##### 



UNITED
STATESSECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission
file number 0-9576
 K-TRON INTERNATIONAL, INC.
 (Exact name of registrant as specified in its charter)
 New Jersey
    
    22-1759452(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)Routes 55 and 553P.O. Box 888Pitman, New Jersey
    
    08071-0888(Address of principal executive offices)
    
    (Zip Code)
 (856) 589-0500
  Title of each class
    
    Name of each exchange on which registeredNone
    
    None
  Common Stock, par value $.01 per share
 o þ
 o þ
 þ o
 þ
  o o þ
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DOCUMENTS INCORPORATED BY REFERENCE
  CERTAIN DEFINITIONS
  - 2 -




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PART I
 Item 1 . Business .
 General
   Recent Developments
  Available Information
  K-Tron Process Group
  - 3 -




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Process Equipment
   Process Equipment: Feeding
 Feeders.
  - 4 -




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Weight Sensors and Controls
 Vacuum Conveying
 Manufacturing
 Competition.
 Process Equipment: Pneumatic Conveying
 K-Tron Colormax Equipment.
 - 5 -




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K-Tron PCS Equipment.
 Former Canadian Facility
 Manufacturing
 Competition.
 Process Equipment: Service and Parts
  Size Reduction Equipment
  - 6 -




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Penn Crusher Equipment.
   Penn Crusher Replacement Parts.
 Jeffrey Equipment
  - 7 -




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Jeffrey Replacement Parts
 Manufacturing.
 Competition.
 K-Tron Electronics
  Customers
  Suppliers
  - 8 -




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Patents
  Research and Development
   Backlog
   Employees
   Acquisition of Gundlach
  - 9 -




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Executive Officers of the Registrant
  Name
    
    Age
    
    PositionEdward B. Cloues, II
    
    
    58
    
    
    Chairman of the Board of Directors and Chief
Executive OfficerKevin C. Bowen
    
    
    54
    
    
    Senior Vice President, Process Group and
President and Chief Executive Officer of
K-Tron America, Inc.Lukas Guenthardt
    
    
    47
    
    
    Senior Vice President, Corporate DevelopmentDonald W. Melchiorre
    
    
    57
    
    
    President and Chief Executive Officer of
Pennsylvania Crusher CorporationRonald R. Remick
    
    
    59
    
    
    Senior Vice President,
Chief Financial Officer and Treasurer
   - 10 -




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Item 1A . Risk Factors .
 Risks Associated with Business Activities
 Competition could adversely affect our results of operations.
  - 11 -




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Our substantial sales abroad subject us to the risk of adverse foreign currency fluctuations
which could negatively impact our results of operations.
  We operate in cyclical industries.
  The loss of a large customer could have an adverse effect on our operating results.
  We are dependent on our key personnel.
  We are dependent on some of our suppliers.
  - 12 -




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We engage in acquisitions, and we may encounter difficulties in integrating these businesses
and, therefore, may not realize the anticipated benefits of the acquisitions.
  Our operating results depend in part on continued successful research, development and
marketing of new or improved products, and there can be no assurance that we will continue
successfully to introduce new products on a timely and cost-effective basis.
  Protection and validity of our patents and intellectual property rights, or the efforts of
third parties to enforce their own intellectual property rights against us, may in the future
result in costly and time-consuming litigation.
  We may be subject to costly litigation and governmental proceedings which could adversely
affect our results of operations.
  Our indebtedness may affect our business and may restrict our operating flexibility.
  - 13 -




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
    
    limit our flexibility in planning for, or reacting to, changes in our businesses or
in the markets in which we compete;
    
    place us at a competitive disadvantage relative to our competitors, some of which
may have lower debt service obligations and greater financial resources than we do;
    
    limit our ability to borrow additional funds;
    
    limit our ability to make future acquisitions;
    
    limit our ability to make capital expenditures;
    
    limit our ability to conduct research and development; and
    
    increase our vulnerability to adverse economic, financial market and industry
conditions, including recessions and higher interest rates.
  Political and economic instability and health issues in the United States or abroad may have
an adverse effect on our operating results.
  Terrorist attacks and threats may disrupt our operations and negatively impact our revenues,
costs and stock price.
  Item 1B . Unresolved Staff Comments .
  Item 2 . Properties .
  - 14 -




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Item 3 . Legal Proceedings .
  - 15 -




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Item 4 . Submission of Matters to a Vote of Security Holders .
  PART II
 Item 5.
    
    Market for Registrants Common Equity and Related Shareholder Matters and Issuer Purchases of Equity Securities.
  High
    
    LowFiscal Year 2004First Quarter
    
    $
    22.50
    
    
    $
    17.45Second Quarter
    
    $
    22.20
    
    
    $
    19.62Third Quarter
    
    $
    23.50
    
    
    $
    19.95Fourth Quarter
    
    $
    26.59
    
    
    $
    20.10Fiscal Year 2005First Quarter
    
    $
    31.50
    
    
    $
    24.99Second Quarter
    
    $
    33.01
    
    
    $
    27.12Third Quarter
    
    $
    35.15
    
    
    $
    27.52Fourth Quarter
    
    $
    38.50
    
    
    $
    31.75
   Dividend Policy
  Item 6 . Selected Financial Data .
  - 16 -




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Fiscal Year EndedDec. 31
    
    Jan. 1
    
    Jan. 3
    
    Dec. 28
    
    Dec. 292005
    
    2005
    
    2004(1)
    
    2002(2)
    
    2001FINANCIAL SUMMARY ($000s):Revenues
    
    $
    118,940
    
    
    $
    112,494
    
    
    $
    94,676
    
    
    $
    68,231
    
    
    $
    71,819Income before taxes
    
    
    12,201
    
    
    
    8,732
    
    
    
    5,243
    
    
    
    4,396
    
    
    
    1,279Net income
    
    
    7,282
    
    
    
    6,610
    
    
    
    3,723
    
    
    
    3,284
    
    
    
    1,048Total assets
    
    
    89,110
    
    
    
    93,665
    
    
    
    83,081
    
    
    
    50,459
    
    
    
    47,644Working capital
    
    
    25,565
    
    
    
    23,778
    
    
    
    17,121
    
    
    
    14,106
    
    
    
    15,565Additions to property, plant, and equipment
    
    
    2,206
    
    
    
    1,601
    
    
    
    3,311
    
    
    
    2,967
    
    
    
    2,144Depreciation and amortization
    
    
    3,868
    
    
    
    4,062
    
    
    
    2,873
    
    
    
    2,499
    
    
    
    2,921PER SHARE ($):Basic net earnings
    
    $
    2.85
    
    
    $
    2.65
    
    
    $
    1.53
    
    
    $
    1.35
    
    
    $
    0.43Diluted net earnings
    
    
    2.68
    
    
    
    2.53
    
    
    
    1.49
    
    
    
    1.33
    
    
    
    0.43Book value
    
    
    19.23
    
    
    
    18.02
    
    
    
    14.35
    
    
    
    11.69
    
    
    
    8.87CAPITALIZATION ($000s):Shareholders equity
    
    $
    49,520
    
    
    $
    45,559
    
    
    $
    35,114
    
    
    $
    28,419
    
    
    $
    21,561Long-term debt
    
    
    12,675
    
    
    
    18,598
    
    
    
    24,574
    
    
    
    6,499
    
    
    
    12,499Short-term debt (3)
    
    
    4,316
    
    
    
    4,185
    
    
    
    3,541
    
    
    
    2,005
    
    
    
    2,186Total debt
    
    
    16,991
    
    
    
    22,783
    
    
    
    28,115
    
    
    
    8,504
    
    
    
    14,685RATIOS:Return on average shareholders equity (%)
    
    
    15.3
    
    
    
    16.4
    
    
    
    11.7
    
    
    
    13.1
    
    
    
    4.9Return on revenues (%)
    
    
    6.1
    
    
    
    5.9
    
    
    
    3.9
    
    
    
    4.8
    
    
    
    1.5Long-term debt to shareholders equity (%)
    
    
    25.6
    
    
    
    40.8
    
    
    
    70.0
    
    
    
    22.9
    
    
    
    58.0Current assets to current liabilities
    
    
    2.0
    
    
    
    1.9
    
    
    
    1.8
    
    
    
    1.9
    
    
    
    2.2Average inventory turnover
    
    
    4.6
    
    
    
    4.6
    
    
    
    4.1
    
    
    
    4.0
    
    
    
    3.8Average accounts receivable turnover
    
    
    6.0
    
    
    
    5.6
    
    
    
    5.0
    
    
    
    4.6
    
    
    
    4.2OTHER DATA:Shares outstanding (000s) (4)
    
    
    2,576
    
    
    
    2,528
    
    
    
    2,447
    
    
    
    2,431
    
    
    
    2,431Shareholders of record
    
    
    207
    
    
    
    221
    
    
    
    224
    
    
    
    235
    
    
    
    251Number of employees
    
    
    460
    
    
    
    467
    
    
    
    474
    
    
    
    361
    
    
    
    379
 
 (1)
    
    The 2003 consolidated financial statements include the acquisition of Pennsylvania Crusher
Corporation and its subsidiary from January 2, 2003. Fiscal 2003 was a 53-week year; all
other years shown were 52-week years.(2)
    
    On December 30, 2001, we adopted Statement of Financial Accounting Standards No. 142 and
ceased to amortize goodwill at the end of fiscal 2001.(3)
    
    Including current portion of long-term debt.(4)
    
    Net of treasury stock of 2,001 shares for fiscal 2001 and 2,003 shares for each of fiscal
2002, 2003, 2004 and 2005. - 17 -




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Item 7 . Managements Discussion and Analysis of Financial Condition and Results of Operations .
 Introduction
        - 18 -




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Critical Accounting Policies and Estimates
     Depreciable Lives of Plant and Equipment
  - 19 -




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Allowance for Doubtful Accounts
   Asset Impairment Determinations
     - 20 -




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
    
    The intended use of assets and the expected cash flows resulting directly from such use;
    
    Industry specific economic conditions;
    
    Customer preferences and behavior patterns; and
    
    The impact of applicable regulatory initiatives, if any.
  Income Taxes
     Inventory Obsolescence
  - 21 -




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Warranty Reserve
  Legal Contingencies
  Results of Operations
 Overview
   - 22 -




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Acquisitions
   Foreign Exchange Rates
  - 23 -




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- 24 -




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Fiscal Year2005
    
    
    
    
    
    2004
    
    
    
    
    
    2003Average U.S. dollar equivalent of
one Swiss franc
    
    
    0.803
    
    
    
    
    
    
    
    0.807
    
    
    
    
    
    
    
    0.746% change vs. prior year
    
    
    
    
    
    
    -0.5
    %
    
    
    
    
    
    
    8.2
    %Average U.S. dollar equivalent of
one euro
    
    
    1.244
    
    
    
    
    
    
    
    1.246
    
    
    
    
    
    
    
    1.135% change vs. prior year
    
    
    
    
    
    
    -0.2
    %
    
    
    
    
    
    
    9.8
    %Average U.S. dollar equivalent of
one British pound sterling
    
    
    1.818
    
    
    
    
    
    
    
    1.835
    
    
    
    
    
    
    
    1.638% change vs. prior year
    
    
    
    
    
    
    -0.9
    %
    
    
    
    
    
    
    12.0
    %Average Swiss franc equivalent of
one euro
    
    
    1.549
    
    
    
    
    
    
    
    1.543
    
    
    
    
    
    
    
    1.521% change vs. prior year
    
    
    
    
    
    
    0.4
    %
    
    
    
    
    
    
    1.4
    %Average Swiss franc equivalent of
one British pound sterling
    
    
    2.264
    
    
    
    
    
    
    
    2.273
    
    
    
    
    
    
    
    2.196% change vs. prior year
    
    
    
    
    
    
    -0.4
    %
    
    
    
    
    
    
    3.5
    %
 Presentation of Results and Analysis
  Fiscal Year2005
    
    
    2004
    
    
    2003Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    58.0
    
    
    
    58.8
    
    
    
    59.0Gross profit
    
    
    42.0
    
    
    
    41.2
    
    
    
    41.0Selling, general and administrative
    
    
    28.9
    
    
    
    30.1
    
    
    
    30.9Research and development
    
    
    2.0
    
    
    
    2.3
    
    
    
    2.9Operating income
    
    
    11.1
    
    
    
    8.8
    
    
    
    7.2Interest (expense)
    
    
    (0.8
    )
    
    
    (1.2
    )
    
    
    (1.7
    )Gain on sale of office building
    
    
    
    
    
    
    0.2
    
    
    
    Income before income taxes
    
    
    10.3
    %
    
    
    7.8
    %
    
    
    5.5
    %Year-end backlog (at year-end 2005
foreign exchange rates, in thousands
of dollars)
    
    $
    24,971
    
    
    $
    20,829
    
    
    $
    16,929
 - 25 -




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- 26 -




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- 27 -




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Liquidity and Capital Resources
 Penn Crusher Acquisition Debt
    - 28 -




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Other Bank Debt
     Future Payments Under Contractual Obligations
  Payment
due by Period(Dollars in thousands)
    
    
    
    
    
    Less than
    
    
    1-3
    
    
    3-5
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsLong-Term Debt ObligationsDebt Maturities
    
    $
    16,991
    
    
    
    4,316
    
    
    
    9,930
    
    
    
    2,745
    
    
    
    Contractual Interest
    
    $
    1,804
    
    
    
    842
    
    
    
    863
    
    
    
    99
    
    
    
    Operating Lease Obligations
    
    $
    3,549
    
    
    
    1,200
    
    
    
    1,637
    
    
    
    602
    
    
    
    110Purchase Obligations
    
    $
    8,717
    
    
    
    8,166
    
    
    
    551
    
    
    
    
    
    
    
    Total
    
    $
    31,061
    
    
    
    14,524
    
    
    
    12,981
    
    
    
    3,446
    
    
    
    110
 - 29 -




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Capitalization
  Fiscal Year(Dollars in thousands)
    
    2005
    
    
    2004
    
    
    2003Short-term debt, including current
portion of long-term debt
    
    $
    4,316
    
    
    $
    4,185
    
    
    $
    3,541Long-term debt
    
    
    12,675
    
    
    
    18,598
    
    
    
    24,574Total debt
    
    
    16,991
    
    
    
    22,783
    
    
    
    28,115Shareholders equity
    
    
    49,520
    
    
    
    45,559
    
    
    
    35,114Total debt and shareholders equity
(total capitalization)
    
    $
    66,511
    
    
    $
    68,342
    
    
    $
    63,229Percent total debt to total capitalization
    
    
    26
    %
    
    
    33
    %
    
    
    44
    %Percent long-term debt to equity
    
    
    26
    %
    
    
    41
    %
    
    
    70
    %Percent total debt to equity
    
    
    34
    %
    
    
    50
    %
    
    
    80
    %
  Other Items
    - 30 -




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Forward-Looking Statements
  - 31 -




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Item 7A . Quantitative and Qualitative Disclosures About Market Risk .
  Foreign Exchange Rate Risk
    Interest Rate Risk
  - 32 -




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Item 8 . Financial Statements and Supplementary Data .
  Item 9 . Change In and Disagreements with Accountants on Accounting and Financial Disclosures .
  Item 9A . Controls and Procedures .
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  Item 9B . Other Information .
  - 33 -




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PART III
 Item 10 . Directors and Executive Officers of the Registrant .
   Item 11 . Executive Compensation .
  Item 12 . Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters .
  Item 13 . Certain Relationships and Related Transactions .
  Item 14 . Principal Accountant Fees and Services .
  Item 15 . Exhibits and Financial Statement Schedules .
 Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets as of December 31, 2005 and January 1, 2005
    
    
    F-2
 - 34 -




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PageConsolidated Statements of Income for the Fiscal Years Ended
December 31, 2005, January 1, 2005 and January 3, 2004
    
    
    F-3Consolidated Statements of Changes in Shareholders Equity for the Fiscal
Years Ended December 31, 2005, January 1, 2005 and January 3, 2004
    
    
    F-4Consolidated Statements of Cash Flows for the Fiscal Years Ended
December 31, 2005, January 1, 2005 and January 3, 2004
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-6
 Financial Statement Schedule
 PageSchedule II  Valuation and Qualifying Accounts for the Fiscal
Years Ended December 31, 2005, January 1, 2005 and January 3, 2004
    
    
    S-1
 Exhibits
 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)
 - 35 -




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ExhibitNumber
    
    Description10.1
    
    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 listed on Schedule 10.12, 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 10.11, 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)
 - 36 -




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ExhibitNumber
    
    Description10.12
    
    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)10.13
    
    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)10.14
    
    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 (Filed as Exhibit 10.17 to our annual report on Form 10-K for the year ended January 3,
2004 and incorporated herein by reference)10.18
    
    Note dated June 9, 2004 from K-Tron International, Inc. in favor of The Bank (Filed as
Exhibit 10.1 to our report on Form 10-Q for the quarterly period ended July 3, 2004 (July
2004 Form 10-Q) and incorporated herein by reference)10.19
    
    Loan Modification/Renewal Agreement dated June 9, 2004 between K-Tron America, Inc. and The
Bank (Filed as Exhibit 10.2 to the July 2004 Form 10-Q and incorporated herein by reference)10.20
    
    Loan Modification Agreement dated July 5, 2005 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 October 1,
2005 and incorporated herein by reference)10.21
    
    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)10.22
    
    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)10.23
    
    Amendment No. 2 dated as of June 28, 2005 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 July 2, 2005 and incorporated herein by reference)
 - 37 -




---



##### 



ExhibitNumber
    
    Description21.1
    
    Subsidiaries*23.1
    
    Consent of Grant Thornton LLP*24.1
    
    Power of Attorney (Included on Signature Page)*31.1
    
    Chief Executive Officer Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 1934*31.2
    
    Chief Financial Officer Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 1934*32
    
    Chief Executive Officer and Chief Financial Officer Certification pursuant to 18
U.S.C. Section 1350*
 
 *
    
    Filed herewith**
    
    Management contract or compensatory plan or arrangement required to be filed or incorporated
as an exhibit Exhibits
 Financial Statement Schedules
 - 38 -




---



##### 



SIGNATURES
  K-TRON INTERNATIONAL, INC.Date: March 23, 2006
    By:
    EDWARD B. CLOUES, IIEdward B. Cloues, IIChief Executive Officer   Signature
    
    Date
    
    CapacityEDWARD B. CLOUES, II
Edward
B. Cloues, II
    
    March 23, 2006
    
    Chief Executive Officer
(principal executive 
officer) and Chairman of 
the Board of DirectorsRONALD
R. REMICK
Ronald
R. Remick
    
    March 23, 2006
    
    Senior Vice President, 
Chief Financial Officer and 
Treasurer (principal financial officer)ALAN
R. SUKONECK
Alan
R. Sukoneck
    
    March 23, 2006
    
    Vice President, Chief
Accounting and Tax Officer
(principal accounting officer)NORMAN
COHEN
Norman
Cohen
    
    March 23, 2006
    
    DirectorROBERT
A. ENGEL
Robert
A. Engel
    
    March 23, 2006
    
    DirectorEDWARD
T. HURD
Edward
T. Hurd
    
    March 23, 2006
    
    DirectorRICHARD
J. PINOLA

Richard
J. Pinola
    
    March 23, 2006
    
    Director




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
 Index to Consolidated Financial Statements and Financial Statement Schedule
 PageReport of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheets as of December 31, 2005 and January 1, 2005
    
    F-2Consolidated Statements of Income for the Fiscal
Years Ended December 31, 2005, January 1, 2005 and January 3, 2004
    
    F-3Consolidated Statements of Changes in Shareholders Equity for the
Fiscal Years Ended December 31, 2005, January 1, 2005 and January 3, 2004
    
    F-4Consolidated Statements of Cash Flows for the
Fiscal Years Ended December 31, 2005, January 1, 2005 and January 3, 2004
    
    F-5Notes to Consolidated Financial Statements
    
    F-6Schedule:Schedule II  Valuation and Qualifying Accounts for the
Fiscal Years Ended December 31, 2005, January 1, 2005 and January 3, 2004
    
    S-1




---



##### 



Report of Independent Registered Public Accounting Firm
 
       
 F-1




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
   December 31,
    
    
    January 1,2005
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    15,051
    
    
    $
    12,443Accounts receivable, net of allowance for doubtful accounts
of $682 and $751
    
    
    18,168
    
    
    
    21,234Inventories, net
    
    
    15,235
    
    
    
    15,096Deferred income taxes
    
    
    1,033
    
    
    
    938Prepaid expenses and other current assets
    
    
    2,019
    
    
    
    1,779Total current assets
    
    
    51,506
    
    
    
    51,490Property, plant, and equipment, net of accumulated depreciation
of $30,947 and $35,059
    
    
    22,271
    
    
    
    25,075Patents, net of accumulated amortization of $1,238 and $1,062
    
    
    1,577
    
    
    
    1,737Goodwill
    
    
    2,053
    
    
    
    2,053Other intangibles, net of accumulated amortization of $599 and $360
    
    
    9,739
    
    
    
    9,978Notes receivable and other assets
    
    
    1,852
    
    
    
    2,353Deferred income taxes
    
    
    112
    
    
    
    979Total assets
    
    $
    89,110
    
    
    $
    93,665Liabilities and Shareholders EquityCurrent liabilities:Current portion of long-term debt
    
    $
    4,316
    
    
    $
    4,185Accounts payable
    
    
    6,025
    
    
    
    6,351Accrued expenses and other current liabilities
    
    
    6,526
    
    
    
    7,782Accrued commissions
    
    
    2,297
    
    
    
    2,169Customer advances
    
    
    1,704
    
    
    
    2,536Income taxes payable
    
    
    3,421
    
    
    
    3,477Deferred income taxes
    
    
    1,652
    
    
    
    1,212Total current liabilities
    
    
    25,941
    
    
    
    27,712Long-term debt, net of current portion
    
    
    12,675
    
    
    
    18,598Deferred income taxes
    
    
    974
    
    
    
    1,796Series 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 4,578,166 and 4,530,416 shares
    
    
    46
    
    
    
    45Paid-in capital
    
    
    19,082
    
    
    
    18,204Retained earnings
    
    
    56,383
    
    
    
    49,101Accumulated other comprehensive income
    
    
    1,523
    
    
    
    5,72377,034
    
    
    
    73,073Treasury stock, 2,002,574 shares, at cost
    
    
    (27,514
    )
    
    
    (27,514
    )Total shareholders equity
    
    
    49,520
    
    
    
    45,559Total liabilities and shareholders equity
    
    $
    89,110
    
    
    $
    93,665
  F-2




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
   For the Fiscal Year EndedDecember 31,
    
    
    January 1,
    
    
    January 3,2005
    
    
    2005
    
    
    2004Revenues:Equipment and parts
    
    $
    111,342
    
    
    $
    105,165
    
    
    $
    87,573Services and freight
    
    
    7,598
    
    
    
    7,329
    
    
    
    7,103Total revenues
    
    
    118,940
    
    
    
    112,494
    
    
    
    94,676Cost of
revenues:Equipment and parts
    
    
    61,923
    
    
    
    59,740
    
    
    
    50,166Services and freight
    
    
    7,021
    
    
    
    6,355
    
    
    
    5,737Total cost of revenues
    
    
    68,944
    
    
    
    66,095
    
    
    
    55,903Gross profit
    
    
    49,996
    
    
    
    46,399
    
    
    
    38,773Operating expenses:Selling, general, and administrative
    
    
    34,330
    
    
    
    33,846
    
    
    
    29,245Research and development
    
    
    2,449
    
    
    
    2,669
    
    
    
    2,69536,779
    
    
    
    36,515
    
    
    
    31,940Operating income
    
    
    13,217
    
    
    
    9,884
    
    
    
    6,833Interest (expense)
    
    
    (1,016
    )
    
    
    (1,316
    )
    
    
    (1,590
    )Gain on sale of office building
    
    
    
    
    
    
    164
    
    
    
    Income before income taxes
    
    
    12,201
    
    
    
    8,732
    
    
    
    5,243Income tax provision
    
    
    4,919
    
    
    
    2,122
    
    
    
    1,520Net income
    
    $
    7,282
    
    
    $
    6,610
    
    
    $
    3,723Basic earnings per share
    
    $
    2.85
    
    
    $
    2.65
    
    
    $
    1.53Diluted earnings per share
    
    
    2.68
    
    
    
    2.53
    
    
    
    1.49Weighted average common shares outstanding
    
    
    2,555,000
    
    
    
    2,497,000
    
    
    
    2,437,000Weighted average common and common
equivalents shares outstanding
    
    
    2,719,000
    
    
    
    2,613,000
    
    
    
    2,502,000
  F-3




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
    AccumulatedotherCommon stock
    
    
    Paid-in
    
    
    Retained
    
    
    comprehensive
    
    
    Treasury stockShares
    
    
    Amount
    
    
    capital
    
    
    earnings
    
    
    income (loss)
    
    
    Shares
    
    
    Amount
    
    
    TotalBalance,December 29, 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
    )
    
    
    35,114Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,610
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,610Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,486
    
    
    
    
    
    
    
    
    
    
    
    2,486Unrealized gain
on interest rate
swap, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    66Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,162Issuance of stock
    
    
    80,488
    
    
    
    1
    
    
    
    1,282
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,283Balance,January 1, 2005
    
    
    4,530,416
    
    
    
    45
    
    
    
    18,204
    
    
    
    49,101
    
    
    
    5,723
    
    
    
    2,002,574
    
    
    
    (27,514
    )
    
    
    45,559Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,282
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,282Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,235
    )
    
    
    
    
    
    
    
    
    
    
    (4,235
    )Unrealized gain
on interest rate
swap, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    35Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,082Issuance of stock
    
    
    47,750
    
    
    
    1
    
    
    
    878
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    879Balance,December 31, 2005
    
    
    4,578,166
    
    
    $
    46
    
    
    $
    19,082
    
    
    $
    56,383
    
    
    $
    1,523
    
    
    
    2,002,574
    
    
    $
    (27,514
    )
    
    $
    49,520
  F-4




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
   For the Fiscal Year EndedDecember 31,
    
    
    January 1,
    
    
    January 3,2005
    
    
    2005
    
    
    2004Operating activities:Net income
    
    $
    7,282
    
    
    $
    6,610
    
    
    $
    3,723Adjustments to reconcile net income to net
cash provided by operating activities:Gain on disposition of assets
    
    
    
    
    
    
    (164
    )
    
    
    Depreciation and amortization
    
    
    3,868
    
    
    
    4,062
    
    
    
    2,873Amortization of non-cash compensation
    
    
    175
    
    
    
    94
    
    
    
    Deferred income taxes
    
    
    390
    
    
    
    176
    
    
    
    502Changes in assets and liabilities:Accounts receivable, net
    
    
    1,794
    
    
    
    (1,036
    )
    
    
    440Inventories, net
    
    
    (925
    )
    
    
    (1,014
    )
    
    
    917Prepaid expenses and other current assets
    
    
    (291
    )
    
    
    115
    
    
    
    440Other assets
    
    
    341
    
    
    
    286
    
    
    
    308Accounts payable
    
    
    273
    
    
    
    501
    
    
    
    (675
    )Accrued expenses and other current liabilities
    
    
    (2,399
    )
    
    
    2,918
    
    
    
    832Net cash provided by operating activities
    
    
    10,508
    
    
    
    12,548
    
    
    
    9,360Investing activities:Proceeds from disposition of assets
    
    
    
    
    
    
    996
    
    
    
    Business acquired, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (20,276
    )Capital expenditures
    
    
    (2,206
    )
    
    
    (1,601
    )
    
    
    (3,311
    )Other
    
    
    (14
    )
    
    
    (61
    )
    
    
    (24
    )Net cash used in investing activities
    
    
    (2,220
    )
    
    
    (666
    )
    
    
    (23,611
    )Financing activities:Net (repayments) borrowings under notes payable to banks
    
    
    (1,296
    )
    
    
    213
    
    
    
    458Proceeds from issuance of long-term debt
    
    
    
    
    
    
    4,000
    
    
    
    20,000Principal payments on long-term debt
    
    
    (4,476
    )
    
    
    (9,587
    )
    
    
    (5,079
    )Proceeds from issuance of common stock
    
    
    606
    
    
    
    599
    
    
    
    221Net cash (used in) provided by financing activities
    
    
    (5,166
    )
    
    
    (4,775
    )
    
    
    15,600Effect of exchange rate changes on cash and cash equivalents
    
    
    (514
    )
    
    
    830
    
    
    
    463Net increase in cash and cash equivalents
    
    
    2,608
    
    
    
    7,937
    
    
    
    1,812Cash and cash equivalents:Beginning of year
    
    
    12,443
    
    
    
    4,506
    
    
    
    2,694End of year
    
    $
    15,051
    
    
    $
    12,443
    
    
    $
    4,506Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    1,097
    
    
    $
    1,364
    
    
    $
    1,578Income taxes
    
    
    4,240
    
    
    
    1,432
    
    
    
    556Business acquired through buyer notes
    
    $
    
    
    
    $
    
    
    
    $
    4,000
  F-5




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
   (1)
    
    Nature of OperationsK-Tron International, Inc. and its subsidiaries (K-Tron or the Company) design, produce,
market and service material handling equipment and systems for a wide variety of industrial
markets. The Company has manufacturing facilities in the United States, Switzerland and the
United Kingdom, 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. All material intercompany accounts and
transactions have been eliminated.Certain reclassifications were made to the prior years consolidated financial statements
to conform them to the current year presentation.(b)
    
    Fiscal YearThe Companys fiscal year is reported on a fifty-two/fifty-three week period. Fiscal
years ended December 31, 2005 (referred to herein as 2005), January 1, 2005 (referred to
herein as 2004) and January 3, 2004 (referred to herein as 2003) include fifty-three
weeks for 2003 and fifty-two weeks for each of 2005 and 2004.(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. The Company monitors inventory values and writes down its
inventories for estimated obsolescence based upon analysis of historical data, product
changes, market conditions and assumptions about future product demand.(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, 3 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, the longest of which is 17
years.
 F-6




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
   (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. The Company does not amortize goodwill, and it amortizes the cost of other
intangibles over their estimated useful lives unless such lives are deemed indefinite.
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. In accordance with the provisions of SFAS No. 142, the Company performed
impairment tests on goodwill and other intangible assets, which indicated no impairment
in all periods presented. Disclosures required by SFAS No. 142 are presented in Note 7.(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 RecognitionThe Company recognizes revenue when all of the following criteria are met:
 
    
    Persuasive evidence of an arrangement exists.
    
    Delivery has occurred or services have been rendered.
    
    The sellers price to the buyer is fixed or determinable.
    
    Collectibility is reasonably assured.
 Equipment produced by both of the Companys business lines generally starts with
selection from a series of standard products which are then either slightly modified or
combined with other standard or slightly modified products and parts in order to meet the
customers specific needs. Terms and conditions of sale, including payment terms which
range from 30 to 60 days or more depending on the customer and the geography of the sale,
are generally similar in both business lines. Sales orders may include post-shipment
start-up assistance or training, which is not recorded as revenue until the service is
performed. Revenue from equipment and parts sales is recognized at the point where risk
of ownership and title to the product transfers upon shipment except in those few cases
where customer inspection is still required. In those cases, revenue is not recorded
until acceptance is obtained; costs of sale are recorded in the period in which the
related revenue is recognized.(j)
    
    Research and DevelopmentExpenditures for research, development and engineering of products are expensed as
incurred.
 F-7




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
   (k)
    
    Foreign CurrencyAssets and liabilities denominated in foreign currencies are translated into 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 $43,000 for 2005, a loss of approximately $135,000 for 2004 and a
gain of approximately $227,000 for 2003. These transaction gains or losses are recorded
within selling, general and administrative expenses in the Consolidated Statements of
Income. Translation gains and losses are recorded as a separate component of
shareholders equity.(l)
    
    Stock Option AccountingPro Forma InformationAs permitted under SFAS No. 123, Accounting for Stock-Based Compensation, as amended by
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure, an
amendment of FASB Statement No. 123, the Company has elected to continue to account for
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 (see (o) below). 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:
 2005
    
    
    2004
    
    
    2003(In thousands, except per share)Net income
 as reported
    
    $
    7,282
    
    
    $
    6,610
    
    
    $
    3,723Deduct stock option employee compensation
expense determined, net of related tax effect
    
    
    (126
    )
    
    
    (151
    )
    
    
    (201
    )Net income
 pro forma
    
    
    7,156
    
    
    
    6,459
    
    
    
    3,522Basic
earnings per share  as reported
    
    
    2.85
    
    
    
    2.65
    
    
    
    1.53Basic
earnings per share  pro forma
    
    
    2.80
    
    
    
    2.59
    
    
    
    1.45Diluted
earnings per share  as reported
    
    
    2.68
    
    
    
    2.53
    
    
    
    1.49Diluted earnings per share  pro forma
    
    
    2.63
    
    
    
    2.47
    
    
    
    1.41
   F-8




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
   (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 doubtful accounts, cash flow and
valuation assumptions in performing asset impairment tests of long-lived assets,
inventory reserves, warranty reserves, legal contingencies and estimates of the
realizability of deferred tax assets.(o)
    
    New Accounting PronouncementsIn December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R
revises SFAS No. 123 and supersedes APB No. 25, Accounting for Stock Issued to
Employees. In April 2005, the SEC announced that SFAS No. 123R would be effective no
later than the first fiscal year beginning after June 15, 2005. The Company adopted the
provisions of SFAS No. 123R effective January 1, 2006.SFAS No. 123R requires all share-based payments to employees to be recognized in the
financial statements based on fair value. Through December 31, 2005, the Company
accounted for share-based payments to employees using APB No. 25s intrinsic value
method. The Company will now be required to follow a fair value approach, such as the
Black-Scholes or lattice option valuation models, at the date of a stock-based award
grant. SFAS No. 123R permits one of two methods of adoption: (1) modified prospective
method or (2) modified retrospective method. The Company plans to adopt SFAS No. 123R
using the modified prospective method. This method requires that the Company recognize
compensation expense for all share-based payments granted on or after January 1, 2006 and
for all awards granted to employees prior to January 1, 2006 that remain unvested on
January 1, 2006. In March 2005, the SEC issued Staff Accounting Bulletin (SAB) No. 107.
SAB No. 107 provides guidance related to the valuation of share-based payment
arrangements for public companies, including guidance related to share-based payment
transactions with non-employees, expected volatility, expected term and the accounting
for income tax effects of share-based payment arrangements upon adoption of SFAS No.
123R.The adoption of SFAS No. 123R is not expected to have a material impact on the Companys
consolidated statements of operations in future periods. As of December 31, 2005, the remaining
 F-9




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
        F-10




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
      (3)
    
    Subsequent EventOn March 3, 2006, the Company purchased all of the outstanding stock of J.M.J. Industries,
Inc., which operates its business under the trade name Gundlach. The purchase price was
$9,154,500, of which $6,154,500 was paid in cash and $3,000,000 by delivery of an unsecured,
promissory note bearing interest at 5% per annum and payable in three equal, annual
installments of $1,000,000 on March 3 in each of 2008, 2009 and 2010. The Company also paid
off all of the acquired companys bank debt, which amounted to approximately $1,347,000. The
Company did not borrow any money in connection with either the acquisition or the payoff of
the bank debt.(4)
    
    AcquisitionOn January 2, 2003, the Company acquired all of the stock of Pennsylvania Crusher Corporation
(Penn Crusher). As a result of this purchase, the Company also acquired Jeffrey Specialty
Equipment Corporation (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 were 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:
 F-11




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
   IntangibleUseful Life
    
    
    2003(In thousands)Inventories
    
    
    
    
    
    $
    356Property, plant, and equipment
    
    
    
    
    
    
    4,704Patents
    
    10 Years
    
    
    1,251Drawings
    
    25 Years
    
    
    3,550Trademarks and tradenames
    
    Indefinite
    
    
    1,890Customer relationships
    
    50 Years
    
    
    4,898$
    16,649
  2003(In thousands)Cash
    
    $
    656Accounts receivable
    
    
    3,183Inventories
    
    
    4,611Other current assets
    
    
    275Property, plant, and equipment
    
    
    8,685Patents
    
    
    1,251Drawings
    
    
    3,550Trademarks and tradenames
    
    
    1,890Customer relationships
    
    
    4,898Accounts payable
    
    
    (1,732
    )Accrued expenses
    
    
    (2,274
    )$
    24,993
  F-12




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
   (5)
    
    InventoriesInventories consist of the following:
 2005
    
    
    2004(In thousands)Components
    
    $
    13,216
    
    
    $
    14,275Work-in-process
    
    
    2,850
    
    
    
    2,217Finished goods
    
    
    81
    
    
    
    79Inventory reserves
    
    
    (912
    )
    
    
    (1,475
    )$
    15,235
    
    
    $
    15,096
 (6)
    
    Property, Plant, and EquipmentProperty, plant, and equipment consists of the following:
 2005
    
    
    2004(In thousands)Land
    
    $
    1,423
    
    
    $
    1,595Buildings and improvements
    
    
    21,109
    
    
    
    22,875Automotive equipment
    
    
    312
    
    
    
    427Machinery and equipment
    
    
    14,566
    
    
    
    14,171Furniture and equipment, including computer
equipment and software
    
    
    15,808
    
    
    
    21,06653,218
    
    
    
    60,134Less accumulated depreciation and amortization
    
    
    (30,947
    )
    
    
    (35,059
    )$
    22,271
    
    
    $
    25,075
  F-13




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
   (7)
    
    Intangible AssetsIntangible assets consist of the following (in thousands):
 2005
    
    
    2004Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortized intangible assetsPatents
    
    $
    2,815
    
    
    $
    1,238
    
    
    $
    2,799
    
    
    $
    1,062Drawings
    
    
    3,550
    
    
    
    355
    
    
    
    3,550
    
    
    
    213Customer relationships
    
    
    4,898
    
    
    
    244
    
    
    
    4,898
    
    
    
    147$
    11,263
    
    
    $
    1,837
    
    
    $
    11,247
    
    
    $
    1,422Unamortized intangible assetsTrademarks and tradenames
    
    $
    1,890
    
    
    
    
    
    
    $
    1,890
   Amount(In thousands)Fiscal year:2006
    
    $
    4152007
    
    
    4152008
    
    
    4152009
    
    
    4152010
    
    
    415Thereafter
    
    
    7,351$
    9,426
 F-14




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
   (8)
    
    Accrued WarrantyThe Company offers a one-year product warranty on a majority of its products. Warranty is
accrued as a percentage of sales, based upon historical experience, on a monthly basis and is
included in accrued expenses and other current liabilities. The following is an analysis of
accrued warranty for 2005 and 2004.
 2005
    
    
    2004(In thousands)Beginning balance
    
    $
    1,257
    
    
    $
    967Accrual of warranty expense
    
    
    833
    
    
    
    1,773Warranty costs incurred
    
    
    (1,040
    )
    
    
    (1,512
    )Foreign exchange adjustment
    
    
    (61
    )
    
    
    29Ending balance
    
    $
    989
    
    
    $
    1,257
 (9)
    
    Notes Payable to Banks and Other Long-Term DebtTo finance the January 2003 Penn Crusher acquisition described in Note 4, 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 (6.06% at December 31, 2005) 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 December 31, 2005, there was
$4,417,000 outstanding under the term loan facility. The term loan facility 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.Penn Crusher borrowed $15,000,000 from another U.S. bank consisting of $13,500,000 in 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 December 31, 2005. 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. In 2004 and 2005, $1,000,000 and $500,000 that was due in 2008 was prepaid on the
$3,500,000 term debt. Interest is based on one- to six-month LIBOR plus 3% to 3.5%, and the
3% to 3.5% was reduced to 2% to 2.5% in 2004 upon meeting certain financial ratios. As of
December 31, 2005, there was $4,750,000 outstanding on the five-year term loan and $1,700,000
outstanding on the six-year term
 F-15




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
        F-16




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
     2005
    
    
    2004(In thousands)U.S. mortgage
    
    $
    1,731
    
    
    $
    1,897U.S. line of credit
    
    
    805
    
    
    
    2,100U.S. term facilities
    
    
    14,266
    
    
    
    18,467Other
    
    
    189
    
    
    
    31916,991
    
    
    
    22,783Less current portion
    
    
    (4,316
    )
    
    
    (4,185
    )$
    12,675
    
    
    $
    18,598
  Amount(In thousands)Fiscal year:2006
    
    $
    4,3162007
    
    
    4,5442008
    
    
    5,3862009
    
    
    2,745$
    16,991
 (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. In 2004 and 2003, the
K-Tron Plan required an employee to have at least six months of continuous service and
employment at the end of a quarter in order to be eligible to elect to participate in the
thrift portion of the plan; in 2005, this was changed so that an employee may join the plan at
the beginning of the month following six months of continuous service and employment. In 2004
and 2003, all Company contributions to employee accounts under the thrift portion of the
K-Tron Plan were at the discretion of the board of directors and were approved and made after
the end of the year; for 2005, the contributions were approved in advance by the board of
directors and were made during the
course of the year on a pay-period-by-pay-period basis. Employees may voluntarily participate
in the thrift portion of the K-Tron Plan and authorize payroll deductions ranging from 1% to
50% of their
 F-17




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
       (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. The board of directors had not determined the rights on the remaining 950,000
shares of the authorized preferred stock as of December 31, 2005.The Company had a stock option plan for nonemployee directors (the 1988 plan) which expired
in November 1998, and the last outstanding option grant under that plan was exercised in 2004.
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 of the stock at
the date of grant. These options had a term of ten years and became exercisable in four equal
annual installments beginning on the date of the grant.The Companys 1986 Stock Option Plan, as amended (the 1986 plan), expired in January 1996,
and the last outstanding option grant under that plan was exercised in 2005. 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
was 450,000. The 1996 plan also permits the awarding of restricted stock grants. The 1996 plan
was amended in 1998, increasing
 F-18




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
      Weightedaverage optionOutstanding
    
    
    exercise price
    
    
    Availableshares
    
    
    per share
    
    
    sharesBalance, December 29, 2002
    
    
    425,767
    
    
    $
    14.01
    
    
    
    191,169Options granted
    
    
    4,000
    
    
    
    15.37
    
    
    
    (4,000
    )Cancelled
    
    
    (5,750
    )
    
    
    14.01
    
    
    
    5,750Exercised
    
    
    (21,000
    )
    
    
    13.51
    
    
    
    Balance, January 3, 2004
    
    
    403,017
    
    
    
    14.05
    
    
    
    192,919Options granted
    
    
    4,000
    
    
    
    21.39
    
    
    
    (4,000
    )Restricted stock granted
    
    
    24,000
    
    
    
    
    
    
    
    (24,000
    )Exercised
    
    
    (81,850
    )
    
    
    14.01
    
    
    
    Balance, January 1, 2005
    
    
    349,167
    
    
    
    14.66
    
    
    
    164,919Options granted
    
    
    4,000
    
    
    
    30.34
    
    
    
    (4,000
    )Restricted stock granted
    
    
    9,000
    
    
    
    
    
    
    
    (9,000
    )Cancelled
    
    
    (750
    )
    
    
    12.20
    
    
    
    750Exercised
    
    
    (47,750
    )
    
    
    15.63
    
    
    
    Balance,
December 31, 2005
    
    
    313,667
    
    
    
    15.17
    
    
    
    152,669
 F-19




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
   During 2005 and 2004, the Company issued 9,000 and 24,000 shares of restricted common stock
under the 1996 plan. The restricted stock vests on the four-year anniversary of the date of
grant. Compensation expense related to the restricted stock is recognized ratably over the
four years based on the fair value of the shares at date of grant, which was $30.34 per share
in 2005 and $21.53 per share in 2004.As of December 31, 2005, twenty-two employees and four nonemployee directors held options
under the 1996 plan for an aggregate of 313,667 shares at exercise prices per share ranging
from $12.20 to $30.34 and with a weighted average exercise price per share of $15.17. These
options expire at varying times through 2015. Of the 313,667 shares subject to outstanding
options as of December 31, 2005, 193,667 shares were exercisable with a weighted average
exercise price per share of $16.31.(12)
    
    Shareholder Rights PlanThe Company has a Shareholder Rights Plan (the Rights Plan) that was adopted by the board of
directors on October 16, 2001. The 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 Rights expire on October 29,
2011, and each Right entitles 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% 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:
 2005
    
    
    2004
    
    
    2003(In thousands)United States
    
    $
    8,456
    
    
    $
    4,832
    
    
    $
    2,581Foreign
    
    
    3,745
    
    
    
    3,900
    
    
    
    2,662Income before income tax
    
    $
    12,201
    
    
    $
    8,732
    
    
    $
    5,243
 F-20




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
    2005
    
    
    2004
    
    
    2003(In thousands)Current:Federal and state
    
    $
    3,259
    
    
    $
    1,085
    
    
    $
    476Foreign
    
    
    1,292
    
    
    
    861
    
    
    
    542Total current
    
    
    4,551
    
    
    
    1,946
    
    
    
    1,018Deferred:Federal and state
    
    
    247
    
    
    
    211
    
    
    
    502Foreign
    
    
    121
    
    
    
    (35
    )
    
    
    Total deferred
    
    
    368
    
    
    
    176
    
    
    
    502Total income tax provision
    
    $
    4,919
    
    
    $
    2,122
    
    
    $
    1,520
  2005
    
    
    2004(In thousands)Deferred tax assetsFixed assets and intangibles
    
    $
    25
    
    
    $
    116Accrued liabilities
    
    
    511
    
    
    
    841Net operating loss carry forwards
    
    
    503
    
    
    
    648Inventory basis differences
    
    
    435
    
    
    
    744Interest rate swap
    
    
    
    
    
    
    12Foreign tax credit carryforwards
    
    
    177
    
    
    
    Other
    
    
    116
    
    
    
    1201,767
    
    
    
    2,481Valuation allowance
    
    
    (622
    )
    
    
    (564
    )Total assets
    
    
    1,145
    
    
    
    1,917Deferred tax liabilitiesDepreciation
    
    
    (1,950
    )
    
    
    (2,784
    )Other
    
    
    (676
    )
    
    
    (224
    )Total liabilities
    
    
    (2,626
    )
    
    
    (3,008
    )Net deferred tax liability
    
    $
    (1,481
    )
    
    $
    (1,091
    )
  F-21




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
     2005
    
    
    2004
    
    
    2003(In thousands)Income tax provision on income before
income tax at statutory federal
income tax rates
    
    $
    4,148
    
    
    $
    2,969
    
    
    $
    1,783Foreign tax rate differential
    
    
    (304
    )
    
    
    (294
    )
    
    
    (303
    )State tax net of federal benefit
    
    
    340
    
    
    
    186
    
    
    
    177U.S. and foreign permanent tax differences
    
    
    (250
    )
    
    
    6
    
    
    
    (28
    )Changes in valuation allowance
    
    
    (96
    )
    
    
    (256
    )
    
    
    (49
    )Increase (decrease) in tax reserve, net
    
    
    190
    
    
    
    (489
    )
    
    
    Foreign cash repatriation rate differential
    
    
    891
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    (60
    )Income tax provision
    
    $
    4,919
    
    
    $
    2,122
    
    
    $
    1,520
 The Company repatriated $10,000,000 of foreign earnings in the fourth quarter of 2005. A
charge of $891,000 related to the repatriation was accrued in the fourth quarter of 2005 and
is included in the income tax provision in the accompanying consolidated statement of income
for 2005.The Company reduced its tax reserve in 2004 following the settlement and closure of a tax
audit in Germany and increased its tax reserve in 2005 primarily due to a provision for
ongoing state tax audits.(14)
    
    Related Party TransactionsDuring 2005, 2004 and 2003, the Company sold equipment to two entities in which it has a cost
method investment. Sales to these two entities during 2005, 2004 and
2003 were $1,839,000,
$1,581,000 and $824,000, with $348,000, $457,000 and $427,000 in accounts receivable from
these entities at December 31, 2005, January 1, 2005 and January 3, 2004.(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.
 F-22




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
    Net incomeavailableto common
    
    
    
    
    
    
    Earningsshareholders
    
    
    Shares
    
    
    per share2005:Basic
    
    $
    7,282,000
    
    
    
    2,555,000
    
    
    $
    2.85Common share equivalent of options issued
    
    
    
    
    
    
    164,000
    
    
    
    (0.17
    )Diluted
    
    $
    7,282,000
    
    
    
    2,719,000
    
    
    $
    2.682004:Basic
    
    $
    6,610,000
    
    
    
    2,497,000
    
    
    $
    2.65Common share equivalent of options issued
    
    
    
    
    
    
    116,000
    
    
    
    (0.12
    )Diluted
    
    $
    6,610,000
    
    
    
    2,613,000
    
    
    $
    2.532003: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
    
    
    $
    1.49
 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 noncancellable
leases. These leases expire in periods ranging from one to seven years and, in certain
instances, provide for purchase options.
 F-23




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
    Operatingleases2006
    
    $
    1,2002007
    
    
    9772008
    
    
    6602009
    
    
    5052010
    
    
    97Thereafter
    
    
    110$
    3,549
 Rent expense for 2005, 2004 and 2003 was $1,242,000, $1,187,000 and $1,200,000.The Company has employment contracts with seven executives. Except in one case when two years
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 December 31, 2005, the estimated future obligation under these
contracts if all of them were to be terminated was $2,069,000.The Company in the normal course of business has commitments, lawsuits, contingent liabilities
and claims. 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 Geographic InformationThe Company has adopted the provisions of SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 131 introduced a model for segment reporting
called the management approach. The management approach is based on the way that the chief
operating decision-maker organizes segments within a company for making operating decisions
and assessing performance. The Company is engaged in one business segment, material handling
equipment and systems. The Company operates in two primary geographic locations, North and
South America (the Americas) and Europe, the Middle East, Africa and Asia (EMEA/Asia).
 F-24




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##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
    Americas
    
    
    EMEA/Asia
    
    
    Eliminations
    
    
    Consolidated(In thousands)2005:Revenues:Sales to unaffiliated customers
    
    $
    73,748
    
    
    $
    45,192
    
    
    $
    
    
    
    $
    118,940Sales to affiliates
    
    
    2,606
    
    
    
    3,040
    
    
    
    (5,646
    )
    
    
    Total sales
    
    
    76,354
    
    
    
    48,232
    
    
    
    (5,646
    )
    
    
    118,940Operating income
    
    
    9,682
    
    
    
    3,461
    
    
    
    74
    
    
    
    13,217Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,016
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,201Capital expenditures
    
    
    1,239
    
    
    
    967
    
    
    
    
    
    
    
    2,206Depreciation and amortization expense
    
    
    2,426
    
    
    
    1,442
    
    
    
    
    
    
    
    3,868Total assets
    
    
    59,902
    
    
    
    29,208
    
    
    
    
    
    
    
    89,1102004:Revenues:Sales to unaffiliated customers
    
    
    63,922
    
    
    
    48,572
    
    
    
    
    
    
    
    112,494Sales to affiliates
    
    
    3,406
    
    
    
    3,281
    
    
    
    (6,687
    )
    
    
    Total sales
    
    
    67,328
    
    
    
    51,853
    
    
    
    (6,687
    )
    
    
    112,494Operating income
    
    
    6,271
    
    
    
    3,669
    
    
    
    (56
    )
    
    
    9,884Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,316
    )Gain on sale of office building
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    164Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,732Capital expenditures
    
    
    1,083
    
    
    
    518
    
    
    
    
    
    
    
    1,601Depreciation and amortization expense
    
    
    2,446
    
    
    
    1,616
    
    
    
    
    
    
    
    4,062Total assets
    
    
    49,744
    
    
    
    43,272
    
    
    
    
    
    
    
    93,0162003: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
    
    
    
    
    
    
    
    83,081
 F-25




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##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
    2005
    
    
    2004
    
    
    2003(In thousands)AmericasU.S.
    
    $
    62,808
    
    
    $
    54,064
    
    
    $
    48,802All others
    
    
    10,940
    
    
    
    9,858
    
    
    
    6,928Total
    
    
    73,748
    
    
    
    63,922
    
    
    
    55,730EMEA/AsiaFrance
    
    
    4,525
    
    
    
    4,272
    
    
    
    3,321Germany
    
    
    8,728
    
    
    
    8,003
    
    
    
    6,005All others
    
    
    31,939
    
    
    
    36 297
    
    
    
    29,620Total
    
    
    45,192
    
    
    
    48,572
    
    
    
    38,946$
    118,940
    
    
    $
    112,494
    
    
    $
    94,676
 (18)
    
    Quarterly Financial Information (Unaudited)The following table summarizes unaudited quarterly financial data for 2005 and 2004 (in
thousands, except per share data):
 2005 by quarterFirst
    
    
    Second
    
    
    Third
    
    
    FourthRevenues
    
    $
    28,552
    
    
    $
    30,224
    
    
    $
    30,803
    
    
    $
    29,361Gross profit
    
    
    11,951
    
    
    
    12,836
    
    
    
    12,555
    
    
    
    12,654Net income
    
    
    1,643
    
    
    
    1,916
    
    
    
    1,990
    
    
    
    1,733Basic earnings
per share
    
    
    0.65
    
    
    
    0.75
    
    
    
    0.77
    
    
    
    0.68Diluted earnings
per share
    
    
    0.61
    
    
    
    0.71
    
    
    
    0.73
    
    
    
    0.63
 2004 by quarterFirst
    
    
    Second
    
    
    Third
    
    
    FourthRevenues
    
    $
    26,321
    
    
    $
    27,062
    
    
    $
    28,644
    
    
    $
    30,467Gross profit
    
    
    11,184
    
    
    
    11,350
    
    
    
    11,304
    
    
    
    12,561Net income
    
    
    1,422
    
    
    
    1,389
    
    
    
    1,562
    
    
    
    2,237Basic earnings
per share
    
    
    0.58
    
    
    
    0.56
    
    
    
    0.62
    
    
    
    0.88Diluted earnings
per share
    
    
    0.55
    
    
    
    0.53
    
    
    
    0.59
    
    
    
    0.84
 F-26




---



##### 



K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES




---



##### 



Schedule II
 K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
   Balance at
    
    
    Additions
    
    
    
    
    
    
    Balancebeginning
    
    
    charged
    
    
    
    
    
    
    at endof period
    
    
    to income
    
    
    Deductions(1)
    
    
    of periodFiscal year
ended December 31, 2005Allowance for doubtful
accounts
    
    $
    751,000
    
    
    $
    121,000
    
    
    
    $190,000
    
    
    $
    682,000Fiscal year
ended January 1, 2005Allowance for doubtful
accounts
    
    $
    820,000
    
    
    $
    134,000
    
    
    
    $203,000
    
    
    $
    751,000Fiscal year
ended January 3, 2004Allowance for doubtful
accounts
    
    $
    716,000
    
    
    $
    285,000
    (2)
    
    
    $181,000
    
    
    $
    820,000
 
 (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.  S-1




---



##### 



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)**




---



##### 



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 listed on Schedule 10.12, 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 10.11, 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
    
    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)10.13
    
    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)10.14
    
    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)




---



##### 



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 (Filed as Exhibit 10.17 to our annual report on Form 10-K for the year ended January 3,
2004 and incorporated herein by reference)10.18
    
    Note dated June 9, 2004 from K-Tron International, Inc. in favor of The Bank (Filed as
Exhibit 10.1 to our report on Form 10-Q for the quarterly period ended July 3, 2004 (July
2004 Form 10-Q) and incorporated herein by reference)10.19
    
    Loan Modification/Renewal Agreement dated June 9, 2004 between K-Tron America, Inc. and The
Bank (Filed as Exhibit 10.2 to the July 2004 Form 10-Q and incorporated herein by reference)10.20
    
    Loan Modification Agreement dated July 5, 2005 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 October 1,
2005 and incorporated herein by reference)10.21
    
    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)10.22
    
    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)10.23
    
    Amendment No. 2 dated as of June 28, 2005 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 July 2, 2005 and incorporated herein by reference)21.1
    
    Subsidiaries*23.1
    
    Consent of Grant Thornton LLP*24.1
    
    Power of Attorney (Included on Signature Page)*31.1
    
    Chief Executive Officer Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 1934*31.2
    
    Chief Financial Officer Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 1934*32
    
    Chief Executive Officer and Chief Financial Officer Certification pursuant to 18
U.S.C. Section 1350*




---



##### 



*
    
    Filed herewith**
    
    Management contract or compensatory plan or arrangement required to be filed or incorporated
as an exhibit