ITEM 1. BUSINESS
KRUG International Corp., an Ohio corporation organized in June 1959, and its subsidiaries (sometimes collectively called the "Corporation") operate primarily in three business segments: Life Sciences and Engineering, Leisure Marine and Housewares. Information concerning the revenues, operating profit and identifiable assets of the three business segments for the fiscal years ended March 31, 1997, 1996 and 1995 is set forth at Note M of the Notes to Consolidated Financial Statements of the Corporation, which is incorporated herein by this reference.
The Corporation's objective is to increase shareholder value by the investment in and management of businesses which offer growth opportunities. The Corporation evaluates each of its operating companies for growth potential and seeks opportunities, including acquisitions and divestitures, for the profitable employment and realization of capital.
CERTAIN CAUTIONARY STATEMENTS
This document contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding the Corporation's contracts and backlog, its objectives and the outlook for its business segments. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for certain risks, uncertainties and other factors which could cause actual results to differ materially from those anticipated.
LIFE SCIENCES AND ENGINEERING
The Life Sciences and Engineering business ("LS&E") is comprised of the Corporation's KRUG Life Sciences Inc. subsidiary, with operations in Houston and San Antonio, Texas and the Technology/Scientific Services, Inc. subsidiary in Dayton, Ohio.
KRUG LIFE SCIENCES INC. -- HOUSTON OPERATIONS
KRUG Life Sciences has been conducting, pursuant to contracts with the National Aeronautics and Space Administration ("NASA"), biomedical research, technology development, and flight crew operations support at NASA's Lyndon B. Johnson Space Center continuously since 1967. From the original work of developing specialized cardiovascular monitoring instrumentation, the research and development activities have expanded to encompass certain additional scientific activities relating to man's capability and capacity to explore and exploit the frontiers of space. Such activities include the conceptualization and implementation of groundbased and in-flight medical experiments to develop the health care and physiological deconditioning countermeasures required to offset the microgravity of space and ensure the well-being and productivity of the flight crews.
Performance under such contracts includes the areas of neurosensory physiology, cardiovascular physiology, musculoskeletal physiology, regulatory systems physiology, electrophysiology, cell biology, biochemistry, pharmacodynamics, remote health care, bioengineering, applications of knowledge based systems and clinical laboratory operations. KRUG's work for the Johnson Space Center is spread over a wide variety of agency programs, none of which comprise more than 20% of the aggregate contracts. Some of the major areas of work include support of shuttle flights and the joint Russian MIR space ventures, shuttle extended duration mission research, manned flight research and development, space station research and biotechnology research.
In March 1991, KRUG Life Sciences began work on a $136 million, five year contract with NASA, replacing the one which previously started in January 1987. This contract expanded the support services provided to the Medical Sciences Division at the Johnson Space Center. In April 1993, NASA modified the contract and increased its value to $165 million. This modification covered the cost of additional test equipment, supplies and services for the remaining three years of the contract. In February 1996, this contract was extended for a nine-month period to November 30, 1996 and has been further extended in connection with the rebid and sole source awards of various portions of the contract work.
On January 15, 1997, KRUG Life Sciences won the rebid of the medical support and integration portion of its work for NASA and signed a new contract with an expected value of approximately $82.1 million over five years, including $33.8 million for years four and five, which may be awarded at the option of NASA. On January 30, 1997, KRUG Life Sciences was awarded by NASA, on a sole source basis, a $21.6 million contract for the continuation of the design, development, test and evaluation of flight hardware for the shuttle and space station through December 31, 1998. In June 1997, KRUG Life Sciences submitted its bid for a five year biotechnology processing contract covering certain work it presently performs. NASA has indicated that it will award a contract for such work to KRUG Life Sciences on a sole source basis effective July 1, 1997; however, until a contract is executed, there can be no assurance that such award will be forthcoming or as to the scope, term or amount of such work.
KRUG LIFE SCIENCES INC. -- SAN ANTONIO OPERATIONS
KRUG Life Sciences also provides professional research support services to the United States Air Force ("USAF") under a contract which expires in November 1997 and is presently being rebid. Such services include research into human tolerance to gravitational forces generated by rapid onset and increasing acceleration. As advances in aircraft development lead to increases in speed and mobility, this research becomes increasingly more important. Engineering programs include the design and production of variable profile breathing simulators, therapeutic oxygen manifold systems and other similar devices. KRUG Life Sciences also does repair, maintenance and calibration of sophisticated ground and airborne electronics equipment, and has provided such services on a limited basis to commercial customers in the San Antonio area. The backlog remaining on the USAF contract at March 31, 1997 was approximately $2.4 million.
TECHNOLOGY/SCIENTIFIC SERVICES, INC.
Technology/Scientific Services provides a wide variety of engineering and technical support services in various on-site governmental research and experimental programs under contracts with the U.S. Air Force which expire from September 1997 through September 2001. Current activities are principally in support of laboratories at Wright-Patterson Air Force Base and involve computer networking using fiber optics, satellite communications, aircraft structural and environmental testing, microelectronics, fabrication techniques for composite materials and aircraft vulnerability investigations. In August 1996, Technology/Scientific Services was awarded a new contract for equipment calibration at the Wright Laboratory, Wright-Patterson Air Force Base. The contract consists of a base period beginning August 1, 1996 plus four one year options through September 30, 2000. The contract value with the options is approximately $5 million.
GENERAL AND OUTLOOK
In its Life Sciences and Engineering Segment, the Corporation competes with practically all the large and small aerospace companies, including small local companies competing for services contracts. The areas of competition vary from contract to contract but most contracts are price sensitive. Some business has been obtained on a sole source basis, such as follow-on business, where a unique capability or product has been developed and the limited market precludes the development of a second source by the government.
The majority of the Corporation's Life Sciences and Engineering business is with agencies of the U.S. Government and prime government contractors and, as a result, is subject to possible termination for the convenience of the government.
The order backlog of the Life Sciences and Engineering Segment was $106.9 million at March 31, 1997 and $60.4 million at March 31, 1996. Approximately 35% of the backlog at March 31, 1997 is expected to result in revenue during fiscal 1998. Further information relating to the Corporation's LS&E Segment contracts is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Management believes that the current economic forces at work in the government services market, including government budgetary limitations and increased competition for government contracts, have caused a number of companies to enter into business combinations and activities designed to make them larger, stronger and more competitive, and that to maintain its competitiveness in the areas in which it holds contracts, KRUG Life Sciences needs to be part of such a larger organization. In April, 1997, the Corporation engaged Quarterdeck Investment Partners, Inc., an investment bank which provides advisory services to aerospace, defense and information technology companies, to assist in evaluating strategic alternatives concerning the LS&E Segment.
LEISURE MARINE
Sowester Limited ("Sowester"), a subsidiary of KRUG International (U.K.) Ltd., is engaged in the Leisure Marine business. Sowester, located in the port of Poole, Dorset, England, distributes sail and power boat equipment and personal watercraft to the leisure marine market. Sowester's principal product lines include: marine chandlery, boat fittings, equipment and clothing; Mercury outboard engines; Mercury MerCruiser sterndrive and inboard engines; Sea Doo personal watercraft; Morse controls, steering systems and controls for power and sail boats; and diesel engines which provide auxiliary power for sailing yachts. Sowester is the exclusive distributor of certain Mercury engineering products in the United Kingdom and the Republic of Ireland under distribution agreements effective through July 1, 1998.
Sowester sells its products in two principal markets -- boat manufacturers and marine retailers -- through a network of over 100 sales and service dealers. The marine products business is seasonal, with the highest sales occurring in spring and summer. Order backlog is not a factor in the Leisure Marine Segment since virtually all orders are shipped within days of receipt.
OUTLOOK
The leisure marine business conducted by Sowester is specialized and requires substantial industry-specific knowledge and skills. Management believes the leisure marine business in the U.K. and Europe is moving toward a consolidation phase likely to be dominated by and rewarding larger companies. Such changes would likely affect the structural nature of marine distribution as conducted by Sowester. Accordingly, management has taken steps to refocus Sowester on growth opportunities and management objectives which it believes will be important in the future and, under appropriate circumstances, the Corporation will consider a merger or other transaction if satisfied that the opportunity would enhance Sowester's ability to adapt to future changes in the market.
HOUSEWARES
Beldray Limited ("Beldray"), a subsidiary of KRUG International (U.K.) Ltd., operates the Corporation's Housewares business. Beldray manufactures consumer durable products sold under the "Beldray" name and, through its Hago Products Ltd. subsidiary, which was acquired October 31, 1996, manufactures child safety gates under the KiddiProofAE tradename. Beldray's products include ironing tables and accessories, domestic aluminum ladders and work platforms, garden equipment, shower screens, indoor and outdoor racks for drying clothes, child safety gates, fire guards and industrial wire products such as fan blade covers. These products are marketed through major retailers, wholesalers and mail order companies to the housewares, do-it-yourself and garden markets. Beldray is a long established name with significant recognition among the buying public throughout the United Kingdom. The Housewares Segment's firm order backlog is typically less than one month's sales.
OUTLOOK
Over the last eighteen months, Beldray has expanded its product offerings to include child safety gates and completed the acquisition of Hago Products Ltd. Beldray has also taken steps to reorganize its manufacturing processes, upgrade its information technology and strengthen its management team. Management believes Beldray should further expand its product lines, continue improving its manufacturing efficiencies and broaden its customer base and geographic distribution with the objectives of maintaining and, possibly, enhancing its competitive position. Management expects to continue its efforts to grow Beldray through complementary or synergistic acquisitions.
GENERAL INFORMATION
The Corporation owns a number of patents and patent applications but it is not possible to estimate their value. None of the Corporation's present business is materially dependent on any patents or patent applications.
During the fiscal year ended March 31, 1997, revenues from agencies of the U.S. Government were $49,808,000 or 45% of consolidated revenues. The Housewares business had revenues from one customer of $11,913,000 or 10% of consolidated revenues.
As of June 13, 1997, the Corporation employed 449 persons in the United States and 605 in the United Kingdom. The Corporation's Life Sciences and Engineering Segment employs highly trained persons holding bachelors degrees, advanced degrees and professional designations in one or more of the following disciplines -- engineering, medicine, mathematics, physics and biology. None of the Corporation's United States employees are represented by a union.
Compliance with federal, state, and local laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment has had no material effect upon the capital expenditures, earnings, and competitive position of the Corporation. To the best of management's knowledge, the Corporation is in compliance with federal, state and local environmental regulations.
ITEM 2.
ITEM 2. PROPERTIES
The principal properties of the Corporation as of June 13, 1997 are listed below:
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(1) This property is no longer used by the Corporation; a portion is subleased and the remainder is available for sublease.
(2) This property is subject to a $1.7 million mortgage given as security under the Corporation's Credit Agreement with its U.S. Banks dated November 14, 1991, as amended. This property is excess to the Corporation's space needs and is listed for sale.
(3) This property is no longer used by the Corporation and is subleased for the remaining term of the Corporation's lease.
(4) This facility is no longer used by the Corporation and the Corporation has subleased this property.
The Corporation maintains its plants and offices in good repair. In the opinion of management, the various facilities used by the Corporation are adequate for the needs of the businesses conducted therein.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Neither the Corporation nor any of its subsidiaries is a party to any material legal proceedings.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Executive Officers of the Registrant
The executive officers of the Corporation, as of June 13, 1997, their positions with the Corporation and their ages are as follows:
All officers of the Corporation are elected annually by the Board of Directors.
Charles Linn Haslam, 53, has been Chairman of the Board since July 16, 1996, Chief Executive Officer since May 17, 1996 and was President of the Corporation from May 17, 1996 until July 16, 1996. Mr. Haslam practiced law in Washington, D.C. from January 1980 to May 1996. He was General Counsel, United States Department of Commerce during the Carter Administration (January 1977 to December 1979) and University Counsel and Adjunct Professor of Law at Duke University from 1974 to 1977.
Robert M. Thornton, Jr., 48, has been President of the Corporation since July 16, 1996. From October 1994 to the present, he has been a private investor and, since March 1995, Chairman and Chief Executive Officer of CareVest Capital, LLC, a private investment and management services firm. Mr. Thornton was President, Chief Operating Officer, Chief Financial Officer and a Director of Hallmark Healthcare Corporation from November 1993 until Hallmark's merger with Community Health Systems, Inc. in October 1994. From October 1987 until November 1993, Mr. Thornton was Executive Vice President, Chief Financial Officer, Secretary and Treasurer and a Director of Hallmark.
W. E. Greenhalgh, 66, has been associated continuously with KRUG International (UK) Ltd. (formerly Butterfield Harvey PLC) from 1960 to the present. He has served in a variety of capacities, including Chief Executive Officer from 1983 until his retirement in 1989, and as a non-executive director and consultant from 1989 to the present. He has also served as the non-executive Chairman of Beldray Ltd. and Sowester Ltd. from 1989 to the present.
James J. Mulligan, 75, has been a member of the law firm of Mulligan & Mulligan since January 1993. He was a member of the law firm of Smith & Schnacke from 1953 to 1989 and a member of the law firm of Thompson Hine & Flory LLP from 1989 until his retirement in 1991. He became Secretary of the Corporation in 1966.
Joseph P. Kerwin, M.D., 65, became President of KRUG Life Sciences Inc. on April 1, 1997. From June 1996 until March 1997, Dr. Kerwin was the Manager, Clear Lake Operations, of System Research Laboratories where his responsibilities included medical support and biomedical research bids with Baylor College of Medicine, Boeing, Lockheed Martin, Merck, and others. From 1987 until June 1996, Dr. Kerwin held various management positions with Lockheed Martin Missiles and Space Company where he was responsible for operations and programs including Houston activities of space station redesign programs, the NASA human transportation study, the Assured Crew Return Vehicle program, the Extravehicular Activity Systems for the space station, and the Russian Mir procurement program for the Russian Tug -- the first vehicle in launch sequence for the International Space Station. Dr. Kerwin served as an astronaut from 1965 to 1987. In addition to flight duties, he held various administrative positions, including Director of the NASA Space and Life Sciences Division from 1983 to 1987. Dr. Kerwin flew as Science Pilot on Skylab 2 in 1973.
Robert M. Ellis, 54, has been Vice President, Contracts, Procurement and Finance of KRUG Life Sciences Inc. since June 6, 1997 and was named Principal Accounting Officer of KRUG International Corp. on November 8, 1996. He has been continuously associated with the Corporation's life sciences, aerospace and engineering operations since 1967, and has held a number of positions, including Vice President, Procurement Operations and Finance of KRUG Life Sciences Inc. from November 1996 to June 6, 1997 and Manager of Procurement Operations and Finance from June 1991 until November 1996.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
KRUG International's Common Shares are traded on the American Stock Exchange under the symbol KRG and trading in its warrants is reported to and compiled by the National Quotation Bureau under the symbol KRUGW. The Table below sets forth the high and low sales prices for the Common Shares for fiscal 1997 and 1996. The number of shareholders of record was 946 as of March 31, 1997. No cash dividends were paid in fiscal 1997 or 1996. Prior to December 30, 1996, the Common Shares were traded on the NASDAQ National Market System.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data, which should be read in conjunction with the Corporation's Consolidated Financial Statements and related Notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Corporation's fiscal 1997 revenues of $111.7 million increased by 17% from fiscal 1996. Fiscal 1996 revenues increased by 4% from fiscal 1995. In fiscal 1997, revenues in the U.S. were $50.0 million, and revenues in the U.K. were $61.7 million.
Fiscal 1997 U.K. revenues of $61.7 million, which comprise the Housewares Segment and Leisure Marine Segment, increased by $10.2 million or 20%. The Housewares Segment revenue increased by $6.6 million or 25%. Hago Products Limited (Hago), which was purchased on October 31, 1996, added $4.4 million of revenue to the Housewares Segment during the year and revenue of Beldray Ltd. increased by $2.2 million. The favorable effect of currency translation contributed $0.4 million of revenue to the Housewares Segment. All Houseware Segment product groups had increased sales from last year, with laundry products, child safety gates and wire airer sales having the largest increases. The Corporation believes the sales increases were the result of increased market share and, with respect to child safety gates, the introduction of new products and acquisition of Hago. Fiscal 1997 revenues of the Leisure Marine Segment increased by $3.6 million, or 14% over last year. Of this increase, $0.4 million was due to the favorable effect of currency translation. Increased sales of chandlery products, outboard and inboard engines, engine parts and Sea Doo personal watercraft also contributed to the increase. The increase in chandlery revenue was due to the introduction of new chandlery products and increases in other products resulted from higher demand for leisure marine products in the UK.
Fiscal 1996 U. K. revenues of $51.5 million increased by $3.7 million for an 8% increase from fiscal 1995. Of this increase, $3.3 million was due to increased sales volume with the remainder due to favorable currency translation. Fiscal 1996 Leisure Marine Segment revenues increased by $4.1 million to $25.0 million, of which $3.9 million was due to increased sales volume. All Leisure Marine Segment product groups had increased revenues except for inboard engines. Chandlery and Sea Doo personal watercraft sales increased significantly due to new products and increased demand. Fiscal 1996 Housewares Segment revenues decreased by $0.4 million to $26.5 million, of which $0.6 million was due to decreased volume partially offset by $0.2 million of favorable foreign currency translation. Sales of laundry products, rotary dryers and wire airers decreased during the year. Laundry sales decreased 3% in fiscal 1996 due to consumers buying ironing tables with lower prices. Rotary dryers and wire airer sales decreased as a result of losing a significant customer. The decreases were partially offset by the introduction of child safety gates during the year.
Revenues for the U.S. Life Sciences and Engineering Segment (LS&E) were $50.0 million in fiscal 1997, $44.3 million in fiscal 1996 and $44.0 million in fiscal 1995. Increased labor services, material purchases and subcontract effort provided under contracts to the National Aeronautics and Space Administration's (NASA) Johnson Space Center and the U.S. Air Force resulted in the increased revenues in fiscal 1997. In fiscal 1996, increased labor services and subcontract support provided to NASA resulted in the increased revenues from fiscal 1995.
The LS&E Segment order backlog at March 31, 1997 was $106.9 million compared to $60.4 million at March 31, 1996 and $89.1 million at March 31, 1995. In January 1997, KRUG Life Sciences Inc. (KLSI) was awarded a new five-year contract by NASA's Johnson Space Center Medical Services Division (JSCMD) with a contract value over five years of approximately $82.1 million, including $33.8 million for option years four and five. Effective January 30, 1997, KLSI signed a new $21.6 million contract with NASA's JSCMD for the continuation of the design, development, test and evaluation of flight hardware for the shuttle and space station through December 31, 1998. In addition, KLSI has submitted a bid and is negotiating another five year NASA contract on a sole source basis for biotechnology processing services. In August 1996, the LS&E Segment was awarded a new contract for equipment calibration at the Wright Laboratory, Wright-Patterson Air Force Base. The contract consists of a base period beginning August 1, 1996 plus four one-year options through September 30,
2000. The contract value with the options is approximately $5.0 million. Backlog is not meaningful in the Leisure Marine and Housewares Segments due to the short time between order placement and shipment.
Gross profit (revenues less cost of goods sold) margins were 13.3%, 12.6% and 13.7% in fiscal 1997, 1996 and 1995, respectively. The increase in gross profit margin in fiscal 1997 was due to increased margins in the Housewares Segment which increased to 10.8% from 7.1% in fiscal 1996, due primarily to increased selling prices and lower raw materials costs. Gross profit margin of the Leisure Marine Segment increased slightly in fiscal 1997 primarily as a result of increased sales of higher margin products. The gross profit margin of the LS&E Segment decreased during fiscal 1997 due to increased material purchases and subcontract support services provided under contracts to NASA and the U.S. Air Force on which margins were lower than on other LS&E Segment revenues. The decrease in gross profit margin in fiscal 1996 was due to decreased margins in the Housewares Segment. Depressed selling prices caused by competitive market conditions and increased raw material costs for aluminum and steel which were not fully recovered through higher selling prices were the primary causes of the Housewares Segment margin decrease. The Leisure Marine Segment gross profit margin increased slightly in fiscal 1996 as compared to fiscal 1995 as a result of selling more higher margin products. The gross margin of the LS&E Segment decreased slightly during fiscal 1996 because of increased subcontract service on U.S. government contracts for which no additional profit was received.
Selling and administrative expenses were $9.4 million, $9.2 million and $8.8 million in fiscal 1997, 1996 and 1995, respectively. The increase in fiscal 1997 is attributable primarily to the acquisition of Hago on October 31, 1996 and increased Leisure Marine Segment sales volume, which increased selling expenses. Such increases were partially offset by decreased U.K. pension expense and lower U.S. Corporate expense. The increase in selling and administrative expenses in fiscal 1996 as compared to fiscal 1995 was due to increased expenses of the Leisure Marine Segment caused by increased sales volume, increased U.K. pension expense and U.S. Corporate expense for the retiring Chairman's new consulting agreement which replaced his prior pension agreement.
In September 1996, the Corporation closed its executive offices in Dayton, Ohio and consolidated its headquarters activities with its primary operations facility adjacent to the NASA Johnson Space Center in Houston, Texas. A restructuring charge of $0.8 million was recorded for such office consolidation during the quarter ended September 30, 1996. The charge consisted primarily of estimated costs relating to severance for six employees and rent and other costs related to the vacated offices in Dayton, Ohio. In the fourth quarter of fiscal 1997, the Corporation sublet the vacated offices and, as a result, recorded a credit to the restructuring charge of $0.27 million.
Interest expense decreased by $0.1 million in fiscal 1997 due to lower average debt levels in both the U.S. and U.K. as compared to fiscal 1996. Interest expense decreased by $0.2 million in fiscal 1996 compared to fiscal 1995 due to decreased levels of debt in both the U.K. and U.S. and slightly decreased U.K. and U.S. interest rates.
The effective income tax rate was 34.7% for fiscal 1997, 38.2% for fiscal 1996 and 31.0% for fiscal 1995. The effective tax rate for fiscal 1997 was slightly higher than the statutory U.S. tax rate due to certain non-deductible U.K. expenses partially offset by deductible U.K. pension amounts higher than pension expense. The effective tax rate for fiscal 1996 was higher than the statutory U.S. tax rate due to U.K. pension expense in excess of deductible amounts, amortization of intangibles and other non-deductible expenses in the U.K.
Earnings from continuing operations were $2.6 million in fiscal 1997, an increase of $1.4 million from fiscal 1996. The increase was due to profits earned in the Housewares Segment for fiscal 1997 (versus losses in fiscal 1996), and increased sales and gross profit by the Leisure Marine Segment. Earnings from continuing operations were $1.2 million in fiscal 1996, a decrease of $0.8 million from fiscal 1995. The decrease was due to losses incurred by the Housewares Segment in fiscal 1996 which were greater than the increase in Leisure Marine Segment profits, and the absence of significant other income items which were $0.5 million in fiscal 1995.
DISCONTINUED OPERATIONS
In fiscal 1989, the Corporation discontinued the operations of its Industrial Segment and subsequently disposed of substantially all related net assets. However, obligations remain relating to leased property in Knoxville, Tennessee, leased property in Toronto, Canada, and product liability claims for products sold prior to the disposal. During the year ended March 31, 1997, the Corporation recorded a charge of $0.5 million (net of a tax benefit of $0.2 million) to increase the provision for losses from such discontinued operations. The increase was due to additional repair and maintenance costs relating to the Knoxville property, decreased sublease income from the Knoxville property, increased insurance costs related to product liability claims and the loss of future sublease income caused by the bankruptcy filing of a tenant in the Toronto facility.
LIQUIDITY AND CAPITAL RESOURCES
Under the Corporation's revolving credit facility with a U.S. business credit corporation, the Corporation had a loan outstanding of $ 3.8 million at March 31, 1997. Availability under the revolving credit facility is based upon the amount of billed and unbilled U.S. accounts receivable and is limited to a maximum of $10.0 million. The credit facility expires March 15, 2000. Under the agreement, the Corporation had additional borrowing capacity of $1.6 million available at March 31, 1997. At March 31, 1997, the Corporation also had a $1.7 million mortgage loan outstanding on its Dayton, Ohio real property. The mortgage loan was provided by five U.S. banks and matures on March 31, 1998. The Corporation's U.K. subsidiaries had two term loans outstanding totaling $5.6 million at March 31, 1997. The loans require quarterly principal payments and mature in fiscal 2005. In addition, the Corporation has a U.K. line of credit with $4.1 million available of which $1.2 million was used at March 31, 1997. The Corporation's various debt agreements contain affirmative and negative covenants, including financial covenants relating to cash flow, operating profit and limitations on cash dividends, additional debt and capital expenditures. The Corporation believes it has adequate financing in both the U.S. and U.K. to support its current level of operations.
The Corporation generated $3.0 million, $2.5 million and $1.2 million from operating activities for fiscal 1997, 1996 and 1995, respectively. The $0.5 million increase in cash generated from operating activities in fiscal 1997 compared to fiscal 1996 was due primarily to increased profit in the United Kingdom and utilization of tax prepayments in the U.K., offset somewhat by increased U.K. inventory levels, increased prepaid expenses and other assets and increased net cash used in U.S. discontinued operations. The $1.3 million increase in cash generated from operating activities in fiscal 1996 compared to fiscal 1995 was due primarily to cash generated from decreased inventory levels in the U.K. and decreased cash used by discontinued operations.
During fiscal 1997 the Corporation's U.K. Housewares subsidiary expended approximately $1.8 million for the purchase of Hago Products Ltd. Expenditures for property, plant and equipment in fiscal 1997, 1996 and 1995 were $0.6 million, $0.3 million and $0.4 million, respectively. The capital expenditures for fiscal 1997 include $0.3 million of new equipment for Leisure Marine distribution activities while other capital expenditures for fiscal 1997 and for fiscal 1996 and 1995 represent normal replacement expenditures. At March 31, 1997, there were no significant capital commitments.
The Corporation monitors the effect of inflation on its businesses. Inflation did not have a significant impact on operations during the past three years and is not expected to have a significant impact in the foreseeable future.
CERTAIN CAUTIONARY STATEMENTS
In addition to historical information, Items 1 and 7 of this document contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding managements' outlook for each of its businesses and the sufficiency of the Corporation's liquidity and sources of capital. These forward-looking statements are subject to certain risks, uncertainties and other factors which could cause actual results to differ materially from those anticipated, including, without limitation, restrictions imposed by debt agreements, competition in the Housewares and Leisure Marine business and for government services provided by the Life Sciences and Engineering Segment, governmental budgetary constraints, the regulatory environment for the Corporation's businesses, consolidation trends in the Corporation's businesses, competition in the acquisition market, changes in exchange rates, increases in raw material prices, the purchasing practices of significant customers, the availability of qualified management and staff personnel in each business segment and claims for product liability from continuing and discontinued operations.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of KRUG International Corp. Houston, Texas
We have audited the accompanying consolidated balance sheets of KRUG International Corp. and Subsidiaries (the "Corporation") as of March 31, 1997 and 1996 and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended March 31, 1997. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of KRUG International Corp. and Subsidiaries at March 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP Dayton, Ohio
May 16, 1997
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, MARCH 31, 1997 AND 1996 (All dollar amounts in thousands) - -------------------------------------------------------------------------------
See notes to consolidated financial statements.
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, - Continued MARCH 31, 1997 AND 1996 (All dollar amounts in thousands) - -------------------------------------------------------------------------------
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995 (All amounts in thousands, except per share amounts) - -------------------------------------------------------------------------------
See notes to consolidated financial statements.
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995 (All amounts in thousands) - -------------------------------------------------------------------------------
See notes to consolidated financial statements.
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995 (All dollar amounts in thousands) - -------------------------------------------------------------------------------
See notes to consolidated financial statements.
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995 (ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - -------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the Corporation and its domestic and foreign subsidiaries. All significant intercompany transactions and balances have been eliminated.
REVENUE RECOGNITION - Revenues from cost reimbursement and time and material government contracts are recorded as costs are incurred and include estimated earned fees. Earned fees on contracts with fixed- fee provisions are based on the proportion that costs incurred to date bear to total estimated costs at completion. For contracts with award fee provisions, fees are based on semiannual performance evaluations. Revenues from fixed-price contracts are generally recognized using the percentage-of-completion method for financial accounting purposes. Claims for recovery of additional contract costs are recognized only to the extent that the recoverable amounts can be determined with reasonable certainty. Costs not recoverable upon completion of contracts are immediately charged against earnings.
USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
INVENTORIES - Inventories are valued at the lower of cost or market using the first-in first-out method.
LONG-LIVED ASSETS - The Corporation adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" effective April 1, 1996. Implementation of SFAS No. 121 had no impact on the consolidated financial statements.
DEPRECIATION - Property, plant and equipment, including capital leases, is depreciated over its estimated useful life principally using the straight-line method.
STOCK-BASED COMPENSATION - The Corporation measures compensation cost for stock options issued to employees using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - Net earnings per share is computed by dividing net earnings by the weighted average number of Common Shares outstanding during each period, adjusted for the dilutive effect, if any, of stock options and stock warrants.
FOREIGN CURRENCY TRANSLATION - The assets and liabilities of the Corporation's wholly owned U.K. subsidiaries are translated using exchange rates in effect at the balance sheet date, and amounts for the consolidated statements of earnings are translated using average exchange rates for the period. Translation gains and losses are recorded in shareholders' equity and transaction gains and losses are included in the consolidated statement of earnings for the period.
FINANCIAL INSTRUMENTS - The recorded values of cash and trade receivables and payables approximate fair values because of the relatively short maturity of these instruments. Similarly, the fair values of the Corporation's notes payable are estimated to approximate current values due to their relatively short maturity and interest rate characteristics.
RECENT ACCOUNTING STANDARDS - In February 1997 SFAS No. 128, "Earnings per Share" was issued. The statement requires dual presentation of basic and diluted earnings per share ("EPS") on the face of the statement of earnings for entities with complex capital structures. SFAS No. 128 is effective for financial statements for periods after December 15, 1997, including interim periods. Implementation of this pronouncement is not expected to have a material effect on reported EPS.
B. ACQUISITION OF HAGO PRODUCTS LTD.
Effective October 31, 1996, the Corporation's U.K. housewares subsidiary purchased the outstanding common stock of Hago Products Ltd. ("Hago"), a U.K. manufacturer of child safety gates and fireguards, for approximately $1.8 million in cash. The acquisition was financed with internally available funds including borrowings under the U.K. line of credit.
The acquisition was accounted for using the purchase method of accounting. Accordingly, the consolidated statements of earnings include the results of operations of Hago since the effective date of the acquisition. The information below presents combined results of operations on a pro-forma basis assuming the acquisition had occurred at the beginning of the respective period:
The pro-forma amounts shown above include adjustments to reflect interest expense for acquisition-related debt and are not necessarily indicative of the consolidated results that would have occurred had the acquisition taken place on April 1, 1995; nor are they necessarily indicative of results that may occur in the future.
C. RECEIVABLES
D. INVENTORIES
E. LONG-TERM DEBT
The U.S. Revolving Credit Line is a revolving credit facility with a U.S. business credit corporation which provides up to $10 million. The credit facility expires March 15, 2000. Interest is payable monthly at the lender's base rate plus 2%, (10-1/2% at March 31, 1997). Availability under the facility is based upon the billed and unbilled accounts receivable of the Corporation's U.S. operations. At March 31, 1997, additional availability under the revolving credit facility was approximately $1.6 million. Under the terms of the credit facility, the Corporation is restricted from declaring or paying cash dividends without the consent of the lender and must comply with certain other restrictive and financial covenants.
The U.S. Mortgage, which is due March 31, 1998, is collateralized by the Corporation's Dayton, Ohio real property, which is held for sale. Interest is payable monthly at the bank's base rate plus 2% (10 1/2% at March 31, 1997).
Substantially all U.S. assets (except shares of foreign subsidiaries and all related assets) are pledged as collateral for the U.S. Revolving Credit Line and Mortgage.
The U.K. Term Loans are two, ten-year term loans which commenced in July 1995 with a U.K. bank. The loans have quarterly principal payments that total $164, plus interest, at the bank's base rate plus 1 1/2% (8 1/4% at March 31, 1997). Substantially all U.K. assets (except shares of the U.K. subsidiaries) are pledged as collateral for the U.K. Term Loans. The Term Loans include certain tangible net worth and cash flow requirements relating to the U.K. subsidiaries. The Corporation's Bank Borrowing is pursuant to a line of credit for the U.K. subsidiaries of which $2,938 was unused at March 31, 1997. Interest is payable quarterly on the line of credit at the bank's base rate plus 1 1/2% (8 1/4% at March 31, 1997).
Annual payments of long-term debt, including capital leases, for the next five years are as follows: 1998 - $2,922; 1999 - $961; 2000 - $4,558; 2001 - $685 and 2002 - $674.
F. SHAREHOLDERS' EQUITY
STOCK OPTION PLANS - The Corporation has three stock option plans permitting the grant of options to purchase common shares to officers and key employees; namely, the 1985 Incentive Stock Option Plan, the 1985 Incentive Stock Option Scheme for U.K. Employees and the 1995 Incentive Stock Option Plan. The 1985 U.K. Scheme has been administered as part of the 1985 Incentive Stock Option Plan. The authority to grant options under the 1985 Plan has expired; however, 30,320 options previously granted are still outstanding. Under the 1995 Plan, the grant of options to purchase up to 250,000 Common Shares is authorized through May 2005, and 91,000 options are outstanding. Option grants are made at the fair market values on the date of grant and expire three to ten years later. Vesting periods are determined by the Board of Directors but may not exceed ten years. On April 30, 1996, the Board of Directors approved the immediate vesting of all of the then outstanding stock options. Options granted during the year ended March 31, 1997 vest ratably over two years from November 1996.
The weighted-average fair value at grant date for the options granted during the years ended March 31, 1997 and 1996 was $1.65 and $1.15, respectively. The fair value of each stock option grant was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants during the years ended March 31, 1997 and 1996, respectively; estimated volatility of 51% and 55%; risk-free interest rate of 6%; dividend yield of 0%; and an expected life of 2.5 years.
No compensation costs have been recognized for the stock option plans since the exercise price of the options is not less than the grant date fair value. Had compensation costs been determined on the fair value based method consistent with SFAS No. 123, the Corporation's net earnings would have been $2,033 and $1,169 and net earnings per share would have been $0.39 and $0.23 for the years ended March 31, 1997 and 1996, respectively.
1997 EMPLOYEE STOCK PURCHASE PLAN - The 1997 Employee Stock Purchase Plan was approved by the Board of Directors in November 1996. Each employee continuously employed through December 31, 1997 by KRUG International Corp. and KRUG Life Sciences Inc. is eligible to purchase up to 200 Common Shares for 85% of the fair market value as determined based on the lower of the last sale price at January 2, 1997 or December 31, 1997. Payments for stock subscribed under the plan are being made
by payroll deductions. An employee may voluntarily terminate participation in the Plan at any time prior to December 31, 1997 and receive a refund of payroll deductions plus interest thereon at 7% per annum. At March 31, 1997, a total of 19,152 common shares have been subscribed by participants under this plan.
WARRANTS - The Corporation issued warrants to shareholders of record on December 23, 1995. For each five common shares held, the Corporation distributed one warrant which may be used to purchase one common share. The warrants entitle the holders to purchase, in the aggregate, 999,487 common shares. The purchase price was $7.125 per share through January 31, 1997, and is $8.625 from February 1, 1997 through their expiration on January 31, 1998. The Corporation may reduce the purchase price at any time.
In October 1995 the Corporation agreed to issue warrants to two outside advisory firms to purchase a total of 125,000 common shares at $3.031 per share. In December 1996 the Corporation terminated the advisory agreements which included the cancellation of the warrant provisions.
STOCK DIVIDENDS - A 10% stock dividend distributed by the Corporation in fiscal year 1995 has been reflected in the financial statements for all periods presented.
G. OTHER INCOME - NET
H. INCOME TAXES
The provisions for income taxes include the following:
Deferred tax assets recorded in the balance sheets include the following tax effects:
At March 31, 1997, the Corporation has accumulated domestic net operating loss carryforwards (expiring in 2005 through 2009) of approximately $11,000 available to offset future domestic taxable income.
The differences between income taxes at the federal statutory rate and the effective tax rate are as follows:
Earnings from continuing operations before income taxes include $3,439, $1,312 and $1,962 in 1997, 1996 and 1995, respectively, of foreign earnings.
Domestic income taxes have not been provided on undistributed earnings of the foreign subsidiaries aggregating $19,279 at March 31, 1997 because such amounts are considered to be permanently invested abroad. Determination of the amount of the unrecognized deferred tax liability for these undistributed earnings is not practicable.
I. EMPLOYEE BENEFITS
DEFINED BENEFIT PLANS - The Corporation has historically maintained defined benefit retirement plans covering substantially all of its employees. Benefits are principally based on years of service and level of earnings. The Corporation funds the domestic plan, which is noncontributory, at a rate that meets or exceeds the minimum amounts required by ERISA. The Corporation funds monthly contributions to the foreign plans, which are contributory, based on actuarially determined rates.
Effective February 28, 1997, the Corporation amended its domestic plan to freeze participant benefits and close the plan to new participants. As a result, the Corporation recognized a curtailment gain of $369 primarily due to the reduction of the projected benefit obligation. The domestic pension asset recorded on the balance sheet would be substantially unrecoverable in the event of plan termination due to taxes, including excise taxes, which would be payable upon reversion of any excess pension assets to the Corporation.
The components of net pension expense for all plans, excluding the curtailment gain, are as follows:
Summary information for the funded plans is as follows:
The weighted-average discount rate used for the domestic plan was 7.5% in 1997 through the curtailment date and 1996. The discount rate was changed to 7.0% after the curtailment. Where appropriate, the projected rate of compensation increases was 4.5% in 1997 and 1996 and the expected rate of return on plan assets was 8% in 1997 and 1996. Domestic plan assets are primarily invested in listed stocks and bonds and U.S. government obligations. Approximately 12% of the fair value of the assets at March 31, 1997 comprised 146,000 Common Shares of the Corporation.
The weighted-average discount rate used for the foreign plans was 9% in 1997 and 1996. The projected rate of compensation increases was 7% in 1997 and 1996, and the expected rate of return on plan assets was 9% in 1997 and 1996. Foreign plan assets are invested in managed fund units in the United Kingdom.
DEFINED CONTRIBUTION PLAN - The Corporation has a defined contribution plan pursuant to IRS Section 401(k) covering substantially all domestic employees. The Corporation's policy is to contribute a specified percentage of the employees' contribution as determined periodically by the Corporation. Plan expense was $200 in 1997, $169 in 1996 and $170 in 1995.
J. COMMITMENTS AND CONTINGENCIES
LEASES - The Corporation leases various land, buildings and equipment (principally for the U.K. companies) under capital and operating lease obligations with noncancelable terms ranging from 1 to 18 years. Minimum lease commitments as of March 31, 1997 follow:
At March 31, 1997 and 1996, buildings and equipment under capital leases of $2,481 and $2,750 (less accumulated depreciation of $1,109 and $1,629), respectively, are included in property, plant and equipment. Rent expense under operating leases was $1,171, $993 and $922 for the years ended March 31, 1997, 1996 and 1995, respectively.
LITIGATION - The Corporation is a party to claims and litigation incidental to its business, as to which it is not currently possible to determine the ultimate liability, if any. Based on an evaluation of information currently available and consultation with legal counsel, management is of the opinion that such claims and litigation are not likely to have a material effect on the financial position or results of operations of the Corporation.
CONSULTING AGREEMENTS - The Corporation entered into a consulting agreement with its former chairman in April 1997 and terminated its obligation to him under a previous founders agreement. The remaining obligation under the consulting agreement of $450 and $700 at March 31, 1997 and 1996, respectively, is included in other accrued expenses in the consolidated balance sheets.
GOVERNMENT CONTRACTS - Overhead rates for cost reimbursement and time and material billed to government contracts are subject to possible audit, adjustment and/or renegotiation. Management does not believe such matters will have a material effect on the consolidated financial statements.
K. RESTRUCTURING CHARGE
In September 1996 the Corporation closed its executive offices in Dayton, Ohio and consolidated its headquarters activities with its primary operations facility adjacent to the NASA Johnson Space Center in Houston, Texas. A restructuring charge of $800 was recorded for such office consolidation during the quarter ended September 30, 1996. The charge consisted primarily of estimated costs relating to severance for six employees and rent and other costs related to the vacated offices in Dayton, Ohio. In the fourth quarter of fiscal year 1997, the Corporation recorded a credit to the restructuring charge of $270 after successfully subleasing the vacated offices. At March 31, 1997, the accrued restructuring charge of $340 primarily relates to rent (net of expected sublease rental income) and other expenses payable through June 1999, the lease termination date.
L. DISCONTINUED OPERATIONS
In fiscal 1989, the Corporation discontinued the operations of its Industrial Segment and subsequently disposed of substantially all related net assets. However, obligations remain relating to a leased property in Knoxville, Tennessee, a leased property in Toronto, Canada, and product liability claims for products sold prior to the disposal.
During the year ended March 31, 1997, the Corporation recorded a charge of $456 (net of a tax benefit of $235) to increase the provision for losses for such discontinued operations. The increase was due to additional repair and maintenance costs relating to the Knoxville property, decreased sublease income from the Knoxville property, increased insurance costs related to product liability claims and loss of future sublease income caused by the bankruptcy filing of a tenant in the Toronto facility.
During the year ended March 31, 1997, the reserve for losses from discontinued operations increased by the $691 charge previously discussed and decreased by $1,192 for charges to the reserve, leaving a balance of $918 at March 31, 1997. During the year ended March 31, 1996, the reserve for losses from discontinued operations increased by $140 from asset sales and decreased by $781 for charges to the reserve, leaving a balance of $1,419 at March 31, 1996. During the year ended March 31, 1995, the reserve for losses from discontinued operations increased by $700 as a result of a settlement with the bankruptcy court related to a major tenant of the Knoxville leased property who filed bankruptcy in 1994 and decreased by $1,212 for charges to the reserve.
The Corporation is directly or contingently liable for lease and other commitments related to property formerly used by its discontinued operations. Commitments, net of minimum sublease rentals expected to be received, are $335 in 1998 and $196 in 1999.
M. INDUSTRY SEGMENTS
The Corporation's operations consist of three segments:
- Leisure Marine equipment distribution in the U.K. - Housewares manufacturing and distribution in the U.K. - Life Sciences and Engineering in the U.S.
The Leisure Marine distribution segment is comprised of Sowester Ltd. a subsidiary, which sells to boat manufacturers and marine retailers more than 4,000 items of marine equipment including hardware and electronics, outboard, inboard and stern drive engines, personal watercraft, engine controls, steering systems, and associated replacement parts. Sowester Ltd. is the exclusive distributor in the U.K. and Ireland for many well-known brand names such as Mercury, MerCruiser and Sea Doo.
The Housewares manufacturing segment is comprised of Beldray Ltd. and Hago Products Ltd., subsidiaries which manufacture and sell under various proprietary brand names and private labels ironing tables, household ladders, rotary dryers, indoor airers, child safety gates, fireguards and garden equipment. Customers include do-it-yourself retailers, supermarkets, mail order catalogs, wholesalers and department stores, primarily in the U.K. and Ireland.
The Life Sciences and Engineering segment is comprised of two subsidiaries, KRUG Life Sciences Inc. and Technology/Scientific Services, Inc., and is engaged in basic and applied biotechnological research, support services and engineering pursuant to contracts primarily with agencies of the U.S. government.
Information concerning the Corporation's operations by industry segment is presented in the following table:
(1) Revenues from tangible products were $73,307, $59,384 and $57,747 and revenues from services were $38,432, $36,437 and $34,019 for the years ended March 31, 1997, 1996 and 1995, respectively. Related cost of goods sold for tangible products was $62,375, $51,245 and $49,317 and related cost of services was $34,555, $32,456 and $29,897, respectively.
(2) Includes revenues from one customer of $11,913 in 1997.
(3) Includes revenues from the U.S. government of $49,808 in 1997, $44,091 in 1995 and $43,637 in 1995.
N. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The Corporation files quarterly information on Form 10-Q with the Securities and Exchange Commission. Significant activity in the amounts reported for the quarter ended March 31, 1997 included the provision for losses related to discontinued operations of $456, net of tax benefit of $235 (see Note L); the pretax credit to the accrued restructuring charge totaling $270 (see Note K); and pretax revenue from material fees upon settlement of a government contract totaling $450.
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ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated herein by reference from the Corporation's Proxy Statement for its Annual Meeting of Shareholders on July 18, 1997, except for certain information concerning the executive officers of the Corporation which is set forth in Part I of this Report.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth in the Corporation's Proxy Statement for its Annual Meeting of Shareholders on July 18, 1997, and is incorporated herein by this reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is set forth in the Corporation's Proxy Statement for its Annual Meeting of Shareholders on July 18, 1997, and is incorporated herein by this reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is set forth in the Corporation's Proxy Statement for its Annual Meeting of Shareholders on July 18, 1997, and is incorporated herein by this reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following consolidated financial statements of the Corporation and its subsidiaries are incorporated by reference as part of this Report at Item 8 hereof.
Independent Auditors' Report.
Consolidated Balance Sheets -- March 31, 1997 and 1996.
Consolidated Statements of Earnings -- for the fiscal years ended March 31, 1997, 1996 and 1995.
Consolidated Statements of Shareholders' Equity -- for the fiscal years ended March 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows -- for the fiscal years ended March 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements -- for the fiscal years ended March 31, 1997, 1996 and 1995.
(a) (2) Financial Statement Schedules
The information required to be submitted in Schedules III, IV and V for KRUG International Corp. and consolidated subsidiaries has either been shown in the financial statements or notes, or is not applicable or required under Regulation S-X, and, therefore, those schedules have been omitted.
(b) Reports on Form 8-K
During the quarter ended March 31, 1997, the Corporation filed two reports on Form 8-K. The first was dated January 14, 1997 reporting Item 2 - Acquisition or Disposition of Assets. The second was dated March 31, 1997 reporting Item 2 - Acquisition or Disposition of Assets. Both Form 8-K's related to the acquisition of Hago Products Ltd. by Beldray Ltd.
(c) Exhibits. See Index to Exhibits
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this 13th day of June, 1997.
KRUG International Corp.
By: /s/ CHARLES LINN HASLAM ------------------------------------- Charles Linn Haslam Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of KRUG International Corp. and in the capacities and on the dates indicated:
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of KRUG International Corp. Houston, Texas
We have audited the consolidated financial statements of KRUG International Corp. and subsidiaries as of March 31, 1997 and 1996, and for each of the three years in the period ended March 31, 1997, and have issued our report thereon dated May 16, 1997 (included elsewhere in this Form 10-K). Our audits also included the consolidated financial statement schedules of KRUG International Corp. and subsidiaries, listed in Item 14. These consolidated financial statement schedules are the responsibility of the Corporation's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP Dayton, Ohio
May 16, 1997
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT, KRUG INTERNATIONAL CORP.
BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
ASSETS
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT, KRUG INTERNATIONAL CORP.
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(AMOUNTS IN THOUSANDS)
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT, KRUG INTERNATIONAL CORP.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (AMOUNTS IN THOUSANDS)
Column A Column B Column C Column D Column E - -------- -------- ------------------------- -------- -------- Additions -------------------------
INDEX TO EXHIBITS
(21) SUBSIDIARIES:
The active subsidiaries of KRUG International Corp. are listed below, do business under the name under which they are organized, and are included in the consolidated financial statements of the Corporation. The names, jurisdiction of incorporation of such subsidiaries, and percentage of voting securities owned by the Corporation are set forth below.
- ---------
* Indicates that this Exhibit is incorporated by reference into this Annual Report on Form 10-K from a previous filing with the Commission.