<PAGE> 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 April 21, 2000)
$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 15, 2000
<PAGE> 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, 2000
--------------
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, 2000, there were 740,398 shares of common stock outstanding.
<PAGE> 3
PART I. FINANCIAL INFORMATION
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------------ ------------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 5,527,000 $ 3,584,000
Accounts receivable, net 47,780,000 51,870,000
Inventory 72,867,000 68,848,000
Other current assets 911,000 801,000
Deferred tax asset 14,656,000 18,063,000
------------------ ------------------
Total current assets 141,741,000 143,166,000
------------------ ------------------
Property, plant and equipment 158,243,000 159,331,000
Less, accumulated depreciation and amortization 88,600,000 88,130,000
------------------ ------------------
69,643,000 71,201,000
------------------ ------------------
Prepaid pension cost 17,814,000 17,814,000
Deferred charges, net of amortization 29,781,000 30,534,000
Cost in excess of net assets acquired, net of
amortization 167,260,000 168,787,000
Intangible assets, net of amortization 10,219,000 10,366,000
------------------ ------------------
$ 436,458,000 $ 441,868,000
================== ==================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
Current Liabilities:
Accounts payable, trade $ 18,768,000 $ 17,687,000
Current portion of senior term loans 1,500,000 1,500,000
Interest payable 8,733,000 4,506,000
Other current liabilities 36,604,000 42,851,000
------------------ ------------------
Total current liabilities 65,605,000 66,544,000
------------------ ------------------
Postretirement benefit obligation other
than pensions 79,167,000 78,667,000
Other long-term liabilities 3,479,000 6,266,000
Deferred tax liability 2,296,000 --
Senior revolving loan 10,000,000 7,000,000
Senior term loan A 48,250,000 48,375,000
Senior term loan B 176,500,000 191,750,000
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 (70,725,000) (78,696,000)
Accumulated other comprehensive income 138,000 214,000
------------------ ------------------
Total stockholders' deficiency (133,839,000) (141,734,000)
------------------ ------------------
$ 436,458,000 $ 441,868,000
================== ==================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------
March 31, March 31,
2000 1999
----------------- ------------------
<S> <C> <C>
Sales $85,462,000 $ 88,831,000
Costs and expenses 59,643,000 62,308,000
Amortization 2,036,000 2,164,000
----------------- ------------------
Operating income 23,783,000 24,359,000
Interest and investment income 64,000 57,000
Interest expense (9,665,000) (10,335,000)
----------------- ------------------
Income before income taxes 14,182,000 14,081,000
Income tax provision (6,211,000) (1,311,000)
----------------- ------------------
Net income $ 7,971,000 $ 12,770,000
================= ==================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------
March 31, March 31,
2000 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,971,000 $ 12,770,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,872,000 4,595,000
Non-cash interest expense - amortization
of deferred financing charges 438,000 459,000
Deferred income taxes 3,407,000 999,000
Changes in assets and liabilities:
Accounts receivable, net 4,061,000 (10,768,000)
Inventory (4,066,000) (2,396,000)
Other current assets (110,000) (214,000)
Accounts payable, interest payable, and
other current liabilities (939,000) 9,655,000
Postretirement benefit obligation other
than pensions 500,000 --
Other long-term liabilities (2,787,000) 550,000
Deferred tax liability 2,296,000 --
---------------- ----------------
Net cash provided by operating
activities 14,643,000 15,650,000
---------------- ----------------
Cash flows from investing activities:
Capital expenditures (278,000) (3,401,000)
Deferred charges (47,000) (141,000)
---------------- ----------------
Net cash used in investing activities (325,000) (3,542,000)
---------------- ----------------
Cash flows from financing activities:
Payments of senior revolving loan (18,000,000) (13,000,000)
Payments of senior term loans (15,375,000) (27,375,000)
Borrowings under senior revolving loan 21,000,000 25,000,000
---------------- ----------------
Net cash used by financing activities (12,375,000) (15,375,000)
---------------- ----------------
Net increase (decrease) in cash and cash
equivalents 1,943,000 (3,267,000)
Cash and cash equivalents, beginning of
period 3,584,000 6,844,000
---------------- ----------------
Cash and cash equivalents, end of period $ 5,527,000 $ 3,577,000
================ ================
Supplemental cash flow information:
Interest paid during period $ 5,000,000 $ 5,108,000
================ ================
</TABLE>
See notes to consolidated financial statements.
4
<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 statement of
operations for the three months ended March 31, 2000 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, 1999 Annual Report on Form 10-K.
2. Receivables are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
Accounts receivable, principally
from commercial customers $42,147,000 $46,510,000
Accounts receivable, on U. S.
Government and other long-term
contracts 5,888,000 5,634,000
Allowances (255,000) (274,000)
--------------- ---------------
$47,780,000 $51,870,000
=============== ===============
</TABLE>
3. Inventory consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
Raw materials and work-in-process $41,579,000 $37,216,000
Finished goods 21,426,000 22,069,000
Inventoried costs related to U.S.
Government and other long-term
contracts 9,862,000 9,563,000
--------------- ---------------
$72,867,000 $68,848,000
=============== ===============
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
Accrued payroll costs $12,890,000 $18,733,000
Accrued taxes 4,427,000 3,429,000
Accrued costs on long-term contracts 2,140,000 2,875,000
Accrued warranty costs 10,437,000 9,626,000
Customer credits 2,777,000 3,312,000
Postretirement benefit obligation other
than pensions 3,000,000 3,000,000
Other 933,000 1,876,000
--------------- ---------------
$36,604,000 $42,851,000
=============== ===============
</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 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
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
March 31, March 31,
2000 1999
---------------- ----------------
<S> <C> <C>
Net income $ 7,971,000 $ 12,770,000
Other comprehensive income:
Cumulative translation adjustments (76,000) (60,000)
---------------- ----------------
Comprehensive income $ 7,895,000 $ 12,710,000
================ ================
</TABLE>
6
<PAGE> 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:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
March 31, March 31,
2000 1999
---------------- ----------------
<S> <C> <C>
Sales:
Aircraft Braking Systems $ 75,452,000 $ 77,852,000
Engineered Fabrics 10,010,000 10,979,000
---------------- ----------------
$ 85,462,000 $ 88,831,000
================ ================
Earnings Before Interest, Taxes,
Depreciation and Amortization:
Aircraft Braking Systems $ 26,224,000 $ 27,086,000
Engineered Fabrics 1,431,000 1,868,000
---------------- ----------------
$ 27,655,000 $ 28,954,000
================ ================
Operating Profits:
Aircraft Braking Systems $ 22,844,000 $ 23,002,000
Engineered Fabrics 939,000 1,357,000
---------------- ----------------
Operating income 23,783,000 24,359,000
Interest expense, net (9,601,000) (10,278,000)
---------------- ----------------
Income before income taxes $ 14,182,000 $ 14,081,000
================ ================
<CAPTION>
March 31, December 31,
2000 1999
---------------- ----------------
Total Assets:
Aircraft Braking Systems $346,398,000 $360,490,000
Engineered Fabrics 57,301,000 55,055,000
---------------- ----------------
$403,699,000 $415,545,000
================ ================
</TABLE>
7
<PAGE> 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, 2000
and March 31, 1999
Sales for the three months ended March 31, 2000 totaled $85,462,000 reflecting a
decrease of $3,369,000, compared with $88,831,000 for the same period in the
prior year. This decrease was due to lower commercial transport and general
aviation sales of $4,773,000 primarily for wheels and brakes on the DC-10,
MD-80, DC-9 and Fokker 100 programs. Military sales increased $1,404,000.
Operating income decreased by $576,000 to $23,783,000 or 27.8% of sales for the
three months ended March 31, 2000, compared with $24,359,000 or 27.4% of sales
for the same period in the prior year. Operating margins increased primarily due
to operating efficiencies, partially offset by higher investments in original
equipment for airframe manufacturers.
Interest expense, net decreased by $677,000 for the three months ended March 31,
2000 compared with the same period in the prior year. This decrease is due to a
lower average debt balance, partially offset by higher interest rates on the
Company's variable rate indebtedness.
The Company's effective tax rate of 43.8% for the three months ended March 31,
2000 differs from the statutory rate of 35% primarily due to the inclusion of
state and local income taxes. The effective tax rate of 9.3% for the three
months ended March 31, 1999 differs from the statutory rate of 35% due to a net
decrease in the valuation allowance partially offset by state and local income
taxes. The increase in the effective rate in 2000 over 1999 is primarily due to
a decrease in the valuation allowance in the prior year.
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, 2000, the Company had $33.5 million available to borrow
under its $50 million revolving credit facility.
Cash Flows
During the three months ended March 31, 2000, cash provided by operating
activities amounted to $14,643,000 and reflected $27,655,000 of earnings before
interest, taxes, depreciation and amortization ("EBITDA"), decreases in accounts
receivable of $4,061,000, increases in accounts payable of $1,081,000, partially
offset by increases in inventory of $4,066,000, decreases in other current
liabilities of $6,247,000, long-term liabilities of $2,287,000, increases in
other working capital of $554,000 and interest payments of $5,000,000. During
the three months ended March 31, 1999, cash provided by operating activities
amounted to $15,650,000 and reflected $28,954,000 of 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, inventory
of $2,396,000 and interest payments of $5,108,000.
During the three months ended March 31, 2000 and 1999, net cash used in
investing activities amounted to $325,000 and $3,542,000, respectively. These
expenditures were primarily for capital expenditures. The decrease in 2000
primarily relates to the timing of purchases.
8
<PAGE> 10
During the three months ended March 31, 2000 and 1999, net cash used by
financing activities amounted to $12,375,000 and $15,375,000, respectively, each
representing the repayment of indebtedness.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has $421.3 million of total debt outstanding at March 31, 2000. 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.
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 $125.5 million at March 31, 2000
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 $310.5 million of its indebtedness at March 31, 2000. Given
that approximately 74% 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.
9
<PAGE> 11
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,
2000.
10
<PAGE> 12
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: May 15, 2000
11