<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1994
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 33-29035
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K & F Industries, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware 34-1614845
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
600 Third Avenue, New York, New York 10016
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(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
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As of July 15, 1994, all of the common stock of the Company except ten shares
are owned by the Chairman of the Company and all of the preferred stock except
44,999 shares are owned by four limited partnerships of Lehman Brothers
Holdings Inc.
<PAGE> 2
PART I. FINANCIAL INFORMATION
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, March 31,
1994 1994
------------ -----------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 3,260,000 $ 4,327,000
Accounts receivable, net 35,382,000 32,783,000
Inventory 64,351,000 67,613,000
Other current assets 910,000 1,196,000
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Total current assets 103,903,000 105,919,000
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Property, plant and equipment 112,201,000 111,882,000
Less, accumulated depreciation
and amortization 45,461,000 43,142,000
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66,740,000 68,740,000
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Deferred charges, net of amortization 27,436,000 28,050,000
Cost in excess of net assets
acquired, net of amortization 212,810,000 214,340,000
Intangible assets, net of amortization 28,972,000 29,831,000
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$439,861,000 $446,880,000
============ ============
LIABILITIES and STOCKHOLDERS' DEFICIENCY:
Current Liabilities:
Accounts payable, trade $ 8,833,000 $ 9,028,000
Interest payable 13,021,000 8,818,000
Other current liabilities 35,814,000 34,982,000
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Total current liabilities 57,668,000 52,828,000
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Postretirement benefit obligation
other than pensions 79,744,000 80,150,000
Other long-term liabilities 24,532,000 22,836,000
Senior revolving loan - 10,000,000
11 7/8% senior secured notes due 2003 100,000,000 100,000,000
13 3/4% senior subordinated debentures
due 2001 210,000,000 210,000,000
14.75% convertible debentures due 2004 63,765,000 61,421,000
Stockholders' Deficiency:
Preferred stock, $.01 par value 9,000 9,000
Common stock, $.01 par value 48,000 48,000
Additional paid-in capital 89,943,000 89,943,000
Deficit (178,056,000) (172,470,000)
Adjustment to equity for minimum
pension liability (7,467,000) (7,467,000)
Cumulative translation adjustment (325,000) (418,000)
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Total stockholders' deficiency (95,848,000) (90,355,000)
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$439,861,000 $446,880,000
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</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
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June 30, June 30,
1994 1993
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<S> <C> <C>
Sales $ 57,711,000 $ 51,731,000
Costs and expenses 47,683,000 46,086,000
Amortization 2,650,000 2,569,000
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Operating income 7,378,000 3,076,000
Interest and investment
income 33,000 18,000
Interest expense (1) (12,997,000) (13,108 000)
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Loss before cumulative effect of
change in accounting principle (5,586,000) (10,014,000)
Cumulative effect of change in method
of accounting for the discounting of
certain liabilities - (2,305,000)
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Net loss $ (5,586,000) $(12,319,000)
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</TABLE>
Note (1): Includes non-cash interest expense on the convertible debentures
and financing costs of $2,670,000 and $2,377,000 for the three
months ended June 30, 1994 and 1993, respectively.
See notes to consolidated financial statements.
3
<PAGE> 4
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
June 30, June 30,
1994 1993
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,586,000) $(12,319,000)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Cumulative effect of change in
accounting for the discounting of
certain liabilities - 2,305,000
Depreciation and amortization 4,969,000 5,017,000
Non-cash interest expense 2,670,000 2,377,000
Changes in assets and liabilities:
Accounts receivable, net (2,553,000) 10,371,000
Inventory 3,309,000 (4,585,000)
Other current assets 286,000 170,000
Accounts payable, interest payable,
and other current liabilities 4,840,000 1,498,000
Postretirement benefits other
than pensions (406,000) (420,000)
Other long-term liabilities 1,696,000 (1,099,000)
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Net cash provided by operating
activities 9,225,000 3,315,000
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Cash flows from investing activities:
Capital expenditures, net (319,000) (833,000)
Deferred charges 27,000 -
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Net cash used in investing activities (292,000) (833,000)
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Cash flows from financing activities:
Payments of senior revolving loan (14,000,000) (12,000,000)
Borrowings of senior revolving loan 4,000,000 10,000,000
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Net cash used by financing
activities (10,000,000) (2,000,000)
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Net (decrease) increase in cash and
cash equivalents (1,067,000) 482,000
Cash and cash equivalents, beginning
of period 4,327,000 2,921,000
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Cash and cash equivalents, end of
period $ 3,260,000 $ 3,403,000
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Supplemental information:
Cash interest paid during the period $ 6,124,000 $ 6,925,000
============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 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, 1994 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, 1994 Annual Report on Form
10-K.
2. Accounting Change
Effective April 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 112, "Employers' Accounting for
Postemployment Benefits." This statement requires that the costs of
benefits provided to employees after employment but before retirement
be recognized in the financial statements on an accrual basis. The
adoption of SFAS No. 112 did not have a material effect on the
Company's financial position or results of operations.
3. Receivables are summarized as follows:
<TABLE>
<CAPTION>
June 30, March 31,
1994 1994
--------- ----------
<S> <C> <C>
Accounts receivable, principally from
commercial customers $33,684,000 $29,099,000
Accounts receivable, on U. S. Government
and other long-term contracts 2,390,000 4,379,000
Allowances (692,000) (695,000)
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$35,382,000 $32,783,000
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</TABLE>
4. Inventory consists of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1994 1994
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<S> <C> <C>
Raw materials and work-in-process $39,422,000 $42,375,000
Finished goods 14,348,000 15,821,000
Inventoried costs related to U.S.
Government and other long-term
contracts 11,117,000 9,823,000
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64,887,000 68,019,000
Less, unliquidated progress payments
received, principally related
to long-term government contracts 536,000 406,000
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$64,351,000 $67,613,000
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</TABLE>
5
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K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
5. Other current liabilities consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1994 1994
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<S> <C> <C>
Accrued payroll costs $12,841,000 $11,687,000
Accrued taxes 6,917,000 7,094,000
Accrued costs on long-term contracts 4,447,000 3,415,000
Accrued warranty costs 4,855,000 4,502,000
Postretirement benefit obligation other
than pensions 2,000,000 2,000,000
Other 4,754,000 6,284,000
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$35,814,000 $34,982,000
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</TABLE>
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
management, the ultimate liability, if any, will not have a material
adverse effect on the Company.
6
<PAGE> 7
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, 1994
and June 30, 1993
Sales for the first three months of fiscal year 1995 totaled $57,711,000,
reflecting an increase of $5,980,000 or 11.6%, compared with $51,731,000 for
the same period in the prior year. This increase was primarily due to higher
commercial sales of $8,100,000 for wheels and brakes primarily on the DC-9,
Fo-100 and Saab-340 programs. This increase was partially offset by lower
military sales on the F-16 program.
Operating income increased 139.9% to $7,378,000 or 12.8% of sales for the first
three months of fiscal year 1995 compared with $3,076,000 or 5.9% for the same
period in the prior year. Operating margins increased primarily due to cost
reductions implemented during fiscal year 1994, the overhead absorption effect
relating to the higher sales volume as well as a favorable sales mix, whereby
higher-margin commercial sales comprised a higher percentage of total sales.
Interest expense decreased $111,000 for the first three months of fiscal year
1995 compared with the same period in the prior year. This decrease was
primarily attributable to a lower average principal balance on the senior
revolving loan partially offset by a higher principal balance on the
convertible debentures.
Approximately 360 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.
Financial Condition
The Company expects that its principal use of funds for the next several years
will be to pay interest on indebtedness, fund capital expenditures and make
investments in original equipment for new airframes. Debt principal
amortization commences August 1, 1999. Management believes that it will have
adequate resources to meet its cash requirements through funds generated from
operations and borrowings under its $80 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, 1994, the Company had
$48.2 million available to borrow under its revolving credit facility.
Accounting Change
Effective April 1, 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits."
The adoption of SFAS No. 112 did not have a material effect on the Company's
financial position or results of operations. (See Note 2 to the consolidated
financial statements.)
7
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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
June 30, 1994.
8
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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.
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Registrant
/s/ KENNETH M. SCHWARTZ
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Kenneth M. Schwartz
Chief Financial Officer
and
Registrant's Authorized
Officer
Dated: July 20, 1994
9
