##### 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 October 1, 2005
  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
    
    (I.R.S. Employer Identification No.)or Organization)Routes 55 & 553, P.O. Box 888, Pitman, New Jersey
    
    08071-0888(Address of Principal Executive Offices)
    
    (Zip Code)
  
   
   þ o
  o þ
  o þ




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INDEX
 Page No.PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements.Consolidated Balance Sheets October 1, 2005 (Unaudited) and January 1, 2005
    
    
    1Consolidated Statements of Income and Retained Earnings (Unaudited) for the Three and Nine Months Ended October 1, 2005 and October 2, 2004
    
    
    2Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended October 1, 2005 and October 2, 2004
    
    
    3Notes to Consolidated Financial Statements (Unaudited)
    
    
    4 - 12Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    13 - 20Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
    
    
    20 - 21Item 4.
    
    Controls and Procedures.
    
    
    21PART II.
    
    OTHER INFORMATIONItem 6.
    
    Exhibits.
    
    
    22SIGNATURES
    
    
    23LOAN MODIFICATION/RENEWAL AGREEMENTCEO CERTIFICATION PURSUANT TO RULE 13A-14(A) OR 15D-14(A)CFO CERTIFICATION PURSUANT TO RULE 13A-14(A) OR 15D-14(A)CEO AND CFO CERTIFICATION PURSUANT TO SECTION 1350




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1 . Financial Statements .
 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
  (Unaudited)October 1,
    
    
    January 1,2005
    
    
    2005ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    13,103
    
    
    $
    12,443Accounts receivable, net of allowance for
doubtful accounts of $683 and $751
    
    
    18,960
    
    
    
    21,234Inventories, net
    
    
    14,972
    
    
    
    15,096Deferred income taxes
    
    
    938
    
    
    
    938Prepaid expenses and other current assets
    
    
    2,415
    
    
    
    1,779Total current assets
    
    
    50,388
    
    
    
    51,490PROPERTY, PLANT AND EQUIPMENT, net
    
    
    22,057
    
    
    
    25,075PATENTS, net
    
    
    1,615
    
    
    
    1,737GOODWILL
    
    
    2,053
    
    
    
    2,053OTHER INTANGIBLES, net
    
    
    9,801
    
    
    
    9,978NOTES RECEIVABLE AND OTHER ASSETS
    
    
    2,134
    
    
    
    2,353DEFERRED INCOME TAXES
    
    
    308
    
    
    
    330Total assets
    
    $
    88,356
    
    
    $
    93,016LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current portion of long-term debt
    
    $
    4,261
    
    
    $
    4,185Accounts payable
    
    
    5,825
    
    
    
    6,351Accrued expenses and other current liabilities
    
    
    6,481
    
    
    
    7,782Accrued commissions
    
    
    2,350
    
    
    
    2,169Customer advances
    
    
    1,958
    
    
    
    2,536Income taxes payable
    
    
    3,277
    
    
    
    3,477Deferred income taxes
    
    
    1,212
    
    
    
    1,212Total current liabilities
    
    
    25,364
    
    
    
    27,712LONG-TERM DEBT, net of current portion
    
    
    13,879
    
    
    
    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 4,578,166 shares and 4,530,416 shares
    
    
    46
    
    
    
    45Paid-in capital
    
    
    18,949
    
    
    
    18,204Retained earnings
    
    
    54,650
    
    
    
    49,101Accumulated other comprehensive income
    
    
    1,835
    
    
    
    5,72375,480
    
    
    
    73,073Treasury stock, 2,002,574 shares  at cost
    
    
    (27,514
    )
    
    
    (27,514
    )Total shareholders equity
    
    
    47,966
    
    
    
    45,559Total liabilities and shareholders equity
    
    $
    88,356
    
    
    $
    93,016
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##### Table of Contents



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
   Three Months Ended
    
    
    Nine Months EndedOctober 1,
    
    
    October 2,
    
    
    October 1,
    
    
    October 2,2005
    
    
    2004
    
    
    2005
    
    
    2004REVENUES:Equipment and parts
    
    
    28,900
    
    
    
    26,989
    
    
    
    83,741
    
    
    
    76,692Services and freight
    
    
    1,903
    
    
    
    1,655
    
    
    
    5,838
    
    
    
    5,335Total revenues
    
    
    30,803
    
    
    
    28,644
    
    
    
    89,579
    
    
    
    82,027COST OF REVENUES:Equipment and parts
    
    
    16,464
    
    
    
    15,714
    
    
    
    46,751
    
    
    
    43,563Services and freight
    
    
    1,784
    
    
    
    1,626
    
    
    
    5,486
    
    
    
    4,626Total cost of revenues
    
    
    18,248
    
    
    
    17,340
    
    
    
    52,237
    
    
    
    48,189Gross profit
    
    
    12,555
    
    
    
    11,304
    
    
    
    37,342
    
    
    
    33,838OPERATING EXPENSES:Selling, general and administrative
    
    
    8,500
    
    
    
    8,151
    
    
    
    25,903
    
    
    
    24,885Research and development
    
    
    633
    
    
    
    624
    
    
    
    1,984
    
    
    
    1,8619,133
    
    
    
    8,775
    
    
    
    27,887
    
    
    
    26,746Operating income
    
    
    3,422
    
    
    
    2,529
    
    
    
    9,455
    
    
    
    7,092INTEREST (EXPENSE)
    
    
    (281
    )
    
    
    (294
    )
    
    
    (803
    )
    
    
    (1,008
    )GAIN ON SALE OF OFFICE BUILDING
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    164Income before income taxes
    
    
    3,141
    
    
    
    2,235
    
    
    
    8,652
    
    
    
    6,248INCOME TAX PROVISION
    
    
    1,151
    
    
    
    673
    
    
    
    3,103
    
    
    
    1,875NET INCOME
    
    
    1,990
    
    
    
    1,562
    
    
    
    5,549
    
    
    
    4,373RETAINED EARNINGS:Beginning of period
    
    
    52,660
    
    
    
    45,302
    
    
    
    49,101
    
    
    
    42,491End of period
    
    $
    54,650
    
    
    $
    46,864
    
    
    $
    54,650
    
    
    $
    46,864EARNINGS PER SHARE:Basic
    
    $
    0.77
    
    
    $
    0.62
    
    
    $
    2.18
    
    
    $
    1.76Diluted
    
    $
    0.73
    
    
    $
    0.59
    
    
    $
    2.05
    
    
    $
    1.68Weighted average common shares
outstanding
    
    
    2,569,000
    
    
    
    2,512,000
    
    
    
    2,551,000
    
    
    
    2,489,000Weighted average common and
common equivalent shares
outstanding
    
    
    2,736,000
    
    
    
    2,631,000
    
    
    
    2,708,000
    
    
    
    2,604,000
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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Nine Months EndedOctober 1,
    
    
    October 2,2005
    
    
    2004OPERATING ACTIVITIES:Net income
    
    $
    5,549
    
    
    $
    4,373Adjustments to reconcile net income to net cash provided by operating activities:Gain on disposition of asset
    
    
    
    
    
    
    (164
    )Depreciation and amortization
    
    
    2,975
    
    
    
    3,087Changes in assets and liabilities:Accounts receivable, net
    
    
    1,114
    
    
    
    (1,127
    )Inventories, net
    
    
    (627
    )
    
    
    (1,504
    )Prepaid expenses and other current assets
    
    
    (686
    )
    
    
    (192
    )Other assets
    
    
    312
    
    
    
    182Accounts payable
    
    
    (3
    )
    
    
    282Accrued expenses and other current liabilities
    
    
    (1,136
    )
    
    
    3,175Net cash provided by operating activities
    
    
    7,498
    
    
    
    8,112INVESTING ACTIVITIES:Proceeds from disposition of assets
    
    
    
    
    
    
    996Capital expenditures
    
    
    (1,072
    )
    
    
    (1,079
    )Other
    
    
    (15
    )
    
    
    (54
    )Net cash used in investing activities
    
    
    (1,087
    )
    
    
    (137
    )FINANCING ACTIVITIES:Net (repayments) borrowings under lines of credit
    
    
    (1,125
    )
    
    
    1,412Proceeds from issuance of long-term debt
    
    
    
    
    
    
    4,000Principal payments on long-term debt
    
    
    (3,503
    )
    
    
    (7,693
    )Proceeds from issuance of common stock
    
    
    473
    
    
    
    516Net cash used in financing activities
    
    
    (4,155
    )
    
    
    (1,765
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS
    
    
    (1,596
    )
    
    
    (72
    )NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    660
    
    
    
    6,138CASH AND CASH EQUIVALENTS:Beginning of period
    
    
    12,443
    
    
    
    4,506End of period
    
    $
    13,103
    
    
    $
    10,644
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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 October 1, 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 period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 SFAS No. 123(R). The new rule allows registrants to implement SFAS No.
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 SFAS No. 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 by the Company in its future financial statements.
The Company expects to implement the new standard in the first quarter of fiscal year
2006 which will begin January 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
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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 nine-month periods ended October 1, 2005 and October 2,
2004 was $863,000 and $1,033,000 and for income taxes was $3,241,000 and $823,000.4.
    
    InventoriesInventories consist of the following:
 October 1,
    
    
    January 1,2005
    
    
    2005(in thousands)Components
    
    $
    13,731
    
    
    $
    14,275Work-in-process
    
    
    2,314
    
    
    
    2,217Finished goods
    
    
    104
    
    
    
    79Inventory reserves
    
    
    (1,177
    )
    
    
    (1,475
    )$
    14,972
    
    
    $
    15,096
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5.
    
    Intangible Assets
 October 1, 2005
    
    
    January 1, 2005Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization(in thousands)Amortized intangible assetsPatents
    
    $
    2,814
    
    
    $
    1,199
    
    
    $
    2,799
    
    
    $
    1,062Drawings
    
    
    3,550
    
    
    
    319
    
    
    
    3,550
    
    
    
    213Customer relationships
    
    
    4,898
    
    
    
    218
    
    
    
    4,898
    
    
    
    147$
    11,262
    
    
    $
    1,736
    
    
    $
    11,247
    
    
    $
    1,422Unamortized intangible assetsTrademarks 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 periods of benefit,
which range from 17 to 50 years. The weighted average life of the amortizable assets
is 37 years. The amortization expense of intangible assets for the nine-month periods
ended October 1, 2005 and October 2, 2004 was $314,000 and $315,000.
 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 nine-month periods ended October 1, 2005 and October 2, 2004.
 Nine Months EndedOctober 1,
    
    
    October 2,2005
    
    
    2004(in thousands)Beginning balance
    
    $
    1,257
    
    
    $
    967Accrual of warranty expense
    
    
    954
    
    
    
    1,336Warranty costs incurred
    
    
    (1,013
    )
    
    
    (1,300
    )Foreign exchange adjustment
    
    
    (55
    )
    
    
    (3
    )Ending balance
    
    $
    1,143
    
    
    $
    1,000
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7.
    
    Long-Term DebtLong-term debt consists of the following, with the annual interest rates indicated
being those in effect at October 1, 2005:
 October 1,
    
    
    January 1,2005
    
    
    2005(in thousands)U.S. mortgage, interest at 6.45%
    
    $
    1,774
    
    
    $
    1,897U.S. line of credit, interest at 6.25%
    
    
    975
    
    
    
    2,100U.S. term facilities, interest at 5.11% to 6.16%
    
    
    15,192
    
    
    
    18,467Other
    
    
    199
    
    
    
    31918,140
    
    
    
    22,783Less current portion
    
    
    (4,261
    )
    
    
    (4,185
    )$
    13,879
    
    
    $
    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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For the Three Months Ended October 1, 2005Net Income Available(Dollars and Shares in Thousands
    
    To Common
    
    
    
    
    
    
    Earningsexcept Per Share Data)
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    1,990
    
    
    
    2,569
    
    
    $
    0.77Common Share Equivalent
of Outstanding Options
    
    
    
    
    
    
    167
    
    
    
    (0.04
    )Diluted
    
    $
    1,990
    
    
    
    2,736
    
    
    $
    0.73
 For the Three Months Ended October 2, 2004Net Income Available(Dollars and Shares in Thousands
    
    To Common
    
    
    
    
    
    
    Earningsexcept Per Share Data)
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    1,562
    
    
    
    2,512
    
    
    $
    0.62Common Share Equivalent
of Outstanding Options
    
    
    
    
    
    
    119
    
    
    
    (0.03
    )Diluted
    
    $
    1,562
    
    
    
    2,631
    
    
    $
    0.59
 For the Nine Months Ended October 1, 2005Net Income Available(Dollars and Shares in Thousands
    
    To Common
    
    
    
    
    
    
    Earningsexcept Per Share Data)
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    5,549
    
    
    
    2,551
    
    
    $
    2.18Common Share Equivalent
of Outstanding Options
    
    
    
    
    
    
    157
    
    
    
    (0.13
    )Diluted
    
    $
    5,549
    
    
    
    2,708
    
    
    $
    2.05
 For the Nine Months Ended October 2, 2004Net Income Available(Dollars and Shares in Thousands
    
    To Common
    
    
    
    
    
    
    Earningsexcept Per Share Data)
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    4,373
    
    
    
    2,489
    
    
    $
    1.76Common Share Equivalent
of Outstanding Options
    
    
    
    
    
    
    115
    
    
    
    (0.08
    )Diluted
    
    $
    4,373
    
    
    
    2,604
    
    
    $
    1.68
 -8-




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The Companys Diluted Earnings Per Share shown in the preceding table 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 the 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 stock-based 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:
 Three Months Ended
    
    
    Nine Months EndedOctober 1,
    
    
    October 2,
    
    
    October 1,
    
    
    October 2,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands, except per share)Net income  as reported
    
    $
    1,990
    
    
    $
    1,562
    
    
    $
    5,549
    
    
    $
    4,373Deduct stock option employee
compensation expense determined,
net of related tax effect
    
    
    (20
    )
    
    
    (28
    )
    
    
    (102
    )
    
    
    (111
    )Net income  pro forma
    
    $
    1,970
    
    
    $
    1,534
    
    
    $
    5,447
    
    
    $
    4,262Basic earnings per share  as reported
    
    $
    0.77
    
    
    $
    0.62
    
    
    $
    2.18
    
    
    $
    1.76Basic earnings per share  pro forma
    
    
    0.77
    
    
    
    0.61
    
    
    
    2.14
    
    
    
    1.71Diluted earnings per share  as reported
    
    
    0.73
    
    
    
    0.59
    
    
    
    2.05
    
    
    
    1.68Diluted earnings per share  pro forma
    
    
    0.72
    
    
    
    0.58
    
    
    
    2.01
    
    
    
    1.64
 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 2005 and 2004: no dividend yield,
expected volatility of 32.77% and 31.45%, risk-free interest rate of 3.77% and 4.15%
and expected life of 6.00 years.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.
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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 and nine-month periods ended
October 1, 2005 and October 2, 2004, the following table sets forth the Companys
comprehensive income:
 Three Months Ended
    
    
    Nine Months EndedOctober 1,
    
    
    October 2,
    
    
    October 1,
    
    
    October 2,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)Net income
    
    $
    1,990
    
    
    $
    1,562
    
    
    $
    5,549
    
    
    $
    4,373Unrealized gain (loss) on
interest rate swap, net of tax
    
    
    12
    
    
    
    (5
    )
    
    
    36
    
    
    
    40Foreign currency translation gain (loss)
    
    
    27
    
    
    
    (393
    )
    
    
    (3,924
    )
    
    
    (153
    )Comprehensive income (loss)
    
    $
    2,029
    
    
    $
    1,164
    
    
    $
    1,661
    
    
    $
    4,260
 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 October 1, 2005 and October 2, 2004, the
following table sets forth the Companys geographic information:
 EMEA/
    
    
    Elimi-
    
    
    Consoli-Americas
    
    
    Asia
    
    
    nations
    
    
    dated(in thousands)THREE MONTHS ENDEDOctober 1, 2005RevenuesSales to unaffiliated customers
    
    $
    20,227
    
    
    $
    10,576
    
    
    $
    
    
    
    $
    30,803Sales to affiliates
    
    
    616
    
    
    
    554
    
    
    
    (1,170
    )
    
    
    Total sales
    
    $
    20,843
    
    
    $
    11,130
    
    
    $
    (1,170
    )
    
    $
    30,803Operating income
    
    $
    3,060
    
    
    $
    388
    
    
    $
    (26
    )
    
    $
    3,422Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (281
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,141
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EMEA/
    
    
    Elimi-
    
    
    Consoli-Americas
    
    
    Asia
    
    
    nations
    
    
    dated(in thousands)THREE MONTHS ENDEDOctober 2, 2004RevenuesSales to unaffiliated customers
    
    $
    16,338
    
    
    $
    12,306
    
    
    $
    
    
    
    $
    28,644Sales to affiliates
    
    
    905
    
    
    
    884
    
    
    
    (1,789
    )
    
    
    Total sales
    
    $
    17,243
    
    
    $
    13,190
    
    
    $
    (1,789
    )
    
    $
    28,644Operating income
    
    $
    1,553
    
    
    $
    968
    
    
    $
    8
    
    
    $
    2,529Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (294
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,235
 EMEA/
    
    
    Elimi-
    
    
    Consoli-Americas
    
    
    Asia
    
    
    nations
    
    
    dated(in thousands)NINE MONTHS ENDEDOctober 1, 2005RevenuesSales to unaffiliated customers
    
    $
    55,755
    
    
    $
    33,824
    
    
    $
    
    
    
    $
    89,579Sales to affiliates
    
    
    2,071
    
    
    
    2,202
    
    
    
    (4,273
    )
    
    
    Total sales
    
    $
    57,826
    
    
    $
    36,026
    
    
    $
    (4,273
    )
    
    $
    89,579Operating income
    
    $
    7,882
    
    
    $
    1,554
    
    
    $
    19
    
    
    $
    9,455Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (803
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,652
 EMEA/
    
    
    Elimi-
    
    
    Consoli-Americas
    
    
    Asia
    
    
    nations
    
    
    dated(in thousands)NINE MONTHS ENDEDOctober 2, 2004RevenuesSales to unaffiliated customers
    
    $
    46,229
    
    
    $
    35,798
    
    
    $
    
    
    
    $
    82,027Sales to affiliates
    
    
    2,565
    
    
    
    2,565
    
    
    
    (5,130
    )
    
    
    Total sales
    
    $
    48,794
    
    
    $
    38,363
    
    
    $
    (5,130
    )
    
    $
    82,027Operating income
    
    $
    4,081
    
    
    $
    3,074
    
    
    $
    (63
    )
    
    $
    7,092Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,008
    )Gain on sale of office building
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    164Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,248
 -11-




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For the three and nine-month periods ended October 1, 2005 and October 2, 2004, the
following table sets forth revenues from external customers:
 Three Months Ended
    
    
    Nine Months EndedOctober 1,
    
    
    October 2,
    
    
    October 1,
    
    
    October 2,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)AmericasU.S.
    
    $
    16,756
    
    
    $
    13,972
    
    
    $
    46,708
    
    
    $
    39,045All others
    
    
    3,471
    
    
    
    2,366
    
    
    
    9,047
    
    
    
    7,184Total
    
    
    20,227
    
    
    
    16,338
    
    
    
    55,755
    
    
    
    46,229EMEA/AsiaFrance
    
    
    1,020
    
    
    
    1,233
    
    
    
    3,406
    
    
    
    3,320Germany
    
    
    2,313
    
    
    
    2,082
    
    
    
    6,031
    
    
    
    6,151All others
    
    
    7,243
    
    
    
    8,991
    
    
    
    24,387
    
    
    
    26,327Total
    
    
    10,576
    
    
    
    12,306
    
    
    
    33,824
    
    
    
    35,798$
    30,803
    
    
    $
    28,644
    
    
    $
    89,579
    
    
    $
    82,027
 -12-




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Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Introduction
    Critical Accounting Policies and Estimates
   -13-




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Results of Operations
 Overview
  Foreign Exchange Rates
   -14-




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedOctober 1,
    
    
    
    
    
    
    October 2,
    
    
    October 1,
    
    
    
    
    
    
    October 2,2005
    
    
    
    
    
    
    2004
    
    
    2005
    
    
    
    
    
    
    2004Average U.S. dollar equivalent of
one Swiss franc
    
    
    0.786
    
    
    
    
    
    
    
    0.796
    
    
    
    0.814
    
    
    
    
    
    
    
    0.792% change vs. prior year
    
    
    
    
    
    
    -1.3
    %
    
    
    
    
    
    
    
    
    
    
    2.8
    %Average U.S. dollar equivalent of
one euro
    
    
    1.221
    
    
    
    
    
    
    
    1.224
    
    
    
    1.263
    
    
    
    
    
    
    
    1.226% change vs. prior year
    
    
    
    
    
    
    -0.2.
    %
    
    
    
    
    
    
    
    
    
    
    3.0
    %Average U.S. dollar equivalent of
one British pound sterling
    
    
    1.786
    
    
    
    
    
    
    
    1.819
    
    
    
    1.841
    
    
    
    
    
    
    
    1.822% change vs. prior year
    
    
    
    
    
    
    -1.8
    %
    
    
    
    
    
    
    
    
    
    
    1.0
    %Average Swiss franc equivalent of
one euro
    
    
    1.553
    
    
    
    
    
    
    
    1.538
    
    
    
    1.552
    
    
    
    
    
    
    
    1.548% change vs. prior year
    
    
    
    
    
    
    1.0
    %
    
    
    
    
    
    
    
    
    
    
    0.3
    %Average Swiss franc equivalent of
one British pound sterling
    
    
    2.272
    
    
    
    
    
    
    
    2.285
    
    
    
    2.262
    
    
    
    
    
    
    
    2.300% change vs. prior year
    
    
    
    
    
    
    -0.6
    %
    
    
    
    
    
    
    
    
    
    
    -1.7
    %
 -15-




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Presentation of Results and Analysis
  Three Months Ended
    
    
    Nine Months EndedOctober 1,
    
    
    October 2,
    
    
    October 1,
    
    
    October 2,2005
    
    
    2004
    
    
    2005
    
    
    2004Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    59.2
    
    
    
    60.5
    
    
    
    58.3
    
    
    
    58.7Gross profit
    
    
    40.8
    
    
    
    39.5
    
    
    
    41.7
    
    
    
    41.3Selling, general and administrative
    
    
    27.6
    
    
    
    28.5
    
    
    
    28.9
    
    
    
    30.4Research and development
    
    
    2.1
    
    
    
    2.2
    
    
    
    2.2
    
    
    
    2.3Operating income
    
    
    11.1
    
    
    
    8.8
    
    
    
    10.6
    
    
    
    8.6Interest (expense)
    
    
    (0.9
    )
    
    
    (1.0
    )
    
    
    (0.9
    )
    
    
    (1.2
    )Gain on sale of office building
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Income before income taxes
    
    
    10.2
    %
    
    
    7.8
    %
    
    
    9.7
    %
    
    
    7.6
    %
  October 1, 2005
    
    
    January 1, 2005
    
    
    October 2, 2004Backlog (at October 1, 2005
exchange rates, in thousands
of dollars)
    
    $
    22,110
    
    
    $
    20,956
    
    
    $
    21,123
   -16-




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-17-




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##### Table of Contents



Liquidity and Capital Resources
 Capitalization
  October 1,
    
    
    January 1,
    
    
    January 3,(Dollars in Thousands)
    
    2005
    
    
    2005
    
    
    2004Short-term debt, including current
portion of long-term debt
    
    $
    4,261
    
    
    $
    4,185
    
    
    $
    3,541Long-term debt
    
    
    13,879
    
    
    
    18,598
    
    
    
    24,574Total debt
    
    
    18,140
    
    
    
    22,783
    
    
    
    28,115Shareholders equity
    
    
    47,966
    
    
    
    45,559
    
    
    
    35,114Total debt and shareholders equity
(total capitalization)
    
    $
    66,106
    
    
    $
    68,342
    
    
    $
    63,229Percent total debt to total capitalization
    
    
    27
    %
    
    
    33
    %
    
    
    44
    %Percent long-term debt to equity
    
    
    29
    %
    
    
    41
    %
    
    
    70
    %Percent total debt to equity
    
    
    38
    %
    
    
    50
    %
    
    
    80
    %
   Other Items
      -18-




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Future Payments Under Contractual Obligations
  Forward-Looking Statements and Risk Factors
   -19-




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Item 3 . Quantitative and Qualitative Disclosures About Market Risk .
  Foreign Exchange Rate Risk
    -20-




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##### Table of Contents



Interest Rate Risk
  
 Item 4 . Controls and Procedures .
 Evaluation of Disclosure Controls and Procedures
  Change in Internal Control over Financial Reporting
  -21-




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 6 . Exhibits .
 10.1
    
    
    Loan Modification/Renewal Agreement dated July 5, 2005 between K-Tron
America, Inc. and The Bank31.1
    
    
    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-




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##### Table of Contents



K-TRON INTERNATIONAL, INC.Date: October 31, 2005
    
    By:
    
    RONALD R. REMICKRonald R. RemickSenior Vice President & Chief
Financial Officer(Duly authorized officer and principal
financial officer of the Registrant)By:
    
    ALAN R. SUKONECKAlan R. SukoneckVice President, Chief Accounting
& Tax Officer(Duly authorized officer and principal
accounting officer of the Registrant)
 -23-




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    Loan Modification/Renewal Agreement dated July 5, 2005 between K-Tron America, Inc. and The
Bank31.1
    
    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