##### Table of Contents



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 1934
 For
the quarterly period ended September 29, 2007
 OR
 o
    
    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.
  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)
 Registrants Telephone Number, Including Area Code
 (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 þ o
  o þ o
 o þ




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##### 



INDEX
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements.Consolidated Balance Sheets as of
September 29, 2007 (Unaudited) and December 30, 2006
    
    
    1Consolidated Statements of Income and Retained
Earnings (Unaudited) for the Three and Nine Months Ended
September 29, 2007 and September 30, 2006
    
    
    2Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended September 29, 2007 and
September 30, 2006
    
    
    3Notes to Consolidated Financial Statements (Unaudited)
    
    
    4  14Item 2. Managements Discussion and Analysis
of Financial Condition and Results of Operations.
    
    
    15  22Item 3. Quantitative and Qualitative Disclosures About
Market Risk.
    
    
    23Item 4. Controls and Procedures.
    
    
    24PART II. OTHER INFORMATIONItem 6. Exhibits.
    
    
    25SIGNATURES
    
    
    26CEO Certification, pursuant to Rule 13a-14(a) or 15d-14(a) of Securities Exchange Act of 1934CFO Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934CEO & CFO Certification pursuant to 18 USC Section 1350




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1 . Consolidated Financial Statements .
 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
  (Unaudited)September 29,
    
    
    December 30,2007
    
    
    2006ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    24,704
    
    
    $
    14,038Restricted cash
    
    
    1,970
    
    
    
    420Accounts receivable, net of allowance for
doubtful accounts of $1,053 and $852
    
    
    29,684
    
    
    
    23,364Inventories, net
    
    
    30,947
    
    
    
    23,467Costs and estimated earnings in excess of billings
    
    
    2,875
    
    
    
    Deferred income taxes
    
    
    1,617
    
    
    
    1,617Prepaid expenses and other current assets
    
    
    4,327
    
    
    
    3,649Total current assets
    
    
    96,124
    
    
    
    66,555PROPERTY, PLANT AND EQUIPMENT, net
    
    
    27,689
    
    
    
    29,316PATENTS, net
    
    
    1,566
    
    
    
    1,457GOODWILL
    
    
    27,230
    
    
    
    24,094OTHER INTANGIBLES, net
    
    
    22,545
    
    
    
    17,762NOTES RECEIVABLE AND OTHER ASSETS
    
    
    3,557
    
    
    
    1,665DEFERRED INCOME TAXES
    
    
    192
    
    
    
    147Total assets
    
    $
    178,903
    
    
    $
    140,996LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current portion of long-term debt
    
    $
    1,424
    
    
    $
    404Accounts payable
    
    
    13,634
    
    
    
    8,397Accrued expenses and other current liabilities
    
    
    14,463
    
    
    
    11,618Accrued commissions
    
    
    3,744
    
    
    
    3,009Billings in excess of costs and estimated earnings
    
    
    1,226
    
    
    
    Customer advances
    
    
    8,034
    
    
    
    8,233Income taxes payable
    
    
    5,721
    
    
    
    4,270Deferred income taxes
    
    
    1,662
    
    
    
    1,662Total current liabilities
    
    
    49,908
    
    
    
    37,593LONG-TERM DEBT, net of current portion
    
    
    39,464
    
    
    
    34,364DEFERRED INCOME TAXES
    
    
    3,583
    
    
    
    3,583OTHER NON-CURRENT LIABILITIES
    
    
    188
    
    
    
    75SERIES 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 4,699,333 shares and 4,615,623 shares, respectively
    
    
    47
    
    
    
    46Paid-in capital
    
    
    23,825
    
    
    
    20,319Retained earnings
    
    
    84,317
    
    
    
    69,255Accumulated other comprehensive income
    
    
    5,085
    
    
    
    3,275113,274
    
    
    
    92,895Treasury
stock, 2,002,574 shares  at cost
    
    
    (27,514
    )
    
    
    (27,514
    )Total shareholders equity
    
    
    85,760
    
    
    
    65,381Total liabilities and shareholders equity
    
    $
    178,903
    
    
    $
    140,996
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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
   Three Months Ended
    
    
    Nine Months EndedSeptember 29,
    
    
    September 30,
    
    
    September 29,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006REVENUES:Equipment and parts
    
    $
    45,701
    
    
    $
    32,720
    
    
    $
    134,117
    
    
    $
    97,334Services and freight
    
    
    2,471
    
    
    
    2,166
    
    
    
    8,413
    
    
    
    6,427Other
    
    
    
    
    
    
    
    
    
    
    92
    
    
    
    Total revenues
    
    
    48,172
    
    
    
    34,886
    
    
    
    142,622
    
    
    
    103,761COST OF REVENUES:Equipment and parts
    
    
    25,955
    
    
    
    18,957
    
    
    
    75,035
    
    
    
    54,369Services and freight
    
    
    2,102
    
    
    
    2,010
    
    
    
    7,276
    
    
    
    6,057Total cost of revenues
    
    
    28,057
    
    
    
    20,967
    
    
    
    82,311
    
    
    
    60,426Gross profit
    
    
    20,115
    
    
    
    13,919
    
    
    
    60,311
    
    
    
    43,335OPERATING EXPENSES:Selling, general and administrative
    
    
    12,080
    
    
    
    9,027
    
    
    
    36,006
    
    
    
    28,218Research and development
    
    
    556
    
    
    
    568
    
    
    
    1,758
    
    
    
    1,74112,636
    
    
    
    9,595
    
    
    
    37,764
    
    
    
    29,959Operating income
    
    
    7,479
    
    
    
    4,324
    
    
    
    22,547
    
    
    
    13,376INTEREST (EXPENSE), net
    
    
    (363
    )
    
    
    (153
    )
    
    
    (1,263
    )
    
    
    (519
    )Income before income taxes
    
    
    7,116
    
    
    
    4,171
    
    
    
    21,284
    
    
    
    12,857INCOME TAX PROVISION
    
    
    2,186
    
    
    
    1,433
    
    
    
    6,222
    
    
    
    4,446NET INCOME
    
    
    4,930
    
    
    
    2,738
    
    
    
    15,062
    
    
    
    8,411RETAINED EARNINGS:Beginning of period
    
    
    79,387
    
    
    
    62,056
    
    
    
    69,255
    
    
    
    56,383End of period
    
    $
    84,317
    
    
    $
    64,794
    
    
    $
    84,317
    
    
    $
    64,794EARNINGS PER SHARE:Basic
    
    $
    1.83
    
    
    $
    1.05
    
    
    $
    5.62
    
    
    $
    3.24Diluted
    
    $
    1.72
    
    
    $
    0.97
    
    
    $
    5.28
    
    
    $
    3.01Weighted average common shares
outstanding (basic)
    
    
    2,696,000
    
    
    
    2,612,000
    
    
    
    2,681,000
    
    
    
    2,595,000Weighted average common and
common equivalent shares
outstanding (diluted)
    
    
    2,872,000
    
    
    
    2,820,000
    
    
    
    2,854,000
    
    
    
    2,793,000
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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Nine Months EndedSeptember 29,
    
    
    September 30,2007
    
    
    2006OPERATING ACTIVITIES:Net income
    
    $
    15,062
    
    
    $
    8,411Adjustments to reconcile net income to net cash provided by operating activities:Gain on disposition of asset
    
    
    (92
    )
    
    
    Depreciation and amortization
    
    
    4,068
    
    
    
    3,386Non-cash compensation
    
    
    323
    
    
    
    257Deferred income taxes
    
    
    (45
    )
    
    
    (89
    )Changes in assets and liabilities, net of business acquired:Accounts receivable, net
    
    
    (181
    )
    
    
    (520
    )Inventories, net
    
    
    (1,813
    )
    
    
    (4,896
    )Prepaid expenses and other current assets
    
    
    (300
    )
    
    
    (1,122
    )Other assets
    
    
    331
    
    
    
    66Accounts payable
    
    
    2,633
    
    
    
    1,944Accrued expenses and other current liabilities
    
    
    600
    
    
    
    4,908Net cash provided by operating activities
    
    
    20,586
    
    
    
    12,345INVESTING ACTIVITIES:Proceeds from disposition of asset
    
    
    428
    
    
    
    Businesses acquired, net of cash received
    
    
    (17,101
    )
    
    
    (7,116
    )Capital expenditures
    
    
    (1,564
    )
    
    
    (1,992
    )Restricted cash
    
    
    (1,550
    )
    
    
    (701
    )Other
    
    
    (30
    )
    
    
    (39
    )Net cash (used in) investing activities
    
    
    (19,817
    )
    
    
    (9,848
    )FINANCING ACTIVITIES:Net repayments under notes payable to banks
    
    
    
    
    
    
    (804
    )Proceeds from issuance of long-term debt
    
    
    24,130
    
    
    
    9,801Principal payments on long-term debt
    
    
    (18,021
    )
    
    
    (14,399
    )Tax benefit from stock option exercises
    
    
    1,573
    
    
    
    Net issuance
cost
    
    
    
    
    
    
    (63
    )Proceeds from issuance of common stock
    
    
    1,093
    
    
    
    398Net cash provided by (used in) financing activities
    
    
    8,775
    
    
    
    (5,067
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS
    
    
    1,122
    
    
    
    395NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    10,666
    
    
    
    (2,175
    )CASH AND CASH EQUIVALENTS:Beginning of period
    
    
    14,038
    
    
    
    15,051End of period
    
    $
    24,704
    
    
    $
    12,876SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the period for:Interest
    
    $
    1,500
    
    
    $
    658Income taxes
    
    $
    4,157
    
    
    $
    4,333Seller financing for businesses acquired
    
    $
    434
    
    
    $
    3,000
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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 September 29, 2007
  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. All references to the third quarter or
first nine months of 2007 or 2006 mean the 13-week or 39-week period ended September
29, 2007 or September 30, 2006.The unaudited financial statements herein should be read in conjunction with the
Companys annual report on Form 10-K for the fiscal year ended December 30, 2006
which was previously filed with the Securities and Exchange Commission (the SEC) on
March 9, 2007.Certain reclassifications were made to the prior years consolidated financial
statements to conform them to the current year presentation.2.
    
    AcquisitionOn March 27, 2007, the Company purchased certain assets of Wuxi Chenghao Machinery
Co., Ltd. (Wuxi Chenghao), a privately-owned company in the Peoples Republic of
China. The purchased assets were transferred from the seller to a newly-created
Wholly Foreign-Owned Enterprise, which we established in connection with this
transaction, that conducts its business under the name Wuxi K-Tron Colormax
Machinery Co., Ltd. The total cost of the transaction over a five-year period,
including the $1,000,000 purchase price and payments under related employment and
other arrangements with Wuxi Chenghaos owner, could be as much as approximately
$3,500,000.On September 14, 2007, the Company purchased all of the outstanding stock of Rader
Companies, Inc. (Rader), and the financial results of Rader have been included in
the Companys consolidated financial statements since that date. The preliminary
purchase price was $15,945,000, all of which was paid in cash, including a
$2,300,000 escrow. The Company borrowed the full amount of the purchase price under
its existing U.S. revolving credit facility (see Note 7  Long-Term Debt). The
purchase price is subject to an adjustment, which is expected to be finalized in the
fourth quarter of 2007, based upon the change in Raders net working capital between
January 1, 2007 and the September 14, 2007 closing date. The preliminary purchase
price adjustment recorded as of September 29, 2007 was an increase to the purchase
price of $1,423,000. At the sellers direction, $3,798,000 of the purchase price
was delivered to Rader on the closing date to satisfy indebtedness owed to Rader by
two other companies also owned by the sellers.
 -4-




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##### Table of Contents



Useful Life
    
    2007(in thousands)Patents
    
    10 years
    
    $
    200Goodwill
    
    Indefinite
    
    
    2,194Customer relationships
    
    10 years
    
    
    2,600Drawings
    
    25 years
    
    
    1,160Tradenames
    
    Indefinite
    
    
    1,500$
    7,654
  2007(in thousands)Cash
    
    $
    1,508Accounts receivables, net
    
    
    5,152Inventories, net
    
    
    5,092Costs in excess of billings, net of billings in excess of costs
    
    
    1,183Other current assets
    
    
    488Property, plant and equipment
    
    
    55Patents
    
    
    200Goodwill
    
    
    2,194Customer relationships
    
    
    2,600Drawings
    
    
    1,160Tradenames
    
    
    1,500Accounts payable
    
    
    (2,821
    )Accrued expenses and other current liabilities
    
    
    (3,243
    )$
    15,068
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Customer relationships, drawings and tradenames are included in other intangibles in
the consolidated balance sheet.The above allocations are based on a preliminary valuation of Raders assets and
liabilities, which allocations may change when the final valuation is completed.3.
    
    New Accounting PronouncementsIn July 2006, the Financial Accounting Standards Board (the FASB) issued FASB
Interpretation 48, Accounting for Uncertainty in Income Taxes: an interpretation of
FASB Statement No. 109. Interpretation 48, which clarifies Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, establishes the
criterion that an individual tax position has to meet for some or all of the benefits
of that position to be recognized in the Companys financial statements.
Interpretation 48 was effective for fiscal years beginning after December 15, 2006,
and was adopted by the Company effective December 31, 2006. On initial application,
Interpretation 48 was applied to all tax positions for which the statute of
limitations remained open. Only tax positions that met the more-likely-than-not
recognition threshold at the adoption date were recognized and, with respect to later
dates, only those that met or meet the threshold on those later dates have been or
will be recognized at those dates. The Company is subject to income taxes in the
U.S. federal jurisdiction and also in various state, local and foreign jurisdictions.
Tax laws and regulations within each jurisdiction are subject to interpretation and
require significant judgment to apply. With few exceptions, the Company is no longer
subject to U.S. federal, state or local or non-U.S. income tax examinations by tax
authorities for years before 2003. The Company recognizes interest accrued related
to unrecognized tax liabilities in interest expense and recognizes penalties in
operating expenses. The Company had accrued approximately $153,000 for the payment
of interest and penalties at December 30, 2006. Subsequent changes to accrued
interest and penalties have not been significant. The adoption of Interpretation 48
did not have a material impact on the Companys consolidated financial statements.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, a
standard that provides enhanced guidance for using fair value to measure assets and
liabilities. SFAS No. 157 also responds to investors requests for expanded
information about the extent to which companies measure assets and liabilities at
fair value, the information used to measure fair value and the effect of fair value
measurements on earnings. SFAS No. 157 applies whenever other standards require (or
permit) assets or liabilities to be measured at fair value. SFAS No. 157 does not
expand the use of fair value in any new circumstances. SFAS No. 157 establishes a
fair value hierarchy that prioritizes the information used to develop fair value
assumptions. SFAS No. 157 is effective for fiscal years and interim periods
beginning after November 15, 2007. The Company has not yet determined the impact on
its consolidated financial statements of adopting SFAS No. 157.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option of Financial
Assets and Financial Liabilities  Including an amendment of FASB Statement No.
115, which provides companies with an option to report selected financial assets
and liabilities at fair value. The objective of SFAS No. 159 is to reduce both
complexity in accounting for financial instruments and the volatility in earnings
caused by measuring related assets and liabilities differently. SFAS No. 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different
 -6-




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measurement attributes for similar types of assets and liabilities. SFAS No. 159 is
effective for fiscal years and interim periods beginning after November 15, 2007.
The Company has not yet determined the impact on its consolidated financial
statements of adopting SFAS No. 159.4.
    
    InventoriesInventories consist of the following:
 September 29,
    
    
    December 30,2007
    
    
    2006(in thousands)Components
    
    $
    23,038
    
    
    $
    18,697Work-in-process
    
    
    9,063
    
    
    
    5,580Finished goods
    
    
    1,029
    
    
    
    739Inventory reserves
    
    
    (2,183
    )
    
    
    (1,549
    )$
    30,947
    
    
    $
    23,467
 5.
    
    Intangible AssetsIntangible assets consist of the following:
 September 29, 2007
    
    
    December 30, 2006Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization(in thousands)Amortized intangible assetsPatents
    
    $
    3,086
    
    
    $
    1,520
    
    
    $
    2,855
    
    
    $
    1,398Drawings
    
    
    6,140
    
    
    
    696
    
    
    
    4,980
    
    
    
    545Customer relationships
    
    
    11,198
    
    
    
    807
    
    
    
    8,598
    
    
    
    481$
    20,424
    
    
    $
    3,023
    
    
    $
    16,433
    
    
    $
    2,424Unamortized intangible assetsTrademarks and tradenames
    
    $
    6,710
    
    
    
    
    
    
    $
    5,210
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6.
    
    Accrued WarrantyThe Company offers a one-year warranty on a majority of its products. Warranty is
accrued as a percentage of sales, based upon historical experience, on a monthly
basis and is included in accrued expenses and other current liabilities. The
following is an analysis of accrued warranty for the nine-month periods ended
September 29, 2007 and September 30, 2006:
 Nine Months EndedSeptember 29,
    
    
    September 30,2007
    
    
    2006(in thousands)Beginning balance
    
    $
    1,538
    
    
    $
    989Accrued warranty of acquired businesses
    
    
    264
    
    
    
    150Accrual of warranty expense
    
    
    1,404
    
    
    
    1,212Warranty costs incurred
    
    
    (999
    )
    
    
    (843
    )Foreign exchange adjustment
    
    
    27
    
    
    
    21Ending balance
    
    $
    2,234
    
    
    $
    1,529
 7.
    
    Long-Term DebtLong-term debt consists of the following, with the annual interest rates shown being
those in effect on September 29, 2007:
 September 29,
    
    
    December 30,2007
    
    
    2006(in thousands)U.S. revolving line of credit
    
    $
    36,250
    
    
    $
    30,000U.S. mortgage, interest at 6.45%
    
    
    1,413
    
    
    
    1,553U.S. term note, interest at 5.00%
    
    
    3,000
    
    
    
    3,000Other
    
    
    225
    
    
    
    21540,888
    
    
    
    34,768Less current portion
    
    
    (1,424
    )
    
    
    (404
    )$
    39,464
    
    
    $
    34,364
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Expiration ofInterest RateAmount
    
    
    Period
    
    
    Per Annum RateOne-month LIBOR*
    
    $
    9,000,000
    *
    
    
    10/31/2007
    *
    
    
    6.011
    %*Six-month LIBOR
    
    
    4,250,000
    
    
    
    11/30/2007
    
    
    
    6.255
    %Six-month LIBOR
    
    
    4,000,000
    
    
    
    1/31/2008
    
    
    
    6.245
    %Six-month LIBOR
    
    
    5,000,000
    
    
    
    3/31/2008
    
    
    
    5.944
    %Two-year interest rate swap
    
    
    2,000,000
    
    
    
    9/24/2009
    
    
    
    5.605
    %Three-year interest rate swap
    
    
    2,000,000
    
    
    
    10/13/2009
    
    
    
    6.085
    %Four-year interest rate swap
    
    
    5,000,000
    
    
    
    9/24/2010
    
    
    
    5.665
    %Three-year interest rate swap
    
    
    5,000,000
    
    
    
    10/13/2010
    
    
    
    6.095
    %$
    36,250,000
 
 *
    
    As of October 31, 2007, the $9,000,000 borrowed at one-month LIBOR of 6.011% per
annum was replaced by $2,000,000 at one-month LIBOR of 5.668% per annum through
November 30, 2007, $1,500,000 at six-month LIBOR of 5.707% per annum through April
30, 2008, $2,500,000 at prime minus 1% per annum (currently 6.5%) and a two-year
interest rate swap on $3,000,000 at 5.385% per annum which expires on October 31,
2009. 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.The Companys Basic and Diluted Earnings Per Share are calculated as follows:
 For the Three Months Ended September 29, 2007Net Income Available(Dollars and Shares in Thousands
    
    To Common
    
    
    
    
    
    
    Earningsexcept Per Share Data)
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    4,930
    
    
    
    2,696
    
    
    $
    1.83Common share equivalent
of outstanding options
    
    
    
    
    
    
    176
    
    
    
    (0.11
    )Diluted
    
    $
    4,930
    
    
    
    2,872
    
    
    $
    1.72
 -9-




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##### Table of Contents



For the Three Months Ended September 30, 2006Net Income Available(Dollars and Shares in Thousands
    
    To Common
    
    
    
    
    
    
    Earningsexcept Per Share Data)
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    2,738
    
    
    
    2,612
    
    
    $
    1.05Common share equivalent
of outstanding options
    
    
    
    
    
    
    208
    
    
    
    (0.08
    )Diluted
    
    $
    2,738
    
    
    
    2,820
    
    
    $
    0.97
 For the Nine Months Ended September 29, 2007Net Income Available(Dollars and Shares in Thousands
    
    To Common
    
    
    
    
    
    
    Earningsexcept Per Share Data)
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    15,062
    
    
    
    2,681
    
    
    $
    5.62Common share equivalent
of outstanding options
    
    
    
    
    
    
    173
    
    
    
    (0.34
    )Diluted
    
    $
    15,062
    
    
    
    2,854
    
    
    $
    5.28
 For the Nine Months Ended September 30, 2006Net Income Available(Dollars and Shares in Thousands
    
    To Common
    
    
    
    
    
    
    Earningsexcept Per Share Data)
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    8,411
    
    
    
    2,595
    
    
    $
    3.24Common share equivalent
of outstanding options
    
    
    
    
    
    
    198
    
    
    
    (0.23
    )Diluted
    
    $
    8,411
    
    
    
    2,793
    
    
    $
    3.01
 Diluted earnings per common share are based on the weighted average number of common
and common equivalent shares outstanding during a given time period. Such weighted
average number includes the weighted average number of common shares outstanding plus
the shares issuable upon the exercise of stock options after the assumed repurchase of
common shares with the related proceeds at the average market price during the period.9.
    
    Share-Based CompensationThe Company adopted SFAS No. 123(R), Share-Based Payment, effective January 1, 2006.
SFAS No. 123(R) requires the Company to recognize expense related to the fair value
of share-based compensation awards, including employee and director stock grants and
options.
 -10-




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##### Table of Contents



Prior to the adoption of SFAS No. 123(R), the Company accounted for stock options
using the intrinsic value method of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and it did not recognize compensation
expense in its income statement for options granted that had an exercise price equal
to or greater than the market value of the underlying common stock on the date of
grant. However, the Company did record compensation expense related to restricted
stock grants based on the market value of its common stock at the date of grant and
the vesting period of the grant. As required by SFAS No. 123, Accounting for
Stock-Based Compensation, the Company also provided certain pro forma disclosures for
stock option awards as if the fair value-based approach of SFAS No. 123 had been
applied.The Company has elected to use the modified prospective transition method as permitted
by SFAS No. 123(R) and therefore has not restated its financial results for prior
periods. Under this transition method, the Company applies the provisions of SFAS No.
123(R) to stock option awards granted, modified, repurchased or cancelled after
December 31, 2005. Additionally, for unvested stock option awards granted prior to
the effective date of the Companys adoption of SFAS No. 123(R) which have not been
fully expensed in prior years, either in the Companys income statement or in pro
forma disclosures in the notes thereto, the Company recognizes compensation expense in
the same manner as was used in its income statement or for pro forma disclosures prior
to the effective date of its adoption of SFAS No. 123(R).There was no cost for stock option compensation for the first nine months of 2007.
The pre-tax cost for stock option compensation was approximately $62,000 ($38,000
after tax) for the first nine months of 2006.As of September 29, 2007, the Company did not have any prospective cost of stock
option compensation to be expensed.The Company issued 9,000 shares of restricted common stock in May of each of 2007 and
2006, with each grant vesting on the four-year anniversary of the date of grant.
Compensation expense related to this restricted stock is recognized ratably over the
four years based on the fair value of the shares at the date of grant, which was
$93.50 per share in 2007 and $51.50 per share in 2006.There were no stock options granted in 2006 or in the first nine months of 2007.10.
    
    Comprehensive IncomeComprehensive income is the total of net income, the changes (net of tax) in the
unrealized gain or loss on a foreign exchange hedge and on interest rate swaps
and the change in foreign currency translation adjustments, which were the
Companys only non-owner changes in equity in the first nine months of 2007 and
2006. For the three and nine-month periods ended September 29, 2007 and
September 30, 2006, the following table sets forth the Companys comprehensive
income:
 -11-




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSept. 29,
    
    
    Sept. 30,
    
    
    Sept. 29,
    
    
    Sept. 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)Net income
    
    $
    4,930
    
    
    $
    2,738
    
    
    $
    15,062
    
    
    $
    8,411Unrealized (loss) on foreign
exchange hedge, net of tax
    
    
    
    
    
    
    (79
    )
    
    
    
    
    
    
    (193
    )Termination of interest rate swap,
net of tax
    
    
    
    
    
    
    (46
    )
    
    
    
    
    
    
    (52
    )Unrealized (loss) on interest rate
swaps, net of tax
    
    
    (118
    )
    
    
    
    
    
    
    (68
    )
    
    
    Foreign currency translation gain (loss)
    
    
    1,843
    
    
    
    (503
    )
    
    
    1,878
    
    
    
    1,185Comprehensive income
    
    $
    6,655
    
    
    $
    2,110
    
    
    $
    16,872
    
    
    $
    9,351
 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 and nine-month periods ended September 29, 2007 and September 30, 2006,
the following table sets forth the Companys geographic information:
 EMEA/
    
    
    Elimi-
    
    
    Consoli-Americas
    
    
    Asia
    
    
    nations
    
    
    dated(in thousands)THREE MONTHS ENDEDSeptember 29, 2007RevenuesSales to unaffiliated customers
    
    $
    32,472
    
    
    $
    15,700
    
    
    $
    
    
    
    $
    48,172Sales to affiliates
    
    
    1,010
    
    
    
    1,280
    
    
    
    (2,290
    )
    
    
    Total sales
    
    $
    33,482
    
    
    $
    16,980
    
    
    $
    (2,290
    )
    
    $
    48,172Operating income (loss)
    
    $
    4,761
    
    
    $
    2,734
    
    
    $
    (16
    )
    
    $
    7,479Interest (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (363
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,116
 -12-




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##### Table of Contents



EMEA/
    
    
    Elimi-
    
    
    Consoli-Americas
    
    
    Asia
    
    
    nations
    
    
    dated(in thousands)THREE MONTHS ENDEDSeptember 30, 2006RevenuesSales to unaffiliated customers
    
    $
    23,767
    
    
    $
    11,119
    
    
    $
    
    
    
    $
    34,886Sales to affiliates
    
    
    966
    
    
    
    756
    
    
    
    (1,722
    )
    
    
    Total sales
    
    $
    24,733
    
    
    $
    11,875
    
    
    $
    (1,722
    )
    
    $
    34,886Operating income
    
    $
    3,548
    
    
    $
    772
    
    
    $
    4
    
    
    $
    4,324Interest (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (153
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,171
 EMEA/
    
    
    Elimi-
    
    
    Consoli-Americas
    
    
    Asia
    
    
    nations
    
    
    dated(in thousands)NINE MONTHS ENDEDSeptember 29, 2007RevenuesSales to unaffiliated customers
    
    $
    92,569
    
    
    $
    50,053
    
    
    $
    
    
    
    $
    142,622Sales to affiliates
    
    
    3,315
    
    
    
    3,808
    
    
    
    (7,123
    )
    
    
    Total sales
    
    $
    95,884
    
    
    $
    53,861
    
    
    $
    (7,123
    )
    
    $
    142,622Operating income (loss)
    
    $
    12,853
    
    
    $
    9,732
    
    
    $
    (38
    )
    
    $
    22,547Interest (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,263
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    21,284
 EMEA/
    
    
    Elimi-
    
    
    Consoli-Americas
    
    
    Asia
    
    
    nations
    
    
    dated(in thousands)NINE MONTHS ENDEDSeptember 30, 2006RevenuesSales to unaffiliated customers
    
    $
    69,213
    
    
    $
    34,548
    
    
    $
    
    
    
    $
    103,761Sales to affiliates
    
    
    2,438
    
    
    
    2,392
    
    
    
    (4,830
    )
    
    
    Total sales
    
    $
    71,651
    
    
    $
    36,940
    
    
    $
    (4,830
    )
    
    $
    103,761Operating income (loss)
    
    $
    10,776
    
    
    $
    2,636
    
    
    $
    (36
    )
    
    $
    13,376Interest (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (519
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    12,857
 -13-




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSept. 29,
    
    
    Sept. 30,
    
    
    Sept. 29,
    
    
    Sept. 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)AmericasU.S.
    
    $
    28,220
    
    
    $
    17,782
    
    
    $
    75,613
    
    
    $
    55,592All others
    
    
    4,252
    
    
    
    5,985
    
    
    
    16,956
    
    
    
    13,621Total
    
    
    32,472
    
    
    
    23,767
    
    
    
    92,569
    
    
    
    69,213EMEA/AsiaChina
    
    
    3,447
    
    
    
    695
    
    
    
    5,986
    
    
    
    2,312Germany
    
    
    2,900
    
    
    
    2,135
    
    
    
    8,390
    
    
    
    6,447Netherlands
    
    
    311
    
    
    
    308
    
    
    
    6,893
    
    
    
    905South Korea
    
    
    414
    
    
    
    1,149
    
    
    
    2,195
    
    
    
    2,252United Kingdom
    
    
    2,080
    
    
    
    1,713
    
    
    
    7,246
    
    
    
    4,820All others
    
    
    6,548
    
    
    
    5,119
    
    
    
    19,343
    
    
    
    17,812Total
    
    
    15,700
    
    
    
    11,119
    
    
    
    50,053
    
    
    
    34,548$
    48,172
    
    
    $
    34,886
    
    
    $
    142,622
    
    
    $
    103,761
 -14-




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Introduction
       -15-




---



##### Table of Contents



Critical Accounting Assumptions, Estimates and Policies; Recent Accounting Pronouncements
    Results of Operations
 Overview
  -16-




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##### Table of Contents



Foreign Exchange Rates
    -17-




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSept. 29,
    
    
    
    
    
    
    Sept. 30,
    
    
    Sept. 29,
    
    
    
    
    
    
    Sept. 30,2007
    
    
    
    
    
    
    2006
    
    
    2007
    
    
    
    
    
    
    2006Average U.S. dollar equivalent of
one Swiss franc
    
    
    0.836
    
    
    
    
    
    
    
    0.809
    
    
    
    0.821
    
    
    
    
    
    
    
    0.796% change vs. prior year
    
    
    
    
    
    
    +3.3
    %
    
    
    
    
    
    
    
    
    
    
    +3.1
    %Average U.S. dollar equivalent of
one euro
    
    
    1.378
    
    
    
    
    
    
    
    1.276
    
    
    
    1.346
    
    
    
    
    
    
    
    1.247% change vs. prior year
    
    
    
    
    
    
    +8.0
    %
    
    
    
    
    
    
    
    
    
    
    +7.9
    %Average U.S. dollar equivalent of
one British pound sterling
    
    
    2.024
    
    
    
    
    
    
    
    1.879
    
    
    
    1.988
    
    
    
    
    
    
    
    1.822% change vs. prior year
    
    
    
    
    
    
    +7.7
    %
    
    
    
    
    
    
    
    
    
    
    +9.1
    %Average Swiss franc equivalent of
one euro
    
    
    1.648
    
    
    
    
    
    
    
    1.577
    
    
    
    1.639
    
    
    
    
    
    
    
    1.567% change vs. prior year
    
    
    
    
    
    
    +4.5
    %
    
    
    
    
    
    
    
    
    
    
    +4.6
    %Average Swiss franc equivalent of
one British pound sterling
    
    
    2.421
    
    
    
    
    
    
    
    2.323
    
    
    
    2.421
    
    
    
    
    
    
    
    2.289% change vs. prior year
    
    
    
    
    
    
    +4.2
    %
    
    
    
    
    
    
    
    
    
    
    +5.8
    %
 Presentation of Results and Analysis
  Three Months Ended
    
    Nine Months EndedSept. 29,
    
    Sept. 30,
    
    Sept. 29,
    
    Sept. 30,2007
    
    2006
    
    2007
    
    2006Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    58.2
    
    
    
    60.1
    
    
    
    57.7
    
    
    
    58.2Gross profit
    
    
    41.8
    
    
    
    39.9
    
    
    
    42.3
    
    
    
    41.8Selling, general and administrative
    
    
    25.1
    
    
    
    25.9
    
    
    
    25.3
    
    
    
    27.2Research and development
    
    
    1.2
    
    
    
    1.6
    
    
    
    1.2
    
    
    
    1.7Operating income
    
    
    15.5
    
    
    
    12.4
    
    
    
    15.8
    
    
    
    12.9Interest expense, net
    
    
    0.8
    
    
    
    0.4
    
    
    
    0.9
    
    
    
    0.5Income before income taxes
    
    
    14.7
    
    
    
    12.0
    
    
    
    14.9
    
    
    
    12.4Income tax provision
    
    
    4.5
    
    
    
    4.2
    
    
    
    4.3
    
    
    
    4.3Net income
    
    
    10.2
    %
    
    
    7.8
    %
    
    
    10.6
    %
    
    
    8.1
    %
 -18-




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##### Table of Contents



Sept. 29, 2007
    
    
    Dec. 30, 2006
    
    
    Sept. 30, 2006Backlog (at September 29, 2007
foreign exchange rates, in
thousands of dollars)
    
    $
    62,530
    
    
    $
    50,855
    
    
    $
    44,081
      -19-




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##### Table of Contents



Liquidity and Capital Resources
 Capitalization
  September 29,
    
    
    December 30,
    
    
    December 31,(Dollars in Thousands)
    
    2007
    
    
    2006
    
    
    2005Short-term debt, including current
portion of long-term debt
    
    $
    1,424
    
    
    $
    404
    
    
    $
    4,316Long-term debt
    
    
    39,464
    
    
    
    34,364
    
    
    
    12,675Total debt
    
    
    40,888
    
    
    
    34,768
    
    
    
    16,991Shareholders equity
    
    
    85,760
    
    
    
    65,381
    
    
    
    49,520Total debt and shareholders equity
(total capitalization)
    
    $
    126,648
    
    
    $
    100,149
    
    
    $
    66,511Percent total debt to total
capitalization
    
    
    32
    %
    
    
    35
    %
    
    
    26
    %Percent long-term debt to equity
    
    
    46
    %
    
    
    53
    %
    
    
    26
    %Percent total debt to equity
    
    
    48
    %
    
    
    53
    %
    
    
    34
    %
 -20-




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##### Table of Contents



Other Items
      Future Payments Under Contractual Obligations
  -21-




---



##### Table of Contents



Risk Factors
  Forward-Looking Statements
  -22-




---



##### Table of Contents



Item 3 . Quantitative and Qualitative Disclosures About Market Risk .
  Foreign Exchange Rate Risk
    Interest Rate Risk
  -23-




---



##### Table of Contents



Item 4 . Controls and Procedures .
 Evaluation of Disclosure Controls and Procedures
  Change in Internal Control over Financial Reporting
  -24-




---



##### 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
 -25-




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##### Table of Contents



K-TRON INTERNATIONAL, INC.Date:  November 7, 2007
    By:
    RONALD R. REMICKRonald R. RemickSenior Vice President, Chief
Financial Officer and Treasurer
(Duly authorized officer and principal
financial officer of the Registrant)By:
    ALAN R. SUKONECKAlan R. SukoneckVice President, Chief Accounting
and Tax Officer
(Duly authorized officer and principal
accounting officer of the Registrant) -26-




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##### Table of Contents



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