##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period endedJuly 1, 2006
 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
  o o þ
  o þ




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##### 



INDEX
 Page No.PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements.Consolidated Balance Sheets
July 1, 2006 (Unaudited) and December 31, 2005
    
    
    1Consolidated Statements of Income and Retained
Earnings (Unaudited) for the Three and Six Months
Ended July 1, 2006 and July 2, 2005
    
    
    2Consolidated Statements of Cash Flows (Unaudited)
for the Six Months Ended July 1, 2006 and
July 2, 2005
    
    
    3Notes to Consolidated Financial Statements (Unaudited)
    
    
    4  14Item 2.
    
    Managements Discussion and Analysis
of Financial Condition and Results of Operations.
    
    15  21Item 3.
    
    Quantitative and Qualitative Disclosures About
Market Risk.
    
    
    21  22Item 4.
    
    Controls and Procedures.
    
    
    22  23PART II.
    
    OTHER INFORMATIONItem 4.
    
    Submission of Matters to a Vote of Security Holders.
    
    
    24Item 6.
    
    Exhibits.
    
    
    24  25SIGNATURES
    
    
    
    
    26Chief Executive Officer CertificationChief Financial Officer CertificationChief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1 . Financial Statements .
 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
  (Unaudited)July 1,
    
    
    December 31,2006
    
    
    2005ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    9,108
    
    
    $
    15,051Restricted cash
    
    
    221
    
    
    
    Accounts receivable, net of allowance for
doubtful accounts of $844 and $682
    
    
    22,442
    
    
    
    18,168Inventories, net
    
    
    19,980
    
    
    
    15,235Deferred income taxes
    
    
    1,435
    
    
    
    1,033Prepaid expenses and other current assets
    
    
    2,522
    
    
    
    2,019Total current assets
    
    
    55,708
    
    
    
    51,506PROPERTY, PLANT AND EQUIPMENT, net
    
    
    26,899
    
    
    
    22,271PATENTS, net
    
    
    1,521
    
    
    
    1,577GOODWILL
    
    
    3,779
    
    
    
    2,053OTHER INTANGIBLES, net
    
    
    13,216
    
    
    
    9,739NOTES RECEIVABLE AND OTHER ASSETS
    
    
    1,873
    
    
    
    1,852DEFERRED INCOME TAXES
    
    
    426
    
    
    
    112Total assets
    
    $
    103,422
    
    
    $
    89,110LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current portion of long-term debt
    
    $
    4,361
    
    
    $
    4,316Accounts payable
    
    
    8,287
    
    
    
    6,025Accrued expenses and other current liabilities
    
    
    7,444
    
    
    
    6,526Accrued commissions
    
    
    2,573
    
    
    
    2,297Customer advances
    
    
    3,578
    
    
    
    1,704Income taxes payable
    
    
    3,297
    
    
    
    3,421Deferred income taxes
    
    
    1,652
    
    
    
    1,652Total current liabilities
    
    
    31,192
    
    
    
    25,941LONG-TERM DEBT, net of current portion
    
    
    11,127
    
    
    
    12,675DEFERRED INCOME TAXES
    
    
    3,418
    
    
    
    974SERIES B JUNIOR PARTICIPATING PREFERRED SHARES, $.01 par value  authorized 50,000 shares; none issued
    
    
    
    
    
    
    SHAREHOLDERS EQUITY:Preferred stock, $.01 par value  authorized 950,000 shares; none issued
    
    
    
    
    
    
    Common stock, $.01 par value  authorized 50,000,000 shares;
issued 4,614,123 shares and 4,578,166 shares
    
    
    46
    
    
    
    46Paid-in capital
    
    
    20,006
    
    
    
    19,082Retained earnings
    
    
    62,056
    
    
    
    56,383Accumulated other comprehensive income
    
    
    3,091
    
    
    
    1,52385,199
    
    
    
    77,034Treasury stock, 2,002,574 shares  at cost
    
    
    (27,514
    )
    
    
    (27,514
    )Total shareholders equity
    
    
    57,685
    
    
    
    49,520Total liabilities and shareholders equity
    
    $
    103,422
    
    
    $
    89,110
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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
   Three Months Ended
    
    
    Six Months EndedJuly 1,
    
    
    July 2,
    
    
    July 1,
    
    
    July 2,2006
    
    
    2005
    
    
    2006
    
    
    2005REVENUES:Equipment and parts
    
    $
    34,436
    
    
    $
    28,182
    
    
    $
    64,614
    
    
    $
    54,841Services and freight
    
    
    2,325
    
    
    
    2,042
    
    
    
    4,261
    
    
    
    3,935Total revenues
    
    
    36,761
    
    
    
    30,224
    
    
    
    68,875
    
    
    
    58,776COST OF REVENUES:Equipment and parts
    
    
    18,375
    
    
    
    15,558
    
    
    
    35,412
    
    
    
    30,287Services and freight
    
    
    2,121
    
    
    
    1,830
    
    
    
    4,047
    
    
    
    3,702Total cost of revenues
    
    
    20,496
    
    
    
    17,388
    
    
    
    39,459
    
    
    
    33,989Gross profit
    
    
    16,265
    
    
    
    12,836
    
    
    
    29,416
    
    
    
    24,787OPERATING EXPENSES:Selling, general and administrative
    
    
    10,321
    
    
    
    8,908
    
    
    
    19,191
    
    
    
    17,403Research and development
    
    
    588
    
    
    
    686
    
    
    
    1,173
    
    
    
    1,35110,909
    
    
    
    9,594
    
    
    
    20,364
    
    
    
    18,754Operating income
    
    
    5,356
    
    
    
    3,242
    
    
    
    9,052
    
    
    
    6,033INTEREST EXPENSE, net of interest income
    
    
    210
    
    
    
    259
    
    
    
    366
    
    
    
    522Income before income taxes
    
    
    5,146
    
    
    
    2,983
    
    
    
    8,686
    
    
    
    5,511INCOME TAX PROVISION
    
    
    1,790
    
    
    
    1,067
    
    
    
    3,013
    
    
    
    1,952NET INCOME
    
    
    3,356
    
    
    
    1,916
    
    
    
    5,673
    
    
    
    3,559RETAINED EARNINGS:Beginning of period
    
    
    58,700
    
    
    
    50,744
    
    
    
    56,383
    
    
    
    49,101End of period
    
    $
    62,056
    
    
    $
    52,660
    
    
    $
    62,056
    
    
    $
    52,660EARNINGS PER SHARE:Basic
    
    $
    1.29
    
    
    $
    0.75
    
    
    $
    2.19
    
    
    $
    1.40Diluted
    
    $
    1.20
    
    
    $
    0.71
    
    
    $
    2.04
    
    
    $
    1.32Weighted average common shares outstanding (basic)
    
    
    2,597,000
    
    
    
    2,550,000
    
    
    
    2,587,000
    
    
    
    2,543,000Weighted average common and common equivalent
shares outstanding (diluted)
    
    
    2,796,000
    
    
    
    2,714,000
    
    
    
    2,777,000
    
    
    
    2,699,000
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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Six Months EndedJuly 1,
    
    
    July 2,2006
    
    
    2005OPERATING ACTIVITIES:Net income
    
    $
    5,673
    
    
    $
    3,559Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    2,238
    
    
    
    2,084Amortization of non-cash compensation
    
    
    118
    
    
    
    76Deferred income taxes
    
    
    (36
    )
    
    
    Changes in assets and liabilities, net of business acquired:Accounts receivable, net
    
    
    (1,069
    )
    
    
    1,926Inventories, net
    
    
    (2,001
    )
    
    
    (2,060
    )Prepaid expenses and other current assets
    
    
    (140
    )
    
    
    (45
    )Other assets
    
    
    297
    
    
    
    116Accounts payable
    
    
    1,460
    
    
    
    (229
    )Accrued expenses and other current liabilities
    
    
    149
    
    
    
    (1,830
    )Net cash provided by operating activities
    
    
    6,689
    
    
    
    3,597INVESTING ACTIVITIES:Business acquired net of cash received
    
    
    (7,116
    )
    
    
    Capital expenditures
    
    
    (1,615
    )
    
    
    (861
    )Other
    
    
    (35
    )
    
    
    (14
    )Net cash used in investing activities
    
    
    (8,766
    )
    
    
    (875
    )FINANCING ACTIVITIES:Net repayments under lines of credit
    
    
    (804
    )
    
    
    (700
    )Principal payments on long-term debt
    
    
    (3,713
    )
    
    
    (2,531
    )Proceeds from issuance of common stock
    
    
    460
    
    
    
    312Net cash used in financing activities
    
    
    (4,057
    )
    
    
    (2,919
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS
    
    
    412
    
    
    
    (1,342
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (5,722
    )
    
    
    (1,539
    )CASH, CASH EQUIVALENTS AND RESTRICTED CASH:Beginning of period
    
    
    15,051
    
    
    
    12,443End of period
    
    $
    9,329
    
    
    $
    10,904
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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 July 1, 2006
  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 2006 or 2005 mean the fiscal 13-week or 26-week period ended
July 1, 2006 or July 2, 2005.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 31, 2005
which was previously filed with the Securities and Exchange Commission (the SEC).Certain reclassifications were made to the prior years consolidated financial
statements to conform them to the current year presentation.2.
    
    AcquisitionOn March 3, 2006, the Company purchased all of the outstanding stock of J.M.J.
Industries, Inc., which operated its business under the tradename Gundlach, and the
results of that company, now known as Gundlach Equipment Corporation, have been
included in the Companys consolidated financial statements since that date. The
purchase price was $9,154,500, of which $6,154,500 was paid in cash and $3,000,000
by delivery of an unsecured promissory note bearing interest at 5% per annum and
payable in three equal, annual installments of $1,000,000 on March 3 in each of
2008, 2009 and 2010. The Company also paid off all of the acquired companys bank
debt, which amounted to approximately $1,347,000. The Company did not borrow any
money in connection with either the acquisition or the payoff of the bank debt. The
excess of the purchase price over the carrying value of the identifiable net assets
acquired was $6,723,000, which was allocated as follows:
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Intangible Useful Life
    
    
    (in thousands)Property, plant and equipment
    
    
    
    
    
    $
    1,347Goodwill
    
    Indefinite
    
    
    1,726Customer relationships
    
    15 Years
    
    
    1,500Drawings
    
    25 Years
    
    
    1,430Tradenames
    
    Indefinite
    
    
    720$
    6,723
  (in thousands)Cash
    
    $
    389Accounts receivable
    
    
    2,476Inventories
    
    
    2,313Other current assets
    
    
    175Property, plant and equipment
    
    
    4,287Goodwill
    
    
    1,726Customer relationships
    
    
    1,500Drawings
    
    
    1,430Tradenames
    
    
    720Accounts payable
    
    
    (502
    )Accrued expenses and other current liabilities
    
    
    (2,248
    )Deferred taxes
    
    
    (1,764
    )$
    10,502
 Customer relationships, drawings and tradenames are included in other intangibles in
the consolidated balance sheet.3.
    
    New Accounting PronouncementsIn December 2004, the Financial Accounting Standards Board (the FASB) issued the
final revised version of Statement of Financial Accounting Standards (SFAS) No.
123(R), Share-Based Payment, which requires companies to recognize in the income
statement the grant-date fair value of stock options and other equity-based
compensation issued to employees. In March 2005, the SEC issued Staff Accounting
Bulletin (SAB) No. 107, Share-Based Payment, regarding the interaction between
SFAS No. 123(R) and certain SEC rules and regulations. Effective January 1, 2006,
the Company adopted SFAS No. 123(R). Since January 1, 2006, the Company has
recognized compensation expense related to share-based payments on a straight-line
basis over the requisite service period for share-based payment awards granted on or
after January 1, 2006. For unvested awards granted prior to the effective date of
the Companys adoption of SFAS No. 123(R), the Company has recognized compensation
expense in the same manner as it did in its income statement or for pro forma
disclosures prior to the effective date of its adoption of SFAS No. 123(R). See
Note 10 for more information regarding the adoption of SFAS No. 123(R).
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The Company is currently evaluating the impact of this Interpretation on its
consolidated financial statements.4.
    
    Supplemental Disclosures of Cash Flow InformationThe Company considers all highly liquid short-term investments purchased with an
original maturity of three months or less to be cash equivalents.Cash paid for interest expense in the six-month periods ended July 1, 2006 and July
2, 2005 was $455,000 and $575,000 and for income taxes was $3,814,000 and
$2,524,000.As part of the acquisition discussed in Note 2 above, the Company issued $3,000,000
in an unsecured promissory note for the benefit of the sellers of the stock of
J.M.J. Industries, Inc.5.
    
    InventoriesInventories consist of the following:
 July 1,
    
    
    December 31,2006
    
    
    2005(in thousands)Components
    
    $
    16,552
    
    
    $
    13,216Work-in-process
    
    
    4,632
    
    
    
    2,850Finished goods
    
    
    
    
    
    
    81Inventory reserves
    
    
    (1,204
    )
    
    
    (912
    )$
    19,980
    
    
    $
    15,235
 6.
    
    Intangible AssetsIntangible assets consist of the following:
 July 1, 2006
    
    
    December 31, 2005Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization(in thousands)Amortized intangible assetsPatents
    
    $
    2,850
    
    
    $
    1,329
    
    
    $
    2,815
    
    
    $
    1,238Drawings
    
    
    4,980
    
    
    
    445
    
    
    
    3,550
    
    
    
    355Customer relationships
    
    
    6,398
    
    
    
    327
    
    
    
    4,898
    
    
    
    244$
    14,228
    
    
    $
    2,101
    
    
    $
    11,263
    
    
    $
    1,837Unamortized intangible assetsTrademarks and tradenames
    
    $
    2,610
    
    
    
    
    
    
    $
    1,890
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15 to 50 years. The weighted average life of the amortizable assets is 32 years.
The amortization expense of intangible assets for the six-month periods ended July
1, 2006 and July 2, 2005 was $264,000 and $210,000.7.
    
    Accrued WarrantyThe Company offers a one-year warranty on a majority of its products. Warranty is
accrued as a percentage of sales on a monthly basis and otherwise as believed
needed, and is included in accrued expenses and other current liabilities. The
following is an analysis of accrued warranty for the six-month periods ended July 1,
2006 and July 2, 2005:
 Six Months EndedJuly 1,
    
    
    July 2,2006
    
    
    2005(in thousands)Beginning balance
    
    $
    989
    
    
    $
    1,257Accrued warranty of
acquired business
    
    
    150
    
    
    
    Accrual of warranty expense
    
    
    613
    
    
    
    737Warranty costs incurred
    
    
    (444
    )
    
    
    (750
    )Foreign exchange adjustment
    
    
    30
    
    
    
    (56
    )Ending balance
    
    $
    1,338
    
    
    $
    1,188
 8.
    
    Long-Term DebtLong-term debt consists of the following, with the annual interest rates shown being
those in effect on July 1, 2006:
 July 1,
    
    
    December 31,2006
    
    
    2005(in thousands)U.S. mortgage, interest at 6.45%
    
    $
    1,643
    
    
    $
    1,731U.S. line of credit, interest at 7.75%
    
    
    
    
    
    
    805U.S. term notes, interest at 5.00% to 6.94%
    
    
    13,642
    
    
    
    14,266Other
    
    
    203
    
    
    
    18915,488
    
    
    
    16,991Less current portion
    
    
    (4,361
    )
    
    
    (4,316
    )$
    11,127
    
    
    $
    12,675
 9.
    
    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.
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For the Three Months Ended July 1, 2006(Dollars and Shares in Thousandsexcept Per Share Data)
    
    Net Income AvailableTo Common
    
    
    
    
    
    
    EarningsShareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    3,356
    
    
    
    2,597
    
    
    $
    1.29Common Share Equivalent
of Outstanding Options
    
    
    
    
    
    
    199
    
    
    
    (0.09
    )Diluted
    
    $
    3,356
    
    
    
    2,796
    
    
    $
    1.20
 For the Three Months Ended July 2, 2005(Dollars and Shares in Thousandsexcept Per Share Data)
    
    Net Income AvailableTo Common
    
    
    
    
    
    
    EarningsShareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    1,916
    
    
    
    2,550
    
    
    $
    0.75Common Share Equivalent
of Outstanding Options
    
    
    
    
    
    
    164
    
    
    
    (0.04
    )Diluted
    
    $
    1,916
    
    
    
    2,714
    
    
    $
    0.71
 For the Six Months Ended July 1, 2006(Dollars and Shares in Thousandsexcept Per Share Data)
    
    Net Income AvailableTo Common
    
    
    
    
    
    
    EarningsShareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    5,673
    
    
    
    2,587
    
    
    $
    2.19Common Share Equivalent
of Outstanding Options
    
    
    
    
    
    
    190
    
    
    
    (0.15
    )Diluted
    
    $
    5,673
    
    
    
    2,777
    
    
    $
    2.04
 For the Six Months Ended July 2, 2005(Dollars and Shares in Thousandsexcept Per Share Data)
    
    Net Income AvailableTo Common
    
    
    
    
    
    
    EarningsShareholders
    
    
    Shares
    
    
    Per ShareBasic
    
    $
    3,559
    
    
    
    2,543
    
    
    $
    1.40Common Share Equivalent
of Outstanding Options
    
    
    
    
    
    
    156
    
    
    
    (0.08
    )Diluted
    
    $
    3,559
    
    
    
    2,699
    
    
    $
    1.32
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The Companys Diluted Earnings Per Share values shown in the preceding table are based
on the weighted average number of common and common equivalent shares outstanding
during a given time period. Such average shares include the weighted average number of
common shares outstanding plus the shares issuable upon the exercise of stock options
after the assumed repurchase of common shares with the related proceeds at the average
market price during the period.10.
    
    Share-Based CompensationThe Company adopted SFAS No.123(R) effective January 1, 2006. SFAS No. 123(R)
requires the Company to recognize expense related to the fair value of stock-based
compensation awards, including employee stock options.Prior to the adoption of SFAS No. 123(R), the Company accounted for stock options
using the intrinsic value method of APB Opinion No. 25, and it did not recognize
compensation expense in its income statement for options granted that had an exercise
price equal to or greater than the market value of the underlying common stock on the
date of grant. However, the Company did record compensation expense related to
restricted stock grants based on the market value of its stock at the date of grant
and the vesting period of the grant. As required by SFAS No. 123, the Company also
provided certain pro forma disclosures for stock option awards as if the fair
value-based approach of SFAS No. 123 had been applied.The Company has elected to use the modified prospective transition method as permitted
by SFAS No. 123(R) and therefore has not restated its financial results for prior
periods. Under this transition method, the Company will apply the provisions of SFAS
No. 123(R) to new awards and to awards modified, repurchased or cancelled after
December 31, 2005. Additionally, for unvested awards granted prior to the effective
date of the Companys adoption of SFAS No. 123(R) which have not been fully expensed
in prior years, either in the Companys income statement or in pro forma disclosures
in the notes thereto, the Company will recognize 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).The pre-tax cost for stock option employee compensation was approximately $31,000
($19,000 after tax) for the second quarter of 2006 and approximately $62,000 ($38,000
after tax) for the first six months of 2006. As a result of the adoption of SFAS No.
123(R), the Companys financial results were lower than under the previous accounting
method for share-based compensation by the following amounts:
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Three Months Ended
    
    Six Months EndedJuly 1, 2006
    
    July 1, 2006(in thousands, except per share)Income from continuing operations
before income taxes
    
    $
    31
    
    
    $
    62Net income
    
    $
    19
    
    
    $
    38Basic earnings per share
    
    $
    0.01
    
    
    $
    0.01Diluted earnings per share
    
    $
    0.01
    
    
    $
    0.01
   Three Months Ended
    
    
    Six Months EndedJuly 2,
    
    
    July 2,2005
    
    
    2005(in thousands, except per share)Net income  as reported
    
    $
    1,916
    
    
    $
    3,559Deduct stock option employee
compensation expense determined,
net of related tax effect
    
    
    (55
    )
    
    
    (82
    )Net income  pro forma
    
    $
    1,861
    
    
    $
    3,477Basic earnings per share  as reported
    
    $
    0.75
    
    
    $
    1.40Basic earnings per share  pro forma
    
    
    0.73
    
    
    
    1.37Diluted earnings per share  as reported
    
    
    0.71
    
    
    
    1.32Diluted earnings per share  pro forma
    
    
    0.69
    
    
    
    1.29
 There were no employee stock options granted in the first six months of 2006.11.
    
    Comprehensive IncomeComprehensive income is the total of net income, the change in the unrealized gain or
loss on a foreign exchange hedge and an interest rate swap, in each case net of
tax, and the change in foreign currency translation adjustments, all for a given
period, which are the Companys only non-owner changes in equity. For the three
and six-month periods ended July 1, 2006 and July 2, 2005, the following table
sets forth the Companys comprehensive income:
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Three Months Ended
    
    
    Six Months EndedJuly 1,
    
    
    July 2,
    
    
    July 1,
    
    
    July 2,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)Net income
    
    $
    3,356
    
    
    $
    1,916
    
    
    $
    5,673
    
    
    $
    3,559Unrealized loss on foreign exchange
hedge, net of tax
    
    
    (114
    )
    
    
    
    
    
    
    (114
    )
    
    
    Unrealized gain (loss) on interest rate swap,
net of tax
    
    
    (6
    )
    
    
    (10
    )
    
    
    (6
    )
    
    
    24Foreign currency translation gain (loss)
    
    
    1,455
    
    
    
    (2,275
    )
    
    
    1,688
    
    
    
    (3,951
    )Comprehensive income (loss)
    
    $
    4,691
    
    
    $
    (369
    )
    
    $
    7,241
    
    
    $
    (368
    )
 12.
    
    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 July 1, 2006 and July 2, 2005, the following
table sets forth the Companys geographic information:
 EMEA/
    
    
    Elimi-
    
    
    Consoli-Americas
    
    
    Asia
    
    
    nations
    
    
    dated(in thousands)THREE MONTHS ENDEDJuly 1, 2006RevenuesSales to unaffiliated customers
    
    $
    24,557
    
    
    $
    12,204
    
    
    $
    
    
    
    $
    36,761Sales to affiliates
    
    
    794
    
    
    
    906
    
    
    
    (1,700
    )
    
    
    Total sales
    
    $
    25,351
    
    
    $
    13,110
    
    
    $
    (1,700
    )
    
    $
    36,761Operating income
    
    $
    4,342
    
    
    $
    1,024
    
    
    $
    (10
    )
    
    $
    5,356Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (210
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,146
 - 12 -




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##### Table of Contents



EMEA/
    
    
    Elimi-
    
    
    Consoli-Americas
    
    
    Asia
    
    
    nations
    
    
    dated(in thousands)THREE MONTHS ENDEDJuly 2, 2005RevenuesSales to unaffiliated customers
    
    $
    18,415
    
    
    $
    11,809
    
    
    $
    
    
    
    $
    30,224Sales to affiliates
    
    
    702
    
    
    
    893
    
    
    
    (1,595
    )
    
    
    Total sales
    
    $
    19,117
    
    
    $
    12,702
    
    
    $
    (1,595
    )
    
    $
    30,224Operating income
    
    $
    2,423
    
    
    $
    804
    
    
    $
    15
    
    
    $
    3,242Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (259
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,983
 EMEA/
    
    
    Elimi-
    
    
    Consoli-Americas
    
    
    Asia
    
    
    nations
    
    
    dated(in thousands)SIX MONTHS ENDEDJuly 1, 2006RevenuesSales to unaffiliated customers
    
    $
    45,446
    
    
    $
    23,429
    
    
    $
    
    
    
    $
    68,875Sales to affiliates
    
    
    1,472
    
    
    
    1,636
    
    
    
    (3,108
    )
    
    
    Total sales
    
    $
    46,918
    
    
    $
    25,065
    
    
    
    (3,108
    )
    
    $
    68,875Operating income
    
    $
    7,228
    
    
    $
    1,864
    
    
    $
    (40
    )
    
    $
    9,052Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (366
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,686
 EMEA/
    
    
    Elimi-
    
    
    Consoli-Americas
    
    
    Asia
    
    
    nations
    
    
    dated(in thousands)SIX MONTHS ENDEDJuly 2, 2005RevenuesSales to unaffiliated customers
    
    $
    35,528
    
    
    $
    23,248
    
    
    $
    
    
    
    $
    58,776Sales to affiliates
    
    
    1,455
    
    
    
    1,648
    
    
    
    (3,103
    )
    
    
    Total sales
    
    $
    36,983
    
    
    $
    24,896
    
    
    $
    (3,103
    )
    
    $
    58,776Operating income
    
    $
    4,822
    
    
    $
    1,166
    
    
    $
    45
    
    
    $
    6,033Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (522
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,511
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Three Months Ended
    
    
    Six Months EndedJuly 1,
    
    
    July 2,
    
    
    July 1,
    
    
    July 2,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)AmericasU.S.
    
    $
    20,102
    
    
    $
    15,258
    
    
    $
    37,810
    
    
    $
    29,952All others
    
    
    4,455
    
    
    
    3,157
    
    
    
    7,636
    
    
    
    5,576Total
    
    
    24,557
    
    
    
    18,415
    
    
    
    45,446
    
    
    
    35,528EMEA/AsiaFrance
    
    
    850
    
    
    
    1,413
    
    
    
    1,586
    
    
    
    2,386Germany
    
    
    1,887
    
    
    
    1,898
    
    
    
    4,312
    
    
    
    3,718United Kingdom
    
    
    2,881
    
    
    
    2,132
    
    
    
    5,107
    
    
    
    4,553All others
    
    
    6,586
    
    
    
    6,366
    
    
    
    12,424
    
    
    
    12,591Total
    
    
    12,204
    
    
    
    11,809
    
    
    
    23,429
    
    
    
    23,248$
    36,761
    
    
    $
    30,224
    
    
    $
    68,875
    
    
    $
    58,776
 -14-




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Introduction
     Critical Accounting Policies and Estimates; Recent Accounting Standards
    -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 EndedJuly 1,
    
    
    
    
    
    
    July 2,
    
    
    July 1,
    
    
    
    
    
    
    July 2,2006
    
    
    
    
    
    
    2005
    
    
    2006
    
    
    
    
    
    
    2005Average U.S. dollar equivalent of
one Swiss franc
    
    
    0.807
    
    
    
    
    
    
    
    0.812
    
    
    
    0.789
    
    
    
    
    
    
    
    0.824% change vs. prior year
    
    
    
    
    
    
    -0.6
    %
    
    
    
    
    
    
    
    
    
    
    -4.2
    %Average U.S. dollar equivalent of
one euro
    
    
    1.260
    
    
    
    
    
    
    
    1.254
    
    
    
    1.232
    
    
    
    
    
    
    
    1.283% change vs. prior year
    
    
    
    
    
    
    0.5
    %
    
    
    
    
    
    
    
    
    
    
    -4.0
    %Average U.S. dollar equivalent of
one British pound sterling
    
    
    1.833
    
    
    
    
    
    
    
    1.848
    
    
    
    1.793
    
    
    
    
    
    
    
    1.869% change vs. prior year
    
    
    
    
    
    
    -0.8
    %
    
    
    
    
    
    
    
    
    
    
    -4.1
    %Average Swiss franc equivalent of
one euro
    
    
    1.561
    
    
    
    
    
    
    
    1.544
    
    
    
    1.561
    
    
    
    
    
    
    
    1.557% change vs. prior year
    
    
    
    
    
    
    1.1
    %
    
    
    
    
    
    
    
    
    
    
    0.3
    %Average Swiss franc equivalent of
one British pound sterling
    
    
    2.271
    
    
    
    
    
    
    
    2.276
    
    
    
    2.272
    
    
    
    
    
    
    
    2.268% change vs. prior year
    
    
    
    
    
    
    -0.2
    %
    
    
    
    
    
    
    
    
    
    
    0.2
    %
 Presentation of Results and Analysis
  Three Months Ended
    
    
    Six Months EndedJuly 1,
    
    
    July 2,
    
    
    July 1,
    
    
    July 2,2006
    
    
    2005
    
    
    2006
    
    
    2005Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    55.8
    
    
    
    57.5
    
    
    
    57.3
    
    
    
    57.8Gross profit
    
    
    44.2
    
    
    
    42.5
    
    
    
    42.7
    
    
    
    42.2Selling, general and administrative
    
    
    28.0
    
    
    
    29.5
    
    
    
    27.9
    
    
    
    29.6Research and development
    
    
    1.6
    
    
    
    2.3
    
    
    
    1.7
    
    
    
    2.3Operating income
    
    
    14.6
    
    
    
    10.7
    
    
    
    13.1
    
    
    
    10.3Interest income (expense)
    
    
    (0.6
    )
    
    
    (0.8
    )
    
    
    (0.5
    )
    
    
    (0.9
    )Income before income taxes
    
    
    14.0
    %
    
    
    9.9
    %
    
    
    12.6
    %
    
    
    9.4
    %
 -17-




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July 1, 2006
    
    
    December 31, 2005
    
    
    July 2, 2005Backlog (at July 1, 2006
exchange rates, in thousands
of dollars)
    
    $
    40,878
    
    
    $
    25,469
    
    
    $
    24,234
       -18-




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##### Table of Contents



Liquidity and Capital Resources
 Capitalization
  July 1,
    
    
    December 31,
    
    
    January 1,(Dollars in Thousands)
    
    2006
    
    
    2005
    
    
    2005Short-term debt, including current
portion of long-term debt
    
    $
    4,361
    
    
    $
    4,316
    
    
    $
    4,185Long-term debt
    
    
    11,127
    
    
    
    12,675
    
    
    
    18,598Total debt
    
    
    15,488
    
    
    
    16,991
    
    
    
    22,783Shareholders equity
    
    
    57,685
    
    
    
    49,520
    
    
    
    45,559Total debt and shareholders equity
(total capitalization)
    
    $
    73,173
    
    
    $
    66,511
    
    
    $
    68,342Percent total debt to total capitalization
    
    
    21
    %
    
    
    26
    %
    
    
    33
    %Percent long-term debt to equity
    
    
    19
    %
    
    
    26
    %
    
    
    41
    %Percent total debt to equity
    
    
    27
    %
    
    
    34
    %
    
    
    50
    %
   -19-




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Other Items
       Future Payments Under Contractual Obligations
  Risk Factors
  -20-




---



##### Table of Contents



Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk .
  Foreign Exchange Rate Risk
   -21-




---



##### Table of Contents



Interest Rate Risk
  
 Item 4 . Controls and Procedures .
 Evaluation of Disclosure Controls and Procedures
  -22-




---



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Change in Internal Control over Financial Reporting
  -23-




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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 12,
2006.(b)
    
    Not applicable(c)
    
    Shareholders of the Company were asked to vote on a proposal to elect
one Class I director. The Board of Directors nominated Edward T. Hurd as the
Class I director. There were no other nominations. Mr. Hurd was elected as
the Class I director, with the result of the vote being as follows:
 Number of VotesFor
    
    WithheldEdward T. Hurd
    
    
    2,114,878
    
    
    
    75,711
   Number of VotesBrokerFor
    
    Against
    
    Abstain
    
    Non-VotesK-Tron International, Inc.
2006 Equity Compensation
Plan
    
    
    1,381,254
    
    
    
    276,109
    
    
    
    2,166
    
    
    
    531,060
 (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 1934
 -24-




---



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32.1 Chief Executive Officer and Chief Financial Officer Certification
pursuant to 18 U.S.C. Section 1350
 -25-




---



##### Table of Contents



K-TRON INTERNATIONAL, INC.Date: August 7, 2006
    
    By:
    
    RONALD R. REMICKRonald R. RemickSenior Vice President & Chief
Financial Officer(Duly authorized officer and principal
financial officer of the Registrant)By:
    
    ALAN R. SUKONECKAlan R. SukoneckVice President, Chief Accounting
& Tax Officer(Duly authorized officer and principal
accounting officer of the Registrant)
 -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