-----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, Vr98pC1Ns4PeVI+f1cBwGA3AeMQalxYuoePxuODVjQrx4TTnWoAaZN5khq9UtRo/ Yd+2xdGbLuG5KYIqYI7D9w== 0000950123-96-003908.txt : 19960731 0000950123-96-003908.hdr.sgml : 19960731 ACCESSION NUMBER: 0000950123-96-003908 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960730 SROS: NONE 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: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-29035 FILM NUMBER: 96601171 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 FORM 10-Q FOR K & F INDUSTRIES, INC: P/E-6/30/96 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 June 30, 1996 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 July 15, 1996, there were 553,344 shares of Class A common stock outstanding and 458,994 shares of Class B common stock outstanding. All of the Class A common stock of the Company except one share is owned by the Chairman of the Company, all of the Class B common stock is owned by Loral Space & Communications Ltd. and all of the preferred stock except 44,999 shares is owned by four limited partnerships of Lehman Brothers Holdings Inc. 2
PART I. FINANCIAL INFORMATION K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, March 31, 1996 1996 ---------------- -------------- ASSETS: Current Assets: Cash and cash equivalents $ 6,966,000 $ 2,412,000 Accounts receivable, net 35,865,000 35,228,000 Inventory 65,586,000 63,332,000 Other current assets 456,000 832,000 ---------------- -------------- Total current assets 108,873,000 101,804,000 ---------------- -------------- Property, plant and equipment 129,392,000 125,124,000 Less, accumulated depreciation and amortization 62,266,000 60,080,000 ---------------- -------------- 67,126,000 65,044,000 ---------------- -------------- Deferred charges, net of amortization 23,467,000 24,082,000 Cost in excess of net assets acquired, net of amortization 200,591,000 202,119,000 Intangible assets, net of amortization 22,142,000 22,988,000 ---------------- -------------- $422,199,000 $416,037,000 ================ ============== LIABILITIES AND STOCKHOLDERS' DEFICIENCY: Current Liabilities: Accounts payable, trade $ 14,634,000 $ 12,485,000 Interest payable 11,419,000 8,217,000 Other current liabilities 44,363,000 44,775,000 ---------------- -------------- Total current liabilities 70,416,000 65,477,000 ---------------- -------------- Postretirement benefit obligation other than pensions 74,875,000 75,390,000 Other long-term liabilities 21,638,000 20,871,000 Senior revolving loan 10,000,000 14,000,000 11 7/8% senior secured notes due 2003 100,000,000 100,000,000 13 3/4% senior subordinated debentures due 2001 179,657,000 180,000,000 Stockholders' Deficiency: Preferred stock, $.01 par value-authorized, 1,050,000 shares; issued and outstanding, 1,027,635 shares (liquidation preference of $60,110,000) 10,000 10,000 Common stock, Class B, $.01 par value- authorized, 460,000 shares; issued and outstanding, 458,994 shares (liquidation preference of $26,848,000) 5,000 5,000 Common stock, Class A, $.01 par value- authorized, 2,100,000 shares; issued and outstanding, 553,344 shares 6,000 6,000 Additional paid-in capital 155,350,000 155,350,000 Deficit (178,779,000) (184,049,000) Adjustment to equity for minimum pension liability (10,572,000) (10,572,000) Cumulative translation adjustment (407,000) (451,000) ---------------- -------------- Total stockholders' deficiency (34,387,000) (39,701,000) ---------------- -------------- $422,199,000 $416,037,000 ================ ==============
See notes to consolidated financial statements. 2 3
K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended ------------------------------------- June 30, June 30, 1996 1995 -------------- ------------ Sales $71,537,000 $62,293,000 Costs and expenses 53,874,000 50,551,000 Amortization 2,601,000 2,615,000 -------------- ------------ Operating income 15,062,000 9,127,000 Interest and investment income 48,000 219,000 Interest expense (9,620,000) (10,645,000) -------------- ------------ Income (loss) before income taxes 5,490,000 (1,299,000) Income taxes (220,000) -- -------------- ------------ Net income (loss) $ 5,270,000 $(1,299,000) ============== ============
See notes to consolidated financial statements. 3 4
K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended ---------------------------------------- June 30, June 30, 1996 1995 ---------------- ----------------- Cash flow from operating activities: Net income (loss) $ 5,270,000 $ (1,299,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 4,787,000 4,805,000 Non-cash interest expense - amortization of deferred financing charges 388,000 375,000 Changes in assets and liabilities: Accounts receivable, net (619,000) 114,000 Inventory (2,228,000) (3,406,000) Other current assets 376,000 101,000 Accounts payable, interest payable, and other current liabilities 4,939,000 1,592,000 Postretirement benefit obligation other than pensions (515,000) (608,000) Other long-term liabilities 767,000 822,000 ---------------- ----------------- Net cash provided by operating activities 13,165,000 2,496,000 ---------------- ----------------- Cash flows from investing activities: Capital expenditures (4,268,000) (622,000) Deferred charges -- 26,000 ---------------- ----------------- Net cash used in investing activities (4,268,000) (596,000) ---------------- ----------------- Cash flows from financing activities: Payments of senior revolving loan (7,000,000) -- Borrowings under senior revolving loan 3,000,000 -- Payment of senior subordinated debentures (343,000) -- Deferred charges-financing costs -- (300,000) ---------------- ----------------- Net cash used in financing activities (4,343,000) (300,000) ---------------- ----------------- Net increase in cash and cash equivalents 4,554,000 1,600,000 Cash and cash equivalents, beginning of period 2,412,000 8,493,000 ---------------- ----------------- Cash and cash equivalents, end of period $ 6,966,000 $ 10,093,000 ================ ================= Supplemental cash flow information: Cash interest paid during period $ 6,231,000 $ 6,020,000 ================ =================
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 June 30, 1996 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 March 31, 1996 Annual Report on Form 10-K. 2. Redemption of Debt In May 1996, the Company redeemed $343,000 principal amount of its 13 3/4% Senior Subordinated Debentures due 2001 (the "13 3/4% Debentures") from A. Robert Towbin, who is a member of the Board of Directors of the Company, at a price of 103.65% of the principal amount thereof plus accrued interest. In May 1996, the 13 3/4% Debentures were callable at a price of 103.75% of the principal amount. In July 1996, the Company called $9,657,000 principal amount of its 13 3/4% Debentures at a price of 102.5% of the principal amount thereof, effective August 1, 1996. The Company intends to redeem the remaining $170 million principal balance of its 13 3/4% Debentures in August 1996. The Company plans to offer $140 million of Senior Subordinated Notes due 2004 (the "New Notes") and amend and restate its credit agreement (the "Amended Credit Agreement") to provide for a $110 million facility. The proceeds from the sale of the New Notes and borrowings under the Amended Credit Agreement will be used to fund the redemption of the 13 3/4% Debentures. The Company would record an extraordinary charge of approximately $9.7 million for the write-off of unamortized financing costs and redemption premiums relating to the redemption of the 13 3/4% Debentures upon completion of the above contemplated transaction. 3. Recently Adopted Financial Accounting Pronouncements Effective April 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes accounting standards for the recognition of an impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The adoption of SFAS No. 121 did not have a material effect on the Company's financial position or results of operations. Effective April 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 encourages (but does not require) adoption of the fair value based method of accounting for stock-based compensation plans. Entities may continue to measure compensation costs for those plans using the intrinsic value based method of accounting, but must 5 6 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) make pro forma disclosures of net income (loss) as if the accounting provisions of SFAS No. 123 had been adopted. The Company has elected to continue the intrinsic value method of accounting for stock-based compensation plans and provide the required pro forma disclosures. As a result, the adoption of SFAS No. 123 had no effect on the Company's financial position or results of operations. 4. Receivables are summarized as follows:
June 30, March 31, 1996 1996 ---- ---- Accounts receivable, principally from commercial customers $34,666,000 $32,704,000 Accounts receivable, on U. S. Government and other long-term contracts 2,809,000 4,136,000 Allowances (1,610,000) (1,612,000) ----------- ----------- $35,865,000 $35,228,000 ============ ===========
5. Inventory consists of the following:
June 30, March 31, 1996 1996 ----------- -------- Raw materials and work-in-process $42,141,000 $39,656,000 Finished goods 9,809,000 11,364,000 Inventoried costs related to U.S. Government and other long-term contracts 13,636,000 12,312,000 ----------- ----------- $65,586,000 $63,332,000 =========== ===========
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. Other current liabilities consist of the following:
June 30, March 31, 1996 1996 ---- ---- Accrued payroll costs $14,770,000 $15,756,000 Accrued taxes 7,337,000 7,783,000 Accrued costs on long-term contracts 6,054,000 5,195,000 Accrued warranty costs 7,117,000 8,023,000 Postretirement benefit obligation other than pensions 2,000,000 2,000,000 Other 7,085,000 6,018,000 ----------- ----------- $44,363,000 $44,775,000 =========== ===========
6 7 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. Contingencies On December 15, 1995, the Company's Aircraft Braking Systems subsidiary commenced an action in the Court of Common Pleas, Summit County, Ohio against Hitco Technologies, Inc. ("Hitco") after Hitco threatened to breach existing supply contracts unless prices were renegotiated. Hitco claimed that Aircraft Braking Systems breached the supply arrangements by electing to begin to expand its own carbon production facility. The Aircraft Braking Systems' complaint, as amended, seeks damages in excess of $47 million, injunctive relief and specific performance requiring Hitco to perform its obligations pursuant to existing contracts and purchase orders. Hitco has counterclaimed in the matter seeking, among other things, damages up to $130 million for the alleged breach by Aircraft Braking Systems of alleged long-term contracts to purchase carbon. The Ohio court has issued a preliminary injunction ordering Hitco to perform its obligations pursuant to existing contracts and purchase orders without change in terms. Hitco is presently seeking to have the injunction vacated or modified, and/or a declaratory judgment terminating Hitco's obligation to supply Aircraft Braking Systems at prices previously pertaining. In a related action, Hitco commenced suit in Superior Court, Los Angeles County, California against Aircraft Braking Systems seeking substantially the same relief as is asserted in the Ohio action, and the California case has been stayed. Trial of the Ohio action is presently scheduled for January 1997 and discovery has been ongoing. Aircraft Braking Systems intends to vigorously seek dismissal of the California action and to proceed in the Ohio case to maintain the preliminary injunction and otherwise to protect Aircraft Braking Systems' carbon supply as well as to seek damages from Hitco. Based upon the court's opinion to date, advice of counsel and its own assessment of the matters in dispute, the Company does not expect the outcome of the litigation to be unfavorable to Aircraft Braking Systems. Aircraft Braking Systems has been purchasing substantially all of the carbon for its carbon brakes from Hitco under supply arrangements. It is anticipated that Hitco's obligation to continue to supply carbon will terminate by the latter of December 1996 or such time as the alleged breaches of contract by Hitco are remedied. The Company has commenced a major expansion of its existing carbon manufacturing facility in Akron, Ohio, which is expected to be completed during the first quarter of calendar year 1997 and, when fully operational, will provide the Company with sufficient capacity to meet substantially all, if not all, of its requirements for brake production at the current level of business. The Company is also developing an alternate supplier for carbon. While a loss of carbon supply for the carbon brakes manufactured by Aircraft Braking Systems would have a material, adverse effect on the Company's business and financial condition, because of the injunction obtained in the litigation with Hitco, and based on the development of an alternate supply source and the expansion of the Company's existing carbon facility, management does not believe that the Company's supply of carbon will be interrupted so as to cause a material disruption to the Company's business. There are various lawsuits and claims pending against the Company incidental to its business. Although the final results in such suits andeve 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. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Comparison of Results of Operations for the Three Months Ended June 30, 1996 and June 30, 1995 Sales for the first three months of fiscal year 1997 totaled $71,537,000 reflecting an increase of $9,244,000 or 14.8% compared with $62,293,000 for the same period in the prior year. This increase was primarily due to higher sales of wheels and brakes for commercial transport aircraft of $6,690,000, primarily on the DC-9, DC-10 and MD-90 programs. General aviation and military sales were also higher by $1,899,000 and $655,000, respectively, on various programs. Operating income increased 65.0% to $15,062,000 or 21.1% of sales for the first three months of fiscal year 1997 compared with $9,127,000 or 14.7% of sales for the same period in the prior year. Operating margins increased primarily due to the overhead absorption effect relating to the higher sales volume and lower shipments of original equipment to airframe manufacturers at or below the cost of production. Interest expense, net decreased by $845,000 for the first three months of fiscal year 1997 compared with the same period in the prior year. This decrease was primarily due to the redemption of $30,000,000 principal amount of the Company's 13 3/4% Senior Subordinated Debentures due 2001 (the "13 3/4% Debentures") on December 28, 1995. Approximately 380 hourly employees of the Company's Aircraft Braking Systems subsidiary are represented by the United Auto Workers' Union. Aircraft Braking Systems' three-year contract with the United Auto Workers' Union expired on August 10, 1991. Aircraft Braking Systems has not had a ratified collective bargaining agreement since August 10, 1991, but has operated under Company implemented terms and conditions of employment. The Company is currently involved in discussions with union representatives regarding a new collective bargaining agreement. The Company believes that, whether or not a satisfactory agreement is reached, there will be no material disruption to the business of Aircraft Braking Systems. Liquidity and Financial Condition The Company expects that its principal use of funds for the next several years will be to pay interest and principal on indebtedness, fund capital expenditures and make investments in equipment for new airframes. The Company's primary source of funds for conducting these activities has been cash generated from operations and borrowing under its $70 million revolving credit facility (maturing April 27, 1997, and subject to a borrowing base of a portion of eligible accounts receivable and inventory). At June 30, 1996, the Company had $48.5 million available under this revolving credit facility. In May 1996 the Company redeemed $343,000 principal amount of its 13 3/4% Debentures. In July 1996, the Company called $9,657,000 principal amount of its 13 3/4% Debentures at a price of 102.5% of the principal amount thereof, effective August 1, 1996. The Company intends to redeem the remaining $170 million principal balance of its 13 3/4% Debentures in August 1996. The Company plans to offer $140 million of Senior Subordinated Notes due 2004 (the "New Notes") and amend and restate its credit agreement (the "Amended Credit Agreement") to provide for a $110 million facility. The proceeds from the sale of the New Notes and borrowings under the Amended Credit Agreement will be used to fund the redemption of the 13 3/4% Debentures. 8 9 The Company believes that it will have adequate resources to meet its cash requirements under its current debt structure. Upon completion of the above contemplated transaction the Company expects to save between $5 million and $6 million in annual interest expense, dependent upon the interest rates of the New Notes and the floating interest rates of the Amended Credit Agreement. In addition, upon completion of the above contemplated transaction the Company would record an extraordinary charge of approximately $9.7 million for the write-off of unamortized financing costs and redemption premiums relating to the redemption of the 13 3/4% Debentures. Recently Adopted Financial Accounting Pronouncements Effective April 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes accounting standards for the recognition of an impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The adoption of SFAS No. 121 did not have a material effect on the Company's financial position or results of operations. Effective April 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 encourages (but does not require) adoption of the fair value based method of accounting for stock-based compensation plans. Entities may continue to measure compensation costs for those plans using the intrinsic value based method of accounting, but must make pro forma disclosures of net income (loss) as if the accounting provisions of SFAS No. 123 had been adopted. The Company has elected to continue the intrinsic value method of accounting for stock-based compensation plans and provide the required pro forma disclosures. As a result, the adoption of SFAS No. 123 had no effect on the Company's financial position or results of operations. 9 10 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. None (b) Reports on Form 8-K. The Company filed a report on Form 8-K dated July 30, 1996, under Item 5 (Other Events) reporting the Company's press release announcing a private offering of $140 million Senior Subordinated Notes due 2004 and its intention to amend its existing credit facility. 10 11 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: July 30, 1996 11 12 EXHIBITS INDEX EXHIBIT No. DESCRIPTION 27 FINANCIAL DATA SCHEDULE EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS MAR-31-1997 APR-1-1997 JUN-30-1996 6966000 0 37475000 1610000 65586000 108873000 129392000 62266000 422199000 70416000 289657000 0 10000 11000 (34408000) 422199000 71537000 71537000 44835000 44835000 4771000 0 9620000 5490000 220000 5270000 0 0 0 5270000 0 0
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