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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One)þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For
the quarterly period ended April 2, 2005ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For
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
or Organization)
    
    (I.R.S. Employer Identification No.)Routes 55 & 553, P.O. Box 888, Pitman, New Jersey
    
    08071-0888(Address of Principal Executive Offices)
    
    (Zip Code)
 (856) 589-0500Registrants Telephone Number, Including Area Code
 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 þ  No o Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes o  No þ The Registrant had 2,541,242 shares of Common Stock outstanding as of April 29, 2005.




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES INDEX Page No.PART I.
    
    
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Balance Sheets
April 2, 2005 (Unaudited) and January 1, 2005
    
    
    1Consolidated Statements of Income and Retained
Earnings (Unaudited) for the Three Months
Ended April 2, 2005 and April 3, 2004
    
    
    2Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended April 2, 2005 and
April 3, 2004
    
    
    3Notes to Consolidated Financial Statements (Unaudited)
    
    
    4  11Item 2.
    
    Managements Discussion and Analysis
of Financial Condition and Results of Operations
    
    
    12  18Item 3.
    
    Quantitative and Qualitative Disclosures About
Market Risk
    
    
    18 19Item 4.
    
    Controls and Procedures
    
    
    19PART II.
    
    
    
    OTHER INFORMATIONItem 6.
    
    Exhibits
    
    
    20SIGNATURES
    
    
    
    
    
    
    21CHIEF EXECUTIVE OFFICER CERTIFICATIONCHIEF FINANCIAL OFFICER CERTIFICATIONCEO AND CFO CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350




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PART I. FINANCIAL INFORMATION 
 Item 1.Financial Statements. K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
  (Unaudited)April 2,
    
    
    January 1,2005
    
    
    2005ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    11,684
    
    
    $
    12,443Accounts receivable, net of allowance for
doubtful accounts of $712 and $751
    
    
    17,624
    
    
    
    21,234Inventories, net
    
    
    15,752
    
    
    
    15,096Deferred income taxes
    
    
    938
    
    
    
    938Prepaid expenses and other current assets
    
    
    2,056
    
    
    
    1,779Total current assets
    
    $
    48,054
    
    
    $
    51,490PROPERTY, PLANT AND EQUIPMENT, net
    
    
    24,018
    
    
    
    25,075PATENTS, net
    
    
    1,706
    
    
    
    1,737GOODWILL
    
    
    2,053
    
    
    
    2,053OTHER INTANGIBLES, net
    
    
    9,918
    
    
    
    9,978NOTES RECEIVABLE AND OTHER ASSETS
    
    
    2,215
    
    
    
    2,353DEFERRED INCOME TAXES
    
    
    308
    
    
    
    330Total assets
    
    $
    88,272
    
    
    $
    93,016LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current portion of long-term debt
    
    $
    4,111
    
    
    $
    4,185Accounts payable
    
    
    7,047
    
    
    
    6,351Accrued expenses and other current liabilities
    
    
    4,602
    
    
    
    7,782Accrued commissions
    
    
    2,000
    
    
    
    2,169Customer advances
    
    
    2,320
    
    
    
    2,536Income taxes payable
    
    
    2,881
    
    
    
    3,477Deferred income taxes
    
    
    1,212
    
    
    
    1,212Total current liabilities
    
    
    24,173
    
    
    
    27,712LONG-TERM DEBT, net of current portion
    
    
    17,223
    
    
    
    18,598DEFERRED INCOME TAXES
    
    
    1,147
    
    
    
    1,147SERIES 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 4,542,016 shares and 4,530,416 shares
    
    
    45
    
    
    
    45Paid-in capital
    
    
    18,373
    
    
    
    18,204Retained earnings
    
    
    50,744
    
    
    
    49,101Accumulated other comprehensive income
    
    
    4,081
    
    
    
    5,72373,243
    
    
    
    73,073Treasury stock, 2,002,574 shares  at cost
    
    
    (27,514
    )
    
    
    (27,514
    )Total shareholders equity
    
    
    45,729
    
    
    
    45,559Total liabilities and shareholders equity
    
    $
    88,272
    
    
    $
    93,016
 See Notes to Consolidated Financial Statements -1-




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
 
 Three Months EndedApril 2,
    
    
    April 3,2005
    
    
    2004REVENUES:Equipment and parts
    
    
    26,959
    
    
    
    24,504Services and freight
    
    
    1,893
    
    
    
    1,817Total revenues
    
    
    28,552
    
    
    
    26,321COST OF REVENUES:Equipment and parts
    
    
    14,729
    
    
    
    13,598Services and freight
    
    
    1,872
    
    
    
    1,539Total cost of revenues
    
    
    16,601
    
    
    
    15,137Gross profit
    
    
    11,951
    
    
    
    11,184OPERATING EXPENSES:Selling, general and administrative
    
    
    8,495
    
    
    
    8,272Research and development
    
    
    665
    
    
    
    6499,160
    
    
    
    8,921Operating income
    
    
    2,791
    
    
    
    2,263INTEREST (EXPENSE)
    
    
    (263
    )
    
    
    (366
    )GAIN ON SALE OF OFFICE BUILDING
    
    
    
    
    
    
    164Income before income taxes
    
    
    2,528
    
    
    
    2,061INCOME TAX PROVISION
    
    
    885
    
    
    
    639NET INCOME
    
    
    1,643
    
    
    
    1,422RETAINED EARNINGS:Beginning of period
    
    
    49,101
    
    
    
    42,491End of period
    
    $
    50,744
    
    
    $
    43,913EARNINGS PER SHARE:Basic
    
    $
    0.65
    
    
    $
    0.58Diluted
    
    $
    0.61
    
    
    $
    0.55Weighted average common shares
outstanding
    
    
    2,535,000
    
    
    
    2,461,000Weighted average common and
common equivalents shares
outstanding
    
    
    2,693,000
    
    
    
    2,583,000
 See Notes to Consolidated Financial Statements -2-




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Three Months EndedApril 2,
    
    
    April 3,2005
    
    
    2004OPERATING ACTIVITIES:Net income
    
    $
    1,643
    
    
    $
    1,422Adjustments to reconcile net income to net cash provided by operating activities:Gain on disposition of asset
    
    
    
    
    
    
    (164
    )Depreciation and amortization
    
    
    1,045
    
    
    
    1,075Changes in assets and liabilities:Accounts receivable, net
    
    
    3,097
    
    
    
    (599
    )Inventories, net
    
    
    (982
    )
    
    
    (1,076
    )Prepaid expenses and other current assets
    
    
    (329
    )
    
    
    115Other assets
    
    
    90
    
    
    
    Accounts payable
    
    
    791
    
    
    
    263Accrued expenses and other current liabilities
    
    
    (3,797
    )
    
    
    (128
    )Net cash provided by operating activities
    
    
    1,558
    
    
    
    908INVESTING ACTIVITIES:Proceeds from disposition of assets
    
    
    
    
    
    
    996Capital expenditures
    
    
    (474
    )
    
    
    (394
    )Other
    
    
    (13
    )
    
    
    (49
    )Net cash (used in) provided by investing activities
    
    
    (487
    )
    
    
    553FINANCING ACTIVITIES:Net borrowings under notes payable to banks
    
    
    95
    
    
    
    1,276Proceeds from issuance of long-term debt
    
    
    
    
    
    
    Principal payments on long-term debt
    
    
    (1,540
    )
    
    
    (1,476
    )Proceeds from issuance of common stock
    
    
    169
    
    
    
    215Net cash (used in) provided by financing activities
    
    
    (1,276
    )
    
    
    15EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS
    
    
    (554
    )
    
    
    (177
    )NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (759
    )
    
    
    1,299CASH AND CASH EQUIVALENTS:Beginning of period
    
    
    12,443
    
    
    
    4,506End of period
    
    $
    11,684
    
    
    $
    5,805
 See Notes to Consolidated Financial Statements -3-




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 April 2, 2005
   1.
    Basis of PresentationThe 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.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 1, 2005 which was
previously filed with the Securities and Exchange Commission.Certain reclassifications were made to the prior years consolidated financial
statements to conform them to the current period presentation.2.
    New Accounting PronouncementsIn December 2004, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment. This
statement requires all entities to recognize compensation expense for all
share-based payments granted to employees in an amount equal to their fair value. On
April 14, 2005, the Securities and Exchange Commission adopted a new rule amending
the effective date for Statement 123(R). The new rule allows registrants to
implement Statement 123(R) at the beginning of their next fiscal year, instead of
the next interim period, that begins after June 15, 2005. None of the accounting
provisions of Statement 123(R) are affected by the new rule. The new standard allows
two different methods of transition. Note 9 contains pro forma disclosures regarding
the effect on net income and earnings per share as if the Company had applied the
fair value method of accounting for stock-based compensation. Depending on the
model used to calculate stock-based compensation expense in the future and other
requirements of SFAS No. 123(R), the pro forma disclosure may not be indicative of
the stock-based compensation expense that will be recognized in the Companys future
financial statements. The Company expects to implement the new standard in the
first quarter of fiscal year 2006 which will end April 1, 2006, and it is currently
evaluating the new standard and models which may be used to calculate future
stock-based compensation expense. The Company is currently unable to determine what
the impact of the new standard will be on its results of operations or financial
position.In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of
ARB No. 43, Chapter 4. SFAS No. 151 clarifies the accounting for abnormal amounts -4-




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of idle facility expense, freight, handling costs and wasted material and requires
that such items be recognized as current-period charges regardless of whether they
meet the so abnormal criterion outlined in Accounting Research Bulletin No. 43.
SFAS No. 151 also introduces the concept of normal capacity and requires the
allocation of fixed production overheads to inventory based on the normal capacity
of the production facilities. Unallocated overheads must be recognized as an
expense in the period incurred. SFAS No. 151 is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. While still evaluating
the impact of this statement, the Company does not currently believe that it will
have a material impact on its consolidated financial statements.In October 2004, the American Jobs Creation Act of 2004 (the Jobs Act) was signed
into law, allowing U.S. companies to repatriate accumulated income from abroad by
providing a one-time deduction of 85% for certain dividends from controlled foreign
corporations. This deduction is subject to certain limitations, and numerous
provisions of the Jobs Act contain uncertainties that require interpretation and
evaluation. The Company is currently evaluating whether, and to what extent, to
repatriate accumulated income from abroad under the provisions of the Jobs Act. Until
such evaluation is complete, the Company will not accrue income taxes on the
accumulated undistributed earnings of its foreign subsidiaries, as these earnings are
currently expected to be reinvested indefinitely.3.
    Supplemental Disclosures of Cash Flow InformationThe 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 2, 2005 and April 3,
2004 was $284,000 and $371,000 and for income taxes was $1,428,000 and $511,000.4.
    InventoriesInventories consist of the following: April 2,
    
    
    January 1,2005
    
    
    2005(in thousands)Components
    
    $
    14,219
    
    
    $
    14,275Work-in-process
    
    
    2,805
    
    
    
    2,217Finished goods
    
    
    92
    
    
    
    79Inventory reserves
    
    
    (1,364
    )
    
    
    (1,475
    )$
    15,752
    
    
    $
    15,096
 -5-




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5.
    Intangible Assets April 2, 2005
    
    
    January 1, 2005Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization(in thousands)Amortized intangible assetsPatents
    
    $
    2,812
    
    
    $
    1,106
    
    
    $
    2,799
    
    
    $
    1,062Drawings
    
    
    3,550
    
    
    
    249
    
    
    
    3,550
    
    
    
    213Customer relationships
    
    
    4,898
    
    
    
    171
    
    
    
    4,898
    
    
    
    147$
    11,260
    
    
    $
    1,526
    
    
    $
    11,247
    
    
    $
    1,422Unamortized 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 ranges from 17 to 50 years. The weighted average life of the amortizable
assets is 37 years. The amortization expense of intangible assets for the
three-month periods ended April 2, 2005 and April 3, 2004 was $104,000 and $90,000.6.
    Accrued WarrantyThe Company offers a one-year 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 2, 2005 and April 3, 2004. Three Months EndedApril 2,
    
    
    April 3,2005
    
    
    2004(in thousands)Beginning balance
    
    $
    1,257
    
    
    $
    967Accrual of warranty expense
    
    
    336
    
    
    
    283Warranty costs incurred
    
    
    (379
    )
    
    
    (292
    )Foreign exchange adjustment
    
    
    (24
    )
    
    
    (13
    )Ending balance
    
    $
    1,190
    
    
    $
    945
 -6-




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##### Table of Contents



7.
    Long-Term DebtLong-term debt consists of the following, with the interest rates indicated
being those in effect at April 2, 2005: April 2,
    
    
    January 1,2005
    
    
    2005(in thousands)U.S. mortgage, interest at 6.45%
    
    $
    1,856
    
    
    $
    1,897U.S. line of credit, interest at 5.25%
    
    
    2,195
    
    
    
    2,100U.S. term facilities, interest at 4.72% to 5.59%
    
    
    17,041
    
    
    
    18,467Other
    
    
    242
    
    
    
    31921,334
    
    
    
    22,783Less current portion
    
    
    (4,111
    )
    
    
    (4,185
    )$
    17,223
    
    
    $
    18,598
  8.
    Earnings Per ShareThe 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. -7-




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The Companys Basic and Diluted Earnings Per Share are calculated as follows: For the Three Months Ended April 2, 2005Net Income Available(Dollars and Shares in Thousands
    
    To Common
    
    
    
    
    

    
    Earningsexcept Per Share Data)
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    1,643
    
    
    
    2,535
    
    
    $
    0.65Common Share Equivalent
of Outstanding Options Issued
    
    
    
    
    
    
    158
    
    
    
    (0.04
    )Diluted
    
    $
    1,643
    
    
    
    2,693
    
    
    $
    0.61
 For
the Three Months Ended April 3, 2004Net Income Available(Dollars and Shares in Thousands
    
    To Common
    
    
    
    
    
    
    Earningsexcept Per Share Data)
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    1,422
    
    
    
    2,461
    
    
    $
    0.58Common Share Equivalent
of Outstanding Options Issued
    
    
    
    
    
    
    122
    
    
    
    (0.03
    )Diluted
    
    $
    1,422
    
    
    
    2,583
    
    
    $
    0.55
  The Companys Diluted Earnings Per Share shown in the table above 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.9.
    Stock-Based CompensationAs permitted under SFAS No. 123, Accounting for Stock-Based Compensation, as amended
by SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure,
an amendment of FASB Statement 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 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, in each case 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: -8-




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Three Months EndedApril 2,
    
    
    April 3,2005
    
    
    2004(in thousands, except per share)Net income  as reported
    
    $
    1,643
    
    
    $
    1,422Deduct stock option employee compensation
expense determined, net of related tax effect
    
    
    (26
    )
    
    
    (30
    )Net income  pro forma
    
    $
    1,617
    
    
    $
    1,392Basic earnings per share  as reported
    
    $
    0.65
    
    
    $
    0.58Basic earnings per share  pro forma
    
    
    0.64
    
    
    
    0.57Diluted earnings per share  as reported
    
    
    0.61
    
    
    
    0.55Diluted earnings per share  pro forma
    
    
    0.60
    
    
    
    0.54
  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. The
following were the weighted average assumptions for the grants in 2004: no dividend
yield, expected volatility of 31.45%, risk-free interest rate of 4.15% and expected
life of 6.00 years. No options were granted in the first three months of 2005.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 IncomeComprehensive 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 ended April 2,
2005 and April 3, 2004, the following table sets forth the Companys
comprehensive income: Three Months EndedApril 2,
    
    
    April 3,2005
    
    
    2004(in thousands)Net income
    
    $
    1,643
    
    
    $
    1,422Unrealized gain (loss) on
interest rate swap, net of tax
    
    
    34
    
    
    
    (16
    )Foreign currency translation gain (loss)
    
    
    (1,676
    )
    
    
    (1,026
    )Comprehensive income
    
    $
    1
    
    
    $
    380
 -9-




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##### Table of Contents



11.
    Management Geographic InformationThe 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).For the three-month periods ended April 2, 2005 and April 3, 2004, the following table
sets forth the Companys geographic information: EMEA/
    
    
    Elimi-
    
    
    Consoli-Americas
    
    
    Asia
    
    
    nations
    
    
    dated(in thousands)THREE MONTHS ENDEDApril 2, 2005RevenuesSales to unaffiliated customers
    
    $
    17,113
    
    
    $
    11,439
    
    
    $
    
    
    
    $
    28,552Sales to affiliates
    
    
    753
    
    
    
    755
    
    
    
    (1,508
    )
    
    
    Total sales
    
    $
    17,866
    
    
    $
    12,194
    
    
    
    ($1,508
    )
    
    $
    28,552Operating income
    
    $
    2,399
    
    
    $
    362
    
    
    $
    30
    
    
    
    2,791Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (263
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,528
 EMEA/
    
    
    Elimi-
    
    
    Consoli-Americas
    
    
    Asia
    
    
    nations
    
    
    ated(in thousands)THREE MONTHS ENDEDApril 3, 2004RevenuesSales to unaffiliated customers
    
    $
    14,793
    
    
    $
    11,528
    
    
    $
    
    
    
    $
    26,321Sales to affiliates
    
    
    695
    
    
    
    826
    
    
    
    (1,521
    )
    
    
    Total sales
    
    $
    15,488
    
    
    $
    12,354
    
    
    $
    (1,521
    )
    
    $
    26,321Operating income
    
    $
    1,364
    
    
    $
    933
    
    
    $
    (34
    )
    
    $
    2,263Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (366
    )Gain on sale of office building
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    164Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,061
 -10-




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For the three-month periods ended April 2, 2005 and April 3, 2004, the following table
sets forth revenues from external customers: Three Months EndedApril 2,
    
    
    April 3,2005
    
    
    2004(in thousands)AmericasU.S.
    
    $
    14,694
    
    
    $
    12,743All others
    
    
    2,419
    
    
    
    2,050Total
    
    
    17,113
    
    
    
    14,793EMEA/AsiaGermany
    
    
    1,820
    
    
    
    1,834All others
    
    
    9,619
    
    
    
    9,694Total
    
    
    11,439
    
    
    
    11,528$
    28,552
    
    
    $
    26,321
 -11-




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##### Table of Contents



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 or product lines (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 quarter or
first three months of 2005 or 2004 mean the fiscal quarter or three-month period ended
April 2, 2005 or April 3, 2004. 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 2004 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 1, 2005 (the 2004 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 amounts or results
could differ from those estimates. The significant accounting policies of the Company are described in Note 2 to the 2004
consolidated financial statements, and the critical accounting policies and estimates are
described in Managements Discussion and Analysis included in our 2004 Form 10-K. There
have been no changes in the critical accounting policies. Information concerning our
implementation and the impact of new accounting standards issued by the Financial Accounting
Standards Board is included in the notes to the 2004 consolidated financial statements. We
did not adopt an accounting policy in the first three months of 2005 that had a material
impact on our financial condition, liquidity or results of operations. -12-




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Results of Operations Overview For the first three months of 2005 and 2004, we reported revenues of $28,552,000
and $26,321,000 and net income of $1,643,000 and $1,422,000. We believe that the
increases in our revenues and net income in the first three months of 2005 compared to the
same period in 2004 were primarily the result of stronger business conditions and increased
spending by our customers in the Americas, especially with respect to our size reduction
business line, and also by customers of our pneumatic conveying business line, which more
than offset lower spending by overseas customers of our feeding business line. An
additional favorable factor was the positive effect of a weaker U.S. dollar in the first
quarter of 2005 versus the first quarter of 2004 on the translation of the revenues and
profits of our foreign operations into U.S. dollars. Our effective tax rate for the first
quarter of 2005 was 35.0%, up from 31.0% in 2004 due primarily to a higher proportion of
U.S. income which was taxed at higher rates. Net income for the first quarter of 2004
benefited from a $164,000 pre-tax 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 40.0% and 43.8% of our revenues for
the first three months of 2005 and 2004 from products manufactured in, and services
performed from, our facilities located outside the United States, primarily in Europe.
With our global operations, 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 receive substantial revenues 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. -13-




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For the first three months of 2005 and 2004, the changes in certain key foreign
exchange rates affecting the Company were as follows: Three Months EndedApril 2,
    
    
    
    
    
    
    April 3,2005
    
    
    
    
    
    
    2004Average U.S. dollar equivalent of
one Swiss franc
    
    
    0.845
    
    
    
    
    
    
    
    0.794% change vs. prior year
    
    
    
    
    
    
    +6.4
    %Average U.S. dollar equivalent of
one euro
    
    
    1.312
    
    
    
    
    
    
    
    1.246% change vs. prior year
    
    
    
    
    
    
    +5.3
    %Average U.S. dollar equivalent of
one British pound sterling
    
    
    1.891
    
    
    
    
    
    
    
    1.837% change vs. prior year
    
    
    
    
    
    
    +2.9
    %Average Swiss franc equivalent of
one euro
    
    
    1.553
    
    
    
    
    
    
    
    1.569% change vs. prior year
    
    
    
    
    
    
    -1.0
    %Average Swiss franc equivalent of
one British pound sterling
    
    
    2.238
    
    
    
    
    
    
    
    2.314% change vs. prior year
    
    
    
    
    
    
    -3.3
    %
 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. Three Months EndedApril 2,
    
    
    April 3,2005
    
    
    2004Total revenues
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    58.1
    
    
    
    57.5Gross profit
    
    
    41.9
    
    
    
    42.5Selling, general and administrative
    
    
    29.8
    
    
    
    31.4Research and development
    
    
    2.3
    
    
    
    2.5Operating income
    
    
    9.8
    
    
    
    8.6Interest (expense)
    
    
    (0.9
    )
    
    
    (1.4
    )Gain on sale of office building
    
    
    
    
    
    
    0.6Income before income taxes
    
    
    8.9
    %
    
    
    7.8
    %
 -14-




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The following table sets forth our backlog at the end of periods indicated: April 2, 2005
    
    
    January 1, 2005
    
    
    April 3, 2004Backlog (at April 2, 2005
exchange rates, in thousands
of dollars)
    
    $
    25,843
    
    
    $
    21,511
    
    
    $
    21,935
 Total revenues increased by $2,231,000 or 8.5% in the first quarter of 2005 compared
to the same period in 2004. We believe that this increase was primarily attributable to
stronger business conditions and increased spending by our customers in the Americas,
especially with respect to our size reduction business line, and also by customers of our
pneumatic conveying business line, which more than offset lower spending by overseas
customers of our feeding business line, and to a lesser degree, to the positive effect of a
weaker U.S. dollar on the translation of the revenues of our foreign operations into U.S.
dollars. The favorable impact of foreign currency translation accounted for approximately
28.5%, or $636,000, of the $2,231,000 revenue increase in the first quarter of 2005
compared to the same period in 2004. Gross profit as a percentage of total revenues decreased to 41.9% in the first quarter
of 2005 from 42.5% for the same period in 2004. This decrease reflected a change in the
sales mix of the products and services that we sold in these periods. Sales mix refers to
the relative amounts of different products sold and services provided. Gross margin levels
vary with the product sold or service provided. For example, sales of replacement parts in
the size reduction business line generally carry a higher gross margin than do sales of
equipment within that line. Selling, general and administrative expenses increased by $223,000 or 2.7% in the
first quarter of 2005 compared to the same period in 2004. This increase was primarily the
result of the effect of a weaker U.S. dollar on the translation of foreign costs into U.S.
dollars, Sarbanes-Oxley implementation costs and higher sales commissions related to
increased revenues, partially offset by a lower employee bonus accrual. Research and development (R&D) expense increased by $16,000 or 2.5% in the first
quarter of 2005 compared to the same period in 2004. This increase was primarily due to
the effect of a weaker U.S. dollar versus the Swiss franc on the translation of Swiss R&D
costs into U.S. dollars. Interest expense decreased by $103,000 or 28.1% in the first quarter of 2005 compared
to the same period in 2004. This decrease was the result of lower debt levels in the first
quarter of 2005, partially offset by higher interest rates on some of our debt. 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 increased to $2,528,000 for the first quarter of 2005 from
$2,061,000 for the same period in 2004. This $467,000 increase was primarily the net
result of the items discussed above. The provisions for income tax for the first quarters of 2005 and 2004 were $885,000
and $639,000, and the overall effective tax rates were 35.0% and 31.0%. The higher
effective tax rate -15-




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in 2005 compared with 2004 was primarily due to a higher proportion of U.S. income in the
first quarter of 2005. Our backlog at constant foreign exchange rates increased by $4,332,000 or 20.1% at the
end of the first quarter of 2005 compared with year-end 2004, from $21,511,000 to
$25,843,000. Our backlog at constant foreign exchange rates increased by $3,908,000 or
17.8% at the end of the first quarter of 2005 compared to the end of the first quarter of
2004, from $21,935,000 to $25,843,000. This increase in our backlog was primarily the
result of the improved business conditions in the Americas that are described above. Liquidity and Capital Resources Capitalization Our capitalization at the end of the first quarter of 2005 and at the end of fiscal years
2004 and 2003 is summarized below: April 2,
    
    
    January 1,
    
    
    January 3,(Dollars in Thousands)
    
    2005
    
    
    2005
    
    
    2004Short-term debt, including current
portion of long-term debt
    
    $
    4,111
    
    
    $
    4,185
    
    
    $
    3,541Long-term debt
    
    
    17,223
    
    
    
    18,598
    
    
    
    24,574Total debt
    
    
    21,334
    
    
    
    22,783
    
    
    
    28,115Shareholders equity
    
    
    45,729
    
    
    
    45,559
    
    
    
    35,114Total debt and shareholders equity
(total capitalization)
    
    $
    67,063
    
    
    $
    68,342
    
    
    $
    63,229Percent total debt to total
capitalization
    
    
    32
    %
    
    
    33
    %
    
    
    44
    %Percent long-term debt to equity
    
    
    38
    %
    
    
    41
    %
    
    
    70
    %Percent total debt to equity
    
    
    47
    %
    
    
    50
    %
    
    
    80
    %
 Total debt decreased by $1,449,000 in the first three months of 2005 ($1,445,000 at
constant foreign exchange rates). At April 2, 2005, and subject to certain conditions
which may limit the amount that may be borrowed at any particular time, we had $6,305,000
of unused borrowing capacity under our U.S. loan agreements and $10,373,000 of unused
borrowing capacity under our foreign loan agreements. Other Items At April 2, 2005, working capital was $23,881,000 compared to $23,778,000 at January
1, 2005, and the ratio of current assets to current liabilities at those dates was 1.99 and
1.86. The small increase in working capital during the first quarter of 2005 was primarily
due to an increase in cash from operating activities. In the first three months of 2005 and 2004, we utilized internally generated funds and
our lines of credit to meet our working capital needs. Net cash provided by operating activities was $1,558,000 in the first three months of
2005 compared to $908,000 in the same period of 2004. This $650,000 increase in operating -16-




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cash flow was primarily due to higher net income, lower accounts receivable and higher
accounts payable, partially offset by lower accrued expenses. Net cash used in investing activities in the first three months of 2005 was primarily
for capital additions. Net cash provided by investing activities in the first three months
of 2004 was primarily from the disposition of the U.K. office building noted above,
partially offset by capital additions. Net cash used in financing activities in the first three months of 2005 was for a net
reduction in debt, which was partially offset by the proceeds from stock option exercises.
Net cash provided by financing activities in the first three months of 2004 was from
proceeds from stock option exercises, which was partially offset by a net reduction in
debt. Of the total increase in shareholders equity of $170,000 in the first three months of
2005, $1,643,000 was from net income, $169,000 was from the issuance of common stock
related to the exercise of stock options and $34,000 was from an unrealized gain, net of
taxes, on an interest rate swap, largely offset by a reduction of $1,676,000 from changes
in foreign exchange rates between the beginning and the end of the three-month period. 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 2004 Form 10-K, except that in the first quarter
of 2005 we prepaid $500,000 of bank debt due in 2008. Refer to Notes 8 and 15 to the
consolidated financial statements in the 2004 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 implementation of SFAS No. 123(R),
the possible repatriation of undistributed earnings of foreign subsidiaries and the effect
of changes in foreign -17-




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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 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, including possible terrorist acts; 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. We are currently exposed to certain market risks related to (i) fluctuations in
foreign exchange rates and (ii) interest rate changes. Foreign Exchange Rate Risk The primary currencies for which we have exchange rate exposure are the U.S. dollar
versus the Swiss franc, the U.S. dollar versus the euro, the U.S. dollar versus the British
pound sterling, the Swiss franc versus the euro and the Swiss franc versus the British
pound sterling. We do not, as a routine matter, use hedging vehicles to manage foreign
exchange exposures. Foreign currency debt is used as necessary in Switzerland and the
United Kingdom where the Company does business, thereby reducing any net asset value
exposure. In addition, foreign cash balances in currencies other than the Swiss franc are
limited in order to manage the transaction exposure caused by the marking to market of
non-Swiss franc balances to Swiss franc values on the balance sheet of our Swiss
subsidiary. As of April 2, 2005, a 10% unfavorable change in the foreign exchange rates affecting
balance sheet transactional exposures would have resulted in a reduction in pre-tax income
of approximately $452,000. This hypothetical reduction on transactional exposures is based
on the -18-




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difference between the April 2, 2005 actual foreign exchange rates and hypothetical
rates assuming a 10% unfavorable change in foreign exchange rates on that date. The translation of the balance sheets of our non-U.S. operations from local currencies
into U.S. dollars is also sensitive to changes in foreign exchange rates. These
translation gains or losses are recorded as translation adjustments (TA) within the
shareholders equity account on the balance sheet. Using the example above, a hypothetical
change in TA would be calculated by multiplying the net assets of our non-U.S. operations
by a 10% unfavorable change in the applicable foreign exchange rates. The result of this
calculation shows that shareholders equity would be reduced by approximately $2,902,000,
or 6.3% of our April 2, 2005 shareholders equity of $45,729,000. Interest Rate Risk We have several credit facilities or loans that require us to pay interest at a rate
that may change periodically. These variable rate obligations expose us to the risk of
increased interest expense if short-term interest rates rise. We limit our exposure to
increased interest expense from rising short-term interest rates by including in our debt
portfolio various amounts of fixed rate debt as well as through the use of an interest rate
swap. As of April 2, 2005, we had total debt of $21,334,000, $6,245,000 of which was
fixed-rate debt, $8,839,000 of which was subject to variable interest rates which ranged
from 4.72% to 5.59% and $6,250,000 of which was variable rate debt subject to an interest
rate swap with the result that the interest rate was fixed at 5.11%. A 100 basis point
increase in interest rates on the $8,839,000 of variable rate debt would increase annual
interest expense by approximately $88,000. 
 Item 4.Controls and Procedures. Evaluation of Disclosure Controls and Procedures An evaluation of the effectiveness 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 our management, including our Chief Executive Officer and Chief
Financial Officer. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures as of the end of
the period covered by this report 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 (i) recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commissions rules and
forms and (ii) accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding disclosure. A controls system cannot provide absolute assurance, however, 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. Change in Internal Control over Financial Reporting No change in our internal control over financial reporting occurred during our most
recent fiscal quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. -19-




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##### Table of Contents



PART II. OTHER INFORMATION 
 Item 6.
    
    Exhibits.31.1
    
    Chief Executive Officer Certification pursuant to Rule 13a-14(a) or
15d-14(a) of the Securities Exchange Act of 193431.2
    
    Chief Financial Officer Certification pursuant to Rule 13a-14(a)
or 15d-14(a) of the Securities Exchange Act of 193432.1
    
    Chief Executive Officer and Chief Financial Officer Certification
pursuant to 18 U.S.C. Section 1350
   -20-




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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 5, 2005
    
    By:
    
    RONALD R. REMICKRonald R. RemickSenior Vice President & Chief
Financial Officer(Duly authorized officer and principalfinancial officer of the registrant)By:
    
    ALAN R. SUKONECKAlan R. SukoneckVice President, Chief Accounting
& Tax Officer(Duly authorized officer and principalaccounting officer of the registrant)
 -21-




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EXHIBIT INDEX ExhibitNumber
    
    Description31.1
    
    Chief Executive Officer Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 193431.2
    
    Chief Financial Officer Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 193432.1
    
    Chief Executive Officer and Chief Financial Officer Certification pursuant to 18
U.S.C. Section 1350
 -22-