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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ____________________
Commission file number 0-9576
K-TRON INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
New Jersey 22-1759452
(State or Other Jurisdiction of Incorporation (I.R.S. Employer Identification #)
or Organization)
Routes 55 & 553, P.O. Box 888, Pitman, New Jersey 08071-0888
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (856) 589-0500
Not Applicable
(Former Name, Former Address and Formal Fiscal Year, if Changed Since Last
Report)
Indicate by check X whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes[X] No [ ]
The Registrant had 2,432,092 shares of Common Stock outstanding as of September
28, 2002.
K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets 1
September 28, 2002 and December 29, 2001
Consolidated Statements of Income 2
& Retained Earnings for the Three and Nine Months
Ended September 28, 2002 and September 29, 2001
Consolidated Statements of Cash Flows 3
for the Nine Months Ended September 28, 2002
and September 29, 2001
Notes to Consolidated Financial Statements 4 - 8
Item 2. Management's Discussion and Analysis 9 - 15
of Financial Condition and Results of Operations.
Item 4. Controls and Procedures. 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 16
SIGNATURES 17
CERTIFICATIONS 18-19
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
K-TRON INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands except Share Data)
(Unaudited)
September 28, December 29,
2002 2001
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,240 $ 2,214
Accounts receivable, net of allowance for
doubtful accounts of $716 and $687 15,027 14,723
Inventories 9,441 10,212
Deferred income taxes 326 326
Prepaid expenses and other current assets 1,875 1,293
-------- --------
Total current assets 29,909 28,768
PROPERTY, PLANT AND EQUIPMENT, net 14,367 13,848
PATENTS, net 781 799
GOODWILL, net 2,053 2,053
NOTES RECEIVABLE AND OTHER ASSETS 2,500 2,176
-------- --------
Total assets $ 49,610 $ 47,644
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,660 $ 2,186
Accounts payable 4,724 4,218
Accrued expenses and other current liabilities 6,665 4,547
Accrued commissions 1,024 1,220
Customer advances 847 1,032
-------- --------
Total current liabilities 15,920 13,203
LONG-TERM DEBT, net of current portion 7,394 12,499
DEFERRED INCOME TAXES 381 381
COMMITMENTS AND CONTINGENCIES
SERIES B JUNIOR PARTICIPATING PREFERRED SHARES,
$.01 par value - authorized 50,000 shares; none issued -- --
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value - authorized 950,000 shares; none issued -- --
Common stock, $.01 par value - authorized 50,000,000 shares;
issued 4,433,342 shares and 4,432,742 shares 44 44
Paid-in capital 16,701 16,697
Retained earnings 37,885 35,484
Cumulative translation adjustments (1,218) (3,167)
-------- --------
53,412 49,058
-------- --------
Treasury stock, 2,001,250 and 2,001,250 shares-at cost (27,497) (27,497)
-------- --------
Total shareholders' equity 25,915 21,561
-------- --------
Total liabilities and shareholders' equity $ 49,610 $ 47,644
======== ========
See Notes to Consolidated Financial Statements
-1-
K-TRON INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME & RETAINED EARNINGS
(Dollars in Thousands except Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
------------- ------------- ------------- -------------
REVENUES $ 16,905 $ 16,081 $ 50,560 $ 56,957
COST OF REVENUES 9,969 9,716 29,294 34,009
-------- -------- -------- --------
Gross Profit 6,936 6,365 21,266 22,948
OPERATING EXPENSES:
Selling, general & administrative 5,057 5,940 15,610 18,345
Research and development 603 622 1,895 2,093
Loss on disposition of business -- 620 -- 620
-------- -------- -------- --------
5,660 7,182 17,505 21,058
-------- -------- -------- --------
Operating Income (Loss) 1,276 (817) 3,761 1,890
INTEREST EXPENSE 104 256 406 842
-------- -------- -------- --------
Income (loss) before income taxes 1,172 (1,073) 3,355 1,048
INCOME TAX PROVISION (Benefit) 336 (305) 954 231
-------- -------- -------- --------
Net Income (Loss) 836 (768) 2,401 817
RETAINED EARNINGS
Beginning of period 37,049 36,021 35,484 34,436
-------- -------- -------- --------
End of period $ 37,885 $ 35,253 $ 37,885 $ 35,253
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE
Basic $ 0.34 $ (0.32) $ 0.99 $ 0.34
======== ======== ======== ========
Diluted $ 0.34 $ (0.32) $ 0.97 $ 0.33
======== ======== ======== ========
See Notes to Consolidated Financial Statements
-2-
K-TRON INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 28, September 29,
------------- -------------
2002 2001
------------- -------------
OPERATING ACTIVITIES:
Net income $2,401 $817
Adjustment to reconcile net income to net cash provided by operating activities:
Loss of disposition of business -- 620
Depreciation and amortization 2,109 2,413
Changes in assets and liabilities:
Accounts receivable, net 845 2,910
Inventories 1,298 281
Prepaid expenses and other current assets (483) 112
Other assets (91) 185
Accounts payable 163 (4,225)
Accrued expenses and other current liabilities 1,324 1,161
------ ------
Net cash provided by operating activities 7,566 4,274
------ ------
INVESTING ACTIVITIES:
Proceeds from disposition of business -- 594
Capital expenditures (1,594) (1,868)
Investment in patents (51) (88)
------ ------
Net cash used in investing activities (1,645) (1,362)
------ ------
FINANCING ACTIVITIES:
Net (repayments) borrowing under notes payable to banks (1,677) 154
Proceeds from issuance of long-term debt 752 438
Principal payments on long-term debt (4,263) (1,804)
Purchase of treasury stock -- (438)
Proceeds from issuance of common stock 4 254
------ ------
Net cash used in financing activities (5,184) (1,396)
------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 289 (31)
------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,026 1,485
------ ------
CASH AND CASH EQUIVALENTS
Beginning of period 2,214 553
------ ------
End of period $3,240 $2,038
------ ------
See Notes to Consolidated Financial Statements
-3-
K-TRON INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 28, 2002
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and do not
include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete
financial statements. The consolidated financial statements include the
accounts of K-Tron International, Inc. and its subsidiaries ("K-Tron"
or the "Company"). All intercompany transactions have been eliminated
in consolidation. In the opinion of management, all adjustments
(consisting of a normal recurring nature) considered necessary for a
fair presentation of results for interim periods have been made.
The unaudited financial statements herein should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended
December 29, 2001 which was previously filed with the Securities and
Exchange Commission.
2. Supplemental Disclosures of Cash Flow Information
The Company considers all highly liquid short-term investments
purchased with an original maturity of three months or less to be cash
equivalents.
Cash paid in the first nine months of 2002 and 2001 for interest was
$434 thousand and $813 thousand, respectively, and for income taxes in
the same periods the Company received a net refund of $116 thousand and
made a cash payment of $256 thousand, respectively.
3. Inventories
Inventories consist of the following:
September 28, December 29,
2002 2001
------ -------
(in thousands)
Components $8,237 $ 8,416
Work-in-process 1,080 1,692
Finished goods 124 104
------ -------
$9,441 $10,212
====== =======
-4-
4. Earnings Per Share
The Company's Basic and Diluted Earnings Per Share are calculated as
follows:
For the Three Months Ended September 28, 2002
---------------------------------------------
(Dollars and Shares in Thousands
except Per Share Data) Net Income Available
To Common Earnings
Shareholders Shares Per Share
------------ ------ ---------
Basic $836 2,432 $0.34
Common Share Equivalent
of Outstanding Options -- 36 (0.00)
---- ----- -----
Diluted $836 2,468 $0.34
==== ===== =====
For the Three Months Ended September 29, 2001
---------------------------------------------
(Dollars and Shares in Thousands
except Per Share Data) Net Income (Loss) Available
To Common Earnings (Loss)
Shareholders Shares Per Share
------------ ------ ---------
Basic $(768) 2,436 $(0.32)
Common Share Equivalent
of Outstanding Options -- --(1) (0.00)
----- ----- ------
Diluted $(768) 2,436 $(0.32)
===== ===== ======
(1)Common share equivalents were not considered for the three months
ended September 29, 2001 as they are antidilutive.
For the Nine Months Ended September 28, 2002
--------------------------------------------
(Dollars and Shares in Thousands
except Per Share Data) Net Income Available
To Common Earnings
Shareholders Shares Per Share
------------ ------ ---------
Basic $2,401 2,432 $0.99
Common Share Equivalent
of Outstanding Options -- 31 (0.02)
------ ----- -----
Diluted $2,401 2,463 $0.97
====== ===== =====
-5-
For the Nine Months Ended September 29, 2001
--------------------------------------------
(Dollars and Shares in Thousands
except Per Share Data) Net Income Available
To Common Earnings
Shareholders Shares Per Share
------------ ------ ---------
Basic $817 2,436 $0.34
Common Share Equivalent
of Outstanding Options -- 41 (0.01)
---- ----- -----
Diluted $817 2,477 $0.33
==== ===== =====
Diluted earnings per common share are based on the weighted average
number of common and common equivalent shares outstanding during a
given time period. Such average shares include the weighted average
number of common shares outstanding plus the shares issuable upon
exercise of stock options after the assumed repurchase of common shares
with the related proceeds.
5. Comprehensive Income
Comprehensive income is the total of net income and the current year
change in translation adjustments, which is the Company's only
non-owner change in equity. For the three and nine month periods ending
September 28, 2002 and September 29, 2001, the following table sets
forth the Company's comprehensive income:
(Dollars in Thousands) Three Months Ended Nine Months Ended
----------------------- -----------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2002 2001 2002 2001
---- ----- ------ ----
Net Income (Loss) $836 $(768) $2,401 $817
Translation Adjustments (143) 1,458 1,949 43
---- ----- ------ ----
Comprehensive Income $693 $ 690 $4,350 $860
==== ===== ====== ====
-6-
6. Management Segment Information
The Company is engaged in one principal business segment -- material
handling equipment and systems. The Company operates in two primary
geographic locations, North and South America (the "Americas") and
Europe, the Middle East, Africa and Asia ("EMEA/Asia"). For the three
and nine months ended September 28, 2002 and September 29, 2001, the
following tables set forth the Company's segment information:
(Dollars in Thousands) EMEA/ Elimi- Consoli-
Americas Asia nations dated
-------- ---- ------- -----
THREE MONTHS ENDED
September 28, 2002
Revenues
Sales to unaffiliated customers $ 6,591 $10,314 $ -- $16,905
Sales to affiliates 837 585 (1,422) --
------- ------- --------- -------
Total sales $ 7,428 $10,899 $ (1,422) $16,905
======= ======= ========= =======
Operating income $ 118 $ 1,118 $ 40 $ 1,276
======= ======= =========
Interest expense (104)
-------
Income before income taxes $ 1,172
=======
(Dollars in Thousands) EMEA/ Elimi- Consoli-
Americas Asia nations dated
-------- ---- ------- -----
THREE MONTHS ENDED
September 29, 2001
Revenues
Sales to unaffiliated customers $ 6,606 $9,475 $ -- $16,081
Sales to affiliates 875 294 (1,169) --
-------- ------ --------- -------
Total sales $7,481 $9,769 $(1,169) $16,081
======== ====== ========= =======
Operating income (loss) $ 85 $ (902) $ -- $ (817)
======== ====== =========
Interest expense (256)
-------
Income (loss) before income taxes $(1,073)
=======
-7-
(Dollars in Thousands) EMEA/ Elimi- Consoli-
Americas Asia nations dated
-------- ---- ------- -----
NINE MONTHS ENDED
September 28, 2002
Revenues
Sales to unaffiliated customers $21,131 $29,429 $ -- $50,560
Sales to affiliates 2,749 1,383 (4,132) --
------- ------- ------- -------
Total sales $23,880 $30,812 $(4,132) $50,560
======= ======= ======= =======
Operating income $ 1,393 $ 2,328 $ 40 $ 3,761
======= ======= =======
Interest expense (406)
-------
Income before income taxes $ 3,355
=======
(Dollars in Thousands) EMEA/ Elimi- Consoli-
Americas Asia nations dated
-------- ---- ------- -----
NINE MONTHS ENDED
September 29, 2001
Revenues
Sales to unaffiliated customers $23,098 $33,859 $ -- $56,957
Sales to affiliates 3,423 1,382 (4,805) --
------- ------- ------- -------
Total sales $26,521 $35,241 $(4,805) $56,957
======= ======= ======= =======
Operating income $ 1,304 $ 611 $ (25) $ 1,890
======= ======= =======
Interest expense (842)
-------
Income before income taxes $ 1,048
=======
7. Goodwill
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets" on December 30, 2001. As
required by SFAS No. 142, the Company completed the transitional
impairment test on goodwill, which resulted in no impairment charge.
The Company has reassessed the balance sheet classification, useful lives
and residual values of all acquired intangible assets. No adjustments or
reclassifications were required by this reassessment, and only goodwill
was determined to have an indefinite life. Goodwill amortization in fiscal
2001 was $345 thousand on an after-tax basis, or $0.14 per share. Goodwill
amortization for the three and nine months ended September 29, 2001 was
$67 thousand and $322 thousand, respectively, on an after-tax basis, or
$0.02 per share and $0.13 per share, respectively. Based on these amounts,
net income and diluted earnings (loss) per share for the three and nine
months ended September 29, 2001, adjusted to eliminate goodwill
amortization, was $(701) thousand and $(0.30) per share and $1.139 million
and $0.46 per share, respectively.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
For the third quarter and first nine months of 2002, K-Tron reported net
income of $836 thousand and $2.401 million, respectively, compared to a net loss
of $768 thousand and net income of $817 thousand for the same periods in 2001.
On July 31, 2001, we sold our Hasler heavy feeder business ("Hasler"), recording
a pretax loss of $620 thousand, and on November 30, 2001 we acquired Pneumatic
Conveying Systems Limited ("PCS") in the United Kingdom, which transactions are
more fully discussed in our Annual Report on Form 10-K for the year ended
December 29, 2001.
We are an international company and derived approximately 58% and 59% of
our revenues for the first nine months of 2002 and 2001, respectively, from
products manufactured in, and services performed from, our facilities located
outside the United States, primarily in Europe. Since we operate globally, we
are sensitive to changes in foreign currency exchange rates ("foreign exchange
rates"), which can affect both the translation of financial statement items of
foreign subsidiaries into U.S. dollars as well as transactions where the
revenues and related expenses may initially be accounted for in different
currencies, such as sales made from our Swiss manufacturing facility in
currencies other than the Swiss franc.
The following table sets forth our results of operations expressed as a
percentage of total revenues for the periods indicated:
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2002 2001 2002 2001
---- ---- ---- ----
Total revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 59.0 60.4 57.9 59.7
----- ----- ----- -----
Gross profit 41.0 39.6 42.1 40.3
Selling, general & administrative 29.9 36.9 30.9 32.2
Research & development 3.6 3.9 3.8 3.7
Loss on disposition of business -- 3.9 -- 1.1
----- ----- ----- -----
Operating income (loss) 7.5 (5.1) 7.4 3.3
Interest 0.6 1.6 0.8 1.5
----- ----- ----- -----
Income (loss) before income taxes 6.9% (6.7%) 6.6% 1.8%
===== ===== ===== =====
-9-
The following table summarizes our order backlog as of the dates
indicated, all adjusted to September 28, 2002 foreign exchange rates:
(Dollars in Thousands) Sept. 28, 2002 December 29, 2001 Sept. 29, 2001
-------------- ----------------- --------------
Order backlog $10,506 $12,935 $11,425
As previously noted, more than half of our revenues are normally derived
from activities in foreign jurisdictions. Consequently, our results can be
significantly affected by changes in foreign exchange rates, particularly in
U.S. dollar exchange rates with respect to the Swiss franc, euro and British
pound sterling and, to a lesser degree, the Singapore dollar and other
currencies. When the U.S. dollar strengthens against these currencies, the U.S.
dollar value of non-U.S. dollar-based sales decreases. When the U.S. dollar
weakens against these currencies, the U.S. dollar value of non-U.S. dollar-based
sales increases. Correspondingly, the U.S. dollar value of non-U.S. dollar-based
costs increases when the U.S. dollar weakens and decreases when the U.S. dollar
strengthens. Overall, since we typically receive a majority of our revenues in
currencies other than the U.S. dollar, we generally benefit from a weaker dollar
and are adversely affected by a stronger dollar relative to major currencies
worldwide, especially those identified above. In particular, a general weakening
of the U.S. dollar against other currencies would positively affect our total
revenues, gross profit and operating income as expressed in U.S. dollars
(provided that the gross profit and operating income numbers from foreign
operations are not losses, since in the case of a loss, the effect would be to
increase the loss), whereas a general strengthening of the U.S. dollar against
such currencies would have the opposite effect.
In addition, our revenues and income with respect to particular
transactions may be affected by changes in foreign exchange rates where sales
are made in currencies other than the functional currency of the facility
manufacturing the product subject to the sale, including in particular the U.S.
dollar/Swiss franc (for inter-company transactions) and the Swiss franc/euro and
Swiss franc/British pound sterling (for sales from the Company's Swiss
manufacturing facility) exchange rates.
-10-
For the third quarter and first nine months of 2002 and 2001, the changes
in certain key exchange rates were as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2002 2001 2002 2001
---- ---- ---- ----
Average U.S. dollar equivalent of
one Swiss franc 0.672 0.594 0.633 0.589
% change vs. prior year +13.1% +7.4%
Average U.S. dollar equivalent of
one euro 0.983 0.894 0.928 0.897
% change vs. prior year +10.0% +3.5%
Average U.S. dollar equivalent of
one British pound sterling 1.549 1.440 1.480 1.440
% change vs. prior year +7.6% +2.8%
Average Swiss franc equivalent of
one euro 1.463 1.505 1.466 1.523
% change vs. prior year -2.8% -3.7%
Average Swiss franc equivalent of
one British pound sterling 2.305 2.424 2.338 2.445
% change versus prior year -4.9% -4.4%
Total revenues increased by $0.8 million or 5.1% in the third quarter of
2002 and decreased by $6.4 million or 11.2% in the first nine months of 2002
compared to the same periods in 2001. Without Hasler, revenues increased by $1.7
million or 11.3% in the third quarter of 2002 and decreased by $1.9 million or
3.7% in the first nine months of 2002 compared to the same periods in 2001. The
decrease in revenues without Hasler for the nine months was driven by declines
in EMEA/Asia and the Americas, due to a weaker global economy with reduced
capital spending in the process industries we serve, partially offset by three
full quarters of revenues from the November 30, 2001 acquisition of PCS and the
positive effect of a weaker U.S. dollar when translating the revenues of foreign
operations. The increase in revenues without Hasler for the third quarter was
due to revenues from PCS and the positive effect of a weaker U.S. dollar,
partially offset by revenue declines in EMEA/Asia. If the average foreign
exchange rates for the third quarter and first nine months of 2001 were applied
to the same periods of 2002, total revenues for 2002 (excluding Hasler) would
have increased by $0.6 million or 3.6% for the third quarter and decreased by
$3.8 million or 7.3% for the first nine months versus the same periods in 2001.
-11-
Gross profit as percentage of revenues increased to 41.0% for the third
quarter and 42.1% for the first nine months of 2002 compared to 39.6% and 40.3%
for the same periods in 2001. The improvements in gross profit were primarily
due to the change in sales mix as a result of the July 31, 2001 sale of the
Hasler business and a reduction in fixed costs, including the elimination of
goodwill expense as the Company adopted SFAS No. 142 on December 30, 2001.
Goodwill amortization for the three months and nine months ended September 29,
2001 was $67 thousand and $322 thousand, respectively.
Selling, general and administrative (SG&A) expense decreased by $0.9
million or 14.9% ($0.6 million or 11.1% without Hasler) for the third quarter
and by $2.7 million or 14.9% ($1.1 million or 6.8% without Hasler) for the first
nine months of 2002 compared to the same periods in 2001. These decreases in
SG&A were primarily due to lower commissions on the reduced revenues for the
nine months, fewer employees, the elimination of Hasler SG&A after the sale of
Hasler on July 31, 2001 and the benefits realized from one-time costs associated
with cost reductions implemented in the third quarter of 2001, offset in part by
higher foreign exchange translation rates (weaker U.S. dollar). SG&A expense as
a percent of total revenues was 29.9% for the third quarter and 30.9% for the
first nine months of 2002 compared to 36.9% and 32.2% for the same periods in
2001.
Research and development (R&D) expenditures were essentially constant for
the third quarter of 2002 and decreased by $198 thousand or 9.5% for the first
nine months of 2002, compared to the same periods in 2001. R&D expenses
decreased for the first nine months due to lower staff costs, partially offset
by an increase in tooling costs and by higher foreign exchange translation rates
(weaker U.S. dollar). R&D expense as a percent of total revenues was 3.6% for
the third quarter and 3.8% for the first nine months of 2002 compared to 3.9%
and 3.7% for the same periods in 2001.
Interest expense decreased by $152 thousand or 59.4% for the third quarter
and by $436 thousand or 51.8% for the first nine months of 2002 compared to the
same periods in 2001, primarily due to lower interest rates and debt reductions
of $2.6 million in Switzerland ($3.2 million at constant foreign exchange rates)
and $2.0 million in the U.S.
Income before income taxes was $1.2 million for the third quarter and $3.4
million for the first nine months of 2002 compared to a loss of $1.1 million and
income of $1.0 million for the same periods in 2001. The changes from
year-to-year were the result of the items discussed above, with the third
quarter and first nine months of 2002 income before income taxes improving
versus a year ago, despite lower revenues for the nine months, primarily as a
result of the Hasler sale and the globalization and cost reduction initiatives
which we implemented during the latter half of 2001.
The effective tax rates for the third quarter and first nine months of
2002 were 28.7% and 28.4% compared to 28.4% (benefit) and 22.0% for the same
periods in 2001. The higher effective tax rates in 2002 were primarily due to
the increase in foreign taxable income in 2002 as compared to 2001, which
included the loss on the sale of the Hasler business. On July 1, 2002, New
Jersey approved legislation for corporation income tax reform. The changes made
to the law accounted for an increase in the tax provision for the first nine
months of 2002 of approximately $60 thousand after the related federal income
tax benefit.
-12-
The order backlog decreased by 18.8% at the end of the third quarter of
2002 compared to year-end 2001 and by 8.0% compared to the end of the third
quarter of 2001, in each case at constant foreign exchange rates. The decrease
from the end of 2001 was primarily the result of lower orders received at our
facility in Switzerland in the first nine months of 2002, while the decrease
from the end of the third quarter of 2001 was the result of both lower orders
received at our facility in Switzerland and the fact that the third quarter 2001
backlog did not include orders received by PCS which was acquired on November
30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Our capitalization as of the end of the third quarter of 2002 and as of
the end of fiscal years 2001 and 2000 is set forth below:
Sept. 28, Dec. 29, Dec. 30,
(Dollars in Thousands) 2002 2001 2000
---- ---- ----
Short-term debt, including current
portion of long-term debt $ 2,660 $ 2,186 $ 3,595
Long-term debt 7,394 12,499 12,390
------- ------- -------
Total debt 10,054 14,685 15,985
Shareholders' equity 25,915 21,561 21,311
------- ------- -------
Total debt and shareholders' equity $35,969 $36,246 $37,296
======= ======= =======
(total capitalization)
Percent total debt to total capitalization 28% 41% 43%
Percent long-term debt to equity 29% 58% 58%
Percent total debt to equity 39% 68% 75%
Total debt decreased by $4.6 million in the first nine months of 2002, or
by $5.2 million when adjusted to a constant foreign exchange rate, with debt
decreasing by $2.6 million in Switzerland ($3.2 million at constant foreign
exchange rates) and $2.0 million in the U.S. At September 28, 2002, we had $5.0
million of unused borrowing availability under our U.S. revolving credit
agreement and $6.0 million of unused borrowing availability under our foreign
loan agreements. In July 2002, the $5.0 million U.S. revolving credit agreement
was extended through July 2004.
At September 28, 2002, working capital was $14.0 million compared to $15.6
million at December 29, 2001, and the ratio of current assets to current
liabilities at those dates was 1.88 and 2.18, respectively.
In the first nine months of 2002 and 2001, we utilized internally
generated funds to meet our working capital needs.
-13-
Net cash provided by operating activities was $7.6 million in the first
nine months of 2002 compared to $4.3 million in the same period of 2001. The
increase in operating cash flow during the first nine months of 2002 compared to
the same period in 2001 was primarily due to higher income, a reduction in
inventory and an increase in accounts payable partially offset by an increase in
prepaid expenses, a reduction in accounts receivable and lower amortization.
Net cash used in investing activities in the first nine months of 2002 and
2001 was primarily for capital additions. In 2001, capital additions were
partially offset by proceeds from the sale of the Hasler business.
Cash used in financing activities in the first nine months of 2002 and
2001 was for debt reduction.
Of the total increase in shareholders' equity of $4.4 million in the first
nine months of 2002, $1.9 million was attributable to changes in foreign
exchange rates, particularly the strengthening of the Swiss franc and euro
versus the U.S. dollar.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
The Private Securities Litigation Reform Act of 1995 (the "Act") provides
a safe harbor for forward-looking statements made by us or on our behalf. We and
our representatives may from time to time make written or oral statements that
are "forward-looking," including statements contained in this report and other
filings with the Securities and Exchange Commission, reports to our shareholders
and news releases. All statements that express expectations, estimates,
forecasts or projections are forward-looking statements within the meaning of
the Act. In addition, other written or oral statements which constitute
forward-looking statements may be made by us or on our behalf. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates,"
"projects," "forecasts," "may," " should," variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions which are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in or suggested by such forward-looking statements. The forward-looking
statements contained in this report include statements regarding the effect of
changes in foreign exchange rates on our business and the effect of recent New
Jersey tax legislation. We undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
A wide range of factors could materially affect our future performance and
financial and competitive position, including the following: (i) increasing
price and product/service competition by domestic and foreign competitors,
including new entrants; (ii) the mix of products/services sold by us; (iii)
rapid technological changes and developments and our ability to continue to
introduce competitive new products on a timely and cost-effective basis; (iv)
changes in U.S. and global financial and currency markets, including significant
interest rate and foreign currency exchange rate fluctuations; (v) protection
and validity of patent and other intellectual
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property rights held by us and our competitors; (vi) the cyclical nature of our
business as a capital goods supplier; (vii) possible future litigation and
governmental proceedings; (viii) the availability of financing and financial
resources in the amounts, at the times and on the terms required to support our
future business, including capacity expansions and possible acquisitions; (ix)
the loss of key customers, employees or suppliers; (x) the failure to carry out
marketing and sales plans; (xi) the failure to integrate acquired businesses
without substantial costs, delays or other operational or financial problems;
(xii) economic, business and regulatory conditions and changes which may affect
the level of new investments and purchases made by customers, including general
economic and business conditions that are less favorable than expected; (xiii)
domestic and international political and economic conditions; and (xiv) the
outcome of any legal proceeding in which we are involved.
These factors which may affect our future performance and financial and
competitive position and also the accuracy of any forward-looking statements
should be evaluated with an understanding of their inherent uncertainty.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures was recently conducted under the
supervision and with the participation of our management, including our
chief executive officer and chief financial officer. Based on that
evaluation, our management, including our chief executive officer and
chief financial officer, concluded that our disclosure controls and
procedures were effective as of November 11, 2002. There have been no
significant changes in our internal controls or in other factors that
could significantly affect these controls subsequent to November 11, 2002.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
We did not file a report on Form 8-K during the quarter ended September
28, 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
K-TRON INTERNATIONAL, INC.
Date: November 12, 2002 By: /s/ Ronald R. Remick
--------------------
Ronald R. Remick
Senior Vice President & Chief
Financial Officer
(Duly authorized officer and principal
financial officer of the registrant)
By: /s/Alan R. Sukoneck
-------------------
Alan R. Sukoneck
Vice President, Chief Accounting
& Tax Officer
(Duly authorized officer and principal
accounting officer of the registrant)
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CERTIFICATIONS
I, Edward B. Cloues, II, Chairman and Chief Executive Officer of K-Tron
International, Inc. (the "Registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and audit
committee of Registrant's board of directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 12, 2002 /s/Edward B. Cloues, II
----------------- -----------------------
Edward B. Cloues, II
Chairman and Chief Executive Officer
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CERTIFICATIONS, continued
I, Ronald R. Remick, Senior Vice President and Chief Financial Officer of K-Tron
International, Inc. (the "Registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we
have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and audit
committee of Registrant's board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 12, 2002 /s/Ronald R. Remick
----------------- -------------------
Ronald R. Remick
Senior Vice President & Chief Financial Officer
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