<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.
August 14, 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 June 30, 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 August 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>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 3,672,000 $ 3,584,000
Accounts receivable, net 44,520,000 51,870,000
Inventory 72,293,000 68,848,000
Other current assets 770,000 801,000
Deferred income taxes 23,078,000 18,063,000
------------- -------------
Total current assets 144,333,000 143,166,000
------------- -------------
Property, plant and equipment 161,102,000 159,331,000
Less, accumulated depreciation and amortization 88,641,000 88,130,000
------------- -------------
72,461,000 71,201,000
------------- -------------
Prepaid pension cost 17,814,000 17,814,000
Deferred charges, net of amortization 29,969,000 30,534,000
Cost in excess of net assets acquired, net of
amortization 165,733,000 168,787,000
Intangible assets, net of amortization 10,072,000 10,366,000
------------- -------------
$ 440,382,000 $ 441,868,000
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
Current Liabilities:
Accounts payable, trade $ 21,595,000 $ 17,687,000
Current portion of senior term loans 1,500,000 1,500,000
Interest payable 5,187,000 4,506,000
Other current liabilities 39,984,000 42,851,000
------------- -------------
Total current liabilities 68,266,000 66,544,000
------------- -------------
Postretirement benefit obligation other
than pensions 79,167,000 78,667,000
Other long-term liabilities 3,513,000 6,266,000
Deferred income taxes 18,527,000 --
Senior revolving loan 22,000,000 7,000,000
Senior term loan A 48,125,000 48,375,000
Senior term loan B 136,250,000 191,750,000
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 (57,172,000) (78,696,000)
Accumulated other comprehensive income (42,000) 214,000
------------- -------------
Total stockholders' deficiency (120,466,000) (141,734,000)
------------- -------------
$ 440,382,000 $ 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>
Six Months Ended
----------------
June 30, June 30,
2000 1999
---- ----
<S> <C> <C>
Sales $ 184,203,000 $ 173,031,000
Costs and expenses 124,877,000 120,720,000
Amortization 4,084,000 4,338,000
------------- -------------
Operating income 55,242,000 47,973,000
Interest and investment income 150,000 111,000
Interest expense (19,152,000) (20,634,000)
------------- -------------
Income before income taxes 36,240,000 27,450,000
Income tax (provision) benefit (14,716,000) 7,857,000
------------- -------------
Net income $ 21,524,000 $ 35,307,000
============= =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
June 30, June 30,
2000 1999
---------- -----------
<S> <C> <C>
Sales $ 98,741,000 $ 84,200,000
Costs and expenses 65,234,000 58,412,000
Amortization 2,048,000 2,174,000
------------ ------------
Operating income 31,459,000 23,614,000
Interest and investment income 86,000 54,000
Interest expense (9,487,000) (10,299,000)
------------ ------------
Income before income taxes 22,058,000 13,369,000
Income tax (provision) benefit (8,505,000) 9,168,000
------------ ------------
Net income $ 13,553,000 $ 22,537,000
============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
June 30, June 30,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,524,000 $ 35,307,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 7,900,000 8,706,000
Non-cash interest expense - amortization
of deferred financing charges 876,000 918,000
Deferred income taxes 13,512,000 (8,671,000)
Changes in assets and liabilities:
Accounts receivable, net 7,251,000 (16,937,000)
Inventory (3,602,000) (5,515,000)
Other current assets 31,000 (194,000)
Accounts payable, interest payable, and
other current liabilities 1,722,000 5,874,000
Postretirement benefit obligation other
than pensions 500,000 200,000
Other long-term liabilities (2,753,000) 91,000
------------ ------------
Net cash provided by operating
activities 46,961,000 19,779,000
------------ ------------
Cash flows from investing activities:
Capital expenditures (5,076,000) (4,613,000)
Deferred charges (1,047,000) (141,000)
------------ ------------
Net cash used in investing activities (6,123,000) (4,754,000)
------------ ------------
Cash flows from financing activities:
Payments of senior revolving loan (52,000,000) (35,000,000)
Payments of senior term loans (55,750,000) (27,750,000)
Borrowings under senior revolving loan 67,000,000 44,000,000
------------ ------------
Net cash used by financing activities (40,750,000) (18,750,000)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 88,000 (3,725,000)
Cash and cash equivalents, beginning of
period 3,584,000 6,844,000
------------ ------------
Cash and cash equivalents, end of period $ 3,672,000 $ 3,119,000
============ ============
Supplemental cash flow information:
Interest paid during period $ 17,595,000 $ 19,729,000
============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 7
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 June 30, 2000 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 December 31, 1999 Annual Report on Form 10-K.
2. Receivables are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Accounts receivable, principally
from commercial customers $ 40,396,000 $ 46,510,000
Accounts receivable, on U.S.
Government and other
long-term contracts 4,366,000 5,634,000
Allowances (242,000) (274,000)
------------ ------------
$ 44,520,000 $ 51,870,000
============ ============
</TABLE>
3. Inventory consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Raw materials and work-in-process $39,857,000 $37,216,000
Finished goods 20,561,000 22,069,000
Inventoried costs related to U.S.
Government and other long-term
contracts 11,875,000 9,563,000
----------- -----------
$72,293,000 $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.
6
<PAGE> 8
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>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Accrued payroll costs $14,985,000 $18,733,000
Accrued taxes 3,920,000 3,429,000
Accrued costs on long-term contracts 2,790,000 2,875,000
Accrued warranty costs 11,487,000 9,626,000
Customer credits 1,735,000 3,312,000
Postretirement benefit obligation other
than pensions 3,000,000 3,000,000
Other 2,067,000 1,876,000
----------- -----------
$39,984,000 $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
------------------------------
June 30, June 30,
2000 1999
---- ----
<S> <C> <C>
Net income $ 13,553,000 $ 22,537,000
Other comprehensive income:
Cumulative translation adjustments (180,000) (145,000)
------------ ------------
Comprehensive income $ 13,373,000 $ 22,392,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
June 30, June 30,
2000 1999
-------- ----------
<S> <C> <C>
Net income $ 21,524,000 $ 35,307,000
Other comprehensive income:
Cumulative translation adjustments (256,000) (205,000)
------------ ------------
Comprehensive income $ 21,268,000 $ 35,102,000
============ ============
</TABLE>
7
<PAGE> 9
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
------------------------------
June 30, June 30,
2000 1999
--------- ----------
<S> <C> <C>
Sales:
Aircraft Braking Systems $ 86,009,000 $ 73,498,000
Engineered Fabrics 12,732,000 10,702,000
---------- ----------
$ 98,741,000 $ 84,200,000
============ ============
Earnings Before Interest, Taxes,
Depreciation and Amortization:
Aircraft Braking Systems $ 32,827,000 $ 26,022,000
Engineered Fabrics 2,660,000 1,703,000
---------- ----------
$ 35,487,000 $ 27,725,000
============ ============
Operating Profits:
Aircraft Braking Systems $ 29,290,000 $ 22,405,000
Engineered Fabrics 2,169,000 1,209,000
---------- ----------
Operating income 31,459,000 23,614,000
Interest expense, net (9,401,000) (10,245,000)
---------- ----------
Income before income taxes $ 22,058,000 $ 13,369,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
June 30, June 30,
2000 1999
--------- ---------
<S> <C> <C>
Sales:
Aircraft Braking Systems $ 161,461,000 $ 151,350,000
Engineered Fabrics 22,742,000 21,681,000
------------- -------------
$ 184,203,000 $ 173,031,000
============= =============
Earnings Before Interest, Taxes,
Depreciation and Amortization:
Aircraft Braking Systems $ 59,051,000 $ 53,108,000
Engineered Fabrics 4,091,000 3,571,000
------------- -------------
$ 63,142,000 $ 56,679,000
============= =============
Operating Profits:
Aircraft Braking Systems $ 52,134,000 $ 45,407,000
Engineered Fabrics 3,108,000 2,566,000
------------- -------------
Operating income 55,242,000 47,973,000
Interest expense, net (19,002,000) (20,523,000)
------------- -------------
Income before income taxes $ 36,240,000 $ 27,450,000
============= =============
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- --------------
<S> <C> <C>
Total Assets:
Aircraft Braking Systems $341,482,000 $360,490,000
Engineered Fabrics 58,422,000 55,055,000
------------ ------------
$399,904,000 $415,545,000
============ ============
</TABLE>
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Comparison of Results of Operations for the Six Months Ended June 30, 2000 and
June 30, 1999
Sales for the six months ended June 30, 2000 totaled $184,203,000, reflecting an
increase of $11,172,000 compared with $173,031,000 for the same period in the
prior year. This increase was due to higher commercial transport and general
aviation sales of $8,037,000 primarily for wheels and brakes on the MD-90,
A-321, Canadair Regional Jet and Gulfstream programs, partially offset by lower
sales on the MD-80, DC-10, DC-9 and Fokker 100 programs. Military sales
increased $3,135,000 primarily due to higher shipments of aircraft fuel tanks on
the F/A-18 program and wheels and brakes on various programs.
Operating income increased by $7,269,000 to $55,242,000, or 30.0% of sales for
the six months ended June 30, 2000, compared with $47,973,000, or 27.7% of sales
for the same period in the prior year. Operating margins increased primarily due
to a favorable sales mix, the overhead absorption effect relating to the higher
sales and operating efficiencies. Partially offsetting this increase was higher
investments in original equipment for airframe manufacturers.
Interest expense, net decreased by $1,521,000 for the six months ended June 30,
2000 compared with the same period in the prior year. This decrease was 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 40.6% for the six months ended June 30, 2000
differs from the statutory rate of 35% primarily due to state and local income
taxes. The effective tax rate of (28.6)% for the six months ended June 30, 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 net decrease in the
valuation allowance in the prior year.
Comparison of Results of Operations for the Three Months Ended June 30, 2000 and
June 30, 1999
Sales for the three months ended June 30, 2000 totaled $98,741,000, reflecting
an increase of $14,541,000 compared with $84,200,000 for the same period in the
prior year. This increase was due to higher commercial transport and general
aviation sales of $12,811,000 primarily for wheels and brakes on the MD-90,
MD-11, Canadair Regional Jet and Gulfstream programs. Military sales increased
$1,730,000 primarily due to higher shipments of aircraft fuel tanks on the
F/A-18 program.
Operating income increased by $7,845,000 to $31,459,000, or 31.9% of sales for
the three months ended June 30, 2000, compared with $23,614,000, or 28.0% of
sales for the same period in the prior year. Operating margins increased
primarily due to a favorable sales mix, the overhead absorption effect relating
to higher sales and operating efficiencies. Partially offsetting this increase
was higher investments in original equipment for airframe manufacturers.
Interest expense, net decreased by $844,000 for the three months ended June 30,
2000 compared with the same period in the prior year. This decrease was due to a
lower average debt balance, partially offset by higher interest rates on the
Company's variable rate indebtedness.
9
<PAGE> 11
The Company's effective tax rate of 38.6% for the three months ended June 30,
2000 differs from the statutory rate of 35% primarily due to state and local
income taxes partially offset by a net decrease in the valuation allowance. The
effective tax rate of (68.6)% for the three months ended June 30, 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 larger 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 June 30, 2000, the Company had $21.5 million available to borrow
under its $50 million revolving credit facility.
Cash Flows
During the six months ended June 30, 2000, cash provided by operating activities
amounted to $46,961,000 and reflected $63,142,000 of earnings before interest,
taxes, depreciation and amortization ("EBITDA"), decreases in accounts
receivable of $7,251,000, increases in accounts payable of $3,908,000, partially
offset by increases in inventory of $3,602,000, decreases in other current
liabilities of $2,867,000, long-term liabilities of $2,253,000, increases in
other working capital of $1,023,000 and interest payments of $17,595,000. During
the six months ended June 30, 1999, cash provided by operating activities
amounted to $19,779,000 and reflected $56,679,000 of EBITDA, increases in
accounts payable of $5,778,000, increases in long-term liabilities of $291,000,
partially offset by increases in accounts receivable of $16,937,000, increases
in other working capital of $788,000, inventory of $5,515,000 and interest
payments of $19,729,000.
During the six months ended June 30, 2000 and 1999, net cash used in investing
activities amounted to $6,123,000 and $4,754,000, respectively. These
expenditures were primarily for capital expenditures.
During the six months ended June 30, 2000 and 1999, net cash used by financing
activities amounted to $40,750,000 and $18,750,000, respectively, each
representing the repayment of indebtedness.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has $392.9 million of total debt outstanding at June 30, 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 $122 million at June 30, 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 $307 million of its indebtedness at June 30, 2000. Given that
approximately 78% 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
<PAGE> 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 June 30,
2000.
11
<PAGE> 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 hereunto duly authorized.
K & F INDUSTRIES, INC.
----------------------
Registrant
/s/DIRKSON R. CHARLES
----------------------
Dirkson R. Charles
Chief Financial Officer
and
Registrant's Authorized
Officer
Dated: August 14, 2000
12
