K & F Industries Holdings, Inc. Reports Record Results for 2006
2007 Guidance Increased
2006 revenue of $424 million 2006 net income of $54 million or $1.35 per diluted share 2006 bookings of $560 million Backlog grows 89% to $297 million
Fourth quarter sales of $124 million Fourth quarter net income of $18 million or $0.45 per share
WHITE PLAINS, N.Y., Feb. 15 -- K & F Industries Holdings, Inc. today reported its financial results for the fourth quarter and full year ended December 31, 2006.
"We closed 2006 with an outstanding fourth quarter and delivered a record year," stated Kenneth M. Schwartz, president and CEO of K & F Industries, "benefiting from a combination of very positive factors that included:
* strong demand for business jet replacement parts;
* our expanding role in the U.S. military's efforts to maintain and
upgrade its fleet of aging planes and helicopters;
* ramp up in deliveries of high cycle 70-110 passenger regional jets; and
* increased aftermarket orders on several of our more mature commercial
platforms
The operating leverage present in our business, in combination with continued savings from our productivity initiatives translated into record net income. In addition, we reduced our total debt by $60 million during the year, primarily through free cash flow, resulting in a stronger financial position and increased shareholder value."
Mr. Schwartz continued, "K & F has a long-term, sustainable business model and a large order backlog that positions us well for the future. We remain more optimistic than ever about our prospects for continued healthy organic revenue and earnings growth in 2007 and beyond."
Results for three months ended December 31, 2006 compared with three months ended December 31, 2005
* Sales rose by 17% to a record $124 million:
-- Aircraft Braking Systems (ABSC) sales increased $13 million, or 15%
to $101 million
-- Engineered Fabrics (EFC) sales rose $5 million, or 31% to $23
million.
* Adjusted EBITDA increased 23% to $50 million or 41% of revenue,
compared to $41 million or 39% of revenue a year ago.
* Net interest expense was $15 million compared to $13 million a year
ago.
* Income applicable to common stockholders rose 21% to a record $18
million or $0.45 per diluted share, compared to $15 million or $0.37
per diluted share in the prior year.
* Bookings increased 33% to $144 million and backlog surged 89% to a
record $297 million.
* Fourth quarter consolidated revenue performance by sector was as
follows:
-- Commercial transport sales increased 27% to $61 million
-- General aviation sales were up 32% to $25 million
-- Military sales were level with the prior year at $38 million.
* Cash and cash equivalents was $16 million and debt was reduced by $30
million.
See the attached tables for a reconciliation of net income to non-GAAP EBITDA and Adjusted EBITDA for the 2006 and 2005 periods.
Recent Highlights
* ABSC was chosen by Adam Aircraft to be the sole source supplier of
wheels and brakes for its new very light jet (VLJ), the A700
AdamJet(TM). Adam Aircraft selected ABSC's wheels and steel brakes to
assure the A700's superior takeoff and landing performance, which was
demonstrated during numerous flights of an A700 test model throughout
2006. The FAA certification timetable should allow for initial
deliveries in late 2007.
* ABSC has been steadily increasing production at its NuCarb(R) facility,
which commenced operations in the third quarter of 2006. The Danville,
Kentucky plant is currently producing K & F's next generation carbon
friction material at a rate of approximately 60,000 pounds per year,
which is expected to ramp up to nearly 120,000 pounds per year by the
end of 2007. This expansion will continue until 2009 as demand for
carbon from early-lifecycle programs such as the Embraer 170 and 190
regional jets, as well as the Dassault Falcon 7X business jet, is
expected to increase steadily. NuCarb facility capital investments
totaled nearly $16 million in 2006.
* K & F's productivity initiatives have reduced costs by approximately $9
million since the program began in 2005. Plans for 2007 include the
procurement of direct materials from Asian producers and the
outsourcing of certain manufacturing activities to a facility in
central Mexico. The productivity initiatives undertaken since the
program began in 2005 are expected to result in a realized operating
cost reduction of approximately $16 million in 2007.
Results for year ended December 31, 2006 compared with year ended December 31, 2005
* Sales increased 10% to a record $424 million:
-- ABSC sales increased $30 million, or 9% to $350 million
-- EFC sales rose $10 million, or 15% to $74 million.
* Adjusted EBITDA increased 15% to $169 million or 40% of revenue versus
$147 million or 38% of revenue in the prior year.
* Net interest expense was $57 million compared to $68 million a year
ago.
* Income applicable to common stockholders was a record $54 million or
$1.35 per diluted share compared with $15 million or $0.56 per diluted
share in the prior year.
* Bookings increased 44% to a record $560 million.
* Full-year 2006 consolidated revenue performance by sector was as
follows:
-- General aviation sales increased 21% to $88 million
-- Military sales were up 10% to $123 million
-- Commercial transport sales grew 7% to $213 million.
See the attached tables for a reconciliation of net income to non-GAAP EBITDA and Adjusted EBITDA for 2006 and 2005.
Outlook
Based on current industry conditions and the company's strong backlog of orders for delivery of equipment over the next several quarters, K & F has raised its previously articulated expectations for its 2007 performance as follows:
* Revenues are expected to increase in the range of 7% to 8% to between
$455 million and $459 million.
* Adjusted EBITDA is expected to increase by 11% to 13% to between $188
million to $191 million.
* Diluted earnings per share is expected to reach between $1.53 and
$1.57, implying growth of 13% to 16%.
* Free cash flow(1) is expected to be approximately $40 million.
(1) Represents cash flows from operations less capital expenditures.
Conference Call
K & F Industries Holdings, Inc. will conduct its quarterly conference call, hosted by president and CEO, Kenneth M. Schwartz, beginning at 10:00 a.m. ET today. To participate, please dial (719) 457-2730 approximately 15 minutes prior to the scheduled start of the call. A replay will be available beginning approximately two hours after the call ends through 11:59 p.m. on February 21, 2007 by dialing (719) 457-0820, access code: 1410091.
A live audio webcast of the conference call will be accessible through a link at K & F Industries' website at http://www.kandfindustries.com/. Please visit the site fifteen minutes prior to the call to download and install any necessary audio software.
K & F Industries Holdings, Inc., is a worldwide leader in the manufacture of wheels, brakes and brake control systems for commercial transport, general aviation and military aircraft and is a major producer of aircraft fuel tanks, de-icing equipment and specialty coated fabrics used for storage, shipping, environmental and rescue applications for commercial and military use.
Forward Looking Statements
Some statements and information contained herein are not historical facts, but are "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. In addition, the Company or its representatives have made and may continue to make forward-looking statements, orally, in writing or in other contexts, such as in reports filed with the SEC or in press releases. These forward-looking statements may be identified by the use of forward-looking terminology, such as "believes," "expects," "may," "should" or the like, the negative of these words or other variations of these words or comparable words, or discussion of strategy that involves risk and uncertainties. We caution you that these forward-looking statements are only predictions, and actual events or results may differ materially as a result of a wide variety of factors and conditions, many of which are beyond our control. Some of these factors and conditions include: (i) government or regulatory changes, (ii) dependence on our subsidiary, Aircraft Braking Systems Corporation, for operating income, (iii) competition in the market for our products, and (iv) our substantial indebtedness. For more information see the section entitled "Risk Factors" contained in our Form 10-K and information in our other periodic reports filed with the SEC. We undertake no obligation to revise these statements following the date of this press release.
K & F INDUSTRIES HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
Net Sales $124,007 $105,648 $424,134 $384,630
Cost of Sales(1) 65,242 55,596 228,244(2) 215,710(2)
Gross Profit 58,765 50,052 195,890 168,920
Independent Research and
Development Costs 4,305 4,484 16,067 15,974
Selling, General and
Administrative Expenses(3) 10,556 9,861 36,340 37,621
Amortization of Intangible
Assets 1,450 1,710 5,615 10,753
Operating Income 42,454 33,997 137,868 104,572
Interest Income 657 297 3,148 951
Interest Expense(4) (15,735) (12,930) (60,388) (69,058)
Income Before Income Taxes 27,376 21,364 80,628 36,465
Income Tax Provision (9,330) (6,483) (26,290) (12,847)
Net Income 18,046 14,881 54,338 23,618
Preferred Stock Dividends -- -- -- (8,931)
Income Applicable to Common
Stockholders $18,046 $14,881 $54,338 $14,687
Basic Earnings Per Common
Share $.46 $.38 $1.37 $.58
Basic Weighted Average
Common Shares 39,640 39,586 39,629 25,439
Diluted Earnings Per
Common Share $.45 $.37 $1.35 $.56
Diluted Weighted Average
Common Shares 40,323 40,343 40,231 26,215
(1) Included in cost of sales is amortization of Program Participation
Costs and Intangible Assets related to manufacturing operations of
$3,033 and $2,069 for the three months ended December 31, 2006 and
2005, respectively, and $11,026 and $3,955 for the years ended
December 31, 2006 and 2005, respectively.
(2) Included in cost of sales for the years ended December 31, 2006 and
2005 are inventory purchase accounting charges of $1,174 and $12,084,
respectively.
(3) Included in selling, general and administrative expenses in the year
ended December 31, 2006 is a $764 credit related to a favorable
settlement for us as a plaintiff in a class action lawsuit. Included
in selling, general and administrative expenses in the twelve months
ended December 31, 2005 is a charge of $5,000 related to the
termination of the management services agreement with Aurora
Management Partners LLC.
(4) During the years ended December 31, 2006 and 2005, the Company
charged to interest expense $1.5 million and $4.6 million related to
the write-off of unamortized debt issuance costs related to
prepayments of indebtedness.
K & F INDUSTRIES HOLDINGS, INC.
SELECTED FINANCIAL DATA
(In thousands)
Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
Capital Expenditures $4,072 $6,512 $21,181 $12,826
Bookings 143,741 108,192 560,005 389,159
Backlog 297,387 157,764
Cash and Cash Equivalents 16,355 34,816
Accounts Receivable 59,014 47,586
Inventory 71,436 53,979
Accounts Payable 25,584 18,223
Capital Lease Obligations 10,997 --
Senior Term Loans 392,000 451,000
7 3/4% Senior Subordinated Notes 315,000 315,000
9 5/8% Senior Subordinated Notes -- 577
Stockholders' Equity 396,588 344,441
K & F INDUSTRIES HOLDINGS, INC.
RECONCILIATION OF NET INCOME TO NON-GAAP EARNINGS BEFORE
INTEREST EXPENSE, INCOME TAXES, DEPRECIATION AND AMORTIZATION, INVENTORY
PURCHASE ACCOUNTING CHARGES, STOCK-BASED COMPENSATION, AND NON-RECURRING
CHARGES
(ADJUSTED EBITDA)
(In thousands)
Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
Adjusted EBITDA $50,467 $41,055 $169,218 $147,253
Less Adjustments:
Non-recurring Management
Services Agreement
Termination Fee -- -- -- 5,000
Stock-Based Compensation 85 -- 940 65
Inventory Purchase
Accounting Charges -- -- 1,174 12,084
EBITDA 50,382 41,055 167,104 130,104
Less:
Depreciation and Amortization 7,928 7,058 29,236 25,532
Operating Income 42,454 33,997 137,868 104,572
Less:
Interest Expense, net 15,078 12,633 57,240 68,107
Income Tax Provision 9,330 6,483 26,290 12,847
Net Income $18,046 $14,881 $54,338 $23,618
EBITDA represents net income before interest expense, net, income taxes
and depreciation and amortization. Adjusted EBITDA is EBITDA as further
adjusted to exclude inventory purchase accounting charges, stock-based
compensation and a non-recurring management services agreement
termination fee. These definitions of EBITDA and Adjusted EBITDA may not
be comparable to similarly titled measures of other companies. Neither
of these calculations is a measure of financial performance under
accounting principles generally accepted in the United States of America.
We believe they provide a basis to measure our operating performance,
apart from the expenses associated with our physical plant or capital
structure, but neither should be considered in isolation or as a
substitute for operating income, cash flows from operating activities or
other measures of performance. A reconciliation of EBITDA and Adjusted
EBITDA is presented above.
FCMN Contact: fbuonocore@kandfindustries.com