<PAGE> 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 September 30, 1995
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 October 15, 1995, 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 ten shares are owned by the Chairman
of the Company, all of the Class B common stock are owned by Loral Corporation
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>
September 30, March 31,
ASSETS: 1995 1995
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 10,695,000 $ 8,493,000
Accounts receivable, net 36,836,000 33,548,000
Inventory 63,517,000 61,767,000
Other current assets 1,427,000 1,106,000
------------ ------------
Total current assets 112,475,000 104,914,000
------------ ------------
Property, plant and equipment 116,866,000 114,706,000
Less, accumulated depreciation and
amortization 55,897,000 51,574,000
------------ ------------
60,969,000 63,132,000
------------ ------------
Deferred charges, net of amortization 25,912,000 26,508,000
Cost in excess of net assets acquired,
net of amortization 205,174,000 208,228,000
Intangible assets, net of amortization 24,597,000 26,292,000
------------ ------------
$429,127,000 $429,074,000
============ ============
LIABILITIES and STOCKHOLDERS' DEFICIENCY:
Current Liabilities:
Accounts payable, trade $ 11,752,000 $ 10,345,000
Interest payable 8,771,000 8,771,000
Other current liabilities 39,815,000 37,773,000
------------ ------------
Total current liabilities 60,338,000 56,889,000
------------ ------------
Postretirement benefit obligation other
than pensions 76,462,000 77,717,000
Other long-term liabilities 15,764,000 19,216,000
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
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 (181,299,000) (182,643,000)
Adjustment to equity for minimum pension
liability (7,192,000) (7,192,000)
Cumulative translation adjustment (317,000) (284,000)
------------ ------------
Total stockholders' deficiency (33,437,000) (34,748,000)
------------ ------------
$429,127,000 $429,074,000
============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------------
September 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Sales $131,486,000 $115,143,000
Costs and expenses 104,024,000 93,347,000
Amortization 5,213,000 5,230,000
------------ ------------
Operating income 22,249,000 16,566,000
Interest and investment income 393,000 78,000
Interest expense (21,298,000) (25,249,000)
------------ ------------
Income (loss) before income taxes 1,344,000 (8,605,000)
Income taxes -- --
------------ ------------
Net income (loss) $ 1,344,000 $ (8,605,000)
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
September 30, September 30,
1995 1994
------------- --------------
<S> <C> <C>
Sales $ 69,193,000 $ 57,432,000
Costs and expenses 53,473,000 45,664,000
Amortization 2,598,000 2,580,000
------------ ------------
Operating income 13,122,000 9,188,000
Interest and investment income 174,000 45,000
Interest expense (10,653,000) (12,252,000)
------------ ------------
Income (loss) before income taxes 2,643,000 (3,019,000)
Income taxes -- --
------------ ------------
Net income (loss) $ 2,643,000 $ (3,019,000)
============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------------
September 30, September 30,
1995 1994
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,344,000 $ (8,605,000)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 9,536,000 9,786,000
Non-cash interest expense - amortization
of deferred financing charges 758,000 663,000
Non-cash interest expense - convertible
debentures -- 3,950,000
Changes in assets and liabilities:
Accounts receivable, net (3,301,000) (1,359,000)
Inventory (1,770,000) 3,142,000
Other current assets (321,000) (198,000)
Accounts payable, interest payable,
and other current liabilities 3,449,000 1,313,000
Postretirement benefits other than
pensions (1,255,000) (951,000)
Other long-term liabilities (3,452,000) 1,309,000
------------ -------------
Net cash provided by operating
activities 4,988,000 9,050,000
------------ -------------
Cash flows from investing activities:
Capital expenditures (2,160,000) (611,000)
Deferred charges (326,000) (214,000)
------------ -------------
Net cash used in investing activities (2,486,000) (825,000)
------------ -------------
Cash flows from financing activities:
Payments of senior revolving loan -- (20,000,000)
Borrowings of senior revolving loan -- 10,000,000
Payment of convertible debentures -- (12,764,000)
Proceeds from issuance of capital stock -- 12,764,000
Deferred charges-financing costs (300,000) --
------------ -------------
Net cash used by financing activities (300,000) (10,000,000)
------------ -------------
Net increase (decrease) in cash and
cash equivalents 2,202,000 (1,775,000)
Cash and cash equivalents, beginning
of period 8,493,000 4,327,000
------------ -------------
Cash and cash equivalents, end of
period $ 10,695,000 $ 2,552,000
============ =============
Supplemental cash flow information:
Cash interest paid during the period $ 20,540,000 $ 20,683,000
============ =============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 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 statements of operations for the three and six months ended
September 30, 1995 are 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, 1995 Annual Report on Form 10-K.
2. Receivables are summarized as follows:
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
------------- -----------
<S> <C> <C>
Accounts receivable, principally from
commercial customers $32,552,000 $30,036,000
Accounts receivable, on U. S. Government
and other long-term contracts 4,709,000 3,871,000
Allowances (425,000) (359,000)
----------- -----------
$36,836,000 $33,548,000
=========== ===========
</TABLE>
3. Inventory consists of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
------------- -----------
<S> <C> <C>
Raw materials and work-in-process $39,351,000 $35,819,000
Finished goods 13,073,000 15,500,000
Inventoried costs related to U.S.
Government and other long-term
contracts 11,529,000 11,072,000
----------- -----------
63,953,000 62,391,000
Less, unliquidated progress payments
received, principally related
to long-term government contracts 436,000 624,000
----------- -----------
$63,517,000 $61,767,000
=========== ===========
</TABLE>
6
<PAGE> 7
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.
4. Other current liabilities consist of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
------------- -----------
<S> <C> <C>
Accrued payroll costs $14,554,000 $13,149,000
Accrued taxes 5,856,000 6,978,000
Accrued costs on long-term contracts 5,163,000 6,477,000
Accrued warranty costs 7,970,000 5,248,000
Postretirement benefit obligation other
than pensions 2,000,000 2,000,000
Other 4,272,000 3,921,000
----------- -----------
$39,815,000 $37,773,000
=========== ===========
</TABLE>
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 management, the
ultimate liability, if any, will not have a material adverse effect on the
Company.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Comparison of Results of Operations for the Six Months Ended September 30, 1995
and September 30, 1994
Sales for the first half of fiscal year 1996 totaled $131,486,000 reflecting an
increase of $16,343,000 or 14.2% compared with $115,143,000 for the same period
in the prior year. This increase was due to higher commercial sales of
$8,593,000 primarily on the DC-9, DC-10, Fo-100 and MD-80 programs and higher
military sales of $7,750,000 on various programs.
Operating income increased 34.3% to $22,249,000 or 16.9% of sales for the first
half of fiscal year 1996 compared with $16,566,000 or 14.4% of sales for the
same period in the prior year. Operating margins increased primarily due to
operating efficiencies, the overhead absorption effect relating to the higher
sales volume and lower independent research and development costs on the A-321
and MD-90 programs. Partially offsetting this increase were higher shipments
of original equipment to airframe manufacturers at or below the cost of
production.
Interest expense decreased $3,951,000 for the first half of fiscal year 1996
compared with the same period in the prior year. This decrease was primarily
due to the retirement of the 14 3/4% Subordinated Convertible Debentures in the
second quarter of fiscal year 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.
Comparison of Results of Operations for the Three Months Ended September 30,
1995 and September 30, 1994
Sales for the second quarter of fiscal year 1996 totaled $69,193,000 reflecting
an increase of $11,761,000 or 20.5% compared with $57,432,000 for the same
period in the prior year. This increase was due to higher commercial sales of
$8,000,000 primarily on the DC-9, DC-10, Fo-100 and MD-80 programs and higher
military sales of $3,761,000 on various programs.
Operating income increased 42.8% to $13,122,000 or 19.0% of sales for the
second quarter of fiscal year 1996 compared with $9,188,000 or 16.0% of sales
for the same period in the prior year. Operating margins increased primarily
due to operating efficiencies and the overhead absorption effect relating to
the higher sales volume. Partially offsetting this increase were higher
shipments of original equipment to airframe manufacturers at or below the cost
of production.
Interest expense decreased $1,599,000 for the second quarter of fiscal year
1996 compared with the same period in the prior year. This decrease was
primarily due to the retirement of the 14 3/4% Subordinated Convertible
Debentures in the second quarter of fiscal year 1995.
8
<PAGE> 9
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. Debt
amortization commences August 1, 1999. The Company's management believes that
it will have adequate resources to meet its cash requirements through funds
generated from operations and borrowings under its $70 million revolving credit
facility (maturing April 27, 1997, which is subject to a borrowing base of a
portion of eligible accounts receivable and inventory). At September 30, 1995,
the Company had no outstanding borrowings and $57.6 million available under its
revolving credit facility.
Bookings
Bookings for the first half of fiscal year 1996 totaled $121,829,000 reflecting
an increase of $6,493,000 or 5.6% compared with $115,336,000 for the same
period in the prior year. This increase is primarily due to higher commercial
bookings of $16,000,000 reflecting a generally stronger demand for replacement
parts on the Company's wheel and brake programs. Partially offsetting this
increase were lower military bookings due to delays in the receipt of expected
orders.
9
<PAGE> 10
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
September 30, 1995.
10
<PAGE> 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 thereunto duly authorized.
K & F INDUSTRIES, INC.
----------------------
Registrant
KENNETH M. SCHWARTZ
-----------------------
Kenneth M. Schwartz
Chief Financial Officer
and
Registrant's Authorized
Officer
Dated: October 24, 1995
11
<PAGE> 12
EXHIBIT INDEX
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 10,695,000
<SECURITIES> 0
<RECEIVABLES> 37,261,000
<ALLOWANCES> 425,000
<INVENTORY> 63,517,000
<CURRENT-ASSETS> 112,475,000
<PP&E> 116,866,000
<DEPRECIATION> 55,897,000
<TOTAL-ASSETS> 429,127,000
<CURRENT-LIABILITIES> 60,338,000
<BONDS> 310,000,000
<COMMON> 11,000
0
10,000
<OTHER-SE> (33,458,000)
<TOTAL-LIABILITY-AND-EQUITY> 429,127,000
<SALES> 131,486,000
<TOTAL-REVENUES> 131,486,000
<CGS> 91,255,000
<TOTAL-COSTS> 91,255,000
<OTHER-EXPENSES> 7,137,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,298,000
<INCOME-PRETAX> 1,344,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,344,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,344,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
