-----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, K31C5snV6cqJZHNDyfumx2XKUHYNCt2pcYBbfkdUiyczhxMbsVA5wPSYXQLTWm1T BTUv4wMuzOa2jLxWQjB9Dw== /in/edgar/work/0000950123-00-010410/0000950123-00-010410.txt : 20001114 0000950123-00-010410.hdr.sgml : 20001114 ACCESSION NUMBER: 0000950123-00-010410 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: K&F INDUSTRIES INC CENTRAL INDEX KEY: 0000851797 STANDARD INDUSTRIAL CLASSIFICATION: [3728 ] IRS NUMBER: 341614845 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-40977 FILM NUMBER: 760815 BUSINESS ADDRESS: STREET 1: 600 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2122970900 MAIL ADDRESS: STREET 1: 600 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10016 10-Q 1 y42533e10-q.txt K & F INDUSTRIES, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 33-29035 K & F Industries, Inc. ---------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 34-1614845 ---------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 600 Third Avenue, New York, New York 10016 ---------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (212) 297-0900 ------------------------- 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 ------- ------- As of November 1, 2000, there were 740,398 shares of common stock outstanding. 2 PART I. FINANCIAL INFORMATION K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 2000 1999 ---- ---- ASSETS: Current Assets: Cash and cash equivalents $ 6,389,000 $ 3,584,000 Accounts receivable, net 44,135,000 51,870,000 Inventory 70,397,000 68,848,000 Other current assets 2,502,000 801,000 Deferred income taxes 24,586,000 18,063,000 ------------ ------------ Total current assets 148,009,000 143,166,000 ------------ ------------ Property, plant and equipment 163,374,000 159,331,000 Less, accumulated depreciation and amortization 91,331,000 88,130,000 ------------ ------------ 72,043,000 71,201,000 ------------ ------------ Prepaid pension cost 17,814,000 17,814,000 Deferred charges, net of amortization 27,437,000 30,534,000 Cost in excess of net assets acquired, net of amortization 164,206,000 168,787,000 Intangible assets, net of amortization 9,925,000 10,366,000 ------------ ------------ $439,434,000 $441,868,000 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY: Current Liabilities: Accounts payable, trade $ 14,928,000 $ 17,687,000 Current portion of senior term loans 1,500,000 1,500,000 Interest payable 8,436,000 4,506,000 Other current liabilities 41,679,000 42,851,000 ------------ ------------ Total current liabilities 66,543,000 66,544,000 ------------ ------------ Postretirement benefit obligation other than pensions 79,417,000 78,667,000 Other long-term liabilities 3,866,000 6,266,000 Deferred income taxes 29,357,000 -- Senior revolving loan 15,000,000 7,000,000 Senior term loan A 48,125,000 48,375,000 Senior term loan B 118,250,000 191,750,000 9 1/4% senior subordinated notes due 2007 185,000,000 185,000,000 Stockholders' Deficiency: Common stock, $.01 par value - authorized, 1,000,000 shares; issued and outstanding, 740,398 shares 7,000 7,000 Additional paid-in capital (63,259,000) (63,259,000) Deficit (42,787,000) (78,696,000) Accumulated other comprehensive (loss) income (85,000) 214,000 ------------- ------------ Total stockholders' deficiency (106,124,000) (141,734,000) ------------- ------------ $439,434,000 $441,868,000 ============= ============
See notes to consolidated financial statements. 2 3 K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Nine Months Ended ----------------- September 30, September 30, 2000 1999 ---- ---- Sales $277,772,000 $262,153,000 Costs and expenses 183,410,000 181,007,000 Amortization 6,068,000 6,535,000 ------------ ------------ Operating income 88,294,000 74,611,000 Interest and investment income 225,000 189,000 Interest expense (27,994,000) (30,721,000) ------------ ------------ Income before income taxes 60,525,000 44,079,000 Income tax (provision) benefit (24,616,000) 600,000 ------------ ------------ Net income $ 35,909,000 $ 44,679,000 ============ ============
See notes to consolidated financial statements. 3 4 K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended ------------------ September 30, September 30, 2000 1999 ---- ---- Sales $93,569,000 $89,122,000 Costs and expenses 58,533,000 60,287,000 Amortization 1,984,000 2,197,000 ----------- ----------- Operating income 33,052,000 26,638,000 Interest and investment income 75,000 78,000 Interest expense (8,842,000) (10,087,000) ----------- ----------- Income before income taxes 24,285,000 16,629,000 Income tax provision (9,900,000) (7,257,000) ----------- ----------- Net income $14,385,000 $ 9,372,000 =========== ===========
See notes to consolidated financial statements. 4 5 K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended ----------------- September 30, September 30, 2000 1999 ---- ---- Cash flows from operating activities: Net income $ 35,909,000 $ 44,679,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,922,000 12,766,000 Non-cash interest expense - amortization of deferred financing charges 1,314,000 1,377,000 Deferred income taxes 22,834,000 (1,557,000) Changes in assets and liabilities: Accounts receivable, net 7,619,000 (16,839,000) Inventory (1,732,000) (5,369,000) Other current assets 299,000 79,000 Accounts payable, interest payable, and other current liabilities (1,000) 10,120,000 Postretirement benefit obligation other than pensions 750,000 1,600,000 Other long-term liabilities (2,400,000) (1,241,000) ------------ ------------ Net cash provided by operating activities 76,514,000 45,615,000 ------------ ------------ Cash flows from investing activities: Capital expenditures (6,696,000) (5,988,000) Deferred charges (1,263,000) (392,000) ------------ ------------ Net cash used in investing activities (7,959,000) (6,380,000) ------------ ------------ Cash flows from financing activities: Payments of senior revolving loan (75,000,000) (46,000,000) Payments of senior term loans (73,750,000) (38,125,000) Borrowings under senior revolving loan 83,000,000 46,000,000 Proceeds from sale and leaseback transaction -- 5,997,000 ------------ ------------ Net cash used by financing activities (65,750,000) (32,128,000) ------------ ------------ Net increase in cash and cash equivalents 2,805,000 7,107,000 Cash and cash equivalents, beginning of period 3,584,000 6,844,000 ------------ ------------ Cash and cash equivalents, end of period $ 6,389,000 $ 13,951,000 ============ ============ - ------------ Supplemental cash flow information: Interest paid during period $ 22,750,000 $ 25,791,000 ============ ============
See notes to consolidated statements. 5 6 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The accompanying unaudited consolidated financial statements have been prepared by K & F Industries, Inc. and Subsidiaries (the "Company") pursuant to the rules of the Securities and Exchange Commission ("SEC") and, in the opinion of the Company, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of financial position, results of operations and cash flows. 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 such SEC rules. The Company believes that the disclosures made are adequate to make the information presented not misleading. The consolidated statements of operations for the three and nine months ended September 30, 2000 are not necessarily indicative of the results to be expected for the full year. It is suggested that these financial statements be read in conjunction with the audited financial statements and notes thereto included in the Company's December 31, 1999 Annual Report on Form 10-K. 2. Receivables are summarized as follows:
September 30, December 31, 2000 1999 ------------ ------------ Accounts receivable, principally from commercial customers $39,402,000 $46,510,000 Accounts receivable, on U. S. Government and other long-term contracts 4,971,000 5,634,000 Allowances (238,000) (274,000) ----------- ----------- $44,135,000 $51,870,000 ============ ============
3. Inventory consists of the following:
September 30, December 31, 2000 1999 ------------ ------------ Raw materials and work-in-process $37,345,000 $37,216,000 Finished goods 19,017,000 22,069,000 Inventoried costs related to U.S. Government and other long-term contracts 14,035,000 9,563,000 ----------- ----------- $70,397,000 $68,848,000 =========== ===========
The Company customarily sells original wheel and brake equipment below cost as an investment in a new airframe which is expected to be recovered through the subsequent sale of replacement parts. These commercial investments (losses) are recognized when original equipment is shipped. Losses on U.S. Government contracts are immediately recognized in full when determinable. 6 7 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Inventory is stated at average cost, not in excess of net realizable value. In accordance with industry practice, inventoried costs may contain amounts relating to contracts with long production cycles, a portion of which will not be realized within one year. 4. Other current liabilities consist of the following:
September 30, December 31, 2000 1999 ------------ ------------ Accrued payroll costs $16,922,000 $18,733,000 Accrued taxes 3,804,000 3,429,000 Accrued costs on long-term contracts 2,546,000 2,875,000 Accrued warranty costs 11,981,000 9,626,000 Customer credits 2,016,000 3,312,000 Postretirement benefit obligation other than pensions 3,000,000 3,000,000 Other 1,410,000 1,876,000 ----------- ---------- $41,679,000 $42,851,000 =========== ===========
5. Contingencies There are various lawsuits and claims pending against the Company incidental to its business. Although the final results in such suits and proceedings cannot be predicted with certainty, in the opinion of the Company's management, the ultimate liability, if any, will not have a material adverse effect on the Company's financial position, results of operations or cash flows. 6. Comprehensive Income
Three Months Ended ----------------------------- September 30, September 30, 2000 1999 ------------ ------------ Net income $14,385,000 $ 9,372,000 Other comprehensive income: Cumulative translation adjustments (43,000) 256,000 ------------- ----------- Comprehensive income $14,342,000 $ 9,628,000 ============ ===========
Nine Months Ended ---------------------------- September 30, September 30, 2000 1999 ------------ ------------ Net income $35,909,000 $44,679,000 Other comprehensive income: Cumulative translation adjustments (299,000) 51,000 ------------ ------------ Comprehensive income $35,610,000 $44,730,000 ============ ============
7 8 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 7. Segments The following represents financial information about the Company's segments:
Three Months Ended ---------------------------- September 30, September 30, 2000 1999 ------------ ------------ Sales: Aircraft Braking Systems $82,309,000 $78,579,000 Engineered Fabrics 11,260,000 10,543,000 ----------- ----------- $93,569,000 $89,122,000 =========== =========== Earnings Before Interest, Taxes, Depreciation and Amortization: Aircraft Braking Systems $34,403,000 $28,405,000 Engineered Fabrics 2,671,000 2,292,000 ----------- ----------- $37,074,000 $30,697,000 =========== =========== Operating Profits: Aircraft Braking Systems $30,872,000 $24,826,000 Engineered Fabrics 2,180,000 1,812,000 ----------- ----------- Operating income 33,052,000 26,638,000 Interest expense, net (8,767,000) (10,009,000) ----------- ------------ Income before income taxes $24,285,000 $16,629,000 =========== ===========
Nine Months Ended --------------------------- September 30, September 30, 2000 1999 ------------ ------------ Sales: Aircraft Braking Systems $243,770,000 $229,929,000 Engineered Fabrics 34,002,000 32,224,000 ------------ ------------ $277,772,000 $262,153,000 ============ ============ Earnings Before Interest, Taxes, Depreciation and Amortization: Aircraft Braking Systems $ 93,454,000 $81,514,000 Engineered Fabrics 6,762,000 5,863,000 ------------ ----------- $100,216,000 $87,377,000 ============ ============ Operating Profits: Aircraft Braking Systems $ 83,006,000 $70,233,000 Engineered Fabrics 5,288,000 4,378,000 ------------ ----------- Operating income 88,294,000 74,611,000 Interest expense, net (27,769,000) (30,532,000) ------------ ------------ Income before income taxes $ 60,525,000 $44,079,000 ============ ===========
September 30, December 31, 2000 1999 ------------ ------------ Total Assets: Aircraft Braking Systems $350,169,000 $360,490,000 Engineered Fabrics 57,776,000 55,055,000 Deferred tax asset not allocated to segments 24,586,000 18,063,000 Deferred financing costs not allocated to segments 6,584,000 7,898,000 Corporate assets 319,000 362,000 ------------ ------------ $439,434,000 $441,868,000 ============ ============
8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Comparison of Results of Operations for the Nine Months Ended September 30, 2000 and September 30, 1999 Sales for the nine months ended September 30, 2000 totaled $277,772,000, reflecting an increase of $15,619,000 compared with $262,153,000 for the same period in the prior year. This increase was due to higher commercial transport and general aviation sales of $7,875,000 primarily for wheels and brakes on the MD-90, A-321, Canadair Regional Jet and Gulfstream programs, partially offset by lower sales on the MD-80, DC-10 and DC-9 programs. Military sales increased $7,744,000 primarily due to higher shipments of aircraft fuel tanks on the F/A-18 program and wheels and brakes on the F-14 and various helicopter programs. Operating income increased by $13,683,000 to $88,294,000, or 31.8% of sales for the nine months ended September 30, 2000, compared with $74,611,000, or 28.5% of sales for the same period in the prior year. Operating margins increased primarily due to a favorable sales mix, the overhead absorption effect relating to the higher sales and operating efficiencies. Partially offsetting this increase was higher investments in original equipment for airframe manufacturers. Net interest expense decreased by $2,763,000 for the nine months ended September 30, 2000 compared with the same period in the prior year. This decrease was due to a lower average debt balance, partially offset by higher interest rates on the Company's variable rate indebtedness. The Company's effective tax rate of 40.7% for the nine months ended September 30, 2000 differs from the statutory rate of 35% primarily due to state and local income taxes. The effective tax rate of (1.4)% for the nine months ended September 30, 1999 differs from the statutory rate of 35% due to a net decrease in the valuation allowance partially offset by state and local income taxes. The increase in the effective rate in 2000 over 1999 is primarily due to a net decrease in the valuation allowance in the prior year. Comparison of Results of Operations for the Three Months Ended September 30, 2000 and September 30, 1999 Sales for the three months ended September 30, 2000 totaled $93,569,000, reflecting an increase of $4,447,000 compared with $89,122,000 for the same period in the prior year. This increase was due to higher military sales of $4,608,000 primarily for wheels and brakes on the F-14 and various helicopter programs. Commercial transport and general aviation sales were essentially even with the prior year. Operating income increased by $6,414,000 to $33,052,000, or 35.3% of sales for the three months ended September 30, 2000, compared with $26,638,000, or 29.9% of sales for the same period in the prior year. Operating margins increased primarily due to a favorable sales mix, the overhead absorption effect relating to higher sales and operating efficiencies. Net interest expense decreased by $1,242,000 for the three months ended September 30, 2000 compared with the same period in the prior year. This decrease was due to a lower average debt balance, partially offset by higher interest rates on the Company's variable rate indebtedness. The Company's effective tax rate of 40.8% for the three months ended September 30, 2000 differs from the statutory rate of 35% primarily due to state and local income taxes. The effective tax rate of 43.6% for the three months ended September 30, 1999 differs from the statutory rate of 35% due to a net 10 decrease in the valuation allowance partially offset by state and local income taxes. The decrease in the effective rate in 2000 over 1999 is primarily due to a net decrease in the valuation allowance in the prior year. Liquidity and Financial Condition The Company expects that its principal use of funds for the next several years will be to fund capital expenditures, to make investments in new airframes and to pay interest and principal on indebtedness. The Company's primary source of funds for conducting its business activities and servicing its indebtedness has been cash generated from operations and borrowings under its revolving credit facility. At September 30, 2000, the Company had $28.6 million available to borrow under its $50 million revolving credit facility. Cash Flows During the nine months ended September 30, 2000, cash provided by operating activities amounted to $76,514,000 and reflected $100,216,000 of earnings before interest, taxes, depreciation and amortization ("EBITDA"), decreases in accounts receivable of $7,619,000, partially offset by increases in inventory of $1,732,000, decreases in accounts payable of $2,759,000, other current liabilities of $1,172,000, long-term liabilities of $1,650,000, increases in other working capital of $1,258,000 and interest payments of $22,750,000. During the nine months ended September 30, 1999, cash provided by operating activities amounted to $45,615,000 and reflected $87,377,000 of EBITDA, increases in accounts payable of $5,273,000, long-term liabilities of $359,000, decreases in other working capital of $605,000, partially offset by increases in accounts receivable of $16,839,000, inventory of $5,369,000 and interest payments of $25,791,000. During the nine months ended September 30, 2000, net cash used in investing activities amounted to $7,959,000 due to $6,696,000 of capital expenditures and $1,263,000 of program participation payments. During the nine months ended September 30, 1999, net cash used in investing activities amounted to $6,380,000 due to $5,988,000 of capital expenditures and $392,000 of program participation payments. During the nine months ended September 30, 2000, net cash used by financing activities amounted to $65,750,000 due to the repayment of indebtedness. During the nine months ended September 30, 1999, net cash used by financing activities amounted to $32,128,000 due to the repayment of indebtedness of $38,125,000, partially offset by $5,997,000 of proceeds received from a sale and leaseback transaction. Accounting Pronouncement In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments and hedging activities and is effective January 1, 2001 for the Company. The Company believes the adoption of SFAS No. 133 will not have a material impact on its financial position, results of operations or cash flows. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has $367.9 million of total debt outstanding at September 30, 2000. Of this amount, $185 million is borrowed at a fixed rate of 9 1/4% and the balance is borrowed under our credit facility. The interest rate for borrowings under the credit facility varies with LIBOR or the prime rate at the Company's option. 11 The Company entered into an interest rate swap agreement to reduce the impact of potential increases in interest rates. The interest rate swap agreement fixes the Company's LIBOR borrowing rate at 5.95% on $118.5 million at September 30, 2000 and matures on December 17, 2001 with an option for the counterparty to extend the agreement to December 17, 2003. Therefore, the Company has effectively fixed the interest rate on $303.5 million of its indebtedness at September 30, 2000. Given that approximately 83% of the Company's borrowings are at fixed interest rates, a 10% change in rates would not have a significant impact on fair values, cash flows or earnings. The Company has no other derivative financial instruments. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. --------- None (b) Reports on Form 8-K. -------------------- There were no reports on Form 8-K for the three months ended September 30, 2000. 12 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 hereunto duly authorized. K & F INDUSTRIES, INC. Registrant DIRKSON R. CHARLES Dirkson R. Charles Chief Financial Officer and Registrant's Authorized Officer Dated: November 13, 2000 EX-27 2 y42533ex27.txt FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 6,389,000 0 44,373,000 238,000 70,397,000 148,009,000 163,374,000 91,331,000 439,434,000 66,543,000 367,875,000 0 0 7,000 (106,131,000) 439,434,000 277,772,000 277,772,000 148,000,000 148,000,000 14,680,000 0 27,994,000 60,525,000 24,616,000 35,909,000 0 0 0 35,909,000 0 0
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