##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 28, 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 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)
 
 
  þ o
  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o  o þ




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INDEX
 Page No.PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Consolidated Financial Statements.Consolidated Balance Sheets as of June 28, 2008 (Unaudited) and December 29, 2007
    
    
    1Consolidated Statements of Income and Retained Earnings (Unaudited) for the Three and Six Months Ended June 28, 2008 and June 30, 2007
    
    
    2Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 28, 2008 and June 30, 2007
    
    
    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.
    
    
    22  23Item 4.
    
    Controls and Procedures.
    
    
    23PART II.
    
    OTHER INFORMATIONItem 4.
    
    Submission of Matters to a Vote of Security Holders.
    
    
    24Item 6.
    
    Exhibits.
    
    
    24SIGNATURES
    
    
    
    
    25Chief Executive Officer CertificationChief Financial Officer CertificationCEO and CFO Certification pursuant to 18 U.S.C. Section 1350




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PART I. FINANCIAL INFORMATION
 
 Item 1.
    
    Consolidated Financial Statements.
 
 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES  CONSOLIDATED BALANCE SHEETS
 (Unaudited)June 28,
    
    
    December 29,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    36,144
    
    
    $
    30,853Restricted cash
    
    
    581
    
    
    
    1,183Accounts receivable, net of allowance for
doubtful accounts of $945 and $1,065
    
    
    37,448
    
    
    
    30,987Inventories, net
    
    
    32,929
    
    
    
    30,233Costs and estimated earnings in excess of billings
    
    
    941
    
    
    
    2,801Deferred income taxes
    
    
    1,904
    
    
    
    1,904Prepaid expenses and other current assets
    
    
    3,001
    
    
    
    3,778Total current assets
    
    
    112,948
    
    
    
    101,739Property, plant and equipment, net
    
    
    27,696
    
    
    
    27,424Patents, net
    
    
    1,423
    
    
    
    1,496Goodwill
    
    
    27,839
    
    
    
    27,385Other intangibles, net
    
    
    21,833
    
    
    
    22,320Other assets
    
    
    3,644
    
    
    
    3,562Deferred income taxes
    
    
    236
    
    
    
    192Total assets
    
    $
    195,619
    
    
    $
    184,118LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    1,209
    
    
    $
    1,201Accounts payable
    
    
    15,330
    
    
    
    11,973Accrued expenses and other current liabilities
    
    
    11,158
    
    
    
    16,517Accrued commissions
    
    
    4,926
    
    
    
    3,923Customer advances and billings in excess of costs
and estimated earnings
    
    
    12,607
    
    
    
    8,667Income taxes payable
    
    
    5,212
    
    
    
    4,581Deferred income taxes
    
    
    2,635
    
    
    
    2,635Total current liabilities
    
    
    53,077
    
    
    
    49,497Long-term debt, net of current portion
    
    
    26,714
    
    
    
    36,913Deferred income taxes
    
    
    3,286
    
    
    
    3,286Other non-current liabilities
    
    
    615
    
    
    
    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 4,750,306 shares and 4,716,383 shares
    
    
    48
    
    
    
    47Paid-in capital
    
    
    26,353
    
    
    
    24,568Retained earnings
    
    
    103,385
    
    
    
    90,576Accumulated other comprehensive income
    
    
    10,424
    
    
    
    6,276140,210
    
    
    
    121,467Treasury stock, 2,008,192 and 2,002,574 shares,
at cost
    
    
    (28,283
    )
    
    
    (27,514
    )Total shareholders equity
    
    
    111,927
    
    
    
    93,953Total liabilities and shareholders equity
    
    $
    195,619
    
    
    $
    184,118
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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
 Three Months Ended
    
    
    Six Months EndedJune 28,
    
    
    June 30,
    
    
    June 28,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Equipment and parts
    
    $
    56,947
    
    
    $
    44,077
    
    
    $
    111,423
    
    
    $
    88,416Services and freight
    
    
    3,263
    
    
    
    3,397
    
    
    
    6,185
    
    
    
    5,942Other
    
    
    
    
    
    
    92
    
    
    
    
    
    
    
    92Total revenues
    
    
    60,210
    
    
    
    47,566
    
    
    
    117,608
    
    
    
    94,450Cost of revenues:Equipment and parts
    
    
    32,302
    
    
    
    24,317
    
    
    
    63,090
    
    
    
    49,080Services and freight
    
    
    2,406
    
    
    
    2,692
    
    
    
    4,767
    
    
    
    5,174Total cost of revenues
    
    
    34,708
    
    
    
    27,009
    
    
    
    67,857
    
    
    
    54,254Gross profit
    
    
    25,502
    
    
    
    20,557
    
    
    
    49,751
    
    
    
    40,196Operating expenses:Selling, general and administrative
    
    
    14,615
    
    
    
    12,320
    
    
    
    29,676
    
    
    
    23,926Research and development
    
    
    631
    
    
    
    611
    
    
    
    1,284
    
    
    
    1,20215,246
    
    
    
    12,931
    
    
    
    30,960
    
    
    
    25,128Operating income
    
    
    10,256
    
    
    
    7,626
    
    
    
    18,791
    
    
    
    15,068Interest (expense), net
    
    
    (246
    )
    
    
    (433
    )
    
    
    (625
    )
    
    
    (900
    )Income before income taxes
    
    
    10,010
    
    
    
    7,193
    
    
    
    18,166
    
    
    
    14,168Income tax provision
    
    
    2,852
    
    
    
    1,940
    
    
    
    5,357
    
    
    
    4,036Net income
    
    
    7,158
    
    
    
    5,253
    
    
    
    12,809
    
    
    
    10,132Retained earnings:Beginning of period
    
    
    96,227
    
    
    
    74,134
    
    
    
    90,576
    
    
    
    69,255End of period
    
    $
    103,385
    
    
    $
    79,387
    
    
    $
    103,385
    
    
    $
    79,387Earnings per share:Basic
    
    $
    2.62
    
    
    $
    1.96
    
    
    $
    4.70
    
    
    $
    3.79Diluted
    
    $
    2.49
    
    
    $
    1.84
    
    
    $
    4.47
    
    
    $
    3.56Weighted average common shares
outstanding (basic)
    
    
    2,733,000
    
    
    
    2,684,000
    
    
    
    2,725,000
    
    
    
    2,674,000Weighted average common and
common equivalent shares
outstanding (diluted)
    
    
    2,877,000
    
    
    
    2,859,000
    
    
    
    2,868,000
    
    
    
    2,846,000
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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedJune 28,
    
    
    June 30,2008
    
    
    2007Operating activities:Net income
    
    $
    12,809
    
    
    $
    10,132Adjustments to reconcile net income to net cash provided by operating activities:Gain on disposition of asset
    
    
    
    
    
    
    (92
    )Depreciation and amortization
    
    
    3,091
    
    
    
    2,677Non-cash compensation
    
    
    248
    
    
    
    192Deferred income taxes
    
    
    (44
    )
    
    
    34Changes in assets and liabilities, net of business acquired:Accounts receivable, net
    
    
    (5,034
    )
    
    
    (5,642
    )Inventories, net
    
    
    (1,713
    )
    
    
    (1,083
    )Prepaid expenses and other current assets
    
    
    939
    
    
    
    616Other assets
    
    
    (12
    )
    
    
    241Accounts payable
    
    
    2,690
    
    
    
    2,509Accrued expenses and other current liabilities
    
    
    746
    
    
    
    (722
    )Net cash provided by operating activities
    
    
    13,720
    
    
    
    8,862Investing activities:Proceeds from disposition of asset
    
    
    
    
    
    
    406Businesses acquired, net of cash received
    
    
    (500
    )
    
    
    (1,854
    )Capital expenditures
    
    
    (1,811
    )
    
    
    (903
    )Restricted cash
    
    
    602
    
    
    
    375Other
    
    
    (18
    )
    
    
    (26
    )Net cash used in investing activities
    
    
    (1,727
    )
    
    
    (2,002
    )Financing activities:Proceeds from issuance of long-term debt
    
    
    8,250
    
    
    
    4,010Principal payments on long-term debt
    
    
    (18,441
    )
    
    
    (10,803
    )Purchase of treasury stock
    
    
    (769
    )
    
    
    Tax benefit from stock option exercises
    
    
    1,022
    
    
    
    1,518Proceeds from issuance of common stock
    
    
    118
    
    
    
    1,064Net cash used in financing activities
    
    
    (9,820
    )
    
    
    (4,211
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    3,118
    
    
    
    (9
    )Net increase in cash and cash equivalents
    
    
    5,291
    
    
    
    2,640Cash and cash equivalents:Beginning of period
    
    
    30,853
    
    
    
    14,038End of period
    
    $
    36,144
    
    
    $
    16,678Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    1,017
    
    
    $
    1,223Income taxes
    
    $
    3,536
    
    
    $
    2,108Seller financing for businesses acquired
    
    $
    
    
    
    $
    635
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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  June 28, 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 second quarter
or first six months of 2008 or 2007 mean the 13-week or 26-week period ended June 28,
2008 or June 30, 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 June 28, 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 final 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
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adjustment was paid to the sellers on February 5, 2008. 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 unrelated companies also owned by
the sellers. This cash, together with other cash of Rader, was then used to pay off
all of Raders bank debt, which amounted to approximately $3,832,000.
 The excess of the purchase price, including the working capital adjustment, over the
carrying value of the identifiable net assets acquired was $7,881,000, which was
allocated as follows:
 Useful Life
    
    
    2007(in thousands)Patents
    
    10 years
    
    $
    200Goodwill
    
    Indefinite
    
    
    2,394Customer relationships
    
    10 years
    
    
    2,700Drawings
    
    25 years
    
    
    1,160Tradenames
    
    Indefinite
    
    
    1,400Other asset
    
    4 months
    
    
    27$
    7,881
 The purchase price of $15,945,000, after being reduced by the $2,300,000 escrow and
increased by the $1,687,000 working capital adjustment, for an adjusted purchase price
of $15,332,000, was allocated as follows:
 2007(in thousands)Cash
    
    $
    1,670Accounts receivables, net
    
    
    5,107Inventories, net
    
    
    5,084Costs in excess of billings, net of billings in excess of costs
    
    
    1,568Other current assets
    
    
    531Property, plant and equipment
    
    
    52Patents
    
    
    200Goodwill
    
    
    2,394Customer relationships
    
    
    2,700Drawings
    
    
    1,160Tradenames
    
    
    1,400Accounts payable
    
    
    (2,821
    )Accrued expenses and other current liabilities
    
    
    (3,713
    )$
    15,332
 Customer relationships, drawings and tradenames are included in other intangibles in the
consolidated balance sheet.3.
    
    New Accounting PronouncementsIn July 2006, the Financial Accounting Standards Board (the FASB) issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes: an interpretation
of
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FASB Statement No. 109. Interpretation No. 48, which clarified Statement of
Financial Accounting Standard (SFAS) No. 109, Accounting for Income Taxes,
established 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 No. 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 No. 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 income tax examinations by tax authorities for tax
years up to and including 2003. In 2008, the Internal Revenue Service completed an
audit of the Companys U.S. corporation tax filings for 2004, 2005 and 2006, and in
2007, the Swiss government completed an audit of the Companys Swiss income tax
filings for 2004 and 2005. The Company recognizes interest accrued related to
unrecognized tax liabilities in interest expense and recognizes penalties in operating
expenses. The adoption of Interpretation No. 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 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 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 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
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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 161 is intended
to improve financial reporting about 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. The new standard 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, which amends SFAS No. 142, Goodwill and Other
Intangible Assets. The new 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. The new standard, 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.
Because the pronouncement is to be applied prospectively, there will be no impact on
the Companys current financial statements as a result of adopting FAS 142-3 effective
January 4, 2009.4.
    
    InventoriesInventories consist of the following:
 June 28,
    
    
    December 29,2008
    
    
    2007(in thousands)Components
    
    $
    26,349
    
    
    $
    22,759Work-in-process
    
    
    7,955
    
    
    
    8,480Finished goods
    
    
    708
    
    
    
    775Inventory reserves
    
    
    (2,083
    )
    
    
    (1,781
    )$
    32,929
    
    
    $
    30,233
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5.
    
    Intangible AssetsIntangible assets consist of the following:
 June 28, 2008
    
    
    December 29, 2007Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization(in thousands)Amortized intangible assetsPatents
    
    $
    3,046
    
    
    $
    1,623
    
    
    $
    3,027
    
    
    $
    1,531Drawings
    
    
    6,140
    
    
    
    882
    
    
    
    6,140
    
    
    
    754Customer relationships
    
    
    11,299
    
    
    
    1,334
    
    
    
    11,299
    
    
    
    975$
    20,485
    
    
    $
    3,839
    
    
    $
    20,466
    
    
    $
    3,260Unamortized intangible assetsTrademarks 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 28 years for customer relationships). The amortization expense of
intangible assets for the six-month periods ended June 28, 2008 and June 30, 2007
was $579,000 and $389,000.Goodwill increased by $454,000 during the first six months of 2008, of which
$354,000 was related to the acquisition of certain assets of Wuxi Chenghao and
$100,000 was related to the acquisition of the stock of Rader.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 six-month periods ended June
28, 2008 and June 30, 2007:
 Six Months EndedJune 28,
    
    
    June 30,2008
    
    
    2007(in thousands)Beginning balance
    
    $
    2,194
    
    
    $
    1,538Accrued warranty of acquired business
    
    
    
    
    
    
    50Accrual of warranty expense
    
    
    1,339
    
    
    
    970Warranty costs incurred
    
    
    (1,136
    )
    
    
    (636
    )Foreign exchange adjustment
    
    
    104
    
    
    
    (1
    )Ending balance
    
    $
    2,501
    
    
    $
    1,921
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7.
    
    Long-Term DebtLong-term debt consists of the following, with the annual interest rates shown being
those in effect on June 28, 2008:
 June 28,
    
    
    December 29,2008
    
    
    2007(in thousands)U.S. revolving line of credit
    
    $
    24,950
    
    
    $
    33,750U.S. mortgage, interest at 6.45%
    
    
    973
    
    
    
    1,364U.S. term note, interest at 5.00%
    
    
    2,000
    
    
    
    3,00027,923
    
    
    
    38,114Less current portion
    
    
    (1,209
    )
    
    
    (1,201
    )$
    26,714
    
    
    $
    36,913
 All amounts borrowed under the U.S. revolving line of credit are due on September 29,
2011. As of June 28, 2008, interest on the $24,950,000 borrowed under that line of
credit was payable at the following rates for the periods ending on the dates
indicated:
 Expiration ofAmount
    
    
    Interest Rate Period
    
    
    Per Annum RatePrime loan
    
    $
    250,000
    *
    
    
    
    
    
    
    4.000
    %Six-month LIBOR loan
    
    
    3,700,000
    
    
    
    9/26/2008
    
    
    
    3.507
    %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
    %$
    24,950,000
 
 *
    
    The prime loan was paid in full on July 9, 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.
 -9-




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##### Table of Contents



The Companys Basic and Diluted Earnings Per Share are calculated as follows:
 For the Three Months Ended June 28, 2008Net Income AvailableTo Common
    
    
    
    
    
    
    Earnings(Dollars and Shares in Thousands except Per Share Data)
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    7,158
    
    
    
    2,733
    
    
    $
    2.62Common share equivalent
of outstanding options
    
    
    
    
    
    
    144
    
    
    
    (0.13
    )Diluted
    
    $
    7,158
    
    
    
    2,877
    
    
    $
    2.49
 For the Three Months Ended June 30, 2007Net Income AvailableTo Common
    
    
    
    
    
    
    Earnings(Dollars and Shares in Thousands except Per Share Data)
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    5,253
    
    
    
    2,684
    
    
    $
    1.96Common share equivalent
of outstanding options
    
    
    
    
    
    
    175
    
    
    
    (0.12
    )Diluted
    
    $
    5,253
    
    
    
    2,859
    
    
    $
    1.84
 For the Six Months Ended June 28, 2008Net Income AvailableTo Common
    
    
    
    
    
    
    Earnings(Dollars and Shares in Thousands except Per Share Data)
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    12,809
    
    
    
    2,725
    
    
    $
    4.70Common share equivalent
of outstanding options
    
    
    
    
    
    
    143
    
    
    
    (0.23
    )Diluted
    
    $
    12,809
    
    
    
    2,868
    
    
    $
    4.47
 For the Six Months Ended June 30, 2007Net Income AvailableTo Common
    
    
    
    
    
    
    Earnings(Dollars and Shares in Thousands except Per Share Data)
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    10,132
    
    
    
    2,674
    
    
    $
    3.79Common share equivalent
of outstanding options
    
    
    
    
    
    
    172
    
    
    
    (0.23
    )Diluted
    
    $
    10,132
    
    
    
    2,846
    
    
    $
    3.56
 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.
 -10-




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##### Table of Contents



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 six
months of 2008 or 2007. There were no stock options granted in 2007 or in the first
six months of 2008.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 that 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.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 six months of 2008 and 2007.For the three and six-month periods ended June 28, 2008 and June 30, 2007, the
following table sets forth the Companys comprehensive income:
 Three Months Ended
    
    
    Six Months EndedJune 28,
    
    
    June 30,
    
    
    June 28,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)Net income
    
    $
    7,158
    
    
    $
    5,253
    
    
    $
    12,809
    
    
    $
    10,132Unrealized gain (loss) on interest rate
swaps, net of tax
    
    
    237
    
    
    
    71
    
    
    
    (67
    )
    
    
    50Foreign currency translation gain (loss)
    
    
    (1,026
    )
    
    
    (104
    )
    
    
    4,215
    
    
    
    35Comprehensive income
    
    $
    6,369
    
    
    $
    5,220
    
    
    $
    16,957
    
    
    $
    10,217
 -11-




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##### Table of Contents



11.
    
    Management Geographic InformationThe Company has adopted the provisions of SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 introduced a model for segment
reporting called the management approach. The management approach is based on the way
that the chief operating decision-maker organizes segments within a company for making
operating decisions and assessing performance. The Company is engaged in one business
segment  material handling equipment and systems. The Company operates in two primary
geographic locations  North and South America (the Americas) and Europe, the Middle
East, Africa and Asia (EMEA/Asia).For the three and six-month periods ended June 28, 2008 and June 30, 2007, the
following table sets forth the Companys geographic information:
 Americas
    
    
    EMEA/Asia
    
    
    Eliminations
    
    
    Consolidated(in thousands)THREE MONTHS ENDED
June 28, 2008RevenuesSales to unaffiliated customers
    
    $
    40,572
    
    
    $
    19,638
    
    
    $
    
    
    
    $
    60,210Sales to affiliates
    
    
    2,910
    
    
    
    1,627
    
    
    
    (4,537
    )
    
    
    Total sales
    
    $
    43,482
    
    
    $
    21,265
    
    
    $
    (4,537
    )
    
    $
    60,210Operating income
    
    $
    6,390
    
    
    $
    3,839
    
    
    $
    27
    
    
    $
    10,256Interest (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (246
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,010
 Americas
    
    
    EMEA/Asia
    
    
    Eliminations
    
    
    Consolidated(in thousands)THREE MONTHS ENDED
June 30, 2007RevenuesSales to unaffiliated customers
    
    $
    31,756
    
    
    $
    15,810
    
    
    $
    
    
    
    $
    47,566Sales to affiliates
    
    
    1,269
    
    
    
    1,515
    
    
    
    (2,784
    )
    
    
    Total sales
    
    $
    33,025
    
    
    $
    17,325
    
    
    $
    (2,784
    )
    
    $
    47,566Operating income
    
    $
    4,861
    
    
    $
    2,800
    
    
    $
    (35
    )
    
    $
    7,626Interest (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (433
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,193
 -12-




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##### Table of Contents



Americas
    
    
    EMEA/Asia
    
    
    Eliminations
    
    
    Consolidated(in thousands)SIX MONTHS ENDED
June 28, 2008RevenuesSales to unaffiliated customers
    
    $
    77,871
    
    
    $
    39,737
    
    
    $
    
    
    
    $
    117,608Sales to affiliates
    
    
    4,627
    
    
    
    2,640
    
    
    
    (7,267
    )
    
    
    Total sales
    
    $
    82,498
    
    
    $
    42,377
    
    
    $
    (7,267
    )
    
    $
    117,608Operating income
    
    $
    11,542
    
    
    $
    7,288
    
    
    $
    (39
    )
    
    $
    18,791Interest (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (625
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    18,166
 Americas
    
    
    EMEA/Asia
    
    
    Eliminations
    
    
    Consolidated(in thousands)SIX MONTHS ENDED
June 30, 2007RevenuesSales to unaffiliated customers
    
    $
    60,097
    
    
    $
    34,353
    
    
    $
    
    
    
    $
    94,450Sales to affiliates
    
    
    2,305
    
    
    
    2,528
    
    
    
    (4,833
    )
    
    
    Total sales
    
    $
    62,402
    
    
    $
    36,881
    
    
    $
    (4,833
    )
    
    $
    94,450Operating income
    
    $
    8,092
    
    
    $
    6,998
    
    
    $
    (22
    )
    
    $
    15,068Interest (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (900
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    14,168
 -13-




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For the three and six-month periods ended June 28, 2008 and June 30, 2007, the
following table sets forth revenues from external customers:
 Three Months Ended
    
    
    Six Months EndedJune 28,
    
    
    June 30,
    
    
    June 28,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)AmericasU.S.
    
    $
    30,252
    
    
    $
    25,230
    
    
    $
    54,994
    
    
    $
    47,665Canada
    
    
    4,750
    
    
    
    979
    
    
    
    10,525
    
    
    
    3,671All others
    
    
    5,570
    
    
    
    5,547
    
    
    
    12,352
    
    
    
    8,761Total
    
    
    40,572
    
    
    
    31,756
    
    
    
    77,871
    
    
    
    60,097EMEA/AsiaGermany
    
    
    3,915
    
    
    
    2,723
    
    
    
    7,006
    
    
    
    5,489Netherlands
    
    
    569
    
    
    
    1,463
    
    
    
    1,725
    
    
    
    6,576United Kingdom
    
    
    2,143
    
    
    
    2,445
    
    
    
    4,357
    
    
    
    3,935All others
    
    
    13,011
    
    
    
    9,179
    
    
    
    26,649
    
    
    
    18,353Total
    
    
    19,638
    
    
    
    15,810
    
    
    
    39,737
    
    
    
    34,353$
    60,210
    
    
    $
    47,566
    
    
    $
    117,608
    
    
    $
    94,450
 -14-




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##### Table of Contents



Item 2 . Managements Discussion and Analysis of Financial Condition and
Results of Operations .
 Introduction
     Critical Accounting Assumptions, Estimates and Policies; Recent Pronouncements
  -15-




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Results of Operations
 Overview
  Foreign Exchange Rates
  -16-




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##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 28,
    
    
    
    
    
    June 30,
    
    June 28,
    
    
    
    
    
    June 30,2008
    
    
    
    
    
    2007
    
    2008
    
    
    
    
    
    2007Average U.S. dollar equivalent of
one Swiss franc
    
    
    0.971
    
    
    
    
    
    
    
    0.818
    
    
    
    0.956
    
    
    
    
    
    
    
    0.814% change vs. prior year
    
    
    
    
    
    
    +18.7
    %
    
    
    
    
    
    
    
    
    
    
    +17.4
    %Average U.S. dollar equivalent of
one euro
    
    
    1.564
    
    
    
    
    
    
    
    1.349
    
    
    
    1.532
    
    
    
    
    
    
    
    1.329% change vs. prior year
    
    
    
    
    
    
    +15.9
    %
    
    
    
    
    
    
    
    
    
    
    +15.3
    %Average U.S. dollar equivalent of
one British pound sterling
    
    
    1.975
    
    
    
    
    
    
    
    1.987
    
    
    
    1.976
    
    
    
    
    
    
    
    1.970% change vs. prior year
    
    
    
    
    
    
    -0.6
    %
    
    
    
    
    
    
    
    
    
    
    +0.3
    %Average Swiss franc equivalent of
one euro
    
    
    1.611
    
    
    
    
    
    
    
    1.649
    
    
    
    1.604
    
    
    
    
    
    
    
    1.633% change vs. prior year
    
    
    
    
    
    
    -2.3
    %
    
    
    
    
    
    
    
    
    
    
    -1.8
    %Average Swiss franc equivalent of
one British pound sterling
    
    
    2.035
    
    
    
    
    
    
    
    2.429
    
    
    
    2.070
    
    
    
    
    
    
    
    2.420% change vs. prior year
    
    
    
    
    
    
    -16.2
    %
    
    
    
    
    
    
    
    
    
    
    -14.5
    %
 -17-




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##### Table of Contents



Presentation of Results and Analysis
  Three Months Ended
    
    Six Months EndedJune 28,
    
    June 30,
    
    June 28,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    57.6
    
    
    
    56.8
    
    
    
    57.7
    
    
    
    57.4Gross profit
    
    
    42.4
    
    
    
    43.2
    
    
    
    42.3
    
    
    
    42.6Selling, general and administrative
    
    
    24.3
    
    
    
    25.9
    
    
    
    25.2
    
    
    
    25.3Research and development
    
    
    1.1
    
    
    
    1.3
    
    
    
    1.1
    
    
    
    1.3Operating income
    
    
    17.0
    
    
    
    16.0
    
    
    
    16.0
    
    
    
    16.0Interest expense, net
    
    
    0.4
    
    
    
    0.9
    
    
    
    0.5
    
    
    
    1.0Income before income taxes
    
    
    16.6
    
    
    
    15.1
    
    
    
    15.5
    
    
    
    15.0Income tax provision
    
    
    4.7
    
    
    
    4.1
    
    
    
    4.6
    
    
    
    4.3Net income
    
    
    11.9
    %
    
    
    11.0
    %
    
    
    10.9
    %
    
    
    10.7
    %
  June 28, 2008
    
    
    Dec. 29, 2007
    
    
    June 30, 2007Backlog (at June 28, 2008
foreign exchange rates, in
thousands of dollars)
    
    $
    75,547
    
    
    $
    73,545
    
    
    $
    57,811
   -18-




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-19-




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##### Table of Contents



Liquidity and Capital Resources
 Capitalization
  June 28,
    
    
    December 29,(Dollars in Thousands)
    
    2008
    
    
    2007Short-term debt, including current
portion of long-term debt
    
    $
    1,209
    
    
    $
    1,201Long-term debt
    
    
    26,714
    
    
    
    36,913Total debt
    
    
    27,923
    
    
    
    38,114Shareholders equity
    
    
    111,927
    
    
    
    93,953Total debt and shareholders equity
(total capitalization)
    
    $
    139,850
    
    
    $
    132,067Percent total debt to total capitalization
    
    
    20
    %
    
    
    29
    %Percent long-term debt to equity
    
    
    24
    %
    
    
    39
    %Percent total debt to equity
    
    
    25
    %
    
    
    41
    %
   Other Items
   -20-




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Future Payments Under Contractual Obligations
  Risk Factors
  -21-




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##### Table of Contents



Forward-Looking Statements
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
  Foreign Exchange Rate Risk
    -22-




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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
  -23-




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 4.
    
    Submission of Matters to a Vote of Security Holders.
 (a)
    
    The Annual Meeting of Shareholders of the Company was held on May 8,
2008.(b)
    
    Not applicable(c)
    
    Shareholders of the Company were asked to vote on a proposal to elect
two Class III directors. The Board of Directors nominated Norman Cohen and
Richard J. Pinola as its nominees for election as the Class III directors.
There were no other nominations. Messrs. Cohen and Pinola were elected as the
Class III directors, with the result of the vote being as follows:
 Number of VotesFor
    
    WithheldNorman Cohen
    
    
    2,352,064
    
    
    
    55,587Richard J. Pinola
    
    
    2,241,332
    
    
    
    166,319
  (d)
    
    Not applicable
 
 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
 -24-




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##### Table of Contents



K-TRON INTERNATIONAL, INC.Date:  August 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:  August 4, 2008
    By:
    ALAN R. SUKONECKAlan R. SukoneckVice President, Chief Accounting
and Tax Officer
(Duly authorized officer and principal
accounting officer of the Registrant) -25-




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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