-----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, Pw7oRwG5HE0yXMSUyzzwg194lYU9iZOlj6E6A6mgJQraQ9957Vhhmry2/r7V8+r6 3U9WVVs+DgmuDx+fdMyiYw== 0000950123-99-004724.txt : 19990517 0000950123-99-004724.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950123-99-004724 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19990514 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: 424B3 SEC ACT: SEC FILE NUMBER: 333-40977 FILM NUMBER: 99624157 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 424B3 1 PROSPECTUS SUPPLEMENT 1 Filed Pursuant to Rule 424 (b)(3) of the Rules and Regulations Under the Securities Act of 1933 Registration Statement No. 333-40977 PROSPECTUS SUPPLEMENT (To Prospectus dated May 7, 1999) $185,000,000 K & F Industries, Inc. 9 1/4% Senior Subordinated Notes Due 2007 This Prospectus Supplement, together with Prospectus, is to be used by Lehman Brothers in connection with offers and sales of the above-referenced securities in market-making transactions at negotiated prices related to prevailing market prices at the time of sale. Lehman Brothers may act as principal or agent in such transactions. May 14, 1999 2 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, 1999 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, 1999, there were 740,398 shares of common stock outstanding. 3 PART I. FINANCIAL INFORMATION K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1999 1998 ------------- ------------- ASSETS: Current Assets: Cash and cash equivalents $ 3,577,000 $ 6,844,000 Accounts receivable, net 46,735,000 35,990,000 Inventory 72,655,000 70,296,000 Other current assets 887,000 673,000 ------------- ------------- Total current assets 123,854,000 113,803,000 ------------- ------------- Property, plant and equipment 159,038,000 155,867,000 Less, accumulated depreciation and amortization 82,788,000 80,587,000 ------------- ------------- 76,250,000 75,280,000 ------------- ------------- Prepaid pension cost 13,807,000 13,807,000 Deferred charges, net of amortization 25,054,000 25,631,000 Cost in excess of net assets acquired, net of amortization 177,174,000 179,700,000 Intangible assets, net of amortization 11,500,000 11,878,000 ------------- ------------- $ 427,639,000 $ 420,099,000 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIENCY: Current Liabilities: Accounts payable, trade $ 16,075,000 $ 15,328,000 Current portion of senior term loans 1,500,000 8,000,000 Interest payable 9,901,000 5,133,000 Other current liabilities 50,643,000 46,503,000 ------------- ------------- Total current liabilities 78,119,000 74,964,000 ------------- ------------- Postretirement benefit obligation other than pensions 75,956,000 75,956,000 Other long-term liabilities 8,214,000 7,664,000 Senior revolving loan 12,000,000 -- Senior term loan A 48,750,000 48,875,000 Senior term loan B 222,500,000 243,250,000 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 (139,846,000) (152,616,000) Accumulated other comprehensive income 198,000 258,000 ------------- ------------- Total stockholders' deficiency (202,900,000) (215,610,000) ------------- ------------- $ 427,639,000 $ 420,099,000 ============= =============
See notes to consolidated financial statements. 2 4 K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended -------------------------------- March 31, March 31, 1999 1998 ------------ ------------ Sales $ 88,831,000 $ 82,388,000 Costs and expenses 62,308,000 64,387,000 Amortization 2,164,000 2,570,000 ------------ ------------ Operating income 24,359,000 15,431,000 Interest and investment income 57,000 79,000 Interest expense (10,335,000) (11,471,000) ------------ ------------ Income before income taxes 14,081,000 4,039,000 Income tax provision (1,311,000) (500,000) ------------ ------------ Net income $ 12,770,000 $ 3,539,000 ============ ============
See notes to consolidated financial statements. 3 5 K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended -------------------------------- March 31, March 31, 1999 1998 ------------ ------------ Cash flows from operating activities: Net income $ 12,770,000 $ 3,539,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,595,000 4,971,000 Non-cash interest expense - amortization of deferred financing charges 459,000 483,000 Deferred income taxes 999,000 388,000 Changes in assets and liabilities: Accounts receivable, net (10,768,000) (821,000) Inventory (2,396,000) (5,612,000) Other current assets (214,000) 253,000 Accounts payable, interest payable, and other current liabilities 9,655,000 6,559,000 Other long-term liabilities 550,000 (127,000) ------------ ------------ Net cash provided by operating activities 15,650,000 9,633,000 ------------ ------------ Cash flows from investing activities: Capital expenditures (3,401,000) (695,000) Deferred charges (141,000) (62,000) ------------ ------------ Net cash used in investing activities (3,542,000) (757,000) ------------ ------------ Cash flows from financing activities: Payments of senior revolving loan (13,000,000) (11,000,000) Payments of senior term loans (27,375,000) (375,000) Borrowings under senior revolving loan 25,000,000 -- Proceeds from sale and leaseback transaction -- 556,000 ------------ ------------ Net cash used by financing activities (15,375,000) (10,819,000) ------------ ------------ Net decrease in cash and cash equivalents (3,267,000) (1,943,000) Cash and cash equivalents, beginning of period 6,844,000 4,707,000 ------------ ------------ Cash and cash equivalents, end of period $ 3,577,000 $ 2,764,000 ============ ============ Supplemental cash flow information: Interest paid during period $ 5,108,000 $ 5,547,000 ============ ============
See notes to consolidated financial statements. 4 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 statement of operations for the three months ended March 31, 1999 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, 1998 Annual Report on Form 10-K. 2. Receivables are summarized as follows:
March 31, December 31, 1999 1998 ------------ ------------ Accounts receivable, principally from commercial customers $ 43,063,000 $ 32,434,000 Accounts receivable, on U. S Government and other long-term contracts 3,917,000 3,803,000 Allowances (245,000) (247,000) ------------ ------------ $ 46,735,000 $ 35,990,000 ============ ============
3. Inventory consists of the following:
March 31, December 31, 1999 1998 ----------- ----------- Raw materials and work-in-process $45,686,000 $46,245,000 Finished goods 17,368,000 14,364,000 Inventoried costs related to U.S. Government and other long-term contracts 9,601,000 9,687,000 ----------- ----------- $72,655,000 $70,296,000 =========== ===========
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. 5 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:
March 31, December 31, 1999 1998 ----------- ----------- Accrued payroll costs $18,455,000 $17,448,000 Accrued taxes 7,900,000 6,864,000 Accrued costs on long-term contracts 2,531,000 2,342,000 Accrued warranty costs 9,262,000 8,165,000 Customer credits 3,111,000 2,777,000 Postretirement benefit obligation other than pensions 3,000,000 3,000,000 Other 6,384,000 5,907,000 ----------- ----------- $50,643,000 $46,503,000 =========== ===========
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 -------------------------------- March 31, March 31, 1999 1998 ------------ ------------ Net income $ 12,770,000 $ 3,539,000 Other comprehensive income: Cumulative translation adjustments (60,000) (123,000) ------------ ------------ Comprehensive income $ 12,710,000 $ 3,416,000 ============ ============
6 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 -------------------------------- March 31, March 31, 1999 1998 ------------ ------------ Sales: Aircraft Braking Systems $ 77,852,000 $ 73,986,000 Engineered Fabrics 10,979,000 8,402,000 ------------ ------------ $ 88,831,000 $ 82,388,000 ============ ============ Earnings Before Interest, Taxes, Depreciation and Amortization: Aircraft Braking Systems $ 27,086,000 $ 19,545,000 Engineered Fabrics 1,868,000 857,000 ------------ ------------ $ 28,954,000 $ 20,402,000 ============ ============ Operating Profits: Aircraft Braking Systems $ 23,002,000 $ 15,080,000 Engineered Fabrics 1,357,000 351,000 ------------ ------------ Operating income 24,359,000 15,431,000 Interest expense, net (10,278,000) (11,392,000) ------------ ------------ Income before income taxes $ 14,081,000 $ 4,039,000 ============ ============
March 31, December 31, 1999 1998 ------------ ------------ Total Assets: Aircraft Braking Systems $359,524,000 $352,057,000 Engineered Fabrics 58,240,000 57,773,000 ------------ ------------ $417,764,000 $409,830,000 ============ ============
7 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Comparison of Results of Operations for the Three Months Ended March 31, 1999 and March 31, 1998 Sales for the three months ended March 31, 1999 totaled $88,831,000, reflecting an increase of $6,443,000, or 7.8%, compared with $82,388,000 for the same period in the prior year. This increase was due to higher commercial transport and general aviation sales of $5,586,000, primarily for wheels and brakes on the DC-10, MD-80, Fokker 100 and A-321 programs, partially offset by lower sales on the MD-90 program. Military sales were also higher by $857,000 primarily for aircraft fuel tanks. Operating income increased by $8,928,000 to $24,359,000, or 27.4% of sales for the three months ended March 31, 1999, compared with $15,431,000, or 18.7% of sales for the same period in the prior year. The operating margins increased primarily because we invested less in original equipment for airframe manufacturers (at or below the cost of production) and because of the overhead absorption effect relating to the higher sales volume. Interest expense, net decreased by $1,114,000 for the three months ended March 31, 1999 compared with the same period in the prior year. This decrease is due to a lower average debt balance and lower interest rates on the Company's variable rate indebtedness. The Company's effective tax rates of 9.3% and 12.4% for the three months ended March 31, 1999 and 1998, respectively, differ from the statutory rate of 35% due to a net decrease in the valuation allowance in both years. The decrease in the effective rate in 1999 is primarily due to the net change in the valuation allowance. 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, 1999, the Company had $31.2 million available to borrow under its $50 million revolving credit facility. Cash Flows During the three months ended March 31, 1999, cash provided by operating activities amounted to $15,650,000 and reflected $28,954,000 of earnings before interest, taxes, depreciation and amortization ("EBITDA"), decreases in other working capital of $4,418,000, increases in long-term liabilities of $550,000, partially offset by increases in accounts receivable of $10,768,000 (primarily due to higher sales volume and timing of collections), inventory of $2,396,000 and interest payments of $5,108,000. During the three months ended March 31, 1998, cash provided by operating activities amounted to $9,633,000 and reflected $20,402,000 of EBITDA, decreases in other working capital of $1,338,000, partially offset by increases in accounts receivable of $821,000, inventory of $5,612,000, decreases in long-term liabilities of $127,000 and interest payments of $5,547,000. 8 10 During the three months ended March 31, 1999 and 1998, net cash used in investing activities amounted to $3,542,000 and $757,000, respectively. These expenditures were primarily for capital expenditures. The increase in 1999 relates to the timing of purchases. During the three months ended March 31, 1999, net cash used by financing activities amounted to $15,375,000 due to the repayment of indebtedness. During the three months ended March 31, 1998, net cash used by financing activities amounted to $10,819,000 due to the repayment of indebtedness of $11,375,00, partially offset by $556,000 of proceeds received from a sale and leaseback transaction. Year 2000 Issue The Company and its operating subsidiaries, assisted by outside consultants, have conducted a review of their computer systems to identify areas that are affected by the "Year 2000" issue, i.e., the issue of computer programs and embedded computer chips being unable to distinguish between the year 1900 and the year 2000. Each subsidiary has a project team and a plan for Year 2000 readiness. The Company has assessed and inventoried internal systems, including personal computers and network hardware and software, engineering and technical systems, plant equipment and facilities. Management believes that substantially all systems are already, or shortly will be, without material expense, Year 2000 compliant. Procedures are on-going to test whether the Company's and each subsidiary's systems are Year 2000 compliant, and whether the Company's plans and activities are sufficient to address and correct system or other problems that might arise because of the Year 2000. Modification or replacement of affected systems has been and continues to be made as required. Except for certain anti-skid systems, which are compliant, the Company's products do not have embedded systems and thus are not susceptible to the Year 2000 issue in their operation. Based upon the accomplishments to date, no contingency plans at Aircraft Braking or at Engineered Fabrics are expected to be needed. The Company estimates the cost of its Year 2000 compliance plans at Aircraft Braking Systems and at Engineered Fabrics will not exceed $700,000, of which approximately $500,000 has been expended as of March 31, 1999. The costs of all Year 2000 related expenses are paid from funds generated from operations. An unexpected Year 2000 problem could result in an interruption of normal business activities or operations. A possible worst case scenario for us would be if the public utilities or telecommunications carriers' systems failed, or if critical suppliers failed to properly address their Year 2000 issues and did not supply us with service or materials. There can be no assurance that third parties will address Year 2000 issues and meet their remediation goals. The Company has no contingency plans in the event that major business partners, such as suppliers, fail to remediate critical Year 2000 issues or essential services, such as power, are interrupted. However, based on the expected completion of its Year 2000 projects on time at both subsidiaries, and assuming the preparedness of others, the Company believes that a significant interruption will not be encountered. Assessment of Year 2000 risk has included and will continue to include surveying suppliers and other third parties about their readiness. The Company is attempting to obtain Year 2000 assurances and to monitor the remediation efforts of critical vendors and customers. No significant customer, vendor, service provider or other third party has advised yet of a specific Year 2000 problem that it does not expect to have remedied on time. 9 11 Statements made relating to Year 2000 issues, and to the Company's particular Year 2000 circumstances, are forward looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties which may cause the Company's plans regarding and assessments of Year 2000 issues to be adversely impacted, such that the Company's state of readiness, anticipated costs to address Year 2000 issues and contingency plans will differ materially from those set forth above. Risks and uncertainties include that key suppliers of raw materials and others with whom the Company does business, will not meet their Year 2000 obligations, and that events or expenses, unforeseen or not quantifiable at this time, may arise which cause the Company's compliance program or any contingency plan to be delayed or to increase in cost in material respect. In addition, Year 2000 issues are global, and may be affected by economic, governmental, technological and other factors beyond the control of businesses such as the Company. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has approximately $470 million of total debt outstanding at March 31, 1999. 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. 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. The interest rate swap agreement fixes the Company's LIBOR borrowing rate at 5.95% on $133.5 million at March 31, 1999 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 $318.5 million of its indebtedness (including $185 million of 9 1/4% Senior Subordinated Notes and the notional amount under the swap agreement) at March 31, 1999. Given that approximately 68% of the Company's borrowings are at fixed interest rates, a change in rates of 10% would not have a significant impact on fair values, cash flows or earnings. The Company has no other derivative financial instruments. 10 12 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, 1999. 11 13 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. K & F INDUSTRIES, INC. Registrant /s/ DIRKSON R. CHARLES -------------------------- Dirkson R. Charles Chief Financial Officer and Registrant's Authorized Officer Dated: May 14, 1999 12 -----END PRIVACY-ENHANCED MESSAGE-----