-----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, FFZev/3WNKf+gSOLK3roB+Hcs1FX2aopSX2ctRYbynOMxrZEKlSr9S+nCsTCt3fM Y4MibfkBZTZWYJuQtNEpfA== 0000893220-04-001081.txt : 20040518 0000893220-04-001081.hdr.sgml : 20040518 20040518153709 ACCESSION NUMBER: 0000893220-04-001081 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040403 FILED AS OF DATE: 20040518 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: 04816149 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 w97605e10vq.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 April 3, 2004 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 Former 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 2,493,354 shares of Common Stock outstanding as of May 18, 2004. K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES INDEX
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Balance Sheets April 3, 2004 (Unaudited) and January 3, 2004 1 Consolidated Statements of Income & Retained Earnings (Unaudited) for the Three Months Ended April 3, 2004 and March 29, 2003 2 Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended April 3, 2004 and March 29, 2003 3 Notes to Consolidated Financial Statements 4 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 10 - 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk. 16 Item 4. Controls and Procedures. 16 - 17 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. 18 SIGNATURES 19
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. K-TRON INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands except Share Data)
(Unaudited) April 3, January 3, 2004 2004 ---- ---- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,805 $ 4,506 Accounts receivable, net of allowance for doubtful accounts of $770 and $820 19,467 19,273 Inventories 14,465 13,566 Deferred income taxes 442 442 Prepaid expenses and other current assets 1,558 1,698 -------- -------- Total current assets $ 41,737 $ 39,485 -------- -------- PROPERTY, PLANT AND EQUIPMENT, net 25,111 26,916 PATENTS, net 1,858 1,893 GOODWILL 2,053 2,053 OTHER INTANGIBLES, net 10,172 10,218 NOTES RECEIVABLE AND OTHER ASSETS 2,001 2,111 DEFERRED INCOME TAXES 416 405 -------- -------- Total assets $ 83,348 $ 83,081 ======== ======== LIABILITIES & SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 4,854 $ 3,541 Accounts payable 6,514 6,361 Accrued expenses and other current liabilities 7,928 8,518 Accrued commissions 1,310 1,393 Customer advances 2,160 1,757 Deferred income taxes 794 794 -------- -------- Total current liabilities 23,560 22,364 -------- -------- LONG-TERM DEBT, net of current portion 23,023 24,574 DEFERRED INCOME TAXES 947 947 OTHER NON-CURRENT LIABILITIES 109 82 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 4,468,928 shares and 4,449,928 shares 44 44 Paid-in capital 17,137 16,922 Retained earnings 43,913 42,491 Accumulated other comprehensive income 2,129 3,171 -------- -------- 63,223 62,628 Treasury stock, 2,002,574 shares - at cost (27,514) (27,514) -------- -------- Total shareholders' equity 35,709 35,114 -------- -------- Total liabilities and shareholders' equity $ 83,348 $ 83,081 ======== ========
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 ------------------ April 3, March 29, 2004 2003 ---- ---- REVENUES $ 26,321 $ 23,398 COST OF REVENUES 15,137 13,957 ---------- ---------- Gross Profit 11,184 9,441 OPERATING EXPENSES: Selling, general & administrative 8,272 7,265 Research and development 649 671 ---------- ---------- 8,921 7,936 ---------- ---------- Operating Income 2,263 1,505 INTEREST EXPENSE 366 380 GAIN ON SALE OF OFFICE BUILDING 164 -- ---------- ---------- Income before income taxes 2,061 1,125 INCOME TAX PROVISION 639 290 ---------- ---------- NET INCOME 1,422 835 RETAINED EARNINGS Beginning of period 42,491 38,768 ---------- ---------- End of period $ 43,913 $ 39,603 ========== ========== EARNINGS PER SHARE Basic $ 0.58 $ 0.34 ========== ========== Diluted $ 0.55 $ 0.34 ========== ========== Average common shares outstanding 2,461,000 2,432,000 ========== ========== Average common and common equivalents shares outstanding 2,583,000 2,484,000 ========== ==========
See Notes to Consolidated Financial Statements -2- K-TRON INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Three Months Ended ------------------------- April 3, March 29, 2004 2003 ---- ---- OPERATING ACTIVITIES: Net income $ 1,422 $ 835 Adjustments to reconcile net income to net cash provided by operating activities: Gain on disposition of asset (164) -- Depreciation and amortization 1,075 862 Changes in assets and liabilities: Accounts receivable, net (599) 1,144 Inventories (1,076) (128) Prepaid expenses and other current assets 115 (13) Other assets -- 164 Accounts payable 263 (583) Accrued expenses and other current liabilities (128) (1,035) -------- -------- Net cash provided by operating activities 908 1,246 -------- -------- INVESTING ACTIVITIES: Proceeds from disposition of assets 996 -- Business acquired, net of cash acquired -- (18,988) Capital expenditures (394) (562) Other (49) (2) -------- -------- Net cash provided by (used in) investing activities 553 (19,552) -------- -------- FINANCING ACTIVITIES: Net borrowings under notes payable to banks 1,276 5 Proceeds from issuance of long-term debt -- 20,000 Principal payments on long-term debt (1,476) (132) Proceeds from issuance of common stock 215 18 -------- -------- Net cash provided by financing activities 15 19,891 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (177) 46 -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,299 1,631 -------- -------- CASH AND CASH EQUIVALENTS Beginning of period 4,506 2,694 -------- -------- End of period $ 5,805 $ 4,325 ======== ========
See Notes to Consolidated Financial Statements -3- K-TRON INTERNATIONAL, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 3, 2004 (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"). 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. Certain reclassifications were made to the prior year's consolidated financial statements to conform to the current period presentation. The unaudited financial statements herein should be read in conjunction with the Company's annual report on Form 10-K for the year ended January 3, 2004 which was previously filed with the Securities and Exchange Commission. 2. New Accounting Pronouncements In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46). In general, a variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The adoption of the provisions of FIN 46 effective February 1, 2003 did not have a material impact on the Company's consolidated financial statements since the Company currently does not have variable interest entities. In December 2003, the FASB issued FIN 46R with respect to variable interest entities created before January 31, 2003, which, among other things, revised the implementation date to the first fiscal year or interim period ending after March 15, 2004, with the exception of Special Purpose Entities ("SPE"). The consolidation requirements apply to all SPEs in the first fiscal year or interim period ending after December 15, 2003. The Company's adoption of the provisions of FIN 46R effective January 3, 2004 did not have a material impact on the Company's consolidated financial statements since the Company currently does not have any SPEs, nor does it have any variable interest entities. -4- 3. 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 three-month periods ended April 3, 2004 and March 29, 2003 was $371,000 and $104,000, respectively, and for income taxes was $511,000 and $109,000, respectively. 4. Inventories Inventories consist of the following:
April 3, January 3, 2004 2004 ---- ---- (in thousands) Components $ 13,510 $ 13,676 Work-in-process 2,611 1,635 Finished goods 52 62 Inventory reserves (1,708) (1,807) -------- -------- $ 14,465 $ 13,566 ======== ========
5. Intangible Assets
April 3, 2004 January 3, 2004 ------------- --------------- (in thousands) Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Amount Amortization ------ ------------ ------ ------------ Amortized intangible assets Patents $ 2,789 $ 931 $ 2,780 $ 887 Drawings 3,550 106 3,550 71 Customer Relationships 4,898 60 4,898 49 ------- ------- ------- ------- $11,237 $ 1,097 $11,228 $ 1,007 ======= ======= ======= ======= Unamortized intangible assets Trademarks and tradenames $ 1,890 $ 1,890 ======= =======
The amortized intangible assets are being amortized on the straight-line basis (half-year expense in the year of acquisition) over the expected period of benefits, which is 17 to 50 years. The amortization expense of intangible assets for the three-month periods ended April 3, 2004 and March 29, 2003 was $90,000 and $71,000, respectively. -5- 6. Accrued Warranty The Company offers a one-year 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 an analysis of accrued warranty for the three-month periods ended April 3, 2004 and March 29, 2003.
April 3, March 29, 2004 2003 ---- ---- (in thousands) Beginning balance $ 967 $ 687 Accrued warranty of acquired business -- 553 Accrual of warranty expense 283 351 Warranty costs incurred (292) (474) Foreign exchange adjustment (13) 6 ------- ------- Ending balance $ 945 $ 1,123 ======= =======
7. Long-Term Debt Long-term debt consists of the following:
April 3, January 3, 2004 2004 ---- ---- (in thousands) U.S. mortgage, interest at 6.45% $ 2,014 $ 2,052 U.S. line of credit, interest at 3.75% 3,210 1,935 U.S. term facilities, interest at 2.96% to 5.11% 17,604 18,317 Unsecured notes payable, interest at 6% 4,000 4,000 Swiss facilities, interest at 1.7% to 2.1% 581 1,211 Other 468 600 -------- -------- 27,877 28,115 Less current portion (4,854) (3,541) -------- -------- $ 23,023 $ 24,574 ======== ========
8. Earnings Per Share The Company previously adopted SFAS No. 128, "Earnings Per Share", which requires that the Company report Basic and Diluted Earnings Per Share. Basic Earnings Per Share represents net income less preferred dividends divided by the weighted average number of common shares outstanding. Diluted Earnings Per Share is calculated similarly, except that the denominator includes the weighted average number of common shares outstanding plus the dilutive effect of options, warrants, convertible securities and other instruments with dilutive effects if exercised. The Company's Diluted Earnings Per Share shown in the table below 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 -6- shares outstanding plus the shares issuable upon exercise of stock options after the assumed repurchase of common shares with the related proceeds. The Company's Basic and Diluted Earnings Per Share are calculated as follows: (Dollars and Shares in Thousands except Per Share Data)
For the Three Months Ended April 3, 2004 ---------------------------------------- Net Income Available To Common Earnings Shareholders Shares Per Share ------------ ------ --------- Basic $1,422 2,461 $ 0.58 Common Share Equivalent of Outstanding Options -- 122 (0.03) ------ ----- ------ Diluted $1,422 2,583 $ 0.55 ====== ===== ======
(Dollars and Shares in Thousands except Per Share Data)
For the Three Months Ended March 29, 2003 ----------------------------------------- Net Income Available To Common Earnings Shareholders Shares Per Share ------------ ------ --------- Basic $ 835 2,432 $ 0.34 Common Share Equivalent of Outstanding Options -- 52 (0.00) ------ ----- ------ Diluted $ 835 2,484 $ 0.34 ====== ===== ======
9. Stock-Based Compensation As permitted under SFAS No. 123, as amended by SFAS No. 148, the Company has elected to continue to account for compensation cost using the intrinsic value-based method of accounting as prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS No. 123 requires the Company to disclose pro forma net income and pro forma earnings per share amounts, as if compensation expense were recognized for options granted after fiscal year 1994. Using this approach, net income and earnings per share would have been reduced to the pro forma amounts indicated in the following table:
Three Months Ended ------------------ April 3, March 29, 2004 2003 ---- ---- (in thousands, except per share) Net income - as reported $ 1,422 $ 835 Net income - pro forma 1,392 767 Basic earnings per share - as reported 0.58 0.34 Basic earnings per share - pro forma 0.57 0.32 Diluted earnings per share - as reported 0.55 0.34 Diluted earnings per share - pro forma 0.54 0.31
-7- This pro forma impact may not be representative of the effects for future years, and could increase if additional options are granted and amortized over the vesting period. For disclosure purposes, the fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for options granted in 2003: no dividend yield; expected volatility of 30.80%; risk-free interest rate of 2.76%; and expected life of 6.00 years. No options were granted in the first three months of 2004. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of subjective assumptions, including the expected stock price volatility. 10. Comprehensive Income Comprehensive income is the total of net income, the change in the unrealized gain or loss on the Company's interest rate swap, net of tax, and the change in foreign currency translation adjustments, all for a given period, which are the Company's only non-owner changes in equity. For the three-month periods ending April 3, 2004 and March 29, 2003, the following table sets forth the Company's comprehensive income:
Three Months Ended ------------------ April 3, March 29, 2004 2003 ---- ---- (in thousands) Net income $ 1,422 $ 835 Unrealized (loss) on interest rate swap, net of tax (16) (98) Foreign currency translation adjustments (1,026) 333 ------- ------- Comprehensive income $ 380 $ 1,070 ======= =======
11. Management Segment Information The Company has adopted the provisions of SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information". SFAS No. 131 introduced a model for segment reporting called the management approach. The management approach is based on the way that the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance. The Company is engaged in one business segment, 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"). -8- For the three months ended April 3, 2004 and March 29, 2003, the following table sets forth the Company's geographic information:
EMEA/ Elimi- Consoli- Americas Asia nations dated -------- ---- ------- ----- (in thousands) THREE MONTHS ENDED April 3, 2004 Revenues Sales to unaffiliated customers $ 14,793 $11,528 $ $ 26,321 Sales to affiliates 695 826 (1,521) -- -------- ------- --------- -------- Total sales $ 15,488 $12,354 $ (1,521) $ 26,321 ======== ======= ========= ======== Operating income (loss) $ 1,364 $ 933 $ (34) $ 2,263 ======== ======= ========= Interest expense (366) Gain on sale of office building 164 -------- Income before income taxes $ 2,061 ========
EMEA/ Elimi- Consoli- Americas Asia nations dated -------- ---- ------- ----- (in thousands) THREE MONTHS ENDED March 29, 2003 Revenues Sales to unaffiliated customers $ 13,217 $10,181 $ -- $ 23,398 Sales to affiliates 749 568 (1,317) -- -------- ------- --------- -------- Total sales $ 13,966 $10,749 $ (1,317) $ 23,398 ======== ======= ========= ======== Operating income (loss) $ 673 $ 851 $ (19) $ 1,505 ======== ======= ========= Interest expense (380) -------- Income before income taxes $ 1,125 ========
-9- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. INTRODUCTION 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 have three main business lines within the material handling equipment and systems segment. They are our feeding, size reduction and pneumatic conveying business lines. 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 in this Item 2 to the first three months or first quarters of 2004 and 2003 mean the fiscal quarters ended April 3, 2004 and March 29, 2003, respectively. 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 2003 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 annual report on Form 10-K for the year ended January 3, 2004 (the "2003 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 2003 consolidated financial statements, and the critical accounting policies and estimates are described in Management's Discussion and Analysis included in our 2003 Form 10-K. Information concerning our implementation and the impact of new accounting standards issued by the Financial Accounting Standards Board (FASB) is included in the notes to the 2003 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. -10- RESULTS OF OPERATIONS Overview For the first three months of 2004 and 2003, we reported revenues of $26,321,000 and $23,398,000 and net income of $1,422,000 and $835,000, respectively. The increases in first quarter 2004 revenues and net income compared with the first quarter of 2003 were primarily the result of improved business conditions in our size reduction and feeding business lines, and also reflect the positive effect of a weaker U.S. dollar when translating the revenues and profits of our foreign operations into U.S. dollars. First quarter 2004 net income also benefited from the profit contribution from the sale of an office building by one of our United Kingdom subsidiaries. Foreign Exchange Rates We are an international company, and we derived 43.8% and 43.5% of our revenues for the first three months of 2004 and 2003, respectively, from products manufactured in, and services performed from, our facilities located outside the 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. Since we have received substantial revenues in recent years from activities in foreign jurisdictions, 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. 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, our revenues in U.S. dollars 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. -11- For the first quarters of 2004 and 2003, the changes in certain key exchange rates affecting the Company were as follows:
Three Months Ended ------------------ April 3, March 29, 2004 2003 ---- ---- Average U.S. dollar equivalent of 0.794 0.732 one Swiss franc % change vs. prior year +8.5 % Average U.S. dollar equivalent of 1.246 1.073 one euro % change vs. prior year +16.1 % Average U.S. dollar equivalent of 1.837 1.602 one British pound sterling % change vs. prior year +14.7 % Average Swiss franc equivalent of 1.569 1.466 one euro % change vs. prior year +7.0 % Average Swiss franc equivalent of 2.314 2.189 one British pound sterling % change vs. prior year +5.7 %
Presentation of Results and Analysis The following table sets forth our results of operations, expressed as a percentage of total revenues for the periods indicated, as well as our backlog at the end of such periods:
Three Months Ended ------------------ April 3, March 29, 2004 2003 ---- ---- Total revenues 100.0% 100.0% Cost of revenues 57.5 59.7 ----- ----- Gross profit 42.5 40.3 Selling, general and administrative 31.4 31.0 Research and development 2.5 2.9 ----- ----- Operating income 8.6 6.4 Interest expense 1.4 1.6 Gain on sale of office building 0.6 -- ----- ----- Income before income taxes 7.8% 4.8% ===== =====
-12-
April 3, 2004 January 3, 2004 March 29, 2003 ------------- --------------- -------------- Backlog (at April 3, 2004 $21,380 $17,077 $15,906 ======= ======= ======= exchange rates, in thousands of dollars)
Total revenues increased by $2,923,000 or 12.5% in the first quarter of 2004 compared to the same period in 2003. This increase in revenues was primarily attributable to improved business conditions in markets served by our two largest business lines, feeding and size reduction, as well as to the positive effect of a weaker U.S. dollar when translating the revenues of foreign operations into U.S. dollars. The favorable impact of foreign currency translation accounted for approximately one-third of the 12.5% revenue increase in the first quarter of 2004 compared to the same period in 2003. Gross profit as a percent of total revenues increased to 42.5% in the first quarter of 2004 from 40.3% for the same period in 2003. This increase in gross profit was primarily due to geographic and product sales mix and to the improved business conditions discussed above, which led to fixed costs being absorbed over a larger revenue base. Selling, general and administrative (SG&A) expenses increased by $1,007,000 or 13.9% in the first quarter of 2004 compared to the same period in 2003. This increase in SG&A was primarily due to the effect of a weaker U.S. dollar, higher sales commissions because of increased revenues, a higher bonus accrual and an increase in depreciation and amortization expense related to the implementation of software systems within the feeding business line. As a percent of total revenues, SG&A was 31.4% in the first quarter of 2004 compared to 31.0% for the same period in 2003. Research and development (R&D) expenditures decreased by $22,000 or 3.3% in the first quarter of 2004 compared to the same period in 2003. This decrease was primarily due to a reduction in staff partially offset by the effect of a weaker U.S. dollar. R&D expense as a percent of total revenues was 2.5% in the first quarter of 2004 compared to 2.9% for the same period in 2003. Interest expense decreased by $14,000 or 3.7% in the first quarter of 2004 compared to the same period in 2003. This decrease in interest expense was due to debt reductions. Interest expense as a percent of total revenues was 1.4% in the first quarter of 2004 compared to 1.6% for the same period in 2003. In the first quarter of 2004, one of our United Kingdom subsidiaries sold its office building for $996,000 and realized a pre-tax gain of $164,000. All employees were relocated to a nearby office building that is leased by another United Kingdom subsidiary. Income before income taxes was $2,061,000 in the first quarter of 2004 compared to $1,125,000 for the same period in 2003. Income before income taxes improved versus the same period in 2003 as a result of the items discussed above. The effective tax rate for the first quarter of 2004 was 31.0% compared to 25.8% for the same period in 2003. This increase was the result of a higher percentage of U.S. income in 2004. -13- Our backlog at constant foreign exchange rates increased by $4,303,000 or 25.2% and $5,474,000 or 34.4% at the end of the first quarter of 2004 compared to January 3, 2004 and March 29, 2003, respectively. This increase in our backlog resulted from the improved business conditions previously described. LIQUIDITY AND CAPITAL RESOURCES Capitalization Our capitalization at the end of the first quarter of 2004 and at the end of fiscal years 2003 and 2002 is summarized below:
April 3, January 3, December 28, (Dollars in Thousands) 2004 2004 2002 ---- ---- ---- Short-term debt, including current portion of long-term debt $ 4,854 $ 3,541 $ 2,005 Long-term debt 23,023 24,574 6,499 --------- -------- -------- Total debt 27,877 28,115 8,504 Shareholders' equity 35,709 35,114 28,419 --------- -------- -------- Total debt and shareholders' equity $ 63,586 $ 63,229 $ 36,923 ========= ======== ======== (total capitalization) Percent total debt to total capitalization 44% 44% 23% Percent long-term debt to equity 64% 70% 23% Percent total debt to equity 78% 80% 30%
Total debt decreased by $238,000 in the first three months of 2004 ($200,000 at constant foreign exchange rates). At April 3, 2004 and subject to certain conditions which may limit the amount that may be borrowed at any particular time, we had $5,290,000 of unused borrowing capacity under our U.S. loan agreements and $9,676,000 of unused borrowing capacity under our foreign loan agreements. Other Items At April 3, 2004, working capital was $18,177,000 compared to $17,121,000 at January 3, 2004, and the ratio of current assets to current liabilities at those dates was the same at 1.77. The working capital increase during the first quarter of 2004 was primarily the result of the cash received from the sale of the office building noted above. In the first three months of 2004 and 2003, we utilized internally generated funds and our lines of credit to meet our working capital needs. Net cash provided by operating activities was $908,000 in the first three months of 2004 compared to $1,246,000 in the same period of 2003. The decrease in operating cash flow during the first three months of 2004 compared to the same period in 2003 was primarily due to an increase in accounts receivable and inventories as a result of higher business volumes. This was partially offset by an increase in net income and a decrease in accounts payable and accrued expenses. -14- Net cash provided by investing activities in the first three months of 2004 was primarily from the disposition of the office building noted above, offset by capital additions. Net cash used in investing activities for the first three months of 2003 was for the acquisition of Pennsylvania Crusher Corporation in January 2003 and capital additions. Cash provided by financing activities in the first three months of 2004 was primarily from the proceeds of stock option exercises net of debt reductions, while cash provided by financing activities in the first three months of 2003 was from the borrowings related to the acquisition of Pennsylvania Crusher Corporation in January 2003. Shareholders' equity increased $595,000 in the first quarter of 2004, after taking into account a $1,026,000 foreign exchange translation decrease. Future Payments Under 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 Future Payments Under Contractual Obligations as reflected in the Liquidity and Capital Resources section of Management's Discussion and Analysis in the Company's 2003 Form 10-K. Refer to Notes 9 and 16 to the consolidated financial statements in the 2003 Form 10-K for additional information on long-term debt and commitments and contingencies. 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 but are not limited to statements regarding the effect of changes in foreign exchange rates on our business. 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 -15- foreign currency exchange rate fluctuations; (v) protection and validity of patents and other intellectual property rights held by us and our competitors; (vi) the cyclical nature of our business as an industrial 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 for debt refinancings, 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 our customers, including economic and business conditions that are less favorable than expected; (xiii) domestic and international political and economic conditions; and (xiv) the outcome of any legal proceedings in which we are involved. 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. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" -- Results of Operations - Foreign Exchange Rates in Item 2 of this report. ITEM 4. CONTROLS AND PROCEDURES. (a) Evaluation of Disclosure Controls and Procedures An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report was carried out by us under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities and 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. 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. Subsequent to the date of the most recent evaluation of our internal controls, there were no significant changes in our internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. -16- (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. -17- PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer and 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 February 23, 2004 and furnished to the Securities and Exchange Commission on February 24, 2004 reporting fourth quarter and full year 2003 financial results. -18- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. K-TRON INTERNATIONAL, INC. Date: May 18, 2004 By: RONALD R. REMICK ---------------- Ronald R. Remick Senior Vice President & Chief Financial Officer (Duly authorized officer and principal financial officer of the registrant) By: ALAN R. SUKONECK ---------------- Alan R. Sukoneck Vice President, Chief Accounting & Tax Officer (Duly authorized officer and principal accounting officer of the registrant) -19- EXHIBIT INDEX
Exhibit Number Description - ------ ----------- 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
-20- EX-31.1 3 w97605exv31w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 31.1 CERTIFICATION I, Edward B. Cloues, II, certify that: 1. I have reviewed the Quarterly Report on Form 10-Q for the period ended April 3, 2004 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: May 18, 2004 EDWARD B. CLOUES, II ------------------------------------ Edward B. Cloues, II Chairman and Chief Executive Officer EX-31.2 4 w97605exv31w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 31.2 CERTIFICATION I, Ronald R. Remick, certify that: 1. I have reviewed the Quarterly Report on Form 10-Q for the period ended April 3, 2004 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: May 18, 2004 RONALD R. REMICK ------------------------------------------------- Ronald R. Remick Senior Vice President and Chief Financial Officer EX-32.1 5 w97605exv32w1.txt CERTIFICATION OF CEO AND CFO Exhibit 32.1 CERTIFICATION In connection with the Quarterly Report of K-Tron International, Inc. (the "Company") on Form 10-Q for the period ended April 3, 2004 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, and I, Ronald R. Remick, Senior Vice President, Chief Financial Officer and Treasurer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: 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. RONALD R. REMICK EDWARD B. CLOUES, II - ---------------------------------------------- ------------------------- Ronald R. Remick Edward B. Cloues, II Senior Vice President, Chief Financial Officer Chairman and Chief and Treasurer Executive Officer Date: May 18, 2004 Date: May 18, 2004 -----END PRIVACY-ENHANCED MESSAGE-----