<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 September 30, 1995
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 October 25,
1995 was 5,051,950.
<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>
September 30, March 31,
1995 1995
------------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 2,090 $ 363
Receivables 16,092 17,205
Inventories (Note B) 7,642 9,992
Prepaid expenses 992 699
------------- -----------
Total Current Assets 26,816 28,259
------------- -----------
Property, Plant and Equipment 16,275 16,561
Less accumulated depreciation 6,434 6,256
------------- -----------
9,841 10,305
Pension Asset 2,174 2,185
Deferred Tax Assets 2,627 3,078
Other Assets 301 342
------------- -----------
Total Assets $41,759 $44,169
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank borrowings $ $ 1,106
Accounts payable 6,903 7,529
Accrued expenses 5,063 5,292
Income taxes 142 567
Net current liabilities of discontinued
operations (Note E) 650 600
Current maturities of long-term debt 1,166 1,364
------------- -----------
Total Current Liabilities 13,924 16,458
------------- -----------
Long-Term Debt 12,891 13,162
Net Non-Current Liablities of Discontinued
Operations (Note E) 328 481
------------- -----------
Total Liabilities 27,143 30,101
------------- -----------
Shareholders' Equity:
Common Shares, no par value:
issued and outstanding, 5,051,950
at September 30, 1995 and
5,011,523 at March 31, 1995 2,526 2,506
Additional paid in capital 4,162 4,090
Retained earnings 7,504 6,699
Foreign currency translation adjustment 424 773
------------- -----------
Total Shareholders' Equity 14,616 14,068
------------- -----------
Total Liabilities and Shareholders' Equity $41,759 $44,169
============= ===========
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)
THREE MONTHS ENDED
September 30,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Revenues $ 23,904 $ 23,217
Costs and Expenses:
Costs, including product
development 20,790 19,847
Selling and administrative 2,192 2,165
Interest expense 272 300
Other (income) expense 1 (4)
---------- ----------
23,255 22,308
---------- ----------
Earnings Before Income Taxes 649 909
Income Taxes (Note D) 230 305
---------- ----------
Net Earnings $ 419 $ 604
========== ==========
Net Earnings Per Share $ 0.08 $ 0.12
========== ==========
Average Common and Common Equivalent
Shares Outstanding 5,051,409 5,043,539
========== ==========
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)
SIX MONTHS ENDED
September 30,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Revenues $ 48,929 $ 45,041
Costs and Expenses:
Costs, including product
development 42,576 38,282
Selling and administrative 4,549 4,398
Interest 569 622
Other (income) expense (Note C) (7) (309)
---------- ----------
47,687 42,993
---------- ----------
Earnings Before Income Taxes 1,242 2,048
Income Taxes (Note D) 437 693
---------- ----------
Net Earnings $ 805 $ 1,355
========== ==========
Net Earnings Per Share $ 0.16 $ 0.27
========== ==========
Average Common and Common Equivalent
Shares Outstanding 5,044,884 5,037,733
========== ==========
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
SIX MONTHS ENDED
September 30,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Net Cash Provided by
Operating Activities $ 3,348 $ 4,236
---------- ----------
Cash Flows From Investing Activities:
Expenditures for property, plant
and equipment (130) (201)
Proceeds from sale of assets 422
---------- ----------
Net Cash Provided by (Used in)
Investing Activites (130) 221
---------- ----------
Cash Flows From Financing Activities:
Bank borrowings-net (1,082) 790
Payments on long-term debt (495) (2,685)
Sale of Common Shares 92
---------- ----------
Net Cash (Used In) Financing Activities (1,485) (1,895)
---------- ----------
Effect of Exchange Rate Changes on Cash (6) 0
---------- ----------
Net Increase In Cash 1,727 2,562
Cash at Beginning of Period 363 1,186
---------- ----------
Cash at End of Period $ 2,090 $ 3,748
========== ==========
Cash Paid For:
Income taxes $ 314 $ 1,016
========== ==========
Interest $ 586 $ 664
========== ==========
Non-Cash Investing and Financing Activities-
Capital Leases $ 197 $ 86
========== ==========
See notes to consolidated financial statements
</TABLE>
<PAGE> 6
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 1995
(all dollar amounts in thousands)
Note A -- Basis of Presentation
The balance sheet at March 31, 1995 is condensed from audited
financial statements. The financial statements for the quarter and six months
ended September 30, 1995 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 -- Inventories
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
----------- -----------
<S> <C> <C>
Finished goods $ 4,880 $ 7,105
Work-in-process 830 1,107
Raw materials and supplies 1,932 1,780
----------- -----------
$ 7,642 $ 9,992
=========== ===========
</TABLE>
Note C -- Other Income
Other income for the six months ended September 30, 1994
includes a $0.3 million gain from the sale of land and miscellaneous
equipment.
Note D -- Income Taxes
The provisions for income taxes are composed of the following:
<TABLE>
<CAPTION>
Quarter Ended September 30, 1995 1994
---------------------- ----------- -----------
<S> <C> <C>
Domestic $ 119 $ 29
Foreign 111 276
----------- -----------
$ 230 $ 305
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended September 30, 1995 1994
---------------------- ----------- -----------
<S> <C> <C>
Domestic $ 135 $ 135
Foreign 302 558
----------- -----------
$ 437 $ 693
=========== ===========
</TABLE>
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note E -- Discontinued Operations
In prior years, the Corporation discontinued the operations and
disposed of substantially all of the net assets of its Industrial Segment.
Remaining obligations related to this Segment includes a leased property in
Knoxville, Tennessee, a leased property in Toronto, Canada, and possibily
product liability claims related to products sold prior to the sale of the
domestic Industrial Segment.
<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Continuing Operations
Revenues of $23.9 million for the quarter ended September 30,
1995 were $0.7 million higher than the comparable quarter of fiscal 1995.
Approximately $0.2 million of this increase was due to the favorable effect of
currency translation. The U.K. Leisure Marine Segment revenue increased by
$0.8 million in sales volume and $0.1 million due to the favorable effect of
currency translation. Leisure Marine sales volume was helped by hot, sunny
weather in the U.K. and increased Chandlery sales during the quarter. The U.K.
Housewares Segment revenue in the second quarter of fiscal 1996 decreased by
$1.0 million in sales volume which was partially offset by $0.1 million of
favorable effect of currency translation from the second quarter of fiscal
1995. Sales decreases were experienced in all product groups. The U.K.
Housewares market experienced low retail demand during the summer months which
in turn decreased demand from stores and DIY sheds for our products. Revenues
of the U.S. Life Sciences and Engineering Segment for the quarter ended
September 30, 1995 increased $0.7 million from the comparable quarter of fiscal
1995 due primarily to increased activity for the National Aeronautics and Space
Administration (NASA) Johnson Space Center.
Revenues for the first half of fiscal 1996 increased by $3.9
million from the first half of fiscal 1995 to $48.9 million. The Leisure
Marine Segment revenue increased by $2.9 million. $0.5 million of the increase
was due to the favorable effect of currency translation. All Leisure Marine
product groups had increased volume during the year as compared to last year.
Sales in both the spring and summer were enhanced by good boating weather in
the U.K. The Housewares Segment revenue for the first half of fiscal 1996
decreased by $0.8 million in sales volume which was partially offset by $0.5
million of favorable effect of currency translation. Poor demand in all
product groups adversely effected sales volume. Revenues of the Life Sciences
and Engineering Segment increased by $1.3 million in the first half of fiscal
1996 as compared to fiscal 1995. This increase was due primarily to an
increased level of activity in our NASA work which was partially offset by
decreased support labor associated with TSSI technical services contracts for
the U.S. Air Force.
Life Sciences and Engineering order backlog at September 30,
1995 was $68.0 million compared with $89.1 million at March 31, 1995 and $134.7
million at September 30, 1994. 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 all the option years are exercised. The
contract is a follow-on to one previously held by TSSI. In the Leisure Marine
and Housewares Segments, backlog is not meaningful due the nature of the
order-flow of these businesses.
<PAGE> 9
The Corporation's Krug Life Sciences Inc. subsidiary is
currently working on a $136 million 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 for the quarter ended September 30,
1995 decreased to 13.0% from 14.5% for the same quarter of the previous fiscal
year. The primary reason for the overall gross margin reduction is because the
Housewares Segment gross margin decreased to 5.2% from 14.3% for the same
quarter of the previous fiscal year. This margin reduction in Housewares
continued the trend of the last two fiscal quarters - very low margins from
depressed selling prices caused by competitive market conditions and increased
material prices for aluminum and steel that could not be fully recovered
through higher selling prices. For the six months, the gross profit margin
decreased to 13.0% from 15.0% in the prior year. Similar to the second
quarter, the decrease in gross margin for the six months was due to a
significantly reduced Housewares Segment margin. For the second quarter and
first six months of fiscal 1996, the gross margins of the Leisure Marine
Segment have increased slightly as compared to the prior year due to increased
margins for Chandlery, boat engines and personal watercraft. The gross margins
of the Life Sciences and Engineering Segment for the second quarter and first
six months of fiscal 1996 remained constant as compared to the prior year. In
fiscal 1996 the gross margin of the Life Sciences and Engineering Segment
benefitted from $0.2 million of contract closeout profits realized in the
second quarter for a contract on which work was completed several years ago.
Selling and administrative expense for the second quarter of
fiscal 1996 was essentially unchanged from the same period of fiscal 1995. For
the first six months of fiscal 1996, selling and administrative expenses
increased by $0.15 million from the same period last year. Substantially all
of the increase is attributable to the unfavorable effect of currency
translation.
Interest expense for the second quarter and first six months
of fiscal 1996 decreased 9% from the comparable periods of fiscal 1995 due
primarily to reduced debt in fiscal 1996. Cash generated through operations was
used to reduce the Corporation's debt by approximately 10% at September 30,
1995 as compared to the same date in 1994.
Other income was negligible for the first six months of fiscal
1996. It was $0.3 million for the same period of the previous fiscal year
primarily from the sale of land and miscellaneous equipment associated with the
Life Sciences and Engineering Segment in the U.S. in the first quarter of
fiscal 1995.
<PAGE> 10
Net earnings were $0.42 million for the second quarter of
fiscal 1996 compared to $0.6 million for the comparable period in fiscal 1995.
The decrease in net earnings in the current quarter was caused by the low
Housewares margin. Net earnings for the first six months of fiscal 1996 were
$0.8 million compared to $1.35 million for the comparable period in fiscal
1995. This decrease in net earnings was caused by the decreased overall gross
profit margin and no significant other income in the current year. The
Housewares Segment was not profitable for the second quarter nor the first six
months of fiscal 1996 whereas it was profitable for the same periods of the
previous fiscal year.
DISCONTINUED OPERATIONS
The adequacy of the provision for losses related to the
discontinued Industrial Segment was reviewed by the Corporation during the
first six months of fiscal l996 and no changes were deemed appropriate.
LIQUIDITY AND CAPITAL RESOURCES
Under the Corporation's revolving credit facility with a U.S.
business credit corporation, the Corporation had a loan of $4.9 million
outstanding at September 30, 1995. Availability under the revolving credit
facility is based upon the billed and unbilled accounts receivable of its U.S.
operations up to a maximum of $10.0 million. The credit facility expires March
15, 2000. Under the agreement, the Corporation had borrowing capacity of $0.9
million available at September 30, 1995. At September 30, 1995 the Corporation
had a $2.1 million mortgage loan outstanding on its Dayton, Ohio real property.
The mortgage loan was provided by its five U.S. banks and matures on March 31,
1998.
On July 14, 1995, the Corporation's U.K. subsidiaries put in
place a $6.3 million 10 year term loan with quarterly principal payments of
$.16 million beginning in October 1995. This term loan is secured by the U.K.
subsidiaries' real property and their cross-guarantees. In addition, the U.K.
subsidiaries continue to maintain a $4.0 million bank line of credit for
working capital purposes. All $4.0 million of the bank line of credit was
available at September 30, 1995.
The Corporation believes it has adequate financing in the U.S.
and U.K. to support its operations. There were no significant outstanding
capital expenditure commitments as of September 30, 1995.
<PAGE> 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibit 27 - Financial Data Schedule
<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: November 10, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 2,090
<SECURITIES> 0
<RECEIVABLES> 16,751
<ALLOWANCES> 659
<INVENTORY> 7,642
<CURRENT-ASSETS> 26,816
<PP&E> 16,275
<DEPRECIATION> 6,434
<TOTAL-ASSETS> 41,759
<CURRENT-LIABILITIES> 13,924
<BONDS> 12,891
<COMMON> 2,526
0
0
<OTHER-SE> 12,090
<TOTAL-LIABILITY-AND-EQUITY> 41,759
<SALES> 48,929
<TOTAL-REVENUES> 48,929
<CGS> 42,576
<TOTAL-COSTS> 42,576
<OTHER-EXPENSES> 4,549
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 569
<INCOME-PRETAX> 1,242
<INCOME-TAX> 437
<INCOME-CONTINUING> 805
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 805
<EPS-PRIMARY> .16
<EPS-DILUTED> 0
</TABLE>
