<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, 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.
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(Exact name of registrant as specified in its charter)
Ohio 31-0621189
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6 North Main Street Suite 500 Dayton, Ohio 45402-1900
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(Address of principal executive offices) (Zip Code)
(513) 224-9066
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(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
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The number of Common Shares, without par value, outstanding as of
February 1, 1996 was 5,076,950.
<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>
December 31, March 31,
1995 1995
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<S> <C> <C>
ASSETS
Current Assets:
Cash $ 2,059 $ 363
Receivables 15,634 17,205
Inventories (Note B) 7,867 9,992
Prepaid expenses 652 699
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Total Current Assets 26,212 28,259
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Property, Plant and Equipment 16,259 16,561
Less accumulated depreciation 6,613 6,256
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9,646 10,305
Pension Asset 2,057 2,185
Deferred Tax Assets 2,504 3,078
Other Assets 285 342
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Total Assets $ 40,704 $ 44,169
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank borrowings $ $ 1,106
Accounts payable 6,685 7,529
Accrued expenses 5,033 5,292
Income taxes 567
Net current liabilities of discontinued
operations (Note E) 650 600
Current maturities of long-term debt 1,179 1,364
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Total Current Liabilities 13,547 16,458
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Long-Term Debt 12,328 13,162
Net Non-Current Liabilities of Discontinued
Operations (Note E) 341 481
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Total Liabilities 26,216 30,101
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Shareholders' Equity:
Common Shares, no par value:
issued and outstanding, 5,051,950
at December 31, 1995 and
5,011,523 at March 31, 1995 2,526 2,506
Additional paid in capital 4,162 4,090
Retained earnings 7,660 6,699
Foreign currency translation adjustment 140 773
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Total Shareholders' Equity 14,488 14,068
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Total Liabilities and Shareholders' Equity $ 40,704 $ 44,169
=========== ===========
</TABLE>
See notes to consolidated financial statements
<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
December 31,
-------------------------
1995 1994
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<S> <C> <C>
Revenues $ 22,175 $ 22,698
Costs and Expenses:
Costs, including product
development 19,535 19,685
Selling and administrative 2,104 2,100
Interest expense 288 318
Other (income) expense (3) (42)
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21,924 22,061
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Earnings Before Income Taxes 251 637
Income Taxes (Note D) 95 232
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Net Earnings $ 156 $ 405
=========== ===========
Net Earnings Per Share $ 0.03 $ 0.08
=========== ===========
Average Common and Common Equivalent
Shares Outstanding 5,058,907 5,058,017
=========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE> 4
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(all dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
December 31,
-------------------------
1995 1994
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<S> <C> <C>
Revenues $ 71,104 $ 67,739
Costs and Expenses:
Costs, including product
development 62,111 57,967
Selling and administrative 6,653 6,498
Interest 857 940
Other (income) expense (Note C) (10) (351)
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69,611 65,054
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Earnings Before Income Taxes 1,493 2,685
Income Taxes (Note D) 532 925
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Net Earnings $ 961 $ 1,760
=========== ===========
Net Earnings Per Share $ 0.19 $ 0.35
=========== ===========
Average Common and Common Equivalent
Shares Outstanding 5,049,591 5,044,494
=========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE> 5
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all dollar amounts in thousands)
increase (decrease) in cash
<TABLE>
<CAPTION>
NINE MONTHS ENDED
December 31,
-------------------------
1995 1994
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<S> <C> <C>
Net Cash Provided by
Operating Activities $ 3,991 $ 2,727
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Cash Flows From Investing Activities:
Expenditures for property, plant
and equipment (195) (270)
Proceeds from sale of assets 447
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Net Cash Provided by (Used in)
Investing Activities (195) 177
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Cash Flows From Financing Activities:
Bank borrowings-net (1,077) (287)
Payments on long-term debt (1,081) (2,997)
Sale of Common Shares 92
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Net Cash (Used In) Financing Activities (2,066) (3,284)
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Effect of Exchange Rate Changes on Cash (34) 4
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Net Increase (Decrease) In Cash 1,696 (376)
Cash at Beginning of Period 363 1,186
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Cash at End of Period $ 2,059 $ 810
=========== ===========
Cash Paid For:
Income taxes $ 579 $ 1,320
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Interest $ 838 $ 1,001
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Non-Cash Investing and Financing Activities-
Capital leases $ 365 $ 90
=========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE> 6
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED DECEMBER 31, 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 nine months
ended December 31, 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>
December 31, March 31,
1995 1995
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<S> <C> <C>
Finished goods $ 5,353 $ 7,105
Work-in-progress 854 1,107
Raw materials and supplies 1,660 1,780
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$ 7,867 $ 9,992
=========== ===========
</TABLE>
Note C -- 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.
Note D -- Income Taxes
The provisions for income taxes are composed of the following:
<TABLE>
<CAPTION>
Quarter Ended December 31, 1995 1994
-------------------------- ----------- -----------
<S> <C> <C>
Domestic $ 89 $ 134
Foreign 6 98
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$ 95 232
=========== ===========
Nine Monthes Ended December 31, 1995 1994
------------------------------- ----------- -----------
Domestic $ 224 $ 269
Foreign 308 656
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$ 532 $ 925
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</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, Cananda, 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 $22.2 million for the quarter ended December 31,
1995 were $0.5 million lower than the comparable quarter of fiscal 1995.
Approximately $0.3 million of this decrease was due to the unfavorable effect of
currency translation. The U.K. Leisure Marine Segment revenue increased by $0.4
million in sales volume, offset by a $0.1 million decrease due to the
unfavorable effect of currency translation. The increase in volume for the
quarter was due to increased sales of the Sea Doo product line in this fiscal
year as compared to the previous fiscal year. The U.K. Housewares Segment
revenue in the third quarter of fiscal 1996 decreased by $0.4 million in sales
volume and by $0.1 million due to the unfavorable effect of currency translation
from the third quarter of fiscal 1995. Low retail demand in the U.K. experienced
by stores and DIY sheds continued in the third quarter which decreased their
demand for our Housewares products. Revenues of the U.S. Life Sciences and
Engineering Segment for the quarter ended December 31, 1995 decreased $0.3
million from the comparable quarter of fiscal 1995 due primarily to decreased
contract labor and subcontract support services provided under TSSI's technical
service contracts associated with the U.S. Air Force.
Revenues for the first nine months of fiscal 1996 increased by
$3.4 million from the first nine months of fiscal 1995 to $71.1 million. The
Leisure Marine Segment revenue increased by $3.1 million. $0.4 million of the
increase was due to the favorable effect of currency translation. Substantially
all Leisure Marine product groups had increased volume during the year as
compared to last year. Good boating weather in the U.K. in both the spring and
summer and increased sales of the Sea Doo product line in the third quarter were
the reasons of the increased sales volume. The Housewares Segment revenue for
the first nine months of fiscal 1996 decreased by $1.1 million in sales volume
which was partially offset by $0.4 million of favorable effect of currency
translation. Sales volume in all product groups except ladders and garden
products have decreased due to low demand. Revenues of the Life Sciences and
Engineering Segment increased by $1.0 million in the first nine months of fiscal
1996 as compared to fiscal 1995. This increase was due primarily to an increased
level of activity associated with our NASA work which was partially offset by
decreased labor and subcontract support services of TSSI's technical services
contracts for the U.S. Air Force.
Life Sciences and Engineering order backlog at December
31, 1995 was $48.6 million compared with $89.1 million at March 31, 1995 and
$116.6 million at December 31, 1994. During the past year, no significant
individual contracts were added to the order backlog. In the Leisure Marine and
Housewares Segments, backlog is not meaningful due to 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 29, 1996 and represents approximately one-third of the
Corporation's revenues and a corresponding percentage of its net earnings. The
recompetition process for the follow-on contract was delayed and the new
anticipated contract is targeted to start on January 1, 1997. The Corporation is
in negotiations for a contract extension award to cover the interim ten month
period. 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 December 31,
1995 decreased to 11.9% from 13.3% for the same quarter of the previous fiscal
year. The primary reason for the overall gross margin reduction is because of
decreased Housewares Segment gross margin in the current quarter as compared to
the same quarter of the previous fiscal year. The margin reduction in Housewares
from the prior year continued the trend of the last three fiscal quarters
compared to the same periods in fiscal 1995 - lower margins from depressed
selling prices caused by competitive market conditions and increased raw
material prices that were not fully recovered through higher selling prices.
However, the Housewares Segment gross margin percentage has risen during each of
the last two quarters of fiscal 1996 as selling price increases and
manufacturing cost reduction measures have taken effect. Also in the third
quarter of fiscal 1996, the favorable resolution of Life Sciences and
Engineering Segment contract issues resulted in a reduction of costs in the
amount of $0.24 million. This compares with $0.4 million of similar reduction of
costs in the third quarter of fiscal 1995. For the nine months, the gross profit
margin decreased to 12.7% from 14.4% in the prior year. Similar to the third
quarter, the decrease in gross margin for the nine months was due to a
significantly reduced Housewares Segment margin. For the first nine months of
fiscal 1996, the gross margin of the Leisure Marine Segment has increased
slightly as compared to the prior year due to increased margins for boat engines
and personal watercraft. The gross margins of the Life Sciences and Engineering
Segment for the first nine months of fiscal 1996 decreased slightly as compared
to the prior year. The decrease is due to reduced fees received on government
contracts.
Selling and administrative expense for the third quarter of
fiscal 1996 was essentially unchanged from the same period of fiscal 1995. For
the first nine 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 third quarter and first nine months
of fiscal 1996 decreased 9% from the comparable periods of fiscal 1995.
Decreased debt in the U.S. in fiscal 1996 is the cause of the interest expense
decrease.
<PAGE> 10
Other income was negligible for the first nine 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.
Net earnings were $0.15 million for the third quarter of
fiscal 1996 compared to $0.4 million for the comparable period in fiscal 1995.
The decrease in net earnings in the current quarter was caused by the lower
Housewares revenue and gross profit margin and the decreased amount of Life
Science and Engineering contract resolution items in fiscal 1996. Net earnings
for the first nine months of fiscal 1996 were $0.96 million compared to $1.76
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
third quarter nor the first nine 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
nine 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 $4.6 million
outstanding at December 31, 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 $2.1
million available at December 31, 1995. At December 31, 1995 the Corporation had
a $2.1 million mortgage loan outstanding on its Dayton, Ohio real property. The
mortgage loan is 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 $3.9 million bank line of credit for working
capital purposes. All $3.9 million of the bank line of credit was available at
December 31, 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 December 31, 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
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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, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 2,059
<SECURITIES> 0
<RECEIVABLES> 16,320
<ALLOWANCES> 686
<INVENTORY> 7,867
<CURRENT-ASSETS> 26,212
<PP&E> 16,259
<DEPRECIATION> 6,613
<TOTAL-ASSETS> 40,704
<CURRENT-LIABILITIES> 13,547
<BONDS> 12,328
<COMMON> 2,526
0
0
<OTHER-SE> 11,962
<TOTAL-LIABILITY-AND-EQUITY> 40,704
<SALES> 71,104
<TOTAL-REVENUES> 71,104
<CGS> 62,111
<TOTAL-COSTS> 62,111
<OTHER-EXPENSES> 6,653
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 857
<INCOME-PRETAX> 1,493
<INCOME-TAX> 532
<INCOME-CONTINUING> 961
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 961
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0
</TABLE>
