-----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, Fdi9/HalnRfzlZ4JF1RmUGYM9mT1WFJJUxRMP9AcmS1mpzuB4dJxov3aFOMFroR0 gzgpjqm12VOlwTiNBNG8og== 0000893220-03-001354.txt : 20030806 0000893220-03-001354.hdr.sgml : 20030806 20030806143733 ACCESSION NUMBER: 0000893220-03-001354 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030628 FILED AS OF DATE: 20030806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: K TRON INTERNATIONAL INC CENTRAL INDEX KEY: 0000000020 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 221759452 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09576 FILM NUMBER: 03825959 BUSINESS ADDRESS: STREET 1: ROUTE 55 & 553 STREET 2: BOX 888 CITY: PITMAN STATE: NJ ZIP: 08071-0888 BUSINESS PHONE: 8562563318 MAIL ADDRESS: STREET 1: ROUTE 55 & 553 STREET 2: P O BOX 888 CITY: PITMAN STATE: NJ ZIP: 08071-0888 10-Q 1 w89012e10vq.txt FORM 10-Q K-TRON INTERNATIONAL, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 28, 2003 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 Incorporation (I.R.S. Employer or Organization) Identification #) 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 mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] The Registrant had 2,434,354 shares of Common Stock outstanding as of August 6, 2003. K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES INDEX
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Balance Sheets 1 June 28, 2003 and December 28, 2002 Consolidated Statements of Income 2 & Retained Earnings for the Three and Six Months Ended June 28, 2003 and June 29, 2002 Consolidated Statements of Cash Flows 3 for the Six Months Ended June 28, 2003 and June 29, 2002 Notes to Consolidated Financial Statements 4 - 11 Item 2. Management's Discussion and Analysis 12 - 20 of Financial Condition and Results of Operations. Item 3. Quantitative and Qualitative Disclosures About 20 Market Risk. Item 4. Controls and Procedures. 20 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. 21 Item 6. Exhibits and Reports on Form 8-K. 21 SIGNATURES 22
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. K-TRON INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands except Share Data) (Unaudited)
June 28, December 28, 2003 2002 ---- ---- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,950 $ 2,694 Accounts receivable, net of allowance for doubtful accounts of $773 and $716 15,389 15,275 Inventories 13,698 9,318 Deferred income taxes 169 169 Prepaid expenses and other current assets 1,550 1,775 -------- -------- Total current assets 36,756 29,231 PROPERTY, PLANT AND EQUIPMENT, net 25,609 16,170 PATENTS, net 1,962 767 GOODWILL, net 2,053 2,053 OTHER INTANGIBLES 8,982 -- NOTES RECEIVABLE AND OTHER ASSETS 2,216 2,238 -------- -------- Total assets $ 77,578 $ 50,459 ======== ======== LIABILITIES & SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 3,471 $ 2,005 Accounts payable 4,995 4,934 Accrued expenses and other current liabilities 7,431 5,845 Accrued commissions 1,494 1,532 Customer advances 1,083 809 -------- -------- Total current liabilities 18,474 15,125 LONG-TERM DEBT, net of current portion 27,745 6,499 OTHER NON-CURRENT LIABILITIES 292 -- DEFERRED INCOME TAXES 416 416 COMMITMENTS AND CONTINGENCIES SERIES B 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 4,436,928 shares and 4,433,342 shares 44 44 Paid-in capital 16,737 16,701 Retained earnings 40,468 38,768 Accumulated other comprehensive income 916 420 -------- -------- 58,165 55,933 Treasury stock, 2,002,574 and 2,002,574 shares - at cost (27,514) (27,514) -------- -------- Total shareholders' equity 30,651 28,419 -------- -------- Total liabilities and shareholders' equity $ 77,578 $ 50,459 ======== ========
See Notes to Consolidated Financial Statements -1- K-TRON INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME & RETAINED EARNINGS (Dollars in Thousands except Share Data) (Unaudited)
Three Months Ended Six Months Ended ------------------ ---------------- June 28, June 29, June 28, June 29, 2003 2002 2003 2002 ---- ---- ---- ---- REVENUES $22,661 $16,877 $46,059 $33,655 COST OF REVENUES 13,663 9,683 27,620 19,325 ------- ------- ------- ------- Gross Profit 8,998 7,194 18,439 14,330 OPERATING EXPENSES: Selling, general & administrative 6,682 5,301 13,947 10,553 Research and development 678 586 1,349 1,292 ------- ------- ------- ------- 7,360 5,887 15,296 11,845 ------- ------- ------- ------- Operating Income 1,638 1,307 3,143 2,485 INTEREST EXPENSE 400 129 780 302 ------- ------- ------- ------- Income before income taxes 1,238 1,178 2,363 2,183 INCOME TAX PROVISION 373 364 663 618 ------- ------- ------- ------- NET INCOME 865 814 1,700 1,565 RETAINED EARNINGS Beginning of period 39,603 36,235 38,768 35,484 ------- ------- ------- ------- End of period $40,468 $37,049 $40,468 $37,049 ======= ======= ======= ======= EARNINGS PER SHARE Basic $ 0.36 $ 0.33 $ 0.70 $ 0.64 ======= ======= ======= ======= Diluted $ 0.35 $ 0.33 $ 0.68 $ 0.64 ======= ======= ======= =======
See Notes to Consolidated Financial Statements -2- K-TRON INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Six Months Ended ---------------- June 28, June 29, 2003 2002 ---- ---- OPERATING ACTIVITIES: Net income $ 1,700 $ 1,565 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,457 1,290 Changes in assets and liabilities: Accounts receivable, net 3,338 601 Inventories 367 1,131 Prepaid expenses and other current assets 520 (407) Other assets 198 (220) Accounts payable (1,037) 301 Accrued expenses and other current liabilities (1,340) 659 -------- -------- Net cash provided by operating activities 5,203 4,920 -------- -------- INVESTING ACTIVITIES: Business acquired, net of cash acquired (18,988) -- Capital expenditures (1,769) (743) Other (8) (34) -------- -------- Net cash used in investing activities (20,765) (777) -------- -------- FINANCING ACTIVITIES: Net (repayments) borrowing under notes payable to banks 236 (1,108) Proceeds from issuance of long-term debt 20,000 752 Principal payments on long-term debt (1,603) (1,103) Proceeds from issuance of common stock 36 4 -------- -------- Net cash provided by (used in) financing activities 18,669 (1,455) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 149 542 -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 3,256 3,230 -------- -------- CASH AND CASH EQUIVALENTS Beginning of period 2,694 2,214 -------- -------- End of period $ 5,950 $ 5,444 ======== --------
See Notes to Consolidated Financial Statements -3- K-TRON INTERNATIONAL, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 28, 2003 (Unaudited) 1. Basis of Presentation The accompanying unaudited consolidated 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 accounting principles generally accepted in the United States of America for complete financial statements. The consolidated financial statements include the accounts of K-Tron International, Inc. and its subsidiaries ("K-Tron" or the "Company," including in fiscal 2003 the January 2, 2003 Pennsylvania Crusher Corporation acquisition noted below). 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 unaudited financial statements herein should be read in conjunction with the Company's annual report on Form 10-K for the year ended December 28, 2002 which was previously filed with the Securities and Exchange Commission. 2. Acquisition On January 2, 2003, the Company acquired all of the stock of privately-held Pennsylvania Crusher Corporation. The purchase price paid for the Pennsylvania Crusher Corporation stock was $23.5 million, plus a post-closing adjustment of $205 thousand based on Pennsylvania Crusher Corporation's consolidated shareholders' equity at December 31, 2002. Of this amount, $19.705 million was paid in cash and $4.0 million was in unsecured, promissory notes which are payable in equal, annual installments on January 2 in each of 2005, 2006 and 2007. The excess of the purchase price over the carrying value of the net assets acquired was allocated as follows (in millions): inventory -- $0.3, property, plant & equipment -- $4.7, patents -- $1.3, trademarks and tradenames -- $1.9, and other identified intangibles -- $7.1. Trademarks and tradenames and other identified intangibles are included in other intangibles in the consolidated balance sheet. If the acquisition of Pennsylvania Crusher Corporation had occurred at the beginning of fiscal 2002, pro forma K-Tron revenues, net income and diluted earnings per share for the second quarter and first six months ended June 29, 2002 would have been approximately $26.9 million and $51.7 million, $1.5 million and $2.5 million, and $0.62 per share and $1.03 per share, respectively. These pro forma disclosures are unaudited and are based on historical results, adjusted for the impact of certain acquisition-related items such as depreciation and amortization of property, plant and equipment and identified intangibles, -4- increased interest expense on acquisition debt and the related income tax effects. This unaudited pro forma disclosure is presented for informational purposes only and should not be construed to be indicative of the actual results of operations of the combined companies on the dates for the periods indicated or of the results that may be obtained in the future. 3. Intangible Assets
Six Months Ended June 28, 2003 ------------------------------ (in thousands) Gross Carrying Accumulated Amount Amortization -------------- ------------ Amortized intangible assets Patents $2,764 $ 802 Drawings 3,550 57 ------ ------ $6,314 $ 859 ====== ====== Unamortized intangible assets Trademarks $1,890 Other identifiable intangibles 3,599 ------ $5,489 ======
The amortized intangible assets are being amortized on the straight-line basis over the expected period of benefits, which is 17 to 25 years. Intangible assets of $10.3 million were acquired during the first quarter of 2003 as part of the acquisition of Pennsylvania Crusher Corporation (see Note 2). Amortization expense in the six-month periods ended June 28, 2003 and June 29, 2002 was $139 thousand and $42 thousand, respectively. 4. 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 for interest in the six-month periods ended June 28, 2003 and June 29, 2002 was $647 thousand and $352 thousand, respectively, and for income taxes was $228 thousand and a cash refund of $121 thousand, respectively. -5- 5. Inventories Inventories consist of the following:
June 28, December 28, 2003 2002 ---- ---- (in thousands) Components $11,479 $8,064 Work-in-process 2,158 1,151 Finished goods 61 103 ------- ------ $13,698 $9,318 ======= ======
6. Accrued Warranty The Company offers a product warranty on a majority of its products. Warranty is accrued as a percentage of sales on a monthly basis and is included in accrued expenses and other current liabilities. The following is a rollforward of accrued warranty for the six-month periods ended June 28, 2003 and June 29, 2002.
June 28, June 29, 2003 2002 ---- ---- (in thousands) Beginning balance $ 687 $ 662 Accrued warranty of acquired business 553 -- Accrual 746 475 Expense (918) (634) Foreign exchange adjustment 13 57 ------- ------- Ending balance $ 1,081 $ 560 ======= =======
7. Earnings Per Share The Company's basic and diluted earnings per share are calculated as follows:
For the Three Months Ended June 28, 2003 ---------------------------------------- Net Income Available (Dollars and Shares in Thousands To Common Earnings except Per Share Data) Shareholders Shares Per Share ------------ ------ --------- Basic $ 865 2,433 $ 0.36 Common Share Equivalent of Outstanding Options -- 60 (0.01) ----- ------ ------ Diluted $ 865 2,493 $ 0.35 ===== ====== =====
-6-
For the Three Months Ended June 29, 2002 ---------------------------------------- Net Income Available (Dollars and Shares in Thousands To Common Earnings except Per Share Data) Shareholders Shares Per Share ------------ ------ --------- Basic $ 814 2,432 $ 0.33 Common Share Equivalent of Outstanding Options -- 36 (0.00) ----- ------ ------ Diluted $ 814 2,468 $ 0.33 ===== ====== ======
For the Six Months Ended June 28, 2003 -------------------------------------- Net Income Available (Dollars and Shares in Thousands To Common Earnings except Per Share Data) Shareholders Shares Per Share ------------ ------ --------- Basic $1,700 2,433 $ 0.70 Common Share Equivalent of Outstanding Options -- 56 (0.02) ------ ------ ------ Diluted $1,700 2,489 $ 0.68 ====== ====== ======
For the Six Months Ended June 29, 2002 -------------------------------------- Net Income Available (Dollars and Shares in Thousands To Common Earnings except Per Share Data) Shareholders Shares Per Share ------------ ------ --------- Basic $1,565 2,432 $ 0.64 Common Share Equivalent of Outstanding Options -- 28 (0.00) ------ ------ ------ Diluted $1,565 2,460 $ 0.64 ====== ====== ======
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. -7- 8. Stock-Based Compensation In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," to require more prominent and frequent disclosures in financial statements. Also, SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The Company has included the interim disclosures prescribed under SFAS No. 148. At June 28, 2003, the Company had various stock-based compensation plans as described in Note 11 to the consolidated financial statements in the Company's annual report on Form 10-K for the year ended December 28, 2002. As permitted under SFAS No. 123, as amended by SFAS No. 148, the Company has elected to continue to account for compensation costs using the intrinsic value-based method of accounting as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." No compensation expense has been recognized in net income for stock options, as options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to its stock option plans.
Three Months Ended Six Months Ended ------------------ ---------------- June 28, June 29, June 28, June 29, (in thousands, except per share) 2003 2002 2003 2002 ---- ---- ---- ---- Net income - as reported $865 $814 $1,700 $1,565 Net income - pro forma 794 714 1,561 1,380 Basic earnings per share - as reported 0.36 0.33 0.70 0.64 Basic earnings per share - pro forma 0.33 0.29 0.64 0.57 Diluted earnings per share - as reported 0.35 0.33 0.68 0.64 Diluted earnings per share - pro forma 0.32 0.29 0.63 0.56
-8- 9. Comprehensive Income Comprehensive income is the total of net income, the change in the unrealized gain or loss on derivatives, net of tax, and the change in translation adjustments, all for a given period, which are the Company's only non-owner changes in equity. For the three- and six-month periods ending June 28, 2003 and June 29, 2002, the following table sets forth the Company's comprehensive income:
(in thousands) Three Months Ended Six Months Ended ------------------ ---------------- June 28, June 29, June 28, June 29, 2003 2002 2003 2002 ---- ---- ---- ---- Net Income $ 865 $ 814 $1,700 $1,565 Unrealized loss on derivatives, net of tax (80) -- (178) -- Translation Adjustments 341 2,181 674 2,092 ------ ------ ------ ------ Comprehensive Income $1,126 $2,995 $2,196 $3,657 ====== ====== ====== ======
-9- 10. Management Segment Information The Company is engaged in one principal business segment -- material handling equipment and systems. The Company operates in two primary geographic locations, North and South America (the "Americas") and Europe, the Middle East, Africa and Asia ("EMEA/Asia"). For the three and six months ended June 28, 2003 and June 29, 2002, the following tables set forth the Company's segment information:
EMEA/ Elimi- Consoli- Americas Asia nations dated -------- ---- ------- ----- (in thousands) THREE MONTHS ENDED June 28, 2003 Revenues Sales to unaffiliated customers $ 13,191 $ 9,470 $ -- $ 22,661 Sales to affiliates 563 450 (1,013) -- -------- -------- -------- -------- Total sales $ 13,754 $ 9,920 $ (1,013) $ 22,661 ======== ======== ======== ======== Operating income $ 1,135 $ 503 $ -- $ 1,638 ======== ======== ======== Interest expense (400) -------- Income before income taxes $ 1,238 ========
EMEA/ Elimi- Consoli- Americas Asia nations dated -------- ---- ------- ----- (in thousands) THREE MONTHS ENDED June 29, 2002 Revenues Sales to unaffiliated customers $ 6,968 $ 9,909 $ -- $ 16,877 Sales to affiliates 964 493 (1,457) -- -------- -------- -------- -------- Total sales $ 7,932 $ 10,402 $ (1,457) $ 16,877 ======== ======== ======== ======== Operating income $ 631 $ 676 $ -- $ 1,307 ======== ======== ======== Interest expense (129) -------- Income before income taxes $ 1,178 ========
-10-
EMEA/ Elimi- Consoli- Americas Asia nations dated -------- ---- ------- ----- (in thousands) SIX MONTHS ENDED June 28, 2003 Revenues Sales to unaffiliated customers $ 26,408 $ 19,651 $ -- $ 46,059 Sales to affiliates 1,312 1,018 (2,330) -- -------- -------- -------- -------- Total sales $ 27,720 $ 20,669 $ (2,330) $ 46,059 ======== ======== ======== ======== Operating income $ 1,808 $ 1,354 $ (19) $ 3,143 ======== ======== ======== Interest expense (780) -------- Income before income taxes $ 2,363 ========
EMEA/ Elimi- Consoli- Americas Asia nations dated -------- ---- ------- ----- (in thousands) SIX MONTHS ENDED June 29, 2002 Revenues Sales to unaffiliated customers $ 14,540 $ 19,115 $ -- $ 33,655 Sales to affiliates 1,912 798 (2,710) -- -------- -------- -------- -------- Total sales $ 16,452 $ 19,913 $ (2,710) $ 33,655 ======== ======== ======== ======== Operating income $ 1,275 $ 1,210 $ -- $ 2,485 ======== ======== ======== Interest expense (302) -------- Income before income taxes $ 2,183 ========
-11- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with our consolidated financial statements and accompanying notes. All references to the second quarter or first six months of 2003 or 2002 mean the quarter or six-month period ended June 28, 2003 or June 29, 2002, as the case may be. On January 2, 2003, we acquired all of the outstanding capital stock of privately-held Pennsylvania Crusher Corporation ("Penn Crusher"). As a result of this purchase, we also acquired Jeffrey Specialty Equipment Corporation ("Jeffrey"), a wholly-owned subsidiary of Penn Crusher. The purchase price consisted of a combination of $19,500,000 in cash, $4,000,000 in unsecured promissory notes and a post-closing cash payment of $205,000 based on Penn Crusher's consolidated shareholders' equity at December 31, 2002. With respect to the payment of the cash portion of the purchase price and related acquisition costs, we financed $15,000,000 through a $17,000,000 secured credit facility with Penn Crusher as the borrower (the additional $2,000,000 is available for working capital and general corporate purposes, subject to certain limitations). This facility is directly with Penn Crusher, and the lender has no recourse against any K-Tron company other than Penn Crusher and Jeffrey with respect to any amounts borrowed thereunder (except to recover the stock of Penn Crusher). Additionally, we borrowed $5,000,000 from a U.S. bank through a K-Tron wholly-owned subsidiary, the repayment of which loan was guaranteed by K-Tron International, and we used these funds to pay part of the purchase price. K-Tron International also issued the $4,000,000 of unsecured promissory notes referred to above. As noted above, we incurred substantial debt as a result of the Penn Crusher acquisition, which debt is described in more detail in the Liquidity and Capital Resources section below; however, we expect to have sufficient cash flow to cover all required principal and interest payments and, in particular, Penn Crusher's cash flow should be adequate to cover required principal and interest payments on its secured credit facility. RESULTS OF OPERATIONS For the second quarter and first six months of 2003, K-Tron reported net income of $865,000 and $1,700,000, respectively, compared to $814,000 and $1,565,000 for the same periods in 2002. We are engaged in one principal business segment - material handling equipment and systems. We operate in two primary geographic locations - North and South America (the "Americas") and Europe, the Middle East, Africa and Asia ("EMEA/Asia"). We derived approximately 43% and 57% of our first six months of 2003 and 2002 revenues, respectively, from products manufactured in, and services performed from, our facilities located outside the -12- United States, primarily in Europe. Since we operate globally, 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 as well as 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 reduction in the percentage of our revenues derived from outside the United States in the first six months of 2003 as compared to the same period in 2002 was primarily due to the acquisition of Penn Crusher and Jeffrey noted above, since most of their revenues were derived from within the United States. The following table sets forth our results of operations expressed as a percentage of total revenues for the periods indicated.
Three Months Ended Six Months Ended ------------------ ---------------- June 28, June 29, June 28, June 29, 2003 2002 2003 2002 ---- ---- ---- ---- Total revenues 100.0% 100.0% 100.0% 100.0% Cost of revenues 60.3 57.4 60.0 57.4 ----- ----- ----- ----- Gross profit 39.7 42.6 40.0 42.6 Selling, general and administrative 29.5 31.4 30.3 31.4 Research and development 3.0 3.5 2.9 3.8 ----- ----- ----- ----- Operating income 7.2 7.7 6.8 7.4 Interest 1.7 0.7 1.7 0.9 ----- ----- ----- ----- Income before income taxes 5.5% 7.0% 5.1% 6.5% ===== ===== ===== =====
The following table summarizes our order backlog as of the dates indicated, all adjusted to June 28, 2003 foreign exchange rates:
(Dollars in Thousands) June 28, 2003 December 28, 2002 June 29, 2002 ------------- ----------------- ------------- Order backlog $15,244 $8,735 $11,438
The June 28, 2003 order backlog includes $6,480,000 of order backlog of Penn Crusher and Jeffrey. As previously noted, we derive a substantial amount of our revenues 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, euro and British pound sterling and, to a lesser degree, the Singapore dollar and other currencies. -13- When the U.S. dollar weakens against these currencies, the U.S. dollar value of non-U.S. dollar-based sales increases. When the U.S. dollar strengthens against these currencies, the U.S. dollar value of non-U.S. dollar-based sales decreases. 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 significant amount 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. In particular, a general weakening of the U.S. dollar against other currencies would positively affect our revenues, gross profit and operating income as expressed in U.S. dollars (provided that the gross profit and operating income numbers from foreign operations are not losses, since in the case of a loss, the effect would be to increase the loss), whereas a general strengthening of the U.S. dollar against such currencies would have the opposite effect. 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 Swiss franc/euro and Swiss franc/British pound sterling (for sales from the Company's Swiss manufacturing facility) exchange rates. For the second quarter and first six months of 2003 and 2002, the changes in certain key exchange rates were as follows:
Three Months Ended Six Months Ended ------------------ ---------------- June 28, June 29, June 28, June 29, 2003 2002 2003 2002 ---- ---- ---- ---- Average U.S. dollar equivalent of one Swiss franc 0.749 0.631 0.740 0.613 % change vs. prior year +18.7% +20.7% Average U.S. dollar equivalent of one euro 1.138 0.924 1.106 0.900 % change vs. prior year +23.2% +22.9% Average U.S. dollar equivalent of one British pound sterling 1.619 1.465 1.611 1.446 % change vs. prior year +10.5% +11.4% Average Swiss franc equivalent of one euro 1.519 1.464 1.495 1.468 % change vs. prior year +3.8% + 1.8% Average Swiss franc equivalent of one British pound sterling 2.162 2.322 2.177 2.360 % change vs. prior year -6.9% - 7.8%
-14- With the acquisition of Penn Crusher and Jeffrey, we are less affected by foreign exchange rates since most of their sales are in U.S. dollars. Nevertheless, more than 40% of our revenues in the first six months of 2003 were from products manufactured in, and services performed from, our facilities outside the United States, so that we will continue to have significant sensitivity to foreign exchange rate changes. Total revenues increased by $5,784,000 or 34.3% in the second quarter of 2003 and by $12,404,000 or 36.9% in the first six months of 2003 compared to the same periods in 2002. This increase in revenues was primarily attributable to a full six months of revenues in 2003 from the January 2, 2003 acquisition of Penn Crusher and Jeffrey ($7,650,000 from Penn Crusher and Jeffrey for the second quarter and $14,911,000 for the first six months of 2003) and the positive effect of a weaker U.S. dollar when translating the revenues of foreign operations into U.S. dollars, partially offset by lower revenues in our pre-acquisition feeder and pneumatic conveying businesses due to a generally weaker global economy, the war in Iraq and the outbreak of the SARS illness. These factors contributed to reduced spending for industrial capital equipment in many of the industries that we serve. The favorable impact of foreign currency translation accounted for 8.5% of the revenue increase for the second quarter and 9.6% for the six months of 2003 compared to the same periods in 2002. Gross profit as a percent of total revenues decreased to 39.7% in the second quarter of 2003 and 40.0% in the first six months of 2003 from 42.6% for the same periods in 2002. These decreases in gross profit were primarily due to geographic and product sales mix and the weaknesses in capital equipment spending described above, which led to fixed costs being absorbed over a smaller revenue base. Selling, general and administrative (SG&A) expenses increased by $1,381,000 or 26.1% in the second quarter of 2003 and by $3,394,000 or 32.2% in the first six months of 2003 compared to the same periods in 2002. These increases in SG&A were primarily due to the addition of Penn Crusher and Jeffrey and the effect of a weaker U.S. dollar, partially offset by lower spending levels. As a percent of total revenues, SG&A was 29.5% in the second quarter and 30.3% in the first six months of 2003 compared to 31.4% in the same periods in 2002. Research and development (R&D) expenditures increased by $92,000 or 15.7% in the second quarter of 2003 and by $57,000 or 4.4% in the first six months of 2003 compared to the same periods in 2002. These increases in R&D were primarily due to the effect of a weaker U.S. dollar, partially offset by lower tooling costs in 2003. R&D expense as a percent of total revenues was 3.0% in the second quarter of 2003 and 2.9% in the first six months of 2003 compared to 3.5% and 3.8% for the same periods in 2002. Interest expense increased by $271,000 or 210% in the second quarter of 2003 and by $478,000 or 158% in the first six months of 2003 compared to the same periods in 2002. These increases reflected the substantial debt incurred in connection with the Penn Crusher acquisition, partially offset by lower interest costs on other debt as a result of significant reductions in that debt which were made in the last nine months of 2002. -15- Income before income taxes was $865,000 in the second quarter of 2003 and $1,700,000 in the first six months of 2003 compared to $814,000 and $1,565,000 for the same periods in 2002. Income before income taxes improved versus the same periods in 2002, primarily as a result of the Penn Crusher acquisition. The effective tax rate for the second quarter and first six months of 2003 was 30.1% and 28.1%, respectively, compared to 30.9% and 28.3% for the same periods in 2002. Our backlog at constant foreign exchange rates increased by 74.5% and 33.3% at the end of the second quarter of 2003 compared to December 28, 2002 and June 29, 2002, respectively, due to the Penn Crusher acquisition, partially offset in the comparison to June 29, 2002 by reduced backlog in our other businesses resulting from the very weak environment for industrial capital equipment spending that existed during the second half of 2002 and the first half of 2003 in many of the industries that we serve. LIQUIDITY AND CAPITAL RESOURCES To finance the Penn Crusher acquisition described earlier, in January 2003 we borrowed $20,000,000 from two U.S. banks, and we also issued $4,000,000 in unsecured promissory notes to the former Penn Crusher stockholders. We borrowed $5,000,000 from a U.S. bank through K-Tron's U.S. manufacturing subsidiary, which loan was combined with an outstanding term loan from that bank to that subsidiary and resulted in a $7,333,000 term loan. Monthly principal payments of $83,000 plus interest at a fixed rate of 5.625% on approximately half the loan and at a variable rate of one-month LIBOR plus 1.85% on the other half (3.17% at June 28, 2003) began in February 2003, with the final principal payment of approximately $2,416,000 plus interest being due in January 2008. This loan is secured by substantially all of the assets of the U.S. manufacturing subsidiary and is guaranteed by K-Tron International, Inc. Penn Crusher borrowed $15,000,000 from another U.S. bank consisting of an aggregate of $13,500,000 term debt ($10,000,000 with a five-year term and $3,500,000 with a six-year term) and $1,500,000 under a five-year revolving credit facility. Subject to certain conditions, the revolving credit facility provides for up to an additional $2,000,000 of availability. Quarterly term debt principal payments of $400,000 began March 31, 2003 and increase each year by $62,500 per quarter (or $250,000 per year in the aggregate) through December 31, 2007, with final quarterly payments of $750,000 in 2008. Interest is based on one- to six-month LIBOR plus 3% to 3.5%, and the 3% to 3.5% can be reduced to 2% to 2.5% upon meeting certain financial ratios. In January 2003, Penn Crusher entered into an interest rate swap related to the entire $10,000,000 five-year term loan where interest will not exceed 6.11% for the full term of the loan and can be reduced to 5.11% upon meeting certain financial ratios. The interest rates on the $10,000,000 term loan, $3,500,000 term loan and $1,500,000 revolving credit facility were 6.11%, 4.91% and 4.34%, respectively, as of June 28, 2003. The Penn Crusher debt is guaranteed by Jeffrey and secured by substantially all of the assets of Penn Crusher and Jeffrey, but it is not guaranteed by any other K-Tron company (except by a non-recourse pledge of the stock of Penn Crusher). -16- In addition, K-Tron International, Inc. issued $4,000,000 of unsecured promissory notes to the former Penn Crusher stockholders as part of the Penn Crusher purchase price, which notes are payable in three equal, annual installments on the second, third and fourth anniversaries of the closing date. Interest at 6% per annum is payable quarterly. As stated previously, we expect to have sufficient cash flow to cover all required principal and interest payments on the foregoing debt as well as on K-Tron's other indebtedness for money borrowed. Our capitalization at the end of the second quarter of 2003 and at the end of fiscal years 2002 and 2001 is set forth below:
June 28, December 28, December 29, (Dollars in Thousands) 2003 2002 2001 ---- ---- ---- Short-term debt, including current portion of long-term debt $ 3,471 $ 2,005 $ 2,186 Long-term debt 27,745 6,499 12,499 ------- ------- ------- Total debt 31,216 8,504 14,685 Shareholders' equity 30,651 28,419 21,561 ------- ------- ------- Total debt and shareholders' equity $61,867 $36,923 $36,246 (total capitalization) ======= ======= ======= Percent total debt to total capitalization 50% 23% 41% Percent long-term debt to equity 91% 23% 58% Percent total debt to equity 102% 30% 68%
Total debt increased by $22,712,000 in the first six months of 2003 ($24,000,000 related to the Penn Crusher acquisition net of debt repayments of $1,367,000 and a $79,000 increase due to the effect of the weaker U.S. dollar on the translation of our foreign debt). At June 28, 2003 and subject to certain conditions, we had $5,775,000 of unused borrowing availability under our U.S. loan agreements and $7,012,000 of unused borrowing availability under our foreign loan agreements. At June 28, 2003, working capital was $18,282,000 compared to $14,106,000 at December 28, 2002, and the ratio of current assets to current liabilities at those dates was 1.99 and 1.93, respectively. The increase in working capital was primarily due to the Penn Crusher acquisition. In the first six months of 2003 and 2002, we utilized internally generated funds to meet our working capital needs. -17- Net cash provided by operating activities was $5,203,000 in the first six months of 2003 compared to $4,920,000 in the same period of 2002. The increase in operating cash flow during the first six months of 2003 compared to the same period in 2002 was primarily due to an increase in net income and depreciation and amortization with net changes in assets and liabilities being approximately the same. Net cash used in investing activities in the first six months of 2003 was primarily for the acquisition of Penn Crusher and capital additions, while in the first six months of 2002 net cash used in investing activities was primarily for capital additions. Cash provided by financing activities in the first six months of 2003 was primarily due to the borrowings related to the Penn Crusher acquisition net of debt reduction, while cash used in financing activities in the same period of 2002 was primarily for debt reduction. Of the total increase in shareholders' equity of $2,232,000 in the first six months of 2003, $1,700,000 was from net income, $674,000 was from changes in foreign exchange rates, particularly the strengthening of the Swiss franc and euro versus the U.S. dollar, and $36,000 was from the issuance of common stock related to the exercise of stock options, reduced by $178,000 which was an unrealized loss net of taxes on an interest rate swap. CONTRACTUAL OBLIGATIONS We are obligated to make future payments under various contracts such as debt agreements and lease agreements, and we are subject to certain other commitments and contingencies. There have been no material changes to Contractual Obligations as reflected in the Liquidity and Capital Resources section of Management's Discussion and Analysis in the Company's annual report on Form 10-K for the year ended December 28, 2002 (the "2002 Form 10-K"). Refer to Notes 9 and 16 to the consolidated financial statements in the 2002 Form 10-K for additional information on long-term debt and commitments and contingencies. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management's discussion and analysis of our financial condition and results of operations is based on the accounting policies used and disclosed in our 2002 consolidated financial statements and accompanying notes that were prepared in accordance with accounting principles generally accepted in the United States of America and included as part of our 2002 Form 10-K. The preparation of those financial statements required management to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The significant accounting policies of the Company are described in Note 2 to the 2002 consolidated financial statements, and the critical accounting policies and estimates are described in Management's Discussion and Analysis included in our 2002 Form 10-K. Information -18- concerning our implementation and impact of new accounting standards issued by the Financial Accounting Standards Board (FASB) is included in the notes to the 2002 consolidated financial statements. Otherwise, we did not adopt an accounting policy in the current period that had a material impact on our financial condition, liquidity or results of operations. 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 or 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. The forward-looking statements contained in this report include statements regarding the effect of changes in foreign exchange rates on our business and our ability to repay debt, including in particular the principal and interest payments related to the Penn Crusher acquisition. 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; (xiii) domestic and international political, economic and health conditions, including wars such as the Iraq war and the outbreak of diseases such as the SARS illness, which may disrupt the global economy or important regional economies; and (xiv) the outcome of any legal proceeding in which we are involved. -19- 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable ITEM 4. CONTROLS AND PROCEDURES. (a) Evaluation of Disclosure Controls and Procedures The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures as of the end of the period covered by this report have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. The Company believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. (b) Change in Internal Control over Financial Reporting No change in the Company's internal control over financial reporting occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. -20- PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) The Annual Meeting of Shareholders of the Company was held on May 16, 2003. (b) Not applicable (c) Shareholders of the Company were asked to vote on a proposal to elect one Class II director. The Board of Directors nominated Robert A. Engel as the Class II director. There were no other nominations. Mr. Engel was then elected as the Class II director, with the result of the vote being as follows:
Number of Votes --------------- For Withheld --- -------- Robert A. Engel 2,166,979 22,834
Directors are elected by a plurality of the votes cast; therefore, votes cast in the election could not be recorded against or as an abstention, nor could broker non-votes be recorded. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 10.1 Amendment No. 1 dated May 12, 2003 to Credit Agreement dated January 3, 2003 among Pennsylvania Crusher Corporation, the Lenders party to that Credit Agreement and National City Bank, as Agent 99.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 99.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 99.3 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.4 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K. Current Report on Form 8-K dated April 17, 2003 and filed with the Securities and Exchange Commission on April 21, 2003 reporting first quarter 2003 financial results. -21- 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: August 6, 2003 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 ------------------- Alan R. Sukoneck Vice President, Chief Accounting & Tax Officer (Duly authorized officer and principal accounting officer of the registrant) -22- EXHIBIT INDEX
Exhibit Number Description - ------- ----------- 10.1 Amendment No. 1 dated May 12, 2003 to Credit Agreement dated January 3, 2003 among Pennsylvania Crusher Corporation, the Lenders party to that Credit Agreement and National City Bank, as Agent 99.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 99.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 99.3 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.4 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-10.1 4 w89012exv10w1.txt AMENDMENT NO. 1 DATED MAY 12,2003 TO CREDIT AGREE. Exhibit 10.1 AMENDMENT NO. 1 TO CREDIT AGREEMENT (PENNSYLVANIA CRUSHER CORPORATION) AMENDMENT NO. 1, dated as of May 12, 2003, (this "AMENDMENT NO. 1") among PENNSYLVANIA CRUSHER CORPORATION, a Delaware corporation (the "BORROWER"); the financial institutions referred to as "LENDERS" in the Credit Agreement referred to below (the "LENDERS"); and National City Bank, as agent for the Lenders (together with its successors and assigns in such capacity, the "AGENT"). Background The Borrower, the Lenders and the Agent entered into a certain Credit Agreement, dated as of January 3, 2003, (the "EXISTING CREDIT AGREEMENT" and the same, as it may be further amended, restated, modified and/or supplemented from time to time, the "CREDIT AGREEMENT"), which provides for certain extensions of credit to the Borrower, subject to certain conditions. The Borrower has requested that the Lenders agree to modify the definition of "Base Amount" in the Existing Credit Agreement so that the Amount will be based on the Borrower's financial statements for the first fiscal quarter of 2003. The Agent and the Lenders are willing to make the amendments requested by the Borrower pursuant to the terms, and subject to the conditions, specified below. Accordingly, the parties hereto agree as follows. SECTION 1. DEFINITIONS. Except as otherwise defined in this Amendment No. 1, terms defined in the Existing Credit Agreement are used herein as defined therein. SECTION 2. AMENDMENTS TO EXISTING CREDIT AGREEMENT. Subject to the satisfaction of the conditions precedent specified in Section 4 below, 2.1.1 Section 6.1 of the Existing Credit Agreement (Minimum Tangible Net Worth) is amended in its entirety to read as follows: The Borrower and its Subsidiaries, on a Consolidated basis, shall maintain a Tangible Net Worth of not less the sum of (a) the Base Amount (as defined below) plus (b) an amount equal to 50% of the Consolidated Net Income of the Borrower and its Subsidiaries for the period commencing on the first day of the second fiscal quarter of the Borrower's 2003 fiscal year and ending on the last day of the fiscal quarter ending on, or most recently prior to, the applicable test date. Test dates for this covenant shall be the last day of each fiscal quarter commencing with the second fiscal quarter in the 2003 fiscal year. "BASE AMOUNT" means the Tangible Net Worth of the Borrower and its Subsidiaries as at the last day of the first fiscal quarter of 2003. SECTION 3. REPRESENTATIONS AND WARRANTIES. In order to induce the Lenders and the Agent to agree to amend the Existing Credit Agreement in the manner set forth herein, the Borrower makes the following representations and warranties, which shall survive the execution and delivery of this Amendment No. 1: (a) As of the date hereof, no Default or Event of Default has occurred and is continuing after giving effect to the amendments contained herein; and (b) Each of the representations and warranties set forth in the Existing Credit Agreement and other Loan Documents is true and correct in all material respects before and after giving effect to the amendments and transactions contemplated hereby as though each such representation and warranty were made at and as of the date hereof. SECTION 4. CONDITIONS PRECEDENT. The amendments to the Existing Credit Agreement set forth in Section 2 above, shall become effective upon the execution and delivery of this Amendment No. 1 by (a) the Borrower, (b) the Agent and (c) the Majority Lenders, and the execution and delivery of the acknowledgement below by the Persons indicated thereon. SECTION 5. MISCELLANEOUS. 5.1 COUNTERPARTS. This Amendment No. 1 may be executed in counterparts and by different parties hereto in separate counterparts, each of which, when executed and delivered, shall be deemed to be an original and all of which, when taken together, shall constitute one and the same instrument. A photocopied or facsimile signature shall be deemed to be the functional equivalent of a manually executed original for all purposes. 5.2 RATIFICATION. The Existing Credit Agreement, as amended by this Amendment No. 1 and the other Loan Documents are, and shall continue to be, in full force and effect and are hereby in all respects confirmed, the approved and ratified. Without limiting the generality of the foregoing, the undersigned confirms the pledges and the security interests granted pursuant to such Loan Documents. 5.3 PAYMENT OF FEES AND EXPENSES. Without limiting other payment obligations of the Borrower set forth in the Loan Documents, the Borrower agrees to pay all costs and expenses incurred by the Agent in connection with the preparation, execution and delivery of this Amendment No. 1 and any other documents or instruments which may be delivered in connection herewith, including, without limitation, the reasonable fees and expenses of its counsel, Drinker Biddle & Reath LLP. 2 5.4 AUTHORIZATION TO AGENT. Each Lender hereby authorizes the Agent to take such action as shall be consistent with the purposes hereof and as it shall deem necessary or appropriate to carry out the purposes of this Amendment No. 1. 5.5 GOVERNING LAW. This Amendment No. 1 shall be construed in accordance with, and governed by, the laws of the Commonwealth of Pennsylvania, without regard to choice of law principles. 5.6 REFERENCE. From and after the Amendment No. 1 Effective Date, each reference in the Credit Agreement to "this Agreement", "hereof", "hereunder" or words of like import, and all references to the Credit Agreement in any and all Loan Documents, other agreements, instruments, documents, certificates and writings of every kind and nature, shall be deemed to mean the Existing Credit Agreement as modified and amended by this Amendment No. 1 and as the same may be further amended, modified or supplemented in accordance with the terms thereof. 3 IN WITNESS WHEREOF, the undersigned have caused this Amendment No. 1 to be duly executed by their respective, duly authorized officers as of the date first above written. BORROWER: PENNSYLVANIA CRUSHER CORPORATION By: /s/ R. Remick ---------------------- Name: R. REMICK Title: VP & TREASURER 4 AGENT AND LENDERS: NATIONAL CITY BANK, in its capacity as Agent and a Lender By: /s/ Lyle P. Cunningham ------------------------------ Name: Lyle P. Cunningham Title: Senior Vice President 5 Acknowledgement Each of the undersigned acknowledges the foregoing amendment and confirms its obligations under each of the Loan Documents to which it is a party, provided, however, it is agreed that the consent of the undersigned is not required to amend the Credit Agreement or any Loan Document except where it is a party to such Loan Document. JEFFREY SPECIALTY EQUIPMENT CORPORATION BY: /s/ R. Remick -------------------------- Name: R. REMICK Title: VP & TREASURER K-TRON INVESTMENT CO. By: /s/ EB Cloues, II --------------------------- Name: EDWARD B. CLOUES, II Title: CHAIRMAN AND PRESIDENT K-TRON INTERNATIONAL INC. By: /s/ EB Cloues, II --------------------------- Name: EDWARD B. CLOUES, II Title: CHAIRMAN AND CEO 6 EX-99.1 5 w89012exv99w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 302 Exhibit 99.1 CERTIFICATION I, Edward B. Cloues, II, certify that: 1. I have reviewed the Quarterly Report on Form 10-Q for the period ended June 28, 2003 of K-Tron International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 6, 2003 /s/ Edward B. Cloues, II ---------------------------------------- Edward B. Cloues, II Chairman and Chief Executive Officer 2 EX-99.2 6 w89012exv99w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 302 Exhibit 99.2 CERTIFICATION I, Ronald R. Remick, certify that: 1. I have reviewed the Quarterly Report on Form 10-Q for the period ended June 28, 2003 of K-Tron International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 6, 2003 /s/ Ronald R. Remick ------------------------------------------------- Ronald R. Remick Senior Vice President and Chief Financial Officer 2 EX-99.3 7 w89012exv99w3.txt CERTIFICATION OF CEO PURSUANT TO SECTION 906 Exhibit 99.3 CERTIFICATION In connection with the Quarterly Report of K-Tron International, Inc. (the "Company") on Form 10-Q for the period ended June 28, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Edward B. Cloues, II, Chairman and Chief Executive Officer of the Company, hereby certify, based on my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 6, 2003 /s/ Edward B. Cloues, II ------------------------------------ Edward B. Cloues, II Chairman and Chief Executive Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to K-Tron International, Inc. and will be retained by K-Tron International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.4 8 w89012exv99w4.txt CERTIFICATION OF CFO PURSUANT TO SECTION 906 Exhibit 99.4 CERTIFICATION In connection with the Quarterly Report of K-Tron International, Inc. (the "Company") on Form 10-Q for the period ended June 28, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ronald R. Remick, Senior Vice President and Chief Financial Officer, hereby certify, based on my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 6, 2003 /s/ Ronald R. Remick --------------------------- Ronald R. Remick Senior Vice President and Chief Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to K-Tron International, Inc. and will be retained by K-Tron International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----