-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SSLpd2VGQ2l3Bx0qn+CjL10mN4P1WB8IxffeWDNyg6/nbi33mU/E5COG2x797tfu 5q7ObX6xMhqYjD2WxhODnQ== /in/edgar/work/20000807/0000950144-00-009524/0000950144-00-009524.txt : 20000921 0000950144-00-009524.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950144-00-009524 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUG INTERNATIONAL CORP CENTRAL INDEX KEY: 0000096793 STANDARD INDUSTRIAL CLASSIFICATION: [8731 ] IRS NUMBER: 310621189 STATE OF INCORPORATION: OH FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12607 FILM NUMBER: 687367 BUSINESS ADDRESS: STREET 1: 900 CIRCLE 75 PARKWAY STREET 2: SUITE 1300 CITY: ATLANTA STATE: GA ZIP: 30339 BUSINESS PHONE: 7709337000 MAIL ADDRESS: STREET 1: 900 CIRCLE 75 PARKWAY STREET 2: SUITE 1300 CITY: ATLANTA STATE: GA ZIP: 30339 FORMER COMPANY: FORMER CONFORMED NAME: TECHNOLOGY INC DATE OF NAME CHANGE: 19860803 FORMER COMPANY: FORMER CONFORMED NAME: COMANCO INDUSTRIES INC DATE OF NAME CHANGE: 19710719 10-Q 1 e10-q.txt KRUG INTERNATIONAL CORP. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 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 1-12607 KRUG INTERNATIONAL CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Ohio 31-0621189 ---- ---------- (STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER OR ORGANIZATION) IDENTIFICATION NO.) 900 Circle 75 Parkway, Suite 1300, Atlanta, Georgia 30339 --------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (770) 933-7000 -------------- (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 filings requirements for the past 90 days. Yes [X] No [ ] The number of Common Shares, without par value, outstanding as of August 1, 2000 was 4,976,340. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS KRUG INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (ALL AMOUNTS IN THOUSANDS)
JUNE 30, MARCH 31, 2000 2000 ---------- ---------- ASSETS Current Assets: Cash and cash equivalents $ 6,737 $ 7,651 Receivables - net 4,348 5,118 Inventories 3,299 3,611 Prepaid expenses and other 744 506 ---------- ---------- Total Current Assets 15,128 16,886 Property, Plant and Equipment, At Cost 9,940 10,319 Less accumulated depreciation 5,958 6,069 ---------- ---------- Property, Plant and Equipment - Net 3,982 4,250 Pension Asset 1,073 1,129 Net noncurrent assets of discontinued operations 858 855 Other Assets 62 8 ---------- ---------- Total Assets $ 21,103 $ 23,128 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Bank borrowings $ 2,409 $ 2,064 Accounts payable 4,458 5,562 Accrued expenses 2,069 2,378 Income taxes 38 348 Net current liabilities of discontinued operations 242 198 Current maturities of long-term debt 514 589 ---------- ---------- Total Current Liabilities 9,730 11,139 Long-term debt 1,267 1,438 Noncurrent reserve for Industrial Segment 1,017 1,038 ---------- ---------- Total Long-term Liabilities 2,284 2,476 Shareholders' Equity: Common shares, no par value: Issued and outstanding, 4,976 at June 30, 2000 and March 31, 2000 2,488 2,488 Additional paid-in capital 3,604 3,604 Retained earnings 2,954 3,172 Accumulated other comprehensive income 43 249 ---------- ---------- Total Shareholders' Equity 9,089 9,513 ---------- ---------- Total Liabilities and Shareholders' Equity $ 21,103 $ 23,128 ========== ==========
See notes to condensed consolidated financial statements 2 3 KRUG INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, ---------------------------- 2000 1999 ---------------------------- Revenues $ 6,932 $ 7,681 Cost of Goods Sold 6,341 7,009 Selling and Administrative Expenses 745 1,008 ---------------------------- Operating Loss (154) (336) Other Income (Expense): Interest expense (51) (78) Interest income 105 83 Other income - net -- 1 ---------------------------- Loss From Continuing Operations Before Income Taxes (100) (330) Income Tax Expense (63) -- ---------------------------- Loss From Continuing Operations (163) (330) Loss From Discontinued Operations (net of tax benefit of $18 and tax expense of $48, respectively) (55) (263) ---------------------------- Net Loss $ (218) $ (593) ============================ Loss Per Share: Continuing Operations: Basic $ (0.03) $ (0.07) ============================ Diluted $ (0.03) $ (0.07) ============================ Net Loss: Basic $ (0.04) $ (0.12) ============================ Diluted $ (0.04) $ (0.12) ============================ Average Common Shares Outstanding: Basic 4,976 4,978 ============================ Diluted 4,976 4,978 ============================
See notes to condensed consolidated financial statements 3 4 KRUG INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED JUNE 30, ---------------------------- 2000 1999 ---------------------------- Net Cash Used in Operating Activities $ (1,114) $ (2,483) Cash Flows From Investing Activities: Expenditures for property, plant and equipment (92) (31) ---------------------------- Net Cash Used In Investing Activities (92) (31) Cash Flows From Financing Activities: Bank borrowings - net 446 -- Payments on long-term debt (153) (360) Change in restricted cash -- 1,650 ---------------------------- Net Cash Provided by Financing Activities 293 1,290 Effect of Exchange Rate Changes on Cash (1) (70) ---------------------------- Net Decrease in Cash and Cash Equivalents (914) (1,294) Cash and Cash Equivalents at Beginning of Period 7,651 2,712 ---------------------------- Cash and Cash Equivalents at End of Period $ 6,737 $ 1,418 ============================ Cash Paid For: Income Taxes $ 500 $ 170 ============================ Interest $ 51 $ 82 ============================ Non-Cash Investing and Financing Activities: Capital leases $ -- $ 40 ============================
See notes to condensed consolidated financial statements 4 5 KRUG INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED JUNE 30, 2000 (DOLLARS IN THOUSANDS) NOTE 1. -- BASIS OF PRESENTATION The unaudited Condensed Consolidated Financial Statements for the three months ended June 30, 2000 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. These Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements included in the Corporation's Annual Report on Form 10-K filed on June 26, 2000. In the opinion of management, the Condensed Consolidated Financial Statements, which are unaudited, include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for the periods indicated. The results of operations for the three months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period. NOTE 2. -- BUSINESS OPERATIONS AND CORPORATE STRATEGY KRUG International Corp. manufactures and distributes housewares and child safety products through its manufacturing and distribution operations in Europe. The Corporation is currently redirecting its business strategy toward the acquisition of interests in the healthcare industry in the United States ("U.S."). The Corporation has not confined its strategy to any one sector of the healthcare industry, but its initial focus has been directed at evaluating acquisition opportunities for community hospitals. NOTE 3. -- DISCONTINUED OPERATIONS Child Safety Segment - During the quarter ended June 30, 2000, the Corporation decided to dispose of the European Child Safety segment, Klippan Limited ("Klippan"), and it is being marketed for sale. The Corporation currently anticipates that the sale will occur in fiscal 2001, which ends March 31, 2001. Klippan is a leading United Kingdom ("U.K.") manufacturer of children's automobile safety seats and accessories having manufacturing facilities and sales offices in the U.K. and Europe. Life Sciences and Engineering Segment - On November 30, 1999, the Corporation sold its Wyle Laboratories, Inc. ("Wyle") Series A Preferred Stock and stock option for $4,125 in cash. The Series A Preferred Stock had voting rights and was convertible into approximately 38% of Wyle's common shares. In connection with the sale, which was a part of a leveraged management buy-out of Wyle, the Corporation also exchanged its non-dividend paying and non-voting Series B Preferred Stock in Wyle for Senior Preferred Stock of LTS Holdings, Inc., Wyle's new parent company, and canceled its existing option to acquire Wyle shares. The New Senior Preferred Stock is redeemable on March 31, 2003 for $954 plus accrued and unpaid dividends at 8% per annum. No gain was reported on the exchange of the Series B Preferred Stock of Wyle for Senior Preferred Stock of LTS Holdings, Inc. due to the highly leveraged nature of Wyle's management buy-out. The recorded investment in the Senior Preferred Stock of LTS Holdings, Inc. is $0 at June 30, 2000. Industrial Segment - In fiscal year 1989, the Corporation discontinued the operations of its Industrial segment and subsequently disposed of substantially all related net assets. However, obligations remain relating to product liability claims for products sold prior to the disposal. 5 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4. - BANK BORROWINGS AND LONG-TERM DEBT
JUNE 30, MARCH 31, 2000 2000 ---------- ---------- U.K. Term Loan $ 1,196 $ 1,313 Capital leases 585 714 ---------- ---------- Total 1,781 2,027 Less current maturities (514) (589) ---------- ---------- Long-term portion $ 1,267 $ 1,438 ========== ==========
The Corporation has established a working capital line with a U.K. bank. The availability under the line is based upon the current levels of U.K. accounts receivable and will fluctuate with increases or decreases in eligible accounts receivable. Borrowings under this line were $2,409 at June 30, 2000. NOTE 5. -- INVENTORIES
JUNE 30, MARCH 31, 2000 2000 ---------- ---------- Finished goods $ 886 $ 1,245 Work-in-process 1,053 748 Raw materials and supplies 1,360 1,618 ---------- ---------- $ 3,299 $ 3,611 ========== ==========
NOTE 6. -- INCOME TAXES Income tax expense for the three months ended June 30, 2000 represents foreign taxes of $63. 6 7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7. -- RESTRUCTURING CHARGES Accrued expenses at June 30 and March 31, 2000, included $45 for estimated final expenses of a vacated leased office. The lease ended June 25, 1999, but certain costs related to the removal of furniture and fixtures have not been settled. NOTE 8. -- COMPREHENSIVE INCOME Other comprehensive earnings for the Corporation includes foreign currency translation adjustments. Total comprehensive loss for the following periods were as follows:
THREE MONTHS ENDED ---------------------------- JUNE 30, JUNE 30, 2000 1999 ---------- ---------- Net loss: $ (218) $ (593) Other comprehensive income net of tax: Change in equity due to foreign currency translation adjustments (206) (426) ---------- ---------- Comprehensive loss $ (424) $ (1,019) ========== ==========
7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) CERTAIN CAUTIONARY STATEMENTS In addition to historical information, Items 1 and 2 of this report 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 business strategy and management's outlook for each of its businesses, the sufficiency of the Corporation's liquidity and sources of capital and the impact of Year 2000 issues. These forward-looking statements are subject to certain risks, uncertainties and other factors which could cause actual results, performance and achievements to differ materially from those anticipated, including, without limitation, general economic and business conditions in the U.S. and abroad, restrictions imposed by debt agreements, competition in the housewares and child safety businesses, governmental budgetary constraints, the regulatory environment for the Corporation's businesses, consolidation and acquisition trends in the Corporation's businesses, economic conditions influencing the Corporation's ability to sell its Child Safety business and influencing the price of the Child Safety business, competition in the acquisition market including for the acquisition of hospitals and healthcare facilities, changes in exchange rates including in Europe the effects of the European currency, the Euro, increases in prices of raw materials and services, the purchasing practices of significant customers, the availability of qualified management and staff personnel in each subsidiary, the functionality of the Corporation's computer systems and claims for product liability from continuing and discontinued operations. CORPORATE BUSINESS STRATEGY The Corporation is currently redirecting its strategy toward the acquisition of interests in the healthcare industry in the U.S. The Corporation intends to seek acquisitions in sectors which it believes have an opportunity for future growth. The Corporation has not confined its strategy to any one sector of the healthcare industry, but its initial focus has been directed at evaluating acquisition opportunities for community hospitals. The Corporation is evaluating acquisitions without regard to their current profitability if it believes an acquisition provides an opportunity to achieve future cashflow and profitability. DISCONTINUED SEGMENT The Corporation has evaluated the disposition of its European Child Safety subsidiary, Klippan Limited, in light of its performance and the Corporation's objective of acquiring a U.S. healthcare business. As a result of such evaluation and to better position itself to acquire a U.S. healthcare business, the Corporation has decided to offer Klippan for sale. Klippan is reported as a discontinued segment in the accompanying financial statements. However, no sales agreement has yet been reached and there can be no assurance any sales agreement will be reached or that the net proceeds of any agreement which is reached will be sufficient (when added to the Corporation's other liquid assets) to allow the Corporation to acquire any U.S. healthcare business. 8 9 DISPOSAL OF BUSINESS SEGMENTS In November 1999, the Corporation sold its Wyle Laboratories, Inc. ("Wyle") Series A Preferred Stock for $4,125 in cash. The Series A Preferred Stock had voting rights and was convertible into approximately 38% of Wyle's common shares. In connection with the sale, which was part of a leveraged management buy-out of Wyle, the Corporation also exchanged its non-dividend paying and non-voting Series B Preferred Stock in Wyle for Senior Preferred Stock of LTS Holdings, Inc., Wyle's new parent company, and canceled its existing options to acquire Wyle shares. The new Senior Preferred Stock is redeemable on March 31, 2003 for $954 plus accrued and unpaid dividends at 8% per annum. FINANCIAL SUMMARY
THREE MONTHS ENDED JUNE 30, ---------------------------- 2000 1999 ---------- ---------- REVENUES: Housewares segment $ 6,932 $ 7,681 ========== ========== LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES: Housewares segment $ 208 $ 73 Corporate expenses (U.S. and U.K.) (362) (409) ---------- ---------- (154) (336) Interest expense (51) (78) Interest income 105 83 Other income - net -- 1 ---------- ---------- Loss from Continuing Operations before Income Taxes $ (100) $ (330) ========== ==========
RESULTS OF OPERATIONS Revenues for the first quarter of fiscal 2001 of $6,932 declined from $7,681 for the first quarter of fiscal 2000. All of the Corporation's revenues relate to the U.K. housewares segment. Decreased sales of child safety gates and rotary laundry dryers and the unfavorable effect of foreign currency translation of $333 were the causes of the revenue decline. Sales volume increased in the current year in the laundry care and ladder product groups. Gross profit margin (revenue less cost of goods sold) decreased to 8.5% for the quarter ended June 30, 2000 from 8.8% for the same quarter of the previous fiscal year. The decrease in the current year was the result of increased distribution costs and lower manufacturing volume due to the decreased sales volume. Selling and administrative expense decreased by $263 in the quarter ended June 30, 2000 from the same quarter of the previous fiscal year. The decreased expense resulted from overhead reductions of the housewares segment, which were made to reduce cost levels in response to lower than anticipated sales levels. 9 10 Interest expense decreased $27 in the quarter ended June 30, 2000 from the same quarter of the previous fiscal year as a result of reduced U.K. debt levels. Interest income increased $22 in the quarter ended June 30, 2000 from the same quarter of the prior year due to increased levels of cash invested and higher interest rates earned in the U.S. Income tax expense of $63 was recorded for the quarter ending June 30, 2000, compared to a zero tax expense for the same quarter of the previous year as a result of taxable income in the U.K. In the prior year, no tax expense from continuing operations was recorded due to taxable losses in the U.S. and the U.K. The loss from continuing operations was $163 ($0.03 per share) in the first quarter of fiscal 2001 compared to a loss of $330 ($0.07 per share) in the first quarter of fiscal 2000. The loss was less in the current year primarily due to the increased operating profits of the European Housewares segment and slightly reduced corporate overhead. The loss from continuing operations results primarily from corporate expense, which exceeded the subsidiary's operating profit. LIQUIDITY AND CAPITAL RESOURCES The Corporation used $1,114 of cash in operating activities during the first three months of fiscal 2001. Cash was used to pay U.S. income taxes of $500, to pay for costs related to probable hospital acquisitions of $127 (all of which has been capitalized in prepaid expenses), to provide working capital for the European operations (primarily to reduce accounts payable balances) and to fund corporate expenses. The Corporation has established a working capital line of approximately $4,500 with a U.K. bank. The availability under the line is based upon the current levels of U.K. accounts receivable and will fluctuate with increases or decreases in eligible accounts receivable. Borrowings under this line were $2,409 at June 30, 2000. At June 30, 2000, the Corporation had $1,196 outstanding under the U.K. Term Loan relating to the Beldray Ltd. manufacturing facility which has quarterly principal payments and matures in fiscal 2005. At June 30, 2000, the Corporation had no outstanding U.S. debt. The Corporation believes it has adequate financing and liquidity in both the U.S. and U.K. to support its current level of operations. Obligations remain relating to product liability claims for products manufactured and sold before the disposal of the Corporation's discontinued industrial segment in fiscal 1989. The Corporation reviewed the provision for losses from such discontinued operations during the quarter and no changes were deemed necessary. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 10 11 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Joseph M. Girard ("Girard"), a shareholder of the Corporation, filed a complaint on November 12, 1999 seeking to enjoin alleged violations of Section 14(A) of the Securities Exchange Act of 1934 and declaratory relief against the Corporation (hereinafter "Complaint"). The Complaint sought to prohibit the Corporation from further soliciting and using proxies for the annual shareholders' meeting, which was scheduled for November 19, 1999, because the proxy statement and form of proxy did not disclose Plaintiff's proposed, but improperly nominated, slate of directors. At the time of the injunction, the Corporation had received proxies totaling 4,052,837 shares (81.4%) in favor of the management nominees. On November 16, 1999, the Court issued a temporary restraining order and order to show cause, scheduling the matter for a preliminary injunction hearing on November 30, 1999. The temporary restraining order enjoined the Corporation from conducting the annual shareholders' meeting on November 19, 1999. On November 30, 1999, the Court issued a preliminary injunction providing that during the pendency of the action, the Corporation is enjoined from: 1) conducting the annual shareholders' meeting until such time as it has amended its proxy statement and proxy to include the slate of nominees of Girard and provide thirty (30) days notice to shareholders; and 2) using the proxies which were solicited by means of the proxy statement and proxy in the form dated October 21, 1999. The preliminary injunction order also required Girard to post a security bond of $25,000. In December 1999, Girard requested that the Court modify the preliminary injunction to require that the Corporation reschedule the annual meeting, to include Girard's alternate slate in the Corporation's proxy statement and proxy, and certain other affirmative action. By order dated January 18, 2000, the Court denied Girard's motion to modify the preliminary injunction. The Corporation filed its Answer on December 20, 1999, and, on December 29, 1999, the Corporation filed its notice of appeal of the preliminary injunction. In the Answer and its appeal, the Corporation set forth its beliefs that: 1) the Corporation was not required to include Girard's proposal in its proxy statement and proxy under SEC Rule 14a-8(i)(8), which provides that shareholder proposals relating to an election for membership on a company's board of directors do not have to be included in the company's proxy statement and proxy; and 2) Girard's alternate slate was not properly nominated under the Corporation's Code of Regulations and was not in compliance with Item 401(e) of Regulation S-K. In April 2000, the Appeals Court issued an order, which referred the appeal to a merits panel for disposition. The panel heard oral arguments on the appeal on July 11, 2000, but has yet to render any opinion on the case. The Corporation intends to vigorously pursue its appeal and to defend its position in any trial on the matter. 11 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibit 27 - Financial Data Schedule. (B) Reports on Form 8-K - None. 12 13 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/ Mark J. Stockslager -------------------------------- Mark J. Stockslager Principal Accounting Officer Dated: August 7, 2000 13 EX-27 2 ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF KRUG INTERNATIONAL CORPORATION FOR THE PERIOD ENDED JUNE 30, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS MAR-31-2001 JUN-30-2000 6,737 0 4,427 (79) 3,299 15,128 9,940 5,958 21,103 9,730 1,267 0 0 2,488 6,601 21,103 6,932 6,932 6,341 7,086 0 0 51 (100) (63) (163) (55) 0 0 (218) (0.04) (0.04)
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