10-Q 1 w49135e10-q.txt FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 ---------------------------- 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 0-9576 ------ K-TRON INTERNATIONAL, INC. -------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) New Jersey 22-1759452 -------------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification #) Incorporation or Organization) Routes 55 & 553, P.O. Box 888, Pitman, New Jersey 08071-0888 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code (856) 589-0500 ------------------------------ Not Applicable -------------------------------------------------------------------------------- (Former Name, Former Address and Formal Fiscal Year, if Changed Since Last Report) Indicate by check [X] whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ------ The Registrant had 2,443,570 shares of Common Stock outstanding as of March 31, 2001. 2 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES INDEX Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets 1 March 31, 2001 and December 30, 2000 Consolidated Statements of Income 2 & Retained Earnings for the Three Months Ended March 31, 2001 and April 1, 2000 Consolidated Statements of Cash Flows 3 for the Three Months Ended March 31, 2001 and April 1, 2000 Notes to Consolidated Financial Statements 4 - 6 Item 2. Management's Discussion and Analysis 7 - 12 of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. K-TRON INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands except Share Data)
March 31, December 30, 2001 2000 (Unaudited) (Audited) ----------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 983 $ 553 Accounts receivable (less allowance for doubtful accounts of $747 and $778) 17,662 19,139 Inventories 12,890 12,446 Deferred income taxes 326 326 Prepaid expenses and other current assets 2,152 1,723 -------- -------- Total current assets 34,013 34,187 PROPERTY, PLANT AND EQUIPMENT, net 14,628 15,470 PATENTS, net 883 879 GOODWILL, net 3,550 3,825 OTHER ASSETS 55 60 -------- -------- Total assets $ 53,129 $ 54,421 ======== ======== LIABILITIES & SHAREHOLDERS" EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 3,282 $ 3,595 Accounts payable 7,238 8,889 Accrued expenses & other current liabilities 3,965 3,485 Accrued commissions 1,537 1,572 Customer advances 1,366 1,314 Accrued warranty 735 762 Income taxes payable 1,230 800 -------- -------- Total current liabilities 19,353 20,417 LONG-TERM DEBT, net of current portion 12,269 12,390 DEFERRED INCOME TAXES 303 303 COMMITMENTS AND CONTINGENCIES SERIES A JUNIOR PARTICIPATING PREFERRED SHARES, $.01 par value - authorized 50,000 shares; none issued -- -- SHAREHOLDERS" EQUITY: Preferred stock, $.01 par value - authorized 950,000 shares; none issued -- -- Common stock, $.01 par value - authorized 50,000,000 shares; issued 4,411,120 shares and 4,403,871 shares 44 44 Paid-in capital 16,508 16,437 Retained earnings 35,411 34,436 Cumulative translation adjustments (3,700) (2,547) -------- -------- 48,263 48,370 -------- -------- Treasury stock, 1,967,550 and 1,967,550 shares - at cost (27,059) (27,059) -------- -------- Total shareholders' equity 21,204 21,311 -------- -------- Total liabilities and shareholders' equity $ 53,129 $ 54,421 ======== ========
See Notes to Consolidated Financial Statements -1- 4 K-TRON INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME & RETAINED EARNINGS (Dollars in Thousands except Share Data) (Unaudited)
Three Months Ended ------------------ March, 31, April 1, 2001 2000 ---- ---- REVENUES $21,558 $20,288 COST OF REVENUES 12,658 11,012 ------- ------- Gross Profit 8,900 9,276 OPERATING EXPENSES: Selling, general and administrative 6,496 6,324 Research and development 749 827 ------- ------- 7,245 7,151 ------- ------- Operating Income 1,655 2,125 INTEREST EXPENSE 311 122 ------- ------- Income before income taxes 1,344 2,003 INCOME TAX PROVISION 369 630 ------- ------- Net income 975 1,373 RETAINED EARNINGS: Beginning of period 34,436 28,598 ------- ------- End of period $35,411 $29,971 ======= ======= EARNINGS PER SHARE: Basic $ 0.40 $ 0.48 ======= ======= Diluted $ 0.39 $ 0.47 ======= =======
See Notes to Consolidated Financial Statements -2- 5 K-TRON INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Three Months Ended ------------------ March 31, April 1, 2001 2000 ---- ---- OPERATING ACTIVITIES: Net income $ 975 $ 1,373 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 802 784 Amortization of deferred gain on sale/leaseback transaction -- (85) Changes in assets and liabilities: Accounts receivable, net 614 4,400 Inventories (978) (907) Prepaid expenses and other current assets (541) 194 Other assets 1 (103) Accounts payable (1,208) (753) Accrued expenses and other current liabilities 852 (1,724) Accrued warranty 21 (39) Income taxes payable 433 446 ------- ------- Net cash provided by operating activities 971 3,586 ------- ------- INVESTING ACTIVITIES: Capital expenditures (578) (856) Investment in patents (24) (23) ------- ------- Net cash used in investing activities (602) (879) ------- ------- FINANCING ACTIVITIES: Net (repayments) borrowings under notes payable to banks -- (2,493) Proceeds from issuance of long-term debt 481 7,950 Principal payments on long-term debt (438) (629) Purchase of treasury stock -- (9,244) Proceeds from issuance of common stock 71 25 ------- ------- Net cash provided by (used in) financing activities 114 (4,391) ------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (53) (45) ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 430 (1,729) ------- ------- CASH AND CASH EQUIVALENTS Beginning of period 553 3,093 ------- ------- End of period $ 983 $ 1,364 ======= =======
See Notes to Consolidated Financial Statements -3- 6 K-TRON INTERNATIONAL, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (Unaudited) 1. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated financial statements include the accounts of K-Tron International, Inc. and its subsidiaries ("K-Tron" or the "Company"). All intercompany transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of a normal recurring nature) considered necessary for a fair presentation of results for interim periods have been made. The results for the interim periods are not necessarily indicative of the results for a full year. The unaudited financial statements herein should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 30, 2000 which was previously filed with the Securities and Exchange Commission. 2. Supplemental Disclosures of Cash Flow Information The Company considers all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. Cash paid in the first three months of 2001 and 2000 for interest was $0.3 million and $0.1 million, respectively, and for income taxes was $0.1 million and $0.2 million, respectively. 3. Inventories Inventories consist of the following:
March 31, December 30, 2001 2000 ---- ---- (in thousands) Components $10,075 $ 9,773 Work-in-process 2,547 2,530 Finished goods 268 143 ------- ------- $12,890 $12,446 ======= =======
4. Earnings per Share SFAS No. 128, "Earnings per Share," requires that the Company report Basic and Diluted Earnings Per Share. Basic Earnings Per Share represents net income less preferred dividends divided by the weighted average common shares outstanding. Diluted Earnings Per Share is calculated similarly, except that the denominator includes weighted average common shares outstanding plus the dilutive effect of options, warrants, convertible securities and other instruments with dilutive effects if exercised. -4- 7 The Company's Basic and Diluted Earnings Per Share are calculated as follows:
For the Three Months Ended March 31, 2001 ----------------------------------------- (Dollars and Shares in Thousands except Per Share Data) Net Income Available To Common Earnings Shareholders Shares Per Share ------------ ------ --------- Basic $975 2,442 $0.40 Common Share Equivalent of Outstanding Options -- 60 (0.01) ---- ----- ----- Diluted $975 2,502 $0.39 ==== ===== =====
For the Three Months Ended April 1, 2000 ---------------------------------------- (Dollars and Shares in Thousands except Per Share Data) Net Income Available To Common Earnings Shareholders Shares Per Share ------------ ------ --------- Basic $1,373 2,877 $ 0.48 Common Share Equivalent of Outstanding Options -- 52 (0.01) ------ ----- ------ Diluted $1,373 2,929 $ 0.47 ====== ===== ======
Diluted earnings per common share are based on the weighted average number of common and common equivalent shares outstanding during a given time period. Such average shares include the weighted average number of common shares outstanding plus the shares issuable upon exercise of stock options after the assumed repurchase of common shares with the related proceeds. 5. Comprehensive Income SFAS No. 130, "Reporting Comprehensive Income," establishes standards for the reporting and display of comprehensive income and its components. Comprehensive income is the total of net income and the current year change in cumulative translation adjustments, which is the Company's only nonowner change in equity. For the three months in the periods ended March 31, 2001 and April 1, 2000, the following table sets forth the Company"s comprehensive income:
(Dollars in Thousands) Three Months Ended ------------------ March 31, April 1, 2001 2000 --------- ------- Net Income $ 975 $ 1,373 Cumulative Translation Adjustments (1,153) (696) ------- ------- Comprehensive Income (Loss) $ (178) $ 677 ======= =======
-5- 8 6. Management Segment Information SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," introduced a new model for segment reporting called the management approach. The management approach is based on the way that the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance. The Company is engaged in one business segment, the development, manufacturing and marketing of gravimetric and volumetric feeders, pneumatic conveying systems and related equipment. The Company operates in two primary geographic locations, North America and Western Europe. For the three months in the periods ended March 31, 2001 and April 1, 2000, the following tables set forth the Company's segment information:
(Dollars in Thousands) North Western Elimi- Consoli- America Europe nations dated ------- ------ ------- ----- THREE MONTHS ENDED March 31, 2001: Revenues- Sales to unaffiliated customers $ 9,069 $12,489 $ -- $21,558 Sales to affiliates 1,280 581 (1,861) -- ------- ------- ------- ------- Total sales $10,349 $13,070 $(1,861) $21,558 ======= ======= ======= ======= Operating income $ 1,068 $ 587 $ -- $ 1,655 ======= ======= ======= Interest expense (311) ------- Income before income taxes $ 1,344 =======
(Dollars in Thousands) North Western Elimi- Consoli- America Europe nations dated ------- ------ ------- ----- THREE MONTHS ENDED April 1, 2000: Revenues- Sales to unaffiliated customers $ 9,482 $10,806 $ -- $20,288 Sales to affiliates 1,114 821 (1,935) -- ------- ------- ------- ------- Total sales $10,596 $11,627 $(1,935) $20,288 ======= ======= ======= ======= Operating income $ 1,668 $ 407 $ 50 $ 2,125 ======= ======= ======= Interest expense (122) ------- Income before income taxes $ 2,003 =======
-6- 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations For the first three months of 2001 and 2000, K-Tron reported net income of $0.975 million and $1.373 million, respectively. We are an international company, and we derived approximately 58% and 53% of our first quarter 2001 and 2000 revenues, respectively, from products manufactured in, and services performed from, our facilities located outside the United States, primarily in Europe. Accordingly, we are sensitive to changes in foreign currency exchange rates ("foreign exchange rates"), which can affect both the translation of financial statement items into U.S. dollars and the impact of transactions where the revenues and related expenses may initially be accounted for in different currencies, such as sales made from our Swiss manufacturing facility in currencies other than the Swiss franc. The following table sets forth our results of operations expressed as a percentage of total revenues for the periods indicated:
Three Months Ended ------------------ March 31, April 1, 2001 2000 ---- ---- Total revenues 100.0% 100.0% Cost of revenues 58.7 54.3 ----- ----- Gross profit 41.3 45.7 Selling, general & administrative 30.1 31.1 Research & development 3.5 4.1 ----- ----- Operating income 7.7 10.5 Interest 1.5 0.6 ----- ----- Income before income taxes 6.2% 9.9% ===== =====
March 31, 2001 December 30, 2000 April 1, 2000 -------------- ----------------- ------------- Backlog at end of period (at March 31, 2001 foreign exchange rates, in thousands) $16,516 $18,428 $20,534 ======= ======= =======
-7- 10 More than half of our revenues are normally derived from activities in foreign jurisdictions. Consequently, our results can be significantly affected by changes in foreign exchange rates, particularly in U.S. dollar exchange rates with respect to the Swiss franc and euro and, to a lesser degree, the British pound sterling and other currencies. When the U.S. dollar strengthens against these currencies, the U.S. dollar value of non-U.S. dollar-based sales decreases. When the U.S. dollar weakens against these currencies, the U.S. dollar value of non-U.S. dollar-based sales increases. Correspondingly, the U.S. dollar value of non-U.S. dollar-based costs increases when the U.S. dollar weakens and decreases when the U.S. dollar strengthens. Overall, since we typically receive a majority of our revenues in currencies other than the U.S. dollar, we generally benefit from a weaker dollar and are adversely affected by a stronger dollar relative to major currencies worldwide, especially those identified above. Accordingly, changes in foreign exchange rates, and in particular a strengthening of the U.S. dollar, may adversely affect our total revenues, gross profit and operating income as expressed in U.S. dollars. In addition, our revenues and income with respect to particular transactions may be affected by changes in foreign exchange rates where sales are made in currencies other than the functional currency of the facility manufacturing the product subject to the sale, including in particular the U.S. dollar/Swiss franc (for inter-company transactions) and the euro/Swiss franc (for sales from the Company's Swiss manufacturing facility) exchange rates. For the first three months of 2001 and 2000, the changes in these and the U.S. dollar/euro exchange rates were as follows:
Three Months Ended ------------------ March 31, April 1, 2001 2000 ---- ---- Average U.S. dollar equivalent of one Swiss franc 0.602 0.613 % change vs. prior year -1.8% Average U.S. dollar equivalent of one euro 0.923 0.984 % change vs. prior year -6.2% Average Swiss franc equivalent of one euro 1.533 1.605 % change vs. prior year -4.5%
Total revenues increased by $1.3 million or 6.3% in the first quarter of 2001 compared to the same period in 2000. North American revenues decreased and Western European revenues increased in the first quarter of 2001 compared to the same period in 2000. If the average foreign exchange rates for the first quarter of 2001 were applied to the same period in 2000, total revenues would have increased by $1.7 million or 8.3% for the quarter. Gross profit as a percent of revenues decreased to 41.3% for the first three months of 2001 compared to 45.7% for the same period in 2000. The decrease in gross margin in 2001 was primarily due to geographic sales mix. -8- 11 Selling, general and administrative (SG&A) expense increased by $0.2 million or 2.7% for the first quarter of 2001 compared to the same period in 2000. The increase in SG&A for the first quarter was primarily due to higher sales commissions, partly offset by the effects of lower foreign exchange translation rates. As a percent of total revenues, SG&A for the first quarter of 2001 was 30.1% compared to 31.1% for the same period in 2000. Research and development (R&D) expenditures decreased by $0.1 million or 9.4% for the first quarter of 2000 compared to the same period in 2000. R&D expenses decreased due to lower staff costs as well as the effect of lower foreign exchange translation rates. R&D expense as a percent of total revenues was 3.5% for the first quarter compared to 4.1% for the same period in 2000. Interest expense increased by $189 thousand or 155% for the first quarter compared to the same period in 2000, primarily due to interest on funds borrowed in March 2000 related to the repurchase of 508 thousand shares of our Common Stock. The effective tax rate for the first quarter of 2001 was 27.5%, compared to 31.4% for the same period in 2000. The lower effective rate in 2001 was primarily due to decreased taxable income in the United States. The backlog of customer orders decreased by 10.4% at the end of the first quarter compared to the end of 2000, and by 19.6% compared to the end of the first quarter in 2000, in each case at constant foreign exchange rates. Most of the decrease since year end 2000 was from lower orders received at our manufacturing facility in Switzerland, while most of the decrease as compared to the first quarter of 2000 reflected reduced orders at our facility in the United States. -9- 12 Liquidity and Capital Resources On March 20, 2000, our U.S. manufacturing subsidiary borrowed $7,000,000 under a term loan facility with a U.S. bank, and we used these funds, together with $1,194,000 of available cash and a borrowing of $950,000 on a $5,000,000 revolving credit facility with the same bank, to repurchase 508,000 shares of our Common Stock. The $7,000,000 term loan is payable in equal monthly installments of principal plus accrued interest over a four year period and is secured by liens on the same collateral which secures the revolving credit loan and also a separate mortgage loan from the same U.S. bank. One-half of the term loan bears interest at the fixed rate of 8.23% for the first two years and the other half is subject to a variable rate of interest equal to one month LIBOR plus 1.85 percent (7.17% at March 31, 2001). At March 31, 2001, there was $5,396,000 outstanding under the term loan. Our capitalization as of the end of the first quarter of 2001 and as of the end of fiscal years 2000 and 1999 is set forth below:
March 31, Dec. 30, Jan. 1, (Dollars in Thousands) 2001 2000 2000 ---- ---- ---- Short-term debt, including current portion of long-term debt $ 3,282 $ 3,595 $ 4,627 Long-term debt 12,269 12,390 7,252 ------- ------- ------- Total debt 15,551 15,985 11,879 ======= ======= ======= Shareholders' equity 21,204 21,311 25,210 ------- ------- ------- Total debt and shareholders" equity $36,755 $37,296 $37,089 ======= ======= ======= (total capitalization) Percent total debt to total capitalization 42% 43% 32% Percent long-term debt to equity 58% 58% 29% Percent total debt to equity 73% 75% 47%
Total debt decreased by $0.4 million in the first three months of 2001 (total debt remained the same when adjusted to a constant foreign exchange rate). U.S. debt increased by $0.1 million while debt in Switzerland decreased by $0.5 million. At March 31, 2001, we had $3.6 million of borrowing availability under our U.S. loan agreements and $5.2 million of borrowing availability under our Swiss loan agreements At March 31, 2001, working capital was $14.7 million compared to $13.8 million at December 30, 2000, and the ratio of current assets to current liabilities at those dates was 1.76 and 1.67, respectively. The increase in working capital was primarily due to a decrease in accounts payables. In the first three months of 2001 and 2000, we utilized internally-generated funds and our lines of credit to meet our working capital needs while in 2000 we also used bank borrowings and available cash to complete the share repurchase described above. -10- 13 Net cash provided by operating activities was $0.971 million in the first three months of 2001 compared to $3.586 million in the same period of 2000. The first quarter 2001 decrease in operating cash flow as compared to the first quarter of 2000 was primarily due to (i) lower net income, (ii) a smaller reduction in accounts receivable, (iii) an increase in prepaid expenses, (iv) partially offset by an increase in accrued expenses. Net cash used in investing activities in the first three months of 2001 and 2000 was primarily for capital additions. Cash used in financing activities in the first three months of 2000 was primarily for the purchase of 508,000 shares of common stock noted above. Changes in foreign exchange rates, particularly with respect to the Swiss franc and euro, caused a translation adjustment decrease in shareholders' equity of $1.2 million in the first three months of 2001. FORWARD-LOOKING STATEMENTS AND RISK FACTORS The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe harbor for forward-looking statements made by us or on our behalf. We and our representatives may from time to time make written or oral statements that are "forward-looking," including statements contained in this report and other filings with the Securities and Exchange Commission, reports to our shareholders and news releases. All statements that express expectations, estimates, forecasts and projections are forward-looking statements within the meaning of the Act. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," "may," "should," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. A wide range of factors could materially affect our future performance and financial and competitive position, including the following: (i) increasing price and product/service competition by domestic and foreign competitors, including new entrants; (ii) the mix of products/services sold by us; (iii) rapid technological changes and developments and our ability to continue to introduce competitive new products on a timely and cost-effective basis; (iv) changes in U.S. and global financial and currency markets, including significant interest rate and foreign currency exchange rate fluctuations; (v) protection and validity of patent and other intellectual property rights held by us and our competitors; (vi) the cyclical nature of our business as a capital goods supplier; (vii) possible future litigation and governmental proceedings; (viii) the availability of financing and financial resources in the amounts, at the times and on the terms required to support our future business, including capacity expansions and possible acquisitions; (ix) the loss of key customers, employees or suppliers; (x) the failure to carry out marketing and sales plans; (xi) the failure to integrate acquired businesses without substantial costs, delays or other -11- 14 operational or financial problems; (xii) economic, business and regulatory conditions and changes which may affect the level of new investments and purchases made by customers, including general economic and business conditions that are less favorable than expected; and (xiii) domestic and international political and economic conditions. This list of factors that may affect our future performance and financial and competitive position and also the accuracy of forward-looking statements is illustrative, but it is by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. -12- 15 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Reports on Form 8-K There were no reports on Form 8-K for the quarter ended March 31, 2001. -13- 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. K-TRON INTERNATIONAL, INC. Date: May 14, 2001 By: /s/ Ronald R. Remick -------------------- Ronald R. Remick Senior Vice President & Chief Financial Officer (Duly authorized officer and principal financial officer of the Registrant) By: /s/ Alan R. Sukoneck -------------------- Vice President, Chief Accounting & Tax Officer (Duly authorized officer and principal accounting officer of the Registrant) -14-