<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
October 31, 1999 0-22906
- ----------------------------- ------------------------
For the Quarter Ended Commission File Number
ABC-NACO Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3498749
- -------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2001 Butterfield Road, Suite 502, Downers Grove, IL 60515
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number (630) 852-1300
--------------------
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_______
-------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 1, 1999
- ------------------------------ ---------------------------------
Common Stock, $.01 par value 19,061,132 Shares
<PAGE>
ABC-NACO INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I Financial Information
Item 1 Unaudited Consolidated Financial Statements
Unaudited Consolidated Balance Sheets 3
Unaudited Consolidated Statements of Operations 4
Unaudited Consolidated Statements of Stockholders' Equity 5
Unaudited Consolidated Statements of Cash Flows 6
Notes to Unaudited Consolidated Financial Statements 7 - 12
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 13 - 17
Item 3 Quantitative and Qualitative Disclosures About Market Risk 18
Part II Other Information
Item 2 Changes in Securities and Use of Proceeds 20
Item 6 Exhibits and Reports on Form 8-K 20
</TABLE>
2
<PAGE>
ABC-NACO INC.
CONSOLIDATED BALANCE SHEETS
As of October 31, 1999 and July 31, 1999
<TABLE>
<CAPTION>
(In thousands, except share and per share data)
October 31, July 31,
ASSETS 1999 1999
- ------ ----------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,187 $ 3,159
Accounts receivable, less allowances of $1,652 and $1,708, respectively 90,285 82,995
Inventories 87,959 73,633
Prepaid expenses and other current assets 14,926 11,189
Prepaid income taxes 9,226 9,226
----------- ----------
Total current assets 205,583 180,202
----------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Land 11,331 5,232
Building and improvements 37,928 33,403
Machinery and equipment 270,156 248,040
Patterns, tools, gauges and dies 13,364 19,650
Construction in progress 25,884 29,583
Less - Accumulated depreciation (114,061) (107,815)
----------- ----------
Net property, plant and equipment 244,602 228,093
----------- ----------
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES 14,668 14,490
----------- ----------
OTHER NONCURRENT ASSETS - net 34,659 31,036
----------- ----------
Total assets $ 499,512 $ 453,821
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturity of long-term debt $ 4,099 $ 4,588
Accounts payable 86,330 73,456
Accrued liabilities 37,748 37,129
----------- ----------
Total current liabilities 128,177 115,173
----------- ----------
LONG-TERM DEBT, less current maturity 248,988 225,031
----------- ----------
DEFERRED INCOME TAXES 14,448 14,194
----------- ----------
OTHER NONCURRENT LIABILITIES 19,895 17,866
----------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 1,000,000 shares authorized; - -
no shares issued or outstanding
Common stock, $.01 par value; 25,000,000 shares authorized;
19,061,132 and 18,386,336 shares issued and outstanding,
respectively, as of October 31, 1999 and July 31, 1999 191 184
Additional paid-in-capital 76,676 68,383
Retained earnings 11,561 13,479
Cumulative translation adjustment (424) (489)
----------- ----------
Total stockholders' equity 88,004 81,557
----------- ----------
Total liabilities and stockholders' equity $ 499,512 $ 453,821
=========== ==========
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are an
integral part of these consolidated balance sheets.
3
<PAGE>
ABC-NACO INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended October 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
Three Months Ended
October 31,
1999 1998
----------------- -----------------
<S> <C> <C>
NET SALES $ 144,172 $ 169,447
COST OF SALES 128,320 143,876
----------------- -----------------
Gross profit 15,852 25,571
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 13,623 15,649
----------------- -----------------
Operating income 2,229 9,922
EQUITY (INCOME) FROM UNCONSOLIDATED JOINT VENTURES (178) (175)
INTEREST EXPENSE 4,971 3,568
AMORTIZATION OF DEFERRED FINANCING COSTS 240 174
----------------- -----------------
Income (loss) before income taxes and cumulative effect of accounting change (2,804) 6,355
PROVISION (BENEFIT) FOR INCOME TAXES (886) 2,615
----------------- -----------------
Income (loss) before cumulative effect of accounting change (1,918) 3,740
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, net of income
tax of $1,014 - (1,620)
----------------- -----------------
Net income (loss) $ (1,918) $ 2,120
================= =================
EARNINGS (LOSS) PER SHARE DATA
Basic:
Income (loss) before cumulative effect of accounting change $ (0.10) $ 0.21
Cumulative effect of accounting change - (0.09)
----------------- -----------------
Net income (loss) $ (0.10) $ 0.12
================= =================
Weighted average common shares outstanding 18,402 17,886
================= =================
Diluted:
Income (loss) before cumulative effect of accounting change $ (0.10) $ 0.20
Cumulative effect of accounting change - (0.09)
----------------- -----------------
Net income (loss) $ (0.10) $ 0.11
================= =================
Weighted average common and equivalent shares outstanding 18,402 18,522
================= =================
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are an
integral part of these consolidated statements.
4
<PAGE>
ABC-NACO INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months Ended October 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
Additional Cumulative
Common Paid-in Retained Translation
Stock Capital Earnings Adjustment Total
------ ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
BALANCE, July 31, 1998 $179 $67,980 $24,309 $ (398) $92,070
Comprehensive income - - 2,120 (145) 1,975
Common stock issued - 6 - - 6
NACO comprehensive loss (July, 1998) - - (105) (99) (204)
------ ------- ------- ------- -------
BALANCE, October 31, 1998 $ 179 $67,986 $26,324 $ (642) $93,847
====== ======= ======= ======= =======
BALANCE, July 31, 1999 $ 184 $68,383 $13,479 $ (489) $81,557
Comprehensive income (loss) - - (1,918) 65 (1,853)
Common stock issued in business acquisition 7 8,293 - - 8,300
------ ------- ------- ------- -------
BALANCE, October 31, 1999 $ 191 $76,676 $11,561 $ (424) $88,004
====== ======= ======= ======= =======
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are an
integral part of these consolidated statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended October 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended
October 31,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,918) $ 2,120
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Cumulative effect of accounting change - 1,620
Equity income of unconsolidated joint ventures (178) (175)
Depreciation and amortization 7,887 7,336
Deferred income taxes 1,899 1,436
NACO net cash flows - July 1998 - (6)
Changes in certain assets and liabilities, net
of effect of acquired business:
Accounts receivable - net (4,190) (9,764)
Inventories (13,385) (8,258)
Prepaid expenses and other current assets (5,363) (1,518)
Other assets - net 225 (1,839)
Accounts payable and accrued liabilities 3,251 12,409
Other noncurrent liabilities 145 107
-------- --------
Total adjustments (9,709) 1,348
-------- --------
Net cash provided by (used in) operating activities (11,627) 3,468
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,936) (18,680)
Cash acquired in business acquisition 4 -
-------- --------
Net cash used in investing activities (8,932) (18,680)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving lines of credit 23,047 19,980
Change in cash overdrafts - (2,582)
Payment of term debt (2,460) (1,838)
Payment of deferred financing costs - (140)
Issuance of common stock - 6
-------- --------
Net cash provided by financing activities 20,587 15,426
-------- --------
Net change in cash and cash equivalents 28 214
CASH AND CASH EQUIVALENTS, beginning of period 3,159 273
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 3,187 $ 487
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 4,870 $ 5,147
Cash paid for income taxes, net 86 1,930
NON-CASH DISCLOSURE
Issuance of common stock for business acquisition $ 8,300 -
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are an
integral part of these consolidated statements.
6
<PAGE>
ABC-NACO INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
ABC-NACO Inc. ("the Company") is one of the world's leading suppliers of
technologically advanced products and services to the freight railroad and
flow control industries through its three business segments: Rail
Products, Rail Services and Systems, and Flow and Specialty Products. With
four technology centers around the world supporting its three business
segments, the Company holds pre-eminent market positions in the design,
engineering, and manufacture of high performance freight railcar,
locomotive and passenger rail suspension and coupler systems, wheels and
mounted wheel sets, and specialty track products. The Company also
supplies freight, railroad and transit signaling systems and services, as
well as highly engineered valve bodies and components for industrial flow
control systems worldwide.
The accompanying unaudited consolidated financial statements include, in
the opinion of management, all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the results of
operations and financial condition of the Company for and as of the interim
dates. Results for the interim period are not necessarily indicative of
results for the entire year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the SEC. The Company believes that the disclosures
contained herein are adequate to make the information presented not
misleading. These unaudited consolidated financial statements should be
read in conjunction with the information and the consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the fiscal year ended July 31, 1999.
The current composition of the Company was achieved by the consummation of
a merger (the "Merger") on February 19, 1999, between a wholly owned
subsidiary of the Company (formerly ABC Rail Products Corporation ("ABC"))
and NACO, Inc. ("NACO"). As a result of the Merger, each outstanding share
of NACO common stock was converted into 8.7 shares of the Company's common
stock, resulting in the issuance of approximately 9.4 million shares. The
Merger was treated as a tax-free reorganization for federal income tax
purposes and has been accounted for as a pooling-of-interests transaction.
The accompanying consolidated financial statements reflect the combined
results of ABC and NACO as if the Merger occurred on the first day of the
earliest period presented and is based on the fiscal periods described
below. Prior to the Merger, ABC's fiscal year-end was July 31, and NACO's
fiscal year-end was the Sunday closest to March 31. ABC's fiscal year end
was adopted by the Company as the annual financial reporting period.
Due to the differing year ends of ABC and NACO, the financial position of
NACO as of June 28, 1998 was combined with the financial position of ABC as
of July 31, 1998. Accordingly, NACO results of operations for July 1998
(revenues of $26.5 million and a net loss of $0.1 million) are reflected in
the Consolidated Statements of Stockholders'
<PAGE>
Equity.
On September 23, 1999, the Company's Board of Directors adopted a
resolution to change the Company's year-end to December 31 from July 31.
The principal reason for the change was to align the Company's fiscal year-
end with the fiscal year-end of its major customers. The Company intends
to file a Form 10-K transition report for the five-month transition period
from August 1, 1999 to December 31, 1999.
Unaudited results of operations for ABC and NACO prior to the Merger from
August 1, 1998, to October 31, 1998 (in thousands):
ABC NACO
------- -------
Revenue $77,514 $91,933
Accounting change, net of tax (1,620) -
Net income (loss) $ (975) $ 3,095
The table below reconciles previously reported results of ABC for the three
months ended October 31, 1998 to the corresponding amounts included herein
and reflects the Merger under the pooling-of-interests method of
accounting.
Conforming
ABC NACO Adjustments Combined
-------- ------- ----------- --------
Net sales $77,514 $92,384 $(451) $169,447
Operating income 3,300 7,024 (401) 9,923
Net income (loss) (1,005) 3,095 30 2,120
Certain historical amounts have been reclassified in order to conform the
accounting policies of both companies. These conforming adjustments have
minimal impact upon the Company's consolidated net income for the quarter
ended October 31, 1998.
2. Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method for substantially all inventories.
Inventory costs include material, labor and manufacturing overhead.
Supplies and spare parts primarily consist of manufacturing supplies and
equipment replacement parts.
Inventories at October 31, 1999, and July 31, 1999, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
October 31, July 31,
1999 1999
------- -------
<S> <C> <C>
Raw materials $36,198 $31,964
Supplies and spare parts 5,382 5,206
Work in process and finished goods 46,379 36,463
------- -------
$87,959 $73,633
======= =======
</TABLE>
8
<PAGE>
3. Debt
Immediately after the consummation of the Merger, the Company entered into
a new revolving credit facility (the "Credit Facility") with a syndicate
of financial institutions, in which Bank of America National Trust &
Savings Association acted as the Lead Arranger, Administrative Agent, and
Letter of Credit Issuing Lender and Bank of America Canada acted as the
Canadian Revolving Lender. The Credit Facility provides the Company with a
revolving line of credit of up to $200 million. The Credit Facility's
covenants include ratio restrictions on total leverage, senior leverage,
interest coverage, minimum net worth restriction, and restrictions on
capital expenditures
The initial net proceeds of the Credit Facility were used to (i) refinance
existing bank debt and certain other indebtedness of the Company, (ii)
refinance substantially all of NACO's outstanding debt, (iii) provide
initial financing for the Company's on-going working capital needs, and
(iv) pay fees and expenses relating to the Merger and the Credit Facility.
The early retirement of the refinanced debt resulted in a $5.2 million
extraordinary charge ($3.2 million after-tax) representing the non-cash
write-off of related unamortized deferred financing costs and prepayment
penalties of $4.5 million. The Credit Facility employs an IBOR-based
variable interest rate index and assesses a spread over the IBOR base which
is determined by a consolidated leverage pricing grid. The weighted average
interest rate at October 31, 1999 was 7.7%. Availability at October 31,
1999 was $37.8 million.
The Company is positioning itself to address the need for added flexibility
in its capital structure to support continuing internal and external
growth. The related initiatives could be supported through further plant
consolidations, restructuring of the Company's capitalization components
through the new universal shelf registration, or the potential disposal of
certain non-core operating assets. In addition, on October 12, 1999, the
Company entered into an Amendment, Waiver and Release Agreement to the
Credit Agreement to release certain collateral related to its Mexican
subsidiary and to reflect the change in the Company's fiscal year and
reporting periods for covenant measurement purposes. The Company then
entered into two subsequent amendments to the Credit Agreement that were
effective as of October to modify certain of the financial leverage
covenants in the Credit Agreement which the Company otherwise would not
have been in compliance with as of October 31, 1999. These same leverage
covenants need to be met at several dates within the one-year period ending
October 31, 2000, failure of which could give the lenders the unilateral
right to call the related debt immediately. If the Company does not have
adequate cash or is unable to satisfy such financial covenants, it may be
required to further refinance its existing indebtedness, seek additional
financing, or issue common stock or other securities to raise cash to
assist in financing its operations. The company has no current commitments
to or arrangements for such financing alternatives, and there can be no
assurance that such financing alternatives will be available on acceptable
terms, or at all. The Company's inability to make any payments when due or
to satisfy its financial covenants under its existing borrowing facilities
could have a material adverse effect on the Company. As of October 31,
1999, outstanding debt under the Credit Agreement was $155.7 million. The
primary leverage coverage ratio required as of December 31, 1999 is a
maximum consolidated debt to EBITDA of 4.60:1. Such ratio was 4.74:1 as of
October 31, 1999. Based on ongoing discussions and correspondence with its
bank lenders, the Company anticipates being able to renegotiate certain of
its financial covenants during the first calendar quarter of 2000
(including retroactive application to December 31, 1999) to provide it with
additional flexibility from a liquidity perspective, although no assurance
can be given to such effect.
9
<PAGE>
A new universal shelf registration was declared effective on October 29,
1999, for issuances up to $300 million of debt or equity securities, and
the unused portion of the old universal shelf registration was de-
registered. As of October 31, 1999, no securities were issued under the
new universal shelf registration.
4. Earnings Per Share
Common share equivalents included in the computation of diluted earnings
per share include (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-----------
1999 1998
--------- ---------
<S> <C> <C>
Effect of assumed exercise of warrant - 472
Effect of assumed exercise of stock
options - 44
Effect of assumed shares issued
pursuant to business acquisition
earn-out agreements - 120
--------- ---------
- 636
========= =========
</TABLE>
Other common stock equivalents, which would have increased diluted shares
by 228,000 shares for the three months ended October 31, 1999, were not
included in the computation of diluted earnings per share because the
assumed exercise of such equivalents would be antidilutive.
5. Accounting Changes
In April 1998, Statement of Position No. 98-5 was issued which requires
that companies write-off previously capitalized start-up costs and expense
future start-up costs as incurred. The Company had capitalized certain
start-up costs in prior periods. Effective August 1, 1998, the Company
elected early adoption of this standard and wrote-off $2.6 million ($1.6
million after-tax) of previously capitalized start-up costs.
6. Merger and Other Restructuring Costs
During the year ended July 31, 1999, the Company recorded $21.9 million of
merger and other restructuring charges, of which $16.1 million was recorded
in the quarter ended April 30, 1999 and $5.8 million was recorded in the
quarter ended July 31, 1999. The charges include $8.8 million of costs
incurred as a direct result of the Merger for advisory and other fees. The
charges also include amounts associated with the Company's initiatives to
merge the corporate operations of the two companies, to eliminate duplicate
functions and to restructure certain operations within the Rail Products
segment by closing three manufacturing operations. The components of the
10
<PAGE>
charge have been computed based on actual cash payouts, management's
estimate of the realizable value of the affected tangible and intangible
assets, and estimated exit costs including severance and other employee
benefits based on existing severance policies.
Employee severance costs included in the charge totaled $9.2 million and
included amounts for approximately 29 corporate employees, 141 salaried
plant employees and 480 hourly employees. As of October 31, 1999,
approximately 61% of these employees had been terminated. The remaining
39% are expected to be terminated by early calendar year 2000.
The restructuring of certain operations within the Rail Products segment
was prompted by the excess capacity resulting from the operation of the
Company's new state-of-the-art rail mill facility in Chicago Heights,
Illinois. With this new capacity on-line, the Company decided to close its
Cincinnati, Ohio facility and to discontinue manufacturing at its Newton,
Kansas facility (which also has a distribution operation). As a result of
the Merger, the Company also decided to close its foundry operation in
Anderson, Indiana that produced Manganese castings used in specialty track
products for the railroad industry. Production was shifted in early August
to the Company's Richmond, Texas facility. In addition, the Company decided
to consolidate its corporate facilities and close an administrative office.
Costs associated with the closure of these facilities, excluding severance,
are $2.2 million in non-cash provisions for the write-down of obsolete
assets and leasehold improvements, and $1.7 million in cash provisions for
idle facility and property disposal costs.
The following table is a summary roll forward of the merger and
restructuring charge reserves through October 31, 1999 (in millions).
<TABLE>
<CAPTION>
Balance at
-----------------
Charge Deductions October 31, 1999
--------- -------------- -----------------
<S> <C> <C> <C>
Cash provisions:
Employee severance.......................... $ 9.2 $ (3.1) $ 6.1
Advisory and other fees..................... 8.8 (8.8) --
Idle facility and property disposal costs 1.7 (1.1) 0.6
------- -------- -------
Total cash provisions.................... 19.7 $ (13.0) $ 6.7
======== =======
Non-cash asset writedowns....................... 2.2
-------
Total................................. $ 21.9
=======
</TABLE>
The remaining cash costs are expected to be expended during the next
fifteen months.
The closure of the Cincinnati and Newton manufacturing operations was
completed as of July 31, 1999, while the closure of the Anderson facility
and the excess administrative office was completed during the quarter ended
October 31, 1999. The corporate office consolidation, which primarily
involved the vacancy of leased office space, was completed in September,
1999. No significant changes have been made to the cost and timing of these
restructuring initiatives. The Company expects these efforts will result in
reduced operating expenses, including lower salary and hourly payroll costs
and depreciation.
11
<PAGE>
7. Business Segment Information
The Company manages its operations through three reporting segments: Rail
Products, Rail Services and Systems, and Flow and Specialty Products. These
distinct business units generally serve separate markets. They are managed
separately since each business requires different technology, servicing and
marketing strategies. The following describes the types of products and
services from which each segment derives its revenues:
Rail Products Specialty trackwork, freight car and
locomotive castings
Rail Services and Systems Wheel assembly and switching systems
Flow and Specialty Products Valve housing and related castings
To evaluate the performance of these segments, the Chief Executive Officer
examines operating income or loss before interest and income taxes, as well
as operating cash flow. Operating cash flow is defined as operating income
or loss plus depreciation and amortization. The accounting policies for the
operating segments are the same as those for the consolidated company.
Intersegment sales and transfers are accounted for on a cost plus
stipulated mark-up which the Company believes approximates arm's length
prices.
Corporate headquarters and ABC-NACO Technologies primarily provide support
services to the operating segments. The costs associated with these
services include interest expense, income tax expense (benefit), Merger and
other restructuring charges, research and development expense, and goodwill
amortization, among other costs. These costs are not allocated to the
segments and are included within "other" below.
The following tables present a summary of operating results by segment and
a reconciliation to the Company's consolidated totals (in thousands):
<TABLE>
<CAPTION>
Three months ended
October 31,
REVENUES 1999 1998
-------- -------- --------
<S> <C> <C>
Rail Products $114,075 $123,227
Rail Services and Systems 27,271 37,278
Flow and Specialty Products 18,792 19,184
-------- --------
Total Reportable Segments 160,138 179,689
Elimination and Other (15,966) (10,242)
-------- --------
Total $144,172 $169,447
======== ========
OPERATING INCOME 1999 1998
---------------- -------- --------
Rail Products $ 6,974 $ 14,290
Rail Services and Systems 1,662 2,970
Flow and Specialty Products 1,140 168
-------- --------
Total Reportable Segments 9,776 17,428
Elimination and Other (7,547) (7,506)
-------- --------
Total $ 2,229 $ 9,922
======== ========
</TABLE>
12
<PAGE>
8. Business Acquisitions
On October 29, 1999, the Company acquired all outstanding common stock of
COMENTA - Companhia Metalurgica Nacional, S.A. (Cometna) located in Lisbon,
Portugal for $8.3 million of the Company's common stock. Cometna
manufactures and machines products for the freight and passenger rail
industries in Europe and is part of the Company's Rail Products segment.
The acquisition was accounted for under the purchase method of accounting.
The amount of goodwill recorded with respect to the acquisition will be
determined pending the outcome of an asset appraisal that is currently in
progress.
9. Unconsolidated Joint Ventures
The Company owns 50% of Anchor Brake Shoe, L.L.C. ("Anchor"). Anchor
designs, manufactures, markets and sells railcar composite brake shoes. The
Company's investment in Anchor was $7.4 million as of October 31, 1999.
Each partner's share of the joint venture can be purchased by the other
partner, at market value, if the other partner is involved in a future
change in control situation. Additionally, the other partner has an option
which it can exercise as of April 1, 2001, to purchase the Company's
interest in Anchor.
Summarized financial information for Anchor for the three months ended
October 31, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-----------
1999 1998
------ ------
<S> <C> <C>
Net sales $4,131 $4,263
Gross profit 1,296 1,210
Net income 585 645
</TABLE>
In addition, the Company has other joint venture arrangements which are not
significant to the Company's results of operations.
10. Subsequent Event
On November 9, 1999, the Company signed a major long-term service contract
with Union Pacific Railroad Company (UP). The contract, as disclosed in
the Company's Form 8-K filed with the SEC on November 18, 1999, provides
for the Company, in conjunction with Gunderson Rail Services, to perform
all freight car wheel mounting and repair and wheel maintenance services
for UP's entire North American rail system for a period of at least ten
years.
As part of the contract initiation, the Company acquired $1.1 million of
equipment previously used in UP's wheelshops, which will be relocated to
Company shops, and agreed to pay $5.2 million to UP to defray some of UP's
closure costs related to the shutdown of its wheelshops. The up-front
payment will be capitalized and amortized over the life of the contract.
13
<PAGE>
ITEM 2
ABC'NACO INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial condition and results of
operations during the interim periods included in the accompanying unaudited
Consolidated Financial Statements.
ABC-NACO Inc. ("the Company") is one of the world's leading suppliers of
technologically advanced products and services to the freight railroad and flow
control industries through its three business segments: Rail Products, Rail
Services and Systems, and Flow and Specialty Products. With four technology
centers around the world supporting its three business segments, the Company
holds pre-eminent market positions in the design, engineering, and manufacture
of high performance freight railcar, locomotive and passenger rail suspension
and coupler systems, wheels and mounted wheel sets, and specialty track
products. The Company also supplies freight, railroad and transit signaling
systems and services, as well as highly engineered valve bodies and components
for industrial flow control systems worldwide.
The current composition of the Company was achieved by the consummation of a
merger (the "Merger") on February 19, 1999, between a wholly owned subsidiary of
the Company (formerly ABC Rail Products Corporation ("ABC")) and NACO, Inc.
("NACO"). As a result of the Merger, each outstanding share of NACO common
stock was converted into 8.7 shares of ABC common stock, resulting in the
issuance of approximately 9.4 million shares. The Merger was treated as a tax-
free reorganization for federal income tax purposes and is accounted for as a
pooling-of-interests transaction.
On September 23, 1999, the Company's Board of Directors adopted a resolution to
change the Company's year-end to December 31 from July 31. The principal reason
for the change was to align the Company's fiscal year-end with the fiscal year-
end of its major customers. The Company intends to file a Form 10-K transition
report for the five-month transition period from August 1, 1999 to December 31,
1999.
The Company manages its operations through three reporting segments: Rail
Products, Rail Services and Systems, and Flow and Specialty Products. These
distinct business units generally serve separate markets. They are managed
separately since each business requires different technology, servicing and
marketing strategies. The following describes the types of products and services
from which each segment derives its revenues:
Rail Products Specialty trackwork, freight car and
locomotive castings
Rail Services and Systems Wheel assembly and switching systems
Flow and Specialty Products Valve housing and related castings
14
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended October 31, 1999 Compared to Three Months Ended October 31,
1998
Net Sales. Net sales decreased 14.9% from $169.4 million in 1998 to $144.2
million in 1999. Sales within the Rail Products Segment decreased 7.4% from
$123.2 million in 1998 to $114.1 million in 1999. This decrease was driven
primarily by the continued weak demand for the group's specialty trackwork
products as well as downward adjustments in inventory from railcar builders.
Sales within the Rail Services and Systems Segment decreased 26.8% from $37.3
million in 1998 to $27.3 million in 1999. The revenue drop within this group was
primarily attributable to reduced demand from major railcar builders that
directly impacted the number of wheel mountings sold as well as foregone
revenues in anticipation of the recently signed 10-year wheel service contract
with Union Pacific Railroad.
Gross Profit. Gross profit decreased to $15.9 million or 11.0% of sales in 1999
from $25.6 million or 15.1% of sales in 1998. Gross profit within the Rail
Products Segment decreased by $8.7 million from $20.4 million or 16.6% of sales
in 1998 to $11.7 million or 10.3% of sales in 1999. The margin within this
segment was impacted by operating variances within its Sahagun Mexico operation
as it continued to ramp up its production during the quarter, as well as the
demand issues described above related to the Company's specialty trackwork
products and the reduced demand from railcar builders. Gross profit within the
Rail Services and Systems Segment decreased by $1.6 million from $4.0 million or
10.9% of sales in 1998 to $2.4 million or 8.7% of sales in 1999. The margin
within this segment was impacted by startup costs expensed in preparation for
the 10-year wheel service contract with Union Pacific Railroad as well as the
implications described above relating to railcar builders demand.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $2.0 million. The decrease in expenses
between periods primarily reflects the synergy savings achieved subsequent to
the Merger.
Equity Income from Unconsolidated Joint Ventures. The Company's income from its
equity investments in joint ventures remained virtually unchanged from period to
period at $0.2 million.
Interest Expense. Interest expense increased $0.2 million from $4.8 million in
1998 to $5.0 million in 1999, excluding the effect of capitalizing $1.2 million
in interest during the three months ended October 31, 1998. Although the overall
borrowing levels were up from a year ago, the Company's effective borrowing rate
was lower than a year ago. The projects that required capitalizing interest in
fiscal 1999 were completed and put into service by July 31, 1999.
Other. The non-cash effect of an accounting change of $2.6 million ($1.6 million
after-tax) in the quarter ending October 31, 1998 represents the write-off, in
accordance with Statement of Position 98-5, of previously capitalized start-up
costs.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the three months ended October 31, 1999, net cash used in operating
activities totaled $11.6 million. Net cash provided by operating activities was
$3.5 million for the three months ended October 31, 1998. The decrease in
operating cash flow is due primarily to the reduction of net income before the
cumulative effect of accounting change as well as an overall increase in working
capital. This increase was primarily related to a planned inventory build
stemming from the Company's new service agreement with Union Pacific Railroad
Company.
Capital expenditures during the three months ended October 31, 1999 and 1998
were $8.9 million and $18.7 million, respectively. Spending during the three
months ended October 31, 1999, is related to the capacity expansion project in
Sahagun, normal improvements to the Calera, Alabama, wheel plant, and the
conversion of the Richmond, Texas, facility to a specialty casting producer.
On October 29, 1999, the Company acquired all outstanding common stock of
COMETNA - Companhia Metalurgica Nacional, S.A. (Cometna) located in Lisbon,
Portugal for $8.3 million of the Company's common stock. Cometna manufactures
and machines products for the freight and passenger rail industries in Europe
and is part of the Company's Rail Products segment. The acquisition was
accounted for under the purchase method of accounting.
For the three months ended October 31, 1999 and 1998, net cash provided by
financing activities totaled $20.6 and $15.4 million, respectively. This net
increase in cash was funded through the Company's existing line of credit.
In December, 1998, a $3.0 million Industrial Revenue Bond (IRB) was issued on
behalf of the Company for the new paneling facility in Ashland, Wisconsin. The
IRB's bear an adjustable rate of interest as determined by the Public Bond
Market Association. As of October 31, 1999, the adjustable interest rate on the
bonds was 3.6%. The bonds mature in December 2018.
Immediately after the consummation of the Merger, the Company entered into a new
revolving credit facility (the "Credit Facility") with a syndicate of
financial institutions, in which Bank of America National Trust & Savings
Association acted as the Agent and Letter of Credit Issuing Lender and Bank of
America Canada acted as the Canadian Revolving Lender. The Credit Facility
provides the Company with a revolving line of credit of up to $200 million. The
Credit Facility's covenants include ratio restrictions on total leverage, senior
leverage, interest coverage, minimum net worth restriction and restrictions on
capital expenditures.
The initial net proceeds of the Credit Facility were used to (i) refinance
existing bank debt and certain other indebtedness of the Company, (ii) refinance
substantially all of NACO's outstanding debt, (iii) provide initial financing
for the Company's on-going working capital needs, and (iv) pay fees and expenses
relating to the Merger and the Credit Facility. The early retirement of the
refinanced debt resulted in a $5.2 million extraordinary charge ($3.2 million
after-tax) representing the non-cash write-off of related unamortized deferred
financing costs and prepayment penalties of $4.5 million. The Credit Facility
employs an IBOR-based variable interest rate index and assesses a spread over
the IBOR base which is determined by a consolidated leverage pricing grid. The
weighted average interest rate at October 31, 1999 was 7.7%. Availability at
October 31, 1999 was $37.8 million.
16
<PAGE>
The Company is positioning itself to address the need for added flexibility in
its capital structure to support continuing internal and external growth. The
related initiatives could be supported through further plant consolidations,
restructuring of the Company's capitalization components through the new
universal shelf registration, or the potential disposal of certain non-core
operating assets. In addition, on October 12, 1999, the Company entered into an
Amendment, Waiver and Release Agreement to the Credit Agreement to release
certain collateral related to its Mexican subsidiary and to reflect the change
in the Company's fiscal year and reporting periods for covenant measurement
purposes. The Company then entered into two subsequent amendments to the Credit
Agreement that were effective as of October to modify certain of the financial
leverage covenants in the Credit Agreement which the Company otherwise would not
have been in compliance with as of October 31, 1999. These same leverage
covenants need to be met at several dates within the one-year period ending
October 31, 2000, failure of which could give the lenders the unilateral right
to call the related debt immediately. If the Company does not have adequate cash
or is unable to satisfy such financial covenants, it may be required to further
refinance its existing indebtedness, seek additional financing, or issue common
stock or other securities to raise cash to assist in financing its operations.
The Company has no current commitments to or arrangements for such financing
alternatives, and there can be no assurance that such financing alternatives
will be available on acceptable terms, or at all. The Company's inability to
make any payments when due or to satisfy its financial covenants under its
existing borrowing facilities could have a material adverse maximum effect on
the Company. As of October 31, 1999, outstanding debt under the Credit Agreement
was $155.7 million. The primary leverage coverage ratio required as of December
31, 1999 is a maximum consolidated debt to EBITDA of 4.60:1. Such ratio was
4.74:1 as of October 31, 1999. Based on ongoing discussions and correspondence
with its bank lenders, the Company anticipates being able to renegotiate certain
of its financial covenants during the first calendar quarter of 2000 (including
retroactive application to December 31, 1999) to provide it with additional
flexibility from a liquidity perspective, although no assurance can be given to
such effect.
A new universal shelf registration was declared effective on October 29, 1999,
for issuances up to $300 million of debt or equity securities, and the unused
portion of the old universal shelf registration was de-registered. As of October
31, 1999, no securities were issued under the new universal shelf registration.
During the quarter ending January 31, 1999, the Company suspended its previous
plan to construct a plant in central Illinois to process used rail into reusable
heat-treated and head-hardened rail. The project is being re-evaluated in
conjunction with the Merger. The machinery and equipment which has been built is
being stored pending completion of a revised business plan. The total investment
to date for this project is $11.6 million.
As described in detail in Item 7 of the Company's Form 10-K for the fiscal year
ended July 31, 1999 and the Company's S-4 Registration Statement file on January
21, 1999, the Company is actively addressing its Year 2000 ("Y2K") issues. The
Company has experienced minor delays with its Y2K efforts. With a few small
exceptions that are being addressed, the Company was effectively Y2K compliant
in early December, 1999. The Company does not expect to incur any material
incremental costs due to these delays. At the present time, management is unable
to estimate the potential impact on the Company of the possible failure of its
customers and suppliers to become Y2K compliant. If the Company's major
customers and suppliers are not and do not become Y2K compliant on a timely
basis, the Company's results of operations could be materially adversely
affected.
17
<PAGE>
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company has experienced no material changes in its market risk exposure
since the filing of its Form 10-K report for the fiscal year ended July 31,
1999.
18
<PAGE>
REGARDING FORWARD-LOOKING STATEMENTS
- ------------------------------------
The foregoing contains forward-looking statements that are based on current
expectations and are subject to a number of risks and uncertainties. Actual
results could differ materially from current expectations due to a number of
factors, including general economic conditions; competitive factors and pricing
pressures; shifts in market demand; the performance and needs of industries
served by the Company's businesses; actual future costs of operating expenses
such as rail and scrap steel, self-insurance claims and employee wages and
benefits; actual costs of continuing investments in technology; the availability
of capital to finance possible acquisitions and to refinance debt; the ability
of management to implement the Company's long-term business strategy of
acquisitions; "Y2K" issues and the risks described from time to time in the
Company's SEC reports.
19
<PAGE>
Part II OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 2 - Changes in Securities and Use of Proceeds
(c) In connection with a Reciprocal Share Sale and Purchase Agreement,
dated September 16, 1999, as supplemented on October 29, 1999,
between the Company and Newmetna Limited, a Jersey, Channel islands
company ("Newmetna"), the Company issued 674,796 unregistered shares
(the "Shares") of its common stock to Newmetna on October 29, 1999 in
a transaction that was exempt from registration under Section 4(2) of
the Securities Act of 1933. Pursuant to a separate letter agreement
entered into between the Company and Newmenta, the Company
subsequently registered the Shares on a Registration Statement on
Form S-3 filed with the SEC on November 5, 1999 (Reg. No. 333-90441).
In exchange for the issuance of the Shares, the Company acquired from
Newmetna all of the outstanding capital stock of COMETNA-Companhia
Metalurgica Nacional, S.A., a Portuguese company that produces
products for the freight and passenger rail industries in Europe.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Amendment, Waiver and Release Agreement, dated as of October
12, 1999, to Credit Agreement, dated as of February 19, 1999,
by and among the Company and certain of its affiliates, and
Bank of America National Association, individually and as agent
for the benefit of the lenders under the Credit Agreement.
4.2 Amended and Restated Credit Agreement, entered into as of
October 29, 1999, between the Company and certain of its
affiliates and Bank of America National Association,
individually and as agent for the benefit of the lenders under
the Credit Agreement.
4.3 Amendment to Amended and Restated Credit Agreement, entered
into as of October 29, 1999, by and among the Company and
certain of its affiliates, and Bank of America National
Association, individually and as agent for the benefit of the
lenders under the Credit Agreement.
10.1 Wheelset Supply and Services Agreement, dated as of November 9,
1999, between the Company and Union Pacific Railroad Company
(incorporated by reference to Exhibit 10.1 to the Company's
current report on Form 8-K filed with the SEC on November 18,
1999).
10.2 Amendment, Waiver and Release Agreement, dated as of October
12, 1999, to Credit Agreement, dated as of February 19, 1999,
by and among the Company and certain of its affiliates, and
Bank of America national Association, individually and as agent
for the benefit of the lenders under the Credit Agreement
(filed as Exhibit 4.1 herewith).
20
<PAGE>
10.3 Amended and Restated Credit Agreement, entered into as of October
29, 1999, between the Company and certain of its affiliates and
Bank of America National Association, individually and as agent
for the benefit of the lenders under the Credit Agreement (filed
as Exhibit 4.2 herewith).
10.4 Amendment to Amended and Restated Credit Agreement, entered into
as of October 29, 1999, by and among the Company and certain of
its affiliates, and Bank of America National Association,
individually and as agent for the benefit of the lenders under
the Credit Agreement (filed herewith as Exhibit 4.3).
27.1 Financial Data Schedule for period ended October 31, 1999.
(b) Reports on Form 8-K
Current report on Form 8-K filed with the SEC on September 24,
1999 with respect to the change of the Company's fiscal year end.
21
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
4.1 Amendment, Waiver and Release Agreement, dated as of October 12,
1999, to Credit Agreement, dated as of February 19, 1999, by and
among the Company and certain of its affiliates, and Bank of America
National Association, individually and as agent for the benefit of
the lenders under the Credit Agreement.
4.2 Amended and Restated Credit Agreement, entered into as of October
29, 1999, between the Company and certain of its affiliates and Bank
of America National Association, individually and as agent for the
benefit of the lenders under the Credit Agreement.
4.3 Amendment to Amended and Restated Credit Agreement, entered into as
of October 29, 1999, by and among the Company and certain of its
affiliates, and Bank of America National Association, individually
and as agent for the benefit of the lenders under the Credit
Agreement.
10.1 Wheelset Supply and Services Agreement, dated as of November 9,
1999, between the Company and Union Pacific Railroad Company
(incorporated by reference to Exhibit 10.1 to the Company's current
report on Form 8-K filed with the SEC on November 18, 1999).
10.2 Amendment, Waiver and Release Agreement, dated as of October 12,
1999, to Credit Agreement, dated as of February 19, 1999, by and
among the Company and certain of its affiliates, and Bank of America
national Association, individually and as agent for the benefit of
the lenders under the Credit Agreement (filed as Exhibit 4.1
herewith).
10.3 Amended and Restated Credit Agreement, entered into as of October
29, 1999, between the Company and certain of its affiliates and Bank
of America National Association, individually and as agent for the
benefit of the lenders under the Credit Agreement (filed as Exhibit
4.2 herewith).
10.4 Amendment to Amended and Restated Credit Agreement, entered into as
of October 29, 1999, by and among the Company and certain of its
affiliates, and Bank of America National Association, individually
and as agent for the benefit of the lenders under the Credit
Agreement (filed herewith as Exhibit 4.3).
27.1 Financial Data Schedule for period ended October 31, 1999.
22
<PAGE>
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.
ABC-NACO Inc.
________________________________
James P. Singsank
Senior Vice President
and Chief Financial Officer
(Duly authorized Officer)
________________________________
Brian L. Greenburg
Vice President and Corporate Controller
(Chief Accounting Officer)
Date: December 15, 1999
-----------------------------
23
<PAGE>
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.
ABC-NACO Inc.
/s/ James P. Singsank
--------------------------------
James P. Singsank
Senior Vice President
and Chief Financial Officer
(Duly authorized Officer)
/s/ Brian Greenburg
--------------------------------
Brian L. Greenburg
Vice President and Corporate Controller
(Chief Accounting Officer)
Date: December 15, 1999
-----------------------------
<PAGE>
Exhibit 4.1
AMENDMENT, WAIVER AND RELEASE AGREEMENT
---------------------------------------
This Amendment, Waiver and Release Agreement (this "Agreement") is
entered into as of October 12, 1999, by the and among ABC-NACO Inc., a Delaware
corporation (the "Company"), ABC-NACO de Mexico, S.A. de C.V., a Mexican
corporation (the "Mexican Borrower"), Dominion Castings Limited, an Ontario
corporation (the "Canadian Borrower" and, together with the Company and the
Mexican Borrower, the "Borrowers"), each of the several financial institutions
signatory hereto (collectively, the "Majority Lenders") and Bank of America,
National Association (f/k/a Bank of America National Trust and Savings
Association) individually and as agent (the "Agent") for the benefit of the
Lenders under the Credit Agreement hereinafter referred to.
RECITALS
--------
A. The Borrowers, Bank of America Canada, as Canadian Revolving
Lender, the financial institutions from time to time party thereto (the
"Lenders") and the Agent and Letter of Credit Issuing Lender are parties to that
certain credit agreement dated as of February 19, 1999 (the "Credit Agreement").
Unless otherwise specified herein, capitalized terms used in this Agreement
shall have the meanings ascribed to them by the Credit Agreement.
B. Under the Loan Documents, the assets of the Mexican Borrower and
its Subsidiaries serve as collateral for the Obligations of the Company. It was
intended, however, that such assets serve as collateral only if or for so long
as such security would not result in any economic detriment for the Company.
C. As a result of circumstances unanticipated by the parties, the
Company has and will continue to incur economic detriment arising from such
collateral.
D. Accordingly, the undersigned Majority Lenders, in accordance with
Section 11.01(b) of the Credit Agreement, wish to authorize the Agent acting in
its capacity as Collateral Agent under the Collateral Documents to, effective as
of the date of the Credit Agreement, (i) effect the release of Collateral of the
Mexican Borrower and the subsidiaries of the Mexican Borrower (the "Mexican
Subsidiaries" and together with the Mexican Borrower, the "Mexican Entities")
securing the Obligations of the Company and the Canadian Borrower that such
Collateral will only secure the Mexican Borrower's Obligations; (ii) release
each of the Mexican Entities from its Obligation under the Mexican Guaranty to
guaranty the Obligations of the Company and the Canadian Borrower and (iii)
reduce the percentage of shares of the Mexican Borrower that is pledged as
Collateral, in each case on the terms and conditions set forth below
(collectively, the "Releases").
E. The Borrowers, the Agent and the undersigned Majority Lenders wish
to amend certain provisions of the Credit Agreement and waive certain provisions
of the Credit Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual execution hereof and
other good and valuable consideration, the parties hereto agree as follows:
<PAGE>
1. Amendments to Credit Agreement. The Credit Agreement is hereby
amended as follows:
(a) The definition of "Fiscal Quarter" in Article I of the Credit
Agreement is amended by deleting it in its entirety and substituting in
lieu thereof the following:
"means, prior to November 1, 1999 each of the quarterly
accounting periods ending on October 31, January 31, April 30 and July 31
and for December 31, 1999, the accounting period ending the immediately
preceding 12 months and thereafter each of the quarterly periods ending on
March 31, June 30, September 30 and December 31 of each fiscal year."
(b) The definition of "Interest Coverage Ratio" in Article I of
the Credit Agreement is amended by deleting the period at the end thereof
and adding the following:
"provided, that, with respect to the period ending December 31,
1999, Consolidated Interest Expense shall be calculated for the immediately
preceding twelve months."
(c) The definition of "Leverage Ratio" in Article I of the Credit
Agreement is amended by deleting the period at the end thereof and adding
the following:
"provided, that, with respect to the period ending December 31,
1999, EBITDA shall be calculated for the immediately preceding twelve
months."
(d) The definition of "Senior Leverage Ratio" in Article I of the
Credit Agreement is amended by deleting the period at the end thereof and
adding the following:
"provided, that, with respect to the period ending December 31,
1999, EBITDA shall be calculated for the immediately preceding twelve
months."
(e) Sections 8.14 through 8.16 of the Credit Agreement are
amended by deleting all references therein to "January" and substituting in
lieu thereof "March."
(f) Section 8.17 of the Credit Agreement is amended by inserting
the following immediately after the "1999" in the first column of the table
therein:
"and for the immediately preceding twelve month period ending
December 31, 1999"
2. Consent and Waiver. Any breach by the Borrowers of the provisions
of Section 8.12 as a result of the change of the fiscal year of the Company and
its Subsidiaries is hereby waived.
<PAGE>
3. Release of Collateral. As of the date of the Credit Agreement,
the undersigned Majority Lenders hereby authorize the Collateral Agent in its
discretion to take any and all necessary actions necessary to:
(a) effect a complete release of the Liens on Collateral of the
Mexican Entities securing Obligations of the Company and the Canadian
Borrower other than Liens securing the direct Obligations of the Mexican
Borrower which shall continue in full force and effect;
(b) release the Mexican Entities from their guaranty of the
Obligations of the Company and the Canadian Borrower pursuant to the
relevant Guaranty; provided, that notwithstanding anything to the contrary
set forth herein, any and all guaranties of the direct Obligations of the
Mexican Borrower shall continue in full force and effect;
(c) release the shares of stock of the Mexican Borrower
constituting more than 65% of the shares of the Mexican Borrower's stock
pledged to the Collateral Agent as Collateral securing the Obligations of
the Company under the relevant Pledge Agreement.
4. Covenants of the Borrowers. The Borrowers hereby agree, as soon
as possible, but not later than November 30, 1999, to:
(a) repay in full all outstanding obligations under that certain
loan to Creditanstalt Corporate Finance, Inc. listed on Schedule 8.05 to
the Credit Agreement and cancel all remaining commitments thereunder; and
(b) deliver to the Agent for the benefit of the Lenders:
(i) a fully executed deed of trust, mortgage or similar
document in each case in form and substance satisfactory to the Agent,
which shall cover the Borrower's rail mill facility located at 2705 South
State Street in Chicago Heights, Illinois (the "Chicago Heights Mill");
(ii) a mortgage title insurance policy relating to the
Chicago Heights Mill issued by a title insurance company satisfactory to
the Agent, in form and substance satisfactory to the Agent and insuring the
Agent that the mortgage is a valid and enforceable first priority mortgage
lien on the Chicago Heights Mill; and
(iii) a survey, in form and substance reasonably
satisfactory to Agent, of the Chicago Heights Mill dated a recent date,
acceptable to Agent and certified by a licensed professional surveyor in a
manner reasonably satisfactory to the Agent.
5. Representations and Warranties of the Borrowers. The Borrowers
represent and warrant that:
(a) The execution, delivery and performance by each of the
Borrowers of this Agreement have been duly authorized by all necessary
corporate action and that this Agreement is a legal, valid and binding
obligation of such Borrower enforceable
<PAGE>
against such Borrower in accordance with its terms, except as the
enforcement thereof may be subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally;
(b) Each of the representations and warranties contained in the
Credit Agreement is true and correct in all material respects on and as of
the date hereof as if made on the date hereof; and
(c) After giving effect to this Agreement, no Default or
Unmatured Default has occurred and is continuing.
6. Effective Date. This Agreement shall be effective as of the date
set forth above upon the execution and delivery hereof by the Collateral Agent
and the Majority Lenders, provided, however, the Releases shall be effective as
of February 19, 1999.
7. Reference to and Effect Upon the Credit Agreement.
(a) The Credit Agreement and the other Loan Documents shall
remain in full force and effect and are hereby ratified and confirmed.
(b) The execution, delivery and effectiveness of this Agreement
shall not operate as a waiver of any right, power or remedy of the
Collateral Agent, Agent or any Lender under the Credit Agreement or any
Loan Document, nor constitute a waiver of any provision of the Credit
Agreement or any Loan Document, except as specifically set forth herein.
8. Costs and Expenses. The Company hereby affirms its obligation
under Section 11.04 of the Credit Agreement to reimburse the Agent for all
reasonable costs, internal charges and out-of-pocket expenses paid or incurred
by the Agent in connection with the preparation, negotiation, execution and
delivery of this Agreement, and with the preparation, negotiation, execution and
delivery of the collateral release documents, including but not limited to the
attorneys' fees and time charges of attorneys for the Agent with respect
thereto.
9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
such counterparts shall constitute one and the same instrument.
(signature pages follow)
<PAGE>
ABC-NACO INC.
/s/ Vincent V. Rea
By: _______________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
ABC-NACO de MEXICO S.A. de C.V.
/s/ Vincent V. Rea
By: _______________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
DOMINION CASTINGS LIMITED
/s/ Vincent V. Rea
By: _______________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
<PAGE>
BANK OF AMERICA, NATIONAL
ASSOCIATION,
as Agent
/s/ David A. Johanson
By: __________________________________
David A. Johanson
Vice President
Title: _______________________________
BANK OF AMERICA, NATIONAL
ASSOCIATION,
Individually as a Lender and as the Issuing Lender
/s/ John J. Campenella
By: __________________________________
Senior Vice President
Title: _______________________________
<PAGE>
ABN AMRO BANK N.V., as a Lender
/s/ David J. Thomas
By: __________________________________
Group Vice President
Title: _______________________________
/s/ Carla Walker
By: __________________________________
Assistant Vice President
Title: _______________________________
<PAGE>
BANKBOSTON, N.A., as a Lender
By: /s/ Mark Fawcett
----------------------------------
MARK FAWCETT
Title: VICE PRESIDENT
-------------------------------
<PAGE>
BANK ONE, NA (Main Office Chicago),
as a Lender
/s/ Kevin L. Gillen
By: ----------------------------------
KEVIN L. GILLEN
Title: VICE PRESIDENT
-------------------------------
<PAGE>
HARRIS TRUST AND SAVINGS BANK, as a
Lender
/s/ Patrick J. McDonnell
By: __________________________________
Vice President
Title: _______________________________
<PAGE>
LASALLE NATIONAL BANK, as a Lender
/s/ Terri A. Maurer
By: __________________________________
TERRI A. MAURER
VICE PRESIDENT
Title: _______________________________
<PAGE>
THE NORTHERN TRUST COMPANY, as a Lender
/s/ Anne P. Rahm
By: __________________________________
Second Vice President
Title: _______________________________
<PAGE>
PNC BANK, NATIONAL ASSOCIATION, as a
Lender
/s/ Robert A. Krasnow
By: __________________________________
Senior Vice President
Title: _______________________________
<PAGE>
U.S. BANK NATIONAL ASSOCIATION, as a
Lender
/s/ Megan G. Mourning
By: __________________________________
MEGAN G. MOURNING
VICE PRESIDENT
Title: _______________________________
<PAGE>
BANK OF AMERICA CANADA, as Canadian
Revolving Lender
/s/ Richard J. Hall
By: __________________________________
Richard J. Hall
Vice President
Title: _______________________________
<PAGE>
FIRSTAR BANK MILWAUKEE, N.A., as a Lender
/s/ Joe R. Fuller
By: __________________________________
Vice President
Title: _______________________________
<PAGE>
Exhibit 4.2
- --------------------------------------------------------------------------------
$200,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of October 29, 1999
among
ABC-NACO INC.,
ABC-NACO de MEXICO, S.A. de C.V.,
DOMINION CASTINGS LIMITED,
BANK OF AMERICA CANADA,
as Canadian Revolving Lender,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Agent and Letter of Credit Issuing Lender
and
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
Arranged By
NATIONSBANC MONTGOMERY SECURITIES LLC
- --------------------------------------------------------------------------------
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
This Amended and Restated Credit Agreement (this "Agreement") is
entered into as of October 29, 1999, by the and among ABC-NACO Inc., a Delaware
corporation (the "Company"), ABC-NACO de Mexico, S.A. de C.V., a Mexican
corporation (the "Mexican Borrower"), Dominion Castings Limited, an Ontario
corporation (the "Canadian Borrower" and, together with the Company and the
Mexican Borrower, the "Borrowers"), each of the several financial institutions
signatory hereto (collectively, the "Majority Lenders") and Bank of America,
National Association (f/k/a Bank of America National Trust and Savings
Association) individually and as agent (the "Agent") for the benefit of the
Lenders under the Credit Agreement hereinafter referred to.
RECITALS
--------
A. The Borrowers, Bank of America Canada, as Canadian Revolving
Lender, the financial institutions from time to time party thereto and the Agent
and Letter of Credit Issuing Lender are parties to that certain credit agreement
dated as of February 19, 1999, as amended by that certain Amendment, Waiver and
Release Agreement dated as of October 12, 1999 (the "Credit Agreement"). Unless
otherwise specified herein, capitalized terms used in this Agreement shall have
the meanings ascribed to them by the Credit Agreement, as amended hereby.
B. The Borrowers, the Agent and the Majority Lenders have agreed to
further amend the Credit Agreement on terms and conditions herein set forth and
to restate the Credit Agreement in its entirety to read as set forth in the
Credit Agreement with the amendments specified below, subject to the terms and
conditions hereof.
NOW, THEREFORE, in consideration of the mutual execution hereof and
other good and valuable consideration, the parties hereto agree as follows:
1. Amendments to Credit Agreement. Effective as of October 29, 1999,
the Credit Agreement is hereby amended as follows:
(a) Section 1.01 of the Credit Agreement is amended by inserting
a new row at the end of the table in the definition of "Applicable Margin" as
follows:
<TABLE>
<CAPTION>
Offshore Base Commitment
Level Rate Rate Fee
----- ---- ---- ---
<S> <C> <C> <C>
"VII 2.25% 1.25% 0.50%"
</TABLE>
(b) Section 1.01 of the Credit Agreement is further amended by
deleting the definition of "Level VI" therein in its entirety and inserting in
lieu thereof the following:
""Level VI" shall exist at any time the Leverage Ratio is less
than 4.00:1.0 but greater than or equal to 3.50:1.0."
2
<PAGE>
(c) Section 1.01 of the Credit Agreement is further amended by
adding the following new definition in appropriate alphabetical order:
""Level VII" shall exist at any time the Leverage Ratio is
greater than or equal to 4.00:1.0."
(d) Section 8.01 of the Credit Agreement is amended by deleting
the "5,000,000" appearing in clause (l) of such Section and replacing it with
"$10,000,000".
(e) Section 8.05 of the Credit Agreement is amended by deleting
the word "and" appearing at the end of clause (g) thereof and deleting clause
(h) in its entirety and inserting in lieu thereof the following:
"(h) Indebtedness subordinate to the Indebtedness incurred
pursuant to this Agreement; provided, that (i) the aggregate principal amount of
such Indebtedness outstanding at any one time shall not exceed $175,000,000;
(ii) the rate at which interest accrues on such Indebtedness shall not exceed
15% per annum; (iii) the terms of such Indebtedness shall be satisfactory to the
Agent, provided, that, the maturity date of such Indebtedness shall not be
earlier than one year after the scheduled Termination Date, the covenants of
such Indebtedness shall not be more restrictive than those set forth in this
Agreement and the subordination terms of such Indebtedness shall be customary
for transactions of similar nature; and
(i) Indebtedness of the Company or any of its Subsidiaries in an
aggregate amount outstanding at any time not to exceed $10,000,000, including
without limitation Indebtedness incurred by any Foreign Subsidiary."
(f) Section 8.14 of the Credit Agreement is amended by deleting
the table therein in its entirety and substituting in lieu thereof the
following:
<TABLE>
<CAPTION>
"Period Ratio
------ -----
<S> <C>
From and including the last day of the
fiscal quarter ended in October, 1999
to but excluding the last day of the
fiscal quarter ended in December, 1999 4.50:1.0
Thereafter, from and including the last
day of the fiscal quarter ended in
December, 1999 to but excluding the
last day of the fiscal quarter ended
in March, 2000 4.60:1.0
Thereafter, from and including the last
day of the fiscal quarter ended in
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
March, 2000 to but excluding the last
day of the fiscal quarter ended in
June, 2000 4.35:1.0
Thereafter, from and including the last
day of the fiscal quarter ended in
June, 2000 to but excluding the last
day of the fiscal quarter ended in
September, 2000 4.00:1.0
Thereafter, from and including the last
day of the fiscal quarter ended in
September, 2000 to but excluding the
last day of the fiscal quarter ended
in March, 2001 3.75:1.0
Thereafter, from and including the last
day of the fiscal quarter ended in
March, 2001 to but excluding the last
day of the fiscal quarter ended in
March, 2002 3.50:1.0
Thereafter 3.25:1.0"
</TABLE>
(g) Section 8.15 of the Credit Agreement is amended by deleting
the table therein in its entirety and substituting in lieu thereof the
following:
<TABLE>
<CAPTION>
"Period Ratio
------ -----
<S> <C>
From and including the last day of the
fiscal quarter ended in October, 1999
to but excluding the last day of the
fiscal quarter ended in December, 1999 3.25:1.0
Thereafter, from and including the last
day of the fiscal quarter ended in
December, 1999 to but excluding the
last day of the fiscal quarter ended
in March, 2000 3.35:1.0
Thereafter, from and including the last
day of the fiscal quarter ended in
March, 2000 to but excluding the last
day of the fiscal quarter ended in
June, 2000 3.25:1.0
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Thereafter, from and including the last
day of the fiscal quarter ended in
June, 2000 to but excluding the last
day of the fiscal quarter ended in
September, 2000 3.00:1.0
Thereafter, from and including the last
day of the fiscal quarter ended in
September, 2000 to but excluding the
last day of the fiscal quarter ended
in March, 2001 2.75:1.0
Thereafter 2.50:1.0"
</TABLE>
2. Representations and Warranties of the Borrowers. The Borrowers
represent and warrant that:
(a) The execution, delivery and performance by each of the
Borrowers of this Agreement have been duly authorized by all necessary
corporate action and that this Agreement is a legal, valid and binding
obligation of such Borrower enforceable against such Borrower in accordance
with its terms, except as the enforcement thereof may be subject to the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium
or similar law affecting creditors' rights generally;
(b) Each of the representations and warranties contained in the
Credit Agreement is true and correct in all material respects on and as of
the date hereof as if made on the date hereof, except to the extent that
any such representation or warranty relates to an earlier date, in which
case such representation or warranty shall be true and correct in all
material respects as of such earlier date; and
(c) After giving effect to this Agreement, no Default or
Unmatured Default has occurred and is continuing.
3. Conditions to Effectiveness of Agreement. This Agreement shall
become effective on the date (the "Effective Date") each of the following
conditions precedent is satisfied:
(a) Execution and Delivery. The Borrowers, the Agent and the
Majority Lenders shall have executed and delivered this Agreement.
(b) No Defaults. After giving effect to this Agreement, no
Unmatured Event of Default or Event of Default under the Credit Agreement shall
have occurred and be continuing.
5
<PAGE>
(c) Representations and Warranties. After giving effect to the
amendments contemplated by this Agreement, the representations and warranties of
the Borrowers contained in this Agreement, the Credit Agreement and the other
Loan Documents shall be true and correct in all respects as of the Effective
Date, with the same effect as though made on such date, except to the extent
that any such representation or warranty relates to an earlier date, in which
case such representation or warranty shall be true and correct in all material
respects as of such earlier date.
(d) Reaffirmation of Guaranty. The Agent shall have received a
Reaffirmation of Guaranty dated as of the Effective Date in the form of Exhibit
A-1 and Exhibit A-2 attached hereto duly executed by each Guarantor.
(e) Payment of Expenses. The Company shall have paid all of the
fees and expenses of (i) Winston & Strawn, counsel to the Agent; (ii) Borden &
Elliot, Canadian counsel to the Agent; and (iii) Ritch, Heather y Mueller,
Mexican counsel to the Agent, incurred up to the Effective Date.
(f) Payment of Amendment Fee. The Company shall have paid in full
to the Agent for ratable distribution to each Lender an amount equal to 0.125%
of the Commitment of such Lender.
4. Reference to and Effect Upon the Credit Agreement.
(a) Upon the Effective Date, each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of
like import and each reference to the Credit Agreement in each Loan
Document shall mean and be a reference to the Credit Agreement as amended
and restated hereby and the Credit Agreement is amended as set forth herein
and is hereby restated in its entirety to read as set forth in the Credit
Agreement with the amendments specified herein.
(b) Except as specifically amended above, all of the terms,
conditions and covenants of the Credit Agreement and the other Loan
Documents shall remain unaltered and in full force and effect and are
hereby ratified and confirmed in all respects.
(c) The execution, delivery and effectiveness of this Agreement
shall not operate as a waiver of any right, power or remedy of the Agent or
any Lender under the Credit Agreement or any other Loan Document, nor
constitute a waiver of any provision of the Credit Agreement or any Loan
Document, except as specifically set forth herein.
5. Costs and Expenses. The Company hereby affirms its obligation
under Section 11.04 of the Credit Agreement to reimburse the Agent for all
reasonable costs, internal charges and out-of-pocket expenses paid or incurred
by the Agent in connection with the preparation, negotiation, execution and
delivery of this Agreement, including but not limited to the attorneys' fees and
time charges of attorneys for the Agent with respect thereto.
6
<PAGE>
6. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
such counterparts shall constitute one and the same instrument.
(signature pages follow)
7
<PAGE>
ABC-NACO INC.
/s/ Vincent V. Rea
By: ___________________________________
Vincent V. Rea
Name: _________________________________
Vice President & Treasurer
Title: ________________________________
ABC-NACO de MEXICO S.A. de C.V.
/s/ Vincent V. Rea
By: ___________________________________
Vincent V. Rea
Name: _________________________________
Vice President & Treasurer
Title: ________________________________
DOMINION CASTINGS LIMITED
/s/ Vincent V. Rea
By: ___________________________________
Vincent V. Rea
Name: _________________________________
Vice President & Treasurer
Title: ________________________________
8
<PAGE>
BANK OF AMERICA, NATIONAL
ASSOCIATION, as Agent
/s/ David A. Johanson
By: ___________________________________
David A. Johanson
Name: _________________________________
Vice President
Title: ________________________________
BANK OF AMERICA, NATIONAL
ASSOCIATION, Individually as a Lender and as the
Issuing Lender
By: ___________________________________
Name: _________________________________
Title: ________________________________
9
<PAGE>
BANK OF AMERICA, NATIONAL
ASSOCIATION, as Agent
By: ___________________________________
Name: _________________________________
Title: ________________________________
BANK OF AMERICA, NATIONAL
ASSOCIATION, Individually as a Lender and as the
Issuing Lender
/s/ John J. Campanella
By: ___________________________________
John J. Campanella
Name: _________________________________
Senior Vice President
Title: ________________________________
10
<PAGE>
ABN AMRO BANK N.V., as a Lender
/s/ David J. Thomas
By: ___________________________________
David J. Thomas
Name: _________________________________
Group Vice President
Title: ________________________________
/s/ Gerald F. Mackin
By: ___________________________________
Gerald F. Mackin
Name: _________________________________
Vice President
Title: ________________________________
11
<PAGE>
BANKBOSTON, N.A., as a Lender
/s/ Mark Fawcett
By: ___________________________________
MARK FAWCETT
Name: _________________________________
VICE PRESIDENT
Title: ________________________________
12
<PAGE>
BANK ONE, NA (Main Office Chicago), as a Lender
/s/ Kevin L. Gillen
By: ___________________________________
KEVIN L. GILLEN
Name: _________________________________
VICE PRESIDENT
Title: ________________________________
13
<PAGE>
FIRSTAR BANK MILWAUKEE, N.A., as a Lender
/s/ Matthew J. Schulz
By: ___________________________________
MATTHEW J. SCHULZ
Name: _________________________________
COMMERCIAL BANKING OFFICER
Title: ________________________________
14
<PAGE>
HARRIS TRUST AND SAVINGS BANK, as a
Lender
/s/ Patrick J. McDonnell
By: ___________________________________
Patrick J. McDonnell
Name: _________________________________
Vice President
Title: ________________________________
15
<PAGE>
LASALLE NATIONAL BANK, as a Lender
/s/ Terri A. Maurer
By: ___________________________________
TERRI A. MAURER
Name: _________________________________
VICE PRESIDENT
Title: ________________________________
16
<PAGE>
THE NORTHERN TRUST COMPANY, as a Lender
/s/ Anne P. Rahm
By: ___________________________________
Anne P. Rahm
Name: _________________________________
Second Vice President
Title: ________________________________
17
<PAGE>
PNC BANK, NATIONAL ASSOCIATION, as a
Lender
/s/ Robert A. Krasnow
By: ___________________________________
ROBERT A. KRASNOW
Name: _________________________________
Senior Vice President
Title: ________________________________
18
<PAGE>
U.S. BANK NATIONAL ASSOCIATION, as a Lender
/s/ Megan G. Mourning
By: ___________________________________
MEGAN G. MOURNING
Name: _________________________________
VICE PRESIDENT
Title: ________________________________
19
<PAGE>
BANK OF AMERICA CANADA, as Canadian
Revolving Lender
/s/ Richard J. Hall
By: ___________________________________
Richard J. Hall
Name: _________________________________
Vice President
Title: ________________________________
20
<PAGE>
REAFFIRMATION OF GUARANTY
-------------------------
Each of the undersigned acknowledges receipt of a copy of the Amended and
Restated Credit Agreement (the "Amendment") dated October 29, 1999, consents to
such Amendment and hereby reaffirms its obligations under that certain
Subsidiary Guaranty dated February 19, 1999 by the direct and indirect
subsidiaries of ABC-NACO Inc.
Dated as of October 29, 1999.
NACO, INC.
/s/ Vincent V. Rea
By: _______________________________________
Vincent V. Rea
Name: _____________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
ABC RAIL BRAKESHOE HOLDINGS, INC.
/s/ Vincent V. Rea
By: _______________________________________
Vincent V. Rea
Name: _____________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
ABC RAIL FRENCH HOLDINGS, INC.
/s/ Vincent V. Rea
By: _______________________________________
Vincent V. Rea
Name: _____________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
21
<PAGE>
ABC RAIL PRODUCTS CHINA
INVESTMENT CORPORATION
/s/ Vincent V. Rea
By: _______________________________________
Vincent V. Rea
Name: _____________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
ABC RAIL SYSTEMS, INC.
/s/ Vincent V. Rea
By: _______________________________________
Vincent V. Rea
Name: _____________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
ABC RAIL (VIRGIN ISLANDS)
CORPORATION
/s/ Vincent V. Rea
By: _______________________________________
Vincent V. Rea
Name: _____________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
TRANSIT & RAIL SYSTEMS, INC.
/s/ Vincent V. Rea
By: _______________________________________
Vincent V. Rea
Name: _____________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
NATIONAL CASTINGS, INC.
/s/ Vincent V. Rea
By: _______________________________________
Vincent V. Rea
Name: _____________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
22
<PAGE>
NACO FLOW PRODUCTS, INC.
/s/ Vincent V. Rea
By: _______________________________________
Vincent V. Rea
Name: _____________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
NATIONAL ENGINEERED PRODUCTS
COMPANY, INC.
/s/ Vincent V. Rea
By: _______________________________________
Vincent V. Rea
Name: _____________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
23
<PAGE>
REAFFIRMATION OF GUARANTY
-------------------------
Each of the undersigned acknowledges receipt of a copy of the Amended and
Restated Credit Agreement (the "Amendment") dated October 29, 1999, consents to
such Amendment and hereby reaffirms its obligations under that certain Mexican
Subsidiary Guaranty dated February 19, 1999, as amended by that certain
Amendment of Mexican Subsidiary Guaranty dated as of October 12, 1999.
Dated as of October 29, 1999.
ABC-NACO DE MEXICO, S.A. DE C.V.
/s/ Vincent V. Rea
By: _______________________________________
Vincent V. Rea
Name: _____________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
ABC-NACO SERVICIOS FERROVIARIOS,
S.A. DE C.V.
/s/ Vincent V. Rea
By: _______________________________________
Vincent V. Rea
Name: _____________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
COMMERCIALIZADORA NATIONAL
CASTINGS, S.A. DE C.V.
/s/ Vincent V. Rea
By: _______________________________________
Vincent V. Rea
Name: _____________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
24
<PAGE>
NATIONAL CASTINGS DE MEXICO, S.A.
DE C.V.
/s/ Vincent V. Rea
By: _______________________________________
Vincent V. Rea
Name: _____________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
SERVICIOS NATIONAL CASTINGS, S.A.
DE C.V.
/s/ Vincent V. Rea
By: _______________________________________
Vincent V. Rea
Name: _____________________________________
Vice President & Corporate Treasurer
Title: ____________________________________
25
<PAGE>
Exhibit 4.3
- --------------------------------------------------------------------------------
AMENDMENT TO
$200,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of October 29, 1999
among
ABC-NACO INC.,
ABC-NACO de MEXICO, S.A. de C.V.,
DOMINION CASTINGS LIMITED,
BANK OF AMERICA CANADA,
as Canadian Revolving Lender,
BANK OF AMERICA NATIONAL ASSOCIATION,
as Agent and Letter of Credit Issuing Lender
and
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
Arranged By
BANC OF AMERICA SECURITIES LLC
- --------------------------------------------------------------------------------
<PAGE>
AMENDMENT TO
-------------
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
This Amendment to Amended and Restated Credit Agreement (this "Agreement")
is entered into as of October 29, 1999, by the and among ABC-NACO Inc., a
Delaware corporation (the "Company"), ABC-NACO de Mexico, S.A. de C.V., a
Mexican corporation (the "Mexican Borrower"), Dominion Castings Limited, an
Ontario corporation (the "Canadian Borrower" and, together with the Company and
the Mexican Borrower, the "Borrowers"), each of the several financial
institutions signatory hereto (collectively, the "Majority Lenders") and Bank of
America, N.A. (f/k/a Bank of America National Trust and Savings Association)
individually and as agent (the "Agent") for the benefit of the Lenders under the
Credit Agreement hereinafter referred to.
RECITALS
--------
A. The Borrowers, Bank of America Canada, as Canadian Revolving Lender,
the financial institutions from time to time party thereto and the Agent and
Letter of Credit Issuing Lender are parties to that certain credit agreement
dated as of February 19, 1999, as amended by that certain Amendment, Waiver and
Release Agreement dated as of October 12, 1999 and as amended by that certain
Amended and Restated Credit Agreement dated as of October 29, 1999 (the "Credit
Agreement"). Unless otherwise specified herein, capitalized terms used in this
Agreement shall have the meanings ascribed to them by the Credit Agreement, as
amended hereby.
B. The Borrowers, the Agent and the Majority Lenders have agreed to
further amend the Credit Agreement on terms and conditions herein set forth,
subject to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual execution hereof and other
good and valuable consideration, the parties hereto agree as follows:
1. Amendments to Credit Agreement. Effective as of October 29, 1999,
the Credit Agreement is hereby amended as follows (except as to paragraph (a)
below which shall become effective as of November 1, 1999):
(a) Section 1.01 of the Credit Agreement is amended by deleting the
last row of the table in the definition of "Applicable Margin" and replacing it
with a new row as follows:
<TABLE>
<CAPTION>
Offshore Base Commitment
Level Rate Rate Fee
----- -------- ---- ----------
<S> <C> <C> <C>
"VII 2.50% 1.50% 0.50%"
</TABLE>
(b) Section 7.01 of the Credit Agreement is amended by adding the
following subsection 7.01(c) to the end thereof:
2
<PAGE>
"(c) as soon as available, but not later than 45 days after the
end of each fiscal month, a copy of the unaudited consolidated balance
sheet of the Company and its Subsidiaries as of the end of such month
and the related consolidated income statement for the period
commencing on the first day and ending on the last day of such month,
and certified by a Responsible Officer as fairly presenting,
accordance with GAAP (subject to ordinary, good faith year-end audit
adjustments), the financial position and the results of operations of
the Company and its Subsidiaries.
(c) Section 8.02(c) of the Credit Agreement is amended by deleting
such subsection in its entirety and replacing it with the following:
"(c) disposition of property by the Company or any Subsidiary
provided that the aggregate net proceeds for such dispositions made in
reliance on this Section 8.02(c) shall not exceed $15,000,000."
(d) Section 8.14 of the Credit Agreement is amended by deleting the
reference to "4.5:1.0" for the period which includes the last day of October,
1999 and replacing it with "4.8:1.0".
(e) Section 8.15 of the Credit Agreement is amended by deleting the
reference to "3.25:1.0" for the period which includes the last day of October,
1999 and replacing it with "3.40:1.0".
2. Representations and Warranties of the Borrowers. The Borrowers
represent and warrant that:
(a) The execution, delivery and performance by each of the
Borrowers of this Agreement have been duly authorized by all necessary
corporate action and that this Agreement is a legal, valid and binding
obligation of such Borrower enforceable against such Borrower in accordance
with its terms, except as the enforcement thereof may be subject to the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium
or similar law affecting creditors' rights generally;
(b) Each of the representations and warranties contained in the
Credit Agreement is true and correct in all material respects on and as of
the date hereof as if made on the date hereof, except to the extent that
any such representation or warranty relates to an earlier date, in which
case such representation or warranty shall be true and correct in all
material respects as of such earlier date; and
(c) After giving effect to this Agreement, no Default or Unmatured
Default has occurred and is continuing.
3
<PAGE>
3. Conditions to Effectiveness of Agreement. This Agreement shall
become effective on the date (the "Effective Date") each of the following
conditions precedent is satisfied:
(a) Execution and Delivery. The Borrowers, the Agent and the
Majority Lenders shall have executed and delivered this Agreement.
(b) No Defaults. After giving effect to this Agreement, no
Unmatured Event of Default or Event of Default under the Credit Agreement shall
have occurred and be continuing.
(c) Representations and Warranties. After giving effect to the
amendments contemplated by this Agreement, the representations and warranties of
the Borrowers contained in this Agreement, the Credit Agreement and the other
Loan Documents shall be true and correct in all respects as of the Effective
Date, with the same effect as though made on such date, except to the extent
that any such representation or warranty relates to an earlier date, in which
case such representation or warranty shall be true and correct in all material
respects as of such earlier date.
(d) Reaffirmation of Guaranty. The Agent shall have received a
Reaffirmation of Guaranty dated as of the Effective Date in the form of Exhibit
A-1 and Exhibit A-2 attached hereto duly executed by each Guarantor.
4. Reference to and Effect Upon the Credit Agreement.
(a) Upon the Effective Date, each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of
like import and each reference to the Credit Agreement in each Loan
Document shall mean and be a reference to the Credit Agreement as amended
and restated hereby and the Credit Agreement is amended as set forth herein
and is hereby restated in its entirety to read as set forth in the Credit
Agreement with the amendments specified herein.
(b) Except as specifically amended above, all of the terms,
conditions and covenants of the Credit Agreement and the other Loan
Documents shall remain unaltered and in full force and effect and are
hereby ratified and confirmed in all respects.
(c) The execution, delivery and effectiveness of this Agreement
shall not operate as a waiver of any right, power or remedy of the Agent or
any Lender under the Credit Agreement or any other Loan Document, nor
constitute a waiver of any provision of the Credit Agreement or any Loan
Document, except as specifically set forth herein.
5. Costs and Expenses. The Company hereby affirms its obligation
under Section 11.4 of the Credit Agreement to reimburse the Agent for all
reasonable costs, internal charges and out-of-pocket expenses paid or incurred
by the Agent in connection with the preparation, negotiation, execution and
delivery of this Agreement, including but not limited to the attorneys' fees and
time charges of attorneys for the Agent with respect thereto.
4
<PAGE>
6. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
such counterparts shall constitute one and the same instrument.
(signature pages follow)
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the date above first written.
ABC-NACO INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
ABC-NACO de MEXICO S.A. de C.V.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
DOMINION CASTINGS LIMITED
By:
-------------------------------
Name:
----------------------------
Title:
---------------------------
6
<PAGE>
BANK OF AMERICA, NATIONAL
ASSOCIATION, as Agent
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
BANK OF AMERICA, NATIONAL
ASSOCIATION, Individually as a Lender and as the
Issuing Lender
By:
-------------------------------
Name:
-----------------------------
Title:
---------------------------
7
<PAGE>
ABN AMRO BANK N.V., as a Lender
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
By:
------------------------------
Name:
-----------------------------
Title:
----------------------------
8
<PAGE>
BANKBOSTON, N.A., as a Lender
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
9
<PAGE>
BANK ONE, NA (Main Office Chicago), as a Lender
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
10
<PAGE>
FIRSTAR BANK MILWAUKEE, N.A., as a Lender
By:
------------------------------
Name:
-----------------------------
Title:
---------------------------
11
<PAGE>
HARRIS TRUST AND SAVINGS BANK, as a
Lender
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
12
<PAGE>
LASALLE BANK NATIONAL ASSOCIATION, as
a Lender
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
13
<PAGE>
THE NORTHERN TRUST COMPANY, as a Lender
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
14
<PAGE>
PNC BANK, NATIONAL ASSOCIATION, as a
Lender
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
15
<PAGE>
U.S. BANK NATIONAL ASSOCIATION, as a
Lender
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
16
<PAGE>
BANK OF AMERICA CANADA, as Canadian
Revolving Lender
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
17
<PAGE>
Exhibit A-1
REAFFIRMATION OF GUARANTY
-------------------------
Each of the undersigned acknowledges receipt of a copy of the Amended
and Restated Credit Agreement (the "Amendment") dated October 29, 1999, consents
to such Amendment and hereby reaffirms its obligations under that certain
Subsidiary Guaranty dated February 19, 1999 by the direct and indirect
subsidiaries of ABC-NACO Inc.
Dated as of October 29, 1999.
NACO, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
ABC RAIL BRAKESHOE HOLDINGS, INC.
By:
----------------------------
Name:
-------------------------
Title:
------------------------
ABC RAIL FRENCH HOLDINGS, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
18
<PAGE>
ABC RAIL PRODUCTS CHINA
INVESTMENT CORPORATION
By:
---------------------------
Name:
-------------------------
Title:
------------------------
ABC RAIL SYSTEMS, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
ABC RAIL (VIRGIN ISLANDS)
CORPORATION
By:
---------------------------
Name:
-------------------------
Title:
------------------------
TRANSIT & RAIL SYSTEMS, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
NATIONAL CASTINGS, INC.
By:
---------------------------
Name:
--------------------------
Title:
------------------------
19
<PAGE>
NACO FLOW PRODUCTS, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
NATIONAL ENGINEERED PRODUCTS
COMPANY, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
20
<PAGE>
Exhibit A-2
REAFFIRMATION OF GUARANTY
-------------------------
Each of the undersigned acknowledges receipt of a copy of the Amended
and Restated Credit Agreement (the "Amendment") dated October 29, 1999, consents
to such Amendment and hereby reaffirms its obligations under that certain
Mexican Subsidiary Guaranty dated February 19, 1999, as amended by that certain
Amendment of Mexican Subsidiary Guaranty dated as of October 12, 1999.
Dated as of October 29, 1999.
ABC-NACO DE MEXICO, S.A. DE C.V.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
ABC-NACO SERVICIOS FERROVIARIOS,
S.A. DE C.V.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
COMMERCIALIZADORA NATIONAL CASTINGS,
S.A. DE C.V.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
21
<PAGE>
NATIONAL CASTINGS DE MEXICO,
S.A. DE C.V.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
SERVICIOS NATIONAL CASTINGS,
S.A. DE C.V.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED OCTOBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 3,187
<SECURITIES> 0
<RECEIVABLES> 90,285<F1>
<ALLOWANCES> 0
<INVENTORY> 87,959
<CURRENT-ASSETS> 205,583
<PP&E> 358,663
<DEPRECIATION> 114,061
<TOTAL-ASSETS> 499,512
<CURRENT-LIABILITIES> 128,177
<BONDS> 248,988
0
0
<COMMON> 191
<OTHER-SE> 87,813
<TOTAL-LIABILITY-AND-EQUITY> 499,512
<SALES> 144,172
<TOTAL-REVENUES> 144,172
<CGS> 128,320
<TOTAL-COSTS> 128,320
<OTHER-EXPENSES> 13,445
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,211
<INCOME-PRETAX> (2,804)
<INCOME-TAX> (886)
<INCOME-CONTINUING> (1,918)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,918)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
<FN>
<F1>Notes and accounts receivable - trade are reported net of allowances for doubtful
accounts in the Consolidated Balance Sheets.
</FN>
</TABLE>
