-----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, N9PeUBqfma6HZhVjOa6JIoBEb9mbNoOFt0ckSHJXyVBPHJFe2JAwKQwc04CR5OPM vhof691+hyzfbbt5tGPlgA== 0000950123-01-502413.txt : 20010515 0000950123-01-502413.hdr.sgml : 20010515 ACCESSION NUMBER: 0000950123-01-502413 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: K&F INDUSTRIES INC CENTRAL INDEX KEY: 0000851797 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [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: 1633824 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 y49062e10-q.txt K & F INDUSTRIES 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 March 31, 2001 -------------- 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 May 1, 2001, there were 740,398 shares of common stock outstanding. 2 PART I. FINANCIAL INFORMATION K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 2001 2000 ------------- ------------- ASSETS: Current Assets: Cash and cash equivalents $ 372,000 $ 6,477,000 Accounts receivable, net 42,081,000 46,765,000 Inventory 67,535,000 63,983,000 Other current assets 1,402,000 1,634,000 Deferred income taxes -- 4,260,000 ------------- ------------- Total current assets 111,390,000 123,119,000 ------------- ------------- Property, plant and equipment 166,416,000 165,375,000 Less, accumulated depreciation and amortization 94,553,000 92,339,000 ------------- ------------- 71,863,000 73,036,000 ------------- ------------- Prepaid pension cost 23,683,000 23,683,000 Deferred charges, net of amortization 34,787,000 32,120,000 Cost in excess of net assets acquired, net of amortization 161,152,000 162,679,000 Intangible assets, net of amortization 15,313,000 15,448,000 ------------- ------------- $ 418,188,000 $ 430,085,000 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIENCY: Current Liabilities: Accounts payable, trade $ 16,115,000 $ 18,373,000 Notes payable 2,600,000 3,900,000 Current portion of senior term loans 1,500,000 1,500,000 Interest payable 8,255,000 4,148,000 Other current liabilities 40,196,000 49,503,000 ------------- ------------- Total current liabilities 68,666,000 77,424,000 ------------- ------------- Postretirement benefit obligation other than pensions 80,062,000 79,687,000 Other long-term liabilities 5,808,000 5,355,000 Senior revolving loan 30,000,000 20,000,000 Senior term loan A 47,750,000 47,875,000 Senior term loan B 72,500,000 92,750,000 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 (7,643,000) (14,711,000) Accumulated other comprehensive loss (703,000) (43,000) ------------- ------------- Total stockholders' deficiency (71,598,000) (78,006,000) ------------- ------------- $ 418,188,000 $ 430,085,000 ============= =============
See notes to consolidated financial statements. 2 3 K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended ------------------------------ March 31, March 31, 2001 2000 ------------ ------------ Sales $ 87,862,000 $ 85,462,000 Costs and expenses 63,284,000 59,643,000 Amortization 2,121,000 2,036,000 ------------ ------------ Operating income 22,457,000 23,783,000 Interest and investment income 75,000 64,000 Interest expense (9,542,000) (9,665,000) ------------ ------------ Income before income taxes 12,990,000 14,182,000 Income tax provision (5,922,000) (6,211,000) ------------ ------------ Net income $ 7,068,000 $ 7,971,000 ============ ============
See notes to consolidated financial statements. 3 4 K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended ------------------------------ March 31, March 31, 2001 2000 ------------ ------------ Cash flows from operating activities: Net income $ 7,068,000 $ 7,971,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,092,000 3,872,000 Non-cash interest expense - amortization of deferred financing charges 420,000 438,000 Non-cash interest expense - change in fair market value of interest rate swap 1,915,000 -- Deferred income taxes 4,260,000 5,703,000 Changes in assets and liabilities: Accounts receivable, net 4,625,000 4,061,000 Inventory (3,649,000) (4,066,000) Other current assets (768,000) (110,000) Accounts payable, notes payable, interest payable, and other current liabilities (9,610,000) (939,000) Postretirement benefit obligation other than pensions 375,000 500,000 Other long-term liabilities (1,114,000) (2,787,000) ------------ ------------ Net cash provided by operating activities 7,614,000 14,643,000 ------------ ------------ Cash flows from investing activities: Capital expenditures (798,000) (278,000) Deferred charges (2,546,000) (47,000) ------------ ------------ Net cash used in investing activities (3,344,000) (325,000) ------------ ------------ Cash flows from financing activities: Payments of senior revolving loan (10,000,000) (18,000,000) Payments of senior term loans (20,375,000) (15,375,000) Borrowings under senior revolving loan 20,000,000 21,000,000 ------------ ------------ Net cash used by financing activities (10,375,000) (12,375,000) ------------ ------------ Net (decrease) increase in cash and cash equivalents (6,105,000) 1,943,000 Cash and cash equivalents, beginning of period 6,477,000 3,584,000 ------------ ------------ Cash and cash equivalents, end of period $ 372,000 $ 5,527,000 ============ ============ - ------------ Supplemental cash flow information: Interest paid during period $ 3,100,000 $ 5,000,000 ============ ============ Income taxes paid during the period $ 1,059,000 $ 279,000 ============ ============
See notes to consolidated financial statements. 4 5 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 statement of operations for the three months ended March 31, 2001 is 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, 2000 Annual Report on Form 10-K. 2. Accounting Change Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, will be required to be recorded on the balance sheet at fair value. SFAS No. 133 defines new requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value will be recognized in earnings. As a requirement of the credit facility, the Company entered into an interest rate swap agreement to reduce the impact of potential increases in interest rates on the credit facility. The adoption of SFAS No. 133 on January 1, 2001, resulted in a cumulative pre-tax reduction in other comprehensive income of $923,000 ($550,000 after tax)related to derivatives designated in cash flow-type hedges prior to adopting SFAS No. 133. This amount will be amortized into interest expense over three years which is the remaining life of the interest rate swap agreement. During the three months ended March 31, 2001, the change in fair market value of our derivative instrument was a non-cash charge of $1,915,000, which is recorded in interest expense as this derivative was not designated as a hedging instrument. 5 6 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 3. Receivables are summarized as follows:
March 31, December 31, 2001 2000 ------------ ------------ Accounts receivable, principally from commercial customers $ 37,776,000 $ 40,816,000 Accounts receivable, on U. S. Government and other long-term contracts 4,449,000 6,093,000 Allowances (144,000) (144,000) ------------ ------------ $ 42,081,000 $ 46,765,000 ============ ============
4. Inventory consists of the following:
March 31, December 31, 2001 2000 ----------- ----------- Raw materials and work-in-process $36,865,000 $36,058,000 Finished goods 18,844,000 18,642,000 Inventoried costs related to U.S. Government and other long-term contracts 11,826,000 9,283,000 ----------- ----------- $67,535,000 $63,983,000 =========== ===========
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. 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. 6 7 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 5. Other current liabilities consist of the following:
March 31, December 31, 2001 2000 ----------- ----------- Accrued payroll costs $12,714,000 $25,256,000 Accrued taxes 3,708,000 2,984,000 Accrued costs on long-term contracts 3,953,000 3,172,000 Accrued warranty costs 11,756,000 10,789,000 Customer credits 2,764,000 2,693,000 Postretirement benefit obligation other than pensions 3,000,000 3,000,000 Other 2,301,000 1,609,000 ----------- ----------- $40,196,000 $49,503,000 =========== ===========
6. 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. 7. Comprehensive Income
Three Months Ended ---------------------------- March 31, March 31, 2001 2000 ----------- ----------- Net income $ 7,068,000 $ 7,971,000 Other comprehensive income: Cumulative translation adjustments (156,000) (76,000) Cumulative effect of change in accounting principle (SFAS No. 133) (550,000) -- Amortization of transition adjustment included in interest expense 46,000 -- ----------- ----------- Comprehensive income $ 6,408,000 $ 7,895,000 =========== ===========
7 8 8. Segments The following represents financial information about the Company's segments:
Three Months Ended ------------------------------ March 31, March 31, 2001 2000 ------------ ------------ Sales: Aircraft Braking Systems $ 76,399,000 $ 75,452,000 Engineered Fabrics 11,463,000 10,010,000 ------------ ------------ $ 87,862,000 $ 85,462,000 ============ ============ Earnings Before Interest, Taxes, Depreciation and Amortization: Aircraft Braking Systems $ 25,018,000 $ 26,224,000 Engineered Fabrics 1,531,000 1,431,000 ------------ ------------ $ 26,549,000 $ 27,655,000 ============ ============ Operating Profits: Aircraft Braking Systems $ 21,433,000 $ 22,844,000 Engineered Fabrics 1,024,000 939,000 ------------ ------------ Operating income 22,457,000 23,783,000 Interest expense, net (9,467,000) (9,601,000) ------------ ------------ Income before income taxes $ 12,990,000 $ 14,182,000 ============ ============
March 31, December 31, 2001 2000 ------------ ------------ Total Assets: Aircraft Braking Systems $353,492,000 $360,070,000 Engineered Fabrics 58,667,000 59,235,000 Deferred tax asset not allocated to segments -- 4,260,000 Deferred financing costs not allocated to segments 5,723,000 6,143,000 Corporate assets 306,000 377,000 ------------ ------------ $418,188,000 $430,085,000 ============ ============
8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Comparison of Results of Operations for the Three Months Ended March 31, 2001 and March 31,2000 Sales for the three months ended March 31, 2001 totaled $87,862,000, reflecting an increase of $2,400,000 compared with $85,462,000 for the same period in the prior year. This increase was due to higher commercial sales of $2,145,000, primarily for wheels and brakes on various commercial transport aircraft and higher military sales of $2,177,000, primarily for fuel tanks. Partially offsetting this increase was lower sales of wheels and brakes for general aviation aircraft. Operating income decreased by $1,326,000 to $22,457,000, or 25.6% of sales for the three months ended March 31, 2001, compared with $23,783,000, or 27.8% of sales for the same period in the prior year. Operating margins decreased primarily due to higher research and development costs on a new general aviation program and an unfavorable product sales mix. Net interest expense decreased by $134,000 for the three months ended March 31, 2001 compared with the same period in the prior year. This decrease was due to a lower average debt balance and lower interest rates, partially offset by a non-cash charge of $1,915,000 relating to the change in fair market value of our interest rate swap in accordance with SFAS No. 133. The Company's effective tax rate of 45.6% for the three months ended March 31, 2001 differs from the statutory rate of 35% primarily due to a change in the valuation allowance and state, local and foreign income taxes. The effective tax rate of 43.8% for the three months ended March 31, 2000 differs from the statutory rate of 35% due to a change in the valuation allowance and state and local income taxes. The increase in the effective rate in 2001 over 2000 is primarily due to a net increase in the valuation allowance in 2001. 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 March 31, 2001, the Company had $17.4 million available to borrow under its $50 million revolving credit facility. Cash Flows During the three months ended March 31, 2001, cash provided by operating activities amounted to $7,614,000 and reflected $26,549,000 of earnings before interest, taxes, depreciation and amortization ("EBITDA"), decreases in accounts receivable of $4,625,000, partially offset by increases in inventory of $3,649,000, other current assets of $768,000, decreases in accounts payable of $2,258,000, notes payable of $1,300,000, other current liabilities of $10,159,000, long-term liabilities of $739,000, increases in other working capital of $528,000, interest payments of $3,100,000 and tax payments of $1,059,000. During the three months ended March 31, 2000, cash provided by operating activities amounted to $14,643,000 and reflected $27,655,000 of EBITDA, decreases in accounts receivable of $4,061,000, increases in accounts payable of $1,081,000, partially offset by increases in inventory of $4,066,000, decreases in other current liabilities of $6,247,000, long-term liabilities of $2,287,000, increases in other working capital of $275,000, interest payments of $5,000,000 and tax payments of $279,000. 9 10 During the three months ended March 31, 2001, net cash used in investing activities amounted to $3,344,000 due to $798,000 of capital expenditures and $2,546,000 of program participation payments. During the three months ended March 31, 2000, net cash used in investing activities amounted to $325,000 due to $278,000 of capital expenditures and $47,000 of program participation payments. During the three months ended March 31, 2001 and 2000, net cash used by financing activities amounted to $10,375,000 and $12,375,000, respectively, each representing the repayment of indebtedness. Accounting Change Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, will be required to be recorded on the balance sheet at fair value. SFAS No. 133 defines new requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value will be recognized in earnings. The adoption of SFAS No. 133 on January 1, 2001, resulted in a cumulative pre- tax reduction in other comprehensive income of $923,000 ($550,000 after tax)related to derivatives designated in cash flow-type hedges prior to adopting SFAS No. 133. This amount will be amortized into interest expense over three years which is the remaining life of the interest rate swap agreement. During the three months ended March 31, 2001, the change in fair market value of our derivative instrument was a non-cash charge of $1,915,000, which is recorded in interest expense as this derivative was not designated as a hedging instrument. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has $336.8 million of total debt outstanding at March 31, 2001. 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. 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 $110.5 million at March 31, 2001 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 $295.5 million of its indebtedness at March 31, 2001. Given that approximately 88% 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. 10 11 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 March 31, 2001. 11 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 /s/ DIRKSON R. CHARLES -------------------------- Dirkson R. Charles Chief Financial Officer and Registrant's Authorized Officer Dated: May 14, 2001 12 EX-27 2 y49062ex27.xfd FINANCIAL DATA SCHEDULE
5 3-MOS Jan-01-2001 Dec-31-2001 Mar-31-2001 372,000 0 42,225,000 144,000 67,535,000 111,390,000 166,416,000 94,553,000 418,188,000 68,666,000 336,750,000 0 0 7,000 (71,605,000) 418,188,000 87,862,000 87,862,000 50,322,000 50,322,000 5,912,000 0 9,542,000 12,990,000 5,922,000 7,068,000 0 0 0 7,068,000 0 0
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