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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ____________________
Commission file number 0-9576
K-TRON INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
New Jersey 22-1759452
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification #)
Routes 55 & 553, P.O. Box 888, Pitman, New Jersey 08071-0888
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (856) 589-0500
Not Applicable
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [ ] No [X]
The Registrant had 2,493,354 shares of Common Stock outstanding as of May 18,
2004.
K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets
April 3, 2004 (Unaudited) and January 3, 2004 1
Consolidated Statements of Income & Retained
Earnings (Unaudited) for the Three Months
Ended April 3, 2004 and March 29, 2003 2
Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended April 3, 2004 and
March 29, 2003 3
Notes to Consolidated Financial Statements 4 - 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations. 10 - 16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk. 16
Item 4. Controls and Procedures. 16 - 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 18
SIGNATURES 19
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
K-TRON INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands except Share Data)
(Unaudited)
April 3, January 3,
2004 2004
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,805 $ 4,506
Accounts receivable, net of allowance for
doubtful accounts of $770 and $820 19,467 19,273
Inventories 14,465 13,566
Deferred income taxes 442 442
Prepaid expenses and other current assets 1,558 1,698
-------- --------
Total current assets $ 41,737 $ 39,485
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net 25,111 26,916
PATENTS, net 1,858 1,893
GOODWILL 2,053 2,053
OTHER INTANGIBLES, net 10,172 10,218
NOTES RECEIVABLE AND OTHER ASSETS 2,001 2,111
DEFERRED INCOME TAXES 416 405
-------- --------
Total assets $ 83,348 $ 83,081
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 4,854 $ 3,541
Accounts payable 6,514 6,361
Accrued expenses and other current liabilities 7,928 8,518
Accrued commissions 1,310 1,393
Customer advances 2,160 1,757
Deferred income taxes 794 794
-------- --------
Total current liabilities 23,560 22,364
-------- --------
LONG-TERM DEBT, net of current portion 23,023 24,574
DEFERRED INCOME TAXES 947 947
OTHER NON-CURRENT LIABILITIES 109 82
SERIES B JUNIOR PARTICIPATING PREFERRED SHARES,
$.01 par value - authorized 50,000 shares; none issued -- --
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value - authorized 950,000 shares; none issued -- --
Common stock, $.01 par value - authorized 50,000,000 shares;
issued 4,468,928 shares and 4,449,928 shares 44 44
Paid-in capital 17,137 16,922
Retained earnings 43,913 42,491
Accumulated other comprehensive income 2,129 3,171
-------- --------
63,223 62,628
Treasury stock, 2,002,574 shares - at cost (27,514) (27,514)
-------- --------
Total shareholders' equity 35,709 35,114
-------- --------
Total liabilities and shareholders' equity $ 83,348 $ 83,081
======== ========
See Notes to Consolidated Financial Statements
-1-
K-TRON INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME & RETAINED EARNINGS
(Dollars in Thousands except Share Data)
(Unaudited)
Three Months Ended
------------------
April 3, March 29,
2004 2003
---- ----
REVENUES $ 26,321 $ 23,398
COST OF REVENUES 15,137 13,957
---------- ----------
Gross Profit 11,184 9,441
OPERATING EXPENSES:
Selling, general & administrative 8,272 7,265
Research and development 649 671
---------- ----------
8,921 7,936
---------- ----------
Operating Income 2,263 1,505
INTEREST EXPENSE 366 380
GAIN ON SALE OF OFFICE BUILDING 164 --
---------- ----------
Income before income taxes 2,061 1,125
INCOME TAX PROVISION 639 290
---------- ----------
NET INCOME 1,422 835
RETAINED EARNINGS
Beginning of period 42,491 38,768
---------- ----------
End of period $ 43,913 $ 39,603
========== ==========
EARNINGS PER SHARE
Basic $ 0.58 $ 0.34
========== ==========
Diluted $ 0.55 $ 0.34
========== ==========
Average common shares outstanding 2,461,000 2,432,000
========== ==========
Average common and common equivalents shares
outstanding 2,583,000 2,484,000
========== ==========
See Notes to Consolidated Financial Statements
-2-
K-TRON INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
-------------------------
April 3, March 29,
2004 2003
---- ----
OPERATING ACTIVITIES:
Net income $ 1,422 $ 835
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on disposition of asset (164) --
Depreciation and amortization 1,075 862
Changes in assets and liabilities:
Accounts receivable, net (599) 1,144
Inventories (1,076) (128)
Prepaid expenses and other current assets 115 (13)
Other assets -- 164
Accounts payable 263 (583)
Accrued expenses and other current liabilities (128) (1,035)
-------- --------
Net cash provided by operating activities 908 1,246
-------- --------
INVESTING ACTIVITIES:
Proceeds from disposition of assets 996 --
Business acquired, net of cash acquired -- (18,988)
Capital expenditures (394) (562)
Other (49) (2)
-------- --------
Net cash provided by (used in) investing activities 553 (19,552)
-------- --------
FINANCING ACTIVITIES:
Net borrowings under notes payable to banks 1,276 5
Proceeds from issuance of long-term debt -- 20,000
Principal payments on long-term debt (1,476) (132)
Proceeds from issuance of common stock 215 18
-------- --------
Net cash provided by financing activities 15 19,891
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (177) 46
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,299 1,631
-------- --------
CASH AND CASH EQUIVALENTS
Beginning of period 4,506 2,694
-------- --------
End of period $ 5,805 $ 4,325
======== ========
See Notes to Consolidated Financial Statements
-3-
K-TRON INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 3, 2004
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and do not
include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for
complete financial statements. The consolidated financial statements
include the accounts of K-Tron International, Inc. and its subsidiaries
("K-Tron" or the "Company"). All intercompany transactions have been
eliminated in consolidation. In the opinion of management, all
adjustments (consisting of a normal recurring nature) considered
necessary for a fair presentation of results for interim periods have
been made.
Certain reclassifications were made to the prior year's consolidated
financial statements to conform to the current period presentation.
The unaudited financial statements herein should be read in conjunction
with the Company's annual report on Form 10-K for the year ended
January 3, 2004 which was previously filed with the Securities and
Exchange Commission.
2. New Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" (FIN 46). In general, a variable
interest entity is a corporation, partnership, trust or any other legal
structure used for business purposes that either (a) does not have
equity investors with voting rights or (b) has equity investors that do
not provide sufficient financial resources for the entity to support
its activities. FIN 46 requires certain variable interest entities to
be consolidated by the primary beneficiary of the entity if the
investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial
support from other parties. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January
31, 2003. The adoption of the provisions of FIN 46 effective February
1, 2003 did not have a material impact on the Company's consolidated
financial statements since the Company currently does not have variable
interest entities. In December 2003, the FASB issued FIN 46R with
respect to variable interest entities created before January 31, 2003,
which, among other things, revised the implementation date to the first
fiscal year or interim period ending after March 15, 2004, with the
exception of Special Purpose Entities ("SPE"). The consolidation
requirements apply to all SPEs in the first fiscal year or interim
period ending after December 15, 2003. The Company's adoption of the
provisions of FIN 46R effective January 3, 2004 did not have a material
impact on the Company's consolidated financial statements since the
Company currently does not have any SPEs, nor does it have any variable
interest entities.
-4-
3. Supplemental Disclosures of Cash Flow Information
The Company considers all highly liquid short-term investments
purchased with an original maturity of three months or less to be cash
equivalents.
Cash paid for interest in the three-month periods ended April 3, 2004
and March 29, 2003 was $371,000 and $104,000, respectively, and for
income taxes was $511,000 and $109,000, respectively.
4. Inventories
Inventories consist of the following:
April 3, January 3,
2004 2004
---- ----
(in thousands)
Components $ 13,510 $ 13,676
Work-in-process 2,611 1,635
Finished goods 52 62
Inventory reserves (1,708) (1,807)
-------- --------
$ 14,465 $ 13,566
======== ========
5. Intangible Assets
April 3, 2004 January 3, 2004
------------- ---------------
(in thousands)
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------ ------------ ------ ------------
Amortized intangible assets
Patents $ 2,789 $ 931 $ 2,780 $ 887
Drawings 3,550 106 3,550 71
Customer Relationships 4,898 60 4,898 49
------- ------- ------- -------
$11,237 $ 1,097 $11,228 $ 1,007
======= ======= ======= =======
Unamortized intangible assets
Trademarks and tradenames $ 1,890 $ 1,890
======= =======
The amortized intangible assets are being amortized on the
straight-line basis (half-year expense in the year of acquisition) over
the expected period of benefits, which is 17 to 50 years. The
amortization expense of intangible assets for the three-month periods
ended April 3, 2004 and March 29, 2003 was $90,000 and $71,000,
respectively.
-5-
6. Accrued Warranty
The Company offers a one-year product warranty on a majority of its
products. Warranty is accrued as a percentage of sales on a monthly
basis and is included in accrued expenses and other current
liabilities. The following is an analysis of accrued warranty for the
three-month periods ended April 3, 2004 and March 29, 2003.
April 3, March 29,
2004 2003
---- ----
(in thousands)
Beginning balance $ 967 $ 687
Accrued warranty of acquired business -- 553
Accrual of warranty expense 283 351
Warranty costs incurred (292) (474)
Foreign exchange adjustment (13) 6
------- -------
Ending balance $ 945 $ 1,123
======= =======
7. Long-Term Debt
Long-term debt consists of the following:
April 3, January 3,
2004 2004
---- ----
(in thousands)
U.S. mortgage, interest at 6.45% $ 2,014 $ 2,052
U.S. line of credit, interest at 3.75% 3,210 1,935
U.S. term facilities, interest at 2.96% to 5.11% 17,604 18,317
Unsecured notes payable, interest at 6% 4,000 4,000
Swiss facilities, interest at 1.7% to 2.1% 581 1,211
Other 468 600
-------- --------
27,877 28,115
Less current portion (4,854) (3,541)
-------- --------
$ 23,023 $ 24,574
======== ========
8. Earnings Per Share
The Company previously adopted SFAS No. 128, "Earnings Per Share",
which requires that the Company report Basic and Diluted Earnings Per
Share. Basic Earnings Per Share represents net income less preferred
dividends divided by the weighted average number of common shares
outstanding. Diluted Earnings Per Share is calculated similarly, except
that the denominator includes the weighted average number of common
shares outstanding plus the dilutive effect of options, warrants,
convertible securities and other instruments with dilutive effects if
exercised.
The Company's Diluted Earnings Per Share shown in the table below are
based on the weighted average number of common and common equivalent
shares outstanding during a given time period. Such average shares
include the weighted average number of common
-6-
shares outstanding plus the shares issuable upon exercise of stock
options after the assumed repurchase of common shares with the related
proceeds.
The Company's Basic and Diluted Earnings Per Share are calculated as
follows:
(Dollars and Shares in Thousands
except Per Share Data)
For the Three Months Ended April 3, 2004
----------------------------------------
Net Income Available
To Common Earnings
Shareholders Shares Per Share
------------ ------ ---------
Basic $1,422 2,461 $ 0.58
Common Share Equivalent
of Outstanding Options -- 122 (0.03)
------ ----- ------
Diluted $1,422 2,583 $ 0.55
====== ===== ======
(Dollars and Shares in Thousands
except Per Share Data)
For the Three Months Ended March 29, 2003
-----------------------------------------
Net Income Available
To Common Earnings
Shareholders Shares Per Share
------------ ------ ---------
Basic $ 835 2,432 $ 0.34
Common Share Equivalent
of Outstanding Options -- 52 (0.00)
------ ----- ------
Diluted $ 835 2,484 $ 0.34
====== ===== ======
9. Stock-Based Compensation
As permitted under SFAS No. 123, as amended by SFAS No. 148, the
Company has elected to continue to account for compensation cost using
the intrinsic value-based method of accounting as prescribed by
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees". SFAS No. 123 requires the Company to disclose pro
forma net income and pro forma earnings per share amounts, as if
compensation expense were recognized for options granted after fiscal
year 1994. Using this approach, net income and earnings per share would
have been reduced to the pro forma amounts indicated in the following
table:
Three Months Ended
------------------
April 3, March 29,
2004 2003
---- ----
(in thousands, except per share)
Net income - as reported $ 1,422 $ 835
Net income - pro forma 1,392 767
Basic earnings per share - as reported 0.58 0.34
Basic earnings per share - pro forma 0.57 0.32
Diluted earnings per share - as reported 0.55 0.34
Diluted earnings per share - pro forma 0.54 0.31
-7-
This pro forma impact may not be representative of the effects for
future years, and could increase if additional options are granted and
amortized over the vesting period. For disclosure purposes, the fair
value of each stock option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted average assumptions for options granted in 2003: no dividend
yield; expected volatility of 30.80%; risk-free interest rate of 2.76%;
and expected life of 6.00 years. No options were granted in the first
three months of 2004.
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option-pricing
models require the input of subjective assumptions, including the
expected stock price volatility.
10. Comprehensive Income
Comprehensive income is the total of net income, the change in the
unrealized gain or loss on the Company's interest rate swap, net of
tax, and the change in foreign currency translation adjustments, all
for a given period, which are the Company's only non-owner changes in
equity. For the three-month periods ending April 3, 2004 and March 29,
2003, the following table sets forth the Company's comprehensive
income:
Three Months Ended
------------------
April 3, March 29,
2004 2003
---- ----
(in thousands)
Net income $ 1,422 $ 835
Unrealized (loss) on
interest rate swap, net of tax (16) (98)
Foreign currency translation
adjustments (1,026) 333
------- -------
Comprehensive income $ 380 $ 1,070
======= =======
11. Management Segment Information
The Company has adopted the provisions of SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information". SFAS No. 131
introduced a model for segment reporting called the management
approach. The management approach is based on the way that the chief
operating decision-maker organizes segments within a company for making
operating decisions and assessing performance. The Company is engaged
in one business segment, material handling equipment and systems. The
Company operates in two primary geographic locations, North and South
America (the "Americas") and Europe, the Middle East, Africa and Asia
("EMEA/Asia").
-8-
For the three months ended April 3, 2004 and March 29, 2003, the following table
sets forth the Company's geographic information:
EMEA/ Elimi- Consoli-
Americas Asia nations dated
-------- ---- ------- -----
(in thousands)
THREE MONTHS ENDED
April 3, 2004
Revenues
Sales to unaffiliated customers $ 14,793 $11,528 $ $ 26,321
Sales to affiliates 695 826 (1,521) --
-------- ------- --------- --------
Total sales $ 15,488 $12,354 $ (1,521) $ 26,321
======== ======= ========= ========
Operating income (loss) $ 1,364 $ 933 $ (34) $ 2,263
======== ======= =========
Interest expense (366)
Gain on sale of office building 164
--------
Income before income taxes $ 2,061
========
EMEA/ Elimi- Consoli-
Americas Asia nations dated
-------- ---- ------- -----
(in thousands)
THREE MONTHS ENDED
March 29, 2003
Revenues
Sales to unaffiliated customers $ 13,217 $10,181 $ -- $ 23,398
Sales to affiliates 749 568 (1,317) --
-------- ------- --------- --------
Total sales $ 13,966 $10,749 $ (1,317) $ 23,398
======== ======= ========= ========
Operating income (loss) $ 673 $ 851 $ (19) $ 1,505
======== ======= =========
Interest expense (380)
--------
Income before income taxes $ 1,125
========
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
We are engaged in one principal business segment - material handling
equipment and systems. We operate in two primary geographic locations - North
and South America (the "Americas") and Europe, the Middle East, Africa and Asia
("EMEA/Asia").
We have three main business lines within the material handling
equipment and systems segment. They are our feeding, size reduction and
pneumatic conveying business lines.
The following provides information that management believes is relevant
to an assessment and understanding of our consolidated results of operations and
financial condition. The discussion should be read in conjunction with our
consolidated financial statements and accompanying notes. All references in this
Item 2 to the first three months or first quarters of 2004 and 2003 mean the
fiscal quarters ended April 3, 2004 and March 29, 2003, respectively.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of our financial condition and
results of operations is based on the accounting policies used and disclosed in
our 2003 consolidated financial statements and accompanying notes that were
prepared in accordance with accounting principles generally accepted in the
United States of America and included as part of our annual report on Form 10-K
for the year ended January 3, 2004 (the "2003 Form 10-K"). The preparation of
those financial statements required management to make estimates and assumptions
that affected the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
The significant accounting policies of the Company are described in
Note 2 to the 2003 consolidated financial statements, and the critical
accounting policies and estimates are described in Management's Discussion and
Analysis included in our 2003 Form 10-K. Information concerning our
implementation and the impact of new accounting standards issued by the
Financial Accounting Standards Board (FASB) is included in the notes to the 2003
consolidated financial statements. Otherwise, we did not adopt an accounting
policy in the current period that had a material impact on our financial
condition, liquidity or results of operations.
-10-
RESULTS OF OPERATIONS
Overview
For the first three months of 2004 and 2003, we reported revenues of
$26,321,000 and $23,398,000 and net income of $1,422,000 and $835,000,
respectively. The increases in first quarter 2004 revenues and net income
compared with the first quarter of 2003 were primarily the result of improved
business conditions in our size reduction and feeding business lines, and also
reflect the positive effect of a weaker U.S. dollar when translating the
revenues and profits of our foreign operations into U.S. dollars. First quarter
2004 net income also benefited from the profit contribution from the sale of an
office building by one of our United Kingdom subsidiaries.
Foreign Exchange Rates
We are an international company, and we derived 43.8% and 43.5% of our
revenues for the first three months of 2004 and 2003, respectively, from
products manufactured in, and services performed from, our facilities located
outside the United States, primarily in Europe. Since we operate globally, we
are sensitive to changes in foreign currency exchange rates ("foreign exchange
rates"), which can affect both the translation of financial statement items into
U.S. dollars as well as transactions where the revenues and related expenses may
initially be accounted for in different currencies, such as sales made from our
Swiss manufacturing facility in currencies other than the Swiss franc.
Since we have received substantial revenues in recent years from
activities in foreign jurisdictions, our results can be significantly affected
by changes in foreign exchange rates, particularly in U.S. dollar exchange rates
with respect to the Swiss franc, euro and British pound sterling and, to a
lesser degree, the Singapore dollar and other currencies. When the U.S. dollar
weakens against these currencies, the U.S. dollar value of non-U.S. dollar-based
sales increases. When the U.S. dollar strengthens against these currencies, the
U.S. dollar value of non-U.S. dollar-based sales decreases. Correspondingly, the
U.S. dollar value of non-U.S. dollar-based costs increases when the U.S. dollar
weakens and decreases when the U.S. dollar strengthens. Overall, our revenues in
U.S. dollars generally benefit from a weaker dollar and are adversely affected
by a stronger dollar relative to major currencies worldwide, especially those
identified above. In particular, a general weakening of the U.S. dollar against
other currencies would positively affect our revenues, gross profit and
operating income as expressed in U.S. dollars (provided that the gross profit
and operating income numbers from foreign operations are not losses, since in
the case of a loss, the effect would be to increase the loss), whereas a general
strengthening of the U.S. dollar against such currencies would have the opposite
effect. In addition, our revenues and income with respect to particular
transactions may be affected by changes in foreign exchange rates where sales
are made in currencies other than the functional currency of the facility
manufacturing the product subject to the sale.
-11-
For the first quarters of 2004 and 2003, the changes in certain key
exchange rates affecting the Company were as follows:
Three Months Ended
------------------
April 3, March 29,
2004 2003
---- ----
Average U.S. dollar equivalent of 0.794 0.732
one Swiss franc
% change vs. prior year +8.5 %
Average U.S. dollar equivalent of 1.246 1.073
one euro
% change vs. prior year +16.1 %
Average U.S. dollar equivalent of 1.837 1.602
one British pound sterling
% change vs. prior year +14.7 %
Average Swiss franc equivalent of 1.569 1.466
one euro
% change vs. prior year +7.0 %
Average Swiss franc equivalent of 2.314 2.189
one British pound sterling
% change vs. prior year +5.7 %
Presentation of Results and Analysis
The following table sets forth our results of operations, expressed as
a percentage of total revenues for the periods indicated, as well as our backlog
at the end of such periods:
Three Months Ended
------------------
April 3, March 29,
2004 2003
---- ----
Total revenues 100.0% 100.0%
Cost of revenues 57.5 59.7
----- -----
Gross profit 42.5 40.3
Selling, general and administrative 31.4 31.0
Research and development 2.5 2.9
----- -----
Operating income 8.6 6.4
Interest expense 1.4 1.6
Gain on sale of office building 0.6 --
----- -----
Income before income taxes 7.8% 4.8%
===== =====
-12-
April 3, 2004 January 3, 2004 March 29, 2003
------------- --------------- --------------
Backlog (at April 3, 2004 $21,380 $17,077 $15,906
======= ======= =======
exchange rates, in thousands
of dollars)
Total revenues increased by $2,923,000 or 12.5% in the first quarter of
2004 compared to the same period in 2003. This increase in revenues was
primarily attributable to improved business conditions in markets served by our
two largest business lines, feeding and size reduction, as well as to the
positive effect of a weaker U.S. dollar when translating the revenues of foreign
operations into U.S. dollars. The favorable impact of foreign currency
translation accounted for approximately one-third of the 12.5% revenue increase
in the first quarter of 2004 compared to the same period in 2003.
Gross profit as a percent of total revenues increased to 42.5% in the
first quarter of 2004 from 40.3% for the same period in 2003. This increase in
gross profit was primarily due to geographic and product sales mix and to the
improved business conditions discussed above, which led to fixed costs being
absorbed over a larger revenue base.
Selling, general and administrative (SG&A) expenses increased by
$1,007,000 or 13.9% in the first quarter of 2004 compared to the same period in
2003. This increase in SG&A was primarily due to the effect of a weaker U.S.
dollar, higher sales commissions because of increased revenues, a higher bonus
accrual and an increase in depreciation and amortization expense related to the
implementation of software systems within the feeding business line. As a
percent of total revenues, SG&A was 31.4% in the first quarter of 2004 compared
to 31.0% for the same period in 2003.
Research and development (R&D) expenditures decreased by $22,000 or
3.3% in the first quarter of 2004 compared to the same period in 2003. This
decrease was primarily due to a reduction in staff partially offset by the
effect of a weaker U.S. dollar. R&D expense as a percent of total revenues was
2.5% in the first quarter of 2004 compared to 2.9% for the same period in 2003.
Interest expense decreased by $14,000 or 3.7% in the first quarter of
2004 compared to the same period in 2003. This decrease in interest expense was
due to debt reductions. Interest expense as a percent of total revenues was 1.4%
in the first quarter of 2004 compared to 1.6% for the same period in 2003.
In the first quarter of 2004, one of our United Kingdom subsidiaries
sold its office building for $996,000 and realized a pre-tax gain of $164,000.
All employees were relocated to a nearby office building that is leased by
another United Kingdom subsidiary.
Income before income taxes was $2,061,000 in the first quarter of 2004
compared to $1,125,000 for the same period in 2003. Income before income taxes
improved versus the same period in 2003 as a result of the items discussed
above.
The effective tax rate for the first quarter of 2004 was 31.0% compared
to 25.8% for the same period in 2003. This increase was the result of a higher
percentage of U.S. income in 2004.
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Our backlog at constant foreign exchange rates increased by $4,303,000
or 25.2% and $5,474,000 or 34.4% at the end of the first quarter of 2004
compared to January 3, 2004 and March 29, 2003, respectively. This increase in
our backlog resulted from the improved business conditions previously described.
LIQUIDITY AND CAPITAL RESOURCES
Capitalization
Our capitalization at the end of the first quarter of 2004 and at the
end of fiscal years 2003 and 2002 is summarized below:
April 3, January 3, December 28,
(Dollars in Thousands) 2004 2004 2002
---- ---- ----
Short-term debt, including current
portion of long-term debt $ 4,854 $ 3,541 $ 2,005
Long-term debt 23,023 24,574 6,499
--------- -------- --------
Total debt 27,877 28,115 8,504
Shareholders' equity 35,709 35,114 28,419
--------- -------- --------
Total debt and shareholders' equity $ 63,586 $ 63,229 $ 36,923
========= ======== ========
(total capitalization)
Percent total debt to total capitalization 44% 44% 23%
Percent long-term debt to equity 64% 70% 23%
Percent total debt to equity 78% 80% 30%
Total debt decreased by $238,000 in the first three months of 2004
($200,000 at constant foreign exchange rates). At April 3, 2004 and subject to
certain conditions which may limit the amount that may be borrowed at any
particular time, we had $5,290,000 of unused borrowing capacity under our U.S.
loan agreements and $9,676,000 of unused borrowing capacity under our foreign
loan agreements.
Other Items
At April 3, 2004, working capital was $18,177,000 compared to
$17,121,000 at January 3, 2004, and the ratio of current assets to current
liabilities at those dates was the same at 1.77. The working capital increase
during the first quarter of 2004 was primarily the result of the cash received
from the sale of the office building noted above.
In the first three months of 2004 and 2003, we utilized internally
generated funds and our lines of credit to meet our working capital needs.
Net cash provided by operating activities was $908,000 in the first
three months of 2004 compared to $1,246,000 in the same period of 2003. The
decrease in operating cash flow during the first three months of 2004 compared
to the same period in 2003 was primarily due to an increase in accounts
receivable and inventories as a result of higher business volumes. This was
partially offset by an increase in net income and a decrease in accounts payable
and accrued expenses.
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Net cash provided by investing activities in the first three months of
2004 was primarily from the disposition of the office building noted above,
offset by capital additions. Net cash used in investing activities for the first
three months of 2003 was for the acquisition of Pennsylvania Crusher Corporation
in January 2003 and capital additions.
Cash provided by financing activities in the first three months of 2004
was primarily from the proceeds of stock option exercises net of debt
reductions, while cash provided by financing activities in the first three
months of 2003 was from the borrowings related to the acquisition of
Pennsylvania Crusher Corporation in January 2003.
Shareholders' equity increased $595,000 in the first quarter of 2004,
after taking into account a $1,026,000 foreign exchange translation decrease.
Future Payments Under Contractual Obligations
We are obligated to make future payments under various contracts such
as debt agreements and lease agreements, and we are subject to certain other
commitments and contingencies. There have been no material changes to Future
Payments Under Contractual Obligations as reflected in the Liquidity and Capital
Resources section of Management's Discussion and Analysis in the Company's 2003
Form 10-K. Refer to Notes 9 and 16 to the consolidated financial statements in
the 2003 Form 10-K for additional information on long-term debt and commitments
and contingencies.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a safe harbor for forward-looking statements made by us or on our
behalf. We and our representatives may from time to time make written or oral
statements that are "forward-looking," including statements contained in this
report and other filings with the Securities and Exchange Commission, reports to
our shareholders and news releases. All statements that express expectations,
estimates, forecasts or projections are forward-looking statements within the
meaning of the Act. In addition, other written or oral statements which
constitute forward-looking statements may be made by us or on our behalf. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," "projects," "forecasts," "may," "should," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions which are difficult to
predict. Therefore, actual outcomes and results may differ materially from what
is expressed or forecasted in or suggested by such forward-looking statements.
The forward-looking statements contained in this report include but are not
limited to statements regarding the effect of changes in foreign exchange rates
on our business. We undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
A wide range of factors could materially affect our future performance
and financial and competitive position, including the following: (i) increasing
price and product/service competition by domestic and foreign competitors,
including new entrants; (ii) the mix of products/services sold by us; (iii)
rapid technological changes and developments and our ability to continue to
introduce competitive new products on a timely and cost-effective basis; (iv)
changes in U.S. and global financial and currency markets, including significant
interest rate and
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foreign currency exchange rate fluctuations; (v) protection and validity of
patents and other intellectual property rights held by us and our competitors;
(vi) the cyclical nature of our business as an industrial capital goods
supplier; (vii) possible future litigation and governmental proceedings; (viii)
the availability of financing and financial resources in the amounts, at the
times and on the terms required to support our future business, including for
debt refinancings, capacity expansions and possible acquisitions; (ix) the loss
of key customers, employees or suppliers; (x) the failure to carry out marketing
and sales plans; (xi) the failure to integrate acquired businesses without
substantial costs, delays or other operational or financial problems; (xii)
economic, business and regulatory conditions and changes which may affect the
level of new investments and purchases made by our customers, including economic
and business conditions that are less favorable than expected; (xiii) domestic
and international political and economic conditions; and (xiv) the outcome of
any legal proceedings in which we are involved.
This list of factors that may affect our future performance and
financial and competitive position and also the accuracy of forward-looking
statements is illustrative, but it is by no means exhaustive. Accordingly, all
forward-looking statements should be evaluated with the understanding of their
inherent uncertainty.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" -- Results of Operations - Foreign Exchange Rates in Item
2 of this report.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this
report was carried out by us under the supervision and with the participation of
the Company's management, including the Chief Executive Officer and Chief
Financial Officer. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
have been designed and are functioning effectively to provide reasonable
assurance that the information required to be disclosed by us in reports filed
under the Securities and Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms. A controls system, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the controls
system are met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company have
been detected. Subsequent to the date of the most recent evaluation of our
internal controls, there were no significant changes in our internal controls,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
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(b) Change in Internal Control over Financial Reporting
No change in the Company's internal control over financial reporting
occurred during the Company's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
31.1 Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
Current Report on Form 8-K dated February 23, 2004 and furnished
to the Securities and Exchange Commission on February 24, 2004
reporting fourth quarter and full year 2003 financial results.
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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: May 18, 2004 By: RONALD R. REMICK
----------------
Ronald R. Remick
Senior Vice President & Chief
Financial Officer
(Duly authorized officer and principal
financial officer of the registrant)
By: ALAN R. SUKONECK
----------------
Alan R. Sukoneck
Vice President, Chief Accounting
& Tax Officer
(Duly authorized officer and principal
accounting officer of the registrant)
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EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
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