-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C5zaytfTPf11I5zRm4ZUBO5snfm4JsQETR0JyxLO0u7/xZlF6267GKpHf7EBUmXB ROA0/U8vfFrY6sOyS7Oviw== 0000913364-00-000014.txt : 20000511 0000913364-00-000014.hdr.sgml : 20000511 ACCESSION NUMBER: 0000913364-00-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABC NACO INC CENTRAL INDEX KEY: 0000913364 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 363498749 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22906 FILM NUMBER: 624742 BUSINESS ADDRESS: STREET 1: 2001 BUTTERFIELD ROAD STREET 2: SUITE 502 CITY: DOWNES GROVE STATE: IL ZIP: 60515 BUSINESS PHONE: 3123224614 MAIL ADDRESS: STREET 1: 200 S MICHIGAN AVE STREET 2: SUITE 1300 CITY: CHICAGO STATE: IL ZIP: 60604 FORMER COMPANY: FORMER CONFORMED NAME: ABC RAIL PRODUCTS CORP DATE OF NAME CHANGE: 19931014 10-Q 1 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 MARCH 31, 2000 0-22906 - --------------------------- ------------------------ For the Quarterly Period 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, including zip code) Registrant's telephone number, including area code (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 May 1, 2000 - ----------------------------- ----------------------------- COMMON STOCK, $.01 PAR VALUE 19,061,132 SHARES ABC-NACO INC. INDEX Page ---- Part I Financial Statements Item 1 Unaudited Consolidated Financial Statements Unaudited Consolidated Balance Sheets 3 Unaudited Consolidated Statements of Operations 4 Unaudited Consolidated Statements of Changes in Stockholders'Equity 5 Unaudited Consolidated Statements of Cash Flows 6 Notes to Unaudited Consolidated Financial Statements 7 - 14 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 15 - 21 Item 3 Quantitative and Qualitative Disclosures About Market Risk 21 Part II Other Information Item 4 Submission of Matters to a Vote of Security Holders 21 Item 6 Exhibits and Reports on Form 8-K 22
ABC-NACO INC. CONSOLIDATED BALANCE SHEETS As of March 31, 2000 and December 31, 1999 (Unaudited) (In thousands, except share data) March 31, December 31, ASSETS 2000 1999 - ---------------------------------------------------------------------------- ----------- -------------- CURRENT ASSETS: Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ - $ 351 Accounts receivable, less allowances of $2,202 and $1,804, respectively. 102,260 79,617 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,672 94,132 Prepaid expenses and other current assets. . . . . . . . . . . . . . . . 12,861 12,401 Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 8,657 8,680 ----------- -------------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 222,450 195,181 ----------- -------------- PROPERTY, PLANT AND EQUIPMENT: Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,630 7,644 Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . 42,027 42,268 Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . 274,619 267,189 Patterns, tools, gauges and dies . . . . . . . . . . . . . . . . . . . . 13,730 14,610 Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . 27,605 28,302 ----------- -------------- 365,611 360,013 Less - Accumulated depreciation. . . . . . . . . . . . . . . . . . . . . (121,990) (115,003) ----------- -------------- Net property, plant and equipment. . . . . . . . . . . . . . . . . . 243,621 245,010 ----------- -------------- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES . . . . . . . . . . . . . . . . 14,338 13,886 ----------- -------------- OTHER ASSETS - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,372 38,394 ----------- -------------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 519,781 $ 492,471 =========== ============== LIABILITIES AND STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------- CURRENT LIABILITIES: Cash overdrafts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,138 $ - Current maturities of long-term debt . . . . . . . . . . . . . . . . . . 7,092 6,207 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,097 89,678 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,306 42,983 ----------- -------------- Total current liabilities. . . . . . . . . . . . . . . . . . . . . . 137,633 138,868 ----------- -------------- LONG-TERM DEBT, less current maturities. . . . . . . . . . . . . . . . . . . 247,116 246,247 ----------- -------------- DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,695 6,699 ----------- -------------- OTHER LONG-TERM LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . 14,237 13,978 ----------- -------------- STOCKHOLDERS' EQUITY: Preferred stock, $1.00 par value; 1,000,000 shares authorized; 300,000 shares issued and outstanding . . . . . . . . . . . . . . . . 28,425 - Common stock, $.01 par value; 25,000,000 shares authorized; 19,372,242 shares issued and outstanding, . . . . . . . . . . . . . 194 194 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 91,270 79,240 Retained earnings (deficit). . . . . . . . . . . . . . . . . . . . . . . (4,580) 7,954 Cumulative translation adjustment. . . . . . . . . . . . . . . . . . . . (1,209) (709) ----------- -------------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 114,100 86,679 ----------- -------------- Total liabilities and stockholders' equity . . . . . . . . . . . . . $ 519,781 $ 492,471 =========== ============== The accompanying notes to the unaudited consolidated financial statements are an integral part of these consolidated statements.
ABC-NACO INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended March 31, 2000 and 1999 (Unaudited) (In thousands, except per share data) Three Months Ended March 31, -------------------- 2000 1999 --------- --------- NET SALES . . . . . . . . . . . . . . . . . . . . . . . . $156,978 $166,715 COST OF SALES . . . . . . . . . . . . . . . . . . . . . . 136,135 147,088 --------- --------- Gross profit. . . . . . . . . . . . . . . . . . . 20,843 19,627 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. . . . . . . 13,751 15,666 MERGER AND OTHER RESTRUCTURING CHARGES. . . . . . . . . . 1,589 16,096 --------- --------- Operating income (loss) . . . . . . . . . . . . . 5,503 (12,135) EQUITY INCOME OF UNCONSOLIDATED JOINT VENTURES. . . . . . (453) (397) INTEREST EXPENSE. . . . . . . . . . . . . . . . . . . . . 6,172 4,253 AMORTIZATION OF DEFERRED FINANCING COSTS. . . . . . . . . 245 187 --------- --------- Loss before income taxes and extraordinary item. (461) (16,178) PROVISION (BENEFIT) FOR INCOME TAXES. . . . . . . . . . . 43 (3,813) --------- --------- Loss before extraordinary item . . . . . . . . . (504) (12,365) EXTRAORDINARY ITEM, net of income tax of $2,062 . . . . . - (3,158) --------- --------- Net loss. . . . . . . . . . . . . . . . . . . . . $ (504) $(15,523) ========= ========= EARNINGS PER SHARE DATA: Loss before extraordinary item . . . . . . . . . . $ (504) $(12,365) Adjustment related to preferred stock. . . . . . . (12,030) - --------- --------- Adjusted loss before extraordinary item. . . . . . (12,534) (12,365) Extraordinary item . . . . . . . . . . . . . . . . - (3,158) --------- --------- Net loss available to common stockholders. . . $(12,534) $(15,523) ========= ========= BASIC AND DILUTED EARNINGS PER SHARE: Adjusted loss before extraordinary item . . . . . $ (0.65) $ (0.68) Extraordinary item. . . . . . . . . . . . . . . . - (0.17) --------- --------- Net loss available to common stockholders. . $ (0.65) $ (0.85) ========= ========= WEIGHTED AVERAGE SHARES OUTSTANDING . . . . . . . . . . . 19,372 18,239 ========= ========= The accompanying notes to the unaudited consolidated financial statements are an integral part of these consolidated statements.
ABC-NACO INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Three Months Ended March 31, 2000 and 1999 (Unaudited) (In thousands) Additional Retained Cumulative Preferred Common Paid-in Earnings Translation Stock Stock Capital (Deficit) Adjustment Total ----------- --------- ----------- ---------- ------------- --------- BALANCE December 31, 1998. . . . $ - $ 184 $ 67,981 $ 28,888 $ (676) $ 96,377 Comprehensive loss. . . . . . . . - - - (15,523) 163 (15,360) ----------- --------- ----------- ---------- ------------- --------- BALANCE March 31, 1999 . . . . . $ - $ 184 $ 67,981 $ 13,365 $ (513) $ 81,017 =========== ========= =========== ========== ============= ========= BALANCE December 31, 1999. . . . $ - $ 194 $ 79,240 $ 7,954 $ (709) $ 86,679 Comprehensive loss . . . . . . . - - - (504) (500) (1,004) Preferred stock issued . . . . . 28,425 - 11,877 (11,877) - 28,425 Preferred stock dividends earned - - 153 (153) - - ----------- --------- ----------- ---------- ------------- --------- BALANCE March 31, 2000 . . . . . $ 28,425 $ 194 $ 91,270 $ (4,580) $ (1,209) $114,100 =========== ========= =========== ========== ============= ========= The accompanying notes to the unaudited consolidated financial statements are an integral part of these consolidated statements.
ABC-NACO INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2000 and 1999 (Unaudited) (In thousands) Three Months Ended March 31, ---------------------------- 2000 1999 ----------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (504) $(15,523) Adjustments to reconcile net loss to net cash used in operating activities: Extraordinary item . . . . . . . . . . . . . . . . . . . . . - 3,158 Merger and other restructuring charges . . . . . . . . . . . 1,589 16,096 Equity income of unconsolidated joint ventures . . . . . . . (453) (397) Depreciation and amortization . . . . . . . . . . . . . . . 8,374 7,627 Deferred income taxes. . . . . . . . . . . . . . . . . . . . 19 643 Changes in certain assets and liabilities Accounts receivable - net . . . . . . . . . . . . . . (22,643) (7,820) Inventories . . . . . . . . . . . . . . . . . . . . . (4,540) 3,092 Prepaid expenses and other current assets . . . . . . (460) (15,240) Other noncurrent assets . . . . . . . . . . . . . . . (1,083) (149) Accounts payable and accrued expenses . . . . . . . . (5,560) (7,347) Other noncurrent liabilities. . . . . . . . . . . . . (240) 1,159 ----------- --------- Net cash used in operating activities . . . . . . . . (25,501) (14,701) ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures. . . . . . . . . . . . . . . . . . . . . (6,476) (10,277) ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under revolving lines of credit. . . . . . . . 2,757 45,527 Change in cash overdrafts . . . . . . . . . . . . . . . . . . 2,138 836 Payment of term debt. . . . . . . . . . . . . . . . . . . . . (1,003) (23,983) Borrowings of term debt . . . . . . . . . . . . . . . . . . . - 3,000 Payment of deferred financing costs . . . . . . . . . . . . . (691) (6) Issuance of convertible preferred stock . . . . . . . . . . . 28,425 - ----------- --------- Net cash provided by financing activities 31,626 25,374 ----------- --------- Net change in cash. . . . . . . . . . . . (351) 396 CASH AND CASH EQUIVALENTS, beginning of period. . . . . . . . . . . . 351 164 ----------- --------- CASH AND CASH EQUIVALENTS, end of period. . . . . . . . . . . . . . . $ - $ 560 =========== ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest. . . . . . . . . . . . . . . . . . . . $ 6,547 $ 3,661 Cash paid (received) for income taxes, net. . . . . . . . . . (1,498) 607 The accompanying notes to the unaudited consolidated financial statements are an integral part of these consolidated statements.
ABC-NACO INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION ABC-NACO Inc. ("the Company") is a supplier of technologically advanced products and services to the freight railroad and flow control industries. The Company operates in three business segments: Rail Products, Rail Services and Systems, and Flow and Specialty Products, and has four technology centers around the world supporting its three business segments. The Company holds 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 and the Company's Transition Report on Form 10-K for the five months ended December 31, 1999. The Company is a result of a merger (the "Merger") on February 19, 1999, between 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. Unaudited results of operations for ABC and NACO prior to the Merger from January 1, 1999, to February 19, 1999 (in thousands):
ABC NACO -------- -------- Revenue. $52,659 $60,552 Net loss (669) (51)
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 filed a Form 10-K transition report for the five-month transition period from August 1, 1999 to December 31, 1999 (the "Transition Period"). 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. Inventories at March 31, 2000, and December 31, 1999, consisted of the following (in thousands):
March 31, December 31, 2000 1999 ---------- ------------- Raw materials. . . . . . . . . . . $ 47,441 $ 44,148 Supplies and spare parts . . . . . 4,095 5,258 Work in process and finished goods 47,136 44,726 ---------- ------------- $ 98,672 $ 94,132 ========== =============
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 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 $200.0 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 March 31, 2000 was 9.2%. Availability at March 31, 2000 was $31.2 million. 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 modifications to the Credit Agreement that were effective as of October 29, 1999 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. On March 8, 2000, the Company entered into a Second Amendment and Restatement of the Credit Agreement that was effective as of December 30, 1999 to modify certain of the financial covenants in the Credit Agreement, which the Company otherwise would have not been in compliance with as of December 31, 1999. The amended covenants included the Maximum Consolidated Leverage Ratio, Maximum Senior Leverage Ratio and the Minimum Interest Coverage Ratio. In addition, a minimum pro-forma EDITDA covenant was added to the Credit Agreement. The Company and its Lenders also modified other terms and conditions within the Credit Agreement including the pricing grid, which is based upon the Company's Consolidated Leverage Ratio. The currently applied margin of 300 basis points over IBOR is the maximum IBOR margin provided for by the Amendment. The revolving line of credit now has scheduled commitment reductions as follows: January 1, 2001-$10 million, June 30, 2001-$5.0 million, January 1, 2002-$10.0 million, June 30, 2002-$5.0 million and January 1, 2003-$15.0 million. The total commitment reductions aggregate to $45.0 million and will reduce the revolving credit commitment to a total of $155.0 million as of January 1, 2003. With the Amendment, the Company was in compliance with the Credit Agreement as of December 31, 1999 and March 31, 2000. Based upon management's forecasts for the next twelve months, the Company anticipates being in compliance with its Credit Agreement covenants at each quarterly measurement point during such period. The Company anticipates being able to operate within the reduced Credit Agreement commitment levels through use of its free cash flow generated from operations, the potential disposal of certain non-core operating assets, the $30.0 million proceeds from the March 8, 2000 convertible preferred stock investment by private equity funds managed by ING Furman Selz investments and the realignment of the Company's capitalization components through a universal shelf registration. On February 1, 1997, the Company completed an offering (the ''Offering'') of $50 million of 9 1/8% Senior Subordinated Notes (the ''9 1/8% Notes''). The Company used the $47.9 million of net proceeds of the Offering to repay certain outstanding indebtedness under its primary and other credit facilities. The 9 1/8% Notes are general unsecured obligations of the Company and are subordinated in right of payment to all existing and future senior indebtedness of the Company and other liabilities of the Company's subsidiaries. The 9 1/8% Notes will mature in 2004, unless repurchased earlier at the option of the Company at 100% of face value. The 9 1/8% Notes are subject to mandatory repurchase or redemption prior to maturity upon a Change of Control (as defined). The indenture under which the 9 1/8% Notes were issued limits the Company's ability to (i) incur additional indebtedness, (ii) complete certain mergers, consolidations and sales of assets, and (iii) pay dividends or other distributions. On December 23, 1997, the Company completed a second offering of $25.0 million of 8 3/4% Senior Subordinated Notes, Series B (the ''8 3/4% Notes'') due in 2004 with similar provisions as the 9 1/8% Notes. The Company is required to meet a number of financial covenants on its 9 1/8% Notes and 8 3/4% Notes including minimum interest coverage, minimum consolidated net worth and maximum funded debt to capitalization. The interest coverage ratio at March 31, 2000 was 2.44 with the minimum requirement under the Note agreements being 2.40. The funded debt to capitalization ratio at March 31, 2000 was 69.5% with the maximum allowable under the Note agreements being 75.0%. These same leverage covenants need to be met at each quarter-end through the maturity dates for these notes. Failure to meet these covenant tests would give the noteholders the unilateral right to accelerate the maturity of the related debt after a requisite cure period. In addition, cross-default provisions under the Credit Agreement would be triggered upon a default under the Notes. If the Company does not have adequate cash or is unable to remain compliant with 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 or arrangements for such financing alternatives, and there can be no assurances 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. A universal shelf registration was declared effective by the Securities and Exchange Commission on October 29, 1999, for issuances up to $300 million of debt or equity securities. As of March 31, 2000, no securities were issued under the new universal shelf registration. 4. CONVERTIBLE PREFERRED STOCK On March 8, 2000, the Company issued 300,000 shares of Series B cumulative convertible preferred stock ($1 par value) to private equity funds managed by ING Furman Selz Investments for $30 million. The preferred stock has certain voting rights and will pay dividends at the rate of 8% per annum accrued semi-annually and paid in the form of common stock or cash, at the discretion of the Company. The preferred stock is convertible into common stock at the average closing price of the Company's common stock for the thirty trading days ending February 17, 2000, which was $9.00 per share. The preferred stock can be converted into common shares at the Company's option under certain conditions at any time three years after issuance. The net proceeds received from the sale of preferred stock ($28.4 million after offering costs) were applied to reduce the outstanding indebtedness under the Company's Revolving Credit Facility. While the conversion price may change under specific conditions, the $9.00 per share price on the date that the Company and the preferred stock holders were committed to completing the transaction represented a discount from the market value of the underlying common stock on that date by an aggregate of $11.9 million. This discount represents the value of the beneficial conversion feature of the preferred stock. Accordingly, the Company initially recorded the value of the preferred stock as $18.1 million offset by $1.6 million of transaction costs, with the $11.9 million credited to additional paid-in capital. Since the preferred stock is convertible at any time at the holders' option, this discount also represents an immediate deemed dividend to those holders at the date of issuance. Accordingly, upon issuance, the Company also recorded a $11.9 million dividend to these holders. Additionally, the preferred stock earned actual dividends of $0.2 million during the quarter ended March 31, 2000. Both the actual and deemed dividends are deducted from the net loss for the quarter ended March 31, 2000 to arrive at loss available to common stockholders in the earnings per share calculations for that period. In such calculations, other common stock equivalents, which would have increased diluted shares by 3,333,000 and 188,000 shares for the three months ended March 31, 2000 and 1999, respectively, were not included in the computation of diluted earnings per share because the assumed exercise of such equivalents would be antidilutive. 5. MERGER AND OTHER RESTRUCTURING COSTS During the three months ended March 31, 2000, the Company recorded $1.6 million of Merger and other restructuring charges. This charge included cash employee severance costs for 35 salaried employees and 30 hourly plant employees and was part of the Company's year-long effort to eliminate duplicate functions and to improve operating efficiencies as a result of the Merger. As of March 31, 2000, 95% of these employees have been terminated and $0.4 million of related costs were paid. During the third and fourth quarters of the fiscal year ended July 31, 1999, the Company recorded $16.1 million and $5.8 million, respectively, of Merger and other restructuring charges. During the Transition Period, the Company recorded additional charges of $1.2 million, including adjustments of previously-recorded charges based on actual expenses incurred on the related initiatives. The primary components of the aggregate $23.1 million of calendar 1999 charges include: (a) $9.5 million of costs incurred as a direct result of the Merger for advisory and other professional fees, (b) the consolidation of the corporate activities of the merged companies into one facility, and (c) the consolidation of several manufacturing and assembly operations into fewer facilities to eliminate duplicative functions and to improve operating efficiencies. The charges were computed based on actual cash payouts, management's estimate of realizable value of the affected tangible and intangible assets and estimated exit costs including severance and other employee benefits based on existing severance policies. The Company expects that these restructuring efforts will result in reduced operating costs, including lower salary and hourly payroll costs and depreciation/amortization. Employee severance costs included in the aggregate charge, totaling $7.9 million, were for 33 corporate employees, 109 salaried plant employees and 581 hourly plant employees. As of December 31, 1999, all of these employees had been terminated. Certain of the restructuring initiatives within the Rail Services and Systems segment were 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 closed its Cincinnati, Ohio facility and discontinued manufacturing at its Newton, Kansas facility (which also has a distribution operation) by July 31, 1999. The Company also closed its foundry operation in Anderson, Indiana by October 31, 1999. The Manganese castings used in specialty track products that were produced at Andersen are now produced at the Company's manufacturing facility in Richmond, Texas. The duplicative leased corporate facility and another administrative facility was closed in September 1999. In addition to these closures, the Company has decided to close an assembly facility in Verona, Wisconsin. This Rail Services and Systems facility is expected to be closed by the end of 2000 with all operations being transferred to another Company location. Costs associated with these facility closures, excluding severance, are $2.2 million of non-cash provisions for the write down of obsolete assets and leasehold improvements and $1.4 million in cash provisions for idle facility and property disposal costs. In addition to these costs, the Company incurred $2.1 million of cash costs related to the transfer of Manganese castings and other operations into the Richmond facility and the relocation of previous Richmond operations into another Company facility. These costs primarily represent the relocation of equipment and employees and the installation of the new operations at Richmond. The following table is a summary roll forward of the Merger and other restructuring reserves recorded in 1999 through March 31, 2000 (in thousands):
Aggregate Charge Deductions Balance ----------------- ------------ -------- Cash provisions: Merger advisory and other fees. . . . . . $ 9.5 $ (9.5) $ - Employee severance. . . . . . . . . . . . 7.9 (5.4) 2.5 Idle facility and property disposal costs 1.4 (1.3) 0.1 Relocation of operations. . . . . . . . . 2.1 (2.1) - ----------------- ------------ -------- Total cash costs . . . . . . . . . . . 20.9 $ (18.3) $ 2.6 ============ ======== Non-cash asset writedowns. . . . . . . . . . 2.2 ----------------- Total. . . . . . . . . . . . . . . . . $ 23.1 =================
The remaining cash costs are expected to be expended during the next nine to twelve months. 6. 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. . . . . . Freight car and locomotive castings Rail Services and Systems . Specialty trackwork, wheel assembly and signal systems Flow and Specialty Products Valve housing and related castings
The Company realigned its segments during the Transition Period to better reflect the organizational and marketing changes that were enacted within the Company. The Company's trackwork product line which previously had been reported as part of the Rail Products segment is now included as part of the Rail Services and Systems segment. The Company now markets its services for signaling and trackwork products to the railroads through one organization headed by one division president. In addition, the Company for strategic reasons, placed its metal brake shoe foundry into the Flow and Specialty Products segment. The current and historical segment financial information has been restated to reflect these changes. 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):
Three months ended March 31, --------------------- REVENUES 2000 1999 - ------------------------------------------------- --------- --------- Rail Products. . . . . . . . . . . . . . . . . . $ 79,155 $ 99,281 Rail Services and Systems. . . . . . . . . . . . 65,220 61,858 Flow and Specialty Products. . . . . . . . . . . 23,156 16,978 --------- --------- Total Reportable Segments. . . . . . . . . . 167,531 178,117 Elimination and Other. . . . . . . . . . . . . . (10,553) (11,402) --------- --------- Total. . . . . . . . . . . . . . . . . . $156,978 $166,715 ========= ========= OPERATING INCOME . . . . . . . . . . . . . . . . 2000 1999 - ------------------------------------------------- --------- --------- Rail Products. . . . . . . . . . . . . . . . . . $ 5,616 $ 8,058 Rail Services and Systems. . . . . . . . . . . . 4,655 2,164 Flow and Specialty Products. . . . . . . . . . . 3,273 1,374 --------- --------- Total Reportable Segments. . . . . . . . . . 13,544 11,596 Elimination and Other. . . . . . . . . . . . . . (8,041) (23,731) --------- --------- Total. . . . . . . . . . . . . . . . . . $ 5,503 $ 12,135 ========= =========
7. BUSINESS ACQUISITIONS 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. Accordingly, certain recorded assets and liabilities of the acquired businesses were revalued to estimated fair values of the acquisition dates. Management used its best judgment and available information in estimating the fair value of those assets and liabilities. Any changes to those estimates are not expected to be material. The operating results of the acquired business are included in the consolidated statements of operations from its date of acquisition. 8. 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 March 31, 2000. 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 as of March 31, 2000, and December 31, 1999 and for the three months ended March 31, 2000, and 1999 is as follows (in thousands):
March 31, December 31, 2000 1999 ----------- ------------- Current assets . . . . . . $ 8,543 $ 7,764 Noncurrent assets. . . . . 7,442 7,724 Current liabilities. . . . 1,258 1,491 Noncurrent liabilities . . - - Three Months Ended March 31, ------------------------- 2000 1999 ---------- ------------- Net sales. . . . . . . . . $ 5,090 $ 5,133 Gross profit . . . . . . . 1,424 1,673 Net income . . . . . . . . 772 1,071
In addition, the Company has other joint venture arrangements which are not significant to the Company's results of operations. 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 a supplier of technologically advanced products and services to the freight railroad and flow control industries through its three business segments or groups: 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 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. In the aggregate, the Company operates 19 U.S manufacturing plants in 12 states; plants in Sahagun, Mexico, Lisbon, Portugal, Leven, Scotland and Dominion, Canada; has unconsolidated joint ventures with plants in Illinois, China and Mexico; and has other facilities (administrative, engineering, etc.) in 4 states. 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. 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. The Company manages its operations through three reporting segments or groups: 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. . . . . . Freight car and locomotive castings Rail Services and Systems . Specialty trackwork, wheel assembly and signal systems Flow and Specialty Products Valve housing and related castings
RESULTS OF OPERATIONS - ----------------------- Three Months Ended March 31, 2000 Compared To Three Months Ended March 31, 1999 Net Sales. Consolidated net sales decreased 5.8% from $166.7 million in 1999 to $157.0 million in 2000. Sales within the Rail Products Segment decreased 20.2% from $99.3 million in 1999 to $79.2 million in 2000. This decrease was driven primarily by the overall industry decline in new railcar deliveries which decreased 21.7% to 16,867 in the first quarter of 2000 from 21,560 in the first quarter of 1999. Sales within the Rail Services and Systems Segment increased 5.4% to $65.2 million in 2000 from $61.8 million in 1999. The major reason behind the increase was the Company's recently announced long-term supply agreement with the Union Pacific Railroad to supply and service wheelsets for its North American operations. Sales within the Flow and Specialty Products Segment increased 36.5% to $23.2 million in 2000 from $17.0 million in 1999. The recent surge in oil prices has generated additional demand for exploration which in turn has increased demand for valve bodies sold by this segment. Gross Profit. Consolidated gross profit increased 6.2% to $20.8 million in 2000 from $19.6 million in 1999. The Company's overall improvement in gross profit and gross profit percentage during the 2000 period in a declining sales market is a direct result of improved operating efficiencies since the date of the merger. Gross profit within the Rail Products Segment decreased 22% from $12.0 million in 1999 to $9.3 million in 2000. Gross profit within the Rail Services and Systems group increased by 21.2% to $6.7 million in 2000 from $5.5 million in 1999. Gross profit within the Flow and Specialty Products Segment increased by 88% to $4.4 million in 2000 from $2.4 million in 1999. The gross profit changes within these groups were also impacted by the same reasons as described above. Selling, General and Administrative Expenses. Consolidated selling, general and administrative expenses decreased by 12.2% to $13.8 million in 2000 from $15.7 million in 1999. The decrease in expenses between periods primarily reflects the improved operating efficiencies subsequent to the date of the Merger. Merger and Other Restructuring Costs. During the three months ended March 31, 2000, the Company recorded $1.6 million of Merger and other restructuring charges. This charge included cash employee severance costs for 35 salaried employees and 30 hourly plant employees and was part of the Company's year-long effort to eliminate duplicate functions and to improve operating efficiencies as a result of the Merger. As of March 31, 2000, 95% of these employees have been terminated and $0.4 million of related costs were paid. The Company incurred a pre-tax charge of $16.1 million in the prior year quarter relative to the direct costs associated with the February 19, 1999, merger between ABC Rail Products and NACO as well as costs associated with the restructuring of the Track Products Group. The merger related charge totaled $12.6 million on a pre-tax basis and included advisory fees, employee severance obligations and other general expenses. The Track Products Group's restructuring charge totaled $3.5 million on a pre-tax basis and included costs for shutting down facilities, employee severance obligations and other general expenses. Equity Income of Unconsolidated Joint Ventures. The Company's income from its equity investments in joint ventures improved to $0.5 million in 2000 from $0.4 million in 1999. This was primarily a result of improved operating results at its wheel foundry in China. Interest Expense. Interest expense, excluding the effect of capitalizing $0.2 million of interest in 1999 increased $1.7 million to $6.2 million in 2000 from $4.4 million in 1999. This increase was attributable to higher borrowing levels and increased borrowing rates. Income Taxes. The Company's effective tax rates for the three months ending March 31, 2000 and 1999 were 9.3% and 23.6%, respectively. The lower effective tax rate for the period ending March 31, 2000, is primarily due to losses at the Glencast operation for which the Company has not recorded a tax benefit. The lower effective tax rate for the three months ending March 31, 1999 is due to nondeductible merger costs and losses at the Glencast operation for which the Company has not recorded a tax benefit. Extraordinary Item. On February 19, 1999, the Company, in conjunction with the Merger, entered into a new credit facility with a syndicate of financial institutions. This triggered the write-off of unamortized deferred financing balances, make whole payments and early termination fees that resulted from the extinguishment of the old debt. The after-tax charge recorded to account for these items was $3.2 million. LIQUIDITY AND CAPITAL RESOURCES - ---------------------------------- For the three months ended March 31, 2000 and 1999, net cash used in operating activities totaled $25.5 million and $14.7 million, respectively. The decrease in operating cash flow is due primarily to increases in the Company's receivable and inventory levels. The inventory increase was primarily related to the Company's new service agreement with Union Pacific Railroad Company. The increase in receivables was driven by the Company's strong sales during the last few weeks of the quarter, along with the weak sales level at the end of the prior period end (December 31, 1999). On October 29, 1999, the Company acquired all outstanding common stock of COMETNA-Companhia Metalurgical 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. Capital expenditures during the three months ended March 31, 2000 and 1999 were $6.5 million and $10.3 million, respectively. Spending during the three months ended March 31, 2000, is related to precision casting technology equipment at its Hamilton, Ontario and Cicero, Illinois facilities, completion of the construction of the Company's new wheel shop in Mexico City and final spending on the Company's conversion of the Richmond, Texas, facility to a specialty casting producer. Remaining capital expenditures for Fiscal 2000 are expected to total approximately $18.0 million. For the three months ended March 31, 2000 and 1999, net cash provided by financing activities totaled $31.6 million and $25.4 million, respectively. The net increase in 2000 was primarily funded through the Company's issuance of its Series B cumulative convertible preferred stock and in 1999 the increase was funded through the Company's existing line of credit. On March 8, 2000, the Company issued 300,000 shares of Series B cumulative convertible preferred stock ($1 par value) to private equity funds managed by ING Furman Selz Investments for $30 million. The preferred stock has certain voting rights and will pay dividends at the rate of 8% per annum accrued semi-annually and paid in the form of common stock or cash, at the discretion of the Company. The preferred stock is convertible into common stock at the average closing price of the Company's common stock for the thirty trading days ending February 17, 2000, which was $9.00 per share. The preferred stock can be converted into common shares at the Company's option under certain conditions at any time three years after issuance. The net proceeds received from the sale of preferred stock ($28.4 million after offering costs) were applied to reduce the outstanding indebtedness under the Company's Revolving Credit Facility. While the conversion price may change under specific conditions, the $9.00 per share price on the date that the Company and the preferred stock holders were committed to completing the transaction represented a discount from the market value of the underlying common stock on that date by an aggregate of $11.9 million. This discount represents the value of the beneficial conversion feature of the preferred stock. Accordingly, the Company initially recorded the value of the preferred stock as $18.1 million offset by $1.6 million of transaction costs, with the $11.9 million credited to additional paid-in capital. Since the preferred stock is convertible at any time at the holders' option, this discount also represents an immediate deemed dividend to those holders at the date of issuance. Accordingly, upon issuance, the Company also recorded a $11.9 million dividend to these holders. Additionally, the preferred stock earned actual dividends of $0.2 million during the period March 31, 2000. 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 $200.0 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 March 31, 2000 was 9.2%. Availability at March 31, 2000 was $31.2 million. 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 modifications to the Credit Agreement that were effective as of October 29, 1999 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. On March 8, 2000, the Company entered into a Second Amendment and Restatement of the Credit Agreement that was effective as of December 30, 1999 to modify certain of the financial covenants in the Credit Agreement, which the Company otherwise would have not been in compliance with as of December 31, 1999. The amended covenants included the Maximum Consolidated Leverage Ratio, Maximum Senior Leverage Ratio and the Minimum Interest Coverage Ratio. In addition, a minimum pro-forma EDITDA covenant was added to the Credit Agreement. The Company and its Lenders also modified other terms and conditions within the Credit Agreement including the pricing grid, which is based upon the Company's Consolidated Leverage Ratio. The currently applied margin of 300 basis points over IBOR is the maximum IBOR margin provided for by the Amendment. The revolving line of credit now has scheduled commitment reductions as follows: January 1, 2001-$10 million, June 30, 2001-$5.0 million, January 1, 2002-$10.0 million, June 30, 2002-$5.0 million and January 1, 2003-$15.0 million. The total commitment reductions aggregate to $45.0 million and will reduce the revolving credit commitment to a total of $155.0 million as of January 1, 2003. With the Amendment, the Company was in compliance with the Credit Agreement as of December 31, 1999 and March 31, 2000. Based upon management's forecasts for the next twelve months, the Company anticipates being in compliance with its Credit Agreement covenants at each quarterly measurement point during such period. The Company anticipates being able to operate within the reduced Credit Agreement commitment levels through use of its free cash flow generated from operations, the potential disposal of certain non-core operating assets, the $30.0 million proceeds from the March 8, 2000 convertible preferred stock investment by private equity funds managed by ING Furman Selz investments and the realignment of the Company's capitalization components through a universal shelf registration. On February 1, 1997, the Company completed an offering (the ''Offering'') of $50 million of 9 1/8% Senior Subordinated Notes (the ''9 1/8% Notes''). The Company used the $47.9 million of net proceeds of the Offering to repay certain outstanding indebtedness under its primary and other credit facilities. The 9 1/8% Notes are general unsecured obligations of the Company and are subordinated in right of payment to all existing and future senior indebtedness of the Company and other liabilities of the Company's subsidiaries. The 9 1/8% Notes will mature in 2004, unless repurchased earlier at the option of the Company at 100% of face value. The 9 1/8% Notes are subject to mandatory repurchase or redemption prior to maturity upon a Change of Control (as defined). The indenture under which the 9 1/8% Notes were issued limits the Company's ability to (i) incur additional indebtedness, (ii) complete certain mergers, consolidations and sales of assets, and (iii) pay dividends or other distributions. On December 23, 1997, the Company completed a second offering of $25.0 million of 8 3/4% Senior Subordinated Notes, Series B (the ''8 3/4% Notes'') due in 2004 with similar provisions as the 9 1/8% Notes. The Company is required to meet a number of financial covenants on its 9 1/8% Notes and 8 3/4% Notes including minimum interest coverage, minimum consolidated net worth and maximum funded debt to capitalization. The interest coverage ratio at March 31, 2000 was 2.44 with the minimum requirement under the Note agreements being 2.40. The funded debt to capitalization ratio at March 31, 2000 was 69.5% with the maximum allowable under the Note agreements being 75.0%. These same leverage covenants need to be met at each quarter-end through the maturity dates for these notes. Failure to meet these covenant tests would give the noteholders the unilateral right to accelerate the maturity of the related debt after a requisite cure period. In addition, cross-default provisions under the Credit Agreement would be triggered upon a default under the Notes. If the Company does not have adequate cash or is unable to remain compliant with 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 or arrangements for such financing alternatives, and there can be no assurances 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. A universal shelf registration was declared effective by the Securities and Exchange Commission on October 29, 1999, for issuances up to $300 million of debt or equity securities. As of March 31, 2000, 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. 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; and the risks described from time to time in the Company's SEC reports. Some of the uncertainties that may affect future results are discussed in more detail in the Company's Annual Report on Form 10-K for the Transition Period ending December 31, 1999. All forward-looking statements included in this document are based upon information presently available, and the Company assumes no obligation to update any forward looking statements. 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 Transition Period ended December 31, 1999. Part II OTHER INFORMATION - -------------------------------------------------------------------------------- Item 4 - Submission of Matters to a Vote of Security-Holders On April 20, 2000, the Company held the 1999 Annual Meeting of the Shareholders (for the Transition Period ended December 31, 1999). The following matters were approved by shareholders: 1.) Election to the Board of Directors for a three-year term one class of directors, consisting of George W. Peck IV and Richard A. Drexler. The vote totals were as follows: For Withheld Abstain ---------- -------- ------- 16,669,045 0 386,761 2.) Ratification of the appointment of Arthur Andersen LLP as the Company's independent public accountants. The votes cast for, votes cast against and abstentions were as follows: For Against Abstain ---------- -------- ------- 17,036,156 19,650 0 Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits 3.2 Amended and Restated By-laws 27.1 Financial Data Schedule for period ended March 31, 2000. (b) Reports on Form 8-K None EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------ ------------------------- 3.2 Amended and Restated By-laws. 27.1 Financial Data Schedule for period ended March 31, 2000. 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 ------------------------------- Brian L. Greenburg Vice President and Corporate Controller (Chief Accounting Officer) Date: May 10, 2000 -------------------- EX-27.1 2 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. ABC-NACO Inc. Financial Data Schedule For Period Ended March 31, 2000 (Unaudited) (Dollars in Thousands) THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. Three Months Ended and as of March 31, 2000 --------------------- Fiscal year-end December 31, 2000 Period start January 1, 2000 Period end March 31, 2000 Cash and cash items - Marketable securities - Notes and accounts receivable - trade 102,260* Allowances for doubtful accounts - Inventory 98,672 Total current assets 222,450 Property, plant, and equipment 365,611 Accumulated depreciation 121,990 Total assets 519,781 Total current liabilities 137,633 Bonds, mortgages, and similar debt 247,116 Preferred stock - mandatory redemption - Preferred stock - no mandatory redemption 28,425 Common stock 194 Other stockholders' equity 85,481 Total liabilities and stockholders' equity 519,781 Net sales 156,978 Total revenues 156,978 Cost of tangible products 136,135 Total costs and expenses applicable to sales and revenues 136,135 Other costs and expenses 14,887 Provision for doubtful accounts and notes - Interest and amortization of debt discount 6,417 Income before taxes and other items (461) Income tax expense 43 Income/loss from continuing operations (504) Discontinued operations - Extraordinary items - Cumulative effect - changes in accounting principles - Net income or loss (504) Earnings per share - basic (0.65) Earnings per share - diluted (0.65) * Notes and accounts receivable - trade are reported net of allowances for - -------------------------------------------------------------------------------- doubtful accounts in the Consolidated Balance Sheets. - -----------------------------------------------------------
EX-3.2 3 AMENDED AND RESTATED BY-LAWS ABC-NACO INC. AMENDED AND RESTATED BY-LAWS ARTICLE I CORPORATE OFFICES Section 1. Delaware Registered Office. The registered office of the Corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. Section 2. Other Offices. The Corporation may also have offices at such other places, both within and outside the State of Delaware, as the Board of Directors may from time to time determine as the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Time and Place of Meetings. All meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, within or without the State of Delaware, as may be designated by the Board of Directors, or by the President or the Secretary of the Corporation in the absence of a designation by the Board of Directors, and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meeting. An annual meeting of stockholders shall be held each year after the close of the immediately preceding fiscal year of the Corporation for the purpose of electing directors and conducting such other proper business as may come before the meeting. The date, time and place of the annual meeting of stockholders shall be determined by the President of the Corporation; provided, that if the President does not act, the Board of Directors shall determine the date, time and place of such meeting. Section 3. Special Meetings. A special meeting of the stockholders may be called at any time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President. At a special meeting of the stockholders, only such business shall be conducted as shall be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors. Section 4. Notice of Meetings. Written notice of every meeting of the stockholders, stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, except as otherwise provided herein or by law. When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, written notice of the place, date and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 5. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by law or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. Section 6. Voting. Except as otherwise provided by law or by the Certificate of Incorporation, each stockholder shall be entitled at every meeting of the stockholders to one (1) vote for each share of stock having voting power standing in the name of such stockholder on the books of the Corporation on the record date for the meeting and such votes may be cast either in person or by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for such stockholder as proxy pursuant to the foregoing sentence, a stockholder may validly grant such authority by (a) executing a writing authorizing another person or persons to act for such stockholder as proxy, (b) authorizing another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder, or (c) any other means permitted under the Delaware General Corporation Law. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. The vote upon any question brought before a meeting of the stockholders may be by voice vote, unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at such meeting shall so determine. Every vote taken by written ballot shall be counted by one or more inspectors of election appointed by the Board of Directors. When a quorum is present at any meeting, the vote of the holders of a majority of the stock which has voting power present in person or represented by proxy shall decide any question properly brought before such meeting, unless the question is one upon which by express provision of law, the Certificate of Incorporation or these by-laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 7. Nature of Business at Annual Meeting. No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting of stockholders by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting of stockholders by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 7 and on the record date for the determination of stockholders entitled to vote at such annual meeting of stockholders, and (ii) who complies with the notice procedures set forth in this Section 7. In addition to any other applicable requirements, for business to be properly brought before an annual meeting of stockholders by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary of the Corporation must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one-hundred twenty (120) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting of stockholders is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting of stockholders was mailed or such public disclosure of the date of the annual meeting of stockholders was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary of the Corporation must set forth as to each matter such stockholder proposes to bring before the annual meeting of stockholders (i) a brief description of the business desired to be brought before the annual meeting of stockholders and the reasons for conducting such business at the annual meeting of stockholders, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting of stockholders to bring such business before the meeting. No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting of stockholders in accordance with the procedures set forth in this Section 7; provided, however, that, once business has been properly brought before the annual meeting of stockholders in accordance with such procedures, nothing in this Section 7 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of the Board of an annual meeting of stockholders determines that business was not properly brought before the annual meeting of stockholders in accordance with the foregoing procedures, the Chairman of the Board shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. ARTICLE III DIRECTORS Section 1. Powers. The business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate of Incorporation directed or required to be exercised or done by the stockholders. Section 2. Number and Term of Office. The Board of Directors shall consist of one or more members. The number of directors shall be fixed by resolution of the Board of Directors or by the stockholders at the annual meeting of stockholders or a special meeting of stockholders, and in the absence of a resolution shall be eight (8). If and when the Corporation's Board is a Classified Board, the Board of Directors shall be divided into three (3) classes as nearly equal in number of members as possible. Any decrease in the authorized number of directors shall not be effective until the expiration of the term of the directors then in office, unless, at the time of such decrease, there shall be vacancies on the Board which are being eliminated by such decrease. Section 3. Vacancies and New Directorships. Vacancies and newly created directorships resulting from any increase in the authorized number of directors which occur between annual meetings of stockholders may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so elected shall hold office until the next election of the class for which such directors shall have been chosen and until their successors are elected and qualified, except as required by law. Section 4. Regular Meetings. Regular meetings of the Board of Directors may be held without notice immediately after the annual meeting of stockholders and at such other time and place as shall from time to time be determined by the Board of Directors. Section5. Special Meetings. Special meetings of the Board of Directors may be called by the President on one (1) day's written notice to each director by whom such notice is not waived, given either personally or by mail, telecopy or telegram, and shall be called by the President or the Secretary of the Corporation in like manner and on like notice on the written request of any two (2) directors. Section 6. Quorum. At all meetings of the Board of Directors, a majority of the total number of directors then in office shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time to another place, time or date, without notice other than announcement at the meeting, until a quorum shall be present. Section 7. Written Action. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes or proceedings of the Board or Committee. Section 8. Participation in Meetings by Conference Telephone. Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 9. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation and each to have such lawfully delegable powers and duties as the Board may confer. Each such committee shall serve at the pleasure of the Board of Directors. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Except as otherwise provided by law, any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Any committee or committees so designated by the Board shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Unless otherwise prescribed by the Board of Directors, a majority of the members of the committee shall constitute a quorum for the transaction of business, and the act of a majority of the members present at a meeting at which there is a quorum shall be the act of such committee. Each committee shall prescribe its own rules for calling and holding meetings and its method of procedure, subject to any rules prescribed by the Board of Directors, and shall keep a written record of all actions taken by it. Section 10. Compensation. The Board of Directors may establish such compensation for, and reimbursement of the expenses of, directors for attendance at meetings of the Board of Directors or committees, or for other services by directors to the Corporation, as the Board of Directors may determine. Section 11. Rules. The Board of Directors may adopt such special rules and regulations for the conduct of their meetings and the management of the affairs of the Corporation as they may deem proper, not inconsistent with law or these by-laws. Section 12. Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Certificate of Incorporation with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof), or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 12 and on the record date for the determination of stockholders entitled to vote at such meeting, and (ii) who complies with the notice procedures set forth in this Section 12. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary of the Corporation must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one-hundred twenty (120) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting of stockholders is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting of stockholders was mailed or such public disclosure of the date of the annual meeting of stockholders was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary of the Corporation must set forth: (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person, and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice, and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 12. If the Chairman of the Board of the meeting determines that a nomination was not made in accordance with the foregoing procedure, the Chairman of the Board shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. ARTICLE IV NOTICES Section 1. Generally. Whenever by law or under the provisions of the Certificate of Incorporation or these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telecopy, telegram or telephone, except as otherwise provided by these by-laws. Section 2. Waivers. Whenever any notice is required to be given by law or under the provisions of the Certificate of Incorporation or these by-laws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to such notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE V OFFICERS Section 1. Generally. The officers of the Corporation shall be elected by the Board of Directors and shall consist of a Chairman, a Chief Executive Officer, a President, a Secretary and a Treasurer. The Chairman shall be a member of the Board of Directors. The Board of Directors may also choose any or all of the following: one or more Vice Presidents, a Controller, and one or more Assistant Secretaries and Assistant Treasurers. Any number of offices may be held by the same person. Section 2. Compensation. The compensation of all officers and agents of the Corporation who are also directors of the Corporation shall be fixed by the Board of Directors. The Board of Directors may delegate the power to fix the compensation of other officers and agents of the Corporation to an officer of the Corporation. Section 3. Succession. The officers of the Corporation shall hold office until their successors are elected and qualified. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the directors. Any vacancy occurring in any office of the Corporation may be filled by the Board of Directors. Section 4. Authority and Duties. Each of the officers of the Corporation shall have such authority and shall perform such duties as are customarily incident to their respective offices, or as may be specified from time to time by the Board of Directors in a resolution which is not inconsistent with these by-laws. Section 5. Chairman. The Chairman of the Board shall have such powers as are vested in him or her by the Board of Directors, by law or these by-laws. The Chairman shall preside at the meetings of the stockholders and of the Board of Directors. Section 6. Chief Executive Officer. The Chief Executive Officer of the Corporation shall have, subject to the supervision and direction of the Board of Directors, general supervision of the business, property and affairs of the Corporation and the powers vested in him or her by the Board of Directors or by these by-laws or which usually attach or pertain to such office. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the Corporation or a different mode of execution is expressly prescribed by the Board of Directors, the Chief Executive Officer may execute for the Corporation any contracts, deeds, mortgages, bonds or other instruments which the Board of Directors has authorized, and the Chief Executive Officer may (without previous authorization by the Board of Directors) execute such contracts and other instruments as the conduct of the Corporation's business in its ordinary course requires. Notwithstanding the above Sections 5 and 6, the Board of Directors may designate one person to be both the Chairman and the Chief Executive Officer of the Corporation. Section 7. President. The President (a) shall be the Chief Operating Officer of the Corporation, reporting to the Chairman, and (b) in the absence or disability of the Chairman, shall perform the duties of the Chairman and when so acting shall have all the powers of and be subject to all the restrictions upon the Chairman. Section 8. Vice-President. In the absence of the President or in the event of the disability of the President, the Vice-President (or if there be more than one, the Vice-Presidents then in the order of their most recent election) shall perform the duties of the President and when so acting shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 9. Secretary and Assistant Secretaries. The Secretary of the Corporation shall attend all meetings of the stockholders and all meetings of the Board of Directors and record all proceedings of the meetings of the stockholders and of the Board of Directors and shall perform like duties for the standing committees when requested by the Board of Directors or the President. The Secretary of the Corporation shall give, or cause to be given, notice of all meetings of the stockholders and meetings of the Board of Directors. The Secretary of the Corporation shall perform such duties as may be prescribed by the Board of Directors or the President. The Secretary of the Corporation shall have charge of the seal of the Corporation and authority to affix the seal to any instrument. The Secretary of the Corporation or any Assistant Secretary of the Corporation may attest to the corporate seal by handwritten or facsimile signature. The Secretary of the Corporation shall keep and account for all books, documents, papers and records of the Corporation except those for which some other officer or agent has been designated or is otherwise properly accountable. The Secretary of the Corporation shall have authority to sign stock certificates. (a) Assistant Secretaries, in the order of their seniority, shall assist the Secretary of the Corporation and, if the Secretary of the Corporation is unavailable or fails to act, perform the duties and exercise the authorities of the Secretary of the Corporation. Section 10. Treasurer and Assistant Treasurers. (a) The Treasurer shall have the custody of the funds and securities belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Treasurer with the prior approval of the Board of Directors or the President. The Treasurer shall disburse the funds and pledge the credit of the Corporation as may be directed by the Board of Directors and shall render to the Board of Directors and the President, as and when required by them, or any of them, an account of all transactions by the Treasurer. (b) Assistant Treasurers, in the order of their seniority, shall assist the Treasurer and, if the Treasurer is unable or fails to act, perform the duties and exercise the powers of the Treasurer. Section 11. Controller. The Controller shall be the chief accounting officer of the Corporation. The Controller shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation in accordance with accepted accounting methods and procedures. The Controller shall initiate periodic audits of the accounting records, methods and systems of the Corporation. The Controller shall render to the Board of Directors and the President, as and when required by them, or any of them, a statement of the financial condition of the Corporation. ARTICLE VI STOCK Section 1. Certificates. Certificates representing shares of stock of the Corporation shall be in such form as shall be determined by the Board of Directors, subject to applicable legal requirements. Such certificates shall be numbered and their issuance recorded in the books of the Corporation, and such certificate shall exhibit the holder's name and the number of shares and shall be signed by, or in the name of the Corporation by the Chairman, the Chief Executive Officer, the President or a Vice-President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation. Any or all of the signatures and the seal of the Corporation, if any, upon such certificates may be facsimiles, engraved or printed. Section 2. Transfer. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue, or to cause its transfer agent to issue, a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 3. Lost, Stolen or Destroyed Certificates. The Secretary of the Corporation may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact, satisfactory to the Secretary of the Corporation, by the person claiming the certificate of stock to be lost stolen or destroyed. As a condition precedent to the issuance of a new certificate or certificates the Secretary of the Corporation may require the owner of such lost, stolen or destroyed certificate or certificates to give the Corporation a bond in such sum and with such surety or sureties as the Secretary of the Corporation may direct as indemnity against any claims that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of the new certificate. Section 4. Record Date. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. ARTICLE VII GENERAL PROVISIONS Section 1. Fiscal Year. The fiscal year of the Corporation shall be fixed from time to time by the Board of Directors. Section 2. Corporate Seal. The Board of Directors may adopt a corporate seal and use the same by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 3. Reliance upon Books, Reports and Records. Each director, each member of a committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation's officers or employees, or committees of the Board of Directors, or by any other person as to matters the director, committee member or officer believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 4. Time Periods. In applying any provision of these by-laws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded and the day of the event shall be included. Section 5. Dividends. The Board of Directors may from time to time declare and the Corporation may pay dividends upon its outstanding shares of capital stock, in the manner and upon the terms and conditions provided by law and the Certificate of Incorporation. Section 6. Indemnification. Each person who is or was or had agreed to become a director or officer of the Corporation, or each such person who is or was serving or who had agreed to serve at the request of the Board of Directors or an officer of the Corporation as an employee or agent of the Corporation or as a director, officer, employee or agent of another corporation, general or limited partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person), shall be indemnified by the Corporation to the full extent permitted by the Delaware General Corporation Law or any other applicable laws as presently or hereafter in effect. Without limiting the generality or the effect of the foregoing, the Corporation may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in this Section 6. Any repeal or modification of this Section 6 shall not adversely affect any right or protection existing hereunder immediately prior to such repeal or modification. ARTICLE VIII AMENDMENTS Section 1. Amendments. These by-laws may be altered, amended or repealed, or new by-laws may be adopted, by the stockholders or by the Board of Directors. -----END PRIVACY-ENHANCED MESSAGE-----