Filed Pursuant to Rule 424 (b) (3) of
the Rules and Regulations Under the
Securities Act of 1933
Registration Statement No. 33-29035
PROSPECTUS SUPPLEMENT
(To Prospectus dated October 1, 1993)
$210,000,000
K & F Industries, Inc.
13 3/4% Senior Secured Notes Due 2001
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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.
February 14, 1994
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 December 31, 1993
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.
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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
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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 February 1, 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
Shearson Lehman Brothers Holdings Inc.
PART I. FINANCIAL INFORMATION
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, March 31,
1993 1993
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ASSETS:
Current Assets:
Cash and cash equivalents $ 3,332,000 $ 2,921,000
Accounts receivable, net 34,722,000 50,045,000
Inventory 73,590,000 77,259,000
Other current assets 1,333,000 1,059,000
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Total current assets 112,977,000 131,284,000
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Property, plant and equipment 111,081,000 110,534,000
Less, accumulated depreciation
and amortization 40,630,000 34,272,000
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70,451,000 76,262,000
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Deferred charges, net of amortization 28,981,000 30,871,000
Cost in excess of net assets
acquired, net of amortization 215,868,000 220,449,000
Intangible assets, net of amortization 28,466,000 31,102,000
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$456,743,000 $489,968,000
============ ============
LIABILITIES and STOCKHOLDERS' DEFICIENCY:
Current Liabilities:
Accounts payable, trade $ 12,131,000 $ 14,326,000
Interest payable 13,022,000 9,256,000
Other current liabilities 35,707,000 37,674,000
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Total current liabilities 60,860,000 61,256,000
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Postretirement benefit obligation
other than pensions 82,960,000 84,240,000
Other long-term liabilities 15,376,000 16,862,000
Senior revolving loan 4,000,000 16,500,000
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 59,220,000 52,978,000
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 (162,208,000) (138,429,000)
Adjustment to equity for minimum
pension liability (3,052,000) (3,052,000)
Cumulative translation adjustment (413,000) (387,000)
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Total stockholders' deficiency (75,673,000) (51,868,000)
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$456,743,000 $489,968,000
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See notes to consolidated financial statements.
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
December 31, December 31,
1993 1992*
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Sales $170,491,000 $197,857,000
Costs and expenses 147,373,000 171,497,000
Amortization 7,967,000 7,698,000
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Operating income 15,151,000 18,662,000
Interest and investment
income 83,000 96,000
Interest expense (1) (39,013,000) (40,115,000)
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Loss before extraordinary charge
and cumulative effect of changes
in accounting principles (23,779,000) (21,357,000)
Extraordinary charge from early
extinguishment of debt - (2,477,000)
Cumulative effect of change in method
of accounting for postretirement
benefits other than pensions - (77,902,000)
Cumulative effect of change in method
of accounting for certain overhead
costs in inventory - 4,362,000
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Net loss $(23,779,000) $(97,374,000)
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Note (1): Includes non-cash interest expense on the convertible
debentures and financing costs of $7,308,000 and $6,581,000 for
the nine months ended December 31, 1993 and 1992, respectively.
* Previously restated as described in Note 7.
See notes to consolidated financial statements.
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
December 31, December 31,
1993 1992*
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Sales $54,718,000 $65,501,000
Costs and expenses 48,135,000 56,131,000
Amortization 2,655,000 2,566,000
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Operating income 3,928,000 6,804,000
Interest and investment
income 48,000 21,000
Interest expense (1) (12,983,000) (13,609,000)
------------ ------------
Net loss $( 9,007,000) $(6,784,000)
============= ============
Note (1): Includes non-cash interest expense on the convertible
debentures and financing costs of $2,537,000 and $2,264,000 for
the three months ended December 31, 1993 and 1992,
respectively.
* Previously restated as described in Note 7.
See notes to consolidated financial statements.
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
December 31, December 31,
1993 1992*
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Cash flows from operating activities:
Net loss $(23,779,000) $(97,374,000)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Cumulative effect of change in
Accounting for:
Postretirement benefits other
than pensions - 77,902,000
Certain overhead costs in inventory - (4,362,000)
Depreciation and amortization 15,098,000 14,721,000
Non-cash interest expense 7,308,000 6,581,000
Extraordinary charge from early
extinguishment of debt - 2,477,000
Changes in assets and liabilities:
Accounts receivable, net 15,310,000 11,009,000
Inventory 3,664,000 5,823,000
Other current assets (274,000) (554,000)
Accounts payable, interest payable,
and other current liabilities (396,000) 10,904,000
Postretirement benefits other
than pensions (1,280,000) 4,379,000
Other long-term liabilities (2,484,000) (863,000)
Deferred charges - financing costs - (3,105,000)
Net cash provided by operating ------------ ------------
activities 13,167,000 27,538,000
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Cash flows used in investing activities:
Capital expenditures, net (2,326,000) (3,020,000)
Deferred charges 74,000 228,000
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Net cash used by investing activities (2,252,000) (2,792,000)
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Cash flows from financing activities:
Payments of senior revolving loan (36,500,000) (62,000,000)
Borrowings of senior revolving loan 24,000,000 34,000,000
Proceeds from sale/leaseback transaction 1,996,000 -
Payment of senior term loan - (95,875,000)
Proceeds from issuance of senior notes - 100,000,000
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Net cash used by financing
activities (10,504,000) (23,875,000)
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Net increase in cash and cash equivalents 411,000 871,000
Cash and cash equivalents, beginning
of period 2,921,000 1,638,000
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Cash and cash equivalents, end of
period $ 3,332,000 $ 2,509,000
============ ============
Supplemental information:
Cash interest paid during the period $ 27,939,000 $ 25,768,000
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*Previously restated as described in Note 7.
See notes to consolidated financial statements.
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 December 31, 1993 are not
necessarily indicative of the results to be expected for the
full year. Certain reclassifications have been made to the
December 31, 1992 financial statements to conform with the
presentation used in the December 31, 1993 financial
statements. 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, 1993 Annual
Report on Form 10-K.
2. Receivables are summarized as follows:
December 31, March 31,
1993 1993
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Accounts receivable, principally from
commercial customers $31,485,000 $42,836,000
Accounts receivable, on U. S. Government
and other long-term contracts 3,843,000 8,391,000
Allowances (606,000) (1,182,000)
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$34,722,000 $50,045,000
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3. Inventory consists of the following:
December 31, March 31,
1993 1993
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Raw materials and work-in-process $43,235,000 $46,027,000
Finished goods 16,959,000 17,307,000
Inventoried costs related to U.S.
Government and other long-term
contracts 13,938,000 14,914,000
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74,132,000 78,248,000
Less, unliquidated progress payments
received, principally related
to long-term government contracts 542,000 989,000
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$73,590,000 $77,259,000
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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 in backlog 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.
4. Other current liabilities consist of the following:
December 31, March 31,
1993 1993
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Accrued payroll costs $12,051,000 $12,900,000
Accrued taxes 6,319,000 7,199,000
Accrued costs on long-term contracts 4,996,000 4,933,000
Accrued warranty costs 6,002,000 6,158,000
Other 6,339,000 6,484,000
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$35,707,000 $37,674,000
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5. Income Taxes
Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109. In connection with such adoption, there
was no impact to the financial statements as the Company has provided a
100 percent valuation allowance against its net deferred tax benefit.
No benefit for income taxes has been recognized for the nine months
ended December 31, 1993 as the increase in the deferred benefit
resulting from operating losses was offset by an increase in the
valuation allowance. In addition, the impact of the enactment of the
Omnibus Budget Reconciliation Act of 1993 was to increase the net
deferred tax benefit by approximately $3 million which was offset by an
equal increase in the valuation allowance.
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
7. Restatement
Effective April 1, 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions". The
consolidated statements of operations for the three and nine months
ended December 31, 1992, and the consolidated statement of cash flows
for the nine months ended December 31, 1992 have been restated to
reflect this change.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31,
1993 AND DECEMBER 31, 1992
Sales for the first nine months of fiscal year 1994 totaled $170,491,000
reflecting a decrease of $27,366,000 compared to the same period in the
prior year. Military sales declined $18,168,000 primarily on the F-16,
F-14A, S-3A, F-5E, and SAAB J-35 and J-37 programs reflecting the overall
decline in government procurements. Commercial sales declined $9,198,000
primarily attributable to lower sales volume on various Gulfstream, DC-10
and MD-11 programs.
Operating income decreased to 8.9% of sales for the first nine months of
fiscal year 1994 compared to 9.4% for the same period in the prior year.
This decrease was primarily due to investments in new airframes comprising
a greater percentage of sales and the overhead absorption effect relating
to lower sales volume. Partially offsetting this decrease was a favorable
sales mix, whereby higher margin commercial sales comprised a higher
percentage of total sales, and lower postretirement benefit costs other
than pensions, due to various plan amendments the Company adopted in March
1993.
Interest expense decreased $1,102,000 for the first nine months of fiscal
year 1994 compared to the same period in the prior year. This decrease was
primarily attributable to a lower average principal balance on outstanding
debt.
Approximately 400 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 union expired on
August 10, 1991. Since August 10, 1991, union members have worked in
accordance with the terms of an imposed contract.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31,
1993 AND DECEMBER 31, 1992
Sales for the third quarter of fiscal year 1994 totaled $54,718,000
reflecting a decrease of $10,783,000 compared to the same period in the
prior year. Military sales decreased $6,471,000 primarily on the F-16,
F-14A, C-141 and S-3A programs. Commercial sales declined $4,312,000
primarily attributable to lower sales volume on various Gulfstream and
DC-10 programs.
Operating income decreased to 7.2% of sales for the third quarter of fiscal
year 1994 compared to 10.4% for the same period in the prior year. This
decrease was primarily attributable to the overhead absorption effect
relating to lower sales volume. Partially offsetting this decrease was a
favorable sales mix, whereby higher margin commercial sales comprised a
higher percentage of total sales, and lower postretirement benefit costs
other than pensions, due to various plan amendments the Company adopted
in March 1993.
Interest expense decreased $626,000 for the third quarter of fiscal year
1994 compared to the same period in the prior year. This decrease was
primarily attributable to a lower average principal balance on outstanding
debt.
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 new airframes. 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 (subject to a borrowing base of eligible accounts
receivable and inventory). At December 31 1993, the Company had $52.8
million available to borrow under its revolving credit facility.
EFFECT OF LOWER INTEREST RATES ON PENSION AND OTHER POSTRETIREMENT BENEFITS
In determining its pension and other postretirement benefit obligations,
the Company estimates a discount rate based on rates of return on high-
quality fixed income investments available at the measurement date. The
Company is in the process of finalizing its current year discount rate and
expects to reduce the rate by approximately one and one-half percent.
Based on preliminary estimates, the effect, which is non-cash, for the
years subsequent to fiscal year 1994 will be an increase in expense of
approximately $1.5 million. The lower interest rates would increase the
minimum pension liability by approximately $8 million, with a corresponding
charge to an intangible asset or a reduction of shareholders' equity.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
ABS is a defendant in a patent infringement suit filed by the B.F. Goodrich
Company in the United States District Court for the District of Delaware.
The suit alleges infringement by ABS of two B.F. Goodrich patents related
to the structure and method of overhaul of aircraft brake assemblies and
seeks damages of approximately $75 million. ABS is vigorously defending
the suit. A trial before a Federal District Court judge commenced on
October 4, 1993 and concluded on October 26, 1993. A decision is expected
in the second quarter of calendar year 1994. Although the final results in
this lawsuit 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.
On July 10, 1989, Fairchild Industries, Inc. (formerly Banner Industries),
an unsuccessful bidder for Aircraft Braking Systems/Engineered Fabrics'
assets, acquired by the Company from Loral, commenced a lawsuit in the
Supreme Court of the State of New York seeking to void the sale of the two
divisions and to compel a new auction or, alternatively, unspecified
compensatory damages in excess of $75 million and $25 million in punitive
damages. The lawsuit was dismissed on July 28, 1993 on the defendant's
motion for summary judgement, and the plaintiff has filed an appeal of the
dismissal.
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
December 31, 1993.
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: February 14, 1994
