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0000000020 | 20040401 | 10k | introduction for a description of ktron s business refer to |
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0000000020 | 20050331 | 10k | introduction for a description of ktron s business refer to |
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0000000020 | 20060323 | 10k | risks associated with business activities competition could adversely affect our results of operations many of our products are sold in highly competitive markets in the americas europe the middle east and asia and some of our competitors may have financial resources that are substantially greater than ours we believe that over the past several years we have experienced increased price competition in many of our markets competitive pressures could cause our products to lose market share or result in significant price erosion which would have an adverse effect on our results of operations 11 our substantial sales abroad subject us to the risk of adverse foreign currency fluctuations which could negatively impact our results of operations we are an international company and we derived approximately 38 43 and 41 of our 2005 2004 and 2003 revenues from products manufactured in and services performed from our facilities located outside the united states primarily in europe we expect that international sales will continue to account for a significant portion of our sales in future periods international sales are subject to fluctuations in exchange rates which may have an adverse effect on our business and operating results also since the results of operations of our subsidiaries are translated into us dollars fluctuations in exchange rates particularly among the us dollar swiss franc euro and british pound sterling will affect the us dollar amount of these results in addition since our subsidiaries sell into other countries these transactions are affected by fluctuations in the relevant cross exchange rates we operate in cyclical industries as an industrial capital goods supplier many of the markets for our products are cyclical during periods of economic expansion particularly when capital spending is increasing we generally benefit from increased demand for our products during periods of economic contraction we are generally adversely affected by declining demand for our products also there can be no assurance that an increase in demand or an economic expansion will be sustained in the markets in which we sell our products the loss of a large customer could have an adverse effect on our operating results in 2005 our top five customers accounted for approximately 7 of total revenues the loss of or significant curtailment of purchases by one or more of our large customers could have an adverse effect on our operating results we are dependent on our key personnel we are dependent upon the continued services of certain key officers and management and operating personnel the loss of key personnel could have an adverse effect on us we do not maintain key man insurance for any of our officers our continued success also depends on our ability to attract and retain a skilled labor force there can be no assurance that we will be successful in attracting and retaining the personnel we require either to maintain our business or expand our operations we are dependent on some of our suppliers each product produced by us requires the supply of various components some of which may be specially engineered to meet our requirements supply of these components can be affected by numerous factors beyond our control while certain of these components are obtained from a limited number of sources we have potential alternate suppliers for most of the specialty components used in our assembly operations there can be no assurance however that we will not experience shortages or be forced to seek alternative sources of supply which may increase costs or adversely affect our ability to fulfill orders in a timely fashion 12 we engage in acquisitions and we may encounter difficulties in integrating these businesses and therefore may not realize the anticipated benefits of the acquisitions we are a company that from time to time seeks to grow through strategic acquisitions in the past we have made acquisitions intended to complement or expand our business and we may continue to do so in the future the success of these transactions may depend on our ability to integrate assets and personnel acquired in these transactions without substantial costs delays or other operational or financial problems we may encounter difficulties in integrating acquisitions with our operations or in separately managing a new business furthermore we may not realize the degree or timing of benefits that we anticipate when we first enter into a transaction any of the foregoing could adversely affect our business and results of operations 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 costeffective basis the success of new and improved products depends on their initial and continued acceptance by our customers our businesses are affected by varying degrees of technological change and corresponding shifts in customer demand which may result in product transitions shortened life cycles and an increased importance of being first to market with new products we may experience difficulties or delays in the research development production or marketing of new products and this may negatively impact our operating results and prevent us from recouping or realizing a return on the investments required to bring new products to market on a timely and costeffective 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 timeconsuming litigation we may be required to initiate litigation in order to enforce any patents issued to or licensed by us or to determine the scope and validity of a third party s patents or other proprietary rights in addition we may be subject to lawsuits by third parties seeking to enforce their own intellectual property rights any such litigation regardless of outcome could be expensive and time consuming and could subject us to significant liabilities or require us to reengineer our products or obtain expensive licenses from third parties we may be subject to costly litigation and governmental proceedings which could adversely affect our results of operations from time to time we may be subject to various claims and lawsuits by the government competitors customers or other persons arising in the ordinary course of business such matters can be timeconsuming divert management s attention and resources and cause us to incur significant expenses furthermore there can be no assurance that the results of any of these actions will not have an adverse effect on our operating results our indebtedness may affect our business and may restrict our operating flexibility as of december 31 2005 we had approximately 16802000 of outstanding indebtedness under our us credit facilities while nothing was borrowed under our swiss credit facilities our level of indebtedness and the debt servicing costs associated with that indebtedness could have important effects on our operations and business strategy for example our indebtedness could 13 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 our ability to make scheduled payments of principal of to pay interest on or to refinance our indebtedness and to satisfy our other obligations will depend on our future operating performance which may be affected by factors beyond our control in addition there can be no assurance that future borrowings or equity financings will be available to us on favorable terms for the payment or refinancing of our indebtedness if we are unable to service our indebtedness our business financial condition and results of operations would be materially adversely affected political and economic instability and health issues in the united states or abroad may have an adverse effect on our operating results political and economic events and health issues in the united states or abroad may subject us to numerous risks which could have an adverse effect on operating results including restrictive trade policies unfavorable economic conditions in certain local markets health and epidemic concerns inconsistent product regulation or other changes in regulatory and other legal requirements the imposition of product tariffs and the burdens of complying with a wide variety of international and us export laws and differing regulatory requirements terrorist attacks and threats may disrupt our operations and negatively impact our revenues costs and stock price the terrorist attacks in september 2001 in the us the us response to those attacks and the resulting decline in consumer confidence had a substantial adverse impact on the us economy any similar future events may disrupt our operations or those of our customers and suppliers in addition these events have had and may continue to have an adverse impact on the us and world economies in general and consumer confidence and spending in particular which could harm our sales any new terrorist events or threats could have a negative impact in the us and world financial markets which could reduce the price of our common stock and limit the capital resources available to us and our customers and suppliers this could have a significant impact on our operating results revenues and costs and might result in increased volatility in the market price of our common stock | introduction we are engaged in one principal business segment material handling equipment and systems we operate in two primary geographic locations north and south america the americas and europe the middle east africa and asia emeaasia within the material handling equipment and systems segment we have two main business or product lines business lines which are our process and size reduction business lines the process business line is a combination of our former feeder and pneumatic conveying business lines in 2005 compared with 2004 customers of our size reduction business line particularly coalfired power generation plants increased their spending on capital equipment at the same time sales of our process business line declined largely due to lower spending by customers in emeaasia management looks at trends in what it believes to be relevant indicators such as the pmi index for manufacturing published by the institute of supply management and similar foreign indices to help it better understand the prospects for capital equipment spending as it may affect our process business line these indicators remained positive throughout 2005 with fluctuating monthly values historically increases in our feeding equipment sales generally have lagged improvements in these indicators in some cases by as much as six to twelve months we believe based in part on independent market studies that we are the global leader in the design production marketing and servicing of highquality industrial feeders for the handling of bulk solids in a wide variety of manufacturing processes markets served include the plastics food chemical detergent and pharmaceutical industries the majority of the revenues and profits of our ktron process business line is generated by equipment and systems sales with a lesser amount attributable to service parts and repairs feeders are sold under the ktron feeders brand name both domestically and in other countries around the world new product innovation is a major objective of the r d efforts of this business in our process business line we have the ability to serve nearly all geographic regions of the world from our two assemblyandtest facilities in pitman new jersey and niederlenz switzerland and our sales and service offices in france germany the united kingdom singapore and china service only our pneumatic conveying equipment sold under the ktron pcs and ktron colormax brand names comprises a relatively small portion of the total revenues of our process business line this equipment is sometimes sold through the ktron process group in conjunction with feeder equipment as a means of transporting dry material from one part of a plant to the inlet of a feeder and in other cases the equipment and complete systems are sold in applications that do not necessarily incorporate feeders primarily in the united kingdom aside from selling into markets common to those for industrial feeders pneumatic conveying equipment is also sold into the plastics injection molding market factors affecting the sale of pneumatic conveying equipment are similar to those which affect feeder equipment but also include factors that may affect the secondary plastics market generally our size reduction business line was added with the purchase of penn crusher and jeffrey on january 2 2003 in contrast to our process business line penn crusher and jeffrey sell equipment primarily into the us market with some sales into foreign countries particularly china the main industries served are the electric utility mining pulp and paper and wood and forest products 18 industries and a majority of revenues and profits are generated from replacement part sales instead of new equipment both penn crusher and jeffrey have developed and currently maintain an extensive digital database of previously sold equipment including equipment specifications and drawings that enables them to respond quickly and efficiently to fill customers spare parts orders significant indicators that management uses to judge prospects for this business line in the us include the level of electricity consumption the financial health of the electric utility industry and the demand for paper and forest products with our acquisition of gundlach in march 2006 our size reduction business line was expanded to include a leading provider of size reduction equipment to the coal mining industry both in the united states and elsewhere in the world the following provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition the discussion should be read in conjunction with our consolidated financial statements and accompanying notes all references in this |
0000000020 | 20060515 | 10q | in our 2005 form 10k which could materially affect our business financial condition or future results the risks described in our 2005 form 10k are not the only risks facing our company additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business financial condition or operating results forwardlooking statements the private securities litigation reform act of 1995 the act provides a safe harbor for forwardlooking statements made by us or on our behalf we and our representatives may from time to time make written or oral statements that are forwardlooking including statements contained in this report and other filings with the securities and exchange commission reports to our shareholders and news releases all statements that express expectations estimates forecasts or projections are forwardlooking statements within the meaning of the act in addition other written or oral statements which constitute forwardlooking statements may be made by us or on our behalf words such as expects anticipates 18 intends plans believes seeks estimates projects forecasts may should variations of such words and similar expressions are intended to identify such forwardlooking statements these statements are not guarantees of future performance and involve certain risks uncertainties and assumptions which are difficult to predict therefore actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forwardlooking statements the forwardlooking statements contained in this report include but are not limited to statements regarding the effect of changes in foreign exchange rates on our business and the expected shipment dates for two recently booked larger orders we undertake no obligation to revise or update publicly any forwardlooking statements or to make any other forwardlooking statements whether as a result of new information future events or otherwise | |
0000000020 | 20060807 | 10q | in our 2005 form 10k which could materially affect our business financial condition or future results the risks described in our 2005 form 10k are not the only risks facing our company additional risks and uncertainties 20 table of contents not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business financial condition or operating results forwardlooking statements the private securities litigation reform act of 1995 the act provides a safe harbor for forwardlooking statements made by us or on our behalf we and our representatives may from time to time make written or oral statements that are forwardlooking including statements contained in this report and other filings with the securities and exchange commission reports to our shareholders and news releases all statements that express expectations estimates forecasts or projections are forwardlooking statements within the meaning of the act in addition other written or oral statements which constitute forwardlooking statements may be made by us or on our behalf words such as expects anticipates intends plans believes seeks estimates projects forecasts may should variations of such words and similar expressions are intended to identify such forwardlooking statements these statements are not guarantees of future performance and involve certain risks uncertainties and assumptions which are difficult to predict therefore actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forwardlooking statements the forwardlooking statements contained in this report include but are not limited to statements regarding the effect of changes in foreign exchange rates and interest rates on our business and financial results and the expected shipment dates for two large orders booked in the first quarter of 2006 we undertake no obligation to revise or update publicly any forwardlooking statements or to make any other forwardlooking statements whether as a result of new information future events or otherwise | |
0000000020 | 20061108 | 10q | in our 2005 form 10k which could 22 table of contents materially affect our business financial condition or future results the risks described in our 2005 form 10k are not the only risks facing our company additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business financial condition or operating results forwardlooking statements the private securities litigation reform act of 1995 the act provides a safe harbor for forwardlooking statements made by us or on our behalf we and our representatives may from time to time make written or oral statements that are forwardlooking including statements contained in this report and other filings with the securities and exchange commission reports to our shareholders and news releases all statements that express expectations estimates forecasts or projections are forwardlooking statements within the meaning of the act in addition other written or oral statements which constitute forwardlooking statements may be made by us or on our behalf words such as expects anticipates intends plans believes seeks estimates projects forecasts may should variations of such words and similar expressions are intended to identify such forwardlooking statements these statements are not guarantees of future performance and involve certain risks uncertainties and assumptions which are difficult to predict therefore actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forwardlooking statements the forwardlooking statements contained in this report include but are not limited to statements regarding the effect of changes in foreign exchange rates and interest rates on our business and financial results and the expected dates for recording the sales with respect to two large orders booked in the first quarter of 2006 we undertake no obligation to revise or update publicly any forwardlooking statements or to make any other forwardlooking statements whether as a result of new information future events or otherwise | |
0000000020 | 20070309 | 10k | our businesses and operations are subject to a number of risks and uncertainties as described below but these risks and uncertainties are not the only ones we face additional risks and uncertainties that we are unaware of or that we may currently deem immaterial may become important factors that harm our business if any of the following risks actually occurs our business financial condition or results of operations could suffer competition could adversely affect our business and results of operations many of our products are sold in highly competitive markets in the americas europe the middle east and asia and some of our competitors may have financial resources that are substantially greater than ours we believe that over the past several years we have experienced increased price competition in many of our markets competitive pressures could cause our products to lose market share or result in significant price erosion which would have an adverse effect on our business and results of operations our substantial sales abroad subject us to the risk of adverse foreign currency fluctuations which could negatively impact our results of operations we are an international company and we derived approximately 34 38 and 43 of our 2006 2005 and 2004 revenues from products manufactured in and services performed from our facilities located outside the united states primarily in europe we expect that international sales will continue to account for a significant portion of our sales in future periods international sales are subject to fluctuations in exchange rates which may have an adverse effect on our business and operating results also since the results of operations of our subsidiaries are translated into us dollars fluctuations in exchange rates particularly among the us dollar swiss franc euro and british pound sterling will affect the us dollar amount of these results in addition since our subsidiaries sell into other countries these transactions may be negatively affected by fluctuations in the relevant foreign currency exchange rates we operate in cyclical industries as an industrial capital goods supplier many of the markets for our products are cyclical during periods of economic expansion particularly when capital spending is increasing we generally benefit from increased demand for our products during periods of economic contraction or recession we are generally adversely affected by declining demand for our products also there can be no assurance that an increase in demand or an economic expansion will be sustained in the markets in which we sell our products the loss of a large customer could have an adverse effect on our operating results in 2006 our top five customers accounted for approximately 9 of our total revenues the loss of or significant curtailment of purchases by one or more of our large customers could have an adverse effect on our operating results we are dependent on our key personnel we are dependent upon the continued services of certain key officers and management and operating personnel the loss of key personnel could have an adverse effect on us we do not maintain key man insurance on any of our officers our continued success also depends on our ability to attract and retain a skilled labor force there can be no assurance that we will be successful 11 table of contents in attracting and retaining the personnel we require either to maintain our business or expand our operations we are dependent on some of our suppliers each product produced by us requires the supply of various components some of which may be specially engineered to meet our requirements supply of these components can be affected by numerous factors beyond our control while certain of these components are obtained from a limited number of sources we have potential alternate suppliers for most of the specialty components used in our assembly operations there can be no assurance however that we will not experience shortages or be forced to seek alternative sources of supply which may increase costs or adversely affect our ability to fulfill orders in a timely fashion we engage in acquisitions and we may encounter difficulties in integrating these businesses and therefore may not realize the anticipated benefits of the acquisitions we are a company that from time to time seeks to grow through strategic acquisitions in the past we have made acquisitions intended to complement or expand our business and we may do so again in the future the success of these transactions may depend on our ability to integrate assets and personnel acquired in these transactions without substantial costs delays or other operational or financial problems we may encounter difficulties in integrating acquisitions with our operations or in separately managing a new business furthermore we may not realize the degree or timing of benefits that we anticipate when we first enter into a transaction any of the foregoing could adversely affect our business and results of operations our business and 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 or improved products on a timely and costeffective basis the success of new and improved products depends on their initial and continued acceptance by our customers our businesses are affected by varying degrees of technological change and corresponding shifts in customer demand which may result in product transitions shortened life cycles and an increased importance of being first to market with new products we may experience difficulties or delays in the research development production or marketing of new products and this may negatively impact our business and operating results and prevent us from recouping or realizing a return on the investments required to bring new products to market on a timely and costeffective 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 timeconsuming litigation we may be required to initiate litigation in order to enforce any patents issued to or licensed by us or to determine the scope and validity of a third party s patents or other proprietary rights in addition we may be subject to lawsuits by third parties seeking to enforce their own intellectual property rights any such litigation regardless of outcome could be expensive and time consuming and could subject us to significant liabilities or require us to reengineer our products or obtain expensive licenses from third parties 12 table of contents we may be subject to other costly litigation and governmental proceedings which could adversely affect our business or results of operations from time to time we may be subject to various claims and lawsuits by the government competitors customers employees or other persons such matters can be timeconsuming divert management s attention and resources and cause us to incur significant expenses furthermore there can be no assurance that the results of any of these actions will not have an adverse effect on our business or operating results our indebtedness may affect our business and may restrict our operating flexibility as of december 30 2006 we had 34768000 of outstanding indebtedness our level of indebtedness and the debt servicing costs associated with that indebtedness could have important effects on our operations and business strategy for example our indebtedness could limit our flexibility in planning for or reacting to changes in our business 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 our ability to make scheduled payments of principal of to pay interest on or to refinance our indebtedness and to satisfy our other obligations will depend on our future operating performance which may be affected by factors beyond our control in addition there can be no assurance that future borrowings or equity financings will be available to us on favorable terms for the payment or refinancing of our indebtedness if we are unable to service our indebtedness our business financial condition and results of operations would be materially adversely affected political and economic instability and health issues in the united states or abroad may have an adverse effect on our operating results political and economic events and health issues in the united states or abroad may subject us to numerous risks which could have an adverse effect on our business and our operating results including restrictive trade policies unfavorable economic conditions in particular markets health and epidemic concerns inconsistent product regulation or other changes in regulatory and other legal requirements the imposition of product tariffs and the burdens of complying with a wide variety of international and us export laws and differing regulatory requirements terrorist attacks and threats may disrupt our operations and negatively impact our business revenues costs and stock price the terrorist attacks in september 2001 in the united states the us response to those attacks and the resulting decline in consumer confidence had a substantial adverse impact on the us economy any similar future events may disrupt our operations or those of our customers or suppliers in addition these events had and may continue to have an adverse impact on the us and world economies in general and consumer confidence and spending in particular which could harm our sales any new terrorist events or threats could have a negative impact in the us and world 13 table of contents financial markets which could reduce the price of our common stock and limit the capital resources available to us and our customers and suppliers this could have a significant adverse impact on our business operating results revenues and costs and might result in increased volatility in the market price of our common stock extensive environmental laws and regulations affecting the production of electric power could result in electric power generators shifting from coal to natural gasfired power plants which would adversely affect our size reduction business federal state and local laws and regulations extensively regulate the amount of sulfur dioxide particulate matter nitrogen oxides mercury and other compounds emitted into the air from electric power plants whose owners are principal customers of our size reduction business these laws and regulations can require significant emission control expenditures for many coalfired power plants and various new and proposed laws and regulations may require further emission reductions and associated emission control expenditures there is also continuing pressure on state and federal regulators to impose limits on carbon dioxide emissions from electric power plants particularly coalfired power plants as a result of these current and proposed laws regulations and trends electricity generators may elect to switch to other fuels such as natural gas that generate less of these emissions which would reduce the demand for our size reduction equipment | overview of business we are engaged in one principal business segment material handling equipment and systems we operate in two primary geographic locations north and south america the americas and europe the middle east africa and asia emeaasia within the material handling equipment and systems segment we have two main business or product lines business lines which are our process and size reduction business lines in 2006 compared with 2005 the customers of our two business lines increased their spending on equipment parts and services in both the americas and emeaasia even before adding in the acquisitions of gundlach on march 3 2006 and premier on october 5 2006 management looks at trends in what it believes to be relevant indicators such as the pmi index for manufacturing published by the institute of supply management and similar foreign indices to help it better understand the prospects for capital equipment spending as it may affect our process business line these indicators remained positive throughout 2006 with the exception of being slightly negative in november with fluctuating monthly values historically increases in our feeding equipment sales generally have lagged movements in these indicators in some cases by as much as six to twelve months our process business line designs produces markets sells and services both feeders and pneumatic conveying equipment we believe based in part on independent market studies that we are the global leader in the design production marketing and servicing of highquality industrial feeders for the handling of bulk solids in manufacturing processes markets served include the plastics compounding food chemical detergent and pharmaceutical industries the majority of the revenues and profits of the feeder portion of our process business line is generated by equipment and systems sales with a lesser amount attributable to service parts and repairs feeders are sold under the ktron feeders brand name both domestically and in other countries around the world new product innovation is a major objective of the r d efforts of this business in this part of our process business line we have the ability to serve nearly all geographic regions of the world from our two assemblyandtest facilities in pitman new jersey and niederlenz switzerland and our sales and service offices in france germany the united kingdom singapore and china service only on october 5 2006 we significantly expanded the scope of our pneumatic conveying business with the acquisition of premier a leading manufacturer of pneumatic conveying components and systems for the us market our pneumatic conveying equipment which includes the premier pcs and premier colormax product lines formerly the ktron pcs and ktron colormax brands is now all sold under the premier pneumatics brand name aside from selling into markets common to those for industrial feeders pneumatic conveying equipment is also sold into the plastics injection molding market factors affecting the sale of pneumatic conveying equipment are similar to those which affect the sale of feeding equipment but also include factors that may affect the secondary plastics market generally our size reduction business line was established with the purchase of penn crusher and jeffrey on january 2 2003 the acquisition of gundlach on march 3 2006 expanded our size reduction business by including a leading provider of size reduction equipment to the coal mining industry penn crusher jeffrey and gundlach sell equipment primarily into the us market with some sales into foreign countries particularly in south america and china the main industries served are the electric utility coal mining pulp and paper and wood and forest products industries 18 table of contents and a majority of the revenues and profits are generated from replacement part sales instead of from the sale of new equipment penn crusher jeffrey and gundlach have developed and currently maintain an extensive digital database of previously sold equipment including equipment specifications and drawings that enables them to respond quickly and efficiently to fill customers spare parts orders significant indicators that management uses to judge prospects for this business line in the us include the level of electricity consumption the financial health of the electric utility industry the demand for coal and the demand for paper and forest products the following provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition the discussion should be read in conjunction with our consolidated financial statements and accompanying notes all references to 2006 2005 and 2004 mean the fiscal years ended december 30 2006 december 31 2005 and january 1 2005 critical accounting assumptions and estimates this discussion and analysis of our financial condition and results of operations is based on our financial statements which have been prepared in accordance with accounting principles generally accepted in the united states and follow our significant accounting policies as described in the notes to our consolidated financial statements the preparation of these financial statements requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements as well as the reported amounts of revenues and expenses during the reporting periods covered thereby actual results could differ from those estimates judgments and estimates of uncertainties are required in applying our accounting policies in certain areas areas that require significant judgments and estimates to be made include determinations of the useful lives of assets estimates of allowances for doubtful accounts valuation assumptions in performing asset impairment tests of longlived assets estimates of the realizability of deferred tax assets determinations of the adequacy of reserves for inventory obsolescence and warranty costs and legal contingencies there are a number of critical assumptions that may influence accounting estimates in these and other areas we base our critical assumptions on historical experience thirdparty data and other factors we believe to be reasonable under the circumstances we believe that the most critical assumptions made in arriving at our accounting estimates are the following depreciable lives of plant and equipment each asset included in plant and equipment is recorded at cost and depreciated using the straightline method which deducts equal amounts of the cost of such asset from earnings every year over such asset s estimated economic useful life as a result of this assumption net plant and equipment at yearend 2006 totaled 29316000 which represented 211 of total assets depreciation expense during 2006 totaled 4047000 which represented 32 of total operating expenses given the significance of plant and equipment and associated depreciation to our financial statements the determination of an asset s economic useful life is considered to be a critical accounting estimate economic useful life is the duration of time an asset is expected to be productively employed by us which may be less than its physical life management s assumptions regarding the following factors among others affect the determination of estimated economic useful life changes in technology wear and tear and changes in market demand 19 table of contents the estimated economic useful life of an asset is monitored to determine its continued appropriateness especially in light of changed business circumstances for example technological advances excessive wear and tear or reduced estimates of future demand for a product may result in a shorter estimated useful life for an asset than originally anticipated in such a case we would depreciate the remaining net book value of the asset over the new estimated remaining life thereby increasing depreciation expense per year on a prospective basis over the past three years changes in economic useful life assumptions have not had a material impact on our reported results allowance for doubtful accounts we encounter risks associated with sales and the collection of the associated accounts receivable we record a provision for accounts receivable that are considered to be uncollectible in order to estimate the appropriate provision management analyzes the creditworthiness of specific customers and the aging of customer balances management also considers contractual rights and obligations and general and industry specific economic conditions management believes that the accounting estimate related to the allowance for doubtful accounts is a critical accounting estimate because the underlying critical assumptions used to establish the allowance can change from time to time and uncollectible accounts could potentially have a material impact on our results of operations asset impairment determinations as a result of the adoption of statement of financial accounting standards no 142 goodwill and other intangible assets goodwill is no longer amortized under this accounting standard goodwill is subject to an impairment test that we conduct at least annually using a discounted cash flow technique the impairment test done in 2006 indicated that the fair values of the businesses with goodwill exceeded their carrying values and therefore the goodwill amount was not impaired for any of these businesses with respect to our other longlived assets we are required to test for asset impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable we apply statement of financial accounting standards no 144 accounting for the impairment or disposal of longlived assets in order to determine whether or not an asset has been impaired this standard requires an impairment analysis when indicators of impairment are present if such indicators are present the standard indicates that if the sum of the future expected cash flows from the asset undiscounted and without interest charges is less than its carrying value an asset impairment must be recognized in the financial statements the amount of the impairment is the difference between the fair value of the asset and the carrying value of the asset in analyzing the future cash flows of various assets the critical assumptions we make include the following 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 we believe that an accounting estimate relating to asset impairment is a critical accounting estimate because the assumptions underlying future cash flow estimates are subject to change from time to time and the recognition of an impairment could have a significant impact on our 20 table of contents consolidated financial statements over the past three years we have not recognized any asset impairments income taxes we use the liability method to account for income taxes under this method deferred tax liabilities and assets are recognized for the tax effects of temporary differences between the financial reporting and tax bases of liabilities and assets measured using the enacted tax rate our income tax expense was 6509000 with a 336 effective tax rate for 2006 a one percentage point increase in the company s effective tax rate for 2006 from 336 to 346 would have decreased reported net income by approximately 194000 significant management judgment is required in determining income tax expense and the related balance sheet amounts assumptions are required concerning the ultimate outcome of tax contingencies and the realization of deferred tax assets we have accrued our estimate of the probable tax contingency in accordance with statement of accounting standards no 5 accounting for contingencies actual income taxes paid by us may vary from estimates depending upon changes in income tax laws actual results of operations and the final audit of tax returns by taxing authorities tax assessments may arise several years after tax returns have been filed we believe that our recorded tax liabilities adequately provide for the probable outcome of these assessments deferred tax assets are recorded for deductible temporary differences operating losses and tax credit carryforwards however when there are insufficient sources of future taxable income to realize the benefit of these items these deferred tax assets are reduced by a valuation allowance a valuation allowance is recognized if based on the weight of available evidence it is considered more likely than not that some portion or all of a deferred tax asset will not be realized the factors used to assess the likelihood of realization include forecasted future taxable income and available tax planning strategies that could be implemented to realize or renew net deferred tax assets in order to avoid the potential loss of future tax benefits the effect of a change in the valuation allowance is reported in the current period tax expense in july 2006 the financial accounting standards board fasb issued fasb interpretation 48 accounting for uncertainty in income taxes an interpretation of fasb statement no 109 interpretation 48 which clarifies statement no 109 accounting for income taxes establishes the criterion that an individual tax position has to meet for some or all of the benefits of that position to be recognized in the company s financial statements on initial application interpretation 48 will be applied to all tax positions for which the statute of limitations remains open only tax positions that meet the morelikelythannot recognition threshold at the adoption date will be recognized or continue to be recognized the cumulative effect of applying interpretation 48 will be reported as an adjustment to retained earnings at the beginning of the period in which it is adopted interpretation 48 is effective for fiscal years beginning after december 15 2006 and was adopted by the company on december 31 2006 the company does not believe that the adoption of interpretation 48 will have a material impact on its consolidated financial statements inventory obsolescence we record an inventory obsolescence reserve for obsolete excess and slowmoving inventory in calculating our inventory obsolescence reserve management analyzes historical data regarding customer demand product changes market conditions and assumptions about future product demand management believes that its accounting estimate related to inventory 21 table of contents obsolescence is a critical accounting estimate because customer demand can be variable and changes in our reserve for inventory obsolescence could materially affect our financial results warranty reserve we provide for the estimated warranty cost of a product at the time revenue is recognized warranty expense is normally accrued as a percentage of sales based upon historical information on a monthly basis and this provision is included in accrued expenses and other liabilities there is an exception to this for certain products within the size reduction business line for which we use a combination of historical information and management judgment we offer a oneyear product warranty on a majority of our products while we engage in extensive product quality programs and processes including the active monitoring and evaluation of the quality of our component suppliers our warranty obligations are affected by actual product failures and by material usage and service costs incurred in correcting a product failure our warranty provision takes into account our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date while we believe that our warranty provisions are adequate and that the judgments applied are appropriate the ultimate cost of product warranty could differ materially from our estimates when the actual cost of warranty of our products is lower than we originally anticipated we adjust downward the recorded reserve and if the cost of warranty repairs and service is higher than anticipated we increase the reserve legal contingencies we are currently involved in certain legal proceedings we have accrued an estimate of the probable costs for the resolution of these claims in accordance with statement of financial accounting standards no 5 accounting for contingencies this estimate has been developed by management and may be made in consultation with outside counsel handling our defense in these matters and also with our insurance broker and it is based upon an analysis of potential results including litigation and settlement strategies we do not believe that these proceedings will have a material adverse effect on our consolidated financial position it is possible however that future results of operations for any particular quarterly or annual period could be materially affected by litigation outcomes that are significantly different than our assumptions and estimates results of operations overview 2006 2005 and 2004 were 52week years in 2006 2005 and 2004 we reported revenues of 148127000 118940000 and 112494000 and net income of 12872000 7282000 and 6610000 we believe that the increases in our 2006 revenues and net income compared to 2005 were primarily the result of the contributions from the march 3 2006 gundlach acquisition and the october 5 2006 premier acquisition as well as from generally stronger business conditions and increased spending on capital equipment by our customers in both our process and size reduction business lines our 2006 effective tax rate was 336 down from 403 in 2005 due primarily to added taxes in 2005 for the onetime repatriation of cash from switzerland as discussed in the next paragraph we believe that the increases in our revenues and net income in 2005 compared to 2004 were primarily the result of stronger business conditions and increased spending by our customers in the americas especially with respect to our size reduction business line which more than offset lower 22 table of contents spending by overseas customers of our process business line our 2005 effective tax rate was 403 up from 243 in 2004 this increase was primarily due to a higher proportion of us income in 2005 which was taxed at higher rates and a fourth quarter 2005 tax provision of 891000 arising from the onetime repatriation under the american jobs creation act of 2004 of 10000000 from our swiss subsidiary the tax on the 10000000 repatriation added 73 to our effective tax rate for 2005 increasing it from 330 to 403 net income for 2004 benefited from a 164000 pretax profit contribution from the first quarter 2004 sale of an office building by one of our united kingdom subsidiaries and from a 540000 tax benefit resulting from the fourth quarter 2004 reduction of a previously established tax reserve following the settlement and closure of a tax audit in germany which tax benefit also lowered our effective tax rate for 2004 acquisitions on march 3 2006 we purchased all of the outstanding stock of jmj industries inc which operated its business under the gundlach tradename the purchase price was 9154500 of which 6154500 was paid in cash and 3000000 by delivery of an unsecured promissory note bearing interest at 5 per annum and payable in three equal annual installments of 1000000 on march 3 in each of 2008 2009 and 2010 we also paid off all of the acquired company s bank debt which amounted to approximately 1347000 we did not borrow any money in connection with either the acquisition or the payoff of the bank debt the gundlach operation is part of our size reduction business line on october 5 2006 we purchased all of the outstanding stock of premier pneumatics inc the preliminary purchase price was 27565000 all of which was paid in cash including a 2000000 escrow the final purchase price of 27453000 included an adjustment based on premier s net working capital as of the closing date in february 2007 we also paid 1567000 to the seller in connection with our internal revenue code section 338h10 election with respect to this acquisition we financed the purchase price and related costs of the premier acquisition under a loan agreement entered into on september 29 2006 between citizens bank of pennsylvania citizens and us and our us subsidiaries the citizens agreement provides us and our us subsidiaries until september 29 2011 with a 50000000 unsecured revolving line of credit on september 29 2006 the company borrowed 9801000 under the new facility primarily to refinance all of its other us bank indebtedness except for a mortgage note with another bank with a principal balance of 1600000 and those other us debt facilities were terminated the 27565000 preliminary purchase price for premier was borrowed under the citizens facility on october 5 2006 between september 29 and october 5 2006 the company repaid 4000000 of the september 29th 9801000 borrowing so that at october 5 2006 following the premier acquisition the total borrowing under the citizens facility was 33366000 as of december 30 2006 the total borrowing under that facility was 30000000 on november 1 2006 we announced the signing of a definitive agreement to purchase certain assets of wuxi chenghao machinery co ltd wuxi chenghao wuxi chenghao a privately held chinese company is one of the leading feeder and ancillary equipment manufacturers for the plastics compounding and injection molding industries in the people s republic of china the prc the total cost of the transaction over a fiveyear period including the purchase price and payments under related employment and other arrangements with wuxi chenghao s current owner could be as much as approximately 35 million the acquisition is expected to be concluded in late march or early april 2007 with the closing being subject to various conditions typical for such transactions in the prc 23 table of contents foreign exchange rates we are an international company and we derived approximately 34 38 and 43 of our 2006 2005 and 2004 revenues from products manufactured in and services performed from our facilities located outside the united states primarily in europe with our global operations we are sensitive to changes in foreign currency exchange rates foreign exchange rates which can affect both the translation of financial statement items into us dollars as well as transactions where the revenues and related expenses may initially be accounted for in different currencies such as sales made from our swiss manufacturing facility in currencies other than the swiss franc with the 2003 acquisition of penn crusher and jeffrey and the 2006 acquisitions of gundlach and premier we are less affected by foreign exchange rates since most of their sales are in us dollars nevertheless we still derive substantial revenues from products manufactured in and services performed from our facilities outside the us so that we will continue to have significant sensitivity to foreign exchange rate changes since we have received substantial revenues in recent years from activities in foreign jurisdictions our results can be significantly affected by changes in foreign exchange rates particularly in us dollar exchange rates with respect to the swiss franc euro and british pound sterling and to a lesser degree the singapore dollar and other currencies when the us dollar weakens against these currencies the us dollar value of nonus dollarbased sales increases when the us dollar strengthens against these currencies the us dollar value of nonus dollarbased sales decreases correspondingly the us dollar value of nonus dollarbased costs increases when the us dollar weakens and decreases when the us dollar strengthens overall our revenues in us dollars generally benefit from a weaker dollar and are adversely affected by a stronger dollar relative to major currencies worldwide especially those identified above in particular a general weakening of the us dollar against other currencies would positively affect our revenues gross profit and operating income as expressed in us dollars provided that the gross profit and operating income numbers from foreign operations are not losses since in the case of a loss the effect would be to increase the loss whereas a general strengthening of the us dollar against such currencies would have the opposite effect in addition our revenues and income with respect to sales transactions may be affected by changes in foreign exchange rates where the sale is made in a currency other than the functional currency of the facility manufacturing the product subject to the sale 24 table of contents for 2006 2005 and 2004 the changes in certain key foreign exchange rates affecting the company were as follows 2006 2005 2004 average us dollar equivalent of one swiss franc 0799 0803 0807 change vs prior year 05 05 average us dollar equivalent of one euro 1258 1244 1246 change vs prior year 11 02 average us dollar equivalent of one british pound sterling 1846 1818 1835 change vs prior year 15 09 average swiss franc equivalent of one euro 1574 1549 1543 change vs prior year 16 04 average swiss franc equivalent of one british pound sterling 2310 2264 2273 change vs prior year 20 04 presentation of results and analysis the following table sets forth our results of operations expressed as a percentage of total revenues for the periods indicated as well as our yearend backlogs 2006 2005 2004 total revenues 1000 1000 1000 cost of revenues 579 580 588 gross profit 421 420 412 selling general and administrative 268 289 301 research and development 15 20 23 operating income 138 111 88 interest expense net 07 08 12 gain on sale of office building 02 income before income taxes 131 103 78 income tax provision 44 42 19 net income 87 61 59 yearend backlog at yearend 2006 foreign exchange rates in thousands of dollars 49908 25561 21440 25 table of contents total revenues increased by 29187000 or 245 in 2006 compared to 2005 we believe that this increase was primarily attributable to the contribution from ten months of operations of our gundlach business acquired on march 3 2006 from three months of operations of our premier business acquired on october 5 2006 and from stronger business conditions and greater spending on capital equipment by customers in both our process and size reduction business lines foreign exchange did not have a material impact on 2006 revenues compared to 2005 total revenues increased by 6446000 or 57 in 2005 compared to 2004 we believe that this increase was primarily attributable to stronger business conditions and increased spending by our customers in the americas especially with respect to our size reduction business line this increase was partially offset by lower spending by overseas customers of our process business line and to a lesser degree the negative effect of a slightly stronger us dollar in 2005 on the translation of the revenues of our foreign operations into us dollars which reduced 2005 foreign revenues by approximately 349000 compared to what those revenues would have been using 2004 exchange rates gross profit as a percentage of total revenues increased to 421 in 2006 from 420 in 2005 and 412 in 2004 we believe that these increases reflected a change in the sales mix of the products and services sold within our two business lines sales mix refers to the relative amounts of different products sold and services provided gross margin levels vary with the product sold or service provided for example sales of replacement parts in the size reduction business line generally carry a higher gross margin than do sales of equipment within that line selling general and administrative sg a expense increased by 5284000 or 154 in 2006 compared to 2005 we believe that this increase was primarily the result of the inclusion of ten months of operations of our gundlach business acquired on march 3 2006 and three months of operations of our premier business acquired on october 5 2006 higher sales commissions related to increased revenues a higher employee bonus accrual reflecting our strong performance in 2006 and higher sarbanesoxley costs partially offset by reduced expenses in our process business line particularly in emeaasia reflecting cost reduction initiatives implemented in 2005 foreign exchange did not have a material impact on 2006 sg a compared to 2005 sg a expense increased by 484000 or 14 in 2005 compared to 2004 we believe that this increase in 2005 was primarily the result of higher sales commissions related to increased revenues and onetime costs associated with certain staff reductions partially offset by a lower employee bonus accrual lower sarbanesoxley costs and the positive effect of a slightly stronger us dollar on the translation of foreign costs into us dollars sg a expense as a percent of total revenues was 268 in 2006 289 in 2005 and 301 in 2004 research and development r d expense decreased by 187000 or 76 in 2006 compared to 2005 primarily due to reduced staff r d expense decreased by 220000 or 82 in 2005 compared to 2004 primarily due to the secondquarter 2005 layoff of one r d employee and lower prototype expenditures r d expense as a percent of total revenues was 15 in 2006 20 in 2005 and 23 in 2004 there was no significant r d expense associated with our penn crusher jeffrey gundlach and premier businesses interest expense net of interest income increased by 33000 or 32 in 2006 compared to 2005 and decreased by 300000 or 228 in 2005 compared to 2004 the increase in 2006 compared to 2005 included 398000 of interest expense in the fourth quarter of 2006 associated with the financing of the october 5 2006 acquisition of premier largely offset by the effect of lower debt 26 table of contents levels that existed prior to the premier acquisition an increase in interest income on cash equivalents and a benefit from the termination of an interest rate swap the decrease in 2005 compared to 2004 was the result of lower debt levels partially offset by higher interest rates on some of our debt in the first quarter of 2004 one of our united kingdom subsidiaries sold its office building for 996000 and realized a pretax gain of 164000 all employees were relocated to a nearby office building that is leased by another united kingdom subsidiary income before income taxes was 19381000 in 2006 12201000 in 2005 and 8732000 in 2004 the 2006 income before income taxes was substantially higher than in 2005 primarily because of the contributions from the march 3 2006 gundlach acquisition and the october 5 2006 premier acquisition as well as generally stronger business conditions and increased spending on capital equipment by our customers in both our process and size reduction business lines the 2005 income before income taxes was substantially higher than in 2004 primarily because of stronger business conditions and increased spending by our customers in the americas especially with respect to our size reduction business line which more than offset lower spending by overseas customers of our process business line and to a lesser degree the negative effect of a slightly stronger us dollar in 2005 the 2006 2005 and 2004 provisions for income tax were 6509000 4919000 and 2122000 and the overall effective tax rates were 336 in 2006 403 in 2005 and 243 in 2004 the higher effective tax rate in 2005 compared with 2006 was primarily due to the tax associated with a onetime repatriation from our swiss subsidiary of 10000000 in the fourth quarter of 2005 as discussed previously the higher effective tax rate in 2005 compared to 2004 was primarily due to this repatriation as well as to a higher proportion of us income in 2005 which was taxed at higher rates another reason for the higher effective tax rate in 2005 compared to 2004 was that 2004 included a 540000 german tax benefit also described previously we have foreign and us state tax loss carryforwards of 512000 and 3489000 which if realized would have an estimated future net income benefit of approximately 135000 and 263000 we do not believe that inflation has had a material impact on our results of operations during the last three years our order backlog at constant foreign exchange rates increased by 24347000 or 953 at the end of 2006 compared with yearend 2005 from 25561000 to 49908000 our backlog at constant foreign exchange rates increased by 4121000 or 192 at the end of 2005 compared with yearend 2004 from 21440000 to 25561000 the increase in our backlog in 2006 as compared to 2005 was primarily the result of stronger demand for equipment in our process business line and the acquisitions of premier and gundlach the increase in our backlog in 2005 as compared to 2004 was primarily the result of stronger demand for equipment in our size reduction business line a significant part of our backlog at the end of 2006 consisted of orders that were expected to be shipped within 120 days approximately 2608000 of the size reduction business line s backlog at the end of 2006 was for blanket orders that can be released by the customer at any time over an 18month period compared to approximately 2328000 of such blanket orders at the end of 2005 liquidity and capital resources revolving credit debt on september 29 2006 in connection with our anticipated october 5 2006 premier acquisition we along with certain of our subsidiaries the borrowers entered into a loan agreement the new loan agreement with citizens 27 table of contents the new loan agreement provides the borrowers with a 5year 50000000 unsecured revolving line of credit facility the revolving credit facility of which up to an aggregate of 10000000 may be used for letters of credit the new loan agreement terminates on september 29 2011 the borrowers entered into the new loan agreement to i refinance certain indebtedness of the borrowers to two other banks ii provide for future working capital requirements and other general corporate purposes and iii fund permitted acquisitions including the acquisition of premier the interest rate on revolving loans under the new loan agreement can be based on either the prime rate or 1 2 3 or 6month libor as selected by us prime rate loans bear interest at a fluctuating rate per annum equal to the prime rate of interest announced by citizens from time to time less a percentage ranging from 025 to 100 depending on the level of the ratio of our funded debt to adjusted earnings before interest expense tax expense and depreciation and amortization expenses for the most recent measurement period the debt ratio libor loans bear interest at a fluctuating rate per annum equal to libor for the selected interest rate period plus a percentage ranging from 0875 to 1625 depending on the level of the debt ratio the borrowers are obligated to pay a fee for any unused borrowings with respect to the revolving credit facility equal to i a percentage ranging from 0125 to 020 per annum depending on the level of the debt ratio times ii the average unused portion of the revolving credit facility the new loan agreement is unsecured except that the lenders have been given a pledge of 65 of the equity interests of the following foreign subsidiaries of the company ktron schweiz ag ktron colormax limited and ktron pcs limited the new loan agreement contains financial and other covenants such as a minimum fixed charge coverage ratio and net worth and a maximum debt ratio and includes limitations on among other things liens acquisitions consolidations sales of assets incurrences of debt and capital expenditures if an event of default such as nonpayment or failure to comply with specific covenants were to occur under the new loan agreement and subject to any applicable grace period the lenders would be entitled to declare all amounts outstanding under the facility immediately due and payable on september 29 2006 we borrowed 9801000 under the revolving credit facility to pay off existing credit facilities with two other banks and to pay certain fees in connection with the new loan agreement on october 5 2006 we borrowed 27565000 under that same facility to purchase premier between september 29 and october 5 2006 we repaid 4000000 of the 9801000 borrowed on september 29 so that at october 5 2006 the total borrowing was 33366000 as of december 30 2006 the total borrowing under the revolving credit facility was 30000000 with interest payable at the following rates for the periods ending on the dates indicated expiration of interest rate period per annum rate prime rate loan 500000 7250 one month libor loan 1500000 1312007 6445 three month libor loan 8000000 3302007 6495 six month libor loan 10000000 3302007 6515 threeyear interest rate swap 5000000 10132009 6335 fouryear interest rate swap 5000000 10132010 6345 30000000 28 table of contents gundlach acquisition debt in connection with the march 3 2006 acquisition of gundlach we issued as part of the purchase price a 3000000 unsecured promissory note bearing interest payable quarterly at 5 per annum and with the principal payable in three equal installments of 1000000 on march 3 in each of 2008 2009 and 2010 other bank debt at december 30 2006 our swiss subsidiary had separate credit facilities totaling 15100000 swiss francs approximately 12391000 with three swiss banks the company s real property in switzerland is pledged as collateral as of december 30 2006 there were no borrowings under any of these credit facilities while 4413000 swiss francs approximately 3621000 was utilized for bank guarantees related to customer orders as of december 30 2006 one of our us subsidiaries had a mortgage loan with an outstanding balance of 1553000 annual interest is 645 and the loan is payable in equal monthly principal and interest installments of 23784 with a final payment of 1038000 plus interest due on august 1 2009 future payments under contractual obligations we are obligated to make future payments under various contracts such as debt lease and purchase obligations the table below summarizes our significant contractual cash obligations as of december 30 2006 for the items indicated dollars in thousands payment due by period less than 13 35 more than contractual obligations total 1 year years years 5 years longterm debt obligations debt maturities 34768 404 3364 31000 contractual interest 9496 2139 4060 3297 operating lease obligations 2821 1180 1382 242 17 purchase obligations 10664 10018 646 total 57749 13741 9452 34539 17 in addition to these obligations 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 these agreements each individual is guaranteed minimum compensation over the contract period as of december 30 2006 the estimated future obligation under these contracts if all of them were to be terminated at one time was 2112000 payable within a oneyear period 29 table of contents capitalization our capitalization at the end of 2006 2005 and 2004 is summarized below dollars in thousands 2006 2005 2004 shortterm debt including current portion of longterm debt 404 4316 4185 longterm debt 34364 12675 18598 total debt 34768 16991 22783 shareholders equity 65381 49520 45559 total debt and shareholders equity total capitalization 100149 66511 68342 percent total debt to total capitalization 35 26 33 percent longterm debt to equity 53 26 41 percent total debt to equity 53 34 50 total debt increased by 17777000 in 2006 27565000 was from borrowing related to the premier acquisition 3000000 from a note we issued in connection with the gundlach acquisition and 26000 due to the effect of a slightly weaker us dollar on the translation of our foreign debt partially offset by debt reduction of 12762000 total debt decreased by 5792000 in 2005 5772000 of total net debt repayments plus a decrease of 20000 due to the effect of a slightly stronger us dollar on the translation of our foreign debt other items at the end of 2006 and 2005 our working capital was 28962000 and 25565000 and the ratio of our current assets to our current liabilities was 177 and 199 the increase in working capital was primarily due to the reduction in the current portion of our longterm debt as a result of the new loan agreement in 2006 and 2005 we utilized internally generated funds and our lines of credit to meet our working capital needs net cash provided by operating activities was 18988000 in 2006 10508000 in 2005 and 12548000 in 2004 the increase in operating cash flow in 2006 compared to 2005 was primarily due to higher net income and increases in accrued expenses and depreciation and amortization partially offset by increases in inventory and prepaid expenses the decrease in operating cash flow in 2005 compared to 2004 was primarily due to lower accrued expenses partially offset by higher net income and lower accounts receivable net income and depreciation and amortization were the principal components of cash provided by operating activities in all three years the average number of days to convert accounts receivable to cash was 50 days in 2006 compared to 60 days in 2005 and 66 days in 2004 the average number of days to convert inventory into cost of sales was 79 days in 2006 compared to 80 days in 2005 and 79 days in 2004 net cash used in investing activities was 36042000 2220000 and 666000 in 2006 2005 and 2004 the cost of businesses acquired net of cash received was 32975000 in 2006 with 25858000 for the premier acquisition and 7117000 for the gundlach acquisition capital expenditures were 2604000 2206000 and 1601000 in 2006 2005 and 2004 which included significant expenditures for building improvements in 2006 and for the development and implementation of customer relationship management and enterprise resource planning software 30 table of contents systems for the process group in 2004 in the first quarter of 2004 we sold our uk office building and received 996000 of proceeds cash provided by financing activities in 2006 was primarily from the 27565000 borrowed to finance the premier acquisition and proceeds from the exercise of stock options partially offset by debt reduction cash used in financing activities in 2005 and 2004 was for the net reduction of debt partially offset by the proceeds from the exercise of stock options cash and shortterm investments decreased to 14038000 at the end of 2006 versus 15051000 at the end of 2005 and increased from 12443000 at the end of 2004 shareholders equity increased 15861000 in 2006 to 65381000 of which 12872000 was from net income 1237000 was from the issuance of common stock pursuant to restricted stock grants and the exercise of stock options and 1849000 was from changes in foreign exchange rates primarily the translation of swiss francs into us dollars between the beginning and the end of 2006 partially offset by an unrealized loss of 97000 net of taxes on an interest rate swap forwardlooking statements the private securities litigation reform act of 1995 the act provides a safe harbor for forwardlooking statements made by us or on our behalf we and our representatives may from time to time make written or oral statements that are forwardlooking including statements contained in this annual report on form 10k and other filings with the securities and exchange commission reports to our shareholders and news releases all statements that express expectations estimates forecasts or projections are forwardlooking statements within the meaning of the act in addition other written or oral statements which constitute forwardlooking statements may be made by us or on our behalf words such as expects anticipates intends plans believes seeks estimates projects forecasts may should variations of such words and similar expressions are intended to identify such forwardlooking statements these statements are not guarantees of future performance and involve certain risks uncertainties and contingencies which are difficult to predict these risks and uncertainties include but are not limited to the risks set forth in |
0000000020 | 20070507 | 10q | in our 2006 form 10k which could materially affect our business financial condition or future results the risks described in our 2006 form 10k are not the only risks facing our company additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business financial condition or operating results forwardlooking statements the private securities litigation reform act of 1995 the act provides a safe harbor for forwardlooking statements made by us or on our behalf we and our representatives may from time to time make written or oral statements that are forwardlooking including statements contained in this report and other filings with the securities and exchange commission reports to our shareholders and news releases all statements that express expectations estimates forecasts or projections are forwardlooking statements within the meaning of the act in addition other written or oral statements which constitute forwardlooking statements may be made by us or on our behalf words such as expects anticipates intends plans believes seeks estimates projects forecasts may should variations of such words and similar expressions are intended to identify such forwardlooking statements these statements are not guarantees of future performance and involve certain risks uncertainties and contingencies which are difficult to predict these risks and uncertainties include but are not limited to the risks described above under the heading risk factors 18 table of contents many of the factors that will determine our future results are beyond the ability of management to control or predict therefore actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by any forwardlooking statements that we may make the forwardlooking statements contained in this report include but are not limited to statements regarding the effect of changes in foreign exchange rates and interest rates on our business and financial results we undertake no obligation to revise or update any forwardlooking statements or to make any other forwardlooking statements whether as a result of new information future events or otherwise | |
0000000020 | 20070807 | 10q | in our 2006 form 10k which could materially affect our business financial condition or future results the risks described in our 2006 form 10k are not the only risks facing our company additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business financial condition or operating results 20 table of contents forwardlooking statements the private securities litigation reform act of 1995 the act provides a safe harbor for forwardlooking statements made by us or on our behalf we and our representatives may from time to time make written or oral statements that are forwardlooking including statements contained in this report and other filings with the securities and exchange commission reports to our shareholders and news releases all statements that express expectations estimates forecasts or projections are forwardlooking statements within the meaning of the act in addition other written or oral statements which constitute forwardlooking statements may be made by us or on our behalf words such as expects anticipates intends plans believes seeks estimates projects forecasts may should variations of such words and similar expressions are intended to identify such forwardlooking statements these statements are not guarantees of future performance and involve certain risks uncertainties and contingencies which are difficult to predict these risks and uncertainties include but are not limited to the risks described above under the heading risk factors many of the factors that will determine our future results are beyond the ability of management to control or predict therefore actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by any forwardlooking statements that we may make the forwardlooking statements contained in this report include but are not limited to statements regarding the effect of changes in foreign exchange rates and interest rates on our business and financial results we undertake no obligation to revise or update any forwardlooking statements or to make any other forwardlooking statements whether as a result of new information future events or otherwise | |
0000000020 | 20071107 | 10q | in our 2006 form 10k which could materially affect our business financial condition or future results the risks described in our 2006 form 10k are not the only risks facing our company additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business financial condition or operating results forwardlooking statements the private securities litigation reform act of 1995 the act provides a safe harbor for forwardlooking statements made by us or on our behalf we and our representatives may from time to time make written or oral statements that are forwardlooking including statements contained in this report and other filings with the securities and exchange commission reports to our shareholders and news releases all statements that express expectations estimates forecasts or projections are forwardlooking statements within the meaning of the act in addition other written or oral statements which constitute forwardlooking statements may be made by us or on our behalf words such as expects anticipates intends plans believes seeks estimates projects forecasts may should variations of such words and similar expressions are intended to identify such forwardlooking statements these statements are not guarantees of future performance and involve certain risks uncertainties and contingencies which are difficult to predict these risks and uncertainties include but are not limited to the risks described above under the heading risk factors many of the factors that will determine our future results are beyond the ability of management to control or predict therefore actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by any forwardlooking statements that we may make the forwardlooking statements contained in this report include but are not limited to statements regarding the effect of changes in foreign exchange rates and interest rates on our business and financial results we undertake no obligation to revise or update any forwardlooking statements or to make any other forwardlooking statements whether as a result of new information future events or otherwise 22 table of contents | |
0000000020 | 20080312 | 10k | our businesses and operations are subject to a number of risks and uncertainties that are described below but these risks and uncertainties are not the only ones we face additional risks and uncertainties of which we are unaware or that we currently deem immaterial may become important factors that could harm our business our business financial condition or results of operations could suffer as a consequence of any of these risks and uncertainties competition could adversely affect our business and results of operations many of our products are sold in highly competitive markets in the americas europe the middle east and asia and some of our competitors may have financial and other resources that are substantially greater than ours we believe that over the past several years we have experienced increased price competition in many of our markets competitive pressures could cause our products to lose market share or result in significant price erosion which would have an adverse effect on our business and results of operations our substantial sales abroad subject us to the risk of adverse foreign currency fluctuations which could negatively impact our results of operations we are an international company and we derived approximately 36 34 and 38 of our 2007 2006 and 2005 revenues from products manufactured in and sales made and services performed from our facilities located outside the united states primarily in europe we expect that our international sales will continue to be significant in future periods international sales are subject to fluctuations in exchange rates which may have an adverse effect on our business and operating results also since the results of operations of our foreign subsidiaries are translated into us dollars fluctuations in exchange rates particularly among the us dollar swiss franc euro and british pound sterling will affect the us dollar amount of these results in addition since our subsidiaries sell into other countries these transactions may be negatively affected by fluctuations in the relevant foreign currency exchange rates we operate in cyclical industries as an industrial capital goods supplier many of the markets for our products are cyclical during periods of economic expansion particularly when capital spending is increasing we generally benefit from increased demand for our products during periods of economic contraction or recession we are generally adversely affected by declining demand for our products also there can be no assurance that an increase in demand or an economic expansion will be sustained in the markets in which we sell our products the loss of a large customer could have an adverse effect on our operating results in 2007 our top five customers accounted for approximately 97 of our total revenues the loss of or significant curtailment of purchases by one or more of our large customers could have an adverse effect on our operating results we are dependent on our key personnel we are dependent upon the continued services of certain key officers and management and operating personnel the loss of key personnel could have an adverse effect on us we do not maintain key man insurance on any of our officers our continued success also depends on our ability to attract and retain a skilled labor force there can be no assurance that we will be successful in attracting and retaining the personnel we require either to maintain our business or expand our operations we are dependent on some of our suppliers each product produced by us or for us requires the supply of various components some of which may be specially engineered to meet our requirements the supply of these components can be affected by numerous factors beyond our control while certain of these components are obtained from a limited number of sources we 10 table of contents have potential alternate suppliers for most of the specialty components used in our manufacturing and assembly operations there can be no assurance however that we will not experience shortages or be forced to seek alternative sources of supply which may increase costs or adversely affect our ability to fulfill orders in a timely fashion we engage in acquisitions and we may encounter difficulties in integrating these businesses and therefore may not realize the anticipated benefits of the acquisitions we are a company that from time to time seeks to grow through strategic acquisitions in the past we have made acquisitions intended to complement or expand our business and we may do so again in the future the success of these transactions may depend on our ability to integrate assets and personnel acquired in these transactions without substantial costs delays or other operational or financial problems we may encounter difficulties in integrating acquisitions with our operations or in separately managing a new business furthermore we may not realize the degree or timing of benefits that we anticipate when we first enter into a transaction any of the foregoing could adversely affect our business and results of operations our business and 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 or improved products on a timely and costeffective basis the success of new and improved products depends on their initial and continued acceptance by our customers our businesses are affected by varying degrees of technological change and corresponding shifts in customer demand which may result in product transitions shortened life cycles and an increased importance of being first to market with new products we may experience difficulties or delays in the research development production or marketing of new products and this may negatively impact our business and operating results and prevent us from recouping or realizing a return on the investments required to bring new products to market on a timely and costeffective 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 timeconsuming litigation we may be required to initiate litigation in order to enforce any patents issued to or licensed by us or to determine the scope and validity of a third party s patents or other proprietary rights in addition we may be subject to lawsuits by third parties seeking to enforce their own intellectual property rights any such litigation regardless of outcome could be expensive and time consuming and could subject us to significant liabilities or require us to reengineer our products or obtain expensive licenses from third parties we may be subject to other costly litigation and governmental proceedings which could adversely affect our business or results of operations from time to time we may be subject to various claims and lawsuits by governmental agencies competitors customers employees or other persons such matters can be time consuming divert management s attention and resources and cause us to incur significant expenses furthermore there can be no assurance that the results of any of these actions will not have an adverse effect on our business or operating results our indebtedness may affect our business and may restrict our operating flexibility as of december 29 2007 we had 38114000 of outstanding indebtedness our level of indebtedness and the debt servicing costs associated with that indebtedness could have important effects on our operations and business strategy for example our indebtedness could limit our flexibility in planning for or reacting to changes in our business or in the markets in which we compete 11 table of contents place us at a competitive disadvantage relative to our competitors some of which may have lower debt service obligations or greater financial resources than we do limit our ability to borrow additional funds limit our ability to make 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 our ability to make scheduled payments of principal of to pay interest on or to refinance our indebtedness and to satisfy our other obligations will depend on our future operating performance which may be affected by factors beyond our control in addition there can be no assurance that future borrowings or equity financings will be available to us on favorable terms for the payment or refinancing of our indebtedness if we are unable to service our indebtedness our business financial condition and results of operations would be materially adversely affected political and economic instability and health issues in the united states or abroad may have an adverse effect on our operating results political and economic events and health issues in the united states or abroad may subject us to numerous risks which could have an adverse effect on our business and operating results including restrictive trade policies unfavorable economic conditions in particular markets health and epidemic concerns inconsistent product regulation or other changes in regulatory and other legal requirements the imposition of product tariffs and the burdens of complying with a wide variety of international and us export laws and differing regulatory requirements terrorist attacks and threats may disrupt our operations and negatively impact our business revenues costs and stock price the terrorist attacks in september 2001 in the united states the us response to those attacks and the resulting decline in consumer confidence had a substantial adverse impact on the us economy any similar future events may disrupt our operations or those of our customers or suppliers in addition these events had and may continue to have an adverse impact on the us and world economies in general and consumer confidence and spending in particular which could harm our sales any new terrorist events or threats could have a negative impact in the us and world financial markets which could reduce the price of our common stock and limit the capital resources available to us and our customers and suppliers this could have a significant adverse impact on our business operating results revenues and costs and might result in increased volatility in the market price of our common stock extensive environmental laws and regulations affecting the production of electric power could result in electric power generators shifting from coal to natural gasfired power plants which would adversely affect our size reduction business federal state and local laws and regulations extensively regulate the amount of sulfur dioxide particulate matter nitrogen oxides mercury and other compounds emitted into the air from electric power plants whose owners are principal customers of our size reduction business these laws and regulations can require significant emission control expenditures for many coalfired power plants and various new and proposed laws and regulations may require further emission reductions and associated emission control expenditures there is also continuing pressure on state and federal regulators to impose limits on carbon dioxide emissions from coalfired power plants as a result of these current and proposed laws regulations and trends electricity generators may elect to switch to other fuels such as natural gas that generate less of these emissions which would reduce the demand for our size reduction equipment 12 table of contents we are subject to special risks relating to doing business in china as a result of our acquisition of certain assets of wuxi chenghao by wuxi ktron colormax as a result of the acquisition of certain assets of wuxi chenghao by wuxi ktron colormax our operations in china are subject to significant political economic and legal uncertainties changes in laws and regulations or their interpretation or the imposition of confiscatory taxation restrictions on currency conversion imports or sources of supply devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on the operations of wuxi ktron colormax under its current leadership the chinese government has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization however there can be no assurance that the government will continue to pursue these policies especially in the event of a change in leadership social or political disruption or other circumstances affecting china s political and economic environment although not permitted under chinese law corruption extortion bribery payoffs and other fraudulent practices occur from time to time in china we must comply with us laws prohibiting corrupt business practices outside the united states if our competitors in china engage in these practices we may be at a competitive disadvantage we seek to prevent deter and detect violations of law in the conduct of our business throughout the world we have conducted a review of wuxi ktron colormax s business practices and have instructed our personnel in china on appropriate ethical and legal business standards however a risk remains that our employees will engage in activities that violate laws or our corporate policies this is particularly true in instances in which the employees of a company we may acquire may not have been previously accustomed to operating under similar standards in the event an employee violates applicable laws pertaining to sales practices accounting standards facility operations or other business or operational requirements we may face substantial penalties and our business in china could be affected adversely | overview of business we are engaged in one principal business segment material handling equipment and systems we operate in two primary geographic locations north and south america the americas and europe the middle east africa and asia emeaasia within the material handling equipment and systems segment we have two main business lines business lines which are our process and size reduction business lines management looks at trends in what it believes to be relevant indicators such as the purchasing managers index pmi for us manufacturing published by the institute of supply management and similar foreign indices to help it better understand the prospects for capital equipment spending as it may affect our process business line a pmi reading above 50 percent indicates that manufacturing is generally expanding in 2007 and through january 2008 the pmi was at or above 50 every month except for december 2007 when the index was at 484 in january 2008 the index moved to 507 historically increases and decreases in our feeding equipment sales generally have lagged movements in these indicators in some cases by as much as six to twelve months our process business line designs produces markets sells and services both feeders and pneumatic conveying equipment we believe based in part on independent market studies that we are the global leader in the design production marketing and servicing of highquality industrial feeders for the handling of bulk solids in manufacturing processes markets served include the plastics compounding food chemical and pharmaceutical industries the majority of the revenues and profits of the feeder portion of our process business line is generated by equipment and systems sales with a lesser amount attributable to service parts and repairs feeders are sold under the ktron feeders brand name both domestically and in other countries around the world new product innovation is a major objective of the r d efforts of this business in this part of our process business line we have the ability to serve nearly all geographic regions of the world from our two assemblyandtest facilities in pitman new jersey and niederlenz switzerland and our sales and service offices in france germany the united kingdom singapore and china service only on october 5 2006 we significantly expanded the scope of our pneumatic conveying business with the acquisition of premier pneumatics inc premier a leading manufacturer of pneumatic conveying components and systems for the us market our pneumatic conveying equipment which includes the premier pcs and premier colormax products formerly the ktron pcs and ktron colormax brands is now all sold under the premier pneumatics brand name aside from selling into markets common to those for industrial feeders we also sell pneumatic conveying equipment into the plastics injection molding market factors affecting the sale of pneumatic conveying equipment are similar to those which affect the sale of feeding equipment but also include factors that may affect the secondary plastics market generally on march 27 2007 we purchased certain assets of wuxi chenghao machinery co ltd wuxi chenghao a privatelyowned company in the people s republic of china china the purchased assets were transferred from the seller to a newlycreated wholly foreignowned enterprise which we established in connection with this transaction that conducts its business under the name wuxi ktron colormax machinery co ltd wuxi ktron colormax following this acquisition we established a third brand within our process business line the ktron colormax brand which is targeted at the domestic plastics compounding and injection molding markets in china our size reduction business line was established with the purchase of pennsylvania crusher corporation penn crusher and its whollyowned subsidiary jeffrey specialty equipment corporation jeffrey on january 2 2003 our acquisition of jmj industries inc now gundlach equipment corporation gundlach on march 3 2006 expanded our size reduction business by including a leading provider of size reduction equipment to the coal mining industry penn crusher jeffrey and gundlach sell equipment primarily into the us market with some sales into foreign countries particularly in south america and china the main industries served are the power generation coal mining pulp and paper and wood and forest products industries and a majority of the revenues and profits are generated from replacement part sales instead of from the sale of new equipment penn crusher jeffrey and gundlach have developed and currently maintain an extensive digital database of previously sold equipment including equipment specifications and drawings that enables them to respond quickly and efficiently to fill customers spare parts orders significant indicators that management uses to judge prospects for 18 table of contents this business line in the us include the level of electricity consumption the financial health of the electric utility industry the demand for coal and the demand for paper and forest products on september 14 2007 we expanded the scope of our size reduction business line with the acquisition of rader companies inc rader which manufactures screening equipment pneumatic and mechanical conveying systems storagereclaim systems and size reduction equipment for the handling of biomass wood chips and waste wood products such as tree bark rader s equipment is used primarily in the pulp and paper and biomass energy generation industries rader also manufactures a feederdelumper used by manufacturers of polyethylene and polypropylene rader sells its equipment in the united states directly and through three independent sales representatives in canada and europe through whollyowned subsidiaries in japan through a licensee and in other countries through four independent sales representatives rader is developing a digital database similar to those used by penn crusher jeffrey and gundlach in which it is registering the machines and parts which it sells including specifications and drawings the following provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition the discussion should be read in conjunction with our consolidated financial statements and accompanying notes all references to 2007 2006 and 2005 mean the fiscal years ended december 29 2007 december 30 2006 and december 31 2005 critical accounting assumptions and estimates this discussion and analysis of our financial condition and results of operations is based on our financial statements which have been prepared in accordance with accounting principles generally accepted in the united states and follow our significant accounting policies as described in the notes to our consolidated financial statements the preparation of these financial statements requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements as well as the reported amounts of revenues and expenses during the reporting periods covered thereby actual results could differ from those estimates judgments and estimates of uncertainties are required in applying our accounting policies in certain areas areas that require significant judgments and estimates to be made include determinations of the useful lives of assets estimates of allowances for doubtful accounts cash flow and valuation assumptions in performing asset impairment tests of longlived assets estimates of the realizability of deferred tax assets determinations of the adequacy of reserves for inventory obsolescence and warranty costs and legal contingencies there are a number of critical assumptions that may influence accounting estimates in these and other areas we base our critical assumptions on historical experience thirdparty data and other factors we believe to be reasonable under the circumstances we believe that the most critical assumptions made in arriving at our accounting estimates are the following depreciable lives of plant and equipment each asset included in plant and equipment is recorded at cost and depreciated using the straightline method which deducts equal amounts of the cost of such asset from earnings every year over such asset s estimated economic useful life as a result of these estimates of economic useful lives net plant and equipment at yearend 2007 totaled 27424000 which represented 149 of total assets depreciation expense during 2007 totaled 4680000 which represented 28 of total operating expenses given the significance of plant and equipment and associated depreciation to our financial statements the determination of an asset s economic useful life is considered to be a critical accounting estimate economic useful life is the duration of time an asset is expected to be productively employed by us which may be less than its physical life management s assumptions regarding the following factors among others affect the determination of estimated economic useful life changes in technology wear and tear and changes in market demand the estimated economic useful life of an asset is monitored to determine its continued appropriateness especially in light of changed business circumstances for example technological advances excessive wear and 19 table of contents tear or reduced estimates of future demand for a product may result in a shorter estimated useful life for an asset than originally anticipated in such a case we would depreciate the remaining net book value of the asset over the new estimated remaining life thereby increasing depreciation expense per year on a prospective basis over the past three years changes in economic useful life assumptions have not had a material impact on our reported results allowance for doubtful accounts we encounter risks in connection with sales and the collection of the associated accounts receivable we record a provision for accounts receivable that are considered to be uncollectible in order to estimate the appropriate provision management analyzes the creditworthiness of specific customers and the aging of customer balances management also considers contractual rights and obligations and general and industry specific economic conditions management believes that the accounting estimate related to the allowance for doubtful accounts is a critical accounting estimate because the underlying critical assumptions used to establish the allowance can change from time to time and uncollectible accounts could potentially have a material impact on our results of operations asset impairment determinations as a result of our adoption of statement of financial accounting standards sfas no 142 goodwill and other intangible assets goodwill is no longer amortized under this accounting standard goodwill is subject to an impairment test that we conduct at least annually using a discounted cash flow technique the impairment test done in 2007 indicated that the fair values of the businesses with goodwill exceeded their carrying values and therefore the goodwill amount was not impaired for any of these businesses with respect to our other longlived assets we are required to test for asset impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable we apply sfas no 144 accounting for the impairment or disposal of longlived assets in order to determine whether or not an asset has been impaired this standard requires an impairment analysis when indicators of impairment are present if such indicators are present the standard indicates that if the sum of the future expected cash flows from the asset undiscounted and without interest charges is less than its carrying value an asset impairment must be recognized in the financial statements the amount of the impairment is the difference between the fair value of the asset and the carrying value of the asset in analyzing the future cash flows of various assets the critical assumptions we make include the following 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 we believe that an accounting estimate relating to asset impairment is a critical accounting estimate because the assumptions underlying future cash flow estimates are subject to change from time to time and the recognition of an impairment could have a significant impact on our consolidated financial statements over the past three years we have not recognized any asset impairments income taxes we use the liability method to account for income taxes under this method deferred tax liabilities and assets are recognized for the tax effects of temporary differences between the financial reporting and tax bases of liabilities and assets measured using the enacted tax rate our income tax expense for 2007 was 8821000 with a 293 effective tax rate a one percentage point increase in our effective tax rate for 2007 from 293 to 303 would have decreased reported net income by approximately 301000 significant management judgment is required in determining income tax expense and the related balance sheet amounts assumptions are required concerning the ultimate outcome of tax positions and the realization of deferred 20 table of contents tax assets we have accrued our estimate of potential tax liability in accordance with the financial accounting standards board the fasb interpretation 48 accounting for uncertainty in income taxes an interpretation of fasb statement no 109 as discussed below actual income taxes paid by us may vary from estimates depending upon changes in income tax laws actual results of operations and the final audit of tax returns by taxing authorities tax assessments may arise several years after tax returns have been filed we believe that our recorded tax liabilities adequately provide for the probable outcome of these assessments deferred tax assets are recorded for deductible temporary differences operating losses and tax credit carryforwards however when there are insufficient sources of future taxable income to realize the benefit of these items these deferred tax assets are reduced by a valuation allowance a valuation allowance is recognized if based on the weight of available evidence it is considered more likely than not that some portion or all of a deferred tax asset will not be realized the factors used to assess the likelihood of realization include forecasted future taxable income and available tax planning strategies that could be implemented to realize or renew net deferred tax assets in order to avoid the potential loss of future tax benefits the effect of a change in the valuation allowance is reported in the current period tax expense in july 2006 the fasb issued fasb interpretation 48 which clarified sfas no 109 accounting for income taxes and established the criterion that an individual tax position has to meet for some or all of the benefits of that position to be recognized in the company s financial statements fasb interpretation 48 was effective for fiscal years beginning after december 15 2006 and was adopted by the company effective december 31 2006 on initial application fasb interpretation 48 was applied to all tax positions for which the statute of limitations remained open only tax positions that met the morelikelythannot recognition threshold at the adoption date were recognized and with respect to later dates only those that met or meet the threshold on those later dates have been or will be recognized at those dates the company is subject to income taxes in the us federal jurisdiction and also in various state local and foreign jurisdictions tax laws and regulations within each jurisdiction are subject to interpretation and require significant judgment to apply with few exceptions the company is no longer subject to us federal state or local or nonus income tax examinations by tax authorities for years before 2004 the company recognizes interest accrued related to uncertain tax liabilities in interest expense and recognizes penalties in operating expenses the company had accrued approximately 153000 for the payment of interest and penalties at december 30 2006 and added an additional 28000 in 2007 the adoption of fasb interpretation 48 did not have a material impact on the company s consolidated financial statements inventory reserve we record an inventory reserve for obsolete excess and slowmoving inventory in calculating our inventory reserve management analyzes historical data regarding customer demand product changes market conditions and assumptions about future product demand management believes that its accounting estimate related to inventory obsolescence is a critical accounting estimate because customer demand can be variable and changes in our reserve for inventory obsolescence could materially affect our financial results warranty reserve we provide for the estimated warranty cost of a product at the time revenue is recognized warranty expense is normally accrued as a percentage of sales based upon historical information on a monthly basis and this provision is included in accrued expenses and other liabilities there is an exception to this for certain products within the size reduction business line for which we use a combination of historical information and management judgment we offer a oneyear warranty on a majority of our products while we engage in extensive product quality programs and processes including the active monitoring and evaluation of the quality of our component suppliers our warranty obligations are affected by actual product failures and by material usage and service costs incurred in correcting a product failure our warranty provision takes into account our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date while we believe that our warranty provisions are adequate and that the judgments applied are appropriate the ultimate cost of product warranty could differ materially from our estimates when our actual cost of product warranty is lower than we originally anticipated we adjust downward the recorded reserve and if the cost of warranty repairs and service is higher than anticipated we increase the reserve 21 table of contents legal contingencies we are currently involved in certain legal proceedings we have accrued an estimate of the probable costs for the resolution of these claims in accordance with sfas no 5 accounting for contingencies this estimate has been developed by management and may be made in consultation with outside counsel handling our defense in these matters and also with our insurance broker and it is based upon an analysis of potential results including litigation and settlement strategies we do not believe that these proceedings will have a material adverse effect on our consolidated financial position it is possible however that future results of operations for any particular quarterly or annual period could be materially affected by litigation outcomes that are significantly different than our assumptions and estimates results of operations overview 2007 2006 and 2005 were 52week years in 2007 2006 and 2005 we reported revenues of 201677000 148127000 and 118940000 and net income of 21321000 12872000 and 7282000 we believe that the increases in our revenues and net income in 2007 compared to 2006 were primarily the result of generally stronger business conditions and increased spending by customers in our process business line contributions in 2007 versus 2006 from the acquisitions of gundlach on march 3 2006 premier on october 5 2006 and rader on september 14 2007 and the positive effect of a weaker us dollar in 2007 versus 2006 on the translation of the revenues and profits of our foreign operations into us dollars our 2007 effective tax rate was 293 down from 336 in 2006 due primarily to a second quarter 2007 income tax benefit of approximately 410000 from the finalization of a swiss tax audit for the years 2004 and 2005 and to a higher proportion of earnings from emeaasia in 2007 which earnings are taxed at an overall lower rate than earnings in the united states we believe that the increases in our 2006 revenues and net income compared to 2005 were primarily the result of the contributions from the march 3 2006 gundlach acquisition and the october 5 2006 premier acquisition as well as from generally stronger business conditions and increased spending by customers in both our process and size reduction business lines our 2006 effective tax rate was 336 down from 403 in 2005 due primarily to a fourth quarter 2005 tax provision of 891000 arising from the onetime repatriation under the american jobs creation act of 2004 of 10000000 from our swiss subsidiary the tax on the 10000000 repatriation added 73 to our effective tax rate for 2005 increasing it from 330 to 403 acquisitions on march 3 2006 we purchased all of the outstanding stock of jmj industries inc which operated its business under the gundlach tradename the purchase price was 9154500 of which 6154500 was paid in cash and 3000000 by delivery of an unsecured promissory note bearing interest at 5 per annum and payable in three equal annual installments of 1000000 on march 3 in each of 2008 2009 and 2010 the first 1000000 installment was paid on march 3 2008 in connection with the purchase we also paid off all of the acquired company s bank debt which amounted to approximately 1347000 we did not borrow any money in connection with either the acquisition or the payoff of the bank debt the gundlach operation is part of our size reduction business line on october 5 2006 we purchased all of the outstanding stock of premier the preliminary purchase price was 27565000 all of which was paid in cash including 2000000 held in escrow the final purchase price of 27453000 included a 112000 adjustment paid to us based on premier s net working capital as of the closing date in february 2007 we also made a preliminary payment of 1567000 to the seller in connection with our internal revenue code section 338h10 election premier 338h10 election with respect to this acquisition the amount owed to the seller under the premier 338h10 election was finalized in april 2007 and reduced by 153000 to 1414000 and the seller returned 153000 to us we financed the purchase price and related costs of the premier acquisition under a fiveyear 50000000 unsecured credit facility the citizens credit facility entered into on september 29 2006 between citizens bank of pennsylvania citizens and us and our us subsidiaries the premier operation is part of our process business line 22 table of contents the citizens credit facility provides us and our us subsidiaries until september 29 2011 with a 50000000 unsecured revolving line of credit on september 29 2006 we borrowed 9801000 under the new facility primarily to refinance all of our other us bank indebtedness except for a mortgage note with another bank with a principal balance of 1600000 at that time and those other us debt facilities were terminated the 27565000 preliminary purchase price for premier was borrowed under the citizens credit facility on october 5 2006 on march 27 2007 we purchased certain assets of wuxi chenghao a privatelyowned company in china the purchased assets were transferred from the seller to wuxi ktron colormax a newlycreated wholly foreignowned enterprise which we established in connection with this transaction the total cost of the transaction over a fiveyear period including the 1000000 purchase price and payments under related employment and other arrangements with one of wuxi chenghao s owners could be as much as approximately 3500000 the wuxi ktron colormax operation is part of our process business line on september 14 2007 we purchased all of the outstanding stock of rader the preliminary purchase price was 15945000 all of which was paid in cash including 2300000 held in escrow we borrowed the full amount of the purchase price under the citizens credit facility the final purchase price of 17632000 included a 1687000 adjustment based on rader s increase in net working capital between january 1 2007 and the september 14 2007 closing date which adjustment was paid to the sellers on february 5 2008 at the sellers direction 3798000 of the purchase price was delivered to rader on the closing date to satisfy indebtedness owed to rader by two other unrelated companies also owned by the sellers this cash together with other cash of rader was then used to pay off all of rader s bank debt which amounted to approximately 3832000 the rader operation is part of our size reduction business line foreign exchange rates we are an international company and we derived approximately 36 34 and 38 of our 2007 2006 and 2005 revenues from products manufactured in and sales made and services performed from our facilities located outside the united states primarily in europe with our global operations we are sensitive to changes in foreign currency exchange rates foreign exchange rates which can affect both the translation of financial statement items into us dollars as well as transactions where the revenues and related expenses may initially be accounted for in different currencies such as sales made from our swiss manufacturing facility in currencies other than the swiss franc with the 2003 acquisition of penn crusher and jeffrey and the 2006 acquisitions of gundlach and premier we are less affected by foreign exchange rates since most of their sales are in us dollars nevertheless we still derive substantial revenues from products manufactured in and sales made and services performed from our facilities outside the us so that we will continue to have significant sensitivity to foreign exchange rate changes since we have received substantial revenues in recent years from activities in foreign jurisdictions our results can be significantly affected by changes in foreign exchange rates particularly in us dollar exchange rates with respect to the swiss franc euro and british pound sterling and to a lesser degree other currencies when the us dollar weakens against these currencies the us dollar value of nonus dollarbased sales increases when the us dollar strengthens against these currencies the us dollar value of nonus dollarbased sales decreases correspondingly the us dollar value of nonus dollarbased costs increases when the us dollar weakens and decreases when the us dollar strengthens overall our revenues in us dollars generally benefit from a weaker dollar and are adversely affected by a stronger dollar relative to major currencies worldwide especially those identified above in particular a general weakening of the us dollar against other currencies would positively affect our revenues gross profit and operating income as expressed in us dollars provided that the gross profit and operating income numbers from foreign operations are not losses since in the case of a loss the effect would be to increase the loss whereas a general strengthening of the us dollar against such currencies would have the opposite effect in addition our revenues and income with respect to sales transactions may be affected by changes in foreign exchange rates where the sale is made in a currency other than the functional currency of the facility manufacturing the product subject to the sale 23 table of contents for 2007 2006 and 2005 the changes in certain key foreign exchange rates affecting the company were as follows 2007 2006 2005 average us dollar equivalent of one swiss franc 0834 0799 0803 change vs prior year 44 05 average us dollar equivalent of one euro 1372 1258 1244 change vs prior year 91 11 average us dollar equivalent of one british pound sterling 2002 1846 1818 change vs prior year 85 15 average swiss franc equivalent of one euro 1644 1574 1549 change vs prior year 44 16 average swiss franc equivalent of one british pound sterling 2399 2310 2264 change vs prior year 39 20 presentation of results and analysis the following table sets forth our results of operations expressed as a percentage of total revenues for the years indicated as well as our yearend backlogs 2007 2006 2005 total revenues 1000 1000 1000 cost of revenues 572 579 580 gross profit 428 421 420 selling general and administrative 258 268 289 research and development 12 15 20 operating income 158 138 111 interest expense net 08 07 08 income before income taxes 150 131 103 income tax provision 44 44 42 net income 106 87 61 yearend backlog at yearend 2007 foreign exchange rates in thousands of dollars 70712 51417 26071 total revenues increased by 53550000 or 362 to 201677000 in 2007 compared to 148127000 in 2006 we believe that this increase was primarily the result of generally stronger business conditions and increased spending by customers in our process business line contributions from our acquisitions of gundlach on march 3 2006 premier on october 5 2006 and rader on september 14 2007 and the positive effect of a weaker us dollar in 2007 versus 2006 on the translation of the revenues of our foreign operations into us dollars total revenues increased by 29187000 or 245 in 2006 compared to 2005 we believe that this increase was primarily attributable to ten months of operations of our gundlach business acquired on march 3 2006 three months of operations of our premier business acquired on october 5 2006 and stronger business conditions and greater spending by customers in both our process and size reduction business lines foreign exchange did not have a material impact on 2006 revenues compared to 2005 gross profit as a percentage of total revenues increased to 428 in 2007 from 421 in 2006 and 420 in 2005 we believe that these increases primarily reflected a change in the sales mix of the products and services sold within our two business lines sales mix refers to the relative amounts of different products sold and services 24 table of contents provided gross margin levels vary with the product sold or service provided for example sales of replacement parts in our size reduction business line generally carry a higher gross margin than do sales of equipment within that line selling general and administrative sg a expense increased by 12347000 or 312 in 2007 compared to 2006 we believe that this increase was primarily the result of including the operations of gundlach after its acquisition on march 3 2006 of premier after its acquisition on october 5 2006 and of rader after its acquisition on september 14 2007 higher sales commissions related to increased revenues a higher employee bonus accrual reflecting our better performance in 2007 and the unfavorable effect of a weaker us dollar on the translation of foreign costs into us dollars sg a expense increased by 5284000 or 154 in 2006 compared to 2005 we believe that this increase was primarily the result of including gundlach after its acquisition on march 3 2006 and premier after its acquisition on october 5 2006 higher sales commissions related to increased revenues a higher employee bonus accrual and higher sarbanesoxley costs partially offset by reduced expenses in our process business line particularly in emeaasia reflecting cost reduction initiatives implemented in 2005 foreign exchange did not have a material impact on 2006 sg a compared to 2005 sg a expense as a percent of total revenues improved to 258 in 2007 versus 268 in 2006 and 289 in 2005 research and development r d expense increased by 127000 or 56 in 2007 compared to 2006 primarily due to higher prototype costs and the unfavorable effect of a weaker us dollar on the translation of foreign costs into us dollars r d expense decreased by 187000 or 76 in 2006 compared to 2005 primarily due to reduced staff r d expense as a percent of total revenues was 12 in 2007 15 in 2006 and 20 in 2005 there was no significant r d expense in 2007 2006 and 2005 associated with our size reduction group or premier interest expense net of interest income increased by 687000 or 655 in 2007 compared to 2006 and increased by 33000 or 32 in 2006 compared to 2005 the increase in 2007 compared to 2006 was primarily due to the financing of our october 5 2006 acquisition of premier and our september 14 2007 acquisition of rader partially offset by the effect of lower debt levels excluding the borrowings related to these two acquisitions the increase in 2006 compared to 2005 included 398000 of interest expense in the fourth quarter of 2006 associated with the financing of our october 5 2006 acquisition of premier largely offset by the effect of lower debt levels that existed prior to the premier acquisition an increase in interest income on cash equivalents and a benefit from the termination of an interest rate swap income before income taxes was 30142000 in 2007 19381000 in 2006 and 12201000 in 2005 the 2007 income before income taxes was substantially higher than in 2006 primarily because of stronger business conditions and increased spending by customers in our process business line our acquisitions of gundlach premier and rader and the positive effect of a weaker us dollar on the translation of our foreign income into us dollars the 2006 income before income taxes was substantially higher than in 2005 primarily because of our gundlach and premier acquisitions as well as generally stronger business conditions and increased spending on capital equipment by customers in both our process and size reduction business lines the 2007 2006 and 2005 provisions for income tax were 8821000 6509000 and 4919000 and the overall effective tax rates were 293 in 2007 336 in 2006 and 403 in 2005 the lower effective tax rate in 2007 compared with 2006 was primarily due to a second quarter 2007 income tax benefit of approximately 410000 from the finalization of a swiss tax audit for the years 2004 and 2005 and to a higher proportion of earnings from emeaasia in 2007 which are taxed at an overall lower rate than earnings in the united states the higher effective tax rate in 2005 compared with 2006 was primarily due to the tax associated with a onetime repatriation from our swiss subsidiary of 10000000 in the fourth quarter of 2005 we have foreign and us state tax loss carryforwards of 730000 and 5895000 which if realized would have an estimated future net income benefit of approximately 211000 and 328000 we do not believe that inflation has had a material impact on our results of operations during the last three years 25 table of contents our order backlog at constant foreign exchange rates increased by 19295000 or 375 at the end of 2007 compared with yearend 2006 from 51417000 to 70712000 our order backlog at constant foreign exchange rates increased by 25346000 or 972 at the end of 2006 compared with yearend 2005 from 26071000 to 51417000 the increase in our backlog in 2007 versus 2006 was primarily the result of the acquisition of rader in 2007 and strong demand for equipment in both our process and size reduction business lines especially in our process business line in europe the middle east and asia the increase in our backlog in 2006 versus 2005 was primarily the result of stronger demand for equipment in our process business line especially in europe the middle east and asia and the 2006 acquisitions of premier and gundlach a significant part of our backlog at the end of 2007 consisted of orders that were expected to be shipped within 120 days approximately 2809000 of our size reduction business line s backlog at the end of 2007 was for blanket orders that can be released by the customer at any time over an 18month period compared to approximately 2608000 of such blanket orders at the end of 2006 liquidity and capital resources revolving credit debt on september 29 2006 in connection with our anticipated october 5 2006 premier acquisition we along with our us subsidiaries the borrowers entered into a loan agreement the citizens loan agreement with citizens the citizens loan agreement provides the borrowers with a fiveyear 50000000 unsecured revolving line of credit facility the revolving credit facility of which up to an aggregate of 10000000 may be used for letters of credit the citizens loan agreement terminates on september 29 2011 the borrowers entered into the citizens loan agreement to i refinance certain indebtedness of the borrowers to two other banks ii provide for future working capital requirements and other general corporate purposes and iii fund permitted acquisitions including the acquisition of premier the interest rate on revolving loans under the citizens loan agreement can be based on either the prime rate or 1 2 3 or 6month libor as selected by us prime rate loans bear interest at a fluctuating rate per annum equal to the prime rate of interest announced by citizens from time to time less a percentage ranging from 025 to 100 depending on the ratio of our funded debt to our adjusted earnings before interest expense tax expense and depreciation and amortization expenses for the most recent measurement period the debt ratio libor loans bear interest at a fluctuating rate per annum equal to libor for the selected interest rate period plus a percentage ranging from 0875 to 1625 depending on the debt ratio the borrowers are obligated to pay a fee for any unused borrowings under the revolving credit facility equal to i a percentage ranging from 0125 to 020 per annum depending on the debt ratio times ii the average unused portion of the revolving credit facility the citizens loan agreement is unsecured except that the lenders have been given a pledge of 65 of the equity interests of the following foreign subsidiaries of the company which are not borrowers ktron schweiz ag ktron colormax limited ktron pcs limited rader canada company and rader ab the citizens loan agreement contains financial and other covenants including a minimum fixed charge coverage ratio a minimum net worth and a maximum debt ratio and includes limitations on among other things liens acquisitions consolidations sales of assets incurrences of debt and capital expenditures as of december 29 2007 the borrowers were in compliance with these covenants and limitations if an event of default such as nonpayment or failure to comply with a covenant were to occur under the citizens loan agreement and subject to any applicable grace period the lenders would be entitled to declare all amounts outstanding under the facility immediately due and payable 26 table of contents as of december 29 2007 the total borrowing under the revolving credit facility was 33750000 with interest payable at the following rates on the following principal amounts for the periods ending on the dates indicated expiration of interest rate period per annum rate onemonth libor loan 2250000 12312007 5684 sixmonth libor loan 4000000 1312008 6245 sixmonth libor loan 5000000 3312008 5944 sixmonth libor loan 1500000 4302008 5707 eighteenmonth interest rate swap 2000000 5312009 4985 twoyear interest rate swap 2000000 9242009 5605 threeyear interest rate swap 5000000 10132009 6085 twoyear interest rate swap 3000000 10312009 5385 twoyear interest rate swap 2000000 11302009 4925 threeyear interest rate swap 2000000 9242010 5665 fouryear interest rate swap 5000000 10132010 6095 33750000 at its december 31 2007 expiration this loan was replaced by a 2250000 sixmonth libor loan at 5593 per annum through june 30 2008 at its january 31 2008 expiration this loan was replaced by a 1700000 onemonth libor loan at 4156 per annum through february 29 2008 and the balance of 2300000 was paid off at its february 29 2008 expiration the 1700000 onemonth libor loan was replaced by a 1700000 onemonth libor loan at 40 per annum through march 31 2008 gundlach acquisition debt in connection with our march 3 2006 acquisition of gundlach we issued as part of the purchase price a 3000000 unsecured promissory note bearing interest payable quarterly at 5 per annum and with the principal payable in three equal installments of 1000000 on march 3 in each of 2008 2009 and 2010 the first installment of 1000000 was paid on march 3 2008 other bank debt at december 29 2007 our swiss subsidiary had separate credit facilities totaling 14200000 swiss francs approximately 12593000 with three swiss banks this subsidiary s real property in switzerland is pledged as collateral as of december 29 2007 there were no borrowings under any of these credit facilities although 3473000 swiss francs approximately 3080000 of availability was being utilized for bank guarantees on our swiss subsidiary s behalf related to customer orders as of december 29 2007 one of our us subsidiaries had a mortgage loan with an outstanding balance of 1364000 annual interest is 645 and the loan is payable in equal monthly principal and interest installments of 23784 with a final payment of 1038000 plus interest due on august 1 2009 27 table of contents future payments under contractual obligations we are obligated to make future payments under various contracts such as debt lease and purchase obligations the table below summarizes our significant contractual cash obligations as of december 29 2007 for the items indicated payment due by period less than 13 35 more than contractual obligations total 1 year years years 5 years dollars in thousands longterm debt obligations debt maturities 38114 1201 3163 33750 contractual interest 9598 2159 4018 3421 operating lease obligations 2841 1401 1310 130 purchase obligations 19769 18842 927 total 70322 23603 9418 37301 in addition to these obligations at december 29 2007 the company had employment contracts with six 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 these agreements each individual is guaranteed minimum compensation over the contract period as of december 29 2007 the estimated future obligation under these contracts if all of them were to be terminated at one time was 2075000 payable within a oneyear period capitalization our capitalization at the end of 2007 2006 and 2005 is summarized below 2007 2006 2005 dollars in thousands shortterm debt including current portion of longterm debt 1201 404 4316 longterm debt 36913 34364 12675 total debt 38114 34768 16991 shareholders equity 93953 65381 49520 total debt and shareholders equity total capitalization 132067 100149 66511 percent total debt to total capitalization 29 35 26 percent longterm debt to equity 39 53 26 percent total debt to equity 41 53 34 the weighted average annual interest rate on total debt at december 29 2007 was 575 total debt increased by 3346000 in 2007 15945000 was from borrowing related to the rader acquisition and 10000 was due to the foreign exchange effect on the translation of our foreign debt partially offset by net debt reductions excluding these items of 12609000 total debt increased by 17777000 in 2006 27565000 was from borrowing related to the premier acquisition and 3000000 was from the note we issued in connection with the gundlach acquisition partially offset by 12762000 of net debt reductions excluding these items and 26000 from the effect of a weaker us dollar on the translation of our foreign debt other items at the end of 2007 and 2006 our working capital was 52242000 and 28962000 and the ratio of our current assets to our current liabilities was 206 and 177 the increase in working capital at the end of 2007 was primarily due to a 16815000 increase in cash and cash equivalents in 2007 and 2006 we utilized internally generated funds and our lines of credit to meet our working capital needs 28 table of contents net cash provided by operating activities was 27048000 in 2007 18988000 in 2006 and 10508000 in 2005 the increase in operating cash flow in 2007 compared to 2006 was primarily due to higher net income an increase in depreciation and amortization a decrease in prepaid expenses and other current assets and a smaller increase in inventories than in 2006 partially offset by increases in accounts receivable and a smaller increase in accrued expenses and other current liabilities than in 2006 the increase in operating cash flow in 2006 compared to 2005 was primarily due to higher net income and increases in accrued expenses and other current liabilities and in depreciation and amortization partially offset by higher increases in inventory and prepaid expenses and other current assets net income and depreciation and amortization were the principal components of cash provided by operating activities in all three years the average number of days to convert accounts receivable to cash was 45 days in 2007 compared to 50 days in 2006 and 60 days in 2005 the average number of days to convert inventory into cost of sales was 76 days in 2007 compared to 79 days in 2006 and 80 days in 2005 net cash used in investing activities was 18969000 36042000 and 2220000 in 2007 2006 and 2005 the cost of businesses acquired net of cash received was 16339000 in 2007 with 14275000 for the rader acquisition 1414000 for the premier 338h10 election and 650000 for the wuxi chenghao acquisition and 32975000 in 2006 with 25858000 for the premier acquisition and 7117000 for the gundlach acquisition capital expenditures were 2265000 2604000 and 2206000 in 2007 2006 and 2005 in the second quarter of 2007 we sold to a related party a building that we were leasing to that related party and received 428000 in cash net cash provided by financing activities in 2007 was primarily from the 15945000 borrowed to finance the rader acquisition and from the exercise of stock options and the tax benefit associated therewith partially offset by principal payments on the company s debt cash provided by financing activities in 2006 was primarily from the 27565000 borrowed to finance the premier acquisition and from the exercise of stock options and the tax benefit associated therewith partially offset by principal payments on the company s debt cash and shortterm investments increased to 30853000 at the end of 2007 versus 14038000 at the end of 2006 and 15051000 at the end of 2005 shareholders equity increased 28572000 in 2007 to 93953000 of which 21321000 was from net income 4250000 was from the issuance of common stock pursuant to restricted stock grants and the exercise of stock options and 3237000 was from changes in foreign exchange rates primarily the translation of swiss francs into us dollars partially offset by an unrealized loss of 236000 net of taxes on interest rate swaps forwardlooking statements the private securities litigation reform act of 1995 the act provides a safe harbor for forwardlooking statements made by us or on our behalf we and our representatives may from time to time make written or oral statements that are forwardlooking including statements contained in this annual report on form 10k and other filings with the securities and exchange commission reports to our shareholders and news releases all statements that express expectations estimates forecasts or projections are forwardlooking statements within the meaning of the act in addition other written or oral statements which constitute forwardlooking statements may be made by us or on our behalf words such as expects anticipates intends plans believes seeks estimates projects forecasts may should variations of such words and similar expressions are intended to identify such forwardlooking statements these statements are not guarantees of future performance and involve certain risks uncertainties and contingencies which are difficult to predict these risks and uncertainties include but are not limited to the risks set forth in |
0000000020 | 20080506 | 10q | in our 2007 form 10k which could materially affect our business financial condition or future results the risks described in our 2007 form 10k are not the only risks facing our company additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business financial condition or operating results forwardlooking statements the private securities litigation reform act of 1995 the act provides a safe harbor for forwardlooking statements made by us or on our behalf we and our representatives may from time to time make written or oral statements that are forwardlooking including statements contained in this report and other filings with the securities and exchange commission reports to our shareholders and news releases all statements that express expectations estimates forecasts or projections are forwardlooking statements within the meaning of the act in addition other written or oral statements which constitute forward looking statements may be made by us or on our behalf words such as expects anticipates intends plans believes seeks estimates projects forecasts may should variations of such words and similar expressions are intended to identify such forwardlooking statements these statements are not guarantees of future performance and involve certain risks uncertainties and contingencies which are difficult to predict these risks and uncertainties 20 table of contents include but are not limited to the risks described above under the heading risk factors many of the factors that will determine our future results are beyond the ability of management to control or predict therefore actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by any forwardlooking statements that we may make the forwardlooking statements contained in this report include but are not limited to statements regarding the effect of changes in foreign exchange rates and interest rates on our business and financial results we undertake no obligation to revise or update any forwardlooking statements or to make any other forwardlooking statements whether as a result of new information future events or otherwise | liquidity and capital reserves in our 2007 form 10k a 100 basis point increase in market interest rates on the 10625000 of variable rate debt would increase annual interest expense by approximately 106000 |
0000000020 | 20080804 | 10q | in our 2007 form 10k which could materially affect our business financial condition or future results the risks described in our 2007 form 10k are not the only risks facing our company additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business financial condition or operating results 21 table of contents forwardlooking statements the private securities litigation reform act of 1995 the act provides a safe harbor for forwardlooking statements made by us or on our behalf we and our representatives may from time to time make written or oral statements that are forwardlooking including statements contained in this report and other filings with the securities and exchange commission reports to our shareholders and news releases all statements that express expectations estimates forecasts or projections are forwardlooking statements within the meaning of the act in addition other written or oral statements which constitute forwardlooking statements may be made by us or on our behalf words such as expects anticipates intends plans believes seeks estimates projects forecasts may should variations of such words and similar expressions are intended to identify such forwardlooking statements these statements are not guarantees of future performance and involve certain risks uncertainties and contingencies which are difficult to predict these risks and uncertainties include but are not limited to the risks described above under the heading risk factors many of the factors that will determine our future results are beyond the ability of management to control or predict therefore actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by any forwardlooking statements that we may make the forwardlooking statements contained in this report include but are not limited to statements regarding the effect of changes in foreign exchange rates and interest rates on our business and financial results we undertake no obligation to revise or update any forwardlooking statements or to make any other forwardlooking statements whether as a result of new information future events or otherwise | critical accounting assumptions and estimates in our 2007 form 10k there have been no changes in these accounting policies our significant accounting policies are described in note 2 to our 2007 consolidated financial statements contained in our 2007 form 10k information concerning our implementation and the impact of recent accounting standards issued by the financial accounting standards board is included in the notes to our 2007 consolidated financial statements and also in note 3 to our consolidated financial statements contained in this quarterly report on form 10q we did not adopt any accounting policy in the first six months of 2008 that had a material impact on our consolidated financial statements results of operations overview for the second quarter and first six months of 2008 we reported revenues of 60210000 and 117608000 and net income of 7158000 and 12809000 compared to revenues of 47566000 and 94450000 and net income of 5253000 and 10132000 for the same periods in 2007 the increases in our revenues and net income in the second quarter of 2008 compared with the same period in 2007 were primarily due to the stronger performance of our process business line in emeaasia the inclusion of rader which we acquired on september 14 2007 better results from the other three companies in our size reduction business line and the positive effect of a weaker us dollar versus the same period in 2007 on the translation of the revenues and profits of our foreign operations into us dollars the increase in our revenues and net income in the first six months of 2008 compared with the same period in 2007 were primarily due to the contributions of rader and the other three companies in our size reduction business line and the positive effect of a weaker us dollar versus the same period in 2007 on the translation of the revenues and profits of our foreign operations into us dollars our effective tax rates for the second quarter and first six months of 2008 were 285 and 295 up from 270 and 285 in the same periods of 2007 these increases were primarily due to a higher proportion of earnings in the united states which are taxed at an overall higher rate than are our earnings in emeaasia income tax expense in the second quarter of 2008 was reduced by approximately 223000 of which 173000 was from the reversal of a previously recorded foreign tax contingency and 50000 was from a tax refund due from the us treasury related to the completion of an internal revenue service audit of the company s us corporation tax filings for 2004 2005 and 2006 income tax expense in the second quarter of 2007 was reduced by approximately 410000 as a result of the finalization of a swiss tax audit of our swiss subsidiary for the years 2004 and 2005 foreign exchange rates we are an international company and we derived approximately 34 and 36 of our revenues for the first six months of 2008 and 2007 from products manufactured in and sales made and services performed from our facilities located outside the united states primarily in europe with our global operations we are sensitive to changes in foreign currency exchange rates foreign exchange rates which can affect both the translation of financial statement items into us dollars as well as transactions where the revenues and related expenses may 16 table of contents initially be accounted for in different currencies such as sales made from our swiss manufacturing facility in currencies other than the swiss franc since we receive substantial revenues from activities in foreign jurisdictions our results can be significantly affected by changes in foreign exchange rates particularly in us dollar exchange rates with respect to the swiss franc euro british pound sterling canadian dollar and swedish krona and to a lesser degree other currencies when the us dollar weakens against these currencies the us dollar value of nonus dollarbased sales increases when the us dollar strengthens against these currencies the us dollar value of nonus dollarbased sales decreases correspondingly the us dollar value of nonus dollarbased costs increases when the us dollar weakens and decreases when the us dollar strengthens overall our revenues in us dollars generally benefit from a weaker dollar and are adversely affected by a stronger dollar relative to major currencies worldwide especially those identified above in particular a general weakening of the us dollar against other currencies would positively affect our revenues gross profit and operating income as expressed in us dollars provided that the gross profit and operating income numbers from foreign operations are not losses since in the case of a loss the effect would be to increase the loss whereas a general strengthening of the us dollar against such currencies would have the opposite effect in addition our revenues and income with respect to sales transactions may be affected by changes in foreign exchange rates where the sale is made in a currency other than the functional currency of the facility manufacturing the product subject to the sale for the second quarter and first six months of 2008 and 2007 the changes in certain key foreign exchange rates affecting us were as follows three months ended six months ended june 28 june 30 june 28 june 30 2008 2007 2008 2007 average us dollar equivalent of one swiss franc 0971 0818 0956 0814 change vs prior year 187 174 average us dollar equivalent of one euro 1564 1349 1532 1329 change vs prior year 159 153 average us dollar equivalent of one british pound sterling 1975 1987 1976 1970 change vs prior year 06 03 average swiss franc equivalent of one euro 1611 1649 1604 1633 change vs prior year 23 18 average swiss franc equivalent of one british pound sterling 2035 2429 2070 2420 change vs prior year 162 145 17 table of contents since we did not acquire rader which has subsidiaries located in canada and sweden until september 14 2007 the above table does not include changes in foreign exchange rates affecting the us dollar versus the canadian dollar and swedish krona presentation of results and analysis the following table sets forth our results of operations expressed as a percentage of total revenues for the periods indicated three months ended six months ended june 28 june 30 june 28 june 30 2008 2007 2008 2007 total revenues 1000 1000 1000 1000 cost of revenues 576 568 577 574 gross profit 424 432 423 426 selling general and administrative 243 259 252 253 research and development 11 13 11 13 operating income 170 160 160 160 interest expense net 04 09 05 10 income before income taxes 166 151 155 150 income tax provision 47 41 46 43 net income 119 110 109 107 the following table sets forth our order backlog at the dates indicated june 28 2008 dec 29 2007 june 30 2007 backlog at june 28 2008 foreign exchange rates in thousands of dollars 75547 73545 57811 total revenues increased by 12644000 or 266 in the second quarter of 2008 and by 23158000 or 245 in the first six months of 2008 compared to the same periods in 2007 the increases in our revenues in the second quarter of 2008 compared with the same period in 2007 were primarily due to the stronger performance of our process business line in emeaasia the inclusion of rader which we acquired on september 14 2007 better results from the other three companies in our size reduction business line and the positive effect of a weaker us dollar versus the same period in 2007 on the translation of the revenues of our foreign operations into us dollars the increase in our revenues in the first six months of 2008 compared with the same period in 2007 were primarily due to the contributions of rader and the other three companies in our size reduction business line and the positive effect of a weaker us dollar versus the same period in 2007 on the translation of the revenues of our foreign operations into us dollars gross profit as a percentage of total revenues decreased to 424 in the second quarter of 2008 from 432 for the same period in 2007 and decreased to 423 in the first six months of 18 table of contents 2008 from 426 for the same period last year we believe that these decreases primarily reflected a change in the sales mix of the products and services that we sold within our two business lines during these periods sales mix refers to the relative amounts of different products sold and services provided gross margin levels vary with the product sold or service provided for example sales of replacement parts in our size reduction business line generally carry a higher gross margin than sales of equipment within that line selling general and administrative sg a expense increased by 2295000 or 186 in the second quarter of 2008 and by 5750000 or 240 in the first six months of 2008 compared to the same periods in 2007 we believe that these increases for the second quarter and first six months of 2008 were primarily due to the inclusion of the operations of rader that we acquired on september 14 2007 the unfavorable effect of a weaker us dollar on the translation of foreign costs into us dollars higher sales commissions related to increased revenues and in the first six months but not in the second quarter of 2008 foreign exchange losses on transaction exposure caused by the marking to market of nonswiss franc balances to swiss franc values on the balance sheet of our swiss subsidiary as a percentage of revenues sg a decreased to 243 and 252 in the second quarter and first six months of 2008 versus 252 and 253 in the second quarter and first six months of 2007 research and development r d expense increased 33 in the second quarter of 2008 and 68 in the first six months of 2008 compared to the same periods in 2007 due primarily to the effect of a weaker us dollar in the second quarter and first six months of 2008 on the translation into us dollars of our r d expenses incurred in switzerland interest expense net of interest income decreased by 187000 or 432 in the second quarter of 2008 and by 275000 or 306 in the first six months of 2008 compared to the same periods in 2007 these decreases were primarily due to the effect of lower debt levels excluding borrowings related to the rader acquisition lower interest rates and higher interest income partially offset by interest expense on the borrowings related to the rader acquisition income before income taxes increased to 10010000 in the second quarter of 2008 and 18166000 in the first six months of 2008 compared to 7193000 and 14168000 for the same periods in 2007 the increases of 2817000 in the second quarter of 2008 and 3998000 in the first six months of 2008 were primarily the net result of the items discussed above the income tax provisions for the second quarter and first six months of 2008 were 2852000 and 5357000 compared to 1940000 and 4036000 for the same periods in 2007 the overall effective tax rates were 285 and 295 for the second quarter and first six months of 2008 versus 270 and 285 for the same periods in 2007 the higher effective tax rates in 2008 versus 2007 were primarily due to a higher proportion of our earnings in the united states which are taxed at an overall higher rate than are our earnings in emeaasia income tax expense in the second quarter of 2008 was reduced by approximately 223000 of which 173000 was from the reversal of a previously recorded foreign tax contingency and 50000 was from a tax refund due from the us treasury related to the completion of an internal revenue service audit of the company s us corporation tax filings for 2004 2005 and 2006 income tax expense in the second quarter of 2007 was reduced by approximately 410000 as a result of the finalization of a swiss tax audit of our swiss subsidiary for the years 2004 and 2005 our order backlog at constant foreign exchange rates increased by 2002000 or 27 at the end of the second quarter of 2008 compared to the end of fiscal year 2007 from 73545000 19 table of contents to 75547000 our order backlog at constant foreign exchange rates increased by 17736000 or 307 at the end of the second quarter of 2008 compared to the end of the second quarter of 2007 from 57811000 to 75547000 the increase in backlog at the end of the second quarter of 2008 versus yearend 2007 at constant foreign exchange rates primarily reflected stronger demand for equipment in our size reduction business line while the increase in backlog at the end of the second quarter of 2008 versus the end of the second quarter of 2007 was primarily due to the acquisition of rader on september 14 2007 as well as to stronger demand for equipment in our process business line especially in emeaasia as well as in our size reduction business line liquidity and capital resources capitalization our capitalization at the end of the second quarter of 2008 and at the end of fiscal year 2007 is summarized below june 28 december 29 dollars in thousands 2008 2007 shortterm debt including current portion of longterm debt 1209 1201 longterm debt 26714 36913 total debt 27923 38114 shareholders equity 111927 93953 total debt and shareholders equity total capitalization 139850 132067 percent total debt to total capitalization 20 29 percent longterm debt to equity 24 39 percent total debt to equity 25 41 the weighted average annual interest rate on total debt at june 28 2008 was 531 total debt decreased by 10191000 in the first six months of 2008 at june 28 2008 and subject to certain conditions which may limit the amount that may be borrowed at any particular time we had 23061000 of unused borrowing capacity under our us revolving credit facility and 9224000 of unused borrowing capacity under our foreign loan agreements other items at june 28 2008 working capital was 59871000 compared to 52242000 at december 29 2007 and the ratio of current assets to current liabilities at those dates was 213 and 206 in the first six months of 2008 and 2007 we utilized internally generated funds and our line of credit to meet our working capital needs net cash provided by operating activities was 13720000 in the first six months of 2008 compared to 8862000 for the same period in 2007 this 4858000 increase in operating cash flow was primarily from higher net income an increase in accrued expenses and other current liabilities in the first six months of 2008 compared to a decrease in the first six months of 2007 increased depreciation and amortization and a higher increase in inventory in the first six months 20 table of contents of 2008 compared with the same period in 2007 partially offset by a lower increase in accounts receivable when comparing the first six months of 2008 and 2007 net cash of 1727000 used in investing activities in the first six months of 2008 was primarily for capital additions and an installment payment related to the purchase of certain assets of wuxi chenghao partially offset by a reduction of restricted cash associated with the collateralization of letters of credit while net cash of 2002000 used in investing activities in the first six months of 2007 was primarily for an internal revenue code section 338h10 election associated with the purchase of premier pneumatics inc in october 2006 capital additions and the purchase of certain assets of wuxi chenghao partially offset by a reduction of restricted cash associated with the collateralization of letters of credit and proceeds from the disposition of an asset net cash used in financing activities in the first six months of 2008 was for principal payments on debt and the purchase of 5618 shares of the company s common stock partially offset by the proceeds from stock option exercises and the tax benefit associated therewith net cash used in financing activities in the first six months of 2007 was for net reductions in debt partially offset by the proceeds of stock option exercises and the tax benefit associated therewith shareholders equity increased 17974000 in the first six months of 2008 of which 12809000 was from net income 764000 was from the issuance of common stock pursuant to a restricted stock grant and the exercise of stock options 1022000 was from the tax benefit associated with such stock option exercises and the vesting of restricted stock grants and 4215000 was from changes in foreign exchange rates primarily the translation of swiss francs into us dollars between the beginning and the end of the sixmonth period partially offset by 769000 used to purchase 5618 shares of the company s common stock and 67000 from an unrealized loss net of taxes attributable to several interest rate swaps future payments under contractual obligations we are obligated to make future payments under various contracts such as debt agreements and lease agreements and we are subject to certain other commitments and contingencies there have been no material changes to future payments under contractual obligations as reflected in the liquidity and capital resources section of management s discussion and analysis in our 2007 form 10k except for an 8800000 decrease in the principal amount due in 2011 under our us revolving credit facility and a 288000 prepayment of principal due august 1 2009 under our us mortgage refer to notes 8 and 15 to the consolidated financial statements in our 2007 form 10k for additional information on longterm debt and commitments and contingencies risk factors in addition to the other information set forth in this report you should carefully consider the factors discussed in part i liquidity and capital reserves in our 2007 form 10k a 100 basis point increase in market interest rates on the 3950000 of variable rate debt would increase annual interest expense by approximately 40000 |
0000000020 | 20081104 | 10q | in our 2007 form 10k which could materially affect our business financial condition or future results the risks described in our 2007 form 10k are not the only risks facing our company additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business financial condition or operating results forwardlooking statements the private securities litigation reform act of 1995 the act provides a safe harbor for forwardlooking statements made by us or on our behalf we and our representatives may from time to time make written or oral statements that are forwardlooking including statements contained in this report and other filings with the securities and exchange commission reports to our shareholders and news releases all statements that express expectations estimates forecasts or projections are forwardlooking statements within the meaning of the act in addition other written or oral statements which constitute forwardlooking statements may be made by us or on our behalf words such as expects anticipates intends plans believes seeks estimates projects forecasts may should variations of such words and similar expressions are intended to identify such forwardlooking statements these statements are not guarantees of future performance and involve certain risks uncertainties and contingencies which are difficult to predict these risks and uncertainties include but are not limited to the risks described above under the heading risk factors many of the factors that will determine our future results are beyond the ability of management to control or predict therefore actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by any forwardlooking statements that we may make the forwardlooking statements contained in this report include but are not limited to statements regarding the effect of changes in foreign exchange rates and interest rates on our business and financial results we undertake no obligation to revise or update any forwardlooking statements or to make any other forwardlooking statements whether as a result of new information future events or otherwise 23 | critical accounting assumptions and estimates in our 2007 form 10k there have been no changes in these accounting policies our significant accounting policies are described in note 2 to our 2007 consolidated financial statements contained in our 2007 form 10k information concerning our implementation and the impact of recent accounting standards issued by the financial accounting standards board is included in the notes to our 2007 consolidated financial statements and also in note 3 to our consolidated financial statements contained in this quarterly report on form 10q we did not adopt any accounting policy in the first nine months of 2008 that had a material impact on our consolidated financial statements results of operations overview for the third quarter and first nine months of 2008 we reported revenues of 59631000 and 177239000 and net income of 6767000 and 19576000 compared to revenues of 48172000 and 142622000 and net income of 4930000 and 15062000 for the same periods in 2007 the increases in our revenues and net income in the third quarter of 2008 compared with the same period in 2007 were primarily due to the stronger performance of our process business line in emeaasia the contributions from the operations of rader and two of the other three companies in our size reduction business line and the positive effect of a weaker us dollar versus the same period in 2007 on the translation of the revenues and profits of our foreign operations into us dollars the increases in our revenues and net income in the first nine months of 2008 compared with the same period in 2007 were primarily due to the contributions of rader and two of the other three size reduction companies and the positive effect of a weaker us dollar versus the same period in 2007 on the translation of the revenues and profits of our foreign operations into us dollars the overall effective tax rate was 272 for the third quarter of 2008 versus 307 for the same period in 2007 with the decrease being primarily due to a higher proportion of our earnings in emeaasia which are taxed at an overall lower rate than are our earnings in the united states the overall effective tax rate was 287 for the first nine months of 2008 which was comparable to the rate of 292 for the same period in 2007 income tax expense in the first nine months of 2008 was reduced by approximately 223000 due to the reversal of a previously recorded foreign tax contingency of 173000 and a 17 tax refund of 50000 due from the us treasury related to the completion of an internal revenue service audit of the company s us corporation tax filings for 2004 2005 and 2006 both of which were recorded in the second quarter of 2008 income tax expense in the first nine months of 2007 was reduced by approximately 410000 as a result of the finalization in the second quarter of 2007 of a swiss tax audit of our swiss subsidiary for the years 2004 and 2005 foreign exchange rates we are an international company and we derived approximately 35 of our revenues for the first nine months of both 2008 and 2007 from products manufactured in and sales made and services performed from our facilities located outside the united states primarily in europe with our global operations we are sensitive to changes in foreign currency exchange rates foreign exchange rates which can affect both the translation of financial statement items into us dollars as well as transactions where the revenues and related expenses may initially be accounted for in different currencies such as sales made from our swiss manufacturing facility in currencies other than the swiss franc since we receive substantial revenues from activities in foreign jurisdictions our results can be significantly affected by changes in foreign exchange rates particularly in us dollar exchange rates with respect to the swiss franc euro british pound sterling canadian dollar and swedish krona and to a lesser degree other currencies when the us dollar weakens against these currencies the us dollar value of nonus dollarbased sales increases when the us dollar strengthens against these currencies the us dollar value of nonus dollarbased sales decreases correspondingly the us dollar value of nonus dollarbased costs increases when the us dollar weakens and decreases when the us dollar strengthens overall our revenues in us dollars generally benefit from a weaker dollar and are adversely affected by a stronger dollar relative to major currencies worldwide especially those identified above in particular a general weakening of the us dollar against other currencies would positively affect our revenues gross profit and operating income as expressed in us dollars provided that the gross profit and operating income numbers from foreign operations are not losses since in the case of a loss the effect would be to increase the loss whereas a general strengthening of the us dollar against such currencies would have the opposite effect in addition our revenues and income with respect to sales transactions may be affected by changes in foreign exchange rates where the sale is made in a currency other than the functional currency of the facility manufacturing the product subject to the sale for the third quarter and first nine months of 2008 and 2007 the changes in certain key foreign exchange rates affecting us were as follows three months ended nine months ended sept 27 sept 29 sept 27 sept 29 2008 2007 2008 2007 average us dollar equivalent of one swiss franc 0932 0836 0948 0821 change vs prior year 115 155 average us dollar equivalent of one euro 1503 1378 1523 1346 change vs prior year 91 132 18 three months ended nine months ended sept 27 sept 29 sept 27 sept 29 2008 2007 2008 2007 average us dollar equivalent of one british pound sterling 1894 2024 1949 1988 change vs prior year 64 20 average us dollar equivalent of one canadian dollar 0962 0959 0982 0909 change vs prior year 03 80 average us dollar equivalent of one swedish krona 0159 0149 0162 0146 change vs prior year 67 110 average swiss franc equivalent of one euro 1613 1648 1607 1639 change vs prior year 21 19 average swiss franc equivalent of one british pound sterling 2032 2421 2056 2421 change vs prior year 161 151 presentation of results and analysis the following table sets forth our results of operations expressed as a percentage of total revenues for the periods indicated three months ended nine months ended sept 27 sept 29 sept 27 sept 29 2008 2007 2008 2007 total revenues 1000 1000 1000 1000 cost of revenues 584 582 579 577 gross profit 416 418 421 423 selling general and administrative 246 251 250 253 research and development 11 12 11 12 operating income 159 155 160 158 interest expense net 03 08 05 09 income before income taxes 156 147 155 149 income tax provision 43 45 45 43 net income 113 102 110 106 19 the following table sets forth our order backlog on the dates indicated sept 27 2008 dec 29 2007 sept 29 2007 backlog at september 27 2008 foreign exchange rates in thousands of dollars 73995 71199 63392 total revenues increased by 11459000 or 238 in the third quarter of 2008 and by 34617000 or 243 in the first nine months of 2008 compared to the same periods in 2007 the increases in our revenues in the third quarter and first nine months of 2008 compared with the same periods in 2007 were primarily due to the stronger performance of our process business line in emeaasia the contributions from the operations of rader and two of the other three companies in our size reduction business line and the positive effect of a weaker us dollar versus the same periods in 2007 on the translation of the revenues of our foreign operations into us dollars gross profit as a percentage of total revenues decreased to 416 in the third quarter of 2008 from 418 for the same period in 2007 and decreased to 421 in the first nine months of 2008 from 423 for the same period last year we believe that these decreases primarily reflected a change in the sales mix of the products and services that we sold within our two business lines during these periods sales mix refers to the relative amounts of different products sold and services provided gross margin levels vary with the product sold or service provided for example sales of replacement parts in our size reduction business line generally carry a higher gross margin than sales of equipment within that line selling general and administrative sg a expense increased by 2609000 or 216 in the third quarter of 2008 and by 8359000 or 232 in the first nine months of 2008 compared to the same periods in 2007 we believe that these increases for the third quarter and first nine months of 2008 were primarily due to the inclusion of the operations of rader that we acquired on september 14 2007 the unfavorable effect of a weaker us dollar on the translation of foreign costs into us dollars higher sales commissions related to increased revenues and in the first nine months first quarter 2008 foreign exchange losses on transaction exposure caused by the marking to market of nonswiss franc balances to swiss franc values on the balance sheet of our swiss subsidiary as a percentage of revenues sg a decreased to 246 and 250 in the third quarter and first nine months of 2008 versus 251 and 253 in the third quarter and first nine months of 2007 research and development r d expense increased 138 in the third quarter of 2008 and 90 in the first nine months of 2008 compared to the same periods in 2007 due primarily to the effect of a weaker us dollar in the third quarter and first nine months of 2008 on the translation into us dollars of our r d expenses incurred in switzerland interest expense net of interest income decreased by 184000 or 507 in the third quarter of 2008 and by 459000 or 363 in the first nine months of 2008 compared to the same periods in 2007 these decreases were primarily due to the effect of lower debt levels excluding borrowings related to the rader acquisition lower interest rates and higher interest income partially offset by interest expense on the borrowings related to the rader acquisition income before income taxes increased to 9263000 in the third quarter of 2008 and 27449000 in the first nine months of 2008 compared to 7116000 and 21284000 for the 20 same periods in 2007 the increases of 2147000 in the third quarter of 2008 and 6165000 in the first nine months of 2008 were primarily the net result of the items discussed above the income tax provisions for the third quarter and first nine months of 2008 were 2516000 and 7873000 compared to 2186000 and 6222000 for the same periods in 2007 the overall effective tax rate was 272 for the third quarter of 2008 versus 307 for the same period in 2007 with the decrease being primarily due to a higher proportion of our earnings in emeaasia which are taxed at an overall lower rate than are our earnings in the united states the overall effective tax rate was 287 for the first nine months of 2008 which was comparable to the rate of 292 for the same period in 2007 income tax expense in the first nine months of 2008 was reduced by approximately 223000 due to the reversal of a previously recorded foreign tax contingency of 173000 and a tax refund of 50000 due from the us treasury related to the completion of an internal revenue service audit of our us corporation tax filings for 2004 2005 and 2006 both of which were recorded in the second quarter of 2008 income tax expense in the first nine months of 2007 was reduced by approximately 410000 as a result of the finalization in the second quarter of 2007 of a swiss tax audit of our swiss subsidiary for the years 2004 and 2005 our order backlog at constant foreign exchange rates increased by 2796000 or 39 at the end of the third quarter of 2008 compared to the end of fiscal year 2007 from 71199000 to 73995000 our order backlog at constant foreign exchange rates increased by 10603000 or 167 at the end of the third quarter of 2008 compared to the end of the third quarter of 2007 from 63392000 to 73995000 the increases in our order backlog at the end of the third quarter of 2008 versus both yearend 2007 and the end of the third quarter of 2007 at constant foreign exchange rates primarily reflected stronger demand for equipment in our size reduction business line liquidity and capital resources capitalization our capitalization at the end of the third quarter of 2008 and at the end of fiscal year 2007 is summarized below september 27 december 29 dollars in thousands 2008 2007 shortterm debt including current portion of longterm debt 1722 1201 longterm debt 24000 36913 total debt 25722 38114 shareholders equity 116512 93953 total debt and shareholders equity total capitalization 142234 132067 percent total debt to total capitalization 18 29 percent longterm debt to equity 21 39 percent total debt to equity 22 41 the weighted average annual interest rate on total debt at september 27 2008 was 512 21 total debt decreased by 12392000 in the first nine months of 2008 at september 27 2008 and subject to certain conditions which may limit the amount that may be borrowed at any particular time we had 24481000 of unused borrowing capacity under our us revolving credit facility and 8613000 of unused borrowing capacity under our foreign loan agreements other items at september 27 2008 working capital was 61805000 compared to 52242000 at december 29 2007 and the ratio of current assets to current liabilities at those dates was 224 and 206 in the first nine months of 2008 and 2007 we utilized internally generated funds and our us revolving credit facility to meet our working capital needs net cash provided by operating activities was 15694000 in the first nine months of 2008 compared to 20586000 for the same period in 2007 this 4892000 decrease in operating cash flow was primarily due to an increase in accounts receivable and inventory a smaller increase in accounts payable and a decrease in accrued expenses and other current liabilities in the first nine months of 2008 compared to the first nine months of 2007 partially offset by higher net income and increased depreciation and amortization net cash of 2357000 used in investing activities in the first nine months of 2008 was primarily for capital additions and an installment payment related to the purchase of certain assets of wuxi chenghao partially offset by a reduction of restricted cash associated with the collateralization of letters of credit while net cash of 19817000 used in investing activities in the first nine months of 2007 was primarily for the rader acquisition an internal revenue code section 338h10 election associated with the purchase of premier pneumatics inc in october 2006 capital additions and the purchase of certain assets of wuxi chenghao partially offset by a reduction of restricted cash associated with the collateralization of letters of credit and proceeds from the disposition of an asset net cash used in financing activities in the first nine months of 2008 was for principal payments on debt and the purchase of 5618 shares of the company s common stock partially offset by the proceeds of stock option exercises and the tax benefit associated therewith net cash used in financing activities in the first nine months of 2007 was for net reductions in debt partially offset by the proceeds of stock option exercises and the tax benefit associated therewith shareholders equity increased 22559000 in the first nine months of 2008 of which 19576000 was from net income 1967000 was from the issuance of common stock pursuant to restricted stock grants and the exercise of stock options 1047000 was from the tax benefit associated with such stock option exercises and the vesting of restricted stock grants and 757000 was from changes in foreign exchange rates primarily the translation of swiss francs into us dollars between the beginning and the end of the ninemonth period partially offset by 769000 used to purchase 5618 shares of the company s common stock and 19000 from an unrealized loss net of taxes attributable to several interest rate swaps future payments under contractual obligations we are obligated to make future payments under various contracts such as debt agreements and lease agreements and we are subject to certain other commitments and contingencies there have been no material changes to future payments under contractual obligations as reflected in the liquidity and capital resources section of management s discussion and analysis in our 2007 form 10k except for an 10750000 decrease in the 22 principal amount due in 2011 under our us revolving credit facility and a 482000 prepayment of principal due august 1 2009 under our us mortgage refer to notes 8 and 15 to the consolidated financial statements in our 2007 form 10k for additional information on longterm debt and commitments and contingencies risk factors in addition to the other information set forth in this report you should carefully consider the factors discussed in part i liquidity and capital resources in our 2007 form 10k a 100 basis point increase in market interest rates on the 2000000 of variable rate debt would increase annual interest expense by approximately 20000 24 |
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SEC 10-X Filings Dataset
This dataset contains processed SEC 10-X (10-K, 10-Q) filings, focusing on Risk Factors and Management Discussion & Analysis (MD&A) sections from corporate financial reports from 1993-2023.
🔗 Original Dataset: [SEC-EDGAR-10X] contains stripped down versions of the original filings, details about which can be found here.
This dataset is a further cleaned tabulated version of the original stripped down version making it more suitable for training tasks.
Note: Documents with no match to risk factors or MD&A have been filtered out.
Dataset Description
Overview
This dataset is derived from SEC 10-X filings and provides structured access to two critical sections of corporate financial reports:
- Risk Factors (Item 1A)
- Management's Discussion and Analysis (Item 7)
The data has been processed to enable natural language processing and financial analysis tasks.
Processing Methodology
The dataset was created using a parsing pipeline that addresses several key considerations:
Risk Factors Extraction
- Multiple instances of risk factors may appear in a single filing
- The parser identifies all instances and selects the most comprehensive section
- When multiple valid sections are found, the longest section is retained to ensure completeness
MD&A Extraction
- Management Discussion & Analysis sections are identified and extracted
- Multiple MD&A sections within a filing are concatenated to preserve all relevant information
Data Organization
- Filings are grouped by CIK (Central Index Key) and filing date
- Multiple sections from the same filing are combined
- Empty or invalid entries are filtered out
Data Format
The dataset is stored in Parquet format with the following schema:
{
'CSI': 'string', # Central Index Key (CIK)
'FILE_DATE': 'string', # Filing date in YYYYMMDD format
'RISK_FACTOR': 'string', # Extracted Risk Factors section
'MD&A': 'string' # Extracted Management Discussion & Analysis section
}
Usage
Loading the Dataset
import datasets
dataset = datasets.load_dataset("theaayushbajaj/10-X-raw-v1", split="train")
Example Applications
- Risk analysis and classification
- Temporal analysis of corporate risk factors
- Business strategy analysis through MD&A
- Corporate disclosure analysis
- Financial sentiment analysis
Acknowledgments
- Securities and Exchange Commission (SEC) for providing access to the original filings
- University of Notre Dame for compiled versions
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