-----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, D9U4t6+YYZOWEqe1ckvE0ZSEh8ImonNALQIebyVo4XYpcTLzGqNR8RW1RpqKGtt/ maYyGmxO+3p/JY7f9b11tg== 0000893220-99-000357.txt : 19990325 0000893220-99-000357.hdr.sgml : 19990325 ACCESSION NUMBER: 0000893220-99-000357 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990102 FILED AS OF DATE: 19990323 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: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-09576 FILM NUMBER: 99570917 BUSINESS ADDRESS: STREET 1: ROUTE 55 & 553 STREET 2: BOX 888 CITY: PITMAN STATE: NJ ZIP: 08071-0888 BUSINESS PHONE: 6096616240 MAIL ADDRESS: STREET 1: ROUTE 55 & 553 STREET 2: P O BOX 888 CITY: PITMAN STATE: NJ ZIP: 08071-0888 10-K 1 K-TRON INTERNATIONAL, INC 01/02/1999 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [NO FEE REQUIRED] for the fiscal year ended January 2, 1999 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [NO FEE REQUIRED] for the transition period from ________ to ________ COMMISSION FILE NUMBER 0-9576 K-TRON INTERNATIONAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) New Jersey 22-1759452 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Routes 55 and 553 P.O. Box 888 Pitman, New Jersey 08071-0888 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (609)589-0500 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share (Title of class) 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] 2 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in the definitive proxy statement incorporated by reference in Part III of this annual report on Form 10-K or any amendment to this annual report on Form 10-K. /X/ As of March 12, 1999, the aggregate market value of the Common Stock held by non-affiliates of the registrant was $49,043,196. Such aggregate market value was computed by reference to the closing sale price of the Common Stock as reported on the Nasdaq National Market on such date. For purposes of making this calculation only, the registrant has defined affiliates as including all directors and executive officers, but excluding David L. Babson & Company, Incorporated, which is the only beneficial owner of more than ten percent of the registrant's Common Stock. As of March 12, 1999, there were 2,945,605 shares of the registrant's Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: As stated in Part III of this annual report on Form 10-K, portions of the following document are incorporated herein by reference: Definitive proxy statement to be filed within 120 days after the end of the fiscal year covered by this annual report on Form 10-K. Unless the context indicates otherwise, the terms "K-Tron" and "Company" refer to K-Tron International, Inc. and, where appropriate, one or more of its subsidiaries. -2- 3 PART I ITEM 1. BUSINESS. GENERAL K-Tron International, Inc. was incorporated in New Jersey in 1964. The Company's operations are conducted primarily through subsidiaries, and its principal business is the design, production, marketing and sale of gravimetric and volumetric feeders and related equipment for the handling of bulk solids in a wide variety of manufacturing processes. K-Tron feeders control by mass or weight (gravimetric feeding) or by volume (volumetric feeding) the rate at which ingredients are fed into the manufacturing processes of numerous products. The major industries served are plastics, food, chemical, pharmaceutical and cement, but the Company's feeders are also used in many other industries. In addition to feeding equipment, K-Tron designs, produces, markets and sells pneumatic conveying systems and related equipment for the food, plastics and pharmaceutical industries, which may be used either in conjunction with certain K-Tron feeders or on a stand-alone basis, as well as electronic assemblies. K-Tron has manufacturing facilities in the United States, Switzerland and Canada, and its equipment is sold throughout the world. The Company provides service and spare parts for its feeding and pneumatic conveying equipment on a worldwide basis, and it offers customer and employee training through its K-Tron Institute in the United States and similar programs in Switzerland and elsewhere. See Note 12 of Notes to consolidated financial statements, included in Item 8 of this annual report on Form 10-K, for certain financial information about foreign and domestic operations. BRAND NAMES The Company produces, markets and sells its feeding and pneumatic conveying equipment under three brand names: K-Tron Soder (feeders for other than heavy industries), Hasler (feeders for heavy industries) and Hurricane (pneumatic conveying equipment). The Company sells these brands on both an equipment and total systems basis. FEEDING EQUIPMENT The Company's feeders control the flow of materials into a manufacturing process by mass or weight (gravimetric feeding) or by volume (volumetric feeding). Feeding equipment manufactured by the Company is used in many different industries. -3- 4 Weigh Belt Feeders. Weigh belt feeders move dry bulk material along a belt, continuously weighing the material and adjusting the belt speed in order to control precisely the flow rate of the material being fed into the manufacturing process. The feeder regulates the flow rate according to the set points in its electronic controller. A typical application would incorporate several feeders, each supplying an ingredient of the final product, and electronic controllers that determine the feed rate of each ingredient and are capable of instantly altering individual feed rates to maintain the desired proportion of each ingredient. Weigh belt feeders may also be used as batchers, to feed bulk material into bags and other containers, or as meters, to measure accurately the amount of material flowing into or out of a container. Loss-in-Weight Feeders. The loss-in-weight principle involves weighing the entire feeding system, both equipment and material, which may be either dry or liquid. The feeding mechanism controls the rate at which material is discharged into the manufacturing process based upon a change in the total weight of the system as material flows from the feeder. Electronic controllers determine the feed rate and are capable of instantly altering feed rates to maintain an accurate flow of materials. In dry material applications, loss-in-weight feeders usually utilize an auger (single or twin screw) or vibratory feeding mechanism, and the outflow is adjusted continuously to maintain the desired feed rate. In liquid applications, the flow rate is maintained by a pump or valve. Loss-in-weight feeders are especially suitable for applications requiring a very high degree of accuracy, as in adding minor ingredients to food processes or colorants to plastics, or applications requiring a closed system, as in feeding dusty materials. Loss-in-weight feeders virtually never need recalibration and may also be used as batchers. Volumetric Feeders. Volumetric feeders utilize single or twin screw feeding mechanisms or other systems to regulate flow by volume instead of weight, thereby offering an economical method of feeding bulk solids where demands for accuracy are less stringent. They also can be used to make batches by feeding sequentially into a hopper which is weighed and using the weight signal to start and stop each feeder. K-Tron Soder Brand. The K-Tron Soder brand of products offers feeding equipment and systems to control precisely the flow of ingredients in the manufacture of numerous products in industries other than heavy industries. K-Tron Soder feeders, including loss-in-weight feeders, weigh belt feeders, volumetric feeders, flow meters and related controls, are assembled at Company facilities in the United States and Switzerland in a complete range of feeding equipment types and sizes for these industries. The plastics compounding, food, chemical, detergent and pharmaceutical industries are among those served by K-Tron Soder feeders. Hasler Brand. The Hasler brand of products includes weight belt feeders, belt scales, flow meters, electronic ears, loss-in-weight feeders and related controls. Hasler feeders, like K-Tron Soder feeders, control the flow of ingredients into a process, but Hasler feeders serve heavy industry applications which generally require high rates of material flow in rugged -4- 5 environments. Hasler feeders are used in cement mills, mines and quarries and in the fertilizer, aluminum, coal, glass and steel industries. They are primarily assembled at Company facilities in Switzerland and also at Company facilities in the United States. PNEUMATIC CONVEYING EQUIPMENT In 1997, K-Tron acquired Hurricane Pneumatic Conveying Inc., a Canadian company that manufactures pneumatic conveying systems and related equipment primarily for the food, plastics and pharmaceutical industries. Hurricane's brand of products, which include both self-contained and central systems for powder and pellet applications, may be used in conjunction with certain K-Tron Soder feeders or on a stand-alone basis. Hurricane products are assembled at Company facilities in Canada. K-TRON ELECTRONICS K-Tron Electronics designs, produces and tests electronic assemblies for outside customers as well as for use by the Company in its products and also produces controller hardware for the Company. Its facilities, which are located in the United States, provide automated surface mount as well as through-hole assembly capabilities and testing equipment. CUSTOMERS The Company sells its equipment throughout the world to a wide variety of customers in its addressed markets, ranging from large, global companies to regional and local businesses. No single customer accounted for more than 10% of the Company's total revenues in fiscal 1998. MANUFACTURING AND SUPPLIERS The Company's primary manufacturing activities consist of the assembly, calibration and testing of equipment, the machining and fabrication of certain components and the producing of electronic assemblies and controllers. The Company also manufactures the weight sensors which are used in most of its gravimetric feeders. The Company assembles a number of components used in its products that are manufactured by others to its specifications. These components include sheet metal parts, screws, castings, integrated circuits, printed circuit boards and enclosures. The Company produces a number of basic feeder models. Feeder units are completed to specific customer orders, and customization is generally limited to combining existing mechanical and electronic modules to meet a customer's application requirements. Although certain components of the Company's products are currently purchased from sole sources, the Company believes that comparable components can be obtained readily from alternative suppliers or can be manufactured by the Company internally, at prices competitive -5- 6 with those of its current sources. The Company has never had a significant production delay which was primarily attributable to an outside supplier. PATENTS The Company's technology is protected by numerous patents in the United States and in other major countries which offer patent protection. Certain of the Company's patents have expired and others will expire at various future dates. The loss of such patent protection is not expected to have a significant adverse effect on the Company's operations. RESEARCH AND DEVELOPMENT The Company invests in research and development to maintain a technological leadership position in the feeding equipment industry. R&D focuses on new products as well as on improvements to existing products. Current efforts are aimed at developing new products, shortening the time spent in the development of such products, recycling existing product designs into lower cost products and analyzing the price/performance relationship for both new and existing products. A centralized R&D approach facilitates the development of common or compatible products for the Company's three brands. The Company utilizes a common weighing technology for both of its feeder brands. The Company's research and development expenses were $2,980,000, $2,768,000 and $2,316,000 in fiscal 1998, 1997 and 1996, respectively. COMPETITION The Company is a leading worldwide producer of feeders and related equipment for the handling of bulk solids in manufacturing processes. The Company believes it has reached this position primarily because of its use of electronic and digital control technology, its use of digital weighing technology and its development of mechanical design improvements to its products. The Company also relies on other technological advantages and on its reputation and experience in serving the needs of its large customer base to maintain a competitive advantage. The Company entered the pneumatic conveying equipment market late in 1997 with its acquisition of the Hurricane brand. This is a very large market, and the Company's strategy is to target specific niches within the overall market and to sell its pneumatic conveying equipment in connection with certain K-Tron Soder feeders as well as on a stand-alone basis. K-Tron Electronics was established to design and manufacture electronic assemblies and controller hardware for use by the Company and also to sell such assemblies to third parties, generally focusing on small production runs for customers in New Jersey, eastern Pennsylvania -6- 7 and Delaware. The market for electronic assemblies is very large, and K-Tron Electronics is one of many suppliers to this market in the region identified. Strong competition exists in every major market that the Company serves. Competitors range in size from large corporations (or subsidiaries or divisions thereof) with a broad line of products to regional organizations which may specialize in a limited range of products. BACKLOG At the end of fiscal 1998, the Company's backlog of unfilled orders was approximately $22,354,000, compared to a backlog of approximately $18,211,000 at the end of fiscal 1997, an increase of approximately 22.8%. Using January 2, 1999 exchange rates, the backlog of such orders at the end of fiscal 1997 was approximately $18,693,000, representing an increase in the 1998 backlog of approximately 19.6%. The backlog of orders at the end of fiscal 1998, excluding the effect of foreign currency exchange translations, exceeded the fiscal 1997 year-end backlog primarily due to increased orders from customers in the United States and Europe. The bulk of the Company's backlog represents orders that will be ready for delivery in fiscal 1999. It is expected that approximately 40% of the backlog as of the end of fiscal 1998 will be shipped in the first quarter of fiscal 1999. EMPLOYEES At the end of fiscal 1998, the Company had 496 employees, of which 290 were located in Europe, 188 in the United States, 14 in Singapore, 3 in Canada and 1 in China. None of the Company's employees are represented by labor unions. The Company considers relations with its employees to be good. ITEM 2. PROPERTIES. In North America, the Company owns a 92,000 square foot building on 17 acres in Pitman, New Jersey where it has manufacturing facilities, administrative offices, its corporate headquarters, research and development offices and a tech center for product demonstrations and training. A portion (approximately 10,000 square feet) of the Company's Pitman facility is leased to a sheet metal business which is a major supplier to the Company. The Company also has leased facilities in Blackwood, New Jersey where it produces electronic assemblies and controller hardware, and in Brantford, Ontario where it assembles pneumatic conveying equipment. In Niederlenz, Switzerland, the Company owns a 60,000 square foot building where it has manufacturing facilities and a tech center for product demonstrations, and an adjacent five floor, 40,000 square foot office building which houses administrative offices, training facilities and -7- 8 research and development offices. One floor of the office building is leased to third parties. The Company also occupies an adjacent leased facility where it manufactures weight sensors. In Colombier, Switzerland, the Company leases a 51,000 square foot building where it has manufacturing facilities, administrative offices, training facilities and research and development offices. Certain sales and service activities are conducted at Company-owned facilities in England (20% leased to a third party) and Germany and from leased office space in Germany, France, Singapore and China. The Company believes that its present facilities will be sufficient to meet its needs for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS. There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of their property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. This item is not applicable because there were no matters submitted to a vote of security holders during the fourth quarter of 1998. -8- 9 EXECUTIVE OFFICERS OF THE REGISTRANT The current executive officers of the Company are as follows: Name Age Position Edward B. Cloues, II 51 Chairman of the Board of Directors and Chief Executive Officer Robert L. Weinberg 62 Senior Executive Vice President, Chief Financial Officer and Treasurer Lukas Guenthardt 40 Senior Vice President - Strategic Planning, Product Development and Marketing Kevin C. Bowen 47 President and Chief Executive Officer of K-Tron America, Inc. Edward B. Cloues, II has been a director since July 1985 and was most recently reelected at the 1997 annual meeting of shareholders. He became Chairman of the Board of Directors and Chief Executive Officer of the Company on January 5, 1998. From May 1985 until May 1998, Mr. Cloues served as Secretary of the Company. Prior to joining the Company, Mr. Cloues was a senior partner in the law firm of Morgan, Lewis & Bockius LLP, which is the Company's general counsel. He is also a director and non-executive Chairman of the Board of AMREP Corporation and a director of AmeriQuest Technologies, Inc. Robert L. Weinberg has been with the Company in various positions since October 1988 and in his current position as Senior Executive Vice President, Chief Financial Officer and Treasurer since March 1994. Lukas Guenthardt has been Senior Vice President - Strategic Planning, Product Development and Marketing of the Company since June 1, 1998. Mr. Guenthardt was Managing Director of K-Tron (Switzerland) Ltd. from July 1995 to June 1, 1998, Managing Director of the Soder Division of K-Tron (Switzerland) Ltd. from March 1994 to July 1995, and Director of International Research and Development of the Company from July 1992, when he joined K-Tron, until March 1994. Kevin C. Bowen has been President and Chief Executive Officer of K-Tron America, Inc. since March 1995. From March 1994 to March 1995, Mr. Bowen was President of K-Tron -9- 10 North America, the North American sales division of K-Tron America. Mr. Bowen served as President of K-Tron America from May 1990 to March 1994 and has been with the Company in various other capacities since 1979. The executive officers are elected or appointed by the Board of Directors of the Company or its appropriate subsidiary to serve until the appointment or election and qualification of their successors or their earlier death, resignation or removal. -10- 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock trades on the Nasdaq National Market under the symbol "KTII." The following table sets forth the high and low sales prices for each quarter in fiscal 1997 and 1998 as quoted on the Nasdaq National Market.
Fiscal Year 1997 High Low - ---------------- ---- --- First Quarter ................................. $11.75 $10.25 Second Quarter ................................ $15.25 $10.25 Third Quarter ................................. $15.75 $13.00 Fourth Quarter ................................ $19.75 $14.00 Fiscal Year 1998 First Quarter ................................. $17.938 $15.625 Second Quarter ................................ $20.875 $17.00 Third Quarter ................................. $19.813 $17.50 Fourth Quarter ................................ $19.125 $16.875
On March 12, 1999, the closing sale price of a share of common stock as reported by the Nasdaq National Market was $17.75. The number of record holders of the Company's common stock as of March 12, 1999 was 334. DIVIDEND POLICY The Company has never paid a cash dividend on its common stock, and it currently intends to retain all earnings for use in its business. The declaration and payment of dividends in the future will be determined by the Board of Directors in light of conditions then existing, including the Company's earnings, financial condition, capital requirements and other factors. ITEM 6. SELECTED FINANCIAL DATA. The selected consolidated financial data presented below for, and as of the end of, each of the Company's last five fiscal years have been derived from and are qualified by reference to the Company's consolidated financial statements. The consolidated financial statements of the Company for the fiscal years ended January 2, 1999, January 3, 1998, December 28, 1996, December 30, 1995 and December 31, 1994 have been audited by Arthur Andersen LLP, independent public accountants. -11- 12 This information should be read in conjunction with the Company's consolidated financial statements and the related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere herein. The Company has not paid any cash dividends on its shares of common stock during the periods presented. -12- 13
FISCAL YEAR ENDED --------------------------------------------------------------------------- JAN. 2 JAN. 3 DEC. 28 PRO DEC. 30 DEC. 31 1999 1998 1996 FORMA 1995 1994 1995(1) - --------------------------------------------------------------------------------------------------------------------------------- FINANCIAL SUMMARY($000): Revenues $ 89,142 $ 87,152 $ 89,871 $ 89,640 $ 110,394 $ 104,772 Income (loss) before loss on disposition of businesses and taxes 8,718 7,309 5,841 2,717 834 (6,200) Income (loss) on disposition of businesses (2) -- -- -- -- (11,278) (852) Net income (loss) 6,593 5,444 4,026 1,408 (9,294) (6,826) Total assets 56,617 54,249 55,330 69,296 109,950 Working capital 11,446 9,423 15,362 23,114 (549) Additions to property, plant and equipment 2,713 3,000 2,081 370 2,467 Depreciation and amortization 3,158 2,977 3,334 4,844 6,314 PER SHARE ($): Basic net earnings (loss) $ 2.10 $ 1.72 $ 1.29 $ .45 $ (3.00) $ (2.22) Diluted net earnings (loss) 2.03 1.69 1.28 .45 (3.00) (2.22) Book value 7.34 5.87 4.21 3.03 6.00 CAPITALIZATION ($000): Shareholders' equity $ 22,274 $ 18,892 $ 13,194 $ 9,421 $ 18,521 Long-term debt 9,638 10,619 20,807 35,004 27,413 Short-term debt (3) 1,534 3,148 861 2,133 32,512 Total debt 11,172 13,767 21,668 37,137 59,925 RATIOS: Return on average shareholders' equity (%) 32.0 33.9 35.6 10.1 N/A N/A Return on revenues (%) 7.4 6.2 4.5 1.6 N/A N/A Long-term debt to shareholders' equity (%) 43.3 56.2 157.7 371.6 148.0 Current assets to current liabilities 1.5 1.4 1.8 2.1 1.0 Average inventory turnover 4.7 4.1 3.2 2.9 2.9 Average accounts receivable turnover 5.2 5.5 4.8 4.3 3.8 OTHER DATA: Shares outstanding (000) (4) 3,033 3,218 3,137 3,113 3,088 Shareholders of record (5) 304 342 350 383 423 Number of employees 496 491 461 466 683
(1) Reflects pro forma adjustments for loss on disposition of businesses described in (2) below and the discontinuance of the Company's other Colortronic brand business, all as more fully explained in Note 3 of the Company's 1997 consolidated financial statements, as if such dispositions and discontinuances had been consummated as of the beginning of the 1995 fiscal year. (2) 1995 - loss on disposition of businesses of $10,529 from sale of Colortronic GmbH and rights to several related patents and patent applications and $749 loss on the sale of Hasler France and Brazilian businesses; 1994 reserves established for the anticipated sale of Hasler France and Brazilian businesses. (3) Including current portion of long-term debt. (4) Net of treasury stock of 1,063 shares for fiscal years 1994 through 1996, 1,053 for fiscal year 1997 and 1,295 for fiscal year 1998. (5) Does not include shareholders whose shares are held in street name. -13- 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following provides information which management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the Company's consolidated financial statements and accompanying notes. All references to 1998, 1997 and 1996 mean the fiscal years ended January 2, 1999, January 3, 1998 and December 28, 1996, respectively. OVERVIEW In 1998, 1997 and 1996, the Company reported net income of $6,593,000, $5,444,000 and $4,026,000, respectively. During early 1996, all Company indebtedness for money borrowed was subject to forbearance agreements with the Company's U.S. and Swiss lenders which had been entered into as a result of significant operating losses incurred by the Company in 1994 and the first half of 1995, including by subsidiaries and other business operations disposed of in 1995. In June 1996, the Company replaced its U.S. lenders, and in early 1997 it negotiated revised financing arrangements with its Swiss lenders. The U.S. forbearance agreement was terminated in June 1996 and the Swiss forbearance agreement on March 31, 1998, and today the Company enjoys normal relationships with all of its lenders. Since mid-1995, the Company's results have improved significantly, and it has reported fourteen consecutive quarters in which net income has exceeded net income in the comparable prior year period. Cash flow from operations has been strong, enabling the Company to reduce its debt by $2,595,000 in 1998, $7,901,000 in 1997 and $15,469,000 in 1996. In July 1998, the Company also repurchased 250,000 shares of its common stock for $4,531,250. On January 29, 1999, the Company repurchased an additional 100,000 shares of its common stock for $1,812,500, which was funded by a combination of cash in the amount of $312,000 and bank borrowings of $1,500,000. K-Tron is an international company which derived approximately 58%, 59% and 62% of its 1998, 1997 and 1996 revenues, respectively, from products manufactured in, and services performed from, its facilities located outside the United States, primarily in Europe. As such, the financial position and performance of the Company is sensitive to changes in foreign currency exchange rates ("foreign exchange rates"), which can affect both the translation of financial statement items into U.S. dollars and the impact of transactions where the revenues and related expenses may initially be accounted for in different currencies, such as sales made from the Company's Swiss manufacturing facilities in currencies other than the Swiss franc. -14- 15 RESULTS OF OPERATIONS The following table sets forth the Company's results of operations expressed as a percentage of total revenues for the periods indicated.
Fiscal Year ---------------------------------------- 1998 1997 1996 ---- ---- ---- Total revenues 100.0% 100.0% 100.0% Cost of revenues 54.9 55.2 56.6 --------- --------- --------- Gross profit 45.1 44.8 43.4 Selling, general and administrative 31.2 31.9 32.1 Research and development 3.3 3.2 2.5 --------- --------- --------- Operating income 10.6 9.7 8.8 Interest .8 1.3 2.3 --------- --------- --------- Income before income taxes 9.8% 8.4% 6.5% ========= ========= ========= Year-end backlog (at year-end 1998 foreign exchange rates, in thousands) $ 22,354 $ 18,693 $ 20,161 ========= ========= =========
As noted above under the Overview, more than half of the Company's revenues are normally derived from activities in foreign jurisdictions. Consequently, the Company's results can be significantly affected by changes in foreign exchange rates, particularly in U.S. dollar exchange rates with respect to the Swiss franc and German mark and, to a lesser degree, the British pound sterling, French franc and other currencies. When the U.S. dollar strengthens against these currencies, the U.S. dollar value of non-U.S. dollar-based sales decreases. When the U.S. dollar weakens against these currencies, the U.S. dollar value of non-U.S. dollar-based sales increases. Correspondingly, the U.S. dollar value of non-U.S. dollar-based costs increases when the U.S. dollar weakens and decreases when the U.S. dollar strengthens. Overall, the Company typically receives a majority of its revenues in currencies other than the U.S. dollar and, as such, benefits from a weaker dollar and is adversely affected by a stronger dollar relative to major currencies worldwide, especially those identified above. Accordingly, changes in foreign exchange rates, and in particular a strengthening of the U.S. dollar, may adversely affect the Company's total revenues, gross profit and operating income as expressed in U.S. dollars. In addition, revenues and income of the Company with respect to particular transactions may be affected by changes in foreign exchange rates where sales are made in currencies other -15- 16 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 German mark/Swiss franc (for sales from the Company's Swiss manufacturing facilities which are made in German marks) exchange rates. For 1998, 1997 and 1996, the changes in these and the U.S. dollar/German mark exchange rates were as follows:
Fiscal Year ----------------------------------------- 1998 1997 1996 ---- ---- ---- Average U.S. dollar equivalent of one Swiss franc $.692 $.689 $.810 % change vs. prior year NIL -14.9% Average U.S. dollar equivalent of one German mark $.570 $.577 $.666 % change vs. prior year -0.1% -13.4% Average Swiss franc equivalent of one German mark .824 .837 .822 % change vs. prior year -1.6% +1.8%
Total revenues increased by $1,990,000 or 2.3% in 1998 when compared to 1997. The increase was due to higher U.S. and European shipments offset by lower shipments to Asia from the Company's European manufacturing facilities. Foreign exchange translation rates minimally affected 1998 when compared to 1997. Total revenues decreased by $2,719,000 or 3.0% in 1997 when compared to 1996. The decrease in revenues was due to lower exchange translation rates of certain currencies into U.S. dollars. If the average foreign exchange translation rates for 1997 were applied to 1996, 1997 revenues would have increased 6.8% over 1996. The local currency revenue increase was in the United States and Europe. Gross profit as a percent of total revenues improved to 45.1% in 1998 as compared to 44.8% in 1997 and 43.4% in 1996. The improvements in gross margin in 1998 and 1997 were primarily due to sales mix and increased volume in local currencies. Selling, general and administrative (SG&A) expense remained constant in 1998 when compared to 1997. SG&A expense decreased by $1,019,000 or 3.5% in 1997 as compared to 1996. The decrease in 1997 SG&A was due to the lower foreign exchange translation rates previously described offset in part by higher selling expenses. As a percent of total revenues, SG&A was 31.2% in 1998, 31.9% in 1997 and 32.1% in 1996. Research and development (R&D) expenditures increased by $212,000 or 7.7% in 1998 and by $452,000 or 19.5% in 1997 as compared to 1997 and 1996, respectively. R&D -16- 17 expenses increased due to greater emphasis on the development of new products and enhancements to existing products. The 1997 increase as compared to 1996 was offset in part by lower foreign exchange translation rates. R&D expense as a percent of total revenues was 3.3% in 1998, 3.2% in 1997 and 2.5% in 1996. Interest expense decreased by $419,000 or 37.0% in 1998 and by $902,000 or 44.3% in 1997 as compared to 1997 and 1996, respectively. The 1998 decrease from 1997 was primarily due to lower debt levels and reduced interest rates, while the 1997 decrease from 1996 was primarily due to lower debt levels and lower foreign exchange translation rates. Interest expense as a percent of total revenues was 0.8% in 1998, 1.3% in 1997 and 2.3% in 1996. Income before income taxes was $8,718,000 in 1998, $7,309,000 in 1997 and $5,841,000 in 1996. The increases during the periods were the result of the other changes discussed above. The 1998, 1997 and 1996 provisions for income tax of $2,125,000, $1,865,000 and $1,815,000, respectively, were related primarily to the Company's results in the United States and Germany. The effective tax rates were 24.4% for 1998, 25.5% for 1997 and 31.1% for 1996. The Company has New Jersey state and foreign tax loss carryforwards that total $4,000,000 and $7,800,000, respectively, which, if realized, would have an estimated future benefit of $242,000 and $2,203,000, respectively. The Company does not believe that inflation has had a material impact on the results of operations during the last three years. The Company's backlog increased by 19.6% at the end of 1998 compared to 1997 (at constant foreign exchange rates), primarily due to increased order volume at the United States and European manufacturing facilities. Whereas in prior years the bulk of the Company's backlog has represented orders that will be ready for delivery in less than 120 days, this was not the case at the end of 1998. The year-end 1998 backlog consisted of orders most of which will be delivered in 1999, but only about 40% of such backlog is expected to be shipped in the first quarter of 1999. The Company's backlog decreased by 7.3% at the end of 1997 compared to 1996 (at constant foreign exchange rates), primarily due to reduced order volume for shipment to customers in the United States. LIQUIDITY AND CAPITAL RESOURCES As noted earlier under the Overview, the forbearance agreement between the Company's Swiss subsidiary and its Swiss lenders terminated on March 31, 1998, and the Company now enjoys normal banking relationships with all of its lenders in the United States -17- 18 and Switzerland. All current loan agreements are with the Company's U.S. and Swiss manufacturing subsidiaries. During the first part of 1998, new short-term lines of credit were entered into with the Swiss lenders for 6.0 million Swiss francs ($4,372,000). At January 2, 1999, the Company's Swiss subsidiary had borrowed $254,000 under these short-term lines of credit and $4,118,000 was available for future borrowings. The interest rate on the amounts borrowed at January 2, 1999 was 6.5%. In addition to the short-term lines of credit, at January 2, 1999 the Company's Swiss subsidiary had mortgage borrowings of 10.35 million Swiss francs ($7,542,000) with maturities through 2002. These mortgages carried interest rates from 2.95% to 5.00%. In June 1998, the Company's U.S. manufacturing subsidiary refinanced its 20-year mortgage for $2,700,000 at an interest rate of 7.625%. Monthly principal and interest payments are $25,143. Every five years the bank has the right to review the mortgage and adjust its terms, including due dates and interest rates, with the first such right occurring in June 2003. At January 2, 1999, the amount borrowed under the mortgage was $2,644,000. Also in June 1998, the Company's U.S. manufacturing subsidiary entered into a two-year secured revolving credit facility with the same bank that provides for a maximum borrowing of $5,000,000, subject to certain borrowing limitations based upon inventory and accounts receivable levels. The interest rate as of January 2, 1999 was 7.75% (prime rate as published). At January 2, 1999, there were no outstanding borrowings under the facility, and $5,000,000 was available for future borrowings. Under the terms of the U.S. mortgage and revolving credit facility, fixed assets with a book value of $3,161,000 and accounts receivable and inventory with a book value of $12,091,000 are pledged as collateral, respectively. Under the Swiss mortgages, fixed assets with a book value of $5,117,000 are pledged as collateral. -18- 19 The Company's capitalization at the end of 1998, 1997 and 1996 is set forth below:
(Dollars in thousands) Fiscal Year -------------------------------- 1998 1997 1996 ---- ---- ---- Short-term debt, including current portion of long-term debt $ 1,534 $ 3,148 $ 861 Long-term debt 9,638 10,619 20,807 ------- ------- ------- Total debt 11,172 13,767 21,668 Shareholders' equity 22,274 18,892 13,194 ------- ------- ------- Total debt and shareholders' equity $33,446 $32,659 $34,862 (total capitalization) ======= ======= ======= Percent total debt to total capitalization 33% 42% 62% Percent long-term debt to equity 43% 56% 158% Percent total debt to equity 50% 73% 164%
Total debt decreased in 1998 and 1997 by $2,595,000 and $7,901,000, respectively, of which $3,031,000 and $7,103,000 were from cash provided by operations. A $436,000 increase in 1998 and a $798,000 decrease in 1997 were due to the effect of foreign currency translation. At the end of 1998 and 1997, working capital was $11,446,000 and $9,423,000, respectively, and the ratio of current assets to current liabilities was 1.49 and 1.41, respectively. Working capital increased in 1998 primarily due to funds provided from operations. In 1998, 1997 and 1996, the Company utilized internally generated funds to meet its working capital needs. Net cash provided by operating activities was $7,615,000 in 1998, $12,594,000 in 1997 and $13,969,000 in 1996. The decrease in operating cash flow since 1996 was primarily the result of an increase in accounts receivable and inventory. In 1998, net income and depreciation and amortization were the principal components of cash provided. Excluding the effect of foreign currency translation, accounts receivable and inventory provided cash of $3,241,000 in 1997, while the total amount of accounts payables and accrued expenses increased $1,642,000 during 1997. Significant cash was also provided in 1997 by net income and depreciation and amortization. -19- 20 The average number of days to convert accounts receivable to cash was 70 days in 1998 compared to 66 days in 1997 and 76 days in 1996. The average number of days to convert inventory into accounts receivable was 77 days in 1998 compared to 88 days in 1997 and 114 days in 1996. Improved asset management enabled the Company to reduce accounts receivable and inventory levels since 1996. Net cash used in investing activities was $2,835,000, $3,955,000 and $2,128,000 in 1998, 1997 and 1996, respectively. Capital expenditures were $2,713,000, $3,000,000 and $2,081,000 in 1998, 1997 and 1996, respectively. Funds used in 1997 to acquire a Canadian company were $783,000. The Company has no outstanding material commitments for capital improvements, but it does expect to make capital expenditures necessary to maintain its facilities and operations in a normal fashion and, where required, to further its growth and other business objectives. Cash used in financing activities in 1998 was primarily used for the purchase of 250,000 shares of the Company's common stock and for debt reduction. Cash used in financing activities in 1997 and 1996 was primarily used for debt reduction. In all three years, this cash was primarily obtained from the cash flow provided by operations. Cash and short-term investments decreased to $3,220,000 at the end of fiscal 1998 from $5,514,000 a year earlier due to the 250,000 share common stock repurchase discussed above. Changes in foreign exchange rates, particularly with respect to the Swiss franc and German mark, caused a translation increase in shareholders' equity of $574,000 in 1998 following decreases of $560,000 and $393,000 in 1997 and 1996, respectively. READINESS FOR YEAR 2000 The Company has substantially completed an evaluation of its information technology infrastructure for Year 2000 compliance and has substantially implemented its Year 2000 compliance strategy. The cost to modify its information technology infrastructure to be Year 2000 compliant has not been and is not expected to be material to its financial condition or results of operations. The Company does not anticipate any material disruptions in its business as a result of any failure by the Company to be Year 2000 compliant. The Company anticipates having all systems Year 2000 compliant no later than September 30, 1999 and has not developed a contingency plan. If Year 2000 compliance issues are discovered, the Company then will evaluate the need for a contingency plan relative to those issues. The Company is also in the process of obtaining information concerning the Year 2000 compliance status of its significant suppliers, customers and business partners to determine the extent to which the Company is vulnerable to these third parties' failure to remedy their Year -20- 21 2000 problems. There can be no assurance that such suppliers, customers and business partners are or will be Year 2000 compliant. The risk to the Company resulting from the failure of third parties in the public and private sector to attain Year 2000 readiness is the same as for other firms in the Company's industry or other business enterprises generally and could involve many different types of disruption to the Company's business. The costs to complete the Company's Year 2000 evaluation and to secure Year 2000 compliance are based on management's best estimates. These estimates were derived using numerous assumptions, including continued availability of resources, third party contingency plans and other factors. However, there can be no assurance that these estimates will be achieved and actual results could differ materially from those anticipated. The following are representative of the types of risks that could result in the event a critical component of the Company's information systems, factories or facilities fails to be Year 2000 ready, or there is a similar failure by one or more major third party suppliers to the Company: (i) information systems--could include interruptions or disruptions of business and transaction processing such as customer billing, payroll, accounts payable and other operating and information processes, until systems can be remedied or replaced; (ii) factories and facilities--could include interruptions or disruptions of manufacturing processes and facilities with delays in delivery of products, until non-compliant conditions or components can be remedied or replaced; and (iii) major suppliers to the Company--could include interruptions or disruptions of the supply of materials and supplies which could cause interruptions or disruptions of manufacturing and delays in delivery of products, until the third party supplier can remedy the problem or contingency measures can be implemented. EUROPEAN MONETARY UNION-EURO On January 1, 1999, the eleven member countries of the European Union, which does not include Switzerland, established fixed conversion rates between their existing sovereign currencies, and adopted the euro as their new common legal currency. As of that date, the euro began trading on currency exchanges, but the legacy currencies will remain legal tender in the participating countries for a transition period between January 1, 1999 and January 1, 2002. During the transition period, non-cash payments can be made in the euro, and parties can elect to pay for goods and services and transact business using either the euro or a legacy currency. Between January 1, 2002 and July 1, 2002, the participating countries will introduce euro notes and coins and withdraw all legacy currencies so that they will no longer be available. The Company has been planning for the euro's introduction and has not encountered significant difficulties with the euro. Since the Company's sales in Europe are from two manufacturing plants located in Switzerland, and since some sales are made in Swiss francs and others in local currencies, the relationship of the euro to the Swiss franc will be important -21- 22 to the Company, just as the relationship of the Swiss franc to the German mark has been important in the past. The euro conversion may affect cross-border competition by creating cross-border price transparency. The Company is assessing its pricing and marketing strategies in order to ensure that it remains competitive in the European market. The Company also implemented a new information technology system in Europe on January 4, 1999 to allow for transactions to take place in both the legacy currencies and the euro and also for the eventual elimination of the legacy currencies, and is reviewing whether any existing contracts will need to be modified. The Company's foreign currency exchange risk in participating countries may be reduced as the legacy currencies are converted to the euro. The Company will continue to evaluate issues involving the introduction of the euro, including accounting, tax and legal issues. Based on current information and the Company's current assessment, the Company does not expect that the euro conversion will have a material adverse effect on its business, results of operations, cash flows or financial condition. FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its 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 the Company's shareholders and news releases. All statements that express expectations, estimates, forecasts and projections are forward-looking statements within the meaning of the Act. In addition, other written or oral statements which constitute forward-looking statements may be made by or on behalf of the Company. 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 Company undertakes 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 future developments and performance of the Company, including the following: (i) increasing price and product/service competition by domestic and foreign competitors, including new entrants; (ii) the mix of products/services; (iii) rapid technological changes and developments and the Company's 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) the outcome and impact of Year 2000; (vi) protection and validity of patent and other intellectual property rights, both of the Company and its competitors; (vii) the -22- 23 cyclical nature of the Company's business as a capital goods supplier; (viii) possible future litigation and governmental proceedings; (ix) the availability of financing and financial resources in the amounts, at the times and on the terms required to support the Company's future business, including capacity expansions and possible acquisitions; (x) the loss of key customers, employees or suppliers; (xi) the failure to carry out marketing and sales plans; (xii) the failure successfully to integrate acquired businesses, if any, into the Company without substantial costs, delays or other operational or financial problems; (xiii) economic, business and regulatory conditions and changes which may affect the level of new investments and purchases made by customers, including general economic and business conditions that are less favorable than expected; and (xiv) domestic and international political and economic conditions. This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not Applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of the Company and its subsidiaries and supplementary data required by this item are attached to this annual report on Form 10-K beginning on page F-1. ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES. None. -23- 24 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information concerning directors and compliance with Section 16(a) of the Securities Exchange Act of 1934 called for by Item 10 of Form 10-K will be set forth under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive proxy statement, to be filed within 120 days after the end of the fiscal year covered by this annual report on Form 10-K, and is incorporated herein by reference. The required information as to executive officers is set forth in Part I hereof and incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information called for by Items 11 and 12 of Form 10-K will be set forth under the captions "Executive Compensation" and "Security Ownership of Certain Beneficial Owners and Management," respectively, in the Company's definitive proxy statement, to be filed within 120 days after the end of the fiscal year covered by this annual report on Form 10-K, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements. Financial Statements listed in the accompanying Index to Financial Statements and Financial Statement Schedules appearing on page F-1 are filed as part of this annual report on Form 10-K. 2. Financial Statement Schedules. Financial Statement Schedules listed in the accompanying Index to Financial Statements and Financial Statement Schedules appearing on page F-1 are filed as part of this annual report on Form 10-K. 3. Exhibits. (see (c) below). -24- 25 (b) Reports on Form 8-K. The Company did not file a report on Form 8-K during the quarter ended January 2, 1999. (c) Exhibits. The following is a list of exhibits filed as part of this annual report on Form 10-K. Where so indicated, exhibits which were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses. 3.1 Restated Certificate of Incorporation, as amended by the Certificate of Amendment to the Restated Certificate of Incorporation of K-Tron International, Inc.+ 3.2 By-Laws, as amended (Filed as Exhibit 3.2 to the Company's annual report on Form 10-K for the year ended January 1, 1994 ("1993 Form 10-K") and incorporated herein by reference) 4.1 Form of Certificate for Shares of Common Stock* 4.2 Rights Agreement dated as of October 3, 1991 with First Interstate Bank of Arizona, N.A., as Rights Agent (Filed as Exhibit 1 to the Company's report on Form 8-K dated October 3, 1991 and incorporated herein by reference) 10.1 1986 Stock Option Plan, as amended and restated (Filed as Exhibit 10.2.1 to the to the Company's annual report on Form 10-K for the year ended January 4, 1992 ("1991 Form 10-K") and incorporated herein by reference)** 10.2 1988 Stock Option Plan for Non-Employee Directors (Filed as Exhibit 10.2.4 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1988 ("1988 Form 10-K") and incorporated herein by reference)** 10.3 K-Tron International, Inc. 1996 Equity Compensation Plan, as amended* 10.4 K-Tron International, Inc. Amended and Restated Employee Stock Purchase Plan (Filed as Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 28, 1996 and incorporated herein by reference)** -25- 26 10.5 K-Tron International, Inc. Profit-Sharing and Thrift Plan, as amended and restated (Filed as Exhibit 10.2.5 to the Company's annual report on Form 10-K for the year ended December 30, 1989 and incorporated herein by reference)** 10.6 Amendment No. 1992-1 to K-Tron International, Inc. Profit-Sharing and Thrift Plan (Filed as Exhibit 10.2.6 to the 1991 Form 10-K and incorporated herein by reference)** 10.7 Amendment No. 1996-1 to K-Tron International, Inc. Profit-Sharing and Thrift Plan (Filed as Exhibit 10.2.7 to the Company's annual report on Form 10-K for the fiscal year ended December 28, 1996 and incorporated herein by reference)** 10.8 K-Tron International, Inc. Supplemental Executive Retirement Plan (Filed as Exhibit 10.2.7 to the 1991 Form 10-K and incorporated herein by reference)** 10.9 Form of Employment Agreement with certain employees of the Company listed on Schedule 10.12, which are identical in all material respects except for the employee, amount of salary to be paid and date of execution ** 10.10 Employment Agreement dated as of October 6, 1997 by and between K-Tron International, Inc. and Edward B. Cloues, II (Filed as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 27, 1997 and incorporated herein by reference)** 10.11 Amendment No. 1 to Employment Agreement dated October 5, 1998 by and between K-Tron International, Inc. and Edward B. Cloues, II (Filed as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended October 3, 1998 and incorporated herein by reference)** 10.12 Indemnification Agreement with Leo C. Beebe, dated March 23, 1987, and Schedule 10.2.9 listing other indemnification agreements which are identical in all material respects except for the director or officer who is a party thereto (Filed as Exhibit 10.2.9 to the Company's annual report on Form 10-K for the year ended January 2, 1988 and incorporated herein by reference)** 10.13 Schedule 10.2.11 listing other indemnification agreements which are dated November 18, 1988 and are identical in all material respects to the Indemnification Agreement set forth in Exhibit 10.12 except for the director or officer who is a party thereto (Filed as Exhibit 10.2.11 to the 1988 Form 10-K and incorporated herein by reference)** -26- 27 10.14 Schedule 10.2.16 listing other indemnification agreements which are dated September 20, 1993, November 12, 1993 and January 14, 1994 and are identical in all material respects to the Indemnification Agreement set forth in Exhibit 10.12 except for the director or officer who is a party thereto (Filed as Exhibit 10.2.16 to the 1993 Form 10-K and incorporated herein by reference)** 10.15 Leasing Agreement, dated October 30, 1990, between CS Immobilien Leasing AG, Zurich and Hasler Freres SA, with limited guaranty of K-Tron Soder AG (Filed as Exhibit 10.1(b) to the Company's report on Form 8-K dated October 30, 1990 and incorporated herein by reference) 10.16 Amendment, dated January 25, 1991, to Leasing Agreement, dated October 30, 1990, between CS Immobilien Leasing AG, Zurich and Hasler Freres SA and to the related limited guaranty of K-Tron Soder AG (Filed as Exhibit 10.3.3 to the Company's annual report on Form 10-K for the year ended December 29, 1990 and incorporated herein by reference) 21.1 Subsidiaries* 23.1 Consent of Arthur Andersen LLP* 24.1 Power of Attorney (Included on Signature Page) 27.1 Financial Data Schedule* - ----------- + Portion of exhibit filed herewith * Filed herewith ** Management contract or compensatory plan or arrangement required to be filed or incorporated as an exhibit COPIES OF THE EXHIBITS ARE AVAILABLE TO SHAREHOLDERS (UPON PAYMENT OF A $.20 PER PAGE FEE TO COVER THE COMPANY'S EXPENSES IN FURNISHING THE EXHIBITS) FROM ROBERT L. WEINBERG, SENIOR EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, K-TRON INTERNATIONAL, INC., ROUTES 55 AND 553, P.O. BOX 888, PITMAN, NEW JERSEY 08071- 0888. -27- 28 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: March 22, 1999 By /s/ Edward B. Cloues, II ---------------------------------- Edward B. Cloues, II Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Each person in so signing also makes, constitutes and appoints Edward B. Cloues, II, Chairman and Chief Executive Officer of K-Tron International, Inc., and Robert L. Weinberg, Senior Executive Vice President, Chief Financial Officer and Treasurer of K-Tron International, Inc., and each of them acting alone, as his true and lawful attorneys-in-fact, in his name, place and stead, to execute and cause to be filed with the Securities and Exchange Commission any or all amendments to this report.
Signature Date Capacity - --------- ---- -------- /s/ Edward B. Cloues, II March 22, 1999 Chief Executive Officer - ------------------------------ (principal executive officer) and Edward B. Cloues, II Chairman of the Board of Directors /s/ Robert L. Weinberg March 22, 1999 Senior Executive Vice President, - ------------------------------ Chief Financial Officer and Robert L. Weinberg Treasurer (principal financial officer) /s/ Alan R. Sukoneck March 22, 1999 Vice President, Chief - ------------------------------ Accounting and Tax Officer Alan R. Sukoneck (principal accounting officer) /s/ Leo C. Beebe March 22, 1999 Director - -------------------------------- Leo C. Beebe
29
Signature Date Capacity - --------- ---- -------- /s/ Norman Cohen March 22, 1999 Director - -------------------------------- Norman Cohen /s/ Richard J. Pinola March 22, 1999 Director - -------------------------------- Richard J. Pinola /s/ Hans-Jurg Schurmann March 22, 1999 Director - -------------------------------- Hans-Jurg Schurmann /s/ Jean Head Sisco March 22, 1999 Director - -------------------------------- Jean Head Sisco /s/ Johannes Wirth March 22, 1999 Director - -------------------------------- Johannes Wirth
30 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF JANUARY 2, 1999 TOGETHER WITH AUDITORS' REPORT 31 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES: Consolidated Balance Sheets--January 2, 1999 and January 3, 1998 F-3 Consolidated Statements of Operations for the Fiscal Years Ended January 2, 1999, January 3, 1998 and December 28, 1996 F-5 Consolidated Statements of Changes in Shareholders' Equity for the Fiscal Years Ended January 2, 1999, January 3, 1998 and December 28, 1996 F-6 Consolidated Statements of Cash Flows for the Fiscal Years Ended January 2, 1999, January 3, 1998 and December 28, 1996 F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9 Schedule II--Valuation Reserves S-1
F-1 32 [LETTERHEAD ARTHUR ANDERSEN LLP] REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To K-Tron International, Inc.: We have audited the accompanying consolidated balance sheets of K-Tron International, Inc. (a New Jersey corporation) and subsidiaries as of January 2, 1999 and January 3, 1998, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the three fiscal years in the period ended January 2, 1999. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and this schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of K-Tron International, Inc. and subsidiaries as of January 2, 1999 and January 3, 1998, and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 2, 1999, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements as of January 2, 1999 and for each of the three years in the period ended January 2, 1999, is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Philadelphia, Pa., /s/ Arthur Andersen LLP February 8, 1999 ------------------------ F-2 33 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands) ASSETS
January 2, January 3, 1999 1998 ------- ------- CURRENT ASSETS: Cash and cash equivalents $ 3,220 $ 5,154 Accounts receivable (less allowance for doubtful accounts of $1,286 and $1,119) 19,034 15,336 Inventories 10,743 10,010 Deferred income taxes 819 950 Prepaid expenses and other current assets 1,177 1,196 ------- ------- Total current assets 34,993 32,646 PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $27,066 and $24,588 16,215 15,437 PATENTS, net of accumulated amortization of $479 and $2,997 751 694 GOODWILL, net of accumulated amortization of $4,113 and $3,376 4,454 4,844 OTHER ASSETS 204 628 ------- ------- Total assets $56,617 $54,249 ======= =======
The accompanying notes are an integral part of these financial statements. F-3 34 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands except share data) LIABILITIES AND SHAREHOLDERS' EQUITY
January 2, January 3, 1999 1998 -------- -------- CURRENT LIABILITIES: Notes payable to banks $ 254 $ 2,088 Current portion of long-term debt 1,280 1,060 Accounts payable 6,965 5,426 Accrued expenses and other current liabilities 4,034 4,270 Accrued payroll 4,307 3,869 Accrued commissions 2,609 2,463 Customer advances 1,810 1,627 Accrued warranty 1,055 912 Income taxes payable 1,233 1,508 -------- -------- Total current liabilities 23,547 23,223 -------- -------- LONG-TERM DEBT, net of current portion 9,638 10,619 -------- -------- DEFERRED INCOME TAXES 423 431 -------- -------- OTHER NONCURRENT LIABILITIES 735 1,084 -------- -------- COMMITMENTS AND CONTINGENCIES (Note 11) SERIES A JUNIOR PARTICIPATING PREFERRED SHARES, $.01 par value, 50,000 shares authorized; none issued -- -- SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value; 950,000 shares authorized; none issued -- -- Common stock, $.01 par value; 50,000,000 shares authorized; 4,328,555 and 4,271,300 shares issued 43 43 Paid-in capital 15,505 14,833 Retained earnings 21,839 15,246 Cumulative translation adjustment (192) (766) -------- -------- 37,195 29,356 Treasury stock, 1,295,450 and 1,052,950 shares, at cost (14,921) (10,464) -------- -------- Total shareholders' equity 22,274 18,892 -------- -------- Total liabilities and shareholders' equity $ 56,617 $ 54,249 ======== ========
The accompanying notes are an integral part of these financial statements. F-4 35 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands except share data)
For the Fiscal Year Ended -------------------------------------------- January 2, January 3, December 28, 1999 1998 1996 ---------- ---------- ---------- REVENUES $ 89,142 $ 87,152 $ 89,871 COST OF REVENUES 48,946 48,121 50,839 ---------- ---------- ---------- Gross profit 40,196 39,031 39,032 ---------- ---------- ---------- OPERATING EXPENSES: Selling, general and administrative 27,784 27,821 28,840 Research and development 2,980 2,768 2,316 ---------- ---------- ---------- 30,764 30,589 31,156 ---------- ---------- ---------- Operating income 9,432 8,442 7,876 INTEREST EXPENSE 714 1,133 2,035 ---------- ---------- ---------- Income before income taxes 8,718 7,309 5,841 INCOME TAX PROVISION 2,125 1,865 1,815 ---------- ---------- ---------- Net income $ 6,593 $ 5,444 $ 4,026 ========== ========== ========== BASIC EARNINGS PER SHARE $ 2.10 $ 1.72 $ 1.29 ========== ========== ========== DILUTED EARNINGS PER SHARE $ 2.03 $ 1.69 $ 1.28 ========== ========== ========== AVERAGE COMMON SHARES OUTSTANDING 3,133,000 3,162,000 3,120,000 AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 3,243,000 3,227,000 3,136,000
The accompanying notes are an integral part of these financial statements. F-5 36 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (dollars in thousands)
Common Stock Cumulative Treasury Stock ------------------- Paid-in Retained Translation --------------------- Shares Amount Capital Earnings Adjustment Shares Amount Total ------ ------ ------- -------- ---------- ------ ------ ----- BALANCE, DECEMBER 31, 1995 4,175,585 $ 42 $ 13,980 $ 5,776 $ 187 1,062,950 $ (10,564) $ 9,421 Comprehensive income- Net income -- -- -- 4,026 -- -- -- 4,026 Translation adjustments -- -- -- -- (393) -- -- (393) -------- Total comprehensive income 3,633 -------- Issuance of stock 24,743 -- 140 -- -- -- -- 140 ---------- ------ ---------- ---------- ------ ---------- ---------- -------- BALANCE, DECEMBER 28, 1996 4,200,328 42 14,120 9,802 (206) 1,062,950 (10,564) 13,194 Comprehensive income- Net income -- -- -- 5,444 -- -- -- 5,444 Translation adjustments -- -- -- -- (560) -- -- (560) -------- Total comprehensive income 4,884 -------- Issuance of stock 70,972 1 713 -- -- (10,000) 100 814 ---------- ------ ---------- ---------- ------ ---------- ---------- -------- BALANCE, JANUARY 3, 1998 4,271,300 43 14,833 15,246 (766) 1,052,950 (10,464) 18,892 Comprehensive income- Net income -- -- -- 6,593 -- -- -- 6,593 Translation adjustments -- -- -- -- 574 -- -- 574 -------- Total comprehensive income 7,167 -------- Issuance of stock 57,255 -- 672 -- -- (7,500) 74 746 Purchase of treasury shares -- -- -- -- -- 250,000 (4,531) (4,531) ---------- ------ ---------- ---------- ------ ---------- ---------- -------- BALANCE, JANUARY 2, 1999 4,328,555 $ 43 $ 15,505 $ 21,839 $ (192) 1,295,450 $ (14,921) $ 22,274 ========== ====== ========== ========== ====== ========== ========== ========
The accompanying notes are an integral part of these financial statements. F-6 37 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
For the Fiscal Year Ended ------------------------------------- January 2, January 3, December 28, 1999 1998 1996 -------- -------- -------- OPERATING ACTIVITIES: Net income $ 6,593 $ 5,444 $ 4,026 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 3,158 2,977 3,338 Amortization of deferred gain on sale/leaseback transaction (374) (380) (447) Deferred income taxes 81 (321) 443 Changes in assets and liabilities-- Accounts receivable, net (3,113) 250 3,266 Inventories (442) 2,991 4,101 Prepaid expenses and other current assets (53) 88 20 Other assets 229 (532) 52 Accounts payable 1,314 (286) (3,027) Accrued expenses and other current liabilities 285 1,928 1,598 Accrued warranty 99 112 18 Income taxes (162) 323 581 -------- -------- -------- Net cash provided by operating activities 7,615 12,594 13,969 -------- -------- -------- INVESTING ACTIVITIES: Business acquired -- (783) -- Capital expenditures (2,713) (3,000) (2,081) Investment in patents (122) (172) (47) -------- -------- -------- Net cash used in investing activities (2,835) (3,955) (2,128) -------- -------- --------
(Continued) F-7 38 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (Continued)
For the Fiscal Year Ended ---------------------------------------- January 2, January 3, December 28, 1999 1998 1996 -------- -------- -------- FINANCING ACTIVITIES: Net repayments under notes payable to banks $ (1,142) $ (6,925) $(17,684) Proceeds from issuance of long-term debt 1,005 689 6,037 Principal payments on long-term debt (2,894) (867) (299) Purchase of treasury stock (4,531) -- -- Proceeds from issuance of common stock 746 814 140 -------- -------- -------- Net cash used in financing activities (6,816) (6,289) (11,806) -------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 102 (275) (195) -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,934) 2,075 (160) CASH AND CASH EQUIVALENTS: Beginning of year 5,154 3,079 3,239 -------- -------- -------- End of year $ 3,220 $ 5,154 $ 3,079 ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for- Interest $ 772 $ 1,182 $ 1,928 ======== ======== ======== Income taxes $ 2,275 $ 1,951 $ 699 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-8 39 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEAR ENDED JANUARY 2, 1999 1. NATURE OF OPERATIONS: K-Tron International, Inc. and its subsidiaries (the "Company") design, produce, market, and sell gravimetric and volumetric feeders, pneumatic conveying systems and related equipment for the handling of bulk solids in a wide variety of manufacturing processes. The Company has manufacturing facilities in the United States, Switzerland and Canada, and its equipment is sold throughout the world. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All material intercompany accounts and transactions have been eliminated. Fiscal Year The Company's fiscal year is reported on a fifty-two/fifty-three week period. The fiscal year ended January 3, 1998 (referred to herein as "1997") includes fifty-three weeks, while the fiscal years ended January 2, 1999 (referred to herein as "1998") and December 28, 1996 (referred to herein as "1996") each include fifty-two weeks. Cash and Cash Equivalents Cash equivalents represent all highly liquid, interest-bearing investments purchased with maturities of three months or less. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market. Property, Plant and Equipment Property, plant and equipment is carried at cost and is depreciated on a straight-line basis over the following estimated useful lives: buildings and improvements, 30 to 50 years; automotive equipment, 3 years; machinery and equipment, 3 to 10 years; and furniture and fixtures, 5 to 7 years. Leasehold improvements are amortized over the shorter of the estimated useful lives of such assets or the remaining term of the applicable lease. F-9 40 Patents Patents are stated at cost less accumulated amortization. The costs of patents are amortized on a straight-line basis over the remaining economic life of the respective asset, but in no event longer than the remaining legal life. Goodwill Excess of cost over net assets acquired is being amortized on a straight-line basis over 15 years. Subsequent to an acquisition, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of this asset may warrant revision or that the remaining balance may not be recoverable. Income Taxes Income taxes are accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Deferred income taxes are provided for differences between amounts shown for financial reporting purposes and those included with tax return filings that will reverse in future periods. Additionally, the effects of income taxes are measured based upon enacted tax laws and rates. Research and Development Expenditures for research, development and engineering of products are expensed as incurred. Foreign Currency Translation Assets and liabilities denominated in foreign currencies are translated to U.S. dollars at current rates of exchange. Revenues and expenses are translated at average rates prevailing during the year. The Company incurred foreign currency transaction gains of approximately $4,000 and $177,000 for 1998 and 1997, respectively, and a loss amounting to $96,000 in 1996. Translation gains and losses are recorded as a separate component of shareholders' equity. Fair Value Disclosures The carrying value of financial instruments such as cash, accounts receivables and payables and other current assets and liabilities approximates their fair value, based on the short-term nature of these instruments. The carrying amount of the Company's long-term debt and notes payable approximates their fair value. The fair value is estimated based on the current rates offered to the Company for debt and notes payable of the same remaining maturities. F-10 41 Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. New Accounting Pronouncements In 1998, the Company was required to adopt for all years presented the provisions of SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for the reporting and display of comprehensive income and its components. Comprehensive income is the total of net income and the current year change in cumulative translation adjustments which is the only nonowner change in equity. Also in 1998, the Company was required to adopt the provisions of SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." This is further discussed in Note 12 to the consolidated financial statements. In 2000, the Company is required to adopt the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Company does not anticipate that the adoption will have a material impact on the consolidated financial statements. 3. INVENTORIES: Inventories consist of the following:
January 2, January 3, 1999 1998 ------- ------- (in thousands) Components $ 8,504 $ 7,926 Work-in-process 1,820 1,796 Finished goods 419 288 ------- ------- $10,743 $10,010 ======= =======
F-11 42 4. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment consist of the following:
January 2, January 3, 1999 1998 -------- -------- (in thousands) Land $ 1,215 $ 1,163 Buildings and improvements 17,240 16,736 Automotive equipment 676 592 Machinery and equipment 12,169 11,282 Furniture and fixtures 11,981 10,252 -------- -------- 43,281 40,025 Less- Accumulated depreciation and amortization (27,066) (24,588) -------- -------- $ 16,215 $ 15,437 ======== ========
Depreciation of property, plant and equipment for 1998, 1997 and 1996 was $2,345,000, $2,457,000 and $2,467,000, respectively. 5. NOTES PAYABLE TO BANKS AND LONG-TERM DEBT: The Swiss lenders to the Company's Swiss subsidiary terminated a forbearance agreement on March 31, 1998 after the Swiss subsidiary achieved at January 3, 1998 the required debt-to-equity ratio. During 1998, new short-term lines of credit were entered into with the Swiss lenders for 6.0 million Swiss francs ($4.4 million). At January 2, 1999, the Company's Swiss subsidiary had $254,000 borrowed under short-term lines of credit with its Swiss lenders and $4,118,000 was available for future borrowings. The interest rate on the amounts borrowed at January 2, 1999 was 6.5%. In addition to the short-term lines of credit, the Company's Swiss subsidiary had mortgage borrowings of 10.4 million Swiss francs ($7.5 million) with maturities through 2002 from its Swiss bank lenders. In June 1998, the Company's U.S. manufacturing subsidiary refinanced its 20-year mortgage for $2.7 million at an interest rate of 7.625%. Monthly principal and interest payments are $25,143. The bank has the right to review and adjust the terms of the mortgage every five years. Also in June 1998, the U.S. manufacturing subsidiary entered into a two-year secured revolving credit facility with a lender that provides for a maximum borrowing of $5.0 million, subject to certain maximum borrowing limitations based upon inventory and receivable levels. The interest rate as of January 2, 1999 was 7.75%. As of January 2, 1999, there were no outstanding borrowings under the agreement and $5.0 million was available for future borrowings. F-12 43 Under the terms of the U.S. mortgage and revolving credit facilities, fixed assets with a book value of $3,161,000 and accounts receivable and inventory with a book value of $12,091,000, are pledged as collateral. In addition, fixed assets with a book value of $5,117,000 are pledged as collateral under Swiss mortgages. Long-term debt consists of the following: January 2, January 3, 1999 1998 -------- -------- (in thousands) U.S. mortgage, interest at 7.625% per annum $ 2,644 $ 2,632 Non-U.S. mortgages, interest at market rates (2.95% to 5.0% at January 2, 1999 and 5.5% to 7.25% at January 3, 1998) 7,542 7,934 Other 732 1,113 -------- -------- 10,918 11,679 Less- Current portion (1,280) (1,060) -------- -------- $ 9,638 $ 10,619 ======== ======== Future annual payments required on long-term debt are as follows (in thousands): Fiscal Year Amount ----------- ------ 1999 $ 1,280 2000 2,461 2001 97 2002 3,722 2003 86 Thereafter 3,272 ------- $10,918 6. EMPLOYEE BENEFIT PLANS: The Company has a profit-sharing and thrift plan for all U.S. employees who have worked for the Company for at least one year and who are employed at the end of the year. All Company contributions to the plan are at the discretion of the Board of Directors. The Company's profit-sharing contribution vests over a seven-year period. In addition, employees may voluntarily participate in the thrift plan and authorize payroll deductions ranging from 1% to 15% of their compensation. Related matching Company contributions are vested immediately. The Board of Directors authorized matching contributions of 110% of the first 6% of participants' compensation for 1998 and 100% of the first 6% of participants' compensation for 1997 and 1996. The Board of Directors did not authorize any 1998, 1997 or 1996 contribution to the profit-sharing portion of the plan. F-13 44 Substantially all foreign employees participate in defined contribution group pension plans. Contributions are paid by the employee and employer at percentages that vary according to age and other factors. The expense associated with the thrift plan for 1998, 1997 and 1996 was $443,000, $355,000 and $269,000, respectively. The foreign pension expense for 1998, 1997 and 1996 was $1,231,000, $1,066,000 and $1,122,000, respectively. In June 1981, the Company adopted an employee stock purchase plan under which eligible employees of the Company may elect to participate through payroll deductions for up to 10% of their gross compensation. Such deductions are used to purchase common stock of the Company at a price equal to 85% of the market value, not to exceed $25,000 in stock in any year. Under this plan, the Company issued 14,241 shares of common stock at an average price of $14.92 in 1998, 17,468 shares of common stock at an average price of $10.72 in 1997 and 24,743 shares of common stock at an average price of $5.67 in 1996. 7. SHAREHOLDERS' EQUITY: In 1991, the Board of Directors determined the rights on 50,000 shares of the authorized preferred stock as the Series A Junior Participating Preferred Shares (the "Series A Preferred Shares"). Each one one-hundredth of a share of the Series A Preferred Shares carries voting and dividend rights that are equivalent to one share of the common stock. The voting and dividend rights are subject to adjustment in the event of a dividend on common stock which is payable in common stock or any subdivisions or combinations with respect to the outstanding shares of common stock (see Note 8). The Board of Directors has not determined the rights on the remaining 950,000 shares of the authorized preferred stock as of January 2, 1999. The Company had a stock option plan for nonemployee directors (the "1988 plan") which expired in November 1998, but which option grants remain outstanding. The plan provided that each eligible director was granted a single option to purchase 10,000 shares of the Company's common stock at a price equal to the fair market value at the date of grant. The aggregate number of shares which could be issued under the plan was 100,000. These options had a term of ten years and became exercisable in four equal annual installments beginning on the date of the grant. The Company's 1986 Stock Option Plan, as amended (the "1986 plan"), expired in January 1996, but option grants under the 1986 plan remain outstanding. Key employees of and consultants to the Company could be granted options to purchase shares of the Company's common stock. These options could be either incentive stock options or nonqualified stock options. The Stock Option Committee under the 1986 plan determined the term of each option, but no option could be exercisable more than ten years from the date the option was granted. The Stock Option Committee also determined the option exercise price per share. With respect to incentive stock options, the exercise price must at least equal the fair market value of a share of common stock as of the date the option was granted. F-14 45 In 1996, the Company adopted the 1996 Equity Compensation Plan, (the "1996 plan"), with features similar to the 1986 plan, except that the maximum number of shares that may be issued is 450,000. The 1996 plan was amended in 1998, increasing the maximum number of shares that may be issued to 600,000 and allowing nonemployee directors to receive grants thereunder at fair market value. The 1996 plan is administered by a committee selected by the Board of Directors. A summary of the Company's stock option and restricted stock grant activity for the plans referred to above for the three fiscal years ended January 2, 1999, is as follows:
Average Price Outstanding Per Share Available ----------- --------- --------- BALANCE, DECEMBER 31, 1995 253,684 $ 299,631 Canceled (5,000) 8.45 -- 1996 plan adoption -- -- 450,000 1986 plan expiration -- -- (249,631) ------- -------- BALANCE, DECEMBER 28, 1996 248,684 500,000 Granted 100,000 14.00 (100,000) Canceled (1,500) 8.00 -- Exercised (56,150) 9.37 -- ------- -------- BALANCE, JANUARY 3, 1998 291,034 400,000 1996 plan amendment 150,000 Granted 105,000 17.75 (105,000) Canceled (5,850) 9.33 1,000 Exercised (43,550) 10.07 -- Restricted stock granted 20,000 -- (20,000) Restricted stock exercised (7,500) -- -- 1988 plan expiration -- -- (50,000) ------- -------- BALANCE, JANUARY 2, 1999 359,134 376,000 ======= ========
As of January 2, 1999, thirty-three employees held options under the 1986 plan for an aggregate of 113,734 shares at exercise prices from $6.25 to $12.50 with a weighted average option price of $8.44. These options expire in varying amounts through the year 2005. As of January 2, 1999, twenty-eight employees and six nonemployee directors held options under the 1996 plan for an aggregate of 204,000 shares at exercise prices from $14.00 to $19.00 with a weighted average option price of $15.92. These options expire through 2008. In addition, one employee held a restricted stock grant for 12,500 shares. As of January 2, 1999, under the 1988 plan, three directors held options for an aggregate of 28,900 shares at exercise prices from $9.25 to $11.00 with a weighted average option price of $10.18. These options expire in varying amounts through the year 2004. F-15 46 In July 1998, the Company repurchased 250,000 shares of its common stock, representing approximately 7.7% of its outstanding common stock. The purchase price was $4,531,250, or $18.125 a share. Subsequent Event In January 1999, the Company repurchased an additional 100,000 shares of its common stock, representing approximately 3.3% of its outstanding common stock. The purchase price of $1,812,500, or $18.125 a share, was funded by a combination of cash in the amount of $312,500 and bank borrowings of $1,500,000. Pro Forma Information As permitted under SFAS No. 123, 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 does require 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 table:
1998 1997 1996 ------ ------ ------ (millions, except per share) Net income - as reported $6,593 $5,444 $4,026 Net income - pro forma 6,090 5,256 3,947 Basic earnings per share - as reported 2.10 1.72 1.29 Basic earnings per share - pro forma 1.94 1.66 1.27 Diluted earnings per share - as reported 2.03 1.69 1.28 Diluted earnings per share - pro forma 1.88 1.63 1.26
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: no dividend yield; expected volatility of 44.13%, 43.60% and 41.60%; risk-free interest rate of 5.85%, 6.02% and 6.06%; and expected life of 6.38 years, 6.00 years and 6.00 years in 1998, 1997 and 1996, respectively. 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. F-16 47 8. SHAREHOLDER RIGHTS PLAN: The Company has a Shareholder Rights Plan (the "Rights Agreement") which was adopted by the Board of Directors on October 3, 1991. The Rights Agreement provides that each share of the Company's common stock outstanding as of October 14, 1991 has associated with it one right ("Right") to purchase one one-hundredth of a share of the Series A Preferred Shares at an exercise price of $40 per share. Such exercise price is subject to adjustment as described in the Rights Agreement. The Rights will be exercisable only 10 days following a public announcement that a person or group has acquired or obtained the right to acquire beneficial ownership of 20% or more of the outstanding common stock of the Company, or not later than 65 days after the commencement of a tender offer or an exchange offer that would result in a person or group beneficially owning 20% or more of the outstanding common stock. In either such case, the Rights would entitle shareholders (other than the 20% acquiror) to purchase for $40 the number of shares of the Company's common stock which would have a market value of $80. In the event that the Company is acquired in a merger or other business combination, the Rights would entitle the shareholders (other than the acquiror) to purchase securities of the surviving company at a similar discount. In lieu of requiring payment of the exercise price of the Rights upon the occurrence of the above-noted events, the Company may permit the holders to simply surrender the Rights and receive the number of shares of the Company's common stock which would have a market value of $40. The Company can redeem the Rights at $.01 per Right at any time until the 20th day following a public announcement that a person or a group has acquired or obtained the right to acquire beneficial ownership of at least 20% of the Company's outstanding common stock. Under certain circumstances set forth in the Rights Agreement, the decision to redeem shall require the concurrence of a majority of the Continuing Directors, as defined in the Rights Agreement. The redemption period may be extended by the Board of Directors as long as the Rights are still redeemable. The Rights expire October 14, 2001. 9. INCOME TAXES: Following are the domestic and foreign components of the income before income taxes:
Fiscal Year Ended ----------------------------------- January 2, January 3, December 28, 1999 1998 1996 ------ ------ ------ (in thousands) United States $6,595 $2,387 $2,648 Foreign 2,123 4,922 3,193 ------ ------ ------ Income before income taxes $8,718 $7,309 $5,841 ====== ====== ======
F-17 48 The income tax provision (benefit) consists of the following:
Fiscal Year Ended ------------------------------------ January 2, January 3, December 28, 1999 1998 1996 ------- ------- ------- (in thousands) Current: Federal and state $ 1,938 $ 2,061 $ 1,056 Foreign 106 125 316 ------- ------- ------- Total current 2,044 2,186 1,372 ------- ------- ------- Deferred: Federal and state 56 (325) (141) Foreign 25 4 (8) Benefit of foreign net operating loss carryforwards -- -- 592 ------- ------- ------- Total deferred (benefit) 81 (321) 443 ------- ------- ------- Total income tax provision $ 2,125 $ 1,865 $ 1,815 ======= ======= =======
Significant components of the deferred tax accounts at January 2, 1999 and January 3, 1998, are as follows:
January 2, January 3, 1999 1998 ------- ------- (in thousands) Deferred tax assets: Depreciation $ 126 $ 172 Accrued liabilities 501 672 Net operating loss carryforwards 2,445 2,790 Inventory basis differences 223 291 Other 213 177 ------- ------- 3,508 4,102 Valuation allowance (2,580) (2,993) ------- ------- Total assets 928 1,109 ------- ------- Deferred tax liabilities: Depreciation (230) (210) Other (302) (380) ------- ------- Total liabilities (532) (590) ------- ------- Net deferred asset $ 396 $ 519 ======= =======
F-18 49 Foreign and U.S. state operating loss carryforwards as of January 2, 1999 were $7.8 million and $4 million, respectively. Of the $7.8 million of foreign losses, $6.4 million are available to offset future income through 2005. The balance of $1.4 million has an unlimited carryforward period. U.S. state operating losses are available through 2005. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has established valuation allowances for all foreign and state net operating loss carryforwards and certain other deferred tax assets for which realization is dependent on future taxable earnings. At January 2, 1999, retained earnings include $12 million of undistributed net income of foreign subsidiaries. Management considers such income to have been permanently invested and, therefore, no federal income taxes have been provided for these items. A reconciliation of the provision for income taxes and the amounts that would be computed using the statutory federal income tax rates is set forth below:
Fiscal Year Ended ----------------------------------- January 2, January 3, December 28, 1999 1998 1996 ------- ------- ------- (in thousands) Income tax provision on income before income tax at statutory federal income tax rates $ 2,964 $ 2,485 $ 1,986 Foreign tax rate differential (58) (237) 80 State tax, net of federal benefit 263 133 28 U.S. and foreign permanent tax differences (440) 708 325 Change in valuation allowance (532) (1,307) (640) Other (72) 83 36 ------- ------- ------- Income tax provision $ 2,125 $ 1,865 $ 1,815 ======= ======= =======
10. EARNINGS PER SHARE: The Company adopted SFAS No. 128, "Earnings Per Share." SFAS No. 128 requires that the Company report Basic and Diluted Earnings Per Share. Basic Earnings Per Share represents net income less preferred dividends divided by the weighted average common shares outstanding. Diluted Earnings Per Share is calculated similarly, except that the denominator includes weighted average common shares outstanding plus the dilutive effect of options, warrants, convertible securities and other instruments with dilutive effects if exercised. F-19 50 The Company's Basic and Diluted Earnings Per Share are calculated as follows:
Income Available To Common Per Share Shareholders Shares Amount For the Fiscal Year Ended January 2, 1999 --------------------------------------------------- Basic Net Income $ 6,593,000 3,133,000 $ 2.10 Common Share Equivalent of Options Issued -- 110,000 (.07) ------------- ---------- ------- Diluted $ 6,593,000 3,243,000 $ 2.03 ============= =========== =======
For the Fiscal Year Ended January 3, 1998 ------------------------------------- -------- Basic Net Income $ 5,444,000 3,162,000 $ 1.72 Common Share Equivalent of Options Issued -- 65,000 (.03) ------------- ---------- ------ Diluted $ 5,444,000 3,227,000 $ 1.69 ============= ========== ======
For the Fiscal Year Ended December 28, 1996 --------------------------------------------- Basic Net Income $ 4,026,000 3,120,000 $ 1.29 Common Share Equivalent of Options Issued -- 16,000 ( .01) ------------- ---------- ------- Diluted $ 4,026,000 3,136,000 $ 1.28 ============= ========== =======
Diluted earnings per common share are based on the weighted average number of common and common equivalent shares outstanding during each year. 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. F-20 51 11. COMMITMENTS AND CONTINGENCIES: The Company leases certain office and plant facilities and equipment under noncancelable leases. These leases expire in periods ranging from one to five years and, in certain instances, provide for purchase options. Immediately prior to the 1990 acquisition of Hasler, the Company's heavy feeder division, the acquired company entered into a sale/leaseback agreement on its real property in Switzerland. The net proceeds of this transaction were distributed to the seller as a dividend. The gain from this transaction has been classified as Other Noncurrent Liabilities in the Company's consolidated balance sheets. This deferred gain is being amortized over the life of the resulting operating lease (ten years). Amortization of the deferred gain for 1998, 1997, and 1996 was $374,000, $380,000 and $447,000, respectively. As of January 2, 1999, future minimum payments under operating leases having noncancelable terms in excess of one year are summarized below:
Operating Leases --------- (in thousands) 1999 $ 774 2000 468 2001 50 2002 23 2003 67 --------- $ 1,382 =========
Rent expense for 1998, 1997 and 1996 was $702,000, $647,000 and $1,129,000, respectively. The Company has employment contracts with eight executives. Except in one case when two years advance notice is required, these contracts may be terminated by the Company on one year's advance notice. Under the agreements, each individual is guaranteed minimum compensation over the contract period. As of January 2, 1999, the estimated future obligation under these contracts is $1,346,300 (1999) and $400,000 (2000). 12. MANAGEMENT SEGMENT INFORMATION: As discussed in Note 2 to the consolidated financial statements, the Company has adopted the provisions of SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 introduces a new model for segment reporting called the management approach. The management approach is based on the way that the chief operating decision maker organizes segments within a company for making operating decisions and assessing performance. The Company is engaged in one business segment, the development, manufacturing and marketing of gravimetric and volumetric feeders, pneumatic conveying systems and related equipment. The Company operates in two primary geographic locations, North America and Western Europe. F-21 52
North Western Elimi- Consoli- America Europe nations dated --------- --------- ----------- --------- (in thousands) FISCAL YEAR ENDED JANUARY 2, 1999: Revenues- Sales to unaffiliated customers $ 37,642 $ 51,500 $ -- $ 89,142 Sales to affiliates 3,645 1,881 (5,526) -- --------- --------- ----------- --------- Total sales $ 41,287 $ 53,381 $ (5,526) $ 89,142 ========= ========= =========== ========= Operating income $ 6,860 $ 2,425 $ 147 $ 9,432 ========= ========= =========== Interest expense (714) --------- Income before income taxes $ 8,718 ========= Capital expenditures $ 1,121 $ 1,592 $ 2,713 Depreciation and amortization expense 1,376 1,782 3,158 Total assets 20,212 36,405 56,617 FISCAL YEAR ENDED JANUARY 3, 1998: Revenues- Sales to unaffiliated customers $ 35,507 $ 51,645 $ -- $ 87,152 Sales to affiliates 1,976 1,931 (3,907) -- --------- --------- ----------- --------- Total sales $ 37,483 $ 53,576 $ (3,907) $ 87,152 ========= ========= =========== ========= Operating income $ 3,040 $ 5,607 $ (205) $ 8,442 ========= ========= =========== Interest expense (1,133) ---------- Income before income taxes $ 7,309 ========= Capital expenditures $ 1,003 $ 1,997 $ 3,000 Depreciation and amortization expense 1,005 1,972 2,977 Total assets 21,276 32,973 54,249 FISCAL YEAR ENDED DECEMBER 28, 1996: Revenues- Sales to unaffiliated customers $ 34,123 $ 55,748 $ -- $ 89,871 Sales to affiliates 4,204 2,995 (7,199) -- --------- --------- ----------- --------- Total sales $ 38,327 $ 58,743 $ (7,199) $ 89,871 ========= ========= =========== ========= Operating income $ 3,297 $ 4,485 $ 94 $ 7,876 ========= ========= =========== Interest expense (2,035) --------- Income before income taxes $ 5,841 ========= Capital expenditures $ 686 $ 1,395 $ 2,081 Depreciation and amortization expense 1,281 2,057 3,338 Total assets 17,863 37,467 55,330
F-22 53 SCHEDULE II K-TRON INTERNATIONAL, INC. VALUATION RESERVES
Balance at Additions Beginning Charged Balance at of Period to Income Deductions(1) End of Period --------- --------- ------------- ------------- FISCAL YEAR ENDED JANUARY 2, 1999: Allowance for doubtful accounts $1,119,000 $ 208,000 $ 41,000 $1,286,000 FISCAL YEAR ENDED JANUARY 3, 1998: Allowance for doubtful accounts 1,037,000 184,000 102,000 1,119,000 FISCAL YEAR ENDED DECEMBER 28, 1996: Allowance for doubtful accounts 1,077,000 366,000 406,000 1,037,000
(1) Accounts written off less recoveries, net of foreign exchange translation adjustment. S-1 54 EXHIBIT INDEX Exhibit Number Description - ------ ----------- 3.1 Restated Certificate of Incorporation, as amended by the Certificate of Amendment to the Restated Certificate of Incorporation of K-Tron International, Inc.+ 3.2 By-Laws, as amended (Filed as Exhibit 3.2 to the Company's annual report on Form 10-K for the year ended January 1, 1994 ("1993 Form 10-K") and incorporated herein by reference) 4.1 Form of Certificate for Shares of Common Stock* 4.2 Rights Agreement dated as of October 3, 1991 with First Interstate Bank of Arizona, N.A., as Rights Agent (Filed as Exhibit 1 to the Company's report on Form 8-K dated October 3, 1991 and incorporated herein by reference) 10.1 1986 Stock Option Plan, as amended and restated (Filed as Exhibit 10.2.1 to the to the Company's annual report on Form 10-K for the year ended January 4, 1992 ("1991 Form 10-K") and incorporated herein by reference)** 10.2 1988 Stock Option Plan for Non-Employee Directors (Filed as Exhibit 10.2.4 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1988 ("1988 Form 10-K") and incorporated herein by reference)** 10.3 K-Tron International, Inc. 1996 Equity Compensation Plan, as amended* 10.4 K-Tron International, Inc. Amended and Restated Employee Stock Purchase Plan (Filed as Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 28, 1996 and incorporated herein by reference)** 10.5 K-Tron International, Inc. Profit-Sharing and Thrift Plan, as amended and restated (Filed as Exhibit 10.2.5 to the Company's annual report on Form 10-K for the year ended December 30, 1989 and incorporated herein by reference)** 10.6 Amendment No. 1992-1 to K-Tron International, Inc. Profit- Sharing and Thrift Plan (Filed as Exhibit 10.2.6 to the 1991 Form 10-K and incorporated herein by reference)** 55 10.7 Amendment No. 1996-1 to K-Tron International, Inc. Profit- Sharing and Thrift Plan (Filed as Exhibit 10.2.7 to the Company's annual report on Form 10-K for the fiscal year ended December 28, 1996 and incorporated herein by reference)** 10.8 K-Tron International, Inc. Supplemental Executive Retirement Plan (Filed as Exhibit 10.2.7 to the 1991 Form 10-K and incorporated herein by reference)** 10.9 Form of Employment Agreement with certain employees of the Company listed on Schedule 10.12, which are identical in all material respects except for the employee, amount of salary to be paid and date of execution ** 10.10 Employment Agreement dated as of October 6, 1997 by and between K-Tron International, Inc. and Edward B. Cloues, II (Filed as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 27, 1997 and incorporated herein by reference)** 10.11 Amendment No. 1 to Employment Agreement dated October 5, 1998 by and between K-Tron International, Inc. and Edward B. Cloues, II (Filed as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended October 3, 1998 and incorporated herein by reference)** 10.12 Indemnification Agreement with Leo C. Beebe, dated March 23, 1987, and Schedule 10.2.9 listing other indemnification agreements which are identical in all material respects except for the director or officer who is a party thereto (Filed as Exhibit 10.2.9 to the Company's annual report on Form 10-K for the year ended January 2, 1988 and incorporated herein by reference)** 56 10.13 Schedule 10.2.11 listing other indemnification agreements which are dated November 18, 1988 and are identical in all material respects to the Indemnification Agreement set forth in Exhibit 10.12 except for the director or officer who is a party thereto (Filed as Exhibit 10.2.11 to the 1988 Form 10-K and incorporated herein by reference)** 10.14 Schedule 10.2.16 listing other indemnification agreements which are dated September 20, 1993, November 12, 1993 and January 14, 1994 and are identical in all material respects to the Indemnification Agreement set forth in Exhibit 10.12 except for the director or officer who is a party thereto (Filed as Exhibit 10.2.16 to the 1993 Form 10-K and incorporated herein by reference)** 10.15 Leasing Agreement, dated October 30, 1990, between CS Immobilien Leasing AG, Zurich and Hasler Freres SA, with limited guaranty of K-Tron Soder AG (Filed as Exhibit 10.1(b) to the Company's report on Form 8-K dated October 30, 1990 and incorporated herein by reference) 10.16 Amendment, dated January 25, 1991, to Leasing Agreement, dated October 30, 1990, between CS Immobilien Leasing AG, Zurich and Hasler Freres SA and to the related limited guaranty of K-Tron Soder AG (Filed as Exhibit 10.3.3 to the Company's annual report on Form 10-K for the year ended December 29, 1990 and incorporated herein by reference) 21.1 Subsidiaries* 23.1 Consent of Arthur Andersen LLP* 24.1 Power of Attorney (Included on Signature Page) 27.1 Financial Data Schedule* + Portion of exhibit filed herewith * Filed herewith ** Management contract or compensatory plan or arrangement required to be filed or incorporated as an exhibit EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF K-TRON INTERNATIONAL, INC. To: The Secretary of State State of New Jersey Pursuant to the provisions of Section 14A:9-2(4) and Section 14A:9-4(3) of the New Jersey Business Corporation Act, the undersigned corporation hereby executes the following Certificate of Amendment to its Restated Certificate of Incorporation: FIRST: The name of the corporation is K-Tron International, Inc. SECOND: The following amendment (the "Amendment") to, and complete restatement of, the first sentence of Article Fourth of the corporation's Restated Certificate of Incorporation was approved by the Board of Directors of the corporation at a meeting duly held on March 13, 1998 and was thereafter duly adopted by the shareholders of the corporation at the annual meeting of shareholders duly held on May 5, 1998: "This corporation shall be authorized to issue Fifty-one Million (51,000,000) shares of capital stock, which shall be divided into Fifty Million (50,000,000) shares of Common Stock, with a par value of one cent ($.01) per share, and One Million (1,000,000) shares of Preferred Stock, with a par value of one cent ($.01) per share." THIRD: The number of shares of common stock entitled to vote upon the Amendment was 3,245,314. FOURTH: 2,157,299 shares were voted in favor of the Amendment and 733,423 shares were voted against the Amendment, with 8,400 shares electing to abstain from voting. IN WITNESS WHEREOF, the undersigned corporation has caused this Certificate of Amendment to the Restated Certificate of Incorporation to be executed in its name by the undersigned officer on the 29th day of June, 1998. K-TRON INTERNATIONAL, INC. By: /s/Edward B. Cloues ---------------------------- Name: Edward B. Cloues, II Title: Chairman and Chief Executive Officer EX-4.1 3 FORM OF CERTIFICATE FOR SHARES OF COMMON STOCK 1 EXHIBIT 4.1 SHARES CUSIP 482730 10 8 SEE REVERSE FOR CERTAIN DEFINITIONS K-TRON K-TRON INTERNATIONAL INCORPORATED UNDER THE LAWS OF THE STATE OF NEW JERSEY COMMON STOCK This Certifies that is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE OF $.01 PER SHARE, OF K-TRON INTERNATIONAL, INC. (hereinafter called the "Corporation"), transferable on the books of the Corporation by the holder thereof, in person or by duly authorized attorney, upon surrender of this certificate properly endorsed. This certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. DATED Countersigned and Registered: AMERICAN STOCK TRANSFER & TRUST COMPANY (New York, New York) Transfer Agent and Registrar Authorized Signature Mary E. Vaccara Secretary Edward B. Cloues, II Chairman of the Board 2 K-TRON INTERNATIONAL, INC. THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER WITHOUT CHARGE UPON REQUEST TO THE SECRETARY OF THE CORPORATION A FULL STATEMENT OF (1) THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF THE SHARES OF PREFERRED STOCK AND COMMON STOCK OF THE CORPORATION SO FAR AS THE SAME HAVE BEEN DETERMINED AND (2) THE AUTHORITY OF THE BOARD OF DIRECTORS TO DIVIDE THE SHARES INTO CLASSES OR SERIES AND CHANGE THE RELATIVE RIGHTS, PREFERENCES, AND LIMITATIONS OF ANY CLASS OR SERIES. This certificate also evidences a beneficial interest in and entitles the holder to certain Rights as set forth in the Rights Agreement between K-Tron International, Inc. (the "Company") and First Interstate Bank of Arizona, N.A. (the "Rights Agent") dated as of October 3, 1991 (the "Rights Agreement"), and as the same may be amended from time to time, the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and beneficial interests therein will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT--.............Custodian................. (Cust) (Minor) under Uniform Gifts to Minors Act.................................... (State) Additional abbreviations may also be used though not in the above list For value received hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. SIGNATURE(S) REQUIRED: THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-10.3 4 K-TRON INTER. 1996 EQUITY COMPENSATION PLAN, AMEND 1 EXHIBIT 10.3 AMENDED AND RESTATED K-TRON INTERNATIONAL, INC. 1996 EQUITY COMPENSATION PLAN (March 13, 1998 Revision) The purpose of the K-Tron International, Inc. 1996 Equity Compensation Plan (the "Plan") is (i) to provide officers and other employees of K-Tron International, Inc. (the "Company") and its subsidiaries with the opportunity to receive grants of incentive stock options, nonqualified stock options, stock appreciation rights and restricted stock and (ii) to provide members of the Board of Directors of the Company (the "Board") who are not employees of the Company and its subsidiaries ("Non-Employee Directors") with the opportunity to receive grants of nonqualified stock options. The Company believes that the Plan will provide an incentive to the participants to contribute materially to the long-term growth of the Company, will align the economic interests of the participants with those of the Company's shareholders and will aid the Company and its subsidiaries in attracting and retaining officers, employees and Board members of outstanding ability. 1. Administration The Plan shall be administered and interpreted by a committee (the "Committee"), which shall consist of two or more persons appointed by the Company's Board of Directors (the "Board"), all of whom may be "non-employee directors" as defined in Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act") and "outside directors" as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") and related Treasury regulations. The Committee shall have the sole authority to (i) determine the individuals to whom grants shall be made under the Plan, (ii) determine the type, size and terms of the grants to be made to each such individual, (iii) determine the time when the grants will be made and the duration of any applicable exercise or restriction period, including the criteria for vesting and the acceleration of vesting and (iv) deal with any other matters arising under the Plan. The Committee shall have full power and authority to administer and interpret the Plan, to make factual determinations and to adopt or amend such rules, regulations, agreements and instruments for implementing the Plan and for the conduct of its business as it deems necessary or advisable, in its sole discretion. The Committee's interpretations of the Plan and all determinations made by the Committee pursuant to the powers vested in it hereunder shall be conclusive and binding on all persons having any interests in the Plan or in any awards granted hereunder. All powers of the Committee shall be executed in its sole discretion, in the best interest of the Company and in keeping with the objectives of the Plan and need not be uniform as to similarly situated individuals. 2 2. Grants Incentives under the Plan shall consist of incentive stock options, nonqualified stock options, stock appreciation rights and restricted stock (hereinafter collectively referred to as "Grants"). All Grants shall be subject to the terms and conditions set forth herein and to those other terms and conditions consistent with the Plan as the Committee deems appropriate and as are specified in writing by the Committee to the individual in a grant letter (the "Grant Letter") or an amendment thereto. The Committee shall approve the form and provisions of each Grant Letter or amendment. Grants under a particular Section of the Plan need not be uniform as among the grantees. 3. Shares Subject to the Plan (a) Subject to the adjustments specified in Section 3(b), the aggregate number of shares of common stock of the Company (the "Company Stock") that may be issued or transferred pursuant to Grants or otherwise under the Plan is 600,000 shares. Notwithstanding anything in the Plan to the contrary, the maximum aggregate number of shares of Company Stock that shall be subject to Grants made under the Plan to any single employee during any one year period shall be 100,000 shares. The shares may be authorized but unissued shares of Company Stock or reacquired shares of Company Stock, including shares purchased by the Company on the open market for purposes of the Plan. If and to the extent options granted under the Plan terminate, expire or are canceled, forfeited, exchanged or surrendered without having been exercised, or if any shares of restricted stock are forfeited, the shares subject to such Grants shall again be available for purposes of the Plan. (b) If there is any change in the number or kind of shares of Company Stock outstanding by reason of (i) a stock dividend, (ii) a recapitalization, (iii) a stock split, combination or exchange of shares, (iv) a merger, reorganization or consolidation in which the Company is the surviving corporation, (v) a reclassification or (vi) any other extraordinary or unusual event affecting the outstanding Company Stock as a class without in any of such cases the Company's receipt of consideration, or if in the opinion of the Committee the value of outstanding shares of Company Stock is substantially reduced due to the Company's payment of an extraordinary dividend or distribution, the maximum number of shares of Company Stock available for Grants, the maximum number of shares of Company Stock which any one individual participating in the Plan may be granted during any one year, the number of shares covered by outstanding Grants and the price per share or the applicable market value of such Grants shall be proportionately adjusted by the Committee to reflect any increase or decrease in the number or kind of issued shares of Company Stock to preclude the enlargement or dilution of rights and benefits under such Grants; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. The adjustments determined by the Committee shall be final, binding and conclusive. Notwithstanding the foregoing, no adjustment shall be authorized or made pursuant to this Section if such authorization or adjustment would cause any Incentive Stock Option to fail to comply with Section 422 of the Code. -2- 3 4. Eligibility for Participation All employees employed by the Company or any subsidiary ("Employees") (including Employees who are officers or members of the Board) shall be eligible to participate in the Plan. The Committee shall select the Employees to receive Grants and determine the number of shares of Company Stock subject to a particular Grant in such manner as the Committee determines. Non-Employee Directors shall be eligible to receive options pursuant to Section 5(i) of the Plan. Employees and Non-Employee Directors who receive Grants under this Plan shall hereinafter be referred to as "Grantees". The term "Company" as used hereinafter when referring to Grantees or matters involving Grantees (such as termination of employment or the withholding of taxes) shall include the Company's subsidiaries. Nothing contained in this Plan shall be construed to limit the right of the Company to make Grants in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business or assets of any corporation, firm or association, including options granted to employees or directors thereof who become Employees or Non-Employee Directors of the Company, or for any other proper corporate purpose. 5. Granting of Stock Options (a) Number of Shares. The Committee, in its sole discretion, shall determine the number of shares of Company Stock that will be subject to each Grant of stock options. (b) Type of Option and Price. The Committee may grant options intended to qualify as incentive stock options ("Incentive Stock Options") within the meaning of Section 422 of the Code or options which are not intended so to qualify ("Nonqualified Stock Options") (hereinafter collectively referred to as "Stock Options") or any combination of Incentive Stock Options and Nonqualified Stock Options, all in accordance with the terms and conditions set forth herein. Incentive Stock Options may only be granted to Employees. The per share purchase price of Company Stock subject to a Stock Option shall be determined by the Committee and may be equal to, greater than or less than the Fair Market Value (as defined in the next paragraph) of a share of such Stock on the date such Stock Option is granted; provided, however, that (i) the per share purchase price of Company Stock subject to an Incentive Stock Option shall be equal to, or greater than, the Fair Market Value of a share of such Stock on the date such Stock Option is granted and (ii) an Incentive Stock Option may not be granted to an Employee who, at the time of grant, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or any parent or subsidiary of the Company, unless the purchase price per share is not less than one hundred ten percent (110%) of the Fair Market Value of a share of such Stock on the date of grant. If the Company Stock is traded in a public market, then the Fair Market Value per share -3- 4 shall be determined as follows: (i) if the principal trading market for the Company Stock is a national securities exchange or the National Market segment of The Nasdaq Stock Market, the last reported sale price thereof on the relevant date or, if there were no trades on that date, the latest preceding date upon which a sale was reported, or (ii) if the Company Stock is not principally traded on any such exchange or market, the mean between the last reported "bid" and "asked" prices thereof on the relevant date, as reported on Nasdaq or, if not so reported, as reported by the National Daily Quotation Bureau, Inc. or as reported in a customary financial reporting service, as applicable and as the Committee determines. If the Company Stock is not traded in a public market or subject to reported transactions or "bid" and "asked" quotations as set forth above, the Fair Market Value per share shall be as determined by the Committee. (c) Exercise Period. The Committee shall determine the option exercise period of each Stock Option. The exercise period shall not exceed ten (10) years from the date of grant. However, an Incentive Stock Option that is granted to an Employee who, at the time of grant, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or any parent or subsidiary of the Company, may not have a term that exceeds five (5) years from the date of grant. (d) Vesting and Exercisability of Options. Stock Options shall become vested and exercisable in accordance with the terms and conditions determined by the Committee, in its sole discretion and as specified in the applicable Grant Letter. The Committee, in its sole discretion, may accelerate the exercisability of any or all outstanding Stock Options at any time for any reason. In addition, all outstanding Stock Options shall vest upon a Change of Control (as defined in Section 9) unless the Committee determines otherwise pursuant to Section 10. (e) Manner of Exercise. A Grantee may exercise a Stock Option which has become exercisable, in whole or in part, by delivering a written notice of exercise to the Committee or other recipient designated by the Committee for this purpose, with accompanying payment of the option price in accordance with Section 5(g). Such notice may instruct the Company to deliver shares of Company Stock due upon the exercise of the Stock Option to any registered broker or dealer designated by the Committee in lieu of delivery to the Grantee, in which case such instructions must also designate the account into which the shares are to be deposited. (f) Termination of Employment, Disability or Death. (1) In the event that a Grantee ceases to be an employee of the Company for any reason other than "disability", death or "termination for cause", any Stock Option which is otherwise vested and exercisable by the Grantee shall terminate unless exercised within thirty (30) days of the date on which the Grantee ceases to be an employee of the Company (or within such other period of time as may be specified in the Grant Letter), but in any event no later than the date of expiration of the option exercise period. Any of the Grantee's Stock Options which are not otherwise vested and exercisable as of the date on which the Grantee ceases to be an employee of the Company shall terminate as of such date. -4- 5 (2) In the event that a Grantee ceases to be an employee of the Company on account of a "termination for cause" by the Company, any Stock Option held by the Grantee shall terminate as of the date the Grantee ceases to be an employee of the Company. (3) In the event that a Grantee ceases to be an employee of the Company because the Grantee is "disabled", any Stock Option which is otherwise vested and exercisable by the Grantee shall terminate unless exercised within one (1) year of the date on which the Grantee ceases to be an employee of the Company (or within such other period of time as may be specified in the Grant Letter), but in any event no later than the date of expiration of the option exercise period. Any of the Grantee's Stock Options which are not otherwise vested and exercisable as of the date on which the Grantee ceases to be an employee of the Company shall terminate as of such date. (4) In the event of the death of a Grantee while the Grantee is an employee of the Company or within not more than thirty (30) days of the date on which the Grantee ceases to be an employee of the Company on account of a termination of employment for any reason other than "termination for cause" or "disability" (or within such other period of time as may be specified in the Grant Letter), any Stock Option which is otherwise vested and exercisable by the Grantee shall terminate unless exercised within one (1) year of the date on which the Grantee ceases to be an employee of the Company (or within such other period of time as may be specified in the Grant Letter), but in any event no later than the date of expiration of the option exercise period. Any of the Grantee's Stock Options which are not otherwise vested and exercisable as of the date on which the Grantee ceases to be an employee of the Company shall terminate as of such date. (5) For purposes of this Section 5(f), the following terms shall be defined as follows: (A) "disability" shall mean a Grantee's becoming disabled within the meaning of section 22(e)(3) of the Code and (B) "termination for cause" shall mean, except to the extent otherwise provided in a Grantee's Grant Letter, a finding by the Committee, after full consideration of the facts presented on behalf of both the Company and the Grantee, that the Grantee has (i) breached his or her employment or service contract with the Company, or (ii) has engaged in disloyalty to the Company, fraud, embezzlement, theft, commission of a felony or proven dishonesty in the course of his or her employment by or service to the Company, or (iii) has disclosed trade secrets or other confidential information of the Company to persons not entitled to receive the same. In the event of a finding by the Committee of "termination for cause" with respect to a Grantee, in addition to the immediate termination of all Stock Options held by such Grantee, the Grantee shall automatically forfeit all option shares for any exercised portion of a Stock Option for which the Company has not yet delivered the share certificates upon refund by the Company of the option price paid by the Grantee for such option shares. (g) Satisfaction of Option Price. The Grantee shall pay the option price specified in the Grant Letter in (i) cash, (ii) with the approval of the Committee, by delivering shares of Company Stock owned by the Grantee (including Company Stock acquired in connection with -5- 6 the exercise of a Stock Option), subject to such restrictions as the Committee deems appropriate, and having a Fair Market Value on the date of exercise equal to the option price or (iii) through any combination of (i) and (ii). The Grantee shall pay the option price and the amount of withholding tax due, if any, at the time of exercise. Shares of Company Stock shall not be issued or transferred upon exercise of a Stock Option until the option price is fully paid and any required withholding is made. (h) Limits on Incentive Stock Options. Each Incentive Stock Option shall provide that, if the aggregate Fair Market Value on the date of the Grant of the Company Stock with respect to which Incentive Stock Options are exercisable for the first time by a Grantee during any calendar year (under the Plan or any other stock option plan of the Company or a parent or subsidiary corporation) exceeds $100,000, then such option, as to the excess, shall be treated as a Nonqualified Stock Option. (i) Option Grants to Non-Employee Directors. The Committee may grant such Nonqualified Stock Options as it deems appropriate to Non-Employee Directors. Unless the Committee determines otherwise, Nonqualified Stock Options shall be granted annually to Non-Employee Directors with the following terms: (i) On the date of each annual meeting of the shareholders of the Company, beginning with the 1998 annual meeting, each Non-Employee Director who is elected to the Board or who continues his or her term on the Board on that date shall receive a Nonqualified Stock Option to purchase 1,000 shares of Company Stock. The option price for the Stock Options shall be equal to the Fair Market Value of a share of Company Stock on the date of the annual shareholders' meeting. The Stock Options shall be fully vested on the date of grant and shall have a term of ten years. (ii) If a Grantee ceases to be a member of the Board for any reason other than "disability" (as defined in subsection (f) above), death or becoming an employee of the Company, the Grantee's Stock Options shall terminate unless exercised within ninety (90) days of the date on which the Grantee ceases to be a member of the Board (or within such other period of time as may be specified in the Grant Letter), but in any event no later than the date of expiration of the option exercise period. If the Grantee ceases to be a member of the Board because he or she is "disabled," the Grantee's Stock Options shall terminate unless exercised within one year of the date on which the Grantee ceases to be a member of the Board (or within such other period of time as may be specified in the Grant Letter), but in any event no later than the expiration of the option exercise period. In the event of the death of a Grantee while the Grantee is a member of the Board or within not more than ninety (90) days of the date on which the Grantee ceases to be a member of the Board for any reason other than "disability" (or within such other period of time as may be specified in the Grant Letter), the Grantee's Stock Options shall terminate unless exercised within one year of the date on which the Grantee ceases to be a member of the Board (or within such other period of time as may be specified in the Grant Letter), but in any event no later than the date of expiration of the option exercise period. If the Grantee ceases to be a member of the Board but becomes or remains an Employee of the -6- 7 Company, the Grantee's Stock Options shall remain in effect until the Grantee is no longer an Employee or member of the Board (but not later than the expiration date of the option exercise period), at which time the foregoing provisions shall apply as if the Grantee had then ceased to be a member of the Board. (iii) In other respects, the provisions of the foregoing paragraphs of this Section 5 applicable to Nonqualified Stock Options shall apply to Stock Options granted to Non-Employee Directors. 6. Restricted Stock Grants The Committee may issue or transfer shares of Company Stock to an Employee under a Grant (a "Restricted Stock Grant"), upon such terms as the Committee deems appropriate. The following provisions are applicable to Restricted Stock Grants: (a) General Requirements. Shares of Company Stock issued or transferred pursuant to Restricted Stock Grants may be issued or transferred for consideration or for no consideration, at the sole discretion of the Committee. The Committee shall establish conditions under which restrictions on the transfer of shares of Company Stock shall lapse over a period of time or according to such other criteria as the Committee deems appropriate. The period of years during which the Restricted Stock Grant will remain subject to restrictions will be designated in the Grant Letter as the "Restriction Period." (b) Number of Shares. The Committee shall issue or transfer to each Grantee of a Restricted Stock Grant such number of shares of restricted Company Stock as the Committee deems appropriate. (c) Requirement of Employment. If a Grantee's employment terminates during the period designated in the Grant Letter as the Restriction Period, or if other specified conditions are not met, the Restricted Stock Grant shall terminate as to all shares covered by the Grant as to which the restrictions on transfer have not lapsed, and those shares of Company Stock must be immediately returned to the Company. The Committee may, however, provide for complete or partial exceptions to this requirement as it deems equitable. (d) Restrictions on Transfer and Legend on Share Certificate. During the Restriction Period, a Grantee may not sell, assign, transfer, pledge or otherwise dispose of the shares of Company Stock to which such Restriction Period applies except to a Successor Grantee under Section 8(a). Each certificate for shares issued or transferred under a Restricted Stock Grant shall contain a legend giving appropriate notice of the restrictions in the Grant. The Grantee shall be entitled to have the legend removed from the share certificate covering any of the shares subject to restrictions when all restrictions on such shares have lapsed. The Committee, in its sole discretion, may determine that the Company will not issue certificates for shares of Restricted Stock until all restrictions on such shares have lapsed, or that the Company will retain possession of certificates for shares of Restricted Stock until all restrictions on such shares have -7- 8 lapsed. (e) Right to Vote and to Receive Dividends. During the Restriction Period, unless the Committee determines otherwise, the Grantee shall have the right to vote shares subject to the Restricted Stock Grant and to receive any dividends or other distributions paid on such shares, subject to any restrictions deemed appropriate by the Committee. (f) Lapse of Restrictions. All restrictions imposed under a Restricted Stock Grant shall lapse upon the expiration of the applicable Restriction Period and the satisfaction of any conditions imposed by the Committee. The Committee may determine, as to any or all Restricted Stock Grants, that all the restrictions shall lapse without regard to any Restriction Period. All outstanding Restricted Stock Grants shall vest upon a Change of Control, unless the Committee determines otherwise pursuant to Section 10. 7. Stock Appreciation Rights (a) The Committee may grant stock appreciation rights ("SARs") to any Grantee in tandem with any Stock Option, for all or a portion of the applicable Stock Option, either at the time the Stock Option is granted or at any time thereafter while the Stock Option remains outstanding; provided, however, that in the case of an Incentive Stock Option, such rights may be granted only at the time of the Grant of such Incentive Stock Option. Unless the Committee determines otherwise, the base price of each SAR shall be equal to the greater of (i) the exercise price of the related Stock Option or (ii) the Fair Market Value of a share of Company Stock as of the date of Grant of such SAR. (b) The number of SARs granted to a Grantee which shall be exercisable during any given period of time shall not exceed the number of shares of Company Stock which the Grantee may purchase upon the exercise of the related Stock Option during such period of time. Upon the exercise of a Stock Option, the SARs relating to the Company Stock covered by such Stock Option shall terminate. Upon the exercise of SARs, the related Stock Option shall terminate to the extent of an equal number of shares of Company Stock. (c) Upon a Grantee's exercise of some or all of the Grantee's SARs, the Grantee shall receive in settlement of such SARs an amount equal to the value of the stock appreciation for the number of SARs exercised, payable in cash, Company Stock or a combination thereof. The stock appreciation for an SAR is the difference between the base price of the SAR as described in Section 7(a) and the Fair Market Value of the underlying Company Stock on the date of exercise of such SAR. (d) At the time of such exercise, the Grantee shall have the right to elect the portion of the amount to be received that shall consist of cash and the portion that shall consist of Company Stock, which, for purposes of calculating the number of shares of Company Stock to be received, shall be valued at their Fair Market Value on the date of exercise of such SARs. The Committee shall have the right to disapprove a Grantee's election to receive cash in full or partial -8- 9 settlement of the SARs exercised and to require that shares of Company Stock be delivered in lieu of cash. If shares of Company Stock are to be received upon exercise of an SAR, cash shall be delivered in lieu of any fractional share. A SAR shall be exercisable only during the period when the Stock Option to which it is related is also exercisable. 8. Transferability of Grants (a) Only the Grantee or a Successor Grantee (as defined below) may exercise rights under a Grant. Such persons may not transfer those rights, except that a Grantee may transfer rights under a Grant by will or by the laws of descent and distribution or, with respect to Grants other than Incentive Stock Options, if permitted under Rule 16b-3 of the Exchange Act and if permitted in any specific case by the Committee in its sole discretion, pursuant to a domestic relations order as defined under the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the regulations thereunder. When a Grantee dies, the representative or other person entitled to succeed to the rights of the Grantee ("Successor Grantee") may exercise such rights. A Successor Grantee must furnish proof satisfactory to the Company of his or her right to receive the Grant under the Grantee's will or under the applicable laws of descent and distribution. (b) Notwithstanding the foregoing, the Committee may provide, in a Grant Letter, that a Grantee may transfer Nonqualified Stock Options to family members or other persons or entities according to such terms as the Committee may determine. 9. Change of Control of the Company As used herein, a "Change of Control" shall be deemed to have occurred if: (a) A liquidation or dissolution of the Company or the sale (excluding transfers to subsidiaries) of all or substantially all of the Company's assets occurs; (b) As a result of a tender offer, stock purchase, other stock acquisition, merger, consolidation, recapitalization, reverse split or sale or transfer of assets, any person or group (as such terms are used in and under Section 13(d) of the Exchange Act) becomes the beneficial owner (as defined in Rule 13-d under the Exchange Act), directly or indirectly, of securities of the Company representing more than 20% of the common stock of the Company or the combined voting power of the Company's then outstanding securities; or (c) During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Company's shareholders, of at least two-thirds of the directors who were not directors at the beginning of such period was approved by a vote of at least two-thirds of the directors then still in office who were either directors at the beginning of the period or who, in connection with their election or nomination, received the -9- 10 foregoing two-thirds approval. 10. Consequences of a Change of Control (a) Upon a Change of Control, unless the Committee determines otherwise, (i) the Company shall provide to each Grantee who holds an outstanding Grant written notice of such Change of Control, (ii) all outstanding Stock Options and SARs shall automatically accelerate and become fully exercisable, and (iii) the restrictions and conditions on all outstanding Restricted Stock shall immediately lapse. Notwithstanding the foregoing, if a Change of Control described in Section 9(a) will occur, or if a Change of Control described in Section 9(b) will occur and the Company will not be the surviving corporation (or will survive only as a subsidiary of another corporation), then the provisions of this Section 10(a) shall be mandatory, subject to the provisions of Section 10(d) below. (b) In the event of a Change of Control where the Company is not the surviving corporation (or survives only as a subsidiary of another corporation), unless the Committee determines otherwise, all outstanding Stock Options and SARs that are not exercised shall be assumed by, or replaced with comparable options or rights by, the surviving corporation. (c) In addition, in the event of a Change of Control, the Committee may take one or both of the following actions: the Committee may (i) require that Grantees surrender their outstanding Stock Options and SARs in exchange for a payment by the Company, in cash or Company Stock as determined by the Committee, in an amount equal to the amount by which the then Fair Market Value of the shares of Company Stock subject to the Grantee's outstanding Stock Options and SARs exceeds the purchase price of the Options or the base price of the SARs, as applicable, or (ii) after giving Grantees an opportunity to exercise their outstanding Stock Options and SARs, terminate any or all outstanding Stock Options and SARs at such time as the Committee deems appropriate. Such surrender or termination shall take place as of the date of the Change of Control or such other date as the Committee may specify. (d) Notwithstanding anything in the Plan to the contrary, in the event of a Change of Control, the Committee shall not have the right to take any actions described in the Plan (including without limitation actions described in Section 10(c) above) that would make the Change of Control ineligible for pooling of interest accounting treatment or that would make the Change of Control ineligible for desired tax treatment if, in the absence of such right, the Change of Control would qualify for such treatment and the Company intends to use such treatment with respect to the Change of Control. (e) The Committee may make determinations under this Section 10 prior to the Change of Control or, if the Committee making such determinations following a Change of Control is comprised of the same members as served on the Committee immediately prior to such Change of Control, within twenty (20) days following such Change of Control. -10- 11 11. Amendment and Termination of the Plan (a) Amendment. The Board may amend or terminate the Plan at any time; provided, however, that any amendment that increases the aggregate number (or individual limit for any single Grantee) of shares of Company Stock that may be issued or transferred under the Plan (other than by operation of Section 3(b)), or modifies the requirements as to eligibility for participation in the Plan, shall be subject to approval by the shareholders of the Company and provided, further, that the Board shall not amend the Plan without shareholder approval if such approval is required by Section 162(m) of the Code. (b) Termination of Plan. The Plan shall terminate on May 9, 2006 unless terminated earlier by the Board or unless extended by the Board with the approval of the shareholders. (c) Termination and Amendment of Outstanding Grants. A termination or amendment of the Plan that occurs after a Grant is made shall not materially impair the rights of a Grantee under such Grant unless the Grantee consents or unless the Committee acts under Section 19(b). The termination of the Plan shall not impair the power and authority of the Committee with respect to any outstanding Grant. Whether or not the Plan has terminated, an outstanding Grant may be terminated or amended under Section 19(b) or may be amended by agreement of the Company and the Grantee consistent with the Plan. (d) Governing Document. The Plan shall be the controlling document. No other statements, representations, explanatory materials or examples, oral or written, may amend the Plan in any manner. The Plan shall be binding upon and enforceable against the Company and its successors and assigns. 12. Funding of the Plan The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Grants under the Plan. In no event shall interest be paid or accrued on any Grant, including unpaid installments of Grants. 13. Rights of Participants Nothing in the Plan shall entitle any Employee or other person to any claim or right to be granted a Grant under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any individual any rights to be retained by or in the employ of the Company or any other employment rights. 14. No Fractional Shares No fractional shares of Company Stock shall be issued or delivered pursuant to the Plan or any Grant. The Committee shall determine whether cash, other awards or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated. -11- 12 15. Withholding of Taxes (a) The Company shall have the right to deduct from all Grants paid in cash, or from other wages paid to a Grantee, any federal, state or local taxes required by law to be withheld with respect to such cash awards and, in the case of Grants paid in Company Stock, the Grantee or other person receiving such shares shall be required to pay to the Company the amount of any such taxes which the Company is required to withhold with respect to such Grants or the Company shall have the right to deduct from other wages paid to the Grantee by the Company the amount of any withholding due with respect to such Grants. (b) If the Committee so permits, a Grantee may elect to satisfy the Company's income tax withholding obligation with respect to a Grant paid in Company Stock by having shares withheld up to an amount that does not exceed the Grantee's maximum marginal tax rate for federal (including FICA), state and local tax liabilities. The election must be in a form and manner prescribed by the Committee and shall be subject to the prior approval of the Committee. 16. Requirements for Issuance or Transfer of Shares No Company Stock shall be issued or transferred in connection with any Grant hereunder unless and until all legal requirements applicable to the issuance or transfer of such Company Stock have been complied with to the satisfaction of the Committee. The Committee shall have the right to condition any Grant made to any Grantee hereunder on such Grantee's undertaking in writing to comply with such restrictions on his or her subsequent disposition of such shares of Company Stock as the Committee shall deem necessary or advisable as a result of any applicable law, regulation or official interpretation thereof and certificates representing such shares may be legended to reflect any such restrictions. Certificates representing shares of Company Stock issued or transferred under the Plan will be subject to such stop-transfer orders and other restrictions as may be applicable under such laws, regulations and other obligations of the Company, including any requirement that a legend or legends be placed thereon. 17. Headings Section headings are for reference only. In the event of a conflict between a title and the content of a Section, the content of the Section shall control. References herein to a Section or a Subsection are references to Sections or Subsections of the Plan unless otherwise noted. 18. Effective Date of the Plan The Plan became effective on May 10, 1996 when it was approved by the Company's shareholders. 19. Miscellaneous (a) Substitute Grants. The Committee may make a Grant to an employee of another -12- 13 corporation who becomes an Employee by reason of a corporate merger, consolidation, acquisition of stock or property, reorganization or liquidation involving the Company or any of its subsidiaries in substitution for a stock option or restricted stock grant made by such corporation ("Substituted Stock Incentives"). The terms and conditions of the substitute grant may vary from the terms and conditions required by the Plan and from those of the Substituted Stock Incentives. The Committee shall prescribe the provisions of the substitute grants. (b) Compliance with Law. The Plan, the exercise of Stock Options and the obligation of the Company to issue or transfer shares of Company Stock under Grants shall be subject to all applicable laws and to approvals by any governmental or regulatory agency as may be required. With respect to persons subject to Section 16 of the Exchange Act, it is the intent of the Company that the Plan and all transactions under the Plan comply with all applicable provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee may revoke any Grant if it is contrary to law or modify a Grant to bring it into compliance with any valid and mandatory government regulation. The Committee may also adopt rules regarding the withholding of taxes on payments to Grantees. The Committee may, in its sole discretion, agree to limit its authority under this Section 19(b). (c) Ownership of Stock. A Grantee or Successor Grantee shall have no rights as a shareholder with respect to any shares of Company Stock covered by a Grant until the shares are issued or transferred to the Grantee or Successor Grantee on the stock transfer records of the Company. (d) Governing Law. The validity, construction, interpretation and effect of the Plan and Grant Letters issued under the Plan shall exclusively be governed by and determined in accordance with the law of the State of New Jersey. -13- EX-21.1 5 SUBSIDIARIES 1 EXHIBIT 21.1 K-Tron International, Inc. List of Subsidiaries*
State or Jurisdiction Name of Subsidiary of Incorporation - ------------------ ---------------- K-Tron Investment Co......................................... Delaware Hurricane Pneumatic Conveying Inc.................... Canada K-Tron America, Inc.................................. Delaware K-Tron (Switzerland) Ltd............................. Switzerland K-Tron Asia Pacific Holding Pte Ltd......... Singapore K-Tron Asia Pacific Pte........... Singapore K-Tron Deutschland GmbH..................... Germany K-Tron France S.a.r.l....................... France K-Tron Great Britain Ltd.................... England K-Tron Technologies, Inc..................................... Delaware
- ------------- * Pursuant to applicable Securities and Exchange Commission regulations, the Registrant has omitted those subsidiaries which when considered in the aggregate as a single subsidiary, would not have been considered a significant subsidiary as of the end of fiscal year 1998. EX-23.1 6 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To K-Tron International, Inc.: As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 File Nos. 333-52523, 333-26531, 33-7921, 33-8043, 33-39039, 33-39040 and 2-72898. /s/Arthur Andersen LLP Philadelphia, Pa March 22, 1999 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JAN-02-1999 JAN-02-1999 3,220 0 20,320 1,286 10,743 34,993 43,281 27,066 56,617 23,547 9,638 0 0 43 22,231 22,274 89,142 89,142 48,946 48,946 30,764 0 714 8,718 2,125 6,593 0 0 0 6,593 2.10 2.03
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