UNITED STATES
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 27, 2008
 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
    
    (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)
   Registrants Telephone Number, Including Area Code
   (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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INDEX
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements.Consolidated Balance Sheets as of
September 27, 2008 (Unaudited) and December 29, 2007
    
    
    1Consolidated Statements of Income and Retained
Earnings (Unaudited) for the Three and Nine Months Ended
September 27, 2008 and September 29, 2007
    
    
    2Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended September 27, 2008 and
September 29, 2007
    
    
    3Notes to Consolidated Financial Statements (Unaudited)
    
    
    415Item 2. Managements Discussion and Analysis
of Financial Condition and Results of Operations.
    
    
    1623Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    24Item 4. Controls and Procedures.
    
    
    25PART II. OTHER INFORMATIONItem 6. Exhibits.
    
    
    26SIGNATURES
    
    
    26




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PART I. FINANCIAL INFORMATION
 
 Item 1 . Consolidated Financial Statements .
 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
  (Unaudited)September 27,
    
    
    December 29,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    33,233
    
    
    $
    30,853Restricted cash
    
    
    530
    
    
    
    1,183Accounts receivable, net of allowance for
doubtful accounts of $931 and $1,065
    
    
    38,682
    
    
    
    30,987Inventories, net
    
    
    32,525
    
    
    
    30,233Costs and estimated earnings in excess of billings
    
    
    
    
    
    
    2,801Deferred income taxes
    
    
    2,518
    
    
    
    1,904Prepaid expenses and other current assets
    
    
    4,179
    
    
    
    3,778Total current assets
    
    
    111,667
    
    
    
    101,739Property, plant and equipment, net
    
    
    26,641
    
    
    
    27,424Patents, net
    
    
    1,396
    
    
    
    1,496Goodwill
    
    
    28,619
    
    
    
    27,385Other intangibles, net
    
    
    21,600
    
    
    
    22,320Other assets
    
    
    4,088
    
    
    
    3,562Deferred income taxes
    
    
    205
    
    
    
    192Total assets
    
    $
    194,216
    
    
    $
    184,118LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    1,722
    
    
    $
    1,201Accounts payable
    
    
    14,097
    
    
    
    11,973Accrued expenses and other current liabilities
    
    
    11,938
    
    
    
    16,517Accrued commissions
    
    
    4,799
    
    
    
    3,923Customer advances and billings in excess of costs
and estimated earnings
    
    
    9,753
    
    
    
    8,667Income taxes payable
    
    
    4,918
    
    
    
    4,581Deferred income taxes
    
    
    2,635
    
    
    
    2,635Total current liabilities
    
    
    49,862
    
    
    
    49,497Long-term debt, net of current portion
    
    
    24,000
    
    
    
    36,913Deferred income taxes
    
    
    3,303
    
    
    
    3,286Other non-current liabilities
    
    
    539
    
    
    
    469Series B Junior Participating Preferred Shares,
$.01 par value. Authorized 50,000 shares; issued none
    
    
    
    
    
    
    Shareholders equity:Preferred stock, $.01 par value. Authorized 950,000 shares; issued none
    
    
    
    
    
    
    Common stock, $.01 par value. Authorized 50,000,000 shares;
issued 4,781,889 shares and 4,716,383 shares
    
    
    48
    
    
    
    47Paid-in capital
    
    
    27,581
    
    
    
    24,568Retained earnings
    
    
    110,152
    
    
    
    90,576Accumulated other comprehensive income
    
    
    7,014
    
    
    
    6,276144,795
    
    
    
    121,467Treasury stock, 2,008,192 and 2,002,574 shares, at cost
    
    
    (28,283
    )
    
    
    (27,514
    )Total shareholders equity
    
    
    116,512
    
    
    
    93,953Total liabilities and shareholders equity
    
    $
    194,216
    
    
    $
    184,118
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##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
 
 Three Months Ended
    
    
    Nine Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Equipment and parts
    
    $
    56,418
    
    
    $
    45,701
    
    
    $
    167,841
    
    
    $
    134,117Services and freight
    
    
    3,213
    
    
    
    2,471
    
    
    
    9,398
    
    
    
    8,413Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92Total revenues
    
    
    59,631
    
    
    
    48,172
    
    
    
    177,239
    
    
    
    142,622Cost of revenues:Equipment and parts
    
    
    32,300
    
    
    
    25,955
    
    
    
    95,247
    
    
    
    75,035Services and freight
    
    
    2,547
    
    
    
    2,102
    
    
    
    7,457
    
    
    
    7,276Total cost of revenues
    
    
    34,847
    
    
    
    28,057
    
    
    
    102,704
    
    
    
    82,311Gross profit
    
    
    24,784
    
    
    
    20,115
    
    
    
    74,535
    
    
    
    60,311Operating expenses:Selling, general and administrative
    
    
    14,689
    
    
    
    12,080
    
    
    
    44,365
    
    
    
    36,006Research and development
    
    
    633
    
    
    
    556
    
    
    
    1,917
    
    
    
    1,758Total operating expenses
    
    
    15,322
    
    
    
    12,636
    
    
    
    46,282
    
    
    
    37,764Operating income
    
    
    9,462
    
    
    
    7,479
    
    
    
    28,253
    
    
    
    22,547Interest (expense), net
    
    
    (179
    )
    
    
    (363
    )
    
    
    (804
    )
    
    
    (1,263
    )Income before income taxes
    
    
    9,283
    
    
    
    7,116
    
    
    
    27,449
    
    
    
    21,284Income tax provision
    
    
    2,516
    
    
    
    2,186
    
    
    
    7,873
    
    
    
    6,222Net income
    
    
    6,767
    
    
    
    4,930
    
    
    
    19,576
    
    
    
    15,062Retained earnings:Beginning of period
    
    
    103,385
    
    
    
    79,387
    
    
    
    90,576
    
    
    
    69,255End of period
    
    $
    110,152
    
    
    $
    84,317
    
    
    $
    110,152
    
    
    $
    84,317Earnings per share:Basic
    
    $
    2.44
    
    
    $
    1.83
    
    
    $
    7.14
    
    
    $
    5.62Diluted
    
    $
    2.34
    
    
    $
    1.72
    
    
    $
    6.84
    
    
    $
    5.28Weighted average common shares
outstanding (basic)
    
    
    2,769,000
    
    
    
    2,696,000
    
    
    
    2,740,000
    
    
    
    2,681,000Weighted average common and
common equivalent shares
outstanding (diluted)
    
    
    2,891,000
    
    
    
    2,872,000
    
    
    
    2,860,000
    
    
    
    2,854,000
  - 2 -




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months EndedSeptember 27,
    
    
    September 29,2008
    
    
    2007Operating activities:Net income
    
    $
    19,576
    
    
    $
    15,062Adjustments to reconcile net income to net cash provided by operating activities:Gain on disposition of asset
    
    
    
    
    
    
    (92
    )Depreciation and amortization
    
    
    4,567
    
    
    
    4,068Non-cash compensation
    
    
    431
    
    
    
    323Deferred income taxes
    
    
    (12
    )
    
    
    (45
    )Changes in assets and liabilities, net of business acquired:Accounts receivable, net
    
    
    (7,352
    )
    
    
    (181
    )Inventories, net
    
    
    (3,356
    )
    
    
    (1,813
    )Prepaid expenses and other current assets
    
    
    (50
    )
    
    
    (300
    )Other assets
    
    
    78
    
    
    
    331Accounts payable
    
    
    1,925
    
    
    
    2,633Accrued expenses and other current liabilities
    
    
    (113
    )
    
    
    600Net cash provided by operating activities
    
    
    15,694
    
    
    
    20,586Investing activities:Proceeds from disposition of asset
    
    
    
    
    
    
    428Businesses acquired, net of cash received
    
    
    (400
    )
    
    
    (17,101
    )Capital expenditures
    
    
    (2,573
    )
    
    
    (1,564
    )Restricted cash
    
    
    653
    
    
    
    (1,550
    )Other
    
    
    (37
    )
    
    
    (30
    )Net cash used in investing activities
    
    
    (2,357
    )
    
    
    (19,817
    )Financing activities:Proceeds from issuance of long-term debt
    
    
    10,900
    
    
    
    24,130Principal payments on long-term debt
    
    
    (23,292
    )
    
    
    (18,021
    )Purchase of treasury stock
    
    
    (769
    )
    
    
    Tax benefit from stock option exercises and vesting of restricted stock grants
    
    
    1,047
    
    
    
    1,573Proceeds from issuance of common stock
    
    
    145
    
    
    
    1,093Net cash (used in) provided by financing activities
    
    
    (11,969
    )
    
    
    8,775Effect of exchange rate changes on cash and cash equivalents
    
    
    1,012
    
    
    
    1,122Net increase in cash and cash equivalents
    
    
    2,380
    
    
    
    10,666Cash and cash equivalents:Beginning of period
    
    
    30,853
    
    
    
    14,038End of period
    
    $
    33,233
    
    
    $
    24,704Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    1,393
    
    
    $
    1,500Income taxes
    
    $
    6,052
    
    
    $
    4,157Seller financing for businesses acquired
    
    $
    
    
    
    $
    434
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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  September 27, 2008
 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
2008 or 2007 mean the 13-week or 39-week period ended September 27, 2008 or September
29, 2007.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 29, 2007 which
was filed with the Securities and Exchange Commission on March 12, 2008.Certain reclassifications were made to the prior years consolidated financial
statements to conform them to the current year presentation.2.
    
    AcquisitionsOn 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 Wuxi Chenghao to Wuxi K-Tron
Colormax Machinery Co., Ltd. (Wuxi K-Tron Colormax), a newly-created Wholly
Foreign-Owned Enterprise which the Company established in connection with this
transaction, and the financial results of Wuxi K-Tron Colormax have been included in
the Companys consolidated financial statements since that date. 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 one of Wuxi Chenghaos
owners, could be as much as approximately $3,500,000. As of September 27, 2008 and
December 29, 2007, the Company recorded $1,505,000 and $1,152,000 of goodwill as part
of acquiring the Wuxi Chenghao assets.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 $2,300,000
held in escrow to satisfy any potential indemnification claims made by the Company.
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 of
$17,632,000 included a $1,687,000 adjustment based upon Raders increase in net
working capital between January 1, 2007 and the September 14, 2007 closing date, which
adjustment was paid to
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the sellers on February 5, 2008. Soon after the acquisition of Rader, the Company
began assessing the sellers valuation of Raders assets and liabilities as of the
September 14, 2007 closing date. The Company disclosed in its third quarter 2007
report on Form 10-Q and annual report on Form 10-K for fiscal year 2007 that the
purchase price allocation in connection with the Rader acquisition was based on a
preliminary valuation of Raders assets and liabilities, and that such allocation might
change when the final valuation was complete. In the third quarter of 2008, the
Company completed the valuation of the assets and liabilities as of the September 14,
2007 acquisition date. On September 12, 2008, the Company filed an indemnification
claim against the sellers related to the valuation of Raders inventory on the closing
date, and the claim was settled on October 9, 2008. As part of the settlement, the
sellers agreed to a reduction in the purchase price of approximately $257,000, with
payments to the Company from the escrow fund of approximately $117,000 on September
26, 2008 (reducing the escrow fund to $2,183,000 at the end of the third quarter) and
$140,000 on October 10, 2008. The purchase price allocation below has been updated
from year-end 2007 to record the portion of this settlement that occurred in the third
quarter as well the final inventory valuation and related deferred taxes as of the
date of the acquisition, resulting in a net increase in goodwill of $881,000 in the
first nine months of 2008.The excess of the purchase price, including the effect of those items discussed above
occurring prior to the end of the third quarter, over the carrying value of the
identifiable net assets acquired was $8,661,000 as of September 27, 2008, which was
allocated as follows:
 Useful Life
    
    
    September 27, 2008(in thousands)Patents
    
    10 years
    
    $
    200Goodwill
    
    Indefinite
    
    
    3,174Customer relationships
    
    10 years
    
    
    2,700Drawings
    
    25 years
    
    
    1,160Tradenames
    
    Indefinite
    
    
    1,400Other asset
    
    4 months
    
    
    27$
    8,661
 The purchase price of $15,945,000, after being reduced by the $2,183,000 escrow that
existed on September 27, 2008 and increased by the $1,687,000 working capital
adjustment, for an adjusted purchase price of $15,449,000, was allocated as follows as
of the end of the third quarter of 2008:
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September 27, 2008(in thousands)Cash
    
    $
    1,670Accounts receivables, net
    
    
    5,107Inventories, net
    
    
    3,822Costs in excess of billings, net of billings in excess of costs
    
    
    1,568Deferred tax asset
    
    
    615Other current assets
    
    
    531Property, plant and equipment
    
    
    52Patents
    
    
    200Goodwill
    
    
    3,174Customer relationships
    
    
    2,700Drawings
    
    
    1,160Tradenames
    
    
    1,400Accounts payable
    
    
    (2,821
    )Accrued expenses and other current liabilities
    
    
    (3,713
    )Deferred tax liabilities
    
    
    (16
    )$
    15,449
 Customer relationships, drawings and tradenames are included in other intangibles in the
consolidated balance sheet.3.
    
    New Accounting PronouncementsIn September 2006, the Financial Accounting Standards Board (the FASB) issued Statement
of Financial Accounting Standard (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 responded 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 assets or liabilities are
measured at fair value as required or permitted by other standards. 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 adoption of SFAS No. 157 by the Company effective
December 30, 2007 did not have a material impact on the Companys consolidated
financial statements.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 the
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 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
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adoption of SFAS No. 159 by the Company effective December 30, 2007 did not have a
material impact on the Companys consolidated financial statements.In December 2007, the FASB issued SFAS No. 141(R) (revised 2007), Business
Combinations. SFAS No. 141(R) requires the acquiring entity in a business
combination to recognize, at full fair value, all the assets acquired and liabilities
assumed in the transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed; and requires
the acquiring entity to disclose information needed to evaluate and understand the
nature and financial effect of the business combination. SFAS No. 141(R) is effective
for fiscal years beginning after December 15, 2008 and is to be applied prospectively.
The Company is evaluating the impact that the adoption of SFAS No. 141(R) will have
on its process of analyzing business combinations.In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments
and Hedging Activities, an Amendment to FASB Statement No. 133. SFAS No. 161 is intended
to improve financial reporting with respect to derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better understand
the effects of these instruments and activities on an entitys financial position,
financial performance and cash flows. SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November 15,
2008. The Company has not yet determined the impact on its consolidated financial
statements of adopting SFAS No. 161.In April 2008, the FASB issued Staff Position No. FAS 142-3, Determination of the
Useful Life of Intangible Assets (FSP FAS 142-3), which amends SFAS No. 142,
Goodwill and Other Intangible Assets. This pronouncement requires companies
estimating the useful life of a recognized intangible asset to consider their
historical experience in renewing or extending similar arrangements or, in the absence
of historical experience, to consider assumptions that market participants would use
about renewal or extension. FSP FAS 142-3, is effective for financial statements
issued for fiscal years and interim periods beginning after December 15, 2008, and
must be applied prospectively to intangible assets acquired after the effective date.
The Company will prospectively apply FSP FAS 142-3 to all intangible assets purchased
after January 3, 2009.
 4.
    
    InventoriesInventories consist of the following:
 September 27,
    
    
    December 29,2008
    
    
    2007(in thousands)Components
    
    $
    23,351
    
    
    $
    22,759Work-in-process
    
    
    9,607
    
    
    
    8,480Finished goods
    
    
    1,136
    
    
    
    775Inventory reserves
    
    
    (1,569
    )
    
    
    (1,781
    )$
    32,525
    
    
    $
    30,233
 - 7 -




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##### 



5.
    
    Intangible AssetsIntangible assets consist of the following:
 September 27, 2008
    
    
    December 29, 2007Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization(in thousands)Amortized intangible assetsPatents
    
    $
    3,064
    
    
    $
    1,668
    
    
    $
    3,027
    
    
    $
    1,531Drawings
    
    
    6,140
    
    
    
    944
    
    
    
    6,140
    
    
    
    754Customer relationships
    
    
    11,299
    
    
    
    1,505
    
    
    
    11,299
    
    
    
    975$
    20,503
    
    
    $
    4,117
    
    
    $
    20,466
    
    
    $
    3,260Unamortized intangible assets
Trademarks and tradenames
    
    $
    6,610
    
    
    
    
    
    
    $
    6,610
 The amortized intangible assets are being amortized on the straight-line basis
(half-year expense in the year of issuance of a patent) over the expected periods of
benefit, which range from 10 to 50 years. The weighted average remaining life of the
amortizable intangible assets is 26 years (14 years for patents, 25 years for drawings
and 29 years for customer relationships). The amortization expense of intangible
assets for the nine-month periods ended September 27, 2008 and September 29, 2007 was
$857,000 and $599,000.Future annual amortization of intangible assets is as follows:
 Amount(in thousands)Fourth quarter 2008
    
    $
    278Fiscal year 2009
    
    
    1,112Fiscal year 2010
    
    
    1,112Fiscal year 2011
    
    
    1,112Fiscal year 2012
    
    
    1,112Fiscal year 2013
    
    
    1,051Thereafter
    
    
    10,609$
    16,386
 Goodwill increased by $1,234,000 during the first nine months of 2008, of which
$353,000 was related to the acquisition of certain assets of Wuxi Chenghao and
$881,000 was related to the acquisition of the outstanding stock of Rader, including
adjustments made during the third quarter of 2008 as discussed in Note 2 above.
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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 27, 2008
and September 29, 2007:
 Nine Months EndedSeptember 27,
    
    
    September 29,2008
    
    
    2007(in thousands)Beginning balance
    
    $
    2,194
    
    
    $
    1,538Accrued warranty of acquired business
    
    
    
    
    
    
    264Accrual of warranty expense
    
    
    1,820
    
    
    
    1,404Warranty costs incurred
    
    
    (1,511
    )
    
    
    (999
    )Foreign exchange adjustment
    
    
    34
    
    
    
    27Ending balance
    
    $
    2,537
    
    
    $
    2,234
 7.
    
    Long-Term DebtLong-term debt consists of the following, with the annual interest rates shown being
those in effect on September 27, 2008:
 September 27,
    
    
    December 29,2008
    
    
    2007(in thousands)U.S. revolving line of credit
    
    $
    23,000
    
    
    $
    33,750U.S. mortgage, interest at 6.45%
    
    
    722
    
    
    
    1,364U.S. term note, interest at 5.00%
    
    
    2,000
    
    
    
    3,00025,722
    
    
    
    38,114Less current portion
    
    
    (1,722
    )
    
    
    (1,201
    )$
    24,000
    
    
    $
    36,913
 All amounts borrowed under the U.S. revolving line of credit are due on September 29,
2011. As of September 27, 2008, interest on the $23,000,000 borrowed under the U.S.
revolving line of credit was payable at the following interest rates for the periods
ending on the dates indicated:
 - 9 -




---



##### 



Expiration of
    
    
    Per AnnumAmount
    
    
    Interest Rate Period
    
    
    RatePrime loan
    
    $
    2,000,000
    *
    
    
    
    
    
    
    4.000
    %Eighteen-month interest rate
swap
    
    
    2,000,000
    
    
    
    5/31/2009
    
    
    
    4.985
    %Two-year interest rate swap
    
    
    2,000,000
    
    
    
    9/24/2009
    
    
    
    5.605
    %Three-year interest rate swap
    
    
    5,000,000
    
    
    
    10/13/2009
    
    
    
    6.085
    %Two-year interest rate swap
    
    
    3,000,000
    
    
    
    10/31/2009
    
    
    
    5.385
    %Two-year interest rate swap
    
    
    2,000,000
    
    
    
    11/30/2009
    
    
    
    4.925
    %Three-year interest rate swap
    
    
    2,000,000
    
    
    
    9/24/2010
    
    
    
    5.665
    %Four-year interest rate swap
    
    
    5,000,000
    
    
    
    10/13/2010
    
    
    
    6.095
    %$
    23,000,000
 
 *
    
    The prime loan was repaid in full in October 2008. 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 27, 2008Net Income Available(Dollars and Shares in Thousands
    
    To Common
    
    
    
    
    
    
    Earningsexcept Per Share Data)
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    6,767
    
    
    
    2,769
    
    
    $
    2.44Common share equivalent
of outstanding options
    
    
    
    
    
    
    122
    
    
    
    (0.10
    )Diluted
    
    $
    6,767
    
    
    
    2,891
    
    
    $
    2.34
 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
 - 10 -




---



##### 



For the Nine Months Ended September 27, 2008Net Income Available(Dollars and Shares in Thousands
    
    To Common
    
    
    
    
    
    
    Earningsexcept Per Share Data)
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    19,576
    
    
    
    2,740
    
    
    $
    7.14Common share equivalent
of outstanding options
    
    
    
    
    
    
    120
    
    
    
    (0.30
    )Diluted
    
    $
    19,576
    
    
    
    2,860
    
    
    $
    6.84
 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
 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 stock grants and options. For unvested
awards granted prior to the effective date of the Companys adoption of SFAS No.
123(R) which were not 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 prospective cost of stock option compensation expensed in the first nine
months of 2008 or 2007. There were no stock options granted in fiscal year 2007 or in
the first nine months of 2008.
 - 11 -




---



##### 



The following table provides a summary of the Companys stock option activity for the
nine months ended September 27, 2008:
 Weightedaverageoption
    
    
    AggregateShares
    
    
    exercise
    
    
    Intrinsic
    
    
    Weighted averageunder
    
    
    price per
    
    
    Value
    
    
    remaining optionoption
    
    
    share
    
    
    ($000)
    
    
    term (in years)Options
    
    
    Optionsoutstanding
    
    
    exercisableBalance, December 29, 2007
    
    
    193,450
    
    
    $
    15.52
    
    
    
    
    
    
    
    2.49
    
    
    
    2.49Exercised
    
    
    (3,000
    )
    
    
    17.00Balance, March 29, 2008
    
    
    190,450
    
    
    
    15.49
    
    
    
    
    
    
    
    2.27
    
    
    
    2.27Exercised
    
    
    (28,700
    )
    
    
    18.19Balance, June 28, 2008
    
    
    161,750
    
    
    
    14.90
    
    
    
    
    
    
    
    2.37
    
    
    
    2.37Exercised
    
    
    (26,500
    )
    
    
    18.08Balance, September 27,
2008
    
    
    135,250
    
    
    $
    14.11
    
    
    $
    16,123
    
    
    
    2.57
    
    
    
    2.57
 The aggregate intrinsic value at September 27, 2008 represents (i) the difference
between the Companys closing stock price of $133.32 at September 27, 2008 and the
weighted average option exercise price per share on that date of $14.11 multiplied by
(ii) the number of shares underlying outstanding options on that date.The Company issued 9,000 shares of restricted common stock in May 2007 pursuant to
five grants, each of which vests 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 the grants, which was
$93.50 per share.The Company issued 2,500 shares of restricted common stock in February 2008 pursuant
to a grant which vests 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 the grant, which was
$117.00 per share.The Company issued 9,000 shares of restricted common stock in July 2008 pursuant to
five grants, each of which vests 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 the grants, which was
$130.66 per share.10.
    
    Comprehensive IncomeComprehensive income is the total of net income, the change (net of tax) in the
unrealized gain or loss 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 2008 and 2007.For the three and nine-month periods ended September 27, 2008 and September 29, 2007,
the following table sets forth the Companys comprehensive income:
 - 12 -




---



##### 



Three Months Ended
    
    
    Nine Months EndedSept. 27,
    
    
    Sept. 29,
    
    
    Sept. 27,
    
    
    Sept. 29,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)Net income
    
    $
    6,767
    
    
    $
    4,930
    
    
    $
    19,576
    
    
    $
    15,062Unrealized (loss) on interest rate
swaps, net of tax
    
    
    (48
    )
    
    
    (118
    )
    
    
    (19
    )
    
    
    (68
    )Foreign currency translation gain (loss)
    
    
    (3,458
    )
    
    
    1,843
    
    
    
    757
    
    
    
    1,878Comprehensive income
    
    $
    3,261
    
    
    $
    6,655
    
    
    $
    20,314
    
    
    $
    16,872
 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 27, 2008 and September 29, 2007,
the following table sets forth the Companys geographic information:
 EMEA/
    
    
    Elimi-
    
    
    Consoli-Americas
    
    
    Asia
    
    
    nations
    
    
    dated(in thousands)THREE MONTHS ENDEDSeptember 27, 2008RevenuesSales to unaffiliated customers
    
    $
    37,047
    
    
    $
    22,584
    
    
    $
    
    
    
    $
    59,631Sales to affiliates
    
    
    2,430
    
    
    
    1,117
    
    
    
    (3,547
    )
    
    
    Total sales
    
    $
    39,477
    
    
    $
    23,701
    
    
    $
    (3,547
    )
    
    $
    59,631Operating income
    
    $
    4,925
    
    
    $
    4,487
    
    
    $
    50
    
    
    $
    9,462Interest (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (179
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9,283
 - 13 -




---



##### 



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
    
    $
    4,761
    
    
    $
    2,734
    
    
    $
    (16
    )
    
    $
    7,479Interest (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (363
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,116
 EMEA/
    
    
    Elimi-
    
    
    Consoli-Americas
    
    
    Asia
    
    
    nations
    
    
    dated(in thousands)NINE MONTHS ENDEDSeptember 27, 2008RevenuesSales to unaffiliated customers
    
    $
    114,918
    
    
    $
    62,321
    
    
    $
    
    
    
    $
    177,239Sales to affiliates
    
    
    7,057
    
    
    
    3,757
    
    
    
    (10,814
    )
    
    
    Total sales
    
    $
    121,975
    
    
    
    66,078
    
    
    $
    (10,814
    )
    
    $
    177,239Operating income
    
    $
    16,467
    
    
    $
    11,775
    
    
    $
    11
    
    
    $
    28,253Interest (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (804
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    27,449
 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
    
    $
    12,853
    
    
    $
    9,732
    
    
    $
    (38
    )
    
    $
    22,547Interest (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,263
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    21,284
 - 14 -




---



##### 



Three Months Ended
    
    
    Nine Months EndedSept. 27,
    
    
    Sept. 29,
    
    
    Sept. 27,
    
    
    Sept. 29,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)AmericasU.S.
    
    $
    28,302
    
    
    $
    28,220
    
    
    $
    83,296
    
    
    $
    75,613Canada
    
    
    3,022
    
    
    
    2,065
    
    
    
    13,547
    
    
    
    5,736All others
    
    
    5,723
    
    
    
    2,187
    
    
    
    18,075
    
    
    
    11,220Total
    
    
    37,047
    
    
    
    32,472
    
    
    
    114,918
    
    
    
    92,569EMEA/AsiaChina
    
    
    1,765
    
    
    
    3,447
    
    
    
    4,263
    
    
    
    5,986Germany
    
    
    3,130
    
    
    
    2,900
    
    
    
    10,136
    
    
    
    8,390Netherlands
    
    
    193
    
    
    
    311
    
    
    
    1,918
    
    
    
    6,893South Korea
    
    
    5,224
    
    
    
    414
    
    
    
    6,694
    
    
    
    2,195United Kingdom
    
    
    967
    
    
    
    2,080
    
    
    
    5,324
    
    
    
    7,246All others
    
    
    11,305
    
    
    
    6,548
    
    
    
    33,986
    
    
    
    19,343Total
    
    
    22,584
    
    
    
    15,700
    
    
    
    62,321
    
    
    
    50,053$
    59,631
    
    
    $
    48,172
    
    
    $
    177,239
    
    
    $
    142,622
 - 15 -




---



##### 



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations.
 Introduction
     - 16 -




---



##### 



Critical Accounting Assumptions, Estimates and Policies; Recent Pronouncements
    Results of Operations
 Overview
  - 17 -




---



##### 



Foreign Exchange Rates
    Three Months Ended
    
    Nine Months EndedSept. 27,
    
    
    
    
    
    Sept. 29,
    
    Sept. 27,
    
    
    
    
    
    Sept. 29,2008
    
    
    
    
    
    2007
    
    2008
    
    
    
    
    
    2007Average U.S. dollar equivalent of
one Swiss franc
    
    
    0.932
    
    
    
    
    
    
    
    0.836
    
    
    
    0.948
    
    
    
    
    
    
    
    0.821% change vs. prior year
    
    
    
    
    
    
    +11.5
    %
    
    
    
    
    
    
    
    
    
    
    +15.5
    %Average U.S. dollar equivalent of
one euro
    
    
    1.503
    
    
    
    
    
    
    
    1.378
    
    
    
    1.523
    
    
    
    
    
    
    
    1.346% change vs. prior year
    
    
    
    
    
    
    +9.1
    %
    
    
    
    
    
    
    
    
    
    
    +13.2
    %
 - 18 -




---



##### 



Three Months Ended
    
    Nine Months EndedSept. 27,
    
    
    
    
    
    Sept. 29,
    
    Sept. 27,
    
    
    
    
    
    Sept. 29,2008
    
    
    
    
    
    2007
    
    2008
    
    
    
    
    
    2007Average U.S. dollar equivalent of
one British pound sterling
    
    
    1.894
    
    
    
    
    
    
    
    2.024
    
    
    
    1.949
    
    
    
    
    
    
    
    1.988% change vs. prior year
    
    
    
    
    
    
    -6.4
    %
    
    
    
    
    
    
    
    
    
    
    -2.0
    %Average US dollar equivalent of one Canadian dollar
    
    
    0.962
    
    
    
    
    
    
    
    0.959
    
    
    
    0.982
    
    
    
    
    
    
    
    0.909% change vs. prior year
    
    
    
    
    
    
    +0.3
    %
    
    
    
    
    
    
    
    
    
    
    +8.0
    %Average US dollar equivalent of
one Swedish krona
    
    
    0.159
    
    
    
    
    
    
    
    0.149
    
    
    
    0.162
    
    
    
    
    
    
    
    0.146% change vs. prior year
    
    
    
    
    
    
    +6.7
    %
    
    
    
    
    
    
    
    
    
    
    +11.0
    %Average Swiss franc equivalent of one euro
    
    
    1.613
    
    
    
    
    
    
    
    1.648
    
    
    
    1.607
    
    
    
    
    
    
    
    1.639% change vs. prior year
    
    
    
    
    
    
    -2.1
    %
    
    
    
    
    
    
    
    
    
    
    -1.9
    %Average Swiss franc equivalent of
one British pound sterling
    
    
    2.032
    
    
    
    
    
    
    
    2.421
    
    
    
    2.056
    
    
    
    
    
    
    
    2.421% change vs. prior year
    
    
    
    
    
    
    -16.1
    %
    
    
    
    
    
    
    
    
    
    
    -15.1
    %
 Presentation of Results and Analysis
  Three Months Ended
    
    Nine Months EndedSept. 27,
    
    Sept. 29,
    
    Sept. 27,
    
    Sept. 29,2008
    
    2007
    
    2008
    
    2007Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    58.4
    
    
    
    58.2
    
    
    
    57.9
    
    
    
    57.7Gross profit
    
    
    41.6
    
    
    
    41.8
    
    
    
    42.1
    
    
    
    42.3Selling, general and administrative
    
    
    24.6
    
    
    
    25.1
    
    
    
    25.0
    
    
    
    25.3Research and development
    
    
    1.1
    
    
    
    1.2
    
    
    
    1.1
    
    
    
    1.2Operating income
    
    
    15.9
    
    
    
    15.5
    
    
    
    16.0
    
    
    
    15.8Interest expense, net
    
    
    0.3
    
    
    
    0.8
    
    
    
    0.5
    
    
    
    0.9Income before income taxes
    
    
    15.6
    
    
    
    14.7
    
    
    
    15.5
    
    
    
    14.9Income tax provision
    
    
    4.3
    
    
    
    4.5
    
    
    
    4.5
    
    
    
    4.3Net income
    
    
    11.3
    %
    
    
    10.2
    %
    
    
    11.0
    %
    
    
    10.6
    %
 - 19 -




---



##### 



Sept. 27, 2008
    
    
    Dec. 29, 2007
    
    
    Sept. 29, 2007Backlog (at September 27, 2008
foreign exchange rates, in
thousands of dollars)
    
    $
    73,995
    
    
    $
    71,199
    
    
    $
    63,392
       - 20 -




---



##### 



Liquidity and Capital Resources
 Capitalization
  September 27,
    
    
    December 29,(Dollars in Thousands)
    
    2008
    
    
    2007Short-term debt, including current
portion of long-term debt
    
    $
    1,722
    
    
    $
    1,201Long-term debt
    
    
    24,000
    
    
    
    36,913Total debt
    
    
    25,722
    
    
    
    38,114Shareholders equity
    
    
    116,512
    
    
    
    93,953Total debt and shareholders equity
(total capitalization)
    
    $
    142,234
    
    
    $
    132,067Percent total debt to total capitalization
    
    
    18
    %
    
    
    29
    %Percent long-term debt to equity
    
    
    21
    %
    
    
    39
    %Percent total debt to equity
    
    
    22
    %
    
    
    41
    %
  - 21 -




---



##### 



Other Items
      Future Payments Under Contractual Obligations
  - 22 -




---



##### 



Risk Factors
  Forward-Looking Statements
  - 23 -




---



##### 



Item 3 . Quantitative and Qualitative Disclosures About Market Risk .
  Foreign Exchange Rate Risk
    Interest Rate Risk
  - 24 -




---



##### 



Item 4 . Controls and Procedures .
 Evaluation of Disclosure Controls and Procedures
  Change in Internal Control over Financial Reporting
  - 25 -




---



##### 



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
 
   K-TRON INTERNATIONAL, INC.Date:  November 4, 2008
    By:
    RONALD R. REMICKRonald R. RemickSenior Vice President, Chief
Financial Officer and Treasurer
(Duly authorized officer and principal
financial officer of the Registrant)Date:  November 4, 2008
    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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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