<PAGE> 1
F O R M 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ..................... to .......................
Commission File Number 0-2901
KRUG INTERNATIONAL CORP.
------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-0621189
- - - - ----------------------------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6 North Main Street Suite 500 Dayton, Ohio 45402-1900
- - - - ---------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(513) 224-9066
- - - - -----------------------------------------------
(Registrant's telephone number including area code)
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
------ ------
The number of Common Shares, without par value, outstanding as of
February 6, 1995 was 4,999,395.
<PAGE> 2
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(all dollar amounts in thousands)
<CAPTION>
December 31, March 31,
1994 1994
ASSETS ------------ -----------
<S> <C> <C>
Current Assets:
Cash $ 810 $ 1,186
Receivables 16,467 16,829
Inventories (Note C) 8,697 8,883
Prepaid expenses 774 586
----------- -----------
Total Current Assets 26,748 27,484
----------- -----------
Property, Plant and Equipment 15,996 16,722
Less accumulated depreciation 5,981 6,608
----------- -----------
10,015 10,114
Pension Asset 2,124 2,042
Deferred Tax Assets 2,350 3,178
Other Assets 361 407
----------- -----------
Total Assets $ 41,598 $ 43,225
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank borrowings $ 1,000 $ 1,276
Accounts payable 7,641 6,540
Accrued expenses 5,168 5,650
Income taxes 1,268
Net current liabilities of discontinued
operations (Note F) 700 750
Current maturities of long-term debt 9,160 2,835
----------- -----------
Total Current Liabilities 23,669 18,319
Long-Term Debt 3,945 12,932
Net Non-Current Liabilities of Discontinued
Operations (Note F) 762 1,267
----------- -----------
Total Liabilities 28,376 32,518
----------- -----------
Excess of Net Assets of Acquired Business
Over Purchase Price 24 91
Shareholders' Equity (Note B):
Common Shares, no par value:
issued and outstanding 4,999,395 2,500 2,500
Additional paid in capital 4,065 4,065
Retained earnings 6,448 4,690
Foreign currency translation adjustment 185 (639)
----------- -----------
Total Shareholders' Equity 13,198 10,616
----------- -----------
Total Liabilities and Shareholders' Equity $ 41,598 $ 43,225
=========== ===========
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 3
<TABLE>
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(all dollar amounts in thousands, except per share amounts)
<CAPTION>
THREE MONTHS ENDED
December 31,
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
Revenues $ 22,698 $ 21,669
Costs and Expenses:
Costs, including product
development 19,685 19,233
Selling and administrative 2,100 1,706
Interest expense 318 283
Other (income) expense (Note D) (42) (251)
----------- -----------
22,061 20,971
----------- -----------
Earnings Before Income Taxes 637 698
Income Taxes (Note E) 232 177
----------- -----------
Net Earnings $ 405 $ 521
=========== ===========
Net Earnings Per Share $ 0.08 $ 0.10
=========== ===========
Average Common and Common Equivalent
Shares Outstanding 5,058,017 5,092,916
=========== ===========
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 4
<TABLE>
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(all dollar amounts in thousands, except per share amounts)
<CAPTION>
NINE MONTHS ENDED
December 31,
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
Revenues $ 67,739 $ 67,651
Costs and Expenses:
Costs, including product
development 57,967 58,697
Selling and administrative 6,498 6,030
Interest 940 894
Other (income) expense (Note D) (351) (913)
----------- -----------
65,054 64,708
----------- -----------
Earnings Before Income Taxes 2,685 2,943
Income Taxes (Note E) 925 874
----------- -----------
Earnings from Continuing Operations 1,760 2,069
Loss from Discontinued Operations (net
of $748 tax benefit) (Note F) (1,452)
----------- -----------
Net Earnings $ 1,760 $ 617
=========== ===========
Earnings Per Share:
Earnings from Continuing Operations $ 0.35 $ 0.41
(Loss) from Discontinued Operations (0.29)
----------- -----------
Net Earnings $ 0.35 $ 0.12
=========== ===========
Average Common and Common Equivalent
Shares Outstanding 5,044,494 5,085,729
=========== ===========
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 5
<TABLE>
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all dollar amounts in thousands)
increase (decrease) in cash
<CAPTION>
NINE MONTHS ENDED
December 31,
-------------------------
1994 1993
----------- -----------
<S> <C>
Net Cash Provided by
Operating Activities $ 2,727 $ 1,546
----------- -----------
Cash Flows From Investing Activities:
Expenditures for property, plant
and equipment (270) (429)
Proceeds from sale of assets 447 620
----------- -----------
Net Cash Provided by
Investing Activities 177 191
----------- -----------
Cash Flows From Financing Activities:
Bank borrowings-net (287) (400)
Payments on long-term debt (2,997) (853)
----------- -----------
Net Cash (Used In) Financing Activities (3,284) (1,253)
----------- -----------
Effect of Exchange Rate Changes on Cash 4 (49)
----------- -----------
Net Increase (Decrease) In Cash (376) 435
Cash at Beginning of Period 1,186 2,603
----------- -----------
Cash at End of Period $ 810 $ 3,038
=========== ===========
Cash Paid For:
Income taxes $ 1,320 $ 2,134
=========== ===========
Interest $ 1,001 $ 903
=========== ===========
Non-Cash Investing and Financing Activities-
Capital leases $ 90 $ 443
=========== ===========
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 6
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED DECEMBER 31, 1994
(all dollar amounts in thousands)
Note A -- Basis of Presentation
The balance sheet at March 31, 1994 is condensed from audited
financial statements. The financial statements for the quarter and nine
months ended December 31, 1994 are unaudited and have been prepared in
accordance with Rule 10-01 of Regulation S-X of the Securities and
Exchange Commission and, as such, do not include all information
required by generally accepted accounting principles. However, in the
opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary to present fairly the financial position
and results of operations, have been made.
Note B -- Shareholders' Equity
The Corporation declared a 10% stock dividend payable December
23, 1994 to shareholders of record on November 28, 1994. This
transaction has been reflected in the financial statements retroactively
for all periods presented and all share and per share data has been
restated. As a result, Common Shares increased by 454,066 shares and
$227, additional paid-in capital increased by $1,873 and retained
earnings decreased by $2,102 (including $2 for cash to be paid in lieu
of fractional shares).
<TABLE>
Note C -- Inventories
<CAPTION>
December 31, March 31,
1994 1994
----------- -----------
<S> <C> <C>
Finished goods $ 6,207 $ 6,599
Work-in-process 950 886
Raw materials and supplies 1,540 1,398
----------- -----------
$ 8,697 $ 8,883
=========== ===========
</TABLE>
Note D -- Other Income
Other income for the nine months ended December 31, 1994
includes a $0.3 million gain from the sale of land and miscellaneous
equipment. Other income for the quarter ended December 31, 1993 includes
$0.12 million of foreign currency translation gain and $0.1 million
received from the U.K. taxing authority related to an intercompany
dividend. The other income for the nine months ended December 31, 1993
includes the above mentioned items and a $0.6 million gain on the sale
by the Leisure Marine Segment of an unused building in the U.K.
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note E -- Income Taxes
The provisions for income taxes are composed of the following:
<TABLE>
<CAPTION>
Quarter Ended December 31, 1994 1993
---------------------- ----------- -----------
<S> <C> <C>
Domestic $ 134 $ 33
Foreign 98 144
----------- -----------
$ 232 $ 177
=========== ===========
Nine Months Ended December 31, 1994 1993
---------------------- ----------- -----------
Domestic $ 269 $ (135)
Foreign 656 1,009
----------- -----------
$ 925 $ 874
=========== ===========
</TABLE>
Note F -- Discontinued Operations
In prior years, the Corporation discontinued the operations
and disposed of substantially all of the net assets of its Industrial
Segment. Product liability claims related to products sold prior to the
sale of the domestic Industrial Segment are the responsibility of
KRUG Properties Inc. (formerly Dempster Systems Inc.) and not the
responsibility of the Corporation. The Corporation is directly or
contingently liable for lease and other minimum commitments related to
property formerly used by its discontinued operations.
In October 1993, the Corporation's major tenant of the leased
facility in Knoxville filed for bankruptcy. The potential loss of future
rental income from this property caused the Corporation to determine
that an additional provision for loss related to discontinued operations
was required. Accordingly, an after tax charge of $1,452 (net of a tax
benefit of $748) was recorded in the quarter ended September 30, 1993.
The Corporation does not anticipate any further additions to this
reserve.
Note G -- Contingencies
In May 1991, the United States Customs Department commenced an
investigation of a subcontract between the Corporation's Technology
System Division and Tripod-Laing Joint Venture of the United Kingdom.
The contract relates to aeromedical equipment which was ultimately to be
shipped to Iraq. Performance under the contract was suspended when
relationships between the United States and Iraq changed. No
equipment was delivered to Iraq under the contract. The criminal
investigation appeared to be dormant from 1991 until several months ago
when a Customs Agent interviewed certain present and former employees of
the Corporation. As in 1991, the Corporation is cooperating in the
investigation.
<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Continuing Operations
- - - - --------------------------------
Revenues of $22.7 million for the quarter ended December 31, 1994 were
$1.0 million higher than the comparable quarter of fiscal 1994. Approximately
$0.7 million of this increase was due to the favorable effect of currency
translation. The U.K. Leisure Marine Segment revenue increased by $0.7 million
in sales volume and $0.3 million due to the favorable effect of currency
translation from the same period in fiscal 1994. The U.K. Housewares revenue
in the third quarter of fiscal 1995 increased by $0.2 million in sales volume
and $0.4 million due to the favorable effect of currency translation from the
comparable quarter in fiscal 1994. The U.K. economy is showing signs of
gradual improvement, however, market conditions have remained very competitive
thoughout. Revenues of the U.S. Life Sciences and Engineering Segment for the
quarter ended December 31, 1994 decreased $0.6 million from the comparable
quarter of fiscal 1994. The decrease is attributable to decreased material
purchases and support services provided under technical service contracts with
the U.S. Air Force.
Revenues for the first nine months of fiscal 1995 increased by $0.1
million fom the first nine months of fiscal 1994. The Leisure Marine Segment
revenue increased by $1.0 million as compared to the first nine months of last
year. All of this increase was recorded in the third quarter due to greater
demand for all product groups. The Housewares Segment revenue for the first
nine months of fiscal 1995 increased by $0.9 million as compared to the prior
year. The favorable effect of currency translation on the revenues of the U.K.
businesses was $0.8 million in the first nine months of fiscal 1995 as compared
to the prior year. The Life Sciences and Engineering Segment revenue decreased
by $1.6 million in the first nine months of fiscal 1995 as compared to fiscal
1994. This decrease is primarily due to decreased material purchases and
support services provided under technical service contracts with the U.S. Air
Force and the loss of revenues from the network systems integration business
which was sold in March 1994.
Life Sciences and Engineering order backlog at December 31, 1994 was
$116.6 million compared to $129.8 million at March 31, 1994 and $138.0
million at December 31, 1993. During the second quarter of fiscal 1995, the
Corporation's Technology/Scientific Services, Inc. (TSSI) subsidiary was
awarded a contract for support and maintenance services at Wright-Patterson Air
Force Base. The contract consists of a one-year base period with four
additional one-year options. The contract value for the first year is
estimated at $3.4 million and at $17 million if the option years are exercised.
The contract is a follow-on to one previously held by TSSI.
<PAGE> 9
The Corporation's KRUG Life Sciences Inc. subsidiary is currently
working on a $136 mullion five year contract at the National Aeronautics and
Space Administration (NASA) Johnson Space Center. This contract ends on
February 28, 1996 and represents approximately one-third of the Corporation's
revenues and a corresponding percentage of its net earnings. The Corporation
has held contracts for this type of work or similar work at the Johnson Space
Center continuously since 1967. The Corporation intends to aggressively seek
the follow-on contract to our existing contract at the Johnson Space Center.
The gross profit margin of 13.3% for the quarter ended December 31,
1994 increased from 11.2% for the quarter ended December 31, 1993. The
increase is primarily due to the favorable resolution of certain Life Science
and Engineering Segment contract issues in the amount of $0.4 million reserved
for in prior years. For the nine months, the gross profit margin increased to
14.4% from 13.2% in the prior year. The margins of the Housewares Segment have
decreased during the current year as compared to last year due to competitive
market conditions which have reduced overall margins in the entire industry.
The Leisure Marine Segment gross profit margin increased during the third
quarter as compared to the prior year due to favorable product mix. The 11.2%
gross profit margin for the nine months last year was lower than normal due to
$0.3 million of provisions for losses for contract closeouts that were taken in
the first quarter by the Life Sciences and Engineering Segment.
Selling and administrative expenses for the third quarter and nine
months year-to-date of fiscal 1995 increased over the prior comparable period
by $0.4 million and $0.5 million, respectively. The increases are due to
increased bid and proposal expenses by the Life Sciences and Engineering
Segment and increased selling expenses in the Leisure Marine Segment.
Interest expense for the third quarter and first nine months of fiscal
1995 has increased slightly over the prior comparable periods due to increased
interest rates in both the U.S. and U.K.
No significant other income items were reported for the quarter ended
December 31, 1994. Other income for the quarter ended December 31, 1993
includes $0.12 million of foreign currency translation gain and $0.1 million
received from the U.K. taxing authority related to an intercompany dividend.
Other income of $0.4 million for the nine months ended December 31, 1994
resulted primarily from the sale of land and miscellaneous equipment in the
U.S. The other income for the nine months ended December 31, 1993 includes the
two above mentioned items and a $0.6 million gain on the sale of an unused
building by the Leisure Marine Segment.
<PAGE> 10
Earnings from continuing operations were $0.4 million for the third
quarter of fiscal 1995 compared to $0.5 million for the same period last year.
Earnings from continuing operations for the nine months ended December 31, 1994
were $1.76 million compared to $2.07 million for the prior year. The decrease
in earnings for the third quarter and the nine months is caused by the
decreased other income in fiscal 1995.
Discontinued Operations
- - - - -----------------------
The adequacy of the provision for losses related to the discontinued
Industrial Segment was reviewed by the Corporation during the first nine months
of fiscal 1995 and no changes were deemed appropriate.
In October 1993, the Corporation's major tenant of the leased facility
in Knoxville filed for bankruptcy. The potential loss of the future rental
income from this property caused the Corporation to determine that an
additional provision for loss related to discontinued operations was required.
Accordingly, an after tax charge of $1.452 million was recorded in the quarter
ended September 30, 1993.
Liquidity and Capital Resources
- - - - -------------------------------
Under the Corporation's current credit agreement with its five U.S.
banks, the Corporation had an outstanding term loan of $8.4 million at December
31, 1994. This credit agreement also provides a revolving credit facility of
$2.0 million, under which $1.0 million was outstanding at December 31, 1994.
The credit agreement expires on July 31, 1995. The Corporation is continuing
to work toward a long-term solution for its U.S. financing needs. The
Corporation believes it has adequate financing for its U.K. operations from its
bank credit lines in the U.K.
For the nine months ended December 31, 1994, the Corporation generated
$2.7 million in cash from operating activities. Earnings and non-cash
depreciation charges and reduced working capital requirements of the U.S.
businesses were the causes of the cash generated from operating activities.
For the nine months ended December 31, 1993, the Corporation generated $1.5
million in cash from operating activities. Earnings from the U.K. businesses
and reduced working capital requirements of the U.S. businesses were the causes
of the cash generated from operating activities. At December 31, 1994, there
were no significant outstanding capital commitments.
<PAGE> 11
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibit 27 - Financial Data Schedule
(B) During the quarter ended December 31, 1994, the
Corporation filed one Report on Form 8-K on
November 15, 1994 reporting Item 5 - Other Events.
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, KRUG International Corp. has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
KRUG INTERNATIONAL CORP.
By: /s/ Thomas W. Kemp
--------------------------
THOMAS W. KEMP
Vice President - Finance
(Principal financial
officer and principal
accounting officer)
Dated: February 13, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> DEC-31-1994
<CASH> 810
<SECURITIES> 0
<RECEIVABLES> 17,168
<ALLOWANCES> 700
<INVENTORY> 8,697
<CURRENT-ASSETS> 26,748
<PP&E> 15,996
<DEPRECIATION> 5,981
<TOTAL-ASSETS> 41,598
<CURRENT-LIABILITIES> 23,669
<BONDS> 3,945
<COMMON> 2,500
0
0
<OTHER-SE> 10,698
<TOTAL-LIABILITY-AND-EQUITY> 41,598
<SALES> 67,739
<TOTAL-REVENUES> 67,739
<CGS> 57,967
<TOTAL-COSTS> 57,967
<OTHER-EXPENSES> 6,498
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 940
<INCOME-PRETAX> 2,685
<INCOME-TAX> 925
<INCOME-CONTINUING> 1,760
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,760
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
