<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 June 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
July 21, 1995 was 5,023,651.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(all dollar amounts in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
1995 1995
ASSETS -------- ---------
<S> <C> <C>
Current Assets:
Cash $ 422 $ 363
Receivables 16,427 17,205
Inventories (Note B) 8,030 9,992
Prepaid expenses 1,173 699
------- -------
Total Current Assets 26,052 28,259
------- -------
Property, Plant and Equipment 16,331 16,561
Less accumulated depreciation 6,272 6,256
------- -------
10,059 10,305
Pension Asset 2,131 2,185
Deferred Tax Assets 2,868 3,078
Other Assets 321 342
------- -------
Total Assets $41,431 $44,169
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank borrowings $ 35 $ 1,106
Accounts payable 6,754 7,529
Accrued expenses 5,200 5,292
Income taxes 144 567
Net current liabilities of discontinued
operations (Note E) 650 600
Current maturities of long-term debt 1,195 1,364
------- -------
Total Current Liabilities 13,978 16,458
------- -------
Long-Term Debt 12,787 13,162
Net Non-Current Liabilities of Discontinued
Operations (Note E) 467 481
------- -------
Total Liablities 27,232 30,101
------- -------
Shareholders' Equity:
Common Shares, no par value:
issued and outstanding 5,011,523 2,506 2,506
Additional paid in capital 4,090 4,090
Retained earnings 7,085 6,699
Foreign currency translation adjustment 518 773
------- -------
Total Shareholders' Equity 14,199 14,068
------- -------
Total Liabilities and Shareholders' Equity $41,431 $44,169
======= =======
See notes to consolidated financial statements
</TABLE>
<PAGE> 3
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(all dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
June 30,
-------------------------------------------------------------
1995 1994
-------------------------- --------------------------
<S> <C>
Revenues $25,025 $21,824
Costs and Expenses:
Costs, including product
development 21,786 18,435
Selling and administrative 2,357 2,233
Interest expense 297 322
Other (income) expense (Note C) (8) (305)
--------- ---------
24,432 20,685
--------- ---------
Earnings Before Income Taxes 593 1,139
Income Taxes (Note D) 207 388
--------- ---------
Net Earnings $ 386 $ 751
========= =========
Net Earnings Per Share $ 0.08 $ 0.15
========= =========
Average Common and Common Equivalent
Shares Outstanding 5,038,213 5,031,926
========= =========
</TABLE>
See notes to consolidated financial statements
<PAGE> 4
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all dollar amounts in thousands)
increase (decrease) in cash
<TABLE>
<CAPTION>
THREE MONTHS ENDED
June 30,
------------------------------------------------------
1995 1994
------------------------ -------------------------
<S> <C> <C>
Net Cash Provided by
Operating Activities $1,701 $ 767
------ ------
Cash Flows From Investing Activities:
Expenditures for property, plant
and equipment (74) (151)
Proceeds from sale of assets 3 420
------ ------
Net Cash Provided by
Investing Activities (71) 269
------ ------
Cash Flows From Financing Activities:
Bank borrowings-net (1,055) 586
Payments on long-term debt (515) (2,019)
------ ------
Net Cash (Used In) Financing Activities (1,570) (1,433)
------ ------
Effect of Exchange Rate Changes on Cash 0 0
------ ------
Net Increase (Decrease) In Cash 60 (397)
Cash at Beginning of Period 362 1,186
------ ------
Cash at End of Period $ 422 $ 789
====== ======
Cash Paid For:
Income taxes $ 316 $1,001
====== ======
Interest $ 298 $ 323
====== ======
Non-Cash Investing and Financing Activities-
Capital leases $ 91 $ 39
====== ======
See notes to consolidated financial statements
</TABLE>
<PAGE> 5
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 1994
(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 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 -- Inventories
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
-------------------------- ------------------------
<S> <C> <C>
Finished goods $5,418 $7,105
Work-in-process 903 1,107
Raw materials and supplies 1,709 1,780
------ ------
$8,030 $9,992
====== ======
</TABLE>
Note C -- Other Income
Other income for the quarter ended June 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 June 30, 1995 1994
---------------------- -------------------------- -------------------------
<S> <C> <C>
Domestic $ 16 $106
Foreign 191 282
---- ----
$207 $388
==== ====
</TABLE>
<PAGE> 6
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 product liability claims related to prdoucts sold prior to
the sale of the domestic Industrial Segment.
<PAGE> 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Continuing Operations
--------------------------------
First quarter fiscal 1996 revenues of $25.0 million increased
$3.2 million or 15% from the comparable quarter of fiscal 1995. The U.K.
Leisure Marine Segment revenue increased by $2.0 million from the same period
in fiscal 1995 of which $1.5 million was from increased sales volume and $0.5
million was from the favorable effect of currency translation. The U.K.
Housewares segment revenues increased by $0.6 million from the same period in
fiscal 1995 of which $0.2 million was from increased sales volume and $0.4
million was from the favorable effect of currency translation. The increase in
revenues of the U.K. Leisure Marine Segments is due to increased Chandlery, Sea
Doo and parts and accessories sales. In Housewares the revenue increase, while
modest, is noteworthy given the highly competitive conditions of the
marketplace. The U.S. Life Sciences and Engineering Segment revenue increased
by $0.6 million from the first quarter of fiscal 1995 due primarily to the
increased level of activity from our NASA work which was only partially offset
by decreased material purchases associated with TSSI technical service
contracts for the U.S. Air Force.
Life Sciences and Engineering order backlog at June 30, 1995
was $80.0 million compared with $89.1 million at March 31, 1995 and $124.6
million at June 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.
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 June 30, 1995
decreased to 12.9% compared to 15.5% for the same quarter of the previous
fiscal year. The gross margin of the Leisure Marine Segment was up 0.7%
reflecting the strong spring boating season and improved Chandlery and Sea Doo
margins. However, the primary reason for the overall gross margin reduction is
because the Housewares Segment gross margin decreased to 4% from 13.3% for the
same quarter of the previous
<PAGE> 8
fiscal year. This margin reduction in Housewares was caused by very competitive
market conditions that depressed product prices and by increased material
prices for aluminum used in ladders that could not be recovered through higher
prices.
Selling and administrative expense increased by $0.12 million
for the first quarter of fiscal 1996 as compared to the first quarter of fiscal
1995. The increase is primarily attributable to the unfavorable effect of
currency translation.
Interest expense for the first quarter of fiscal 1996 was 8%
less than for the first quarter of fiscal 1995 due primarily to a reduction of
$1.9 million in total borrowings for this quarter compared to the same quarter
in the previous fiscal year.
Other income was negligible for the first quarter of fiscal
1996, whereas it was $0.3 million for the same quarter 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.
Net earnings were $0.39 million for the first quarter of
fiscal 1996 compared to $0.75 million for the comparable period in fiscal 1995.
The decrease in net earnings in the current quarter was a result of no
significant other income and a decrease in Housewares earnings, which were
only partially offset by the increased earnings of the Leisure Marine Segment.
The Housewares Segment was not profitable for the first quarter of fiscal 1996
whereas it was profitable for the same quarter 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 three months of fiscal 1996 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 $4.7 million
outstanding at June 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 less
than $0.3 million available at June 30, 1995. At June 30, 1995 the Corporation
had a $2.16 million mortgage outstanding on its Dayton, Ohio real property.
The mortgage loan was provided by its five U.S. banks and matures on March 31,
1998.
In the U.K., at June 30, 1995, the Corporation had outstanding
$6.4 million line of credit bank borrowings and still had line of credit
<PAGE> 9
borrowing availability of $1.6 million. On July 14, 1995, the Corporation's
U.K. subsidiaries put in place a $6.4 million 10 year term loan with quarterly
principal payments of $.16 million. 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. With the U.K. bank loan facilities in place as of
July 14, 1995, the U.K. subsidiaries had additional borrowing availability in
the U.K. of $4.0 million.
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 June 30, 1995.
<PAGE> 10
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibit 27 - Financial Data Schedule
<PAGE> 11
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: August 10, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1995
<CASH> 422
<SECURITIES> 0
<RECEIVABLES> 17,050
<ALLOWANCES> 624
<INVENTORY> 8,030
<CURRENT-ASSETS> 26,052
<PP&E> 16,331
<DEPRECIATION> 6,272
<TOTAL-ASSETS> 41,431
<CURRENT-LIABILITIES> 13,978
<BONDS> 12,787
<COMMON> 2,506
0
0
<OTHER-SE> 11,693
<TOTAL-LIABILITY-AND-EQUITY> 41,431
<SALES> 25,025
<TOTAL-REVENUES> 25,025
<CGS> 21,786
<TOTAL-COSTS> 21,786
<OTHER-EXPENSES> 2,357
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 297
<INCOME-PRETAX> 593
<INCOME-TAX> 207
<INCOME-CONTINUING> 386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 386
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
