10-Q 1 w54692e10-q.txt QUARTERLY REPORT FOR THE QUARTER ENDED 09/29/2001 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 September 29, 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 U 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 2,429,680 shares of Common Stock outstanding as of September 29, 2001. K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES INDEX
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Balance Sheets September 29, 2001 and December 30, 2000 1 Consolidated Statements of Income (Loss) & Retained Earnings for the Three and Nine Months Ended September 29, 2001 and September 30, 2000 2 Consolidated Statements of Cash Flows for the Nine Months Ended September 29, 2001 and September 30, 2000 3 Notes to Consolidated Financial Statements 4 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 15 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. 16
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. K-TRON INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands except Share Data)
September 29, December 30, 2001 2000 --------- -------- (Unaudited) (Audited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,038 $ 553 Accounts and notes receivable (less allowance for doubtful accounts of $702 and $778) 16,053 19,139 Inventories 10,729 12,446 Deferred income taxes 326 326 Prepaid expenses and other current assets 1,594 1,723 -------- -------- Total current assets 30,740 34,187 PROPERTY, PLANT AND EQUIPMENT, net 14,770 15,470 PATENTS, net 841 879 GOODWILL, net 1,718 3,825 OTHER ASSETS 2,002 60 -------- -------- Total assets $ 50,071 $ 54,421 ======== ======== LIABILITIES & SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 4,623 $ 8,889 Accrued expenses & other current liabilities 4,868 3,485 Accrued commissions 1,284 1,572 Customer advances 996 1,314 Accrued warranty 414 762 Income taxes payable 863 800 Current portion of long-term debt 3,444 3,595 -------- -------- Total current liabilities 16,492 20,417 LONG-TERM DEBT, net of current portion 11,289 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 - authorized 950,000 shares; none issued -- -- Common stock, $.01 par value - authorized 50,000,000 shares; issued 4,430,930 shares and 4,403,871 shares 44 44 Paid-in capital 16,691 16,437 Retained earnings 35,253 34,436 Cumulative translation adjustments (2,504) (2,547) -------- -------- 49,484 48,370 -------- -------- Treasury stock, 2,001,250 and 1,967,550 shares - at cost (27,497) (27,059) -------- -------- Total shareholders' equity 21,987 21,311 -------- -------- Total liabilities and shareholders' equity $ 50,071 $ 54,421 ======== ========
See Notes to Consolidated Financial Statements -1- K-TRON INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) & RETAINED EARNINGS (Dollars in Thousands except Share Data) (Unaudited)
Three Months Ended Nine Months Ended ------------------ ----------------- September 29, September 30, September 29, September 30, 2001 2000 2001 2000 -------- -------- -------- -------- REVENUES $ 16,081 $ 19,994 $ 56,957 $ 62,366 COST OF REVENUES 9,716 10,837 34,009 33,476 -------- -------- -------- -------- Gross Profit 6,365 9,157 22,948 28,890 OPERATING EXPENSES Selling, general and administrative 5,940 5,950 18,345 19,081 Research and development 622 744 2,093 2,337 Loss on disposition of business 620 -- 620 -- -------- -------- -------- -------- 7,182 6,694 21,058 21,418 -------- -------- -------- -------- Operating Income (loss) (817) 2,463 1,890 7,472 INTEREST EXPENSE 256 296 842 751 -------- -------- -------- -------- Income (loss) before income taxes (1,073) 2,167 1,048 6,721 INCOME TAX PROVISION (BENEFIT) (305) 606 231 1,955 -------- -------- -------- -------- Net Income (loss) (768) 1,561 817 4,766 RETAINED EARNINGS Beginning of period 36,021 31,803 34,436 28,598 -------- -------- -------- -------- End of period $ 35,253 $ 33,364 $ 35,253 $ 33,364 ======== ======== ======== ======== EARNINGS (LOSS) PER SHARE Basic $ (0.32) $ 0.64 $ 0.34 $ 1.85 ======== ======== ======== ======== Diluted $ (0.32) $ 0.63 $ 0.33 $ 1.81 ======== ======== ======== ========
See Notes to Consolidated Financial Statements -2- K-TRON INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Nine Months Ended ----------------- September 29, September 30, 2001 2000 -------- -------- OPERATING ACTIVITIES: Net income $ 817 $ 4,766 Adjustment to reconcile net income to net cash provided by operating activities: Loss on disposition of business 620 -- Depreciation and amortization 2,413 2,417 Amortization of deferred gain on sale/leaseback transaction -- (248) Changes in assets and liabilities: Accounts receivable, net 2,910 3,534 Inventories 281 (2,700) Prepaid expenses and other current assets 112 (199) Other assets 185 (138) Accounts payable (4,225) 774 Accrued expenses and other current liabilities 1,287 (2,614) Accrued warranty (190) (270) Income taxes payable 64 319 -------- -------- Net cash provided by operating activities 4,274 5,641 -------- -------- INVESTING ACTIVITIES: Proceeds from disposition of business 594 -- Capital expenditures (1,868) (2,831) Investment in patents (88) (71) -------- -------- Net cash used in investing activities (1,362) (2,902) -------- -------- FINANCING ACTIVITIES: Net (repayments) borrowings under notes payable to banks 154 (2,445) Proceeds from issuance of long-term debt 438 7,950 Principal payments on long-term debt (1,804) (1,468) Purchase of treasury stock (438) (9,249) Proceeds from issuance of common stock 254 159 -------- -------- Net cash used in financing activities (1,396) (5,053) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (31) (63) -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,485 (2,377) -------- -------- CASH AND CASH EQUIVALENTS Beginning of period 553 3,093 -------- -------- End of period $ 2,038 $ 716 ======== ========
See Notes to Consolidated Financial Statements -3- K-TRON INTERNATIONAL, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 29, 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. Certain reclassifications were made to the prior year's consolidated financial statements to the conform to classifications used in the current period. 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 nine months of 2001 and 2000 for interest was $0.8 million and $0.7 million, respectively, and for income taxes was $0.3 million and $1.6 million, respectively. 3. Inventories Inventories consist of the following:
September 29, December 30, 2001 2000 -------- -------- (in thousands) Components $ 9,020 $ 9,773 Work-in-process 1,600 2,530 Finished goods 109 143 -------- -------- $ 10,729 $ 12,446 ======== ========
-4- 4. Earnings per Share The Company's Basic and Diluted Earnings (loss) Per Share are calculated as follows:
For the Three Months Ended September 29, 2001 --------------------------------------------- (Dollars and Shares in Thousands except Per Share Data) Net Income Available To Common Earnings (loss) Shareholders Shares Per Share ------------ ------ --------- Basic $ (768) 2,436 $(0.32) Common Share Equivalent of Outstanding Options -- --(1) (0.00) ------ ------ ------ Diluted $ (768) 2,436 $(0.32) ====== ====== ======
(1) Common share equivalents were not considered for the three months ended September 29, 2001 as they are antidilutive.
For the Three Months Ended September 30, 2000 --------------------------------------------- (Dollars and Shares in Thousands except Per Share Data) Net Income Available To Common Earnings Shareholders Shares Per Share ------------ ------ --------- Basic $1,561 2,433 $ 0.64 Common Share Equivalent of Outstanding Options -- 55 (0.01) ------ ------ ------ Diluted $1,561 2,488 $ 0.63 ====== ====== ======
For the Nine Months Ended September 29, 2001 -------------------------------------------- (Dollars and Shares in Thousands except Per Share Data) Net Income Available To Common Earnings Shareholders Shares Per Share ------------ ------ --------- Basic $ 817 2,436 $ 0.34 Common Share Equivalent of Outstanding Options -- 41 (0.01) ------ ------ ------ Diluted $ 817 2,477 $ 0.33 ====== ====== ======
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For the Nine Months Ended September 30, 2000 -------------------------------------------- (Dollars and Shares in Thousands except Per Share Data) Net Income Available To Common Earnings Shareholders Shares Per Share ------------ ------ --------- Basic $4,766 2,577 $ 1.85 Common Share Equivalent of Outstanding Options -- 55 (0.04) ------ ------ ------ Diluted $4,766 2,632 $ 1.81 ====== ====== ======
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. Since the Company has a net loss for the three months ended September 29, 2001, the impact of potential future stock option exercises would have an antidilutive effect on the calculation of diluted loss per share. As a result, the average number of common shares outstanding used in calculating diluted loss per share in the three months ended September 29, 2001 is the same as for the basic loss per share. 5. Comprehensive Income
(Dollars in Thousands) Three Months Ended Nine Months Ended ------------------ ----------------- Sept. 29, Sept. 30, Sept. 29, Sept. 30, 2001 2000 2001 2000 -------- -------- -------- -------- Net Income (loss) $ (768) $ 1,561 $ 817 $ 4,766 Cumulative Translation Adjustments 1,458 (904) 43 (1,480) -------- -------- -------- -------- Comprehensive Income $ 690 $ 657 $ 860 $ 3,286 ======== ======== ======== ========
-6- 6. Management Segment Information The Company is engaged in one business segment, the design, production, marketing and servicing 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 and nine months in the periods ended September 29, 2001 and September 30, 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 September 29, 2001: Revenues- Sales to unaffiliated customers $ 6,606 $ 9,475 $ -- $ 16,081 Sales to affiliates 875 294 (1,169) -- -------- -------- -------- -------- Total sales $ 7,481 $ 9,769 $ (1,169) $ 16,081 ======== ======== ======== ======== Operating income (loss) $ 85 $ (902) $ -- $ (817) ======== ======== ======== Interest expense (256) -------- Income (loss) before income taxes $ (1,073) ========
(Dollars in Thousands) North Western Elimi- Consoli- America Europe nations dated ------- -------- ------- -------- THREE MONTHS ENDED September 30, 2000: Revenues- Sales to unaffiliated customers $ 9,713 $ 10,281 $ -- $ 19,994 Sales to affiliates 1,435 753 (2,188) -- -------- -------- -------- -------- Total sales $ 11,148 $ 11,034 $ (2,188) $ 19,994 ======== ======== ======== ======== Operating income $ 2,100 $ 331 $ 32 $ 2,463 ======== ======== ======== Interest expense (296) -------- Income before income taxes $ 2,167 ========
-7-
(Dollars in Thousands) North Western Elimi- Consoli- America Europe nations dated ------- -------- ------- -------- NINE MONTHS ENDED September 29, 2001: Revenues- Sales to unaffiliated customers $ 23,098 $ 33,859 $ -- $ 56,957 Sales to affiliates 3,423 1,382 (4,805) -- -------- -------- -------- -------- Total sales $ 26,521 $ 35,241 $ (4,805) $ 56,957 ======== ======== ======== ======== Operating income $ 1,304 $ 611 $ (25) $ 1,890 ======== ======== ======== Interest expense (842) -------- Income before income taxes $ 1,048 ========
(Dollars in Thousands) North Western Elimi- Consoli- America Europe nations dated ------- -------- ------- -------- NINE MONTHS ENDED September 30, 2000: Revenues- Sales to unaffiliated customers $ 30,059 $ 32,307 $ -- $ 62,366 Sales to affiliates 3,631 2,283 (5,914) -- -------- -------- -------- -------- Total sales $ 33,690 $ 34,590 $ (5,914) $ 62,366 ======== ======== ======== ======== Operating income $ 6,039 $ 1,325 $ 108 $ 7,472 ======== ======== ======== Interest expense (751) -------- Income before income taxes $ 6,721 ========
7. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses financial accounting and reporting for business combinations and supersedes APB No. 16, "Business Combinations", and FASB Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." All business combinations in the scope of this Statement are to be accounted for using one method, the purchase method. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB No. 17, "Intangible Assets". Goodwill will no longer be subject to amortization, rather it will be subject to at least an annual assessment for impairment by applying a fair value based test. K-Tron will cease the amortization of goodwill which was recorded in past business combinations on December 31, 2001, as required by SFAS No. 142. Amortization expense was $487,000 during fiscal 2000, or $0.19 per share. The Company is still evaluating the impact of adopting these pronouncements on the financial statements. -8- In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company is required to adopt the provisions of this pronouncement no later than the beginning of fiscal 2003. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company is required to adopt the provisions of this pronouncement no later than the beginning of fiscal 2002. The Company is currently evaluating the impact of both SFAS No.'s 143 and 144. -9- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations On July 31, 2001, we sold our Hasler heavy feeder business to our largest distributor of Hasler equipment and recorded a pretax loss of $0.620 million. The assets sold were primarily inventory and fixed assets. The buyer took over operation of our Hasler sales offices in Neuchatel, Switzerland and Lengerich, Germany. The purchase price consisted of a combination of one million Swiss francs cash ($0.594 million), promissory notes in the principal amount of three million seventeen thousand three hundred twenty seven Swiss francs (approximately $1.792 million) which bear interest and amortize over seven years, a less than 20% equity position in the buyer's company and certain other considerations. We retained all of the Hasler accounts receivable and payables at the time of the sale as well as a building in Lengerich, Germany which is being leased to the buyer. For the third quarter and first nine months of 2001, we reported a net loss of $0.768 million and net income of $0.817 million, respectively, compared to net income of $1.561 million and $4.766 million for the same periods in 2000. Revenues and profits for the third quarter declined significantly from year ago levels (even before the loss on sale of the Hasler business noted above) reflecting the weak economy, particularly in the United States, and a steep decline in capital spending, especially in the plastics and chemical industries. By contrast, last year's third quarter profit was at a near record level, driven by strong domestic sales. We are an international company, and we derived approximately 59% and 52% of our first nine months 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. -10- The following table sets forth our results of operations expressed as a percentage of total revenues for the periods indicated:
Three Months Ended Nine Months Ended ------------------ ----------------- Sept. 29, Sept. 30, Sept. 29, Sept. 30, 2001 2000 2001 2000 ------ ------ ------ ------ Total revenues 100.0% 100.0% 100.0% 100.0% Cost of revenues 60.4 54.2 59.7 53.7 ------ ------ ------ ------ Gross profit 39.6 45.8 40.3 46.3 Selling, general & administrative 36.9 29.6 32.2 30.4 Research & development 3.9 3.9 3.7 3.9 Loss on disposition of business 3.9 -- 1.1 -- ------ ------ ------ ------ Operating income (loss) (5.1) 12.3 3.3 12.0 Interest 1.6 1.5 1.5 1.2 ------ ------ ------ ------ Income (loss) before income taxes (6.7)% 10.8% 1.8% 10.8% ====== ====== ====== ======
Sept. 29, 2001 December 30, 2000 Sept. 30, 2000 -------------- ----------------- -------------- Backlog at end of period (at September 29, 2001 foreign exchange rates, in thousands) Backlog including Hasler business $11,134 $19,074 $21,487 ======= ======= ======= Backlog excluding Hasler business (sold July 31, 2001) $11,134 $16,422 $17,406 ======= ======= =======
-11- 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 and nine months of 2001 and 2000, the changes in these and the U.S. dollar/euro exchange rates were as follows:
Three Months Ended Nine Months Ended ------------------ ----------------- Sept. 29, Sept. 30, Sept. 29, Sept. 30, 2001 2000 2001 2000 -------- -------- -------- -------- Average U.S. dollar equivalent of one Swiss franc 0.594 0.586 0.589 0.599 % change vs. prior year +1.4% -1.7% Average U.S. dollar equivalent of one euro 0.894 0.904 0.897 0.941 % change vs. prior year -1.1% -4.7% Average Swiss franc equivalent of one euro 1.505 1.543 1.523 1.571 % change vs. prior year -2.5% -3.1%
Total revenues decreased by $3.9 million or 19.6% in the third quarter of 2001 and by $5.4 million or 8.7% in the first nine months of 2001 compared to the same periods in 2000. Most of this third quarter revenue decrease was in North America with a small portion of the decrease coming from the reduction in Hasler revenues in Western Europe. The decrease in revenues for the first nine months of 2001 was driven by declines in North America, partially offset by an increase in Western Europe. If the average foreign exchange rates for the third quarter and first nine months of 2001 were applied to the same periods in 2000, total revenues would have decreased by $4.0 million or 19.8% for the quarter and by $4.4 million or 7.3% for the first nine months. -12- Gross profit as a percent of revenues decreased to 39.6% for the third quarter of 2001 and 40.3% for the first nine months of 2001 compared to 45.8% and 46.3% for the same periods in 2000. The decrease in gross margin in 2001 was primarily due to geographic and product sales mix. The decrease in gross profit was also due to the deterioration in economic conditions discussed above, which led to fixed costs being absorbed over a smaller revenue base. Selling, general and administrative (SG&A) expense remained constant for the third quarter of 2001 compared to a year ago, with lower commissions resulting from reduced revenues and lower Hasler-related costs due to the sale noted above being offset by certain one-time costs associated with cost reductions implemented in the third quarter. SG&A decreased by $0.7 million or 3.9% for the first nine months of 2001 compared to the same period in 2000. The decrease in SG&A for the first nine months was primarily due to lower sales commissions resulting from reduced revenues and lower foreign exchange translation rates. As a percent of total revenues, SG&A for the third quarter and first nine months of 2001 was 36.9% and 32.2%, respectively, compared to 29.6% and 30.4% for the same periods in 2000. Research and development (R&D) expenditures decreased by $122 thousand or 16.4% for the third quarter of 2001 and by $244 thousand or 10.4% for the first nine months of 2001 compared to the same periods in 2000. R&D expenses decreased due to lower staff costs. R&D expense as a percent of total revenues was 3.9% for the third quarter and 3.7% for the first nine months of 2001 compared to 3.7% and 3.7%, respectively, for the same periods in 2000. Interest expense decreased by $40 thousand or 13.5% for the third quarter of 2001 and increased by $91 thousand or 12.1% for the first nine months of 2001 compared to the same periods in 2000. The decrease for the third quarter was primarily due to lower interest rates while the increase for the nine months was primarily due to interest on funds borrowed in March 2000 related to the repurchase of 508 thousand shares of our Common Stock, partially offset by lower interest rates. The effective tax rates for the third quarter and first nine months of 2001 were 28.4% (benefit) and 22.0%, respectively, compared to 28.0% and 29.1% for the same periods in 2000. The lower effective tax rate in 2001 was primarily due to lower taxable income in North America. The backlog of non-Hasler customer orders decreased by 32.2% at the end of the third quarter of 2001 compared to the end of 2000 and by 36.0% compared to the end of the third quarter in 2000, in each case at constant foreign exchange rates. The decrease was the result of lower orders received at our facilities in Switzerland and the United States. At the end of September 2001, our worldwide backlog was $11.1 million, representing the lowest quarterly backlog in several years. -13- Liquidity and Capital Resources Our capitalization as of the end of the third quarter of 2001 and as of the end of fiscal years 2000 and 1999 is set forth below:
Sept. 29, Dec. 30, Jan. 1, (Dollars in Thousands) 2001 2000 2000 -------- -------- -------- Short-term debt, including current portion of long-term debt $ 3,444 $ 3,595 $ 4,627 Long-term debt 11,289 12,390 7,252 -------- -------- -------- Total debt 14,733 15,985 11,879 Shareholders' equity 21,987 21,311 25,210 -------- -------- -------- Total debt and shareholders' equity (total capitalization) $ 36,720 $ 37,296 $ 37,089 ======== ======== ======== Percent total debt to total capitalization 40% 43% 32% Percent long-term debt to equity 51% 58% 29% Percent total debt to equity 67% 75% 47%
Total debt decreased by $1.3 million in the first nine months of 2001 or $1.2 million when adjusted to a constant foreign exchange rate, with U.S. debt decreasing by $1.3 million. At September 29, 2001, we had $4.0 million of unused borrowing availability under our U.S. loan agreements and $5.6 million of unused borrowing availability under our Swiss loan agreements. At September 29, 2001, working capital was $14.2 million compared to $13.8 million at December 30, 2000, and the ratio of current assets to current liabilities at those dates was 1.86 and 1.67, respectively. In the first nine 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 a share repurchase. Net cash provided by operating activities was $4.3 million in the first nine months of 2001 compared to $5.6 million in the same period of 2000. The decrease in operating cash flow during the first nine months of 2001 compared to the same period in 2000 was primarily due to lower net income and a decrease in accounts payable net of accrued expenses. Net cash used in investing activities in the first nine months of 2001 and 2000 was primarily for capital additions. -14- Cash used in financing activities in the first nine months of 2001 was primarily for debt reduction while in 2000 cash was used primarily for the purchase of 508,000 shares of our Common Stock. Changes in foreign exchange rates, particularly with respect to the Swiss franc and euro, caused a translation adjustment increase in shareholders' equity of $43 thousand in the first nine 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 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. -15- PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 2.1 Basic Agreement regarding the Assignment of Assets of the Hasler Division between K-Tron (Suisse) SA and MJ Enterprises SA dated July 31, 2001. (b) Reports on Form 8-K We did not file a report on Form 8-K during the quarter ended September 29, 2001. -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: November 9, 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) -17- EXHIBIT INDEX Exhibit 2.1 Basic Agreement regarding the Assignment of Assets of the Hasler Division between K-Tron (Suisse) SA and MJ Enterprises SA dated July 31, 2001.