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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 10-K FOR ANNUAL REPORT AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X]
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended January 3, 2004
 OR [   ]
    
    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. (Exact name of registrant as specified in its charter)
 New Jersey
    
    22-1759452(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 Routes 55 and 553
P.O. Box 888
Pitman, New Jersey
    
    08071-0888(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone
number, including area code: (856) 589-0500 Securities registered pursuant to Section 12(b) of the Act: Title of each class
None
    
    Name of each exchange on which
registered 
None
 Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share




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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 (the Act) during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [  ] Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrants knowledge, in the definitive proxy statement
incorporated by reference in Part III of this annual report on Form 10-K or
any amendment to this annual report on Form 10-K. [  ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). Yes [  ] No [X] As of June 28, 2003, which was the last business day of the Registrants
most recently completed second fiscal quarter, the aggregate market value of
the Common Stock held by non-affiliates of the Registrant was $33,698,514.
Such aggregate market value was computed by reference to the closing sale price
of the Registrants Common Stock as quoted on the Nasdaq National Market on
such date. For purposes of making this calculation only, the Registrant has
defined affiliates as including all directors and executive officers, but
excluding any institutional shareholders owning more than ten percent of the
Registrants Common Stock. As of March 19, 2004, there were 2,466,354 shares of the Registrants
Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE As stated in Part III of this annual report on Form 10-K, portions of the
Registrants definitive proxy statement to be filed within 120 days after the
end of the fiscal year covered by this annual report on Form 10-K are
incorporated herein by reference. CERTAIN DEFINITIONS Unless the context indicates otherwise, the terms K-Tron, the Company,
we, our and us refer to K-Tron International, Inc. and, where
appropriate, one or more of its subsidiaries. The term Registrant means
K-Tron International, Inc. - 2 -




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TABLE OF CONTENTS  PART IItem 1. BusinessItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Registrants Common Equity and Related Stockholder MattersItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Change In and Disagreements with Accountants on Accounting and Financial DisclosuresItem 9A. Controls and ProceduresPART IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder MattersItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accountant Fees and ServicesItem 15. Exhibits, Financial Statement Schedules and Reports on Form 8-KSIGNATURESReport of Independent Certified Public AccountantsIndependent Auditors ReportReport of Independent Public AccountantsConsolidated Balance SheetsConsolidated Statements of IncomeConsolidated Statements of Changes in Shareholders EquityConsolidated Statements of Cash FlowsNotes to Consolidated Financial StatementsValuation and Qualifying AccountsEXHIBIT INDEXLOAN MODIFICATION AGREEMENTSUBSIDIARIESCONSENT OF GRANT THORNTON LLPCONSENT OF KPMG LLPCERTIFICATION BY THE CHIEF EXECUTIVE OFFICERCERTIFICATION BY THE CHIEF FINANCIAL OFFICERCERTIFICATION BY THE CEO AND CFO    Table of Contents  
 PART I 
 Item 1. Business. General K-Tron International, Inc. is a New Jersey corporation founded in 1964.
We are engaged in one principal business segment, which is material handling
equipment and systems, and our operations are conducted largely through
subsidiary companies. We have manufacturing facilities in the United States,
Switzerland, the United Kingdom and Canada, and our equipment is sold and
supported throughout the world. On January 2, 2003, we purchased all of the
outstanding stock of Pennsylvania Crusher Corporation (Penn Crusher). As
result of this acquisition, we now also own Jeffrey Specialty Equipment
Corporation (Jeffrey), which is a wholly-owned subsidiary of Penn Crusher. We serve the bulk solids material handling markets through three separate
business lines. These three business lines or groups focus primarily on
feeding equipment, pneumatic conveying equipment and size reduction equipment,
respectively. Our material handling equipment is used in a wide variety of
manufacturing and other industrial processes, particularly in the plastics,
food, chemical, detergent, pharmaceutical, electric utility and pulp and paper
industries. We design, engineer, produce, market and service this equipment,
and we sell it both on a stand alone basis and as part of a larger system that
we may design and sell. Replacement parts are an important aspect of all of
our businesses, and they comprise a significant majority of the sales of our
size reduction group. Feeding Equipment Our feeder group, which consists of several K-Tron companies operating in
the United States, Europe and Asia, is generally referred to as the K-Tron
Feeder Group. This group produces feeders that control the flow of materials
into a manufacturing process by weight (known as gravimetric feeding) or by
volume (known as volumetric feeding). The manufacturing process then
transforms these materials into an end product. Our feeders are used in many
different industries worldwide, including the plastics compounding, food,
chemical, detergent and pharmaceutical industries. We believe that we are the
global leader in the production and sale of feeders for the handling of bulk
solids in a manufacturing process. K-Tron Soder Brand. The feeding equipment sold by the K-Tron Feeder Group
is offered throughout the world under the K-Tron Soder brand name by
approximately 60 independent sales representative organizations with exclusive
territories, by Company-owned sales companies in France, Germany, the United
Kingdom and Singapore and directly from the factory in other locations which
are not covered by either of the foregoing distribution channels. The K-Tron
Feeder Group markets and sells both stand alone units and engineered systems
where one or more feeders are combined with other complementary material
handling equipment. Feeders.The K-Tron Feeder Group markets conventional single and twin
screw feeders, belt feeders and vibratory feeders. We offer these feeder types
in a number of different designs, sizes and finishes to meet the requirements
of a given material handling application and to assure compliance with
applicable industry codes and specifications. In addition, these feeders are
available in both a - 3 -




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volumetric mode, where the flow of material is controlled by volume, and a
gravimetric mode, where the flow of material is controlled either by weight or
loss of weight over a defined time period. Gravimetric feeders, which
represent the majority of our feeding equipment sales, are used in premium
applications where short-term accuracy in feeding the raw materials is
essential to produce a high-quality end product. The K-Tron Feeder Group also recently introduced a new type of feeder,
which we refer to as the BSP or Bulk Solids Pump, that is based on a patented
technology which we have licensed on a worldwide exclusive basis in the fields
of use relevant for our feeder business. The BSP feeder does not utilize the
usual screws, belts or vibratory trays to convey material but instead relies
upon positive displacement action to feed accurately free-flowing materials,
offering uniform discharge, consistent volume and gentle handling. It achieves
this result by using vertical rotating discs that create a product lock-up zone
which then conveys the material smoothly from storage hopper to discharge
outlet over a defined range. In addition to feeders, we also produce mass flow meters which measure and
control the flow of materials from a storage vessel. Our flow meters have no
moving parts and therefore require little maintenance, and they do not need to
be calibrated to a specific mass flow range. All of our feeding equipment models have been developed by our own
internal research and development group. Weight Sensors and Controls. The performance of gravimetric feeders
depends to a great extent on the weighing and control systems being used. Our
proprietary weight sensors, known as Smart Force Transducers, are based on a
vibrating wire technology. These load cells have evolved over more than 30
years into todays rugged and drift-free weighing systems. When combined with
our proprietary control system, known as SmartConnex, they constitute what we
believe to be one of the most accurate systems generally available for
gravimetric feeding. Vacuum Conveying. The K-Tron Feeder Group also markets vacuum loaders for
the refilling of feeders and for use in other material handling applications.
These loaders are manufactured by our pneumatic conveying group described
below, and the K-Tron Feeder Group sells them under the Hurricane product name.
We believe that we are the only company offering integrated feeder and vacuum
loader controls to the process industries. Service, Parts and Training. The K-Tron Feeder Group has a global service
network that enables us to respond to customer calls within 24 hours almost
anywhere in the world. We also sell parts to our customers, and our service
and parts business is an important source of revenue for us. In addition to
equipment, service and parts, we offer customer and employee training with
respect to our feeding and pneumatic conveying equipment at our K-Tron
Institute, which is based at our facilities in Pitman, New Jersey and
Niederlenz, Switzerland, and through courses offered by the Institute in other
locations, including at customer sites. Manufacturing. The K-Tron Feeder Group produces a number of feeder
designs which are then adapted to meet a customers specifications.
Customization generally is limited to combining standard mechanical and
electrical modules to meet the process and regulatory requirements of the
customer. The primary manufacturing activities consist of the assembly and
final testing of feeders and related equipment. We assemble a number of
components used in our feeder products that are - 4 -




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manufactured by others to our specifications. These outsourced components
include sheet metal parts, feeder screws, castings, electric motors and
electronic assemblies. We also manufacture the load cells that are used in our
gravimetric feeders. K-Tron Soder feeders and systems are assembled and tested
at our facilities in Pitman, New Jersey and Niederlenz, Switzerland. Competition.We believe that the K-Tron Feeder Group is the leading
worldwide producer of feeders and related equipment for the handling of bulk
solids in manufacturing processes, and that we have reached this position
primarily because of our use of digital control technology and digital weighing
technology, our development of mechanical design improvements to our products
and our extensive knowledge of material handling applications. We also rely on
our global service network and on our reputation and many years of experience
in serving the needs of our large customer base to maintain a competitive
advantage. Strong competition exists in every major geographic and industrial
market that we serve. Competitors range in size from a subsidiary of a large
corporation with a broad line of products to smaller companies with a global
presence and regional firms that often specialize in a limited range of
products. Pneumatic Conveying and Ancillary Equipment Our pneumatic conveying group, which consists of two companies in the
United Kingdom and one in Canada, integrates two brands, Colormax and PCS, and
the manufacturing of our Hurricane product line for the K-Tron Feeder Group
into one business unit that is capable of addressing a broad range of pneumatic
conveying applications. The groups products are distributed through the
K-Tron Feeder Groups distribution channels under the Hurricane product name
and through the pneumatic conveying groups distribution channels under the PCS
and Colormax brand names. We believe that PCS and Colormax are among the
leaders in the United Kingdom in their respective markets. Colormax Equipment.The Colormax brand is used for pneumatic conveying
equipment and material handling systems sold by the pneumatic conveying group
to customers in the plastics extrusion and molding industries. Colormax
products are assembled by our Colormax Limited subsidiary in Telford, England
and marketed directly to end users and also through a small number of
independent sales representatives. The Colormax product line includes
self-contained and central vacuum systems, dryers, volumetric and gravimetric
blenders, material storage bins and feeders for handling various resin
materials in the molding or extrusion of consumer plastic products. Colormax
equipment sold by the K-Tron Feeder Group is generally labeled with the
Hurricane product name. PCS Equipment.The PCS brand is used for pneumatic conveying equipment
and material handling systems sold by the pneumatic conveying group into the
food, pharmaceutical and chemical industries. PCS products and material
handling systems are engineered and assembled by our Pneumatic Conveying
Systems Limited subsidiary in Stockport, England. PCS products include
standard vacuum conveyors for hard-to-handle materials, an all stainless steel
pharmaceutical line of equipment and a variety of ancillary equipment. PCS
also has expertise in conveying fragile products without degradation and in
designing dense phase vacuum conveying systems for the transport of products
without segregation. PCS equipment sold by the K-Tron Feeder Group is
generally labeled with the Hurricane product name. Canadian Facility. We have a small facility in Canada in Brantford,
Ontario, where we manufacture pneumatic conveying equipment for the K-Tron
Feeder Group under the Hurricane product name as well as some Colormax
equipment. - 5 -




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Manufacturing. The pneumatic conveying group produces a number of basic
loader and ancillary equipment models that are then adapted to a customers
specifications. Customization generally is limited to combining standard
mechanical and electrical modules to meet a customers process and regulatory
requirements. The primary manufacturing activities of the pneumatic conveying
group consist of assembly and final testing of individual loaders and ancillary
equipment as well as engineered systems. We assemble a number of components
used in our products that are manufactured by others to our specifications.
These outsourced components include sheet metal parts, castings, electric
motors and electronic assemblies. Competition.Colormax and PCS pneumatic conveying equipment is sold
primarily in the United Kingdom, where Colormax and PCS are among the leaders
in their respective markets, and Hurricane equipment is sold by the K-Tron
Feeder Group throughout the world. Strong competition exists in every major
geographic and industrial market that we serve. Competitors of our pneumatic
conveying group are generally small companies with a limited line of products
that operate in a specific geographic area. Size Reduction Equipment Our size reduction group, which is comprised of our U.S.-based Penn
Crusher and Jeffrey businesses, designs, engineers, manufactures, markets,
sells and services primarily size reduction equipment, such as hammermills and
wood hogs. This equipment is used to resize various materials to a given
smaller size, and the principal industries served are the electric utility,
mining, pulp and paper, and wood and forest products industries. While both
companies offer their equipment in many parts of the world, we believe that
Penn Crusher is the leader in the United States in selling size reduction
equipment to the electric utility industry and that Jeffrey is one of the
leaders in producing such equipment for the U.S. pulp and paper industry. Penn Crusher Equipment.Penn Crusher manufactures size reduction and
related equipment for the electric utility industry to crush coal before it is
used as fuel in the steam furnaces of power generation plants, and it also
serves other industries such as mining, quarrying and glass making. Penn
Crusher sells its equipment and services worldwide through more than 50
independent sales representatives, with a focus on the United States market and
with a growing presence in China. The crushers most commonly sold by Penn Crusher are hammermills, in which
the material is broken by impact from hammers and then scrubbed against a
screen for desired size. Penn Crusher manufactures a number of different
hammermill designs, such as granulators, that use rows of ring hammers to crush
with a slow, positive rolling action, and Bradford breakers, where the material
is crushed by gravity impact only. Crushers come in a wide variety of sizes
and configurations, and every machine is built-to-order to meet customer
specifications. Penn Crusher also manufactures and markets a positive displacement action
feeder using the same licensed technology that is the basis of the K-Tron
Feeder Groups Bulk Solids Pump. Penn Crusher owns the exclusive rights to
utilize this technology in feeders of 24-inch diameter and larger for markets
in the United States, Canada and Mexico. These feeders are sold primarily to
feed coal into pulverizers in coal-fired power plants, and they also feed
limestone into raw mills in the cement industry. Feeders normally account for
a significant part of Penn Crushers new equipment sales. Penn Crusher Replacement Parts.A significant portion of Penn Crushers
revenues is derived from the sale of replacement parts. Penn Crusher has a
large installed base of long-lived - 6 -




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equipment, and every machine and part sold, including specifications and
drawings, is registered in a digital database to enable Penn Crusher to provide
customers with fast and efficient support. Jeffrey Equipment. Jeffrey produces wood hogs, other size reduction
equipment and related items for use primarily in the pulp and paper and wood
and forest products industries. Jeffrey hammermills are also sold to the mining
industry to resize chunks of coal, which come directly out of the mine, into
smaller pieces. Jeffrey markets its crushers and other equipment through a
combination of independent sales representatives and distributors, with a focus
on the United States market. The Jeffrey brand encompasses a number of basic crusher designs that are
available in varying sizes and configurations to meet specific customer needs.
Wood and bark hogs are used in the pulp and paper and wood and forest products
industries to produce mulch, boiler fuel, chips for composite wood products and
compost. Jeffrey also sells a chip sizer that is marketed to the pulp and
paper industry to resize chips too large for use in a pulp digester and another
crusher that is marketed to the mining industry to reduce coal chunks from the
mine-mouth for further processing. Jeffrey also sells a line of electromechanical and electromagnetic
vibratory feeders that are used primarily in the aggregates, coal, mineral,
chemical and other industries to feed bulk solid materials into processes.
Applications range from reclaiming aggregates from stockpiles to feeding coal
in a potentially explosive environment. Jeffrey Replacement Parts. A significant portion of Jeffreys revenues is
derived from replacement part sales. Manufacturing.The manufacturing activities of both Penn Crusher and
Jeffrey consist of machining and welding raw materials and castings into
machined parts, and assembling these parts together with components purchased
from outside suppliers into size reduction and other equipment. The equipment
is then balanced and tested before being shipped to a customers site. Machine
parts, such as frames and rotors, are built individually to order with no parts
stocked in inventory. Certain higher volume parts, such as hammers, which are
also marketed as replacement parts, are produced to inventory or purchased in
volume from outside suppliers. Competition.We believe that Penn Crusher is the leading U.S. producer of
hammermills and related equipment for the size reduction of steam coal, that
Jeffrey is among the U.S. market leaders in resizing wood chips for pulp and
paper applications and that both Penn Crusher and Jeffrey have reached these
positions primarily because of superior machine design and quality. Penn
Crusher and Jeffrey also rely on their reputation and many years of experience
in serving the needs of their customers to maintain a competitive advantage.
Competition exists in every market that Penn Crusher and Jeffrey serve.
Competitors are generally smaller companies with a limited line of products
competing in specific geographic markets and applications. K-Tron Electronics K-Tron Electronics designs, produces and tests electronic assemblies for
use by us and also to sell to third parties, generally focusing on small
production runs for customers in New Jersey, eastern Pennsylvania and Delaware.
Its facilities, which are located in Pitman, New Jersey, provide both automated
surface mount and through-hole assembly capabilities, as well as testing
equipment. - 7 -




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The regional market for electronic assemblies is large, and K-Tron
Electronics is one of many suppliers to this market. Customers We sell our equipment throughout the world to a wide variety of customers
in our markets, ranging from large, global companies to regional and local
businesses. No single customer accounted for more than 10% of our total
revenues in fiscal 2003. Suppliers Although certain components of our products are currently purchased from
sole sources, we believe that comparable components can be obtained from
alternative suppliers at prices competitive with those of our current
suppliers. We have never experienced a significant production delay that was
primarily attributable to an outside supplier. Patents Our technology is protected by numerous patents in the United States and
in other major countries that offer patent protection. Certain of our patents
have expired and others will expire at various future dates. The loss of such
patent protection is not expected to have a significant adverse effect on our
business. Research and Development We invest in research and development (R&D) to maintain a technological
leadership position in our feeding and pneumatic conveying equipment
businesses. R&D in these areas focuses on new products as well as on
improvements to existing products, with particular emphasis on the application
of weighing and control technologies and mechanical design improvements.
Current efforts are aimed at developing new products, shortening the time spent
in the development of such products, modifying existing product designs to
provide lower cost products and analyzing the price/performance relationship
for both new and existing products. We spend a minor amount on R&D efforts in
our size reduction equipment business, although we occasionally do development
work in connection with a project where the cost of such work is charged to the
project rather than being treated as an R&D expense. Our research and development expenses were $2,695,000, $2,429,000 and
$2,644,000 in fiscal 2003, 2002 and 2001, respectively. Backlog At the end of fiscal 2003, our backlog of unfilled orders was
approximately $17,334,000, compared to a backlog of approximately $9,203,000 at
the end of fiscal 2002, an increase of 88.4% (at constant foreign exchange
rates). The backlog of orders at the end of fiscal 2003 was greater than the
2002 year-end backlog primarily due to the inclusion of Penn Crusher and
Jeffrey and a higher level of orders for our feeding equipment. Excluding the
Penn Crusher and Jeffrey backlog, our backlog at the end of fiscal 2003 at
constant foreign exchange rates increased by 19.3% compared to the end of
fiscal 2002. - 8 -




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A majority of our 2003 year-end backlog represented orders that will be
ready for shipment to customers in less than 120 days from the end of fiscal
2003. Thus, except for deliveries to be made later in the year in accordance
with customer requests, it is expected that much of our backlog at the end of
fiscal 2003 will be shipped prior to April 30, 2004. Employees At the end of fiscal 2003, we had 474 employees, of which 276 were located
in the United States, 178 in Europe, 11 in Singapore, 4 in Canada, 4 in China
and 1 in Mexico. None of our employees are represented by labor unions. We consider
relations with our employees to be good. 
 Item 2. Properties. We own a 92,000 square foot building in Pitman, New Jersey where the
K-Tron Feeder Group has manufacturing facilities, sales, service and other
administrative offices, research and development offices, a technical center
for product demonstrations and training facilities. Our worldwide corporate
headquarters also are located at this site. In October 2003, our K-Tron
Electronics business relocated into this building from leased facilities
several miles away. A portion (approximately 10,000 square feet) of our Pitman
facility is leased to a sheet metal business that is a major supplier to us. In Niederlenz, Switzerland, we own a 65,000 square foot building where the
K-Tron Feeder Group has manufacturing facilities and a technical center for
product demonstrations, and there is an adjacent five-floor, 40,000 square foot
office building. These buildings also house sales, service and other
administrative offices, training facilities and research and development
offices. In 2003, approximately one-half of one floor of the office building
was leased to a third party. Certain K-Tron Feeder Group sales and service activities are also
conducted in leased office space in France, Germany, Singapore and China
(service only). An owned facility in the United Kingdom was sold on March 31,
2004, and the K-Tron Feeder Group operations conducted there were recently
moved to leased space in Stockport, England that is described below. In Lengerich, Germany, we own an 8,000 square foot building that has been
leased to a third party since July 31, 2001. In Brantford, Ontario, we assemble pneumatic conveying equipment in a
5,000 square foot leased facility. We lease 6,700 square feet in a facility in Telford, England, where we
assemble Colormax products and have office space for that brand. We also lease 10,800 square feet in a facility in Stockport, England,
where we design customized solutions for a broad range of pneumatic conveying
problems, assemble PCS products and have office space for that brand. Part of
this space is now occupied by the K-Tron Feeder Group which recently moved from
an owned facility in the United Kingdom that was sold on March 31, 2004. - 9 -




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Penn Crusher has offices and a test lab in a 24,000 square foot leased
facility in Broomall, Pennsylvania and conducts manufacturing operations at a
70,000 square foot leased building in Cuyahoga Falls, Ohio. Jeffrey is located in a 145,000 square foot owned manufacturing and office
facility in Woodruff, South Carolina. A small, adjacent building, also owned,
accommodates a test lab. We believe that our present facilities will be sufficient to meet our
needs for the foreseeable future. 
 Item 3. Legal Proceedings. There are no material pending legal proceedings to which we or any of our
subsidiaries is a party or of which any of our property is the subject. 
 Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted to a vote of security holders during the
fourth quarter of 2003. Executive Officers of the Registrant Our current executive officers are as follows: Name
    
    Age
    
    PositionEdward B. Cloues, II
    
    
    56
    
    
    Chairman of the Board of Directors and Chief
Executive OfficerKevin C. Bowen
    
    
    52
    
    
    Senior Vice President, Feeder Group and
President and Chief Executive Officer of
K-Tron America, Inc.Lukas Guenthardt
    
    
    45
    
    
    Senior Vice President,
Pneumatic Conveying Group
and Chief Strategy OfficerDonald W. Melchiorre
    
    
    55
    
    
    President and Chief Operating Officer of
Pennsylvania Crusher CorporationRonald R. Remick
    
    
    57
    
    
    Senior Vice President,
Chief Financial Officer and
TreasurerJohn D. Whalen
    
    
    65
    
    
    Chairman and Chief Executive Officer of
Pennsylvania Crusher Corporation
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Edward B. Cloues, II has been a director since July 1985 and was most
recently reelected at the 2001 annual meeting of shareholders. He became
Chairman of the Board of Directors and Chief Executive Officer of the Company
on January 5, 1998. Prior to joining the Company in 1998, Mr. Cloues was a
partner in the law firm of Morgan, Lewis & Bockius LLP, which is the Companys
principal outside counsel. He is also a director and non-executive Chairman of
the Board of AMREP Corporation and a director of Penn Virginia Corporation and
of Penn Virginia Resource GP, LLC, the general partner of Penn Virginia
Resource Partners, L.P. Kevin C. Bowen has been Senior Vice President, Feeder Group of the Company
since June 2000 and President and Chief Executive Officer of K-Tron America,
Inc. since March 1995. From March 1994 to March 1995, Mr. Bowen was President
of K-Tron North America, the North American sales division of K-Tron America.
Mr. Bowen served as President of K-Tron America from May 1990 to March 1994 and
has been with the Company in various other capacities since 1979. Lukas Guenthardt has been Senior Vice President, Pneumatic Conveying Group
and Chief Strategy Officer of the Company since February 2002. Prior to that,
he was Senior Vice President, New Businesses and Chief Strategy Officer from
June 2000 to February 2002 and Senior Vice President  Strategic Planning,
Product Development and Marketing from June 1998 to June 2000. Mr. Guenthardt
was Managing Director of K-Tron (Schweiz) AG (K-Tron Switzerland) from July
1995 to June 1998, Managing Director of the Soder Division of K-Tron
Switzerland from March 1994 to July 1995, and Director of International
Research and Development of the Company from July 1992, when he joined K-Tron,
until March 1994. Donald W. Melchiorre has been President and Chief Operating Officer of
Penn Crusher since December 30, 1996 and President and Chief Operating Officer
of Jeffrey since August 2002. From 1982 to 1987, he worked at Penn Crusher as
a Regional Sales Manager and left the company in 1987 to become a Regional
Sales Manager, and subsequently North American Sales and Marketing Manager and
then Director for Sales and Marketing-European Operations, for K-Trons United
States and Swiss manufacturing subsidiaries. In 1992, he left K-Tron to
establish EPI Technical Sales, Inc., an independent sales representative
organization selling bulk material handling equipment, including both the
K-Tron Soder and Penn Crusher lines of equipment. He returned to Penn Crusher
in 1996. Ronald R. Remick has been Senior Vice President, Chief Financial Officer
and Treasurer of the Company since May 10, 1999. Prior to joining K-Tron, Mr.
Remick was Vice President of Planning and Treasury of ARCO Chemical Company
from 1995 to 1998 and Vice President of Planning and Control of ARCO Chemical
Company from 1993 to 1995. John D. Whalen has been Chairman and Chief Executive Officer of Penn
Crusher since December 30, 1996. From April 1984 until December 30, 1996, Mr.
Whalen was President of Penn Crusher, and he was with that company in various
other capacities from 1967 to April 1984. In 1986, Mr. Whalen, along with
several other Penn Crusher executives, purchased Penn Crusher. His ownership
continued until the K-Tron acquisition of Penn Crusher on January 2, 2003. Mr.
Whalen has also been Chairman and Chief Executive Officer of Jeffrey since its
purchase by Penn Crusher in October 1999. The executive officers are elected or appointed by the Board of Directors
of the Company or its appropriate subsidiary to serve until the appointment or
election and qualification of their successors or their earlier death,
resignation or removal. - 11 -




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PART II 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters. Our Common Stock trades on the Nasdaq National Market under the symbol
KTII. The following table sets forth the high and low sales prices for each
quarter in fiscal 2002 and 2003 as quoted on the Nasdaq National Market. High
    
    LowFiscal
Year 2002First Quarter
    
    $
    15.450
    
    
    $
    10.450Second Quarter
    
    $
    18.000
    
    
    $
    12.000Third Quarter
    
    $
    15.780
    
    
    $
    12.067Fourth Quarter
    
    $
    13.700
    
    
    $
    12.330Fiscal
Year 2003First Quarter
    
    $
    16.030
    
    
    $
    13.000Second Quarter
    
    $
    17.830
    
    
    $
    14.330Third Quarter
    
    $
    18.990
    
    
    $
    13.300Fourth Quarter
    
    $
    19.200
    
    
    $
    16.510
 On March 19, 2004, the closing price of a share of K-Tron Common Stock as
quoted on the Nasdaq National Market was $21.80. There were 223 record holders of our Common Stock on March 19, 2004. Dividend Policy We have never paid a cash dividend on our Common Stock, and we currently
intend to retain all future earnings for use in our business. The declaration
and payment of dividends in the future will be determined by our Board of
Directors in light of conditions then existing, including our earnings,
financial condition, capital requirements and other factors. In addition, one
of our credit facilities contains certain restrictions on the transfer of funds
that may limit our ability to declare and pay dividends. 
 Item 6. Selected Financial Data. The selected consolidated financial data presented below for, and as of
the end of, each of our last five fiscal years has been derived from and is
qualified by reference to our consolidated financial statements. Our
consolidated financial statements for the fiscal year ended January 3, 2004
have been audited by Grant Thornton LLP, independent certified public
accountants; our consolidated financial statements for the fiscal year ended
December 28, 2002 have been audited by KPMG LLP, independent auditors; and our
consolidated financial statements for the fiscal years ended December 29, 2001,
December 30, 2000 and January 1, 2000 have been audited by Arthur Andersen LLP,
independent public accountants. - 12 -




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This information should be read in conjunction with our consolidated
financial statements and the related notes thereto and Managements Discussion
and Analysis of Financial Condition and Results of Operations which is Item 7
of Part II of this annual report on Form 10-K. We have not paid any cash dividends on our shares of Common Stock during
the periods presented. Fiscal Year EndedJan. 3
    
    Dec. 28
    
    Dec. 29
    
    Dec. 30
    
    Jan. 12004(1)
    
    2002(2)
    
    2001
    
    2000
    
    2000FINANCIAL SUMMARY ($000):Revenues
    
    $
    94,676
    
    
    $
    68,231
    
    
    $
    71,819
    
    
    $
    84,912
    
    
    $
    87,887Income before taxes
    
    
    5,243
    
    
    
    4,396
    
    
    
    1,279
    
    
    
    8,008
    
    
    
    8,644Net income
    
    
    3,723
    
    
    
    3,284
    
    
    
    1,048
    
    
    
    5,838
    
    
    
    6,759Total assets
    
    
    83,081
    
    
    
    50,459
    
    
    
    47,644
    
    
    
    54,421
    
    
    
    54,770Working capital
    
    
    17,121
    
    
    
    14,106
    
    
    
    15,565
    
    
    
    13,770
    
    
    
    14,057Additions to property, plant, and equipment
    
    
    3,311
    
    
    
    2,967
    
    
    
    2,144
    
    
    
    3,699
    
    
    
    2,605Depreciation and amortization
    
    
    2,873
    
    
    
    2,499
    
    
    
    2,921
    
    
    
    3,138
    
    
    
    3,362PER SHARE ($):Basic net earnings
    
    $
    1.53
    
    
    $
    1.35
    
    
    $
    0.43
    
    
    $
    2.30
    
    
    $
    2.28Diluted net earnings
    
    
    1.49
    
    
    
    1.33
    
    
    
    0.43
    
    
    
    2.25
    
    
    
    2.23Book value
    
    
    14.35
    
    
    
    11.69
    
    
    
    8.87
    
    
    
    8.75
    
    
    
    8.61CAPITALIZATION ($000):Shareholders equity
    
    $
    35,114
    
    
    $
    28,419
    
    
    $
    21,561
    
    
    $
    21,311
    
    
    $
    25,210Long-term debt
    
    
    24,574
    
    
    
    6,499
    
    
    
    12,499
    
    
    
    12,390
    
    
    
    7,252Short-term debt (3)
    
    
    3,541
    
    
    
    2,005
    
    
    
    2,186
    
    
    
    3,595
    
    
    
    4,627Total debt
    
    
    28,115
    
    
    
    8,504
    
    
    
    14,685
    
    
    
    15,985
    
    
    
    11,879RATIOS:Return on average shareholders equity (%)
    
    
    11.7
    
    
    
    13.1
    
    
    
    4.9
    
    
    
    25.1
    
    
    
    28.4Return on revenues (%)
    
    
    3.9
    
    
    
    4.8
    
    
    
    1.5
    
    
    
    6.9
    
    
    
    7.7Long-term debt to shareholders equity (%)
    
    
    70.0
    
    
    
    22.9
    
    
    
    58.0
    
    
    
    58.1
    
    
    
    28.8Current assets to current liabilities
    
    
    1.8
    
    
    
    1.9
    
    
    
    2.2
    
    
    
    1.7
    
    
    
    1.6Average inventory turnover
    
    
    4.1
    
    
    
    4.0
    
    
    
    3.8
    
    
    
    4.2
    
    
    
    4.7Average accounts receivable turnover
    
    
    5.0
    
    
    
    4.6
    
    
    
    4.2
    
    
    
    4.3
    
    
    
    4.4OTHER DATA:Shares outstanding (000) (4)
    
    
    2,447
    
    
    
    2,431
    
    
    
    2,431
    
    
    
    2,436
    
    
    
    2,927Shareholders of record
    
    
    224
    
    
    
    235
    
    
    
    251
    
    
    
    258
    
    
    
    287Number of employees
    
    
    474
    
    
    
    361
    
    
    
    379
    
    
    
    522
    
    
    
    475
  (1)
    
    The 2003 consolidated financial statements include the acquisition of
Pennsylvania Crusher Corporation and its subsidiary from January 2, 2003.
Fiscal 2003 is a 53-week year.(2)
    
    On December 30, 2001, we adopted Statement of Financial Accounting
Standards No. 142 and ceased to amortize goodwill at the end of fiscal
year 2001.(3)
    
    Including current portion of long-term debt.(4)
    
    Net of treasury stock of 1,447 for fiscal year 1999, 1,968 for fiscal
year 2000, 2,001 for fiscal year 2001 and 2,003 for fiscal years 2002 and
2003. - 13 -




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Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations. Introduction For a description of K-Trons business, refer to Item 1 of Part I of this
annual report on Form 10-K. As indicated in Item 1, we are engaged in one principal business segment
 material handling equipment and systems. We operate in two primary
geographic locations  North and South America (the Americas) and Europe,
the Middle East, Africa and Asia (EMEA/Asia). We have three main business lines within the material handling equipment
and systems segment. They are, in descending order of revenues in 2003, our
feeding, size reduction and pneumatic conveying business lines. Prior to the January 2, 2003 acquisition of Penn Crusher, our feeding
line, whose products are sold worldwide, was the main profit contributor within
our group of businesses. During the past three years, capital equipment
spending by our customers has been depressed due to the global economic
slowdown and excess manufacturing capacity built up in the late 1990s in the
United States. This has been particularly true for the plastics and chemical
industries, which comprise a major share of our market for feeding equipment. Management looks at trends in indicators, such as the PMI Index for
manufacturing published by the Institute of Supply Management, to judge the
prospects for capital equipment spending. These indicators began to show
improvement in the latter part of 2003. Historically, improvements in our
feeding equipment sales generally lag improvements in these indicators, in some
cases by as much as six to twelve months. The majority of revenues and profits
in our feeding line is generated by equipment and systems sales, with a lesser
amount attributable to service, parts and repairs. The K-Tron Feeder Group
recently installed a common worldwide Enterprise Resource Planning (ERP)
software system, which is expected to make internal processes more efficient,
reduce errors and shorten the time from order to delivery. There also is an
ongoing initiative to standardize our feeding equipment worldwide to improve
overall operating efficiency and streamline service requirements. New product
innovation is a major objective of our R&D efforts. Our feeder group has the
ability to serve nearly all geographic regions of the world from its two
assembly-and-test facilities in Pitman, New Jersey and Niederlenz, Switzerland. Our size reduction business line was added with the purchase of Penn
Crusher and Jeffrey on January 2, 2003. In contrast to our feeding line, Penn
Crusher and Jeffrey sell equipment primarily into U.S. markets, with some sales
into China and other foreign countries. The main industries served are the
electric utility, mining, pulp and paper and wood and forest products
industries, and a majority of revenues and profits are generated from
replacement part sales instead of new equipment. Both Penn Crusher and Jeffrey
maintain an extensive database of previously sold equipment, including
equipment drawings, which enables them to respond quickly and efficiently to
fill customers spare parts orders. Our size reduction business line saw a
modest decline in 2003 as a result of lower economic activity, excess plant
capacity and financial restructuring in the power industry. Significant
indicators that management uses to judge prospects for this business line in
North America include the level of electricity consumption, the financial
health of the electric utility industry and the demand for paper and forest
products. - 14 -




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Our pneumatic conveying line comprises a relatively small portion of our
overall revenues. This equipment is sometimes sold through the K-Tron Feeder
Group in conjunction with feeder equipment as a means of transporting a dry
material from one part of a plant to the inlet of a feeder, and the companies
in the pneumatic conveying group also sell equipment and complete systems in
applications which do not necessarily incorporate feeders. Aside from selling
into markets common to the feeder line, the pneumatic conveying group also
sells into the plastics extrusion and molding markets. Most of the revenues
and profits of this line are generated from equipment and systems sales. The
factors affecting the pneumatic conveying line are similar to those affecting
the feeder line but also include factors which may affect the secondary
plastics market generally. The following provides information that management believes is relevant to
an assessment and understanding of our consolidated results of operations and
financial condition. The discussion should be read in conjunction with our
consolidated financial statements and accompanying notes. All references in
this Item 7 to 2003, 2002 and 2001 mean the fiscal years ended January 3, 2004,
December 28, 2002 and December 29, 2001, respectively. Critical Accounting Policies and Estimates The Company prepares its financial statements in conformity with
accounting principles generally accepted in the United States. The preparation
of such financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of those financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The Company discloses its significant accounting policies in the notes to
its audited consolidated financial statements. Judgments and estimates of uncertainties are required in applying the
Companys accounting policies in certain areas. Following are some of the
areas requiring significant judgments and estimates: determination of an
assets useful life, estimates of allowances for bad debts, cash flow and
valuation assumptions in performing asset impairment tests of long-lived
assets, estimates of the realizability of deferred tax assets, determination of
the adequacy of the reserves for inventory obsolescence and warranty costs, and
legal contingencies. There are numerous critical assumptions that may influence accounting
estimates in these and other areas. We base our critical assumptions on
historical experience, third-party data and various other estimates we believe
to be reasonable. Certain of the more critical assumptions include: Depreciable Lives of Plant and Equipment  
    
    Changes in technology
    
    Wear and tear
    
    Changes in market demand Bad Debt Risk  
    
    Credit worthiness of specific customers and aging of customer balances
    
    Contractual rights and obligations
    
    General and specific economic conditions - 15 -




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Asset Impairment Determinations  
    
    Intended use of assets and expected future cash flows
    
    Industry specific trends and economic conditions
    
    Customer preferences and behavior patterns
    
    Impact of regulatory initiatives Deferred Taxes  
    
    Expected future profitability and cash flows
    
    Impact of regulatory initiatives
    
    Timing of reversals of existing temporary differences between book and taxable income Inventory Reserve  
    
    New product introductions
    
    Current product demand
    
    Product life cycle changes
    
    Past experience Warranty Cost  
    
    New product introductions
    
    Past experience Legal Contingencies We are currently involved in certain legal proceedings. We have accrued
our estimate of the probable costs for the resolution of these claims. This
estimate has been developed in consultation with outside counsel handling our
defense in these matters and is based upon an analysis of potential results,
assuming a combination of litigation and settlement strategies. We do not
believe these proceedings will have a material adverse effect on our
consolidated financial position. It is possible, however, that future results
of operations for any particular quarterly or annual period could be materially
affected by changes in our assumptions, or the effectiveness of our strategies,
related to these proceedings. Results of Operations Overview Fiscal 2003 was a 53-week year, while fiscal years 2002 and 2001 were
52-week years. In 2003, 2002 and 2001, we reported revenues of $94,676,000,
$68,231,000 and $71,819,000 and net income of $3,723,000, $3,284,000 and
$1,048,000, respectively. The significant 2003 revenue increase from 2002 and 2001 levels largely
reflected the January 2, 2003 acquisition of Penn Crusher, partly offset by a
decline in revenues from the other parts of our business reflecting a poor
global economy and continued weakness in capital equipment spending in the
process industries we serve. - 16 -




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The improvement in net income in 2003 versus 2002 was also due to the
acquisition of Penn Crusher, the effect of which was partly offset by lower
profits in the K-Tron Feeder Group as a result of the weak global economy and
the reduced capital equipment spending previously mentioned. The improvement
in net income in 2002 versus 2001 was largely caused by two factors, the sale
of our Hasler heavy feeder business in the third quarter of 2001 and the
benefits of a lower cost structure resulting from the globalization and cost
reduction initiatives that we implemented in the second half of 2001. Acquisitions/Divestitures On July 31, 2001, we sold our Hasler heavy feeder business to our largest
distributor of Hasler equipment and recorded a pretax loss of $620,000. The
assets sold were primarily inventory and fixed assets. The buyer assumed the
lease of the Hasler sales office in Neuchâtel, Switzerland and leased from us a
Company-owned facility in Lengerich, Germany. The purchase price consisted of
a combination of 1,000,000 Swiss francs cash ($594,000), two promissory notes
in the aggregate principal amount of 3,017,000 Swiss francs ($1,792,000), which
bear interest and amortize over seven years, and a less than 20% equity
position in the buyer. We retained all of the Hasler receivables and payables
at the time of the sale, as well as the owned building in Lengerich, Germany
which, as noted above, is being leased to the buyer. The buyer has made all
required payments on the promissory notes, and the unpaid principal amount of
such notes was 2,338,000 Swiss francs ($1,887,000) at the end of 2003. On November 30, 2001, we acquired Pneumatic Conveying Systems Limited
(PCS). The purchase price was 600,000 British pounds sterling ($855,000),
which was paid in a combination of cash (75%) and notes (25%), and the notes
have now been fully paid. In December 2001, we sold our Swiss machine and welding shops to an
independent Swiss machine shop company and recorded a pretax gain of $242,000.
The purchase price consisted of a combination of 300,000 Swiss francs cash
($182,000) and a 700,000 Swiss franc obligation ($420,000), which is supported
by a bank guaranty and had been reduced to 355,000 Swiss francs ($287,000) at
the end of 2003. The U.S. dollar numbers mentioned in the foregoing three paragraphs
reflect relevant foreign currency exchange rates at the several dates referred
to. On January 2, 2003, we acquired all of the outstanding capital stock of
Penn Crusher. As a result of this purchase, we also acquired Jeffrey, a
wholly-owned subsidiary of Penn Crusher. The purchase price for the Penn
Crusher stock was $23,500,000 paid at closing, a post-closing adjustment of
$205,000 based on Penn Crushers consolidated stockholders equity at December
31, 2002 and $1,288,000 in the quarter ended January 3, 2004 in conjunction
with the Companys IRS Code section 338(h)(10) election relating to such
acquisition. Of this amount, $20,993,000 was paid in cash and $4,000,000 was
in unsecured promissory notes which are payable in equal, annual installments
on January 2 of 2005, 2006 and 2007. With respect to the payment of the cash
portion of the purchase price and related acquisition costs other than the
section 338(h)(10) election, we financed $15,000,000 through a $17,000,000
secured credit facility with Penn Crusher as the borrower and Jeffrey as the
guarantor (with the additional $2,000,000 being available for working capital
and general corporate purposes, subject to certain limitations), and the lender
has no recourse against any other K-Tron company with respect to any amounts
borrowed thereunder (except by a - 17 -




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non-recourse pledge of the stock of Penn Crusher). Additionally, we borrowed
$5,000,000 from a U.S. bank through another K-Tron wholly-owned subsidiary and
used these funds to pay part of the purchase price. This obligation was
guaranteed by K-Tron International, and K-Tron International also issued the
$4,000,000 of unsecured promissory notes. As noted above, K-Tron and Penn Crusher incurred substantial debt as a
result of the Penn Crusher acquisition. This debt, including the amounts
outstanding at the end of 2003, is described in more detail in the Liquidity
and Capital Resources section below; however, K-Tron and Penn Crusher have met
all required principal and interest payments and expect their cash flows to be
adequate to cover all future principal and interest payments on these
borrowings. Foreign Exchange Rates We are an international company, and we derived approximately 41%, 58% and
58% of our 2003, 2002 and 2001 revenues, respectively, from products
manufactured in, and services performed from, our facilities located outside
the United States, primarily in Europe. Since we operate globally, we are
sensitive to changes in foreign currency exchange rates (foreign exchange
rates), which can affect both the translation of financial statement items
into U.S. dollars as well as transactions where the revenues and related
expenses may initially be accounted for in different currencies, such as sales
made from our Swiss manufacturing facility in currencies other than the Swiss
franc. With the acquisition of Penn Crusher and Jeffrey, we were less affected
in 2003 by foreign exchange rates since most of their sales are in U.S.
dollars. Nevertheless, between 40% and 50% of our 2004 revenues will likely be
from products manufactured in, and services performed from, our facilities
outside the United States, so that we will continue to have significant
sensitivity to foreign exchange rate changes. Since we have received substantial revenues in recent years from
activities in foreign jurisdictions, our results can be significantly affected
by changes in foreign exchange rates, particularly in U.S. dollar exchange
rates with respect to the Swiss franc, euro and British pound sterling and, to
a lesser degree, the Singapore dollar and other currencies. When the U.S.
dollar weakens against these currencies, the U.S. dollar value of non-U.S.
dollar-based sales increases. When the U.S. dollar strengthens against these
currencies, the U.S. dollar value of non-U.S. dollar-based sales decreases.
Correspondingly, the U.S. dollar value of non-U.S. dollar-based costs increases
when the U.S. dollar weakens and decreases when the U.S. dollar strengthens.
Overall, our revenues in U.S. dollars generally benefit from a weaker dollar
and are adversely affected by a stronger dollar relative to major currencies
worldwide, especially those identified above. In particular, a general
weakening of the U.S. dollar against other currencies would positively affect
our revenues, gross profit and operating income as expressed in U.S. dollars
(provided that the gross profit and operating income numbers from foreign
operations are not losses, since in the case of a loss, the effect would be to
increase the loss), whereas a general strengthening of the U.S. dollar against
such currencies would have the opposite effect. In addition, our revenues and
income with respect to particular transactions may be affected by changes in
foreign exchange rates where sales
are made in currencies other than the functional currency of the facility
manufacturing the product subject to the sale. - 18 -




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For 2003, 2002 and 2001, the changes in certain key exchange rates
affecting the Company were as follows: Fiscal Year2003
    
    
    
    
    
    2002
    
    
    
    
    
    2001Average U.S.
dollar equivalent of one Swiss franc
    
    
    0.746
    
    
    
    
    
    
    
    0.645
    
    
    
    
    
    
    
    0.594% change vs. prior year
    
    
    
    
    
    
    15.7
    %
    
    
    
    
    
    
    8.6
    %Average U.S.
dollar equivalent of one euro
    
    
    1.135
    
    
    
    
    
    
    
    0.946
    
    
    
    
    
    
    
    0.896% change vs. prior year
    
    
    
    
    
    
    20.0
    %
    
    
    
    
    
    
    5.6
    %Average U.S.
dollar equivalent of one British pound sterling
    
    
    1.638
    
    
    
    
    
    
    
    1.504
    
    
    
    
    
    
    
    1.441% change vs. prior year
    
    
    
    
    
    
    8.9
    %
    
    
    
    
    
    
    4.4
    %Average
Swiss franc equivalent of one euro
    
    
    1.521
    
    
    
    
    
    
    
    1.467
    
    
    
    
    
    
    
    1.508% change vs. prior year
    
    
    
    
    
    
    3.7
    %
    
    
    
    
    
    
    -2.7
    %Average
Swiss franc equivalent of one British pound sterling
    
    
    2.196
    
    
    
    
    
    
    
    2.332
    
    
    
    
    
    
    
    2.426% change vs. prior year
    
    
    
    
    
    
    -5.8
    %
    
    
    
    
    
    
    -3.9
    %
 Presentation of Results and Analysis The following table sets forth our results of operations, expressed as a
percentage of total revenues for the periods indicated, as well as our backlog: Fiscal Year2003
    
    2002
    
    2001Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    59.0
    
    
    
    57.7
    
    
    
    59.9Gross profit
    
    
    41.0
    
    
    
    42.3
    
    
    
    40.1Selling, general and administrative
    
    
    30.9
    
    
    
    31.6
    
    
    
    33.2Research and development
    
    
    2.9
    
    
    
    3.6
    
    
    
    3.7Operating income
    
    
    7.2
    
    
    
    7.1
    
    
    
    3.2Interest
    
    
    1.7
    
    
    
    0.7
    
    
    
    1.4Income before income taxes
    
    
    5.5
    %
    
    
    6.4
    %
    
    
    1.8
    %Year-end backlog (at year-end 2003
foreign exchange rates, in thousands
of dollars)
    
    $
    17,334
    
    
    $
    9,203
    
    
    $
    14,490
 - 19 -




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Total revenues increased by $26,445,000 or 38.8% in 2003 compared to 2002.
This increase in revenues was mainly the result of acquiring Penn Crusher on
January 2, 2003, which contributed revenues of $32,086,000, and the positive
effect of a weaker U.S. dollar on the translation of the revenues of foreign
operations into U.S. dollars. The increase resulting from these two factors
was partly offset by a decline in revenues in our other businesses as a result
of a weaker global economy, a reduction in spending for industrial capital
equipment in the process industries we serve and the effects of the SARS
outbreak in Asia in the early part of 2003. If the average foreign exchange
rates for 2002 were applied to 2003, total revenues for 2003 would have
increased by $21,375,000 or 31.3% versus the $26,445,000 and 38.8% on an
as-reported basis. Total revenues decreased by $3,588,000 or 5.0% in 2002 compared to 2001,
but increased by $1,037,000 or 1.5% without the Hasler heavy feeder business
which was sold on July 31, 2001. This increase in revenues without Hasler was
driven by twelve full months of revenues in 2002 from the November 30, 2001
acquisition of PCS versus one month in 2001 and the positive effect of a weaker
U.S. dollar on the translation of the revenues of foreign operations into U.S.
dollars. Such increase was partially offset by lower revenues in EMEA/Asia and
the Americas due to a weaker global economy and a reduction in capital
equipment spending in the process industries we serve. If the average foreign
exchange rates for 2001 were applied to 2002, total revenues for 2002 would
have decreased by $6,559,000 or 9.1% (and would have decreased by $1,934,000 or
2.9% without Hasler). Gross profit as a percent of total revenues decreased to 41.0% in 2003
from 42.3% in 2002. This decline was caused by a change in our sales mix as
well as by lower margins on Jeffrey equipment which affected only 2003. Gross profit as a percent of total revenues increased to 42.3% in 2002
from 40.1% in 2001. The improvement was primarily due to an improved sales mix
as a result of the July 31, 2001 sale of the Hasler heavy feeder business and
to reductions in fixed costs, including those made in the second half of 2001,
and the elimination of goodwill expense when we adopted SFAS No. 142 on
December 30, 2001. Goodwill amortization for 2001 was $345,000. Selling, general and administrative (SG&A) expenses increased by
$7,712,000 or 35.8% in 2003 compared to 2002. This increase was primarily due
to the acquisition of Penn Crusher in 2003 and employee termination costs in
the K-Tron Feeder Group. In addition, SG&A increased as a result of the
adverse effect of a weaker U.S. dollar when translating costs in foreign
currencies into U.S. dollars. SG&A expenses decreased by $2,313,000 or 9.7% in 2002 compared to 2001 (a
decrease of approximately $425,000 or 1.9% after excluding Hasler SG&A, the
loss on the sale of the Hasler heavy feeder business and the gain on the sale
of the Swiss machine and welding shops discussed above). The decrease in SG&A
in 2002 was primarily due to the elimination of Hasler SG&A after the sale of
Hasler on July 31, 2001, fewer employees and the benefits realized from the
cost reductions implemented in the second half of 2001, but such decrease was
offset in part by the effect of higher foreign exchange rates (a weaker U.S.
dollar). Research and development (R&D) expenditures increased by $266,000 or 11.0%
in 2003 compared to 2002, primarily as a result of increased tooling costs as
well as the effect of a weaker U.S. dollar on the translation of costs in Swiss
francs into U.S. dollars. - 20 -




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R&D expenditures decreased by $215,000 or 8.1% in 2002 compared to 2001.
This decrease was the result of lower staff costs, partly due to the sale of
the Hasler business. The 2002 decrease was partially offset by an increase in
tooling costs and by the effect of higher foreign exchange rates (a weaker U.S.
dollar). R&D expense as a percent of total revenues was 2.9% in 2003, 3.6% in 2002
and 3.7% in 2001. There is no significant R&D expense associated with the Penn
Crusher and Jeffrey businesses. Interest expense increased by $1,090,000 or 218% in 2003 as compared to
2002. This increase was largely the result of adding $24,000,000 of
acquisition debt for Penn Crusher in January 2003 plus, to a much lesser
degree, foreign exchange rates (a weaker U.S. dollar) applicable to interest
paid in other currencies. Further information regarding the Penn Crusher
acquisition debt is presented in the Liquidity and Capital Resources section of
this Item 7. The increased interest expense was somewhat offset by lower
interest rates in 2003 on the non-Penn Crusher-related debt compared with 2002
interest rates and by debt reductions of $1,717,000 in Switzerland ($1,486,000
at the foreign exchange rate at the end of 2003) and $2,904,000 in the United
States. Interest expense decreased by $528,000 or 51.4% in 2002 versus 2001. This
decrease was due to lower interest rates and debt reductions of $3,427,000 in
Switzerland ($4,284,000 at constant foreign exchange rates) and $2,754,000 in
the United States, which was partially offset by higher foreign exchange rates
(a weaker U.S. dollar). Interest expense as a percent of total revenues was
1.7% in 2003, 0.7% in 2002 and 1.4% in 2001. Income before income taxes was $5,243,000 in 2003, $4,396,000 in 2002 and
$1,279,000 in 2001. The changes during the periods were the result of the
items discussed above. The 2003 income before income taxes improved versus
2002 primarily as a result of acquiring Penn Crusher, and the 2002 income
before income taxes improved versus 2001, despite lower revenues in 2002,
primarily as a result of the Hasler heavy feeder business sale on July 31, 2001
and the benefits of the globalization and cost reduction initiatives which we
implemented during the latter half of 2001. The 2003, 2002 and 2001 provisions for income tax of $1,520,000,
$1,112,000 and $231,000, respectively, related primarily to our higher
proportion of U.S. income before tax in 2003, results in the United States and
Switzerland in 2002 and results in the United States and Germany in 2001. The
effective tax rates were 29.0% in 2003, 25.3% in 2002 and 18.1% in 2001. The
higher effective tax rate in 2003 compared with 2002 was primarily due to the
acquisition of Penn Crusher and the resulting higher proportion of U.S. income.
The higher effective tax rate in 2002 compared with 2001 was primarily due to
an increase in foreign taxable income in 2002 as compared to 2001, which
included a loss in both Switzerland and Germany on the sale of the Hasler
business. On July 1, 2002, New Jersey approved legislation for corporation
income tax reform. The changes made to the law accounted for an increase in the
tax provision for 2003 and 2002 of approximately $40,000 and $50,000,
respectively, after the related federal income tax benefit. We have foreign
and U.S. state tax loss carryforwards that total $1,009,000 and $7,092,000,
respectively, which, if realized, would have an estimated future net income
benefit of approximately $320,000 and $400,000, respectively. We do not believe that inflation has had a material impact on our results
of operations during the last three years. Our backlog at constant foreign exchange rates increased by $8,131,000 or
88.4% at the end of 2003 compared with year-end 2002, from $9,203,000 to
$17,334,000. Of this increase, - 21 -




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$6,357,000 was attributable to the addition of the Penn Crusher and Jeffrey
businesses. The remaining portion of the backlog increase was largely due to
the EMEA/Asia feeder business. The majority of the backlog at the end of 2003
consisted of orders that were expected to be shipped within 120 days.
Approximately $2,000,000 of the Penn Crusher backlog at the end of 2003 was for
blanket orders that can be placed by the customer at any time over an 18-month
period. Our backlog at constant foreign exchange rates decreased by $5,287,000
or 36.5% at the end of 2002 compared to 2001 due to the very weak capital
equipment spending environment that existed during all of 2002, and it
reflected fewer orders for feeding equipment. Liquidity and Capital Resources Penn Crusher Acquisition Debt To finance the Penn Crusher acquisition described earlier, we borrowed
$20,000,000 from two U.S. banks, and we also issued $4,000,000 in unsecured
promissory notes to the Penn Crusher stockholders. We borrowed $5,000,000 from a U.S. bank through the U.S. manufacturing
subsidiary for the K-Tron Feeder Group, which loan was combined with an
outstanding term loan from that bank to that subsidiary and resulted in a new
$7,333,000 term loan. Monthly principal payments of $83,000 plus interest at a
fixed rate of 5.625% on approximately half the loan and at a variable rate of
one month LIBOR plus 1.85% on the other half (2.97% at January 3, 2004) began
in February 2003, with the final principal payment of approximately $2,416,000
plus interest being due in January 2008. This loan is secured by substantially
all of the assets of the U.S. manufacturing subsidiary and is guaranteed by
K-Tron International, Inc. At January 3, 2004, there was $6,417,000
outstanding under the term loan facility. The term loan facility requires that
K-Tron International comply with certain covenants relating to the consolidated
debt to net worth ratio, minimum annual debt coverage and minimum net worth.
At January 3, 2004, the Company was in compliance with these covenants. Penn Crusher borrowed $15,000,000 from another U.S. bank consisting of an
aggregate of $13,500,000 term debt ($10,000,000 with a five-year term and
$3,500,000 with a six-year term) and $1,500,000 under a five-year revolving
credit facility. Subject to certain conditions, the revolving credit facility
provides for up to $3,500,000 of total availability, including the $1,500,000
originally borrowed thereunder. No amounts were outstanding under the revolving
credit facility as of January 3, 2004. Quarterly term debt principal payments
of $400,000 began March 31, 2003 and increase each year by $62,500 per quarter
(or $250,000 per year in the aggregate) through December 31, 2007, with final
quarterly principal payments of $750,000 in 2008. Interest is based on one- to
six-month LIBOR plus 3% to 3.5%, and the 3% to 3.5% can be reduced to 2% to
2.5% upon meeting certain financial ratios. As of January 3, 2004, there was
$8,500,000 outstanding on the five-year term loan and $3,400,000 outstanding on
the six-year term loan. In January 2003, Penn Crusher entered into an interest
rate swap related to the entire $10,000,000 five-year term loan such that
interest will not exceed 6.11% for the full term of the loan and can be reduced
to 5.11% upon meeting certain financial ratios. The interest rates on the
$10,000,000 term loan and the $3,500,000 term loan were 6.11% and 4.73%,
respectively, as of January 3, 2004. The Penn Crusher debt is guaranteed by
Jeffrey and secured by substantially all of the assets of Penn Crusher and
Jeffrey, but it is not guaranteed by any other K-Tron company (except by a
non-recourse pledge of the stock of Penn Crusher). The term loans and
revolving credit facility require that Penn Crusher comply with certain
covenants relating to tangible net worth, fixed charge coverage ratio and total
debt to EBITDA ratio. At January 3, 2004, Penn Crusher was in compliance with
these covenants. - 22 -




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In addition, K-Tron International issued $4,000,000 of unsecured
promissory notes to the former Penn Crusher stockholders as part of the Penn
Crusher purchase price. These notes are payable in three equal, annual
installments on the second, third and fourth anniversaries of the January 2,
2003 closing date. Interest at 6% per annum is payable quarterly. The first
principal payout of $1,333,334 is due on January 2, 2005. As stated previously, K-Tron and Penn Crusher expect to have sufficient
cash flow to cover all required principal and interest payments on the
foregoing debt. Other Bank Debt At January 3, 2004, our Swiss subsidiary had separate credit facilities
totaling 13,000,000 Swiss francs (approximately $10,500,000) with three Swiss
banks. The Companys real property in Switzerland is pledged as collateral.
As of January 3, 2004, there were outstanding borrowings of 1,500,000 Swiss
francs (approximately $1,200,000), with 11,500,000 Swiss francs (approximately
$9,300,000) available for new borrowings, letters of credit and customer
guarantees. The annual interest rates on the outstanding borrowings range from
1.7% to 2.1%. In June 1998, the U.S. manufacturing subsidiary for the K-Tron Feeder
Group refinanced its 20-year mortgage debt with a U.S. bank for $2,700,000 at
an annual interest rate of 7.625%. In July 2002, the annual interest rate was
reduced to 6.45% and, beginning August 1, 2002, this loan became repayable in
eighty-three monthly principal and interest payments of $23,784 each, with a
final payment of $1,042,000 plus interest due on August 1, 2009. As of January
3, 2004, the principal amount owed on this borrowing was $2,052,000. Also in June 1998, this same U.S. manufacturing subsidiary entered into a
two-year secured revolving credit facility with the U.S. bank that holds the
mortgage. As of January 3, 2004, there was $1,935,000 borrowed under this
credit facility, which has now been extended through July 2005, and $3,065,000
was available for future borrowings. The annual interest rate as of January 3,
2004 was 3.75%. Future Payments Under Contractual Obligation We are obligated to make future payments under various contracts such as
debt, lease and purchase obligations. The table below summarizes our
significant contractual cash obligations as of January 3, 2004 for the items
indicated: (Dollars in thousands)
    
    Payment due by PeriodContractual
    
    
    
    
    
    Less than
    
    
    
    
    
    
    
    
    
    More thanObligations
    
    Total
    
    1 year
    
    1-3 years
    
    3-5 years
    
    5 yearsLong-Term Debt
Obligations
    
    $
    27,704
    
    
    
    3,214
    
    
    
    17,179
    
    
    
    7,311Capital Lease
Obligations
    
    $
    411
    
    
    
    327
    
    
    
    84
    
    
    
    
    
    
    
    Operating Lease
Obligations
    
    $
    3,201
    
    
    
    1,126
    
    
    
    1,370
    
    
    
    539
    
    
    
    166Purchase Obligations
    
    $
    7,801
    
    
    
    7,025
    
    
    
    776
    
    
    
    
    
    
    
    Total
    
    $
    39,117
    
    
    
    11,692
    
    
    
    19,409
    
    
    
    7,850
    
    
    
    166
 - 23 -




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Capitalization Our capitalization at the end of 2003, 2002 and 2001 is summarized below: (Dollars in thousands)
    
    Fiscal Year2003
    
    2002
    
    2001Short-term debt, including current
portion of long-term debt
    
    $
    3,541
    
    
    $
    2,005
    
    
    $
    2,186Long-term debt
    
    
    24,574
    
    
    
    6,499
    
    
    
    12,499Total debt
    
    
    28,115
    
    
    
    8,504
    
    
    
    14,685Shareholders equity
    
    
    35,114
    
    
    
    28,419
    
    
    
    21,561Total debt and shareholders equity
(total
capitalization)
    
    $
    63,229
    
    
    $
    36,923
    
    
    $
    36,246Percent total debt to total capitalization
    
    
    44
    %
    
    
    23
    %
    
    
    41
    %Percent long-term debt to equity
    
    
    70
    %
    
    
    23
    %
    
    
    58
    %Percent total debt to equity
    
    
    80
    %
    
    
    30
    %
    
    
    68
    %
 Total debt increased by $19,611,000 in 2003 ($24,000,000 related to the
Penn Crusher acquisition reduced by total net debt repayments of $4,620,000 and
increased by $231,000 due to the effect of a weaker U.S. dollar on the
translation of our foreign debt). Total debt decreased by $6,181,000 in 2002
($7,038,000 of total net debt repayments offset in part by an $857,000 increase
due to the effect of a weaker U.S. dollar on the translation of our foreign
debt). Other Items At the end of 2003 and 2002, our working capital was $17,121,000 and
$14,106,000, respectively, and the ratio of our current assets to our current
liabilities was 1.77 and 1.93, respectively. The increase in working capital
was primarily due to the acquisition of Penn Crusher. The reduction in the
ratio of current assets to current liabilities was primarily the result of the
current portion of long-term debt associated with the Penn Crusher purchase. In 2003 and 2002, we utilized internally generated funds to meet our
working capital needs, and in 2003 we also utilized our lines of credit. Net cash provided by operating activities was $9,360,000 in 2003,
$9,949,000 in 2002 and $5,253,000 in 2001. We reduced receivables and inventory
significantly in 2002. In 2003, we also achieved reductions that were partly
offset by increases due to a higher level of business in the last quarter of
2003. Therefore, operating cash flow was slightly lower in 2003 than in 2002.
The increase in operating cash flow in 2002 versus 2001 was primarily due to
higher net income and the positive effects on working capital of the July 31,
2001 sale of our Hasler heavy feeder business. Net income and depreciation and
amortization were the principal components of cash provided by operating
activities in all three years. The average number of days to convert accounts receivable to cash was 74
days in 2003 compared to 80 days in 2002 and 86 days in 2001. The average
number of days to convert inventory into cost of sales was 91 days in 2003
compared to 91 days in 2002 and 96 days in 2001. - 24 -




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Net cash used in investing activities was $23,611,000, $2,829,000 and
$2,057,000 in 2003, 2002 and 2001, respectively. Capital expenditures were
$3,311,000, $2,967,000 and $2,144,000 in 2003, 2002 and 2001, respectively,
which included significant expenditures for the development and implementation
of Customer Relationship Management (CRM) and Enterprise Resource Planning
(ERP) software systems. Spending on the ERP system implementation was
essentially complete as of January 3, 2004, and a majority of the spending on
the CRM was also complete on that date. Funds used in 2003 to acquire Penn
Crusher were $20,276,000. Funds used in 2001 to acquire PCS were $621,000,
while funds received from the sale of the Hasler heavy feeder business and the
Swiss machine and welding shops were $776,000. Cash provided by financing activities in 2003 was primarily from the
$20,000,000 borrowed to finance the Penn Crusher acquisition, net of debt
reduction. Cash used in financing activities in 2002 was for debt reduction,
while in 2001 cash was used primarily for debt reduction and the purchase of
43,700 shares of our Common Stock. Cash and short-term investments increased
to $4,506,000 at the end of 2003 versus $2,694,000 at the end of 2002 and
$2,214,000 at the end of 2001. Shareholders equity increased $6,695,000 in 2003, of which $2,800,000 was
attributable to changes in foreign exchange rates (weaker U.S. dollar),
particularly with respect to the Swiss franc and euro, while changes in foreign
exchange rates caused a translation increase in shareholders equity of
$3,587,000 in 2002 and a $620,000 decrease in 2001. Forward-Looking Statements and Risk Factors The Private Securities Litigation Reform Act of 1995 (the Act) provides
a safe harbor for forward-looking statements made by us or on our behalf. We
and our representatives may from time to time make written or oral statements
that are forward-looking, including statements contained in this annual
report on Form 10-K and other filings with the Securities and Exchange
Commission, reports to our shareholders and news releases. All statements that
express expectations, estimates, forecasts or projections are forward-looking
statements within the meaning of the Act. In addition, other written or oral
statements which constitute forward-looking statements may be made by us or on
our behalf. Words such as expects, anticipates, intends, plans,
believes, seeks, estimates, projects, forecasts, may, should,
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions which are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in or suggested by such
forward-looking statements. The forward-looking statements contained in this
report include but are not limited to statements regarding our ability to repay
debt, our ability to find alternative suppliers for certain components, the
effect of the expiration of our patents on our business, the expected time for
shipments of our products to customers and the resulting effect on our backlog,
the development and expected time for the introduction of new products, the
sufficiency of our facilities, the retention of all of our future earnings for
use in our business, our ability to project business conditions based on trend
indicators used by management, the effect of changes in foreign exchange rates
on our business, our ability to make internal processes more efficient through
the use of software, the effect of recent New Jersey tax legislation and the
effect on our business of legal proceedings in which we are involved. We
undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. - 25 -




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A wide range of factors could materially affect our future performance and
financial and competitive position, including the following: (i) increasing
price and product/service competition by domestic and foreign competitors,
including new entrants; (ii) the mix of products/services sold by us; (iii)
rapid technological changes and developments and our ability to continue to
introduce competitive new products on a timely and cost-effective basis; (iv)
changes in U.S. and global financial and currency markets, including
significant interest rate and foreign currency exchange rate fluctuations; (v)
protection and validity of patents and other intellectual property rights held
by us and our competitors; (vi) the cyclical nature of our business as an
industrial capital goods supplier; (vii) possible future litigation and
governmental proceedings; (viii) the availability of financing and financial
resources in the amounts, at the times and on the terms required to support our
future business, including for debt refinancings, capacity expansions and
possible acquisitions; (ix) the loss of key customers, employees or suppliers;
(x) the failure to carry out marketing and sales plans; (xi) the failure to
integrate acquired businesses without substantial costs, delays or other
operational or financial problems; (xii) economic, business and regulatory
conditions and changes which may affect the level of new investments and
purchases made by our customers, including economic and business conditions
that are less favorable than expected; (xiii) domestic and international
political and economic conditions; and (xiv) the outcome of any legal
proceedings in which we are involved. This list of factors that may affect our future performance and financial
and competitive position and also the accuracy of forward-looking statements is
illustrative, but it is by no means exhaustive. Accordingly, all
forward-looking statements should be evaluated with the understanding of their
inherent uncertainty. 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. See Managements Discussion and Analysis of Financial Condition and
Results of Operations  Results of Operations - Foreign Exchange
Rates and
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources - Penn Crusher
Acquisition Debt. 
 Item 8. Financial Statements and Supplementary Data. The consolidated financial statements of the Company and its subsidiaries
and supplementary data required by this item are attached to this annual report
on Form 10-K beginning on page F-1. 
 Item 9. Change In and Disagreements with Accountants on Accounting and
Financial Disclosures. On August 13, 2003, the Audit Committee of our Board of Directors,
pursuant to authority delegated to it by the Board, dismissed KPMG LLP (KPMG)
as our independent auditors and engaged Grant Thornton LLP (Grant Thornton)
to serve as our independent auditors for the 2003 fiscal year ending January 3,
2004. KPMG audited our financial statements for fiscal year 2002 and had been
our independent auditors since June 22, 2002. On June 22, 2002, our Board of Directors, following a recommendation from
its Audit Committee, decided to dismiss Arthur Andersen LLP (Andersen) as our
independent public accountants and auditors and engaged KPMG to serve as our
independent auditors for the 2002 fiscal year ending December 28, 2002.
Andersen audited our financial statements for fiscal year 2001 and had been our
independent public accountants and auditors since 1994. -26-




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For the fiscal year ended December 28, 2002, KPMGs report on our
consolidated financial statements did not contain an adverse opinion or a
disclaimer of opinion, and it was not qualified or modified as to uncertainty,
audit scope or accounting principles, except that it contained a separate
paragraph stating, the fiscal 2001 and fiscal 2000 consolidated financial
statements and financial statement schedule of K-Tron International, Inc. and subsidiaries were
audited by other auditors who have ceased operations. As described in Note 7,
these consolidated financial statements have been revised to include the
transitional disclosures required by Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, which was adopted by
the Company as of December 30, 2001. In our opinion, such disclosures for
fiscal 2001 and fiscal 2000 in Note 7 are appropriate. However, we were not
engaged to audit, review or apply any procedures to the fiscal 2001 and fiscal
2000 consolidated financial statements and financial statement schedule of
K-Tron International, Inc. and subsidiaries other than with respect to such
disclosures, and, accordingly, we do not express an opinion or any other form
of assurance on the fiscal 2001 and fiscal 2000 consolidated financial
statements taken as a whole. For the fiscal year ended December 30, 2001, Andersens report on our
consolidated financial statements did not contain an adverse opinion or a
disclaimer of opinion, and it was not qualified or modified as to uncertainty,
audit scope or accounting principles. During the fiscal year ended December 28, 2002 and through August 13,
2003, and during the fiscal year ended December 30, 2001 and through June 22,
2002, there were no disagreements with KPMG or Andersen, respectively, on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to the
respective former auditors and accountants satisfaction, would have caused
the former auditors or accountants to make reference to the subject matter of
the disagreements in connection with any of their respective reports on our
consolidated financial statements for such years. We disclosed the foregoing information with respect to KPMG in a current
report on Form 8-K filed August 20, 2003 and amended in a current report on
Form 8-K/A filed August 25, 2003 (collectively, the KPMG Form 8-K). We
provided KPMG with a copy of this disclosure and requested KPMG to furnish us
with a letter addressed to the Securities and Exchange Commission stating
whether KPMG agreed with the statements in the disclosure and, if not, stating
the respects in which it did not agree. KPMG issued a letter stating that it
had read the pertinent paragraphs of the KPMG Form 8-K and was in agreement
with the statements contained therein, except that KPMG said that it was not in
a position to agree or disagree with our statement that Grant Thornton was not
engaged regarding the application of accounting principles to a specific
transaction or the type of audit opinion that might be rendered on our
consolidated financial statements. KPMGs letter was filed as an exhibit to the
KPMG Form 8-K. We also disclosed the foregoing information with respect to Andersen in a
current report on Form 8-K filed June 26, 2002 (the Andersen Form 8-K). We
provided Andersen with a copy of this disclosure and requested Andersen to
furnish us with a letter addressed to the Securities and Exchange Commission
stating whether Andersen agreed with the statements by the Company in the
foregoing disclosure and, if not, stating the respects in which it did not
agree. Andersens letter stated that it had read the pertinent paragraphs of
the Andersen Form 8-K and was in agreement with the statements contained
therein. Andersens letter was filed as an exhibit to the Andersen Form
8-K. During the fiscal year ended December 28, 2002 and through August 13,
2003, and during the fiscal year ended December 30, 2001 and through June 22,
2002, we did not consult with Grant -27-




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Thornton or KPMG, respectively, with respect to the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Companys
consolidated financial statements, or any other matters or reportable events
set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K. 
 Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures An evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this
report was carried out by us under the supervision and with the participation
of the Companys management, including the Chief Executive Officer and Chief
Financial Officer. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
have been designed and are functioning effectively to provide reasonable
assurance that the information required to be disclosed by us in reports filed
under the Securities and Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms. A controls system, no matter how well
designed and operated, cannot provide absolute assurance that the objectives of
the controls system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected. Subsequent to the date of the most recent
evaluation of our internal controls, there were no significant changes in our
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses. Change in Control over Financial Reporting No change in the Companys internal control over financial reporting
occurred during the Companys most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting. -28-




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##### Table of Contents



PART III 
 Item 10. Directors and Executive Officers of the Registrant. The information concerning directors and compliance with Section 16(a) of
the Securities Exchange Act of 1934 called for by Item 10 of Form 10-K will be
set forth under the captions Election of Directors and Section 16(a)
Beneficial Ownership Reporting Compliance in our definitive proxy statement,
to be filed within 120 days after the end of the fiscal year covered by this
annual report on Form 10-K, and is incorporated herein by reference. The required information as to executive officers is set forth in Part I
hereof and is incorporated herein by reference. 
 Item 11. Executive Compensation. The information called for by Item 11 of Form 10-K will be set forth under
the caption Executive Compensation in our definitive proxy statement, to be
filed within 120 days after the end of the fiscal year covered by this annual
report on Form 10-K, and is incorporated herein by reference. 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters. The information called for by Item 12 of Form 10-K will be set forth under
the caption Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters in our definitive proxy statement, to be filed
within 120 days after the end of the fiscal year covered by this annual report
on Form 10-K, and is incorporated herein by reference. 
 Item 13. Certain Relationships and Related Transactions. None. 
 Item 14. Principal Accountant Fees and Services. The information called for by Item 14 of Form 10-K will be set forth under
the caption Audit Fees and All Other Fees in our definitive proxy statement,
to be filed within 120 days after the end of the fiscal year covered by this
annual report on Form 10-K, and is incorporated herein by reference. 
 Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1. Financial Statements. The following consolidated financial
statements are filed as part of this annual report on Form 10-K: PageReport of Independent Certified Public Accountants
    
    
    F-1Previously Issued Independent Auditors Report
    
    
    F-2Previously Issued Report of Independent Public Accountants
    
    
    F-3
 -29-




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PageConsolidated Balance Sheets as of January 3, 2004 and December 28, 2002
    
    
    F-4Consolidated Statements of Income for the Fiscal Years Ended
January 3, 2004, December 28, 2002 and December 29, 2001
    
    
    F-5Consolidated Statements of Changes in Shareholders Equity for
the Fiscal Years Ended January 3, 2004, December 28, 2002
and December 29, 2001
    
    
    F-6Consolidated Statements of Cash Flows for the Fiscal Years Ended
January 3, 2004, December 28, 2002 and December 29, 2001
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
 2. Financial Statement Schedule. The following consolidated financial
statement schedule is filed as part of this annual report on Form 10-K: PageSchedule II  Valuation and Qualifying Accounts for the Fiscal
Years Ended January 3, 2004, December 28, 2002 and
December 29, 2001
    
    
    S-1
 3. Exhibits. The following is a list of exhibits filed as part of this
annual report on Form 10-K. Where so indicated, exhibits which were previously
filed are incorporated by reference. For exhibits incorporated by reference,
the location of the exhibit in the previous filing is indicated in parentheses. ExhibitNumber
    
    Description2.1
    
    Basic Agreement regarding the Assignment of Assets of the Hasler Division
between K-Tron (Suisse) SA and MJ Entreprises SA dated July 31, 2001
(Filed as Exhibit 2.1 to our report on Form 10-Q for the quarterly period
ended September 29, 2001 and incorporated herein by reference)2.2
    
    Stock Purchase Agreement dated January 2, 2003 by and among John D.
Whalen, Donald J. Carrozzino, Frank Wallitsch, Jr. and Nancy S. Hansen and
PCC Acquisition Co. (Filed as Exhibit 2.1 to our report on Form 8-K dated
January 2, 2003 and filed with the Securities and Exchange Commission on
January 15, 2003 (January 2003 Form 8-K) and incorporated herein by
reference)3.1
    
    Restated Certificate of Incorporation, as amended (Filed as Exhibit 3.1
to our annual report on Form 10-K for the year ended January 2, 1999
(1998 Form 10-K) and incorporated herein by reference)3.2
    
    By-laws, as amended (Filed as Exhibit 3.2 to our annual report on Form
10-K for the year ended December 29, 2001 (2001 Form 10-K) and
incorporated herein by reference)
 -30-




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##### Table of Contents



ExhibitNumber
    
    Description4.1
    
    Form of Certificate for Shares of Common Stock (Filed as Exhibit 4.1 to
the 1998 Form 10-K and incorporated herein by reference)4.2
    
    Rights Agreement dated as of October 16, 2001 with American Stock
Transfer & Trust Company, as Rights Agent (Filed as Exhibit 4.1 to our
report on Form 8-K dated October 16, 2001 and incorporated herein by
reference)10.1
    
    1986 Stock Option Plan, as amended and restated (Filed as Exhibit 10.2.1
to our annual report on Form 10-K for the year ended January 4, 1992
(1991 Form 10-K) and incorporated herein by reference)**10.2
    
    K-Tron International, Inc. 1996 Equity Compensation Plan, as amended
(Filed as Exhibit 10.3 to the 1998 Form 10-K and incorporated herein by
reference)**10.3
    
    Amendment 2001-1 to the Amended and Restated K-Tron International, Inc.
1996 Equity Compensation Plan (Filed as Exhibit 10.4 to the 2001 Form 10-K
and incorporated herein by reference)**10.4
    
    K-Tron International, Inc. Supplemental Executive Retirement Plan (Filed
as Exhibit 10.2.7 to the 1991 Form 10-K and incorporated herein by
reference)**10.5
    
    Employment Agreement dated as of October 6, 1997 by and between K-Tron
International, Inc. and Edward B. Cloues, II (Filed as Exhibit 10.1 to our
report on Form 10-Q for the quarterly period ended September 27, 1997 and
incorporated herein by reference)**10.6
    
    Amendment No. 1 to Employment Agreement dated October 5, 1998 by and
between K-Tron International, Inc. and Edward B. Cloues, II (Filed as
Exhibit 10.1 to our report on Form 10-Q for the quarterly period ended
October 3, 1998 and incorporated herein by reference)**10.7
    
    Employment Agreement dated as of May 7, 1999 by and between K-Tron
International, Inc. and Ronald R. Remick (Filed as Exhibit 10.9 to our
annual report on Form 10-K for the year ended January 1, 2000 (1999
10-K) and incorporated herein by reference)**10.8
    
    Form of Employment Agreement with certain of our employees, which are
identical in all material respects except for the employee, amount of
salary to be paid and date of execution (Filed as Exhibit 10.12 to our
annual report on Form 10-K for the year ended January 3, 1998 and
incorporated herein by reference)**10.9
    
    Form of Indemnification Agreement with certain of our directors and
officers listed on Schedule 10.11, which are identical in all material
respects except for the director or officer who is a party thereto and the
date of execution (Filed as Exhibit 10.11 to the 1999 Form 10-K and
incorporated herein by reference)**10.9A
    
    Supplement to Schedule 10.9, listing additional directors and officers
who are parties to an Indemnification Agreement referenced in Exhibit
10.9. (Filed as Exhibit 10.11A to the 2001 Form 10-K and incorporated
herein by reference)
 -31-




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##### Table of Contents



ExhibitNumber
    
    Description10.10
    
    Mortgage Note dated June 11, 1996 from K-Tron America, Inc. in favor of
The Bank of Gloucester County (Filed as Exhibit 10.15 to the 1999 Form
10-K and incorporated herein by reference)10.11
    
    Loan Modification Agreement dated June 24, 1998 between K-Tron America,
Inc. and The Bank of Gloucester County (Filed as Exhibit 10.16 to the 1999
Form 10-K and incorporated herein by reference)10.12
    
    Loan Modification Agreement dated July 9, 2002 between K-Tron America,
Inc. and The Bank (formerly The Bank of Gloucester County) (Filed as
Exhibit 10.14 to our annual report on Form 10-K for the year ended
December 28, 2002 and incorporated herein by reference)10.13
    
    Note dated June 24, 1998 from K-Tron America, Inc. in favor of The Bank
of Gloucester County (Filed as Exhibit 10.17 to the 1999 Form 10-K and
incorporated herein by reference)10.14
    
    Note dated December 20, 2002 from K-Tron America, Inc. in favor of The
Bank (Filed as Exhibit 10.3 to the January 2003 Form 8-K and incorporated
herein by reference)10.15
    
    Loan Modification Agreement dated December 20, 2002 between K-Tron
America, Inc. and The Bank (Filed as Exhibit 10.4 to the January 2003 Form
8-K and incorporated herein by reference)10.16
    
    Loan Modification Agreement dated July 9, 2003 between K-Tron America,
Inc. and The Bank (Filed as Exhibit 10.1 to our report on Form 10-Q for
the quarterly period ended September 27, 2003 and incorporated herein by
reference)10.17
    
    Loan Modification Agreement dated December 31, 2003 between K-Tron
America, Inc. and The Bank*10.18
    
    Credit Agreement dated January 3, 2003 among Pennsylvania Crusher
Corporation, the Lenders party to that Credit Agreement and National City
Bank, as Agent (Filed as Exhibit 10.1 to the
January 2003 Form 8-K and incorporated herein by reference)10.19
    
    Amendment No. 1 dated May 12, 2003 to Credit Agreement dated January 3,
2003 among Pennsylvania Crusher Corporation, the Lenders party to that
Credit Agreement and National City Bank, as Agent (Filed as Exhibit 10.1
to our report on Form 10-Q for the quarterly period ended June 28, 2003
and incorporated herein by reference)10.20
    
    Form of the Stockholder Note issued to each of the individuals listed on
Schedule 10.2, which notes are identical in all material respects except
for the payee, the principal amount of the note and the amount of each
installment to be paid thereunder (Filed as Exhibit 10.2 to the January
2003 Form 8-K and incorporated herein by reference)21.1
    
    Subsidiaries*23.1
    
    Consent of Grant Thornton LLP*
 -32-




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##### Table of Contents



ExhibitNumber
    
    Description23.2
    
    Consent of KPMG LLP*24.1
    
    Power of Attorney (Included on Signature Page)*31.1
    
    Certification by the Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002*31.2
    
    Certification by the Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002*32.1
    
    Certification by the Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
  *
    
    Filed herewith**
    
    Management contract or compensatory plan or arrangement required to be
filed or incorporated as an exhibitCopies of the exhibits are available to shareholders (upon payment of a
$.20 per page fee to cover our expenses in furnishing the exhibits) from
Ronald R. Remick, Senior Vice President and Chief Financial Officer,
K-Tron International, Inc., Routes 55 and 553, P.O. Box 888, Pitman, New
Jersey 08071-0888.(b) Reports on Form 8-K.Current Report on Form 8-K dated October 16, 2003 and furnished to the
Securities and Exchange Commission on October 21, 2003 reporting the third
quarter 2003 financial results.(c) Exhibits. See (a) 3 above.(d) Financial Statement Schedules. See (a) 2 above. -33-




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. K-TRON INTERNATIONAL, INC.Date: March 31, 2004
    
    By  EDWARD B. CLOUES, II
Edward B. Cloues, II
Chief Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. Each person in so signing also makes, constitutes and appoints Edward B.
Cloues, II, Chairman and Chief Executive Officer of K-Tron International, Inc.,
and Ronald R. Remick, Senior Vice President, Chief Financial Officer and
Treasurer of K-Tron International, Inc., and each of them acting alone, as his
true and lawful attorneys-in-fact, in his name, place and stead, to execute and
cause to be filed with the Securities and Exchange Commission any or all
amendments to this report. Signature
    
    Date
    
    CapacityEDWARD B. CLOUES, II
Edward B. Cloues, II
    
    March 31, 2004
    
    Chief Executive Officer
(principal executive
officer) and Chairman of

the Board of DirectorsRONALD R. REMICK
Ronald R. Remick
    
    March 31, 2004
    
    Senior Vice President,
Chief Financial Officer and
Treasurer (principal
financial officer)ALAN R. SUKONECK
Alan R. Sukoneck
    
    March 31, 2004
    
    Vice President, Chief
Accounting and Tax
Officer (principal
accounting officer)NORMAN COHEN
Norman Cohen
    
    March 31, 2004
    
    DirectorROBERT A. ENGEL
Robert A. Engel
    
    March 31, 2004
    
    DirectorEDWARD T. HURD
Edward T. Hurd
    
    March 31, 2004
    
    DirectorRICHARD J. PINOLA
Richard J. Pinola
    
    March 31, 2004
    
    Director
 -34-




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##### Table of Contents



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Consolidated Financial Statements January 3, 2004 and December 28, 2002 (With Independent Certified Public Accountants Report Thereon)




---



##### Table of Contents



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Index to Consolidated Financial Statements and Financial Statement Schedule PageReport of Independent Certified Public Accountants
    
    
    F-1Previously Issued Independent Auditors Report
    
    
    F-2Previously Issued Report of Independent Public Accountants
    
    
    F-3Consolidated Balance Sheets as of January 3, 2004 and December 28, 2002
    
    
    F-4Consolidated Statements of Income for the Fiscal
Years Ended January 3, 2004, December 28, 2002 and December 29, 2001
    
    
    F-5Consolidated Statements of Changes in Shareholders Equity for the Fiscal Years Ended January
3, 2004, December 28, 2002 and December 29, 2001
    
    
    F-6Consolidated Statements of Cash Flows for
the Fiscal Years Ended January 3, 2004, December 28, 2002 and December 29, 2001
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8Schedule:Schedule II  Valuation and Qualifying Accounts for the Fiscal Years Ended January 3, 2004,
December 28, 2002 and December 29, 2001
    
    
    S-1




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##### Table of Contents



Report of Independent Certified Public Accountants Board of Directors
K-Tron International, Inc. We have audited the accompanying consolidated balance sheet of K-Tron
International, Inc. and Subsidiaries as of January 3, 2004, and the related
consolidated statements of income, changes in shareholders equity and cash
flows for the fiscal year ended January 3, 2004. These financial statements
are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform our audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of K-Tron International, Inc. and Subsidiaries as of January 3, 2004 and the
consolidated results of their operations and cash flows for the fiscal year
ended January 3, 2004, in conformity with accounting principles generally
accepted in the United States of America. We have also audited the accompanying Schedule II of K-Tron International,
Inc. and Subsidiaries as of January 3, 2004 and for the fiscal year ended
January 3, 2004. In our opinion, this schedule presents fairly, in all
material respects, the information required to be set forth therein. GRANT THORNTON LLP Philadelphia, Pennsylvania
February 11, 2004 F-1




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##### Table of Contents



Independent Auditors Report The Board of Directors and Shareholders
K-Tron International, Inc.: We have audited the accompanying consolidated balance sheet of K-Tron
International, Inc. and subsidiaries as of December 28, 2002, and the related
consolidated statements of income, changes in shareholders equity, and cash
flows for the year then ended, as listed in the accompanying index. In
connection with our audit of the fiscal 2002 consolidated financial statements,
we also have audited the fiscal 2002 financial statement schedule as listed in
the accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audit. The fiscal
2001 consolidated financial statements and financial statement schedule of
K-Tron International, Inc. and subsidiaries as listed in the accompanying index
were audited by other auditors who have ceased operations. Those auditors
expressed an unqualified opinion on those consolidated financial statements and
financial statement schedule, before the revision described in Note 7 to the
consolidated financial statements, in their report dated February 6, 2002. We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that out audit provides a
reasonable basis for our opinion. In our opinion, the fiscal 2002 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of K-Tron International, Inc. and subsidiaries as of December 28,
2002, and the results of their operations and their cash flows for the fiscal
year then ended in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, the related fiscal 2002
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein. As discussed above, the fiscal 2001 consolidated financial statements and
financial statement schedule of K-Tron International, Inc. and subsidiaries
were audited by other auditors who have ceased operations. As described in
Note 7, these consolidated financial statements have been revised to reflect
the transitional disclosures required by Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, which was adopted by
the Company as of December 30, 2001. In our opinion, such disclosures for
fiscal 2001 in Note 7 are appropriate. However, we were not engaged to audit,
review, or apply any procedures to the fiscal 2001 consolidated financial
statements and financial statement schedule of K-Tron International, Inc. and
subsidiaries other than with respect to such disclosures, and, accordingly, we
do not express an opinion or any other form of assurance on the fiscal 2001
consolidated financial statements taken as a whole. KPMG LLP Philadelphia, Pennsylvania
February 10, 2003 F-2




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##### Table of Contents



Report of Independent Public Accountants To K-Tron International, Inc.: We have audited the accompanying consolidated balance sheets of K-Tron
International, Inc. (a New Jersey corporation) and subsidiaries as of December
29, 2001 and December 30, 2000, and the related consolidated statements of
income, changes in shareholders equity, and cash flows for each of the three
fiscal years in the period ended December 29, 2001. These financial statements
and the schedule referred to below are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements and this schedule based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of K-Tron
International, Inc. and subsidiaries as of December 29, 2001 and December 30,
2000, and the results of their operations and their cash flows for each of the
three fiscal years in the period ended December 29, 2001, in conformity with
accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements as of December 29, 2001 and for each of the three fiscal
years in the period ended December 29, 2001, is presented for purposes of
complying with the Securities and Exchange Commissions rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in our audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole. /s/ Arthur Andersen LLP Philadelphia, Pennsylvania
February 6, 2002 Note: The report above is a copy of a previously issued report and it has not
been reissued by Arthur Andersen LLP (Andersen). Certain financial information
for the fiscal year ended December 29, 2001 was not reviewed by Andersen and
includes, as described in Note 7, the transitional disclosures required by
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, which was adopted by the Company as of December 30, 2001. F-3




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##### Table of Contents



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Dollars in thousands, except share data) January 3,
    
    December 28,2004
    
    2002AssetsCurrent assets:Cash and cash equivalents
    
    $
    4,506
    
    
    $
    2,694Accounts receivable, net of allowance for doubtful accounts
of $820 and $716
    
    
    19,273
    
    
    
    15,275Inventories
    
    
    13,566
    
    
    
    9,318Deferred income taxes
    
    
    442
    
    
    
    169Prepaid expenses and other current assets
    
    
    1,698
    
    
    
    1,775Total current assets
    
    
    39,485
    
    
    
    29,231Property, plant, and equipment, net of accumulated depreciation
of $31,123 and $27,803
    
    
    26,916
    
    
    
    16,170Patents, net of accumulated amortization of $887 and $719
    
    
    1,893
    
    
    
    767Goodwill
    
    
    2,053
    
    
    
    2,053Other intangibles, net of accumulated amortization of $120
    
    
    10,218
    
    
    
    Notes receivable and other assets
    
    
    2,111
    
    
    
    2,238Deferred income taxes
    
    
    405
    
    
    
    Total assets
    
    $
    83,081
    
    
    $
    50,459Liabilities and Shareholders EquityCurrent liabilities:Current portion of long-term debt
    
    $
    3,541
    
    
    $
    2,005Accounts payable
    
    
    6,361
    
    
    
    4,934Accrued expenses and other current liabilities
    
    
    7,429
    
    
    
    5,845Accrued commissions
    
    
    2,482
    
    
    
    1,532Customer advances
    
    
    1,757
    
    
    
    809Deferred income taxes
    
    
    794
    
    
    
    Total current liabilities
    
    
    22,364
    
    
    
    15,125Long-term debt, net of current portion
    
    
    24,574
    
    
    
    6,499Deferred income taxes
    
    
    947
    
    
    
    416Other non-current liabilities
    
    
    82
    
    
    
    Series B Junior Participating Preferred Shares $0.01 par value.Authorized 50,000 shares; issued none
    
    
    
    
    
    
    Shareholders equity:Preferred stock, $0.01 par value. Authorized 950,000 shares;
issued none
    
    
    
    
    
    
    Common stock, $0.01 par value. Authorized 50,000,000 shares;
issued 4,449,928 and 4,433,342 shares
    
    
    44
    
    
    
    44Paid-in capital
    
    
    16,922
    
    
    
    16,701Retained earnings
    
    
    42,491
    
    
    
    38,768Accumulated other comprehensive income
    
    
    3,171
    
    
    
    42062,628
    
    
    
    55,933Treasury stock, 2,002,574 shares, at cost
    
    
    (27,514
    )
    
    
    (27,514
    )Total shareholders
equity
    
    
    35,114
    
    
    
    28,419Total liabilities and shareholders equity
    
    $
    83,081
    
    
    $
    50,459
 See accompanying notes to consolidated financial statements. F-4




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##### Table of Contents



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Dollars in thousands, except share data) For the Fiscal Year EndedJanuary 3,
    
    December 28,
    
    December 29,2004
    
    2002
    
    2001Revenues
    
    $
    94,676
    
    
    $
    68,231
    
    
    $
    71,819Cost of revenues
    
    
    55,903
    
    
    
    39,373
    
    
    
    43,022Gross profit
    
    
    38,773
    
    
    
    28,858
    
    
    
    28,797Operating expenses:Selling, general, and administrative
    
    
    29,245
    
    
    
    21,533
    
    
    
    23,846Research and development
    
    
    2,695
    
    
    
    2,429
    
    
    
    2,64431,940
    
    
    
    23,962
    
    
    
    26,490Operating income
    
    
    6,833
    
    
    
    4,896
    
    
    
    2,307Interest expense
    
    
    1,590
    
    
    
    500
    
    
    
    1,028Income before
income taxes
    
    
    5,243
    
    
    
    4,396
    
    
    
    1,279Income tax provision
    
    
    1,520
    
    
    
    1,112
    
    
    
    231Net income
    
    $
    3,723
    
    
    $
    3,284
    
    
    $
    1,048Basic earnings per share
    
    $
    1.53
    
    
    $
    1.35
    
    
    $
    0.43Diluted earnings per share
    
    
    1.49
    
    
    
    1.33
    
    
    
    0.43Average common shares outstanding
    
    
    2,437,000
    
    
    
    2,432,000
    
    
    
    2,435,000Average common and common equivalents shares
outstanding
    
    
    2,502,000
    
    
    
    2,461,000
    
    
    
    2,465,000
 See accompanying notes to consolidated financial statements. F-5




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##### Table of Contents



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders Equity Years ended January 3, 2004, December 28, 2002 and December 29, 2001 (Dollars in thousands) Common stock
    
    Paid-in
    
    Retained
    
    Accumulated
other
comprehensive
    
    Treasury stockShares
    
    
    
    
    
    Amount
    
    capital
    
    earnings
    
    income (loss)
    
    Shares
    
    Amount
    
    TotalBalance,December 31, 2000
    
    
    4,403,871
    
    
    
    
    
    
    $
    44
    
    
    $
    16,437
    
    
    $
    34,436
    
    
    $
    (2,547
    )
    
    
    1,967,550
    
    
    $
    (27,059
    )
    
    $
    21,311Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,048
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,048Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (620
    )
    
    
    
    
    
    
    
    
    
    
    (620
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    428Issuance of stock
    
    
    28,871
    
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    (10,000
    )
    
    
    138
    
    
    
    398Purchase of treasury
shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,700
    
    
    
    (576
    )
    
    
    (576
    )Balance,December 29, 2001
    
    
    4,432,742
    
    
    
    
    
    
    
    44
    
    
    
    16,697
    
    
    
    35,484
    
    
    
    (3,167
    )
    
    
    2,001,250
    
    
    
    (27,497
    )
    
    
    21,561Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,284
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,284Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,587
    
    
    
    
    
    
    
    
    
    
    
    3,587Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,871Issuance of stock
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Purchase of treasury
shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,324
    
    
    
    (17
    )
    
    
    (17
    )Balance,December 28, 2002
    
    
    4,433,342
    
    
    
    
    
    
    
    44
    
    
    
    16,701
    
    
    
    38,768
    
    
    
    420
    
    
    
    2,002,574
    
    
    
    (27,514
    )
    
    
    28,419Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,723
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,723Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,800
    
    
    
    
    
    
    
    
    
    
    
    2,800Unrealized (loss)
on interest rate
swap, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49
    )
    
    
    
    
    
    
    
    
    
    
    (49
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,474Issuance of stock
    
    
    16,586
    
    
    
    
    
    
    
    
    
    
    
    221
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    221Balance,January 3, 2004
    
    
    4,449,928
    
    
    
    
    
    
    $
    44
    
    
    $
    16,922
    
    
    $
    42,491
    
    
    $
    3,171
    
    
    
    2,002,574
    
    
    $
    (27,514
    )
    
    $
    35,114
 See accompanying notes to consolidated financial statements. F-6




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##### Table of Contents



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES 
 Consolidated Statements of Cash Flows
(Dollars in thousands) For the Fiscal Year EndedJanuary 3,
    
    December 28,
    
    December 29,2004
    
    2002
    
    2001Operating activities:Net income
    
    $
    3,723
    
    
    $
    3,284
    
    
    $
    1,048Adjustments to reconcile net income to net
cash provided by operating activities:Loss on disposition of assets
    
    
    
    
    
    
    
    
    
    
    378Depreciation and amortization
    
    
    2,873
    
    
    
    2,499
    
    
    
    2,921Deferred income taxes
    
    
    502
    
    
    
    192
    
    
    
    78Changes in assets and liabilities:Accounts receivable, net
    
    
    440
    
    
    
    1,179
    
    
    
    5,269Inventories
    
    
    917
    
    
    
    1,765
    
    
    
    876Prepaid expenses and other current assets
    
    
    440
    
    
    
    (309
    )
    
    
    406Other assets
    
    
    308
    
    
    
    4
    
    
    
    (24
    )Accounts payable
    
    
    (675
    )
    
    
    179
    
    
    
    (4,811
    )Accrued expenses and other current liabilities
    
    
    832
    
    
    
    1,156
    
    
    
    (888
    )Net cash provided by operating activities
    
    
    9,360
    
    
    
    9,949
    
    
    
    5,253Investing activities:Proceeds from disposition of assets
    
    
    
    
    
    
    
    
    
    
    776Business acquired, net of cash acquired
    
    
    (20,276
    )
    
    
    
    
    
    
    (621
    )Capital expenditures
    
    
    (3,311
    )
    
    
    (2,967
    )
    
    
    (2,144
    )Other
    
    
    (24
    )
    
    
    138
    
    
    
    (68
    )Net cash used in investing activities
    
    
    (23,611
    )
    
    
    (2,829
    )
    
    
    (2,057
    )Financing activities:Net borrowings under notes payable to banks
    
    
    458
    
    
    
    
    
    
    
    286Proceeds from issuance of long-term debt
    
    
    20,000
    
    
    
    821
    
    
    
    412Principal payments on long-term debt
    
    
    (5,079
    )
    
    
    (7,859
    )
    
    
    (1,955
    )Purchase of treasury stock
    
    
    
    
    
    
    (17
    )
    
    
    (576
    )Proceeds from issuance of common stock
    
    
    221
    
    
    
    4
    
    
    
    398Net cash provided by (used in) financing
activities
    
    
    15,600
    
    
    
    (7,051
    )
    
    
    (1,435
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    463
    
    
    
    411
    
    
    
    (100
    )Net increase in cash and cash
equivalents
    
    
    1,812
    
    
    
    480
    
    
    
    1,661Cash and cash equivalents:Beginning of year
    
    
    2,694
    
    
    
    2,214
    
    
    
    553End of year
    
    $
    4,506
    
    
    $
    2,694
    
    
    $
    2,214Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    1,578
    
    
    $
    575
    
    
    $
    944Income taxes (refund)
    
    
    556
    
    
    
    (84
    )
    
    
    268Business acquired through seller notes
    
    
    4,000
    
    
    
    
    
    
    
    
 See accompanying notes to consolidated financial statements. F-7




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##### Table of Contents



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES 
 Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  (1)
    
    Nature of OperationsK-Tron International, Inc. and its subsidiaries (K-Tron or the Company)
design, engineer, produce, market, sell and service material handling
equipment and systems for a wide variety of industrial markets. The Company
has manufacturing facilities in the United States, Switzerland, the United
Kingdom and Canada, and its equipment is sold throughout the world.(2)
    
    Summary of Significant Accounting Policies  (a)
    
    Principles of ConsolidationThe consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. For the
year ended January 3, 2004, these subsidiaries include Pennsylvania
Crusher Corporation (Penn Crusher), which was acquired on January 2,
2003 (see Note 3), and its wholly-owned subsidiary, Jeffrey Specialty
Equipment Corporation (Jeffrey). All material intercompany accounts
and transactions have been eliminated.(b)
    
    Fiscal YearThe Companys fiscal year is reported on a fifty-two/fifty-three week
period. Fiscal years ended January 3, 2004 (referred to herein as
2003), December 28, 2002 (referred to herein as 2002), and December 29,
2001 (referred to herein as 2001) include fifty-three weeks for 2003
and fifty-two weeks for each of 2002 and 2001.(c)
    
    Cash and Cash EquivalentsAll cash equivalents represent highly liquid, interest-bearing
investments purchased with original maturities of three months or less.(d)
    
    InventoriesInventories are stated at the lower of cost or market and are accounted
for using the first-in, first-out method.(e)
    
    Property, Plant, and EquipmentProperty, plant, and equipment is carried at cost and is depreciated on
a straight-line basis over the following estimated useful lives:
buildings and improvements, 30 to 50 years; automotive equipment, 3
years; machinery and equipment, 3 to 10 years; and furniture and
equipment, including computer equipment and software, 5 to 7 years.
Leasehold improvements are amortized over the shorter of the estimated
useful lives of such assets or the remaining term of the applicable
lease.(f)
    
    PatentsPatents are stated at cost less accumulated amortization. The costs of
patents are amortized on a straight-line basis over the remaining
economic lives of the respective assets, but in no event longer than
the remaining legal lives. (Continued) F-8




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  (g)
    
    Goodwill and Other Intangible AssetsWhen a company is acquired, the excess of the purchase price over the
fair value of its net assets, including identifiable intangibles, is
goodwill. Goodwill is recorded as an asset on the balance sheet.In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill
and Other Intangible Assets. SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible
assets. The Statement provides that goodwill and intangible assets
with indefinite lives are no longer amortized on a recurring basis, but
instead are subject to impairment testing at least annually. The
Company adopted SFAS No. 142 on December 30, 2001. Accordingly, the
Company no longer amortizes goodwill, and it amortizes the cost of
other intangibles over their estimated useful lives unless such lives
are deemed indefinite. In accordance with the provisions of SFAS No.
142, the Company performed impairment tests on goodwill and other
intangible assets, which indicated no impairment. Disclosures required
by SFAS No. 142 are presented in Note 7.Prior to December 30, 2001, the Company amortized goodwill on a
straight-line basis over 15 to 30 years. Intangible assets which do
not have indefinite lives are being amortized on a straight line basis
over the expected periods of benefit, which range from 17 to 50 years.(h)
    
    Income TaxesIncome taxes are accounted for in accordance with SFAS No. 109,
Accounting for Income Taxes. Deferred income taxes are provided for
differences between amounts shown for financial reporting purposes and
those included with tax return filings that will reverse in future
periods. Additionally, the effects of income taxes are measured based
upon enacted tax laws and rates.(i)
    
    Revenue RecognitionRevenue is recognized when risk of ownership and title to the product
transfers to the customer, which usually occurs at the time goods are
shipped.(j)
    
    Research and DevelopmentExpenditures for research, development and engineering of products are
expensed as incurred.(k)
    
    Foreign CurrencyAssets and liabilities denominated in foreign currencies are translated
to U.S. dollars at current rates of exchange at year-end. Revenues and
expenses are translated at average rates prevailing during the year.
The Company recognized a foreign currency transaction gain of
approximately $227,000 for 2003 and incurred foreign currency
transaction losses of approximately $604,000 and $160,000 for 2002 and
2001, respectively. These transaction gains or losses are recorded
within the Consolidated
Statements of Income. Translation gains and losses are recorded as a
separate component of shareholders equity. (Continued) F-9




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  (l)
    
    Stock Option AccountingTo account for its stock options, the Company applies the
intrinsic value-based method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, including FASB Interpretation
No. 44, Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25, issued in March
2000. Reference should be made to Note 11 for additional information
regarding the Companys equity compensation plans.(m)
    
    Fair Value of Financial InstrumentsThe carrying value of financial instruments such as cash, accounts
receivable and payable, and other current assets and liabilities
approximates their fair value, based on the short-term nature of these
instruments. The carrying amount of the Companys long-term debt and
notes payable approximates their fair value. Their fair value is
estimated based on the current rates offered to the Company for debt
and notes payable of the same remaining maturities.(n)
    
    Use of EstimatesThe preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates. Judgments and
estimates of uncertainties are required in applying the Companys
accounting policies in certain areas. The following are some of the
areas requiring significant judgments and estimates: determination of
an assets useful life, estimates of allowances for bad debts, cash
flow and valuation assumptions in performing asset impairment tests of
long-lived assets, inventory reserves, warranty costs, legal
contingencies and estimates of realizability of deferred tax assets.(o)
    
    New Accounting PronouncementsIn August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 applies to all entities,
including rate-regulated entities, that have legal obligations
associated with the retirement of a tangible long-lived asset that
result from acquisition, construction or development and (or) normal
operations of the long-lived asset. The application of this statement
is not limited to certain specialized industries, such as the
extractive or nuclear industries. This Statement also applies, for
example, to a company that operates a manufacturing facility and has a
legal obligation to dismantle the manufacturing plant and restore the
underlying land when it ceases operation of that plant. A liability for
an asset retirement obligation should be recognized if the obligation
meets the definition of a liability and can be reasonably estimated.

The initial recording should be at fair value. SFAS No. 143 is
effective for financial statements issued for fiscal years beginning
after June 15, 2002. The Companys adoption of this statement did not
have a material impact on the financial position or results of
operations of the Company.The Company adopted the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 retains the
existing requirements to recognize and measure the impairment of
long-lived assets to be held and used or to be disposed of by sale.
However, SFAS (Continued) F-10




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  No. 144 makes changes to the scope and certain
measurement requirements of existing accounting guidance. SFAS No. 144
also changes the requirements relating to reporting the effects of a
disposal or discontinuation of a segment of a business. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning
after December 15, 2001 and interim periods within those fiscal years.
The Companys adoption of this statement did not have a significant
impact on the financial position or results of operations of the
Company.The Company adopted SFAS No. 145, Rescission of FASB Statements No. 4,
44 and 64, Amendment of FASB No. 13, and Technical Corrections. SFAS
No. 145 changes the accounting principles governing extraordinary items
by clarifying and, to some extent, modifying the existing definition
and criteria, specifying disclosure for extraordinary items and
specifying disclosure requirements for other unusual or infrequently
occurring events and transactions that are not extraordinary items.
SFAS No. 145 is effective for financial statements issued for fiscal
years beginning after June 15, 2002. The Companys adoption of this
statement did not have a significant impact on the financial position
or results of operations of the Company.In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 requires
companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 is effective
prospectively for exit and disposal activities initiated after December
31, 2002. The Companys adoption of this statement did not have a
significant impact on the financial position or results of operations
of the Company.In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based CompensationTransition and Disclosure, an amendment of
FASB Statement No. 123. SFAS No. 148 amends SFAS No. 123, Accounting
for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No.
148 amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The disclosure
provisions of SFAS No. 148 were adopted by the Company during the
quarter ended March 29, 2003. See Note 11.In November 2002, FASB Interpretation 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others, was issued (FIN 45). FIN 45 requires a
guarantor entity, at the inception of a guarantee covered by the
measurement provisions of the interpretation, to record a liability for
the fair value of the obligation undertaken in issuing the guarantee.
For guarantees issued on or before December 31, 2002, liabilities are
recorded when and if payments become probable and estimable. FIN 45
applies prospectively to guarantees the Company issues or modifies
subsequent to December 31, 2002, but has certain disclosure
requirements effective for interim and annual periods ending after
December 15, 2002. The Company has not historically issued guarantees
that would be subject to the interpretation, and its adoption of FIN 45
did not have a material effect on its fiscal 2003 consolidated
financial statements.In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities (FIN 46). In general, a variable
interest entity is a corporation, partnership, trust or any (Continued) F-11




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  other legal structure used for business purposes that either (a) does not have
equity investors with voting rights or (b) has equity investors that do
not provide sufficient financial resources for the entity to support
its activities. FIN 46 requires certain variable interest entities to
be consolidated by the primary beneficiary of the entity if the
investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial
support from other parties. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January
31, 2003. The adoption of the provisions of FIN 46 effective February
1, 2003 did not have a material impact on the Companys consolidated
financial statements since the Company currently does not have variable
interest entities. In December 2003, the FASB issued FIN 46R with
respect to variable interest entities created before January 31, 2003,
which, among other things, revised the implementation date to the first
fiscal year or interim period ending after March 15, 2004, with the
exception of Special Purpose Entities (SPE). The consolidation
requirements apply to all SPEs in the first fiscal year or interim
period ending after December 15, 2003. The Companys adoption of the
provisions of FIN 46R effective January 3, 2004 did not have a material
impact on the Companys consolidated financial statements since the
Company currently does not have any SPEs.In April 2003, the FASB issued SFAS No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities, which amends and
clarifies accounting for derivative instruments embedded in other
contracts, and hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. The amendments set
forth in SFAS No. 149 improve financial reporting by requiring that
contracts with comparable characteristics be accounted for similarly.
The provisions of SFAS No. 149 are effective for contracts entered into
or modified after June 30, 2003. The Companys adoption of SFAS No.
149 did not have a material impact on the financial position or results
of operations of the Company.On May 15, 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity. SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. SFAS No. 150 affects
the issuers accounting for three types of freestanding financial
instruments:  -
    
    mandatorily redeemable shares, which the issuing company is
obligated to buy back in exchange for cash or other assets;-
    
    instruments that do or may require the issuer to buy back some of
its shares in exchange for cash or other assets, including put
options and forward purchase contracts; and-
    
    obligations that can be settled with shares, the monetary value
of which is fixed, tied solely or predominantly to a variable
such as a market index, or varies inversely with the value of the
issuers shares. (Continued) F-12




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##### Table of Contents



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  SFAS No. 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety.Most of the guidance in SFAS No. 150 is effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning
after June 15, 2003. The Companys adoption of SFAS No. 150 did not
have a material effect on the Companys financial position, results of
operations or cash flows.  (3)
    
    AcquisitionOn January 2, 2003, the Company acquired all of the stock of
privately-held Penn Crusher. As a result of this purchase, the Company
also acquired Jeffrey, a wholly-owned subsidiary of Penn Crusher. The
purchase price for the Penn Crusher stock was $23,500,000 paid at closing,
a post-closing adjustment of $205,000 based on Penn Crushers consolidated
stockholders equity at December 31, 2002 and $1,288,000 in the quarter
ended January 3, 2004 in conjunction with the Companys IRS Code section
338(h)(10) election relating to such acquisition. Of this amount,
$20,993,000 was paid in cash and $4,000,000 was in unsecured promissory
notes which are payable in equal, annual installments on January 2 of 2005,
2006 and 2007. The excess of the purchase price over the carrying value of
the net assets acquired was $16,649,000, which was allocated as follows: 2003(In thousands)Inventories
    
    $
    356Property, plant and equipment
    
    
    4,704Patents
    
    
    1,251Drawings
    
    
    3,550Trademarks and tradenames
    
    
    1,890Customer relationships
    
    
    4,898$
    16,649
  Drawings, trademarks and tradenames and customer relationships are
included in other intangibles in the consolidated balance sheet.If the acquisition of Penn Crusher had occurred at the beginning of 2001,
pro forma K-Tron revenues, net income and diluted earnings per share for
2001 and 2002 would have been as follows: 2001
    
    2002(In thousands, except per share)Revenues
    
    $
    110,016
    
    
    $
    103,607Net income
    
    
    2,999
    
    
    
    4,376Diluted earnings per share
    
    
    1.22
    
    
    
    1.78
 (Continued) F-13




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  The pro forma disclosures are unaudited and are based on historical
results, adjusted for the impact of certain acquisition-related items such
as depreciation and amortization of property, plant, and equipment and
identified intangibles, increased interest expense on acquisition debt and
the related income tax effects. This unaudited pro forma disclosure is
presented for informational purposes only and should not be construed to be
indicative of the actual results of operations of the combined companies
for the periods indicated or of the results that may be obtained in the
future.(4)
    
    Disposition of AssetsOn July 31, 2001, the Company sold its Hasler heavy feeder business to the
largest distributor of Hasler equipment and recorded a pretax loss of
$620,000. The assets sold were primarily inventory and fixed assets. The
buyer took over operation of the Hasler leased sales office in Neuchátel,
Switzerland, and entered into an agreement to lease a Company-owned
facility in Lengerich, Germany.The purchase price consisted of a combination of 1,000,000 Swiss francs
cash (approximately $594,000), two interest-bearing promissory notes that
total 3,017,327 Swiss francs (approximately $1,792,000 in total), which
amortize over seven years, and a less than 20% equity position in the
buyer, which notes and equity interest are included in other assets. The
interest rates on the notes are reset on July 31 of each year based upon
the twelve-month euro and the twelve-month Swiss LIBOR rates, plus 1.50%.
At July 31, 2003, the interest rates were set at 3.6% on the euro LIBOR
rate loan and 2.0% on the Swiss LIBOR rate loan. The Company retained all
of the Hasler accounts receivable and payable at the time of the sale as
well as ownership of the building in Lengerich, Germany which is being
leased to the buyer. The buyer has made all required payments on the
promissory notes, and the total principal amount of these notes was reduced
to 2,338,000 Swiss francs (approximately $172,000 on the euro LIBOR rate
loan and $1,715,000 on the Swiss LIBOR rate loan) as of January 3, 2004.
The U.S. dollar numbers mentioned in this paragraph reflect the Swiss
franc/U.S. dollar exchange rates at the dates referred to, which were July
31, 2001 and January 3, 2004.In December 2001, the Company sold its Swiss machine and welding shops and
recorded a pretax gain of $242,000. The purchase price consisted of a
combination of 300,000 Swiss francs cash (approximately $182,000) and a
700,000 Swiss franc obligation (approximately $420,000) which is supported
by a bank guaranty and was reduced to 355,000 Swiss francs ($287,000) as of
January 3, 2004. The U.S. dollar numbers mentioned in this paragraph
reflect the Swiss franc/U.S. dollar exchange rate at December 29, 2001.Both the loss on the sale of the Hasler heavy feeder business and the gain
on the sale of the Swiss machine and welding shops are included in selling,
general, and administrative expenses on the consolidated statements of
income. (Continued) F-14




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##### Table of Contents



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  (5)
    
    InventoriesInventories consist of the following: 2003
    
    2002(In thousands)Components
    
    $
    13,676
    
    
    $
    9,163Work-in-process
    
    
    1,635
    
    
    
    1,151Finished goods
    
    
    62
    
    
    
    103Inventory reserves
    
    
    (1,807
    )
    
    
    (1,099
    )$
    13,566
    
    
    $
    9,318
  (6)
    
    Property, Plant, and EquipmentProperty, plant, and equipment consists of the following: 2003
    
    2002(In thousands)Land
    
    $
    1,492
    
    
    $
    1,198Buildings and improvements
    
    
    22,922
    
    
    
    18,349Automotive equipment
    
    
    363
    
    
    
    479Machinery and equipment
    
    
    13,771
    
    
    
    8,596Furniture and equipment, including computer equipment
and software
    
    
    19,491
    
    
    
    15,35158,039
    
    
    
    43,973Less accumulated depreciation and amortization
    
    
    (31,123
    )
    
    
    (27,803
    )$
    26,916
    
    
    $
    16,170
  Depreciation of property, plant, and equipment for 2003, 2002 and 2001 was
$2,544,000, $2,282,000 and $2,496,000, respectively. (Continued) F-15




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  (7)
    
    Goodwill and Other Intangible AssetsThe following table presents the adjusted net income and adjusted per share
amounts for the years ended 2003, 2002 and 2001, as if goodwill had not
been amortized. The total goodwill amortization is shown after-tax in the
following table. 2003
    
    2002
    
    2001(In thousands, except per share)Net IncomeAs reported
    
    $
    3,723
    
    
    $
    3,284
    
    
    $
    1,048Effect of goodwill amortization
    
    
    
    
    
    
    
    
    
    
    345As adjusted
    
    
    3,723
    
    
    
    3,284
    
    
    
    1,393Basic Earnings Per ShareAs reported
    
    
    1.53
    
    
    
    1.35
    
    
    
    0.43Effect of goodwill amortization
    
    
    
    
    
    
    
    
    
    
    0.14As adjusted
    
    
    1.53
    
    
    
    1.35
    
    
    
    0.57Diluted Earnings Per ShareAs reported
    
    
    1.49
    
    
    
    1.33
    
    
    
    0.43Effect of goodwill amortization
    
    
    
    
    
    
    
    
    
    
    0.14As adjusted
    
    
    1.49
    
    
    
    1.33
    
    
    
    0.57
  Intangible assets consist of the following: 2003
    
    2002Gross
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Amount
    
    AmortizationAmortized intangible assetsPatents
    
    $
    2,780
    
    
    $
    887
    
    
    $
    1,486
    
    
    $
    719Drawings
    
    
    3,550
    
    
    
    71
    
    
    
    
    
    
    
    Customer relationships
    
    
    4,898
    
    
    
    49
    
    
    
    
    
    
    
    $
    11,228
    
    
    $
    1,007
    
    
    $
    1,486
    
    
    $
    719Unamortized
intangible assets
Trademarks and tradenames
    
    $
    1,890
    
    
    
    
    
    
    
    
  The amortized intangible assets are being amortized on the straight-line
basis (half-year expense in the year of acquisition) over the expected
periods of benefit, which range from 17 to 50 years. The amortization
expense of intangible assets for 2003 and 2002 was $288,000 and $83,000,
respectively. Intangible assets of $11,589,000 were acquired in 2003 as
part of the acquisition of Penn Crusher (see Note 3). (Continued) F-16




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  Future annual amortization of intangible assets is as follows: Amount(In thousands)Fiscal year:2004
    
    $
    4202005
    
    
    4202006
    
    
    4202007
    
    
    4202008
    
    
    420Thereafter
    
    
    8,121$
    10,221
  (8)
    
    Accrued WarrantyThe Company offers a one-year product warranty on a majority of its
products. Warranty is accrued as a percentage of sales on a monthly basis
and is included in accrued expenses and other current liabilities. The
following is an analysis of accrued warranty for fiscal 2003 and 2002. 2003
    
    2002(In thousands)Beginning balance
    
    $
    687
    
    
    $
    662Accrued warranty of acquired business
    
    
    553
    
    
    
    Accrual of warranty expense
    
    
    1,254
    
    
    
    1,151Warranty costs incurred
    
    
    (1,580
    )
    
    
    (1,216
    )Foreign exchange adjustment
    
    
    53
    
    
    
    90Ending balance
    
    $
    967
    
    
    $
    687
  (9)
    
    Notes Payable to Banks and Long-Term DebtTo finance the January 2003 Penn Crusher acquisition described in Note 3,
the Company borrowed $20,000,000 from two U.S. banks and also issued
$4,000,000 in unsecured promissory notes to the former Penn Crusher
stockholders.The Company borrowed $5,000,000 from a U.S. bank through its U.S.
manufacturing subsidiary. The loan was combined with an outstanding term
loan from that bank to that subsidiary and resulted in a $7,333,000 term
loan. Monthly principal payments of $83,000 plus interest at a fixed rate
of 5.625% on approximately half the loan and at a variable rate of
one-month LIBOR plus 1.85% on the other half (2.97% at January 3, 2004)
began in February 2003, with the final principal payment of approximately
$2,416,000 plus interest being due in January 2008. This loan is secured
by substantially all of the assets of the U.S. manufacturing subsidiary
and is guaranteed by K-Tron International, Inc. As of January 3, 2004,
there was $6,417,000 in principal outstanding under the term loan
facility. The term loan facility (Continued) F-17




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  requires that the Company comply with certain covenants relating to the
consolidated debt to net worth ratio, minimum annual debt coverage and
minimum net worth. At January 3, 2004, the Company was in compliance with
these covenants.Penn Crusher borrowed $15,000,000 from another U.S. bank consisting of an
aggregate of $13,500,000 term debt ($10,000,000 with a five-year term and
$3,500,000 with a six-year term) and $1,500,000 under a five-year
revolving credit facility. Subject to certain conditions, the revolving
credit facility provides for up to $3,500,000 of total availability,
including the $1,500,000 originally borrowed thereunder. There was
nothing borrowed under the revolving credit facility as of January 3,
2004. Quarterly term debt principal payments of $400,000 began March 31,
2003 and increase each year by $62,500 per quarter (or $250,000 per year
in the aggregate) through December 31, 2007, with final quarterly
principal payments of $750,000 in 2008. Interest is based on one- to
six-month LIBOR plus 3% to 3.5%, and the 3% to 3.5% can be reduced to 2%
to 2.5% upon meeting certain financial ratios. As of January 3, 2004,
there was $8,500,000 outstanding on the five-year term loan and $3,400,000
outstanding on the six-year term loan. In January 2003, Penn Crusher
entered into an interest rate swap related to the entire $10,000,000
five-year term loan such that interest will not exceed 6.11% for the full
term of the loan and can be reduced to 5.11% upon meeting certain
financial ratios. The interest rates on the $10,000,000 term loan and the
$3,500,000 term loan were 6.11% and 4.73%, respectively, as of January 3,
2004. The Penn Crusher debt is guaranteed by Jeffrey and secured by
substantially all of the assets of Penn Crusher and Jeffrey, but it is not
guaranteed by the parent company (K-Tron International, Inc.) or any other
subsidiary (except by a non-recourse pledge of the stock of Penn Crusher).
The term loans and revolving credit facility require that Penn Crusher
comply with certain covenants relating to tangible net worth, fixed charge
coverage ratio and total debt to EBITDA ratio. At January 3, 2004, Penn
Crusher was in compliance with these covenants.In addition, K-Tron International, Inc. issued $4,000,000 of unsecured
promissory notes to the former Penn Crusher stockholders as part of the
Penn Crusher purchase price. These notes are payable in three equal,
annual installments on the second, third and fourth anniversaries of the
January 2, 2003 closing date. Interest at 6% per annum is payable
quarterly. The first principal payout of $1,333,334 is due on January 2,
2005.At January 3, 2004, the Companys Swiss subsidiary had separate credit
facilities totaling 13 million Swiss francs (approximately $10.5 million)
with three Swiss banks. The Companys real property in Switzerland is
pledged as collateral. As of January 3, 2004, there were borrowings of 1.5
million Swiss francs (approximately $1.2 million) under these facilities,
with 11.5 million Swiss francs (approximately $9.3 million) available for
future borrowings, letters of credit and customer guarantees. The annual
interest rates on the outstanding borrowings range from 1.7% to 2.1%.In June 1998, the Companys U.S. manufacturing subsidiary refinanced its
20-year mortgage with a U.S. bank for $2.7 million at an annual interest
rate of 7.625%. In July 2002, the annual interest rate was reduced to 6.45%
and, beginning August 1, 2002, this loan became repayable in eighty-three
monthly principal and interest payments of $23,784 each, with a final
payment of $1,042,000 plus interest due on August 1, 2009. As of January
3, 2004, the principal amount owed on this borrowing was $2,052,000. (Continued) F-18




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  Also in June 1998, this same U.S. manufacturing subsidiary entered into a
two-year secured revolving credit facility with the U.S. bank that holds
the mortgage. As of January 3, 2004, there was $1,935,000 borrowed under
this credit facility, which has now been extended through July 2005, and
$3,065,000 was available for future borrowings. The annual interest rate
as of January 3, 2004 was 3.75%.Under the terms of the various U.S. credit facilities, fixed assets with a
book value of $14,412,000 and accounts receivable and inventory with a book
value of $7,720,000 are pledged as collateral. In addition, fixed assets
with a book value of $6,725,000 are pledged as collateral under the Swiss
credit facilities.Long-term debt consists of the following: 2003
    
    2002(In thousands)U.S. mortgage, interest at 6.45%
    
    $
    2,052
    
    
    $
    2,197U.S. line of credit, interest at 3.75%
    
    
    1,935
    
    
    
    U.S. term facility, interest at 2.97% to 6.11%
    
    
    18,317
    
    
    
    2,188Unsecured notes payable, interest at 6%
    
    
    4,000
    
    
    
    Swiss facilities, interest at 1.7% to 2.1%
    
    
    1,211
    
    
    
    2,697Other
    
    
    600
    
    
    
    1,42228,115
    
    
    
    8,504Less current portion
    
    
    (3,541
    )
    
    
    (2,005
    )$
    24,574
    
    
    $
    6,499
  Future annual principal payments required on long-term debt are as follows: Amount(In thousands)Fiscal year:2004
    
    $
    3,5412005
    
    
    7,8562006
    
    
    4,3072007
    
    
    5,1002008
    
    
    6,315Thereafter
    
    
    996$
    28,115
  (10)
    
    Employee Benefit PlansThe Company has a profit-sharing and thrift plan (the K-Tron Plan) for
all U.S. employees except for those of Penn Crusher and its subsidiary and
a thrift plan (the Penn Crusher Plan) for all Penn Crusher and its
subsidiarys U.S. employees. The K-Tron Plan requires employees to have at
least six months of service and employment at the end of the year in order
to be eligible to receive a matching contribution under the thrift portion
of the plan. All Company contributions to the K-Tron Plan are at the
discretion of (Continued) F-19




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  the board of directors. The Companys profit-sharing contribution, if any,
vests over a five-year period. Employees may voluntarily participate in the
thrift portion of the K-Tron Plan and authorize payroll deductions ranging
from 1% to 50% of their compensation. Related matching Company
contributions are vested immediately. The board of directors authorized
matching contributions of 100% of the first 6% of participants
compensation for the K-Tron Plan employees for each of 2003, 2002 and 2001.
The board of directors did not authorize any 2003, 2002 or 2001
contribution to the profit-sharing portion of the K-Tron Plan.The Penn Crusher Plan covers employees who have worked for Penn Crusher or
its subsidiary for at least one year and who voluntarily choose to
participate in the Plan, and it authorizes payroll deductions ranging from
1% to 50% of compensation with matching monthly contributions of 100% of
the first 4% of participants compensation.Substantially all foreign employees participate in defined contribution
group pension plans. Contributions are paid by the employee and employer at
percentages that vary according to age and other factors.The Company expense associated with the thrift plans for 2003, 2002 and
2001 was $668,000, $375,000 and $383,000, respectively. The foreign pension
expense for 2003, 2002 and 2001 was $941,000, $776,000 and $979,000,
respectively.In June 1981, the Company adopted an employee stock purchase plan under
which eligible employees of the Company may elect to participate through
payroll deductions for up to 10% of their gross compensation. Such
deductions are used to purchase common stock of the Company at a price
equal to 85% of the market value, not to exceed $25,000 of stock in any
year. Under this plan, the Company issued
6,910 shares of common stock at an average price of $10.41 in 2001. This
plan expired at the end of June 2001.(11)
    
    Shareholders EquityIn 2001, the board of directors determined the rights on 50,000 shares of
the authorized preferred stock as the Series B Junior Participating
Preferred Shares (the Series B Preferred Shares). Each one one-hundredth of
a share of the Series B Preferred Shares carries voting and dividend rights
that are equivalent to one share of the common stock. The voting and
dividend rights are subject to adjustment in the event of a dividend on
common stock which is payable in common stock or any subdivisions or
combinations with respect to the outstanding shares of common stock. At the
same time as the Series B Preferred Shares were established, the number of
Series A Junior Participating Preferred Shares were reduced from 50,000 to
0 and returned to authorized but unissued shares of the Companys preferred
stock. The board of directors has not determined the rights on the
remaining 950,000 shares of the authorized preferred stock as of January 3,
2004.The Company had a stock option plan for nonemployee directors (the 1988
plan) which expired in November 1998, but under which one option grant
remained outstanding at the end of 2003. The plan provided that each
eligible director was granted a single option to purchase 10,000 shares of
the Companys common stock at a price equal to the fair market value at the
date of grant. The aggregate number of shares which could be issued under
the plan was 100,000. These options had a term of ten years and became
exercisable in four equal annual installments beginning on the date of the
grant. (Continued) F-20




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##### Table of Contents



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  The Companys 1986 Stock Option Plan, as amended (the 1986 plan), expired
in January 1996, but some option grants under the 1986 plan remain
outstanding. Key employees of the Company could be granted options to
purchase shares of the Companys common stock. These options could be
either incentive stock options or nonqualified stock options. The Stock
Option Committee under the 1986 plan determined the term of each option,
but no option could be exercisable more than ten years from the date the
option was granted. The Stock Option Committee also determined the option
exercise price per share.In 1996, the Company adopted the 1996 Equity Compensation Plan (the 1996
plan), with features similar to the 1986 plan, except that the maximum
number of shares that may be issued is 450,000. The 1996 plan also permits
the awarding of restricted stock grants. The 1996 plan was amended in 1998,
increasing the maximum number of shares that may be issued to 600,000 and
allowing nonemployee directors to receive grants thereunder at fair market
value. The 1996 plan is administered by a Stock Option Committee selected
by the board of directors.With respect to incentive stock options, the exercise price must at least
equal the fair market value of a share of common stock as of the date the
option was granted.A summary of the Companys stock option and restricted stock grant activity
for the plans referred to above for the three fiscal years ended January 3,
2004 is as follows: Weighted averageOutstanding
    
    exercise price
    
    Availableshares
    
    per share
    
    sharesBalance, December 31, 2000
    
    
    353,217
    
    
    $
    14.43
    
    
    
    310,668Granted
    
    
    136,000
    
    
    
    12.47
    
    
    
    (136,000
    )Canceled
    
    
    (18,867
    )
    
    
    16.29
    
    
    
    16,667Exercised
    
    
    (24,149
    )
    
    
    9.46
    
    
    
    Restricted stock granted
    
    
    10,000
    
    
    
    
    
    
    
    (10,000
    )Restricted stock exercised
    
    
    (10,000
    )
    
    
    
    
    
    
    Balance, December 29, 2001
    
    
    446,201
    
    
    
    14.02
    
    
    
    181,335Granted
    
    
    4,000
    
    
    
    13.75
    
    
    
    (4,000
    )Canceled
    
    
    (23,834
    )
    
    
    14.28
    
    
    
    13,834Exercised
    
    
    (600
    )
    
    
    6.25
    
    
    
    Balance, December 28, 2002
    
    
    425,767
    
    
    
    14.01
    
    
    
    191,169Granted
    
    
    4,000
    
    
    
    15.37
    
    
    
    (4,000
    )Canceled
    
    
    (7,000
    )
    
    
    14.09
    
    
    
    7,000Exercised
    
    
    (21,000
    )
    
    
    13.51
    
    
    
    Balance, January 3, 2004
    
    
    401,767
    
    
    
    14.05
    
    
    
    194,169
  As of January 3, 2004, twelve employees held options under the 1986 plan
for an aggregate of 36,100 shares at exercise prices per share ranging from
$6.25 to $11.50 with a weighted average exercise price per share of $7.49.
These options expire at varying times through 2005. As of January 3, 2004,
twenty-seven employees and four nonemployee directors held options under
the 1996 plan for an aggregate of 355,667 shares at exercise prices ranging
from $12.20 to $19.00 with a weighted average exercise price (Continued) F-21




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  of $14.85. These options expire at varying times through 2013. As of
January 3, 2004, one nonemployee director held an option under the 1988
plan for an aggregate of 10,000 shares at an exercise price of $9.25. This
option expires in 2004.Pro Forma InformationAs permitted under SFAS No. 123, as amended by SFAS No. 148, the Company
has elected to continue to account for compensation cost using the
intrinsic value-based method of accounting as prescribed by Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS No. 123 requires the Company to disclose pro forma net
income and pro forma earnings per share amounts, as if compensation expense
were recognized for options granted after fiscal year 1994. Using this
approach, net income and earnings per share would have been reduced to the
pro forma amounts indicated in the table: 2003
    
    2002
    
    2001(In thousands, except per share)Net income  as reported
    
    $
    3,723
    
    
    
    3,284
    
    
    
    1,048Net income  pro forma
    
    
    3,522
    
    
    
    2,941
    
    
    
    702Basic earnings per share  as reported
    
    
    1.53
    
    
    
    1.35
    
    
    
    0.43Basic earnings per share  pro forma
    
    
    1.45
    
    
    
    1.21
    
    
    
    0.29Diluted earnings per share  as reported
    
    
    1.49
    
    
    
    1.33
    
    
    
    0.43Diluted earnings per share  pro forma
    
    
    1.41
    
    
    
    1.20
    
    
    
    0.28
  This pro forma impact may not be representative of the effects for future
years, and could increase if additional options are granted and amortized
over the vesting period. For disclosure purposes, the fair value of each
stock option granted is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: no dividend yield; expected volatility of 30.80%, 28.04% and
32.46%; risk-free interest rate of 2.76%, 5.02% and 5.20%; and expected
life of 6.00 years, 6.00 years and 7.47 years for grants in 2003, 2002 and
2001, respectively.The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
subjective assumptions, including the expected stock price volatility.(12)
    
    Shareholder Rights PlanThe Company has a Shareholder Rights Plan (the Rights Plan) which was
adopted by the board of directors on October 16, 2001 and which replaced an
earlier plan that was adopted on October 3, 1991 and expired on October 14,
2001. The new Rights Plan provides for the distribution as a dividend of
one preferred stock purchase right (a Right) on each share of the
Companys common stock outstanding as of the close of business on October
29, 2001, and thereafter each share of the Companys common stock will have
a Right associated with it. The new Rights will expire on October 29, 2011,
and each Right will entitle a shareholder to purchase one one-hundredth of
a share of Series B Junior Participating Preferred Stock upon the terms
specified in the Rights Plan. The Rights generally will be exercisable only
if a person or group acquires beneficial ownership of 15% or more of the
Companys common stock or commences a tender or exchange offer upon
consummation of which such person or group would beneficially own 15% (Continued) F-22




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##### Table of Contents



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  or more of the Companys common stock, in each case without the approval of
the Companys board of directors.(13)
    
    Income TaxesFollowing are the domestic and foreign components of income before income
taxes: 2003
    
    2002
    
    2001(In thousands)United States
    
    $
    2,581
    
    
    $
    1,143
    
    
    $
    774Foreign
    
    
    2,662
    
    
    
    3,253
    
    
    
    505Income before income tax
    
    $
    5,243
    
    
    $
    4,396
    
    
    $
    1,279
  The income tax provision consists of the following: 2003
    
    2002
    
    2001(In thousands)Current:Federal and state
    
    $
    476
    
    
    $
    204
    
    
    $
    101Foreign
    
    
    542
    
    
    
    716
    
    
    
    52Total current
    
    
    1,018
    
    
    
    920
    
    
    
    153Deferred:Federal and state
    
    
    502
    
    
    
    192
    
    
    
    71Foreign
    
    
    
    
    
    
    
    
    
    
    7Total deferred
    
    
    502
    
    
    
    192
    
    
    
    78Total income tax provision
    
    $
    1,520
    
    
    $
    1,112
    
    
    $
    231
 (Continued) F-23




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  Significant components of the deferred tax assets and liabilities at
January 3, 2004 and December 28, 2002 are as follows: 2003
    
    2002(In thousands)Deferred tax assetsFixed assets and intangibles
    
    $
    193
    
    
    $
    Accrued liabilities
    
    
    986
    
    
    
    353Net operating loss carryforwards
    
    
    926
    
    
    
    625Inventory basis differences
    
    
    173
    
    
    
    156Interest rate swap
    
    
    33
    
    
    
    Other
    
    
    11
    
    
    
    2462,322
    
    
    
    1,380Valuation allowance
    
    
    (1,543
    )
    
    
    (551
    )Total assets
    
    
    779
    
    
    
    829Deferred tax liabilitiesDepreciation
    
    
    (1,604
    )
    
    
    (878
    )Other
    
    
    (69
    )
    
    
    (198
    )Total liabilities
    
    
    (1,673
    )
    
    
    (1,076
    )Net deferred tax liability
    
    $
    (894
    )
    
    $
    (247
    )
  Foreign and U.S. state operating loss carryforwards as of January 3, 2004
were $1,009,000 and $7,092,000, respectively. Foreign operating losses have
an unlimited carryforward period. U.S. state operating losses are available
through 2010.A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company
has established valuation allowances for all foreign and state net
operating loss carryforwards and certain other deferred tax assets for
which realization is dependent on future taxable earnings. (Continued) F-24




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##### Table of Contents



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  A reconciliation of the provision for income taxes and the amounts that
would be computed using the statutory federal income tax rates is set forth
below: 2003
    
    2002
    
    2001(In thousands)Income tax provision on income before
income tax at statutory federal
income tax rates
    
    $
    1,783
    
    
    $
    1,496
    
    
    $
    435Foreign tax rate differential
    
    
    (303
    )
    
    
    (210
    )
    
    
    State tax, net of federal benefit
    
    
    177
    
    
    
    61
    
    
    
    2U.S. and foreign permanent tax differences
    
    
    (28
    )
    
    
    (44
    )
    
    
    (80
    )Changes in valuation allowance
    
    
    (49
    )
    
    
    (206
    )
    
    
    (139
    )Other
    
    
    (60
    )
    
    
    15
    
    
    
    13Income tax provision
    
    $
    1,520
    
    
    $
    1,112
    
    
    $
    231
  (14)
    
    Related Party TransactionsDuring 2003 and 2002, the Company sold equipment to an entity in which it
has a cost method investment. Sales during 2003 and 2002 were $824,000 and
$512,000, respectively, with $427,000 and $190,000 in accounts receivable
at January 3, 2004 and December 28, 2002, respectively.(15)
    
    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. (Continued) F-25




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  The Companys Basic and Diluted Earnings per Share are calculated as
follows: Net incomeavailableto common
    
    
    
    
    
    Earningsshareholders
    
    Shares
    
    per share2003:Basic
    
    $
    3,723,000
    
    
    
    2,437,000
    
    
    $
    1.53Common share equivalent
of options issued
    
    
    
    
    
    
    65,000
    
    
    
    (0.04
    )Diluted
    
    $
    3,723,000
    
    
    
    2,502,000
    
    
    $
    1.492002:Basic
    
    $
    3,284,000
    
    
    
    2,432,000
    
    
    $
    1.35Common share equivalent
of options issued
    
    
    
    
    
    
    29,000
    
    
    
    (0.02
    )Diluted
    
    $
    3,284,000
    
    
    
    2,461,000
    
    
    $
    1.332001:Basic
    
    $
    1,048,000
    
    
    
    2,435,000
    
    
    $
    0.43Common share equivalent
of options issued
    
    
    
    
    
    
    30,000
    
    
    
    Diluted
    
    $
    1,048,000
    
    
    
    2,465,000
    
    
    $
    0.43
  Diluted earnings per common share are based on the weighted average number
of common and common equivalent shares outstanding during each year. Such
average number includes the weighted average number of common shares
outstanding plus the shares issuable upon exercise of stock options after
the assumed repurchase of common shares with the related proceeds.(16)
    
    Commitments and ContingenciesThe Company leases certain office and plant facilities and equipment under
noncancelable leases. These leases expire in periods ranging from one to
eight years and, in certain instances, provide for purchase options. (Continued) F-26




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##### Table of Contents



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  As of January 3, 2004, future minimum payments under operating leases
having noncancelable terms in excess of one year are summarized below (in
thousands): Operatingleases2004
    
    $
    1,1262005
    
    
    8042006
    
    
    5662007
    
    
    4802008
    
    
    59Thereafter
    
    
    166$
    3,201
  Rent expense for 2003, 2002 and 2001 was $786,000, $427,000 and $445,000,
respectively.The Company has employment contracts with seven executives. Except in one
case when two years advance notice is required, these contracts may be
terminated by the Company with one years advance notice. Under the
agreements, each individual is guaranteed minimum compensation over the
contract period. As of January 3, 2004, the estimated future obligation
under these contracts if all of them were to be terminated is $1,951,000.The Company in the normal course of business has commitments, lawsuits,
contingent liabilities, and claims. However, the Company does not expect
that any sum it may have to pay in connection with these matters will have
a material adverse effect on its consolidated financial position or results
of operations.(17)
    
    Management Segment 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). (Continued) F-27




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##### Table of Contents



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  For years 2003, 2002 and 2001, the following table sets forth the Companys
segment information: Americas
    
    EMEA/Asia
    
    Eliminations
    
    Consolidated(In thousands)2003:Revenues:Sales to unaffiliated customers
    
    $
    55,730
    
    
    $
    38,946
    
    
    
    
    
    
    $
    94,676Sales to affiliates
    
    
    2,518
    
    
    
    2,734
    
    
    $
    (5,252
    )
    
    
    Total sales
    
    $
    58,248
    
    
    $
    41,680
    
    
    $
    (5,252
    )
    
    $
    94,676Operating income
    
    $
    4,577
    
    
    $
    2,211
    
    
    $
    45
    
    
    $
    6,833Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,590
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,243Capital expenditures
    
    $
    1,645
    
    
    $
    1,666
    
    
    
    
    
    
    $
    3,311Depreciation and amortization expense
    
    
    1,621
    
    
    
    1,252
    
    
    
    
    
    
    
    2,873Total assets
    
    
    46,719
    
    
    
    36,362
    
    
    
    
    
    
    
    83,0812002:Revenues:Sales to unaffiliated customers
    
    $
    28,727
    
    
    $
    39,504
    
    
    
    
    
    
    $
    68,231Sales to affiliates
    
    
    3,374
    
    
    
    2,061
    
    
    $
    (5,435
    )
    
    
    Total sales
    
    $
    32,101
    
    
    $
    41,565
    
    
    $
    (5,435
    )
    
    $
    68,231Operating income
    
    $
    1,926
    
    
    $
    2,906
    
    
    $
    64
    
    
    $
    4,896Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (500
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,396Capital expenditures
    
    $
    1,995
    
    
    $
    972
    
    
    
    
    
    
    $
    2,967Depreciation and amortization expense
    
    
    1,248
    
    
    
    1,251
    
    
    
    
    
    
    
    2,499Total assets
    
    
    18,542
    
    
    
    31,917
    
    
    
    
    
    
    
    50,4592001:Revenues:Sales to unaffiliated customers
    
    $
    29,922
    
    
    $
    41,897
    
    
    
    
    
    
    $
    71,819Sales to affiliates
    
    
    4,443
    
    
    
    1,865
    
    
    $
    (6,308
    )
    
    
    Total sales
    
    $
    34,365
    
    
    $
    43,762
    
    
    $
    (6,308
    )
    
    $
    71,819Operating income
    
    $
    1,537
    
    
    $
    706
    
    
    $
    64
    
    
    $
    2,307Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,028
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,279Capital expenditures
    
    $
    1,409
    
    
    $
    735
    
    
    
    
    
    
    $
    2,144Depreciation and amortization expense
    
    
    1,147
    
    
    
    1,774
    
    
    
    
    
    
    
    2,921Total assets
    
    
    18,981
    
    
    
    28,663
    
    
    
    
    
    
    
    47,644
 (Continued) F-28




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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 2004 and December 28, 2002  (18)
    
    Quarterly Financial Information (Unaudited)The following table summarizes unaudited quarterly financial data for 2003
and 2002 (in thousands, except per share data): 2003 by quarterFirst
    
    Second
    
    Third
    
    FourthRevenues
    
    $
    23,398
    
    
    $
    22,661
    
    
    $
    22,158
    
    
    $
    26,459Gross profit
    
    
    9,441
    
    
    
    8,998
    
    
    
    9,170
    
    
    
    11,164Net income
    
    
    835
    
    
    
    865
    
    
    
    910
    
    
    
    1,113Basic earnings
per share
    
    
    0.34
    
    
    
    0.36
    
    
    
    0.37
    
    
    
    0.46Diluted earnings
per share
    
    
    0.34
    
    
    
    0.35
    
    
    
    0.36
    
    
    
    0.44
 2002 by quarterFirst
    
    Second
    
    Third
    
    FourthRevenues
    
    $
    16,778
    
    
    $
    16,877
    
    
    $
    16,905
    
    
    $
    17,671Gross profit
    
    
    7,136
    
    
    
    7,194
    
    
    
    6,936
    
    
    
    7,592Net income
    
    
    751
    
    
    
    814
    
    
    
    836
    
    
    
    883Basic earnings
per share
    
    
    0.31
    
    
    
    0.33
    
    
    
    0.34
    
    
    
    0.36Diluted earnings
per share
    
    
    0.31
    
    
    
    0.33
    
    
    
    0.34
    
    
    
    0.36
 F-29




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##### Table of Contents



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES Financial Statement Schedule




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##### Table of Contents



Schedule II K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES 
 Valuation and Qualifying Accounts Years ended January 3, 2004, December 28, 2002 and December 29, 2001 Balance at
    
    Additions
    
    
    
    
    
    Balancebeginning
    
    charged
    
    
    
    
    
    at endof period
    
    to income
    
    Deductions(1)
    
    of periodFiscal year ended
January 3, 2004Allowance for doubtful
accounts
    
    $
    716,000
    
    
    $
    285,000
    (2)
    
    $
    181,000
    
    
    $
    820,000Fiscal year ended
December 28, 2002:Allowance for doubtful
accounts
    
    
    687,000
    
    
    
    137,000
    
    
    
    108,000
    
    
    
    716,000Fiscal year ended
December 29, 2001:Allowance for doubtful
accounts
    
    
    778,000
    
    
    
    53,000
    
    
    
    144,000
    
    
    
    687,000Provision for
restructuring reserve
    
    
    104,000
    
    
    
    
    
    
    
    104,000
    
    
    
    
  (1)
    
    Accounts written off less recoveries, net of foreign exchange translation adjustment.(2)
    
    $162,000 charged to income plus $123,000 allowance for doubtful accounts of acquired business. See accompanying report of independent certified public accountants. S-1




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##### Table of Contents



EXHIBIT INDEX  ExhibitNumber
    
    Description2.1
    
    Basic Agreement regarding the Assignment of Assets of the Hasler Division
between K-Tron (Suisse) SA and MJ Entreprises SA dated July 31, 2001
(Filed as Exhibit 2.1 to our report on Form 10-Q for the quarterly period
ended September 29, 2001 and incorporated herein by reference)2.2
    
    Stock Purchase Agreement dated January 2, 2003 by and among John D.
Whalen, Donald J. Carrozzino, Frank Wallitsch, Jr. and Nancy S. Hansen and
PCC Acquisition Co. (Filed as Exhibit 2.1 to our report on Form 8-K dated
January 2, 2003 and filed with the Securities and Exchange Commission on
January 15, 2003 (January 2003 Form 8-K) and incorporated herein by
reference)3.1
    
    Restated Certificate of Incorporation, as amended (Filed as Exhibit 3.1
to our annual report on Form 10-K for the year ended January 2, 1999
(1998 Form 10-K) and incorporated herein by reference)3.2
    
    By-laws, as amended (Filed as Exhibit 3.2 to our annual report on Form
10-K for the year ended December 29, 2001 (2001 Form 10-K) and
incorporated herein by reference)4.1
    
    Form of Certificate for Shares of Common Stock (Filed as Exhibit 4.1 to
the 1998 Form 10-K and incorporated herein by reference)4.2
    
    Rights Agreement dated as of October 16, 2001 with American Stock
Transfer & Trust Company, as Rights Agent (Filed as Exhibit 4.1 to our
report on Form 8-K dated October 16, 2001 and incorporated herein by
reference)10.1
    
    1986 Stock Option Plan, as amended and restated (Filed as Exhibit 10.2.1
to our annual report on Form 10-K for the year ended January 4, 1992
(1991 Form 10-K) and incorporated herein by reference)**10.2
    
    K-Tron International, Inc. 1996 Equity Compensation Plan, as amended
(Filed as Exhibit 10.3 to the 1998 Form 10-K and incorporated herein by
reference)**10.3
    
    Amendment 2001-1 to the Amended and Restated K-Tron International, Inc.
1996 Equity Compensation Plan (Filed as Exhibit 10.4 to the 2001 Form 10-K
and incorporated herein by reference)**10.4
    
    K-Tron International, Inc. Supplemental Executive Retirement Plan (Filed
as Exhibit 10.2.7 to the 1991 Form 10-K and incorporated herein by
reference)**10.5
    
    Employment Agreement dated as of October 6, 1997 by and between K-Tron
International, Inc. and Edward B. Cloues, II (Filed as Exhibit 10.1 to our
report on Form 10-Q for the quarterly period ended September 27, 1997 and
incorporated herein by reference)**




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##### Table of Contents



ExhibitNumber
    
    Description10.6
    
    Amendment No. 1 to Employment Agreement dated October 5, 1998 by and
between K-Tron International, Inc. and Edward B. Cloues, II (Filed as
Exhibit 10.1 to our report on Form 10-Q for the quarterly period ended
October 3, 1998 and incorporated herein by reference)**10.7
    
    Employment Agreement dated as of May 7, 1999 by and between K-Tron
International, Inc. and Ronald R. Remick (Filed as Exhibit 10.9 to our
annual report on Form 10-K for the year ended January 1, 2000 (1999
10-K) and incorporated herein by reference)**10.8
    
    Form of Employment Agreement with certain of our employees, which are
identical in all material respects except for the employee, amount of
salary to be paid and date of execution (Filed as Exhibit 10.12 to our
annual report on Form 10-K for the year ended January 3, 1998 and
incorporated herein by reference)**10.9
    
    Form of Indemnification Agreement with certain of our directors and
officers listed on Schedule 10.11, which are identical in all material
respects except for the director or officer who is a party thereto and the
date of execution (Filed as Exhibit 10.11 to the 1999 Form 10-K and
incorporated herein by reference)**10.9A
    
    Supplement to Schedule 10.9, listing additional directors and officers
who are parties to an Indemnification Agreement referenced in Exhibit
10.9. (Filed as Exhibit 10.11A to the 2001 Form 10-K and incorporated
herein by reference)10.10
    
    Mortgage Note dated June 11, 1996 from K-Tron America, Inc. in favor of
The Bank of Gloucester County (Filed as Exhibit 10.15 to the 1999 Form
10-K and incorporated herein by reference)10.11
    
    Loan Modification Agreement dated June 24, 1998 between K-Tron America,
Inc. and The Bank of Gloucester County (Filed as Exhibit 10.16 to the 1999
Form 10-K and incorporated herein by reference)10.12
    
    Loan Modification Agreement dated July 9, 2002 between K-Tron America,
Inc. and The Bank (formerly The Bank of Gloucester County) (Filed as
Exhibit 10.14 to our annual report on Form 10-K for the year ended
December 28, 2002 and incorporated herein by reference)10.13
    
    Note dated June 24, 1998 from K-Tron America, Inc. in favor of The Bank
of Gloucester County (Filed as Exhibit 10.17 to the 1999 Form 10-K and
incorporated herein by reference)10.14
    
    Note dated December 20, 2002 from K-Tron America, Inc. in favor of The
Bank (Filed as Exhibit 10.3 to the January 2003 Form 8-K and incorporated
herein by reference)10.15
    
    Loan Modification Agreement dated December 20, 2002 between K-Tron
America, Inc. and The Bank (Filed as Exhibit 10.4 to the January 2003 Form
8-K and incorporated herein by reference)




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##### Table of Contents



ExhibitNumber
    
    Description10.16
    
    Loan Modification Agreement dated July 9, 2003 between K-Tron America,
Inc. and The Bank (Filed as Exhibit 10.1 to our report on Form 10-Q for
the quarterly period ended September 27, 2003 and incorporated herein by
reference)10.17
    
    Loan Modification Agreement dated December 31, 2003 between K-Tron
America, Inc. and The Bank*10.18
    
    Credit Agreement dated January 3, 2003 among Pennsylvania Crusher
Corporation, the Lenders party to that Credit Agreement and National City
Bank, as Agent (Filed as Exhibit 10.1 to the
January 2003 Form 8-K and incorporated herein by reference)10.19
    
    Amendment No. 1 dated May 12, 2003 to Credit Agreement dated January 3,
2003 among Pennsylvania Crusher Corporation, the Lenders party to that
Credit Agreement and National City Bank, as Agent (Filed as Exhibit 10.1
to our report on Form 10-Q for the quarterly period ended June 28, 2003
and incorporated herein by reference)10.20
    
    Form of the Stockholder Note issued to each of the individuals listed on
Schedule 10.2, which notes are identical in all material respects except
for the payee, the principal amount of the note and the amount of each
installment to be paid thereunder (Filed as Exhibit 10.2 to the January
2003 Form 8-K and incorporated herein by reference)21.1
    
    Subsidiaries*23.1
    
    Consent of Grant Thornton LLP*23.2
    
    Consent of KPMG LLP*24.1
    
    Power of Attorney (Included on Signature Page)*31.1
    
    Certification by the Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002*31.2
    
    Certification by the Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002*32.1
    
    Certification by the Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*  *
    
    Filed herewith**
    
    Management contract or compensatory plan or arrangement required to be
filed or incorporated as an exhibit