts payable and accrued liabilities                                                            |                                                     |         | 1,259       |         |              |         | 27,946       |         |              |        | 132          |        |   |         |     |   |   |         | 29,337  |       
|                                                                                                                 | Accrued payroll and related withholdings                                                            |                                                     |         | 11          |         |              |         | 3,385        |         |              |        | 228          |        |   |         |     |   |   |         | 3,624   |       
|                                                                                                                 | Accrued interest payable                                                                            |                                                     |         | (637        | )       |              |         | 1            |         |              |        | 35           |        |   |         |     |   |   |         | (601    | )     
|                                                                                                                 | Billings in excess of costs and estimated
earnings on uncompleted contracts                         |                                                     |         |            |         |              |         | (5,510       | )       |              |        | (162         | )      |   |         |     |   |   |         | (5,672  | )     
|                                                                                                                 | Other current liabilities                                                                           |                                                     |         | 2,277       |         |              |         | 521          |         |              |        | (118         | )      |   |         |     |   |   |         | 2,680   |       
|                                                                                                                 | Other assets                                                                                        |                                                     |         | 283         |         |              |         | 526          |         |              |        | 18           |        |   |         |     |   |   |         | 827     |       
|                                                                                                                 | Other liabilities                                                                                   |                                                     |         | (68         | )       |              |         | (1,031       | )       |              |        | (99          | )      |   |         |     |   |   |         | (1,198  | )     
|                                                                                                                 | Due (to/from affiliates                                                                             |                                                     |         |            |         |              |         | (237         | )       |              |        | 237          |        |   |         |     |   |   |         |        |       
|                                                                                                                 | Due (to)/from parent company                                                                        |                                                     |         | 998         |         |              |         | (232         | )       |              |        | (766         | )      |   |         |     |   |   |         |        |       
|                                                                                                                 |                                                                                                     |                                                     |         |             |         |              |         |              |         |              |        |              |        |   |         |      |   |   |         |        
|                                                                                                                 |                                                                                                     | Net cash (used in) provided by operating activities |         |             | (22,698 | )            |         |              | 10,886  |              |        |              | 2,021  |   |         |      |  |   |         |         | (9,791 | )
|                                                                                                                 |                                                                                                     |                                                     |         |             |         |              |         |              |         |              |        |              |        |   |         |      |   |   |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                            |                                                                                                     |                                                     |         |             |         |              |         |              |         |              |        |              |        |   |         |      |   |   |         |        
|Proceeds from sale of equipment                                                                                  |                                                                                                     |                                                     |        |             |         |              | 177     |              |         |              | 174    |              |        |   |        |      |   |   | 351     |        
|Purchase of equipment and leasehold improvements                                                                 |                                                                                                     |                                                     | (358    | )           |         |              | (5,081  | )            |         |              | (939   | )            |        |   |        |      |   |   | (6,378  | )      
|Proceeds from sale of subsidiary                                                                                 |                                                                                                     |                                                     | 23,388  |             |         |              | (262    | )            |         |              |       |              |        |   |        |      |   |   | 23,126  |        
|Acquisitions of subsidiaries, net of cash acquired                                                               |                                                                                                     |                                                     |        |             |         |              | (48     | )            |         |              |       |              |        |   |        |      |   |   | (48     | )      
|Contingent earn-out payments                                                                                     |                                                                                                     |                                                     | (3,239  | )           |         |              |        |              |         |              |       |              |        |   |        |      |   |   | (3,239  | )      
|                                                                                                                 |                                                                                                     |                                                     |         |             |         |              |         |              |         |              |        |              |        |   |         |      |   |   |         |        
|                                                                                                                 |                                                                                                     | Net cash provided by (used in) investing activities |         |             | 19,791  |              |         |              | (5,214  | )            |        |              | (765   | ) |         |      |  |   |         |         | 13,812 |  
|                                                                                                                 |                                                                                                     |                                                     |         |             |         |              |         |              |         |              |        |              |        |   |         |      |   |   |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                            |                                                                                                     |                                                     |         |             |         |              |         |              |         |              |        |              |        |   |         |      |   |   |         |        
|Net change in bank overdraft                                                                                     |                                                                                                     |                                                     | (1,164  | )           |         |              | (6,993  | )            |         |              | 440    |              |        |   |        |      |   |   | (7,717  | )      
|Net activity on revolving line of credit                                                                         |                                                                                                     |                                                     | 12,085  |             |         |              |        |              |         |              | (1,450 | )            |        |   |        |      |   |   | 10,635  |        
|Payment of loan origination fees                                                                                 |                                                                                                     |                                                     | (171    | )           |         |              |        |              |         |              |       |              |        |   |        |      |   |   | (171    | )      
|Proceeds from fixed asset borrowings                                                                             |                                                                                                     |                                                     |        |             |         |              | 238     |              |         |              | 46     |              |        |   |        |      |   |   | 284     |        
|Repayments of fixed asset borrowings                                                                             |                                                                                                     |                                                     |        |             |         |              | (3,816  | )            |         |              | (61    | )            |        |   |        |      |   |   | (3,877  | )      
|Repayments of term loan                                                                                          |                                                                                                     |                                                     | (4,972  | )           |         |              |        |              |         |              |       |              |        |   |        |      |   |   | (4,972  | )      
|Repayments of seller notes                                                                                       |                                                                                                     |                                                     | (3,457  | )           |         |              |        |              |         |              |       |              |        |   |         |      |   |   | (3,457  | )      
|Proceeds from exercise of stock options                                                                          |                                                                                                     |                                                     | 4       |             |         |              |        |              |         |              |       |              |        |   |        |      |   |   | 4       |        
|                                                                                                                 |                                                                                                     |                                                     |         |             |         |              |         |              |         |              |        |              |        |   |         |      |   |   |         |        
|                                                                                                                 |                                                                                                     | Net cash used in financing activities               |         |             | 2,325   |              |         |              | (10,571 | )            |        |              | (1,025 | ) |         |      |  |   |         |         | (9,271 | )
|                                                                                                                 |                                                                                                     |                                                     |         |             |         |              |         |              |         |              |        |              |        |   |         |      |   |   |         |        
|EXCHANGE RATE EFFECT ON CASH                                                                                     |                                                                                                     |                                                     |        |             |         |              | 18      |              |         |              | (345   | )            |        |   |         |      |   |   | (327    | )      
|                                                                                                                 |                                                                                                     |                                                     |         |             |         |              |         |              |         |              |        |              |        |   |         |      |   |   |         |        
|NET (DECREASE) INCREASE IN CASH                                                                                  |                                                                                                     |                                                     | (582    | )           |         |              | (4,881  | )            |         |              | (114   | )            |        |   |        |      |   |   | (5,577  | )      
|CASH AND CASH EQUIVALENTS, beginning of period                                                                   |                                                                                                     |                                                     | 1,532   |             |         |              | 5,420   |              |         |              | 186    |              |        |   |        |      |   |   | 7,138   |        
|                                                                                                                 |                                                                                                     |                                                     |         |             |         |              |         |              |         |              |        |              |        |   |         |      |   |   |         |        
|CASH AND CASH EQUIVALENTS, end of period                                                                         |                                                                                                     | $                                                   | 950     |             |         | $            | 539     |              |         | $            | 72     |              |        | $ |        |      |   | $ | 1,561   |        
|                                                                                                                 |                                                                                                     |                                                     |         |             |         |              |         |              |         |              |        |              |        |   |         |      |   |   |         |        



|(a) |  | Elimination of equity in earnings of subsidiaries.
|--- |  | --------------------------------------------------





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##### Table of Contents






Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

General

We were formed in March 1998 to become a leading nationwide provider of
rail system services, including construction and rehabilitation, repair and
maintenance, and related products. We primarily perform services pursuant to
contracts for the completion of specific projects, some of which take up to
five years to complete. On most projects, we contract directly with rail system
operators, while on other projects we act as a subcontractor.

In August 1998, we acquired, in separate concurrent transactions, fourteen
companies (the Founding Companies) engaged principally in the rail system
services and products business and we consummated our initial public offering
(IPO) of Common Stock. In November 1998, we acquired two companies; in 1999,
we acquired fourteen companies or groups of companies; and in 2000, we acquired
five companies or groups of companies. Except for the acquisition of Comstock
Holdings, Inc. (Comstock), a Founding Company, all of our acquisitions have
been accounted for as purchases in accordance with APB No. 16. Comstock has
been identified as the accounting acquirer for accounting and financial
statement purposes consistent with Staff Accounting Bulletin No. 97 of the SEC
because its owners received the largest portion, 34.6% of the shares of Common
Stock issued to the owners of the Founding Companies at the time of their
acquisition.

Our consolidated balance sheet as of June 30, 2002 includes all companies
that were owned as of June 30, 2002. Our consolidated statement of operations
for the three and six months ended June 30, 2002 and statement of cash flows
for the six months ended June 30, 2002 includes the results of operations and
cash flows of all companies owned as of June 30, 2002. There were no
acquisitions or dispositions during the three or six months ended June 30,
2002. Our consolidated balance sheet as of December 31, 2001 includes all
companies that were owned as of December 31, 2001. During the second quarter of
2001, we sold Railworks W.T. Byler, LP. Our statement of operations for the
three and six months ended June 30, 2001 and statement of cash flows for the
six months ended June 30, 2001 include the results of operations and cash flows
of all companies owned as of June 30, 2001 and the results of operations and
cash flows of Railworks W.T. Byler, LP, through the date of disposition. There
were no acquisitions during the three or six months ended June 30, 2001.

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.





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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
fund 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 August 1, 2002, the amount
outstanding under the Companys Transit Revolver totaled $45.0 million, the
maximum amount permitted under the facility, of which $30.0 million was
outstanding borrowings and $15.0 million was a letter of credit supporting the
Companys commercial insurance. At that date, the amount outstanding under the
TP&S Revolver was $31.7 million, consisting of $21.2 million of outstanding
borrowings and $10.5 million of letters of credit outstanding. We had $11.7
million of collateral outstanding under the Bonding Facility. 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, Matlin
Patterson Global Opportunities Fund L.P. (Matlin Patterson), for itself and
Stonehill Capital Management, and Travelers Casualty & Surety Company of
America (Travelers). Matlin Patterson, a private investment fund formerly
known as CSFB Global Opportunities Advisers, LLC, was spun off by Credit Suisse
First Boston on July 16, 2002. Credit Suisse First Boston no longer has any
affiliation with Matlin Patterson other than as a limited partner. Matlin
Patterson Global Partners LLC is the general partner of Matlin Patterson and
Matlin Patterson Global Advisors LLC is its investment advisor. The DIP
Facility includes an Amended and Restated DIP Transit Revolving Credit
Agreement (the Transit Revolver) for up to $30.0 million in borrowings and a
$15.0 million letter of credit in support of our company wide liability and
casualty insurance in connection with the Debtors rail transit division; a DIP
Transit Bonding Facility (the Bonding Facility) for up to $100.0 million in
bonding commitment to support our project bonding requirements; a DIP Bond
Support Credit Agreement (the Bond Support Facility) with Matlin Patterson
for up to $40.0 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 $35.0 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
August 1, 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; $31.7 million was outstanding under the TP&S Revolver, consisting of
$21.2 million in borrowings and $10.5 million of letters of credit outstanding;
and we had $11.7 million of collateral outstanding under the Bonding 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. On June 18, 2002,
the Debtors filed a first amended plan version of the Plan, and on August 2,
2002, the Debtors filed a second amended version of the Plan. 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 certain preferred stock, and
satisfaction of the





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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
$174.0 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 (if their Plan class votes to accept the Plan) 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.

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





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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.

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.

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.

Chapter 11 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





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compromise. See Note 2 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.
Implementation of this statement did not have an effect on the Companys
financial statements.

In June 2001, the Financial Accounting Standards Board approved Statement
of Financial Accounting Standard No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142), which requires companies to cease amortizing
goodwill. SFAS No. 142 also establishes a new method of testing goodwill for
impairment on an annual basis or on an interim basis if an event occurs or
circumstances change that would reduce the fair value of a reporting unit below
its carrying value. The adoption of SFAS No. 142 resulted in the
discontinuation of amortization of goodwill commencing January 1, 2002, which
resulted in the Company not recording approximately $1.3 million and $2.7
million of amortization expense during the three and six months ended June 30,
2002, respectively. Had the Company adopted SFAS No. 142 effective January 1,
2001, the Company would not have recorded approximately $1.7 million and $3.1
million of amortization expense during the three and six months ended June 30,
2001, respectively.

The following table provides the comparable effects of adoption of SFAS
No. 142 for the three months ended June 30, 2002 and 2001 (in thousands, except
per share data).

|                                                                    |  |             |         |      |  |   |         |  
|------------------------------------------------------------------- |  | ----------- | ------- | ---- |  | - | ------- | -
|                                                                    |  | (Unaudited)
|                                                                    |  | 2002        |         | 2001
|                                                                    |  |             |         |     
|Reported net loss before extraordinary item                         |  | $           | (21,903 | )    |  | $ | (38,060 | )
|Add back: goodwill amortization (net of tax)                        |  |             |        |      |  |   | 1,734   |  
|                                                                    |  |             |         |      |  |   |         |  
|Adjusted net loss before extraordinary item                         |  | $           | (21,903 | )    |  | $ | (36,326 | )
|                                                                    |  |             |         |      |  |   |         |  
|Reported basic and diluted loss per share before extraordinary item |  | $           | (1.52   | )    |  | $ | (2.48   | )
|Add back: goodwill amortization (net of tax)                        |  |             |        |      |  |   | .11     |  
|                                                                    |  |             |         |      |  |   |         |  
|Adjusted basic and diluted loss per share before extraordinary item |  | $           | (1.52   | )    |  | $ | (2.37   | )
|                                                                    |  |             |         |      |  |   |         |  

The following table provides the comparable effects of adoption of SFAS
No. 142 for the six months ended June 30, 2002 and 2001 (in thousands, except
per share data).

|                                                                                                       |  |             |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------ |  | ----------- | ------- | ---- |  | - | ------- | -
|                                                                                                       |  | (Unaudited)
|                                                                                                       |  | 2002        |         | 2001
|                                                                                                       |  |             |         |     
|Reported net loss before extraordinary item and change in accounting principle                         |  | $           | (36,635 | )    |  | $ | (37,908 | )
|Add back: goodwill amortization (net of tax)                                                           |  |             |        |      |  |   | 3,097   |  
|                                                                                                       |  |             |         |      |  |   |         |  
|Adjusted net loss before extraordinary item and change in accounting principle                         |  | $           | (36,635 | )    |  | $ | (34,811 | )
|                                                                                                       |  |             |         |      |  |   |         |  
|Reported basic and diluted loss per share before extraordinary item and
change in accounting principle |  | $           | (2.55   | )    |  | $ | (2.47   | )
|Add back: goodwill amortization (net of tax)                                                           |  |             |        |      |  |   | .20     |  
|                                                                                                       |  |             |         |      |  |   |         |  
|Adjusted basic and diluted loss per share before extraordinary item and
change in accounting principle |  | $           | (2.55   | )    |  | $ | (2.27   | )
|                                                                                                       |  |             |         |      |  |   |         |  





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The Company is currently in the process of testing goodwill for impairment
under SFAS No. 142. The first step of the process, which was required to be
completed by June 30, 2002, requires the Company to determine whether the
carrying value of its reporting units exceeds the fair value of those reporting
units. As of June 30, 2002, the Company has identified seven reporting units
with associated goodwill and has determined that the carrying value exceeds the
fair value for each of these reporting units. The second step of the process
requires the Company to determine the measurement of the impairment. The
Company expects to complete such impairment analysis by December 31, 2002.
While the Company has not determined the measurement of the impairment as of
June 30, 2002, it believes that this statement will require a material
impairment charge on the Companys financial statements upon final
implementation. Further, upon emergence from Chapter 11
Bankruptcy, the Company may be required to record an additional charge to write off
the goodwill to the extent that it exceeds excess reorganization value of the
Company upon emergence.

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.
The Company does not believe this statement will have a material impact on its
results of operations.

In August 2001, the FASB issued SFAS No. 144 Accounting for the
Impairment or 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.
Implementation of this statement did not have a material impact on the
Companys financial statements.

On May 1, 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 143 is effective for the Companys fiscal year
beginning January 1, 2003. The Company is in the process of evaluating what
impact, if any, this standard will have on the Companys financial statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 is effective for
the Companys fiscal year beginning January 1, 2003. The Company is in the
process of evaluating what impact, if any, this standard will have on the
Companys Consolidated Financial Statements.

Results of Operations

Three Months Ended June 30, 2002 Compared to the Three Months Ended June
30, 2001.

Revenue.Revenue decreased $54.1 million, or 27.3%, from $198.3 million
for the three months ended June 30, 2001 to $144.2 million for the three months
ended June 30, 2002. A portion of the decrease in revenue for the three months
ended June 30, 2002 was attributable to





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our decision
to lessen our transit services segments exposure to the
power and industrial and commercial sectors as well as a lack of new projects
in that segment. Revenue also decreased in our rail track services group due
to the sale of the civil and maintenance divisions of RailWorks W.T. Byler
during 2001. Additional decreases resulted from the winding down of a project
in our rail products and services group as well as liquidity constraints and
other effects of operating in bankruptcy during 2002.

Transit services revenue decreased $33.0 million, or 29.2%, from $112.9
million for the three months ended June 30, 2002 to $79.9 million for the three
months ended June 30, 2002. The majority of this decrease in revenue for the
three months ended June 30, 2002 is a result of our decision to lessen our
exposure to the power and industrial and commercial sectors. In addition, in
our core transit business we lack sufficient revenues from new projects to
offset revenues of those completed since the second quarter of 2001.

Rail track services revenue decreased $15.1 million, or 27.2%, from $55.5
million for the three months ended June 30, 2001 to $40.4 million for the three
months ended June 30, 2002. This decrease is primarily the result of the
inclusion of a full quarter of revenue in 2001 from the civil and maintenance
divisions of RailWorks W.T. Byler, LP, which was sold during the second quarter
of 2001.

Rail products and services revenue decreased $6.0 million, or 20.1%, from
$29.9 million for the three months ended June 30, 2001 to $23.9 million for the
three months ended June 30, 2002. This decrease in revenue for the three months
ended June 30, 2002 is primarily a result of the winding down of our railroad
construction contract in Panama.

Gross Profit.Gross profit increased $11.2 million, or 155.6%, from $7.2
million for the three months ended June 30, 2001 to $18.4 million for the three
months ended June 30, 2002. This increase is primarily the result of increased
gross profit in the transit services division partially offset by decreased
gross profit in the rail track services and rail products and services
segments. As a result, the gross profit percentage increased from 3.6% for the
three months ended June 30, 2001 to 12.8% for the three months ended June 30,
2002.

Transit services gross profit increased $14.3 million from a loss of $7.0
million for the three months ended June 30, 2001 to gross profit of $7.3
million for the three months ended June 30, 2002. This increase is primarily
the result of decreased gross profit of approximately $21.1 million during the
three months ended June 30, 2001 due to required provisions for contract claims
and other contract exposures on several power and industrial and commercial
projects. This increase is partially offset by decreased gross profit during
the three months ended June 30, 2002 as a result of the decrease in revenue
discussed above, changes in managements estimates to complete on several
contracts in our commercial and transit sectors as well as the application of
percentage of completion accounting to managements lowered profit estimates
made during the course of 2001 for ongoing projects. The gross profit
percentage increased from negative 6.1% for the three months ended June 30,
2001 to 9.1% for the three months ended June 30, 2002 as a result of the items
mentioned above.

Rail track services gross profit decreased $1.6 million, or 18.4%, from
$8.7 million for the three months ended June 30, 2001 to $7.1 million for the
three months ended June 30, 2002. The decrease in gross profit for the rail
track services segment for the three months ended June 30, 2002 is primarily
due to the sale of the civil and maintenance divisions of RailWorks W.T. Byler
in the second quarter of 2001. The gross profit percentage increased from 15.7
% for the three months ended June 30, 2001 to 17.6 % for the three months ended
June 30, 2002 primarily as a result of the sale of the division discussed above which has lower
margins than the remainder of the rail track services segment.





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Rail products and services gross profit decreased $1.5 million, or 27.3%,
from $5.5 million for the three months ended June 30, 2001 to $4.0 million for
the three months ended June 30, 2002. This decrease in gross profit for the
three months ended June 30, 2002 is partially a result of the winding down of
our railroad construction contract in Panama. The remaining decrease was
caused by liquidity constraints and other effects of operating in bankruptcy.
As a result of the foregoing, the gross profit percentage decreased from 20.0%
for the three months ended June 30, 2001 to 16.8% for the three months ended
June 30, 2002.

Selling, General and Administrative Expenses.Selling, general and
administrative expenses increased $2.1 million or 12.1%, from $17.3 million for
the three months ended June 30, 2001 to $19.4 million for the three months
ended June 30, 2002. Approximately $1.8 million of the increase in selling,
general and administrative expenses for the three months ended June 30, 2002
was due to additional compensation expense recorded at corporate to reserve for
the remaining outstanding balance of officer stock grant loans receivable. The
remaining increase was the result of higher insurance costs in the rail track
services and rail products and services segments during 2002 and additional
provisions for uncollectable accounts receivable, partially offset by the
cessation of amortization of goodwill in 2002 in accordance with SFAS No. 142.
As a percentage of revenue, selling, general and administrative expenses
increased from 8.4% for the three months ended June 30, 2001 to 13.5% for the
three months ended June 30, 2002. This increase was primarily the result of
the items mentioned above as well as the decrease in revenue discussed above.

Transit services selling, general and administrative expenses decreased
$0.8 million or 10.3%, from $7.8 million for the three months ended June 30,
2001 to $7.0 million for the three months ended June 30, 2002. The decrease in
selling, general and administrative expenses for the three months ended June
30, 2002 was due primarily to the cessation of amortization of goodwill in 2002
and decreased insurance costs in 2002 partially offset by additional selling,
general and administrative expenses related to additional provisions for
uncollectable accounts receivable. As a percentage of segment revenue,
selling, general and administrative expenses increased from 6.8% for the three
months ended June 30, 2001 to 8.8% for the three months ended June 30, 2002.
This percentage increase was primarily the result of the decrease in revenue
discussed above.

Rail track services selling, general and administrative expenses increased
$0.1 million, or 2.1%, from $4.8 million for the three months ended June 30,
2001 to $4.9 million for the three months ended June 30, 2002. The increase in
selling, general and administrative expenses for the three months ended June
30, 2002 was due primarily to increased insurance costs in 2002 partially
offset by the cessation of amortization of goodwill in 2002. As a percentage
of segment revenue, selling, general and administrative expenses increased from
8.6% for the three months ended June 30, 2001 to 12.1% for the three months
ended June 30, 2002. This percentage increase was primarily the result the
decrease in revenue discussed above.

Rail products and services selling, general and administrative expenses
decreased $0.4 million, or 12.5%, from $3.2 million for the three months ended
June 30, 2001 to $2.8 million for the three months ended June 30, 2002. The
decrease in selling, general and administrative expenses for the three months
ended June 30, 2002 was due partially to the cessation of amortizing goodwill
in 2002 in addition to savings from the development of a centralized hub for
our rail services division. As a percentage of segment revenue, selling,
general and administrative expenses increased from 11.6% for the three months
ended June 30, 2001 to 11.7% for the
three months ended June 30, 2002. This percentage increase
was primarily the result the decrease in revenue discussed above.





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Corporate selling, general and administrative expenses increased $3.2
million, or 213.3%, from $1.5 million for the three months ended June 30, 2001
to $4.7 million for the three months ended June 30, 2002. Approximately $1.8
million of this increase was due to additional compensation expense recorded to
reserve for the remaining outstanding balance of officer stock grant loans
receivable. The remainder of the increase was the result of decreased selling
general and administrative expenses during the three months ended June 30, 2001
from the release of corporate reserves that were determined to be excess. As a
percentage of total revenue, selling, general and administrative expenses
increased from 0.8% for the three months ended June 30, 2001 to 3.3% for the
three months ended June 30, 2002. The percentage increase was primarily due to
the items mentioned above as well as the decrease in revenue discussed above.

Operating Loss.Operating loss decreased $9.7 million, from a loss of
$10.8 million for the three months ended June 30, 2001 to a loss of $1.1
million for the three months ended June 30, 2002. This increase is primarily a
result of the items mentioned above.

Interest Expense.Interest expense decreased $7.9 million, or 76.7%, from
$10.3 million for the three months ended June 30, 2001 to $2.4 million for the
three months ended June 30, 2002. The decrease in interest expense for the
three months ended June 30, 2002 was due primarily to the Company not accruing
approximately $9.0 million of interest expense during the three months ended
June 30, 2002 related to prepetition debt in accordance with SOP 90-7. This
decrease is partially offset by the addition of interest expense in 2002
related to the DIP Facility.

Reorganization Items.In accordance with SOP 90-7, we have recorded
approximately 17.6 million of reorganization costs for the three months ended
June 30, 2002. These reorganization costs consist of approximately $6.8
million of professional and advisory fees incurred that are directly associated
with the reorganization proceedings under the Companys Chapter 11 filings,
$1.5 million of adequate protection fees paid to our prepetition secured
lenders and $9.3 million related to the write off of deferred financing costs
and issuance discounts related to our prepetition debt.

Taxes.The Company
has recorded an income tax provision of approximately $0.5 million for the
three months ended June 30, 2002. This amount includes a provision for our
Canadian subsidiaries in addition to a provision recorded for domestic state
taxes.

Net Loss.Net loss decreased $15.6 million, from a loss of $37.5 million
for the three months ended June 30, 2001 to a loss of $21.9 million for the
three months ended June 30, 2002. This decrease in net loss is a result of the
items mentioned above. The net loss for the three months ended June 30, 2001
is net of an extraordinary gain from the extinguishments of bonds of
approximately $0.5 million.

Six months Ended June 30, 2002 Compared to the Six months Ended June 30,
2001.

Revenue.Revenue decreased $113.3 million, or 30.7%, from $368.7 million
for the six months ended June 30, 2001 to $255.4 million for the six months
ended June 30, 2002. A portion of the decrease in revenue for the six months
ended June 30, 2002 was attributable to our decision to lessen our transit
services segments exposure to the power and industrial and commercial sectors
as well as a lack of new projects in that segment. Revenue also decreased in
our rail track services group due to the sale of the civil and maintenance
divisions of RailWorks W.T. Byler during 2001. Additional decreases resulted
from the winding down of a project in our rail products and services group as well as liquidity constraints and other
effects of operating in bankruptcy during 2002.





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Transit services revenue decreased $69.2 million, or 32.0%, from $216.1
million for the six months ended June 30, 2002 to $146.9 million for the six
months ended June 30, 2002. The majority of this decrease in revenue for the
six months ended June 30, 2002 is a result of our decision to lessen our
exposure to the power and industrial and commercial sectors. In addition, in
our core transit business we lack sufficient revenues from new projects to
offset revenues of those completed since the second quarter of 2001.

Rail track services revenue decreased $30.9 million, or 31.4%, from $98.5
million for the six months ended June 30, 2001 to $67.6 million for the six
months ended June 30, 2002. This decrease is primarily the result of the
inclusion of a full quarter of revenue in 2001 from the civil and maintenance
divisions of RailWorks W.T. Byler, LP, which was sold during the second quarter
of 2001.

Rail products and services revenue decreased $13.2 million, or 24.4%, from
$54.1 million for the six months ended June 30, 2001 to $40.9 million for the
six months ended June 30, 2002. This decrease in revenue for the six months
ended June 30, 2002 is primarily a result of the winding down of our railroad
construction contract in Panama.

Gross Profit.Gross profit decreased $7.5 million, or 20.2%, from $37.2
million for the six months ended June 30, 2001 to $29.7 million for the six
months ended June 30, 2002. A portion of the decrease in gross profit for the
six months ended June 30, 2002 is directly related to the shortfall in revenue
earned during the period as well as the sales of FCM Rail. Ltd and the civil
and maintenance divisions of RailWorks W.T. Byler during 2001. Additionally,
increased estimates of costs to complete resulting from liquidity constraints
and other operational factors caused a deterioration of gross profit margins.
These decreases were partially offset by required provisions for contract
claims and other contract exposures in the transit services segment recorded
during the six months ended June 30, 2001. As a result of the foregoing, the
gross profit percentage increased from 10.1% for the six months ended June 30,
2001 to 11.6% for the six months ended June 30, 2002.

Transit services gross profit increased $3.7 million, or 33.3%, from $11.1
million for the six months ended June 30, 2001 to gross profit of $14.8 million
for the six months ended June 30, 2002. This increase is the result of
decreased gross profit due to required provisions of approximately $21.1
million for contract claims and other contract exposures on several power and
industrial and commercial projects during the six months ended June 30, 2001.
The increase is partially offset by decreased gross profit during the six
months ended June 30, 2002 as a result of the decrease in revenue discussed
above, changes in managements estimates to complete on several contracts in
our commercial and transit sectors and the application of percentage of
completion accounting to managements lowered profit estimates made during the
course of 2001 for ongoing projects. As a result of the foregoing, the gross
profit percentage increased from 5.1% for the six months ended June 30, 2001 to
10.1% for the six months ended June 30, 2002.

Rail track services gross profit decreased $6.5 million, or 43.3%, from
$15.0 million for the six months ended June 30, 2001 to $8.5 million for the
six months ended June 30, 2002. The decrease in gross profit for the rail
track services segment for the six months ended June 30, 2002 is primarily due
to the sale of the civil and maintenance divisions of RailWorks W.T. Byler in
the second quarter of 2001. The remainder of this decrease is attributable to
managements estimates of greater costs to complete on several projects due to
complications of operating in bankruptcy.





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The gross profit percentage decreased from 15.2% for the six months ended
June 30, 2001 to 12.6% for the six months ended June 30, 2002 primarily as a
result of the items mentioned above.

Rail products and services gross profit decreased $4.7 million, or 45.8%,
from $11.1 million for the six months ended June 30, 2001 to $6.4 million for
the six months ended June 30, 2002. This decrease in gross profit for the six
months ended June 30, 2002 is partially a result of the winding down of our
railroad construction contract in Panama. A portion of the decrease is also
due to the inclusion of FCM Rail, Ltd. for a portion of the six months ended
June 30, 2001 prior to its sale. The remaining decrease was caused by
liquidity constraints and other effects of operating in bankruptcy. As a
result of the foregoing, the gross profit percentage decreased from 20.7% for
the six months ended June 30, 2001 to 15.7% for the six months ended June 30,
2002.

Selling, General and Administrative Expenses.Selling, general and
administrative expenses increased $1.1 million or 3.0%, from $36.1 million for
the six months ended June 30, 2001 to $37.2 million for the six months ended
June 30, 2002. Selling, general and administrative expenses increased
approximately $1.8 million for the six months ended June 30, 2002 due to
additional compensation expense recorded at corporate to reserve for the
remaining outstanding balance of officer stock grant loans receivable.
Additional increases resulted from increased insurance costs in the rail track
services and rail products and services segments during 2002 and additional
provisions for uncollectable accounts receivable. These increases were
partially offset by the cessation of amortization of goodwill in 2002 in
accordance with SFAS No. 142. As a percentage of revenue, selling, general and
administrative expenses increased from 9.8% for the six months ended June 30,
2001 to 14.6% for the six months ended June 30, 2002. This increase was
primarily the result of the items mentioned above as well as the decrease in
revenue discussed above.

Transit services selling, general and administrative expenses decreased
$0.8 million or 5.5%, from $14.6 million for the six months ended June 30, 2001
to $13.8 million for the six months ended June 30, 2002. The decrease in
selling, general and administrative expenses for the six months ended June 30,
2002 was due primarily to the cessation of amortization of goodwill in 2002 and
decreased insurance costs in 2002 partially offset by additional selling,
general and administrative expenses related to additional provisions for
uncollectable accounts receivable. As a percentage of segment revenue,
selling, general and administrative expenses increased from 6.8% for the six
months ended June 30, 2001 to 9.4% for the six months ended June 30, 2002. This
percentage increase was primarily the result of the decrease in revenue
discussed above.

Rail track services selling, general and administrative expenses increased
$0.3 million, or 2.9%, from $10.2 million for the six months ended June 30,
2001 to $9.9 million for the six months ended June 30, 2002. The increase in
selling, general and administrative expenses for the six months ended June 30,
2002 was due primarily to increased insurance costs in 2002 partially offset by
the cessation of amortization of goodwill in 2002. As a percentage of segment
revenue, selling, general and administrative expenses increased from 10.4% for
the six months ended June 30, 2001 to 14.6% for the six months ended June 30,
2002. This percentage increase was primarily the result the decrease in revenue
discussed above.

Rail products and services selling, general and administrative expenses
decreased $1.4 million, or 19.4%, from $7.2 million for the six months ended
June 30, 2001 to $5.8 million for the six months ended June 30, 2002. The
decrease in selling, general and administrative expenses for the six months
ended June 30, 2002 was due partially to the cessation of amortization of
goodwill in 2002 in addition to savings from the development of a centralized
hub for our rail services division. As a percentage of segment revenue,
selling, general and administrative expenses increased from 13.3% for the six
months ended June 30, 2001 to 14.2% for the six months ended June 30, 2002. This percentage decrease was primarily the
result of the cessation of goodwill amortization and the savings from the
centralized hub discussed above.





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Corporate selling, general and administrative expenses increased $3.6
million, or 87.8%, from $4.1 million for the six months ended June 30, 2001 to
$7.7 million for the six months ended June 30, 2002. Approximately $1.8 million
of this increase was due to additional compensation expense recorded to reserve
for the remaining outstanding balance of officer stock grant loans receivable.
The remaining increase was due to decreased selling general and administrative
expenses during the six months ended June 30, 2001 from the release of
corporate reserves that were determined to be excess. As a percentage of total
revenue, selling, general and administrative expenses increased from 1.1% for
the six months ended June 30, 2001 to 2.3% for the six months ended June 30,
2002. The percentage increase was primarily due to the items mentioned above as
well as the decrease in revenue discussed above.

Operating Income.Operating income decreased $7.8 million, from $0.3
million for the six months ended June 30, 2001 to a loss of $7.5 million for
the six months ended June 30, 2002. This decrease is primarily a result of the
items mentioned above.

Interest Expense.Interest expense decreased $15.7 million, or 76.6%,
from $20.5 million for the six months ended June 30, 2001 to $4.8 million for
the six months ended June 30, 2002. The decrease in interest expense for the
six months ended June 30, 2002 was due primarily to the Company not accruing
approximately $18.0 million of interest expense during the six months ended
June 30, 2002 related to prepetition debt in accordance with SOP 90-7. This
decrease was partially offset by the addition of interest expense in 2002
related to the DIP Facility.

Reorganization Items.In accordance with SOP 90-7, we have recorded
approximately 23.7 million of reorganization costs for the three months ended
June 30, 2002. These reorganization costs consist of approximately $11.4
million of professional and advisory fees incurred that are directly associated
with the reorganization proceedings under the Companys Chapter 11 filings,
$3.0 million of adequate protection fees paid to our prepetition secured
lenders and $9.3 million related to the write off of deferred financing costs
and issuance discounts related to our prepetition debt.

Taxes.The Company has recorded an income tax provision of approximately
$0.4 million for the six months ended June 30, 2002. This amount includes a
provision for our Canadian subsidiaries in addition to a provision recorded for
domestic state taxes.

Net Loss.Net loss decreased $6.1 million from a loss $37.4 million for
the six months ended June 30, 2001 to a loss of $31.3 million for the six
months ended June 30, 2002. This decrease in net loss is a result of the items
mentioned above as well as a gain from a change in accounting principle related
to the write off of negative goodwill in accordance with SFAS 142. The net
loss for the six months ended June 30, 2001 is net of an extraordinary gain
from the extinguishments of bonds of approximately $0.5 million.

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





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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 June 30, 2002, we had $1.3 million in cash and cash
equivalents offset by a cash overdraft of $1.2 million resulting in a net cash
position of $0.1 million compared to $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 as of December 31, 2001. Net cash used in operating
activities for the six months ended June 30, 2002 was approximately $9.1
million. Net cash used in investing activities for the six months ended June
30, 2002 was approximately $5.0 million, which consisted primarily of cash
payments for capital expenditures and earnout obligations. Net cash provided by
financing activities for the six months ended June 30, 2002 was approximately
$12.2 million, which included borrowings of approximately $14.9 million offset
by debt and cash overdraft repayments of approximately $2.7 million.

We had working capital of $91.5 million as of June 30, 2002, which does
not include liabilities subject to compromise of approximately $428.9 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 June 30, 2002 would be
$337.4 million. Our working capital as of December 31, 2001 was $141.3 million
excluding liabilities subject to compromise of approximately $455.1 million.
Including such liabilities subject to compromise as current liabilities, our
working capital deficit as of December 31, 2001 would have been $313.8 million.

The Debtors have determined that insufficient financial resources exist 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, which has not
been accrued, amounts to approximately $9.0 and $18.0 million for the three and
six months ended June 30, 2002. Capital expenditures were $4.5 million and
$6.4 million for the six months ended June 30, 2002 and 2001, 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 payable as of June 30, 2002 related to 2000 and 2001 operating
performance amounted to approximately $8.9 million. As a result of the Chapter
11 filings, additional consideration payable of approximately $7.7 million
related to our domestic subsidiaries has been classified as liabilities subject
to compromise.

Indebtedness. As of June 30, 2002, we had a total of $426.0 million of
indebtedness outstanding, which includes approximately $191.8 million
outstanding under our Amended and





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Restated Credit Agreement (the Credit Agreement), $174.0 million of
11 (1/2)% Senior Subordinated Notes (the Notes), $50.8 million under the DIP
Facility, $4.5 million under our Canadian credit agreement and $4.9 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.

As a result of the Chapter 11 filings, approximately $369.0 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 $174.0 million of Senior Subordinated Notes outstanding. It does
not include the debt of our Canadian subsidiaries or the DIP Facility which was
obtained after the Filing Date. 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 payments due October 15, 2001 and April
15, 2002 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.

In October 2001, we entered into the DIP Facility that was subsequently
amended and partially replaced in March 2002, which includes: 1) the Transit
Revolver with Matlin Patterson 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 Matlin Patterson 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. The DIP Facility matures on September 30, 2002.

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 Matlin Patterson, 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.





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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 Matlin Patterson, 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 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. The Additional Fees discussed above became due on May 7, 2002. As of
the date of this filing, the Company has not paid the Additional Fees. A
liability for these fees is included in other accrued liabilities on the
accompanying consolidated balance sheet as of June 30, 2002. As of August 1,
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;
$31.7 million was outstanding under the TP&S Revolver, consisting of $21.2
million of borrowings and $10.5 million of letters of credit; and we had
approximately $11.7 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, Matlin Patterson and Travelers.
Pleadings requiring the consent of BOA, Matlin Patterson 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





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Facilities will be sufficient to satisfy our working capital needs or that
we will be able to secure additional financing if needed. 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 June 30, 2002 (in thousands):

|                                   |                              |                                          |         |  |                  |   |           |  |           |   |               |  |  |   |       |  |  |   |       |  | 
|---------------------------------- | ---------------------------- | ---------------------------------------- | ------- |  | ---------------- | - | --------- |  | --------- | - | ------------- |  |  | - | ----- |  |  | - | ----- |  | 
|                                   |                              | Payments Due and/or Expiration By Period
|                                   |                              |                                         
|                                   |                              |                                          | Total   |  | Less than 1 year |   | 1-3 years |  | 4-5 years |   | After 5 years
|                                   |                              |                                          |         |  |                  |   |           |  |           |   |              
|                                   | Contractual Obligations      |                                          |         |  |                  |   |           |  |           |   |               |  |  |   |       |  |  |   |       |  | 
|Long-term debt (a)                 |                              | $                                        | 270,250 |  |                  | $ | 270,250   |  |           | $ |              |  |  | $ |      |  |  | $ |      | 
|Capital lease obligations (b)      |                              |                                          | 2,956   |  |                  |   | 2,226     |  |           |   | 730           |  |  |   |      |  |  |   |      | 
|Operating leases (c)               |                              |                                          | 25,473  |  |                  |   | 8,761     |  |           |   | 10,789        |  |  |   | 3,936 |  |  |   | 1,987 | 
|                                   |                              |                                          |         |  |                  |   |           |  |           |   |               |  |  |   |       |  |  |   |       | 
|Total contractual cash obligations |                              | $                                        | 297,751 |  |                  | $ | 280,309   |  |           | $ | 11,519        |  |  | $ | 3,936 |  |  | $ | 1,987 | 
|                                   |                              |                                          |         |  |                  |   |           |  |           |   |               |  |  |   |       |  |  |   |       | 
|                                   | Other Commercial Commitments |                                          |         |  |                  |   |           |  |           |   |               |  |  |   |       |  |  |   |       |  | 
|Lines of Credit (d)                |                              | $                                        | 152,768 |  |                  | $ | 152,768   |  |           | $ |              |  |  | $ |      |  |  | $ |      | 
|Letters of Credit (e)              |                              |                                          | 22,161  |  |                  |   | 8,307     |  |           |   | 13,654        |  |  |   | 200   |  |  |   |      | 
|                                   |                              |                                          |         |  |                  |   |           |  |           |   |               |  |  |   |       |  |  |   |       | 
|Total commercial commitments       |                              | $                                        | 174,929 |  |                  | $ | 161,075   |  |           | $ | 13,654        |  |  | $ | 200   |  |  | $ |      | 
|                                   |                              |                                          |         |  |                  |   |           |  |           |   |               |  |  |   |       |  |  |   |       | 



|(a) |  | Long term debt includes approximately $174.0 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 June 30, 2002 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 of 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 June 30, 2002 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.                                                                                                                                                                                                                                                                                                                                                       
|   
|(d) |  | Lines of credit include $97.5 million under the revolving credit portion
of the Credit Agreement due in 2004, $50.8 million under the DIP Facility
due in 2002 and $4.5 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 June 30, 2002 and has been
included as due in less than one year for purposes of this schedule.
|   
|(e) |  | As of June 30, 2002, we had letters of credit and other collateral
outstanding of approximately $22.2 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. We
believe the rents to be the fair market rental value of the property.





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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 quarterly report may contain 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 to 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





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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. The Company is continuing to negotiate certain terms and
conditions of the plan of reorganization with their prepetition secured lenders
and anticipates filing an amended plan of reorganization in the near term. It
is anticipated that the terms and conditions of the amended plan of
reorganization will differ from the terms and conditions of the plan of
reorganization described above. 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. On
June 18 and August 2, 2002, amended versions of the Plan were filed. 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





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approval. 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.

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





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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.





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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





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##### Table of Contents



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 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to market risk associated principally with changes in
interest rates. Interest rate exposure is principally limited to the $55.3
million outstanding as of June 30, 2002 under the post petition DIP Facility
and non-debtor Canadian line of credit. 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 $0.3 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 June
30, 2002.





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##### Table of Contents






PART II.  OTHER INFORMATION




Item 1. Legal Proceedings

On September 20, 2001, the Company and 22 of its U.S. subsidiaries 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 Company is currently operating as a debtor-in-possession under
the supervision of the Bankruptcy Court. The following are the material
developments which have occurred since April 1, 2002:



| |  |  | On May 9, 2002, the Company filed a motion with
the Bankruptcy Court requesting authority to employ James
Kimsey as President and Chief Operating Officer. Pending
Bankruptcy Court consideration of this motion, Mr. Kimsey has
been serving the Company in an at-will capacity. A hearing
to consider this application presently is scheduled to take
place on September 3, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | On June 18, 2002 and August 2, 2002, the
Company filed amended versions of its plan of reorganization
with the Bankruptcy Court. The Plan, as amended,
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 preferred stock and warrants, 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 $174.0 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, provided their Plan class votes to accept the
Plan, 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 remains
subject to Bankruptcy Court approval and certain other
conditions.
|
| |  |  | On August 6, 2002, the Bankruptcy Court
approved the Companys disclosure statement which provides a
summary of the plan of reorganization, as well as other
information to the Debtors businesses and reorganization
cases. The Bankruptcy Court also established September 23,
2002 as the hearing date to consider approval of the Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Shortly before May 9, 2002, InfraSource, Inc. (InfraSource) notified the
Company for the first time of an alleged breach of non-compete agreements by
Jim Kimsey, and repeatedly thereafter, InfraSource demanded that the Company
terminate Mr. Kimseys employment or be prepared to defend itself against
alleged claims for tortuous interference with certain contracts and for unfair
competition. In response to these threats, the Company filed an adversary





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proceeding in the Bankruptcy Court on June 6, 2002 seeking a declaratory
judgment against InfraSource, asking the Bankruptcy Court to declare that the
Company did not tortuously interfere with certain contracts or compete
unfairly. InfraSource counterclaimed against the Company seeking injunctive
relief and damages. In addition, on June 12, 2002, InfraSource and one of its
subsidiaries filed a civil action against Mr. Kimsey in a Pennsylvania state
court, seeking, among other things, to enjoin Mr. Kimsey from working for the
Company and to compel Mr. Kimsey to return certain documents. Mr. Kimsey
removed the civil action to federal court in Pennsylvania, after which, by
agreement of the parties, the matter (now an adversary proceedings
before the Bankruptcy Court) was transferred to the Bankruptcy Court. The plaintiffs then filed a
motion to remand the action to Pennsylvania state court, which motion was
denied by the Bankruptcy Court, as was the motion for abstention filed by
InfraSource in the declaratory judgment action. Consequently, both adversary
proceedings remain pending before the Bankruptcy Court and a trial in request
for preliminary and permanent injunctive relief is scheduled for September 3,
2002.




Item 6. Exhibits and Reports on Form 8-K

(a)

|        |  |                                                                                                                 |  |  
|------- |  | --------------------------------------------------------------------------------------------------------------- |  | -
|EXHIBIT |  |                                                                                                                 |  |  
|NUMBER  |  | DESCRIPTION OF EXHIBITS                                                                                         |  |  
|        |  |                                                                                                                 |  |  
|2.1     |  | Disclosure Statement to Debtors Second Amended Joint
Plan of Reorganization, dated as of August 8, 2002.       |  | +
|        |  |                                                                                                                 |  |  
|99.1    |  | Certification Pursuant to 18 U.S.C. §1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | +
|        |  |                                                                                                                 |  |  
|99.2    |  | Certification Pursuant to 18 U.S.C. §1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | +



|+ |  | Filed herewith.
|- |  | ---------------

(b)  Reports on Form 8-K:

A current report on Form 8-K, which included and reported Changes in
Registrants Certifying Accountant under Item 4, was filed on August 6, 2002,
and announced that Arthur Andersen LLP, the Companys auditor of record, had
notified the Securities and Exchange Commission that it is unable to perform
future audit services for the Company and, as a result, Arthur Andersens
relationship with the Company is effectively terminated.

A current report on Form 8-K, which included and reported Changes in
Registrants Certifying Accountant under Item 4, was filed on August 13, 2002,
and announced that PricewaterhouseCoopers LLP has been retained by the Company
as its independent auditors and tax accountants.





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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|                      |  |                        
|--------------------- |  | -----------------------
|Date: August 19, 2002 |  |                        
|                     
|                      |  | RAILWORKS CORPORATION  
|                     
|                     
|                     
|                      |  | /s/ John
Polatz        
|                      |  | John Polatz            
|                      |  | Chief Financial Officer





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##### Table of Contents






INDEX TO EXHIBITS

|        |  |                                                                                                                                                   |  |  
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  | -
|EXHIBIT |  |                                                                                                                                                   |  |  
|NUMBER  |  | DESCRIPTION OF EXHIBITS                                                                                                                           |  |  
|        |  |                                                                                                                                                   |  |  
|2.1     |  | Disclosure Statement to Debtors Second Amended Joint
Plan of Reorganization, dated as of August 8, 2002.                                         |  | +
|        |  |                                                                                                                                                   |  |  
|99.1    |  | Certification of Chief Executive Officer pursuant to 18
U.S.C. §1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002        |  | +
|        |  |                                                                                                                                                   |  |  
|99.2    |  | Certification of acting Chief Financial Officer pursuant
to 18 U.S.C. §1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 |  | +



|+ |  | Filed herewith.
|- |  | ---------------