SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 October 31, 1997 0-22906 - --------------------------------- ----------------------- For the Quarter Ended Commission File Number ABC Rail Products Corporation (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) 200 South Michigan Avenue, Chicago, IL 60604-2402 -------------------------------------------------- (Address of principal executive offices) Registrant's telephone number (312) 322-0360 ----------------------- 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 November 28, 1997 - ---------------------------- -------------------------------- Common Stock, $.01 par value 8,976,304 Shares ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES INDEX Page ---- Part I Financial Information Item 1 Consolidated Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Operations 4 Consolidated Statements of Stockholders' Equity 5 Consolidated Statements of Cash Flows 6 Notes to Unaudited Consolidated Financial Statements 7 - 10 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 14 Part II Other Information Item 2 Changes in Securities 15 Item 6 Exhibits and Reports on Form 8-K 15 2 ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of October 31, 1997 and July 31, 1997 (In thousands, except share and per share data) October 31, July 31, ASSETS 1997 1997 - ------ ----------- -------- (unaudited) CURRENT ASSETS: Accounts receivable, less allowances of $1,219 and $1,006, respectively $ 45,454 $ 38,208 Inventories (Note 3) 43,310 46,580 Prepaid expenses and other current assets 3,007 1,964 Prepaid income taxes 713 963 -------- -------- Total current assets 92,484 87,715 -------- -------- PROPERTY, PLANT AND EQUIPMENT: Land 1,927 1,927 Buildings and improvements 12,491 12,491 Machinery and equipment 85,448 84,653 Construction in progress 44,603 36,421 -------- -------- Less - Accumulated depreciation 144,469 135,492 (39,703) (37,480) -------- -------- Net property, plant and equipment 104,766 98,012 -------- -------- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES 15,400 14,684 -------- -------- OTHER ASSETS - net 29,884 30,196 -------- -------- Total assets $242,534 $230,607 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Cash overdrafts $ 5,087 $ 2,991 Current maturities of long-term debt 2,405 3,987 Accounts payable 26,340 26,617 Accrued liabilities 13,396 11,273 -------- -------- Total current liabilities 47,228 44,868 -------- -------- LONG-TERM DEBT, less current maturities 104,041 95,011 -------- -------- DEFERRED INCOME TAXES 5,931 5,881 -------- -------- OTHER LONG-TERM LIABILITIES 4,133 4,351 -------- -------- COMMITMENTS AND CONTINGENCIES (Note 5) STOCKHOLDERS' EQUITY: Preferred stock, $1.00 par value; 1,000,000 shares authorized; no shares issued or outstanding - - Common stock, $.01 par value; 25,000,000 shares authorized; 8,954,082 shares issued and outstanding as of October 31, 1997 and July 31, 1997 90 90 Additional paid-in capital 67,362 67,362 Retained earnings 13,749 13,044 -------- -------- Total stockholders' equity 81,201 80,496 -------- -------- Total liabilities and stockholders' equity $242,534 $230,607 ======== ======== The accompanying notes to the unaudited consolidated financial statements are an integral part of these consolidated balance sheets. 3 ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended October 31, 1997 and 1996 (Unaudited) (In thousands, except per share data) Three Months Ended October 31 ------------------------------ 1997 1996 ------- ------- NET SALES $67,885 $55,911 COST OF SALES 61,093 50,538 ------- ------- Gross profit 6,792 5,373 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,622 3,242 ------- ------- Operating income 3,170 2,131 EQUITY INCOME OF UNCONSOLIDATED JOINT VENTURES 401 7 INTEREST EXPENSE 2,185 1,275 AMORTIZATION OF DEFERRED FINANCING COSTS 129 53 ------- ------- Income before income taxes 1,257 810 PROVISION FOR INCOME TAXES 552 331 ------- ------- Net income $ 705 $ 479 ======= ======= NET INCOME PER COMMON SHARE $ 0.08 $ 0.06 ======= ======= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,220 8,297 ======= ======= The accompanying notes to the unaudited consolidated financial statements are an integral part of these consolidated statements. 4 ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Three Months Ended October 31, 1997 and 1996 (Unaudited) (In thousands) Additional Common Paid-in Retained Stock Capital Earnings ------ ---------- -------- BALANCE, July 31, 1996 $83 $55,251 $ 9,062 Net income - - 479 Exercised stock options 1 1,259 - Income tax benefit from exercised stock options - 355 - --- ------- ------- BALANCE, October 31, 1996 $84 $56,865 $ 9,541 === ======= ======= BALANCE, July 31, 1997 $90 $67,362 $13,044 Net income - - 705 --- ------- ------- BALANCE, October 31, 1997 $90 $67,362 $13,749 === ======= ======= The accompanying notes to the unaudited consolidated financial statements are an integral part of these consolidated statements. 5 ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended October 31, 1997 and 1996 (Unaudited) (In thousands) Three Months Ended October 31 ------------------- 1997 1996 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 705 $ 479 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Equity income of unconsolidated joint ventures (401) (7) Depreciation and amortization 3,277 2,725 Deferred income taxes 300 150 Changes in certain assets and liabilities: Accounts receivable - net (7,246) 57 Inventories 3,270 (1,503) Prepaid expenses and other current assets (1,043) (996) Other assets - net (642) (717) Accounts payable and accrued liabilities 1,858 (23) Other long-term liabilities (218) (1) ------- ------- Total adjustments (845) (315) ------- ------- Net cash provided by (used in) operating activities (140) 164 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (9,083) (6,123) Investment in joint ventures (321) (2,271) ------- ------- Net cash used in investing activities (9,404) (8,394) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Change in cash overdrafts 2,096 936 Activity under the Credit Agreement: Net activity under revolving line of credit 10,041 4,494 Repayment of acquisition facility - (1,465) Draw on acquisition facility - 1,750 Issuance of other long-term debt - 1,878 Repayment of other long-term debt (2,593) (573) Payment of deferred financing costs - (50) Exercised stock options - 1,260 ------- ------- Net cash provided by financing activities 9,544 8,230 ------- ------- Net change in cash - - CASH, beginning of period - - ------- ------- CASH, end of period $ - $ - ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 1,698 $ 1,232 Cash paid for income taxes 39 84 The accompanying notes to the unaudited consolidated financial statements are an integral part of these consolidated statements. 6 ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation ABC Rail Products Corporation (the "Company") is a leader in the engineering, manufacturing and marketing of replacement products and original equipment for the freight railroad and rail transit industries. The Company's products include specialty trackwork, such as rail crossings and switches; mechanical products, such as rail car, locomotive and idler wheels, mounted wheel sets and metal brake shoes; classification yard products and automation systems; and railway signal systems installation and maintenance services. The accompanying unaudited consolidated financial statements include, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement 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 Securities and Exchange Commission. 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 consolidated financial statements and notes thereto included in the Company's 1997 Annual Report to Stockholders. 2. Business Combinations Effective December 17, 1996, the Company acquired American Systems Technologies, Inc. ("AST") of Verona, Wisconsin for common stock. AST provides railway signal system installation and maintenance to the short line, regional, commuter and transit railroads. As part of the purchase agreement, the prior owners will be issued additional shares of common stock if certain earnings goals are met over the next three years. For the three months ended October 31, 1997, the issuance of such contingent shares, based on AST's current level of earnings, has been assumed in the earnings per share computations. This acquisition was accounted for under the purchase method of accounting. Accordingly, certain recorded assets and liabilities of AST were revalued to estimated fair market values as of the acquisition date. Management has used its best judgment and available information in estimating the fair market value of those assets and liabilities. Any changes to these estimates are not expected to be material. The operating results of AST are included in the consolidated statement of operations from the date of acquisition. 7 ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method for substantially all inventories. Inventory costs include material, labor and manufacturing overhead. Supplies and spare parts primarily consist of manufacturing supplies and equipment replacement parts. Inventories at October 31, 1997, and July 31, 1997, consisted of the following (in thousands): October 31, July 31, 1997 1997 ----------- -------- Raw materials $23,629 $27,734 Work in process 9,096 8,575 Finished goods 6,246 5,983 Supplies and spare parts 4,339 4,288 ------- ------- $43,310 $46,580 ======= ======= 4. Debt On November 15, 1996, the Company filed a Registration Statement with the Securities and Exchange Commission for the issuance of up to $100 million of Subordinated Debt Securities and/or shares of its Common Stock. On February 1, 1997, the Company completed an offering (the "Offering") of $50 million of 9-1/8% Senior Subordinated Notes (the "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. A $0.3 million extraordinary after-tax loss was recognized in the third quarter of fiscal year 1997 upon the early retirement of this indebtedness. Financing costs of $2.2 million were deferred in connection with the issuance of the Notes. The 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 Notes will mature in 2004, unless repurchased earlier at the option of the Company after January 15, 1999 at 102% of face value prior to January 14, 2000, or at 100% face value thereafter. The Notes are subject to mandatory repurchase or redemption prior to maturity upon a Change of Control (as defined). The Indenture under which the Notes were issued subjects the Company to various financial covenants which, among other things, require the Company to maintain (all as defined) (i) a minimum Consolidated Net Worth, (ii) a minimum Operating Coverage Ratio and (iii) a maximum Funded Debt to Consolidated Capitalization Ratio and 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. The Company was in compliance with all of its covenants under this obligation as of October 31, 1997. 8 ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Prior to the Offering, the Company's primary credit facilities included a five year credit agreement (the "Credit Agreement") and two term loans. The Credit Agreement included a $15.0 million non-amortizing term loan, a $50.0 million (as amended) revolving credit line and a $17.8 million (as amended) acquisition facility. Simultaneous with the consummation of the Offering, the Company amended and restated the Credit Agreement. Under the amended Credit Agreement (i) the non-amortizing term loan and the acquisition facility that existed under the Credit Agreement were paid in full and canceled, (ii) the revolving credit line that existed under the Credit Agreement was increased to $90 million and (iii) the terms of certain financial covenants were modified. The modified financial covenants under the amended Credit Agreement are similar to those under the Notes Indenture. The Company was in compliance with the new debt covenants as of October 31, 1997, except for the limitation on Capital Expenditures, for which a waiver was obtained. Interest on all amounts borrowed under the amended Credit Agreement is payable at the option of the Company at either the base rate (as defined) plus 0.5%, or LIBOR (as defined) plus 2.0% and is payable monthly while the base rate is in effect or every one to six months while the LIBOR rate is in effect. As of October 31, 1997, the weighted average interest rate of outstanding borrowings under the Credit Agreement was 8.2%. The Company has pledged as collateral under the Credit Agreement substantially all of its property, plant and equipment, eligible accounts receivable and inventories, intellectual property and capital stock of its subsidiaries. As of October 31, 1997, availability under the amended Credit Agreement was $15.3 million. The Company entered into a seven-year term loan agreement on July 20, 1995, to finance up to $12.5 million of capital expenditures for the rail mill center located in Chicago Heights, Illinois. Through October 31, 1997, $10.8 million had been drawn under this term loan. The term loan is secured by the related fixed assets, bears weighted average interest at 7.4% as of October 31, 1997 and contains financial covenants which require the Company to maintain minimum levels of net worth and a minimum fixed charge coverage ratio. A second, similar term loan was repaid in full with a portion of the proceeds from the Offering. Except for the interest coverage ratio, the Company was in compliance with all of its covenants under the term loan as of October 31, 1997. A waiver was obtained from the lender for the non- compliance on the interest coverage ratio. 9 ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. Commitments and Contingencies In connection with its formation and the purchase of certain assets and liabilities from the Railroad Products Group of Abex Corporation ("Abex") in 1987, the Company obtained a comprehensive environmental indemnity from Abex. The indemnity covers environmental conditions, whether or not then known, in existence at the time of purchase, without dollar or time limit. In October, 1994, the Company filed suit against Abex which asserts that Abex is required to indemnify the Company for the reduction in value of one of the sold properties (a Pennsylvania manufacturing facility formerly owned by the Company) caused by the environmental contamination at that site. The Company is also a party to various other legal proceedings arising in the ordinary course of business, none of which is expected to have a material adverse effect on the Company's business, financial condition or results of operations. 6. China Joint Venture In May 1996, the Company entered into a joint venture agreement with China's Ministry of Railroads to establish the Datong ABC Castings Company Ltd. The joint venture will manufacture wheels in China primarily for the rapidly growing Chinese railway markets. The Company's contribution of its 40% share in the joint venture will consist of technical know-how, expertise and cash. The Company's cash infusion of $9.2 million has been contributed to the joint venture and additional amounts have been deferred in organizing the venture. The cash funding is being used to construct a manufacturing facility which is expected to be operational by mid 1998. 7. Subsequent Events Shortly after the end of the first quarter of fiscal 1998, the Company acquired United Railway Signal Group, Inc. ("URSG") headquartered in Jacksonville, Florida for a combination of cash and the Company's common stock totaling $1.4 million. URSG provides independent signal engineering services to the railroad industry. As part of the purchase agreement, the prior owners will be issued additional shares of common stock if certain earnings goals are met over the next three years. This acquisition will be accounted for under the purchase method of accounting. 10 ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES 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. RESULTS OF OPERATIONS - --------------------- Three Months Ended October 31, 1997 Compared to Three Months Ended October 31, 1996 Net Sales. Net sales increased 21.4% to $67.9 million from $55.9 million. The increase in sales is due primarily to a general increase in sales in the Track Products Division ($8.6 million). Approximately one-half of the Track Product Division increase is related to the additional sales associated with the December 1996 acquisition of AST. Gross Profit and Cost of Sales. Gross profit increased 26.4% to $6.8 million from $5.4 million. The $1.4 million increase was primarily due to the sales changes discussed above. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $0.4 million. The small increase in expenses between quarters reflects additional expense in the customer support area (field sales and customer service) to meet the expanding needs of our customers and the additional effort required to support the Company's new information systems (SAP's R/3 enterprise-wide software). Operating Income. Operating income increased 48.3% to $3.2 million from $2.1 million. The increase resulted largely from the 26.4% ($1.4 million) increase in gross profit, offset by the increase in selling, general and administrative expenses ($0.4 million). In addition to these factors, the Company's sales and profits are typically lower during the first half of the Company's fiscal year than during the second half of the fiscal year. See "Seasonality." Other. Equity earnings from unconsolidated joint ventures were $0.4 million during the current quarter primarily due to the Anchor Brake Shoe joint venture established on July 31, 1995. Prior quarter's equity earnings were not significant. Interest expense increased 71.4%, or $0.9 million, due primarily to an overall higher level of outstanding debt to support acquisitions, capital projects and expanding operations, along with the marginally higher interest rate on the new Senior Subordinated Notes. 11 SEASONALITY - ----------- The peak season for installation of specialty trackwork extends from March through October, when weather conditions are generally favorable for installation and, as a result, net sales of specialty trackwork have historically been more concentrated in the period from January through June, a period roughly corresponding to the second half of the Company's fiscal year. In addition, a number of the Company's facilities close for regularly scheduled maintenance in the late summer and late December, which tends to reduce operating results during the first half of the Company's fiscal year. Transit industry practice with respect to specialty trackwork generally involves the periodic shipment of large quantities, which may be unevenly distributed throughout the year. The Company does not expect any significant departure from the historical demand patterns during the present fiscal year ending July 31, 1998. LIQUIDITY AND CAPITAL RESOURCES - -------------------------------- Cash generated from operations, structured borrowings and equity offerings have been the major sources of funds for working capital, capital expenditures and acquisitions. For the three months ended October 31, 1997 and 1996, net cash provided by (used in) operating activities totaled $(0.1) million and $0.2 million, respectively. The decrease in operating cash flow is due primarily to a net increase in working capital items, partially offset by increased recorded earnings. Capital expenditures during the first quarter of fiscal 1998 and 1997 were $9.1 million and $6.1 million, respectively. In May 1996, the Company entered into a joint venture agreement with China's Ministry of Railroads to establish the Datong ABC Castings Company Ltd. The joint venture will manufacture wheels in China primarily for the rapidly growing Chinese railway markets. The Company's contribution of its 40% share in the joint venture will consist of technical know-how, expertise and cash. The Company's total cash infusion of $9.2 million has already been contributed to the joint venture. The cash funding is being used to construct a manufacturing facility which is expected to be operational by mid 1998. Shortly after the end of the first quarter of fiscal 1998, the Company acquired United Railway Signal Group, Inc. ("URSG") headquartered in Jacksonville, Florida for a combination of cash and the Company's common stock totaling $1.4 million. URSG provides independent signal engineering services to the railroad industry. As part of the purchase agreement, the prior owners will be issued additional shares of common stock if certain earnings goals are met over the next three years. This acquisition will be accounted for under the purchase method of accounting. For the three months ended October 31, 1997 and 1996, net cash provided by financing activities totaled $9.5 million and $8.2 million, respectively. The increase in financing cash flows is due primarily to the net borrowings under the Credit Agreement to support the reduced cash from operating activities and the increased use of cash for investing activities. 12 On November 15, 1996, the Company filed a Registration Statement with the Securities and Exchange Commission for the issuance of up to $100 million of Subordinated Debt Securities and/or shares of its Common Stock. On February 1, 1997, the Company completed an offering (the "Offering") of $50 million of 9-1/8% Senior Subordinated Notes (the "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. A $0.3 million extraordinary after-tax loss was recognized in the third quarter of fiscal year 1997 upon the early retirement of this indebtedness. Financing costs of $2.2 million were deferred in connection with the issuance of the Notes. The 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 Notes will mature in 2004, unless repurchased earlier at the option of the Company after January 15, 1999 at 102% of face value prior to January 14, 2000, or at 100% face value thereafter. The Notes are subject to mandatory repurchase or redemption prior to maturity upon a Change of Control (as defined). The Indenture under which the Notes were issued subjects the Company to various financial covenants which, among other things, require the Company to maintain (all as defined) (i) a minimum Consolidated Net Worth, (ii) a minimum Operating Coverage Ratio and (iii) a maximum Funded Debt to Consolidated Capitalization Ratio and 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. The Company was in compliance with all of its covenants under this obligation as of October 31, 1997. Prior to the Offering, the Company's primary credit facilities included a five- year credit agreement (the "Credit Agreement") and two term loans. The Credit Agreement included a $15.0 million non-amortizing term loan, a $50.0 million (as amended) revolving credit line and a $17.8 million (as amended) acquisition facility. Simultaneous with the consummation of the Offering, the Company amended and restated the Credit Agreement. Under the amended Credit Agreement (i) the non- amortizing term loan and the acquisition facility that existed under the Credit Agreement were paid in full and canceled, (ii) the revolving credit line that existed under the Credit Agreement was increased to $90 million and (iii) the terms of certain financial covenants were modified. The modified financial covenants under the amended Credit Agreement are similar to those under the Notes Indenture. The Company was in compliance with the new debt covenants as of October 31, 1997, except for the limitation on Capital Expenditures for which a waiver was obtained. Interest on all amounts borrowed under the Credit Agreement is payable at the option of the Company at either the base rate (as defined) plus 0.5%, or LIBOR (as defined) plus 2.0% and is payable monthly while the base rate is in effect or every one to six months while the LIBOR rate is in effect. As of October 31, 1997, the weighted average interest rate of outstanding borrowings under the Credit Agreement was 8.2%. The Company has pledged as collateral under the Credit Agreement substantially all of its property, plant and equipment, eligible accounts receivable and inventories, intellectual property and capital stock of its subsidiaries. As of October 31, 1997, availability under the amended Credit Agreement was $15.3 million. 13 The Company entered into a seven-year term loan agreement on July 20, 1995, to finance up to $12.5 million of capital expenditures for the rail mill center located in Chicago Heights, Illinois. Through October 31, 1997, $10.8 million had been drawn under this term loan. The term loan is secured by the related fixed assets, bears weighted average interest at 7.4% as of October 31, 1997 and contains financial covenants which require the Company to maintain minimum levels of net worth and a minimum fixed charge coverage ratio. A second, similar term loan was repaid in full with a portion of the proceeds from the Offering. Except for the interest coverage ratio, the Company was in compliance with all of its covenants under the term loan as of October 31, 1997. A waiver was obtained from the lender for the non-compliance on the interest coverage ratio. 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 strategy of acquisitions, rebuilding and process improvements; and the risks described from time to time in the Company's SEC reports. 14 Part II OTHER INFORMATION - -------------------------------------------------------------------------------- Item 2 - Changes in Securities Shortly after the end of the first quarter of fiscal 1998, the Company issued 22,222 shares of common stock to the prior owners of United Railway Signal Group, Inc. ("URSG") as part of the consideration paid for the Company's acquisition of URSG. In addition, pursuant to the purchase agreement, the Company agreed to issue additional shares of common stock to the prior owners of URSG if certain earnings goals are met over the next three years. The Company relied upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, for such issuances. Item 6 - Exhibits and Reports on Form 8-K (A) Exhibits 3.1 Restated Certificate of Incorporation of the Company (1) 3.2 Bylaws of the Company (2) 10.1 Amendment No. 2 dated as of October 31, 1997 to the Second Amended and Restated Loan and Security Agreement, dated as of January 3, 1997 among the Company, ABC Deco Inc. and American Systems Technologies, Inc., as borrowers, the financial institutions named therein, as lenders, and American National Bank and Trust Company of Chicago, as agent, as amended by Amendment No. 1 thereto dated as of August 8, 1997. 27.1 Financial Data Schedule. (1) Incorporated by reference to the same numbered exhibit filed with the Registrant's Registration Statement on Form S-1 originally filed with the Securities and Exchange Commission on April 13, 1994 (SEC File No. 33-77652). (2) Incorporated by reference to the same numbered exhibit filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended July 31, 1994 (SEC File No. 0-22906). (B) Reports on Form 8-K None 15 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 RAIL PRODUCTS CORPORATION /s/ D. Chisholm MacDonald ----------------------------------- D. Chisholm MacDonald Executive Vice President -- Administration and Business Development and Chief Financial Officer (Duly authorized Officer and Principal Financial and Accounting Officer) Date: December 10, 1997 ------------------------- 16