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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 4, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ______
Commission File Number 0-9576
K-TRON INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-1759452
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer ID #)
incorporation or organization)
Routes 55 & 553
P.O. Box 888
Pitman, New Jersey
08071-0888
----------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(609) 589-0500
---------------------------------------------------
(Registrant's Telephone Number Including Area Code)
Not Applicable
----------------------------------------------------
(Former name, former address and formal fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
The number of shares of Common Stock outstanding as of April 4, 1998 was:
3,245,814 Shares
<PAGE> 2
K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
April 4, 1998 and January 3, 1998 1
Consolidated Statements of Income
and Retained Earnings for the Three Months
Ended April 4, 1998 and March 29, 1997 2
Consolidated Statements of Cash Flows
for the Three Months Ended April 4, 1998
and March 29, 1997 3
Notes to Consolidated Financial Statements 4 - 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 6 - 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
K-TRON INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands except Share Data)
<TABLE>
<CAPTION>
April 4, January 3,
1998 1998
(Unaudited) (Audited)
----------- ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,995 $ 5,154
Accounts receivable (less allowance for doubtful accounts of
$1,087 and $1,119) 16,333 15,336
Inventories 9,918 10,010
Deferred income taxes 950 950
Prepaid expenses and other current assets 1,074 1,196
-------- --------
Total Current Assets 32,270 32,646
PROPERTY, PLANT AND EQUIPMENT, net 15,104 15,437
PATENTS, net 707 694
GOODWILL, net 4,506 4,844
OTHER ASSETS 215 628
-------- --------
Total Assets $ 52,802 $ 54,249
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ 1,310 $ 2,088
Current portion of long-term debt 1,103 1,060
Accounts payable 5,535 5,426
Accrued expenses & other current liabilities 4,192 4,270
Accrued payroll 2,744 3,869
Accrued commissions 2,428 2,463
Customer advances 1,657 1,627
Accrued warranty 945 912
Income taxes payable 1,648 1,508
-------- --------
Total Current Liabilities 21,562 23,223
LONG-TERM DEBT, net of current portion 9,896 10,619
DEFERRED INCOME TAXES 431 431
OTHER NONCURRENT LIABILITIES 932 1,084
COMMITMENTS AND CONTINGENCIES
SERIES A JUNIOR PARTICIPATING PREFERRED
SHARES, $.01 par value - authorized 50,000 shares; none issued -- --
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value - authorized 950,000 shares;
none issued -- --
Common stock, $.01 par value - authorized 15,000,000 shares;
issued 4,298,764 shares and 4,271,300 shares 43 43
Paid-in capital 15,114 14,833
Retained earnings 16,553 15,246
Cumulative translation adjustments (1,265) (766)
-------- --------
30,445 29,356
-------- --------
Treasury stock, 1,052,950 shares - at cost (10,464) (10,464)
-------- --------
Total Shareholders' Equity 19,981 18,892
-------- --------
Total Liabilities and Shareholders' Equity $ 52,802 $ 54,249
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
-1-
<PAGE> 4
K-TRON INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME & RETAINED EARNINGS
(Dollars in Thousands except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------
April 4, March 29,
1998 1997
---- ----
<S> <C> <C>
REVENUES $21,455 $21,344
COST OF REVENUES 11,815 11,981
------- -------
Gross profit 9,640 9,363
OPERATING EXPENSES
Selling, general and administrative 6,855 6,962
Research and development 735 722
------- -------
7,590 7,684
------- -------
Operating profit 2,050 1,679
INTEREST EXPENSE 208 314
------- -------
Income before income taxes 1,842 1,365
INCOME TAX PROVISION 535 315
------- -------
Net income 1,307 1,050
RETAINED EARNINGS
Beginning of period 15,246 9,802
------- -------
End of period $16,553 $10,852
======= =======
EARNINGS PER SHARE
Basic $ .40 $ .33
======= =======
Diluted $ .39 $ .33
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
-2-
<PAGE> 5
K-TRON INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 4, March 29,
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 1,307 $ 1,050
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 734 770
Amortization of deferred gain on sale/leaseback transaction (93) (96)
Changes in assets and liabilities:
Accounts receivable, net (1,486) (499)
Inventories (187) 800
Prepaid expenses and other current assets 88 454
Other assets 396 (108)
Accounts payable 305 37
Accrued expenses and other current liabilities (941) 1,442
Accrued warranty 64 76
Income taxes 157 (431)
------- -------
Net cash provided by operating activities 344 3,495
------- -------
INVESTING ACTIVITIES:
Capital expenditures (756) (184)
Investment in patents (25) (40)
------- -------
Net cash used in investing activities (781) (224)
------- -------
FINANCING ACTIVITIES:
Net repayments under notes payable to banks (696) (1,400)
Principal payments on long-term debt (601) (282)
Proceeds from issuance of long-term debt 405 --
Proceeds from issuance of Common stock 281 50
------- -------
Net cash used in financing activities (611) (1,632)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (111) (292)
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,159) 1,347
CASH AND CASH EQUIVALENTS
Beginning of period 5,154 3,079
------- -------
End of period $ 3,995 $ 4,426
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE> 6
K-TRON INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 4, 1998
(Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with the instructions for Form 10-Q and do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The consolidated financial statements include the accounts
of K-Tron International, Inc. ("K-Tron" or the "Company") and its subsidiaries.
All intercompany transactions have been eliminated in consolidation. In the
opinion of management, all adjustments (consisting of a normal recurring nature)
considered necessary for a fair presentation of results for interim periods have
been made. The results for the interim periods are not necessarily indicative of
the results for a full year.
The unaudited financial statements herein should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended January 3, 1998 which
was previously filed with the Securities and Exchange Commission.
2. Supplemental Disclosures of Cash Flow Information
The Company considers all highly liquid short-term investments purchased with a
maturity of three months or less to be cash equivalents. Cash paid in the first
three months of 1998 and 1997 for interest was $.2 million and $.2 million,
respectively, and for income taxes was $.3 million and $.7 million,
respectively.
3. Earnings per Share
In 1997, the Company adopted SFAS No. 128, "Earnings per Share." SFAS No. 128
requires that the Company report Basic and Diluted Earnings Per Share. Basic
Earnings Per Share represents net income less preferred dividends divided by the
weighted average common shares outstanding. Diluted Earnings Per Share is
calculated similarly, except that the denominator includes weighted average
common shares outstanding plus the dilutive effect of options, warrants,
convertible securities and other instruments with dilutive effects if exercised.
The Company's Basic and Diluted Earnings Per Share are calculated as follows:
<TABLE>
<CAPTION>
For the Three Months Ended April 4, 1998
(Dollars in Thousands except Share Data)
Income Available
To Common Per Share
Shareholders Shares Amount
------------ ------ ------
<S> <C> <C> <C> <C>
Basic Net Income $1,307 3,236,000 $ .40
Common Share Equivalent
of Options Issued -- 95,000 (.01)
------ --------- -----
Diluted $1,307 3,331,000 $ .39
====== ========= =====
</TABLE>
-4-
<PAGE> 7
<TABLE>
<CAPTION>
For the Three Months Ended March 29, 1997
(Dollars in Thousands except Share Data)
Income Available
To Common Per Share
Shareholders Shares Amount
------------ ------ ------
<S> <C> <C> <C> <C>
Basic Net Income $1,050 3,140,000 $.33
Common Share Equivalent
of Options Issued -- 42,000 --
------ --------- ----
Diluted $1,050 3,182,000 $.33
====== ========= ====
</TABLE>
Earnings per common share are based on the weighted average number of common and
common equivalent shares outstanding during each year. Such average shares
include the weighted average number of common shares outstanding plus the shares
issuable upon exercise of stock options after the assumed repurchase of common
shares with the related proceeds.
4. Impact of New Accounting Pronouncement
In the first quarter, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," which establishes standards
for the reporting and display of comprehensive income and its components.
Comprehensive income is the total of net income and all other non-owner changes
in equity. For the 3 months in the period ended April 4, 1998 and March 29,
1997, the following table sets forth the Company=s comprehensive income as
follows:
<TABLE>
<CAPTION>
($000)
April 4, March 29,
1998 1997
---- ----
<S> <C> <C>
Net Income $1,307 $1,050
Cumulative Translation Adjustments (499) (524)
------ ------
Comprehensive Income $ 808 $ 526
====== ======
</TABLE>
-5-
<PAGE> 8
ITEM 2. K-TRON INTERNATIONAL, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 4, 1998
Results of Operations
For the first three months of 1998 and 1997, the Company reported net
income of $1,307,000 and $1,050,000, respectively.
K-Tron is an international company with approximately 59% of its
revenues derived from products manufactured and services performed from its
facilities outside the United States, primarily in Europe. As such, the
financial position and performance of the Company is sensitive to both
translation and transaction fluctuations in foreign currency exchange rates
("foreign exchange rates").
The following table sets forth the Company's results of operations
expressed as a percentage of total revenues for the periods indicated:
Three Months Ended
April 4, 1998 March 29, 1997
------------- --------------
Total Revenues 100.0% 100.0
Cost of Revenues 55.1 56.1
----- -----
Gross Profit 44.9 43.9
Selling, General & Administrative 31.9 32.6
Research & Development 3.4 3.4
----- -----
Operating Income 9.6 7.9
Interest 1.0 1.5
----- -----
Income before income taxes 8.6% 6.4%
===== =====
Backlog at end of period (at April 4,
1998 constant foreign exchange
rates, in millions):
March 1998 Dec. 1997 March 1997
---------- --------- ----------
$21,646 $17,730 $21,565
======= ======= =======
Translation of the Company's foreign revenues and results of operations
into U.S. dollars is affected by changes in foreign exchange rates, particularly
with respect to the Swiss franc and the Deutsche mark. In addition, revenues and
income of the Company with respect to particular transactions may be affected by
changes in foreign exchange rates where sales are made in other currencies,
including in particular the average U.S.
-6-
<PAGE> 9
dollar/ Swiss franc, U.S. dollar/Deutsche mark and Deutsche mark/Swiss franc
exchange rates. For the first three months of 1998 as well as the same period in
1997, the changes in these exchange rates were as follows:
Three Months Ended
April 4, March 29,
1998 1997
---- ----
Average U.S. dollar equivalent of
one Swiss franc $.677 $.697
% change vs. prior year -2.9%
Average U.S. dollar equivalent of
one Deutsche mark $.549 $.604
% change vs. prior year -9.1%
Average Swiss franc equivalent of
one Deutsche mark .811 .867
% change vs. prior year -6.5%
Total revenues increased by $.1 million or less than 1% in the first
three months of 1998 when compared to the same period in 1997. The increase in
revenues would have been greater except for the lower exchange translation rates
of certain currencies into U.S. dollars. If the average foreign exchange
translation rates for the first three months of 1998 were applied to the same
periods in 1997, revenues would have increased 3.0% for the first three months.
Gross profit as a percent of revenues improved to 44.9% for the first
three months of 1998, as compared to 43.9% for the same period in 1997. The
change in gross margin in 1998 was primarily due to sales mix and increased
volume in local currencies.
Selling, general and administrative (SG&A) expense decreased by $.1
million or 1.5% for the first three months of 1998, as compared to the same
period in 1997. The decrease in SG&A was due to the lower foreign exchange
translation rates previously described offset in part by higher selling
expenses.
Research and development (R&D) expenditures increased slightly for the
first three months of 1998, as compared to the same period in 1997. R&D expenses
increased due to the development of new product enhancements, offset in part by
lower foreign exchange translation rates.
Interest expense decreased by $.1 million or 33.8% for the first three
months of 1998, as compared to the same period in 1997, primarily due to lower
debt levels and lower foreign exchange translation rates.
The effective tax rate for the first three months of 1998 was 29.0%,
compared to 23.1% for the same period in 1997. The effective tax rate in the
first three months of 1998 was higher than the same period in 1997 due to an
increase in income in the United States.
-7-
<PAGE> 10
The March 1998 backlog increased by 22.1%, primarily in Europe, when
compared to December 1997 and increased slightly when compared to the same
period in 1997 (at constant foreign exchange rates).
Liquidity and Capital Resources
The Company's capitalization as of the end of the first quarter of 1998
and fiscal years 1997 and 1996 is set forth below:
<TABLE>
<CAPTION>
April 4, January 3, December 28,
(Dollars in Thousands) 1998 1998 1996
-------- ---------- ------------
<S> <C> <C> <C>
Short-term debt including current
portion of long-term debt $ 2,413 $ 3,148 $ 861
Long-term debt 9,896 10,619 20,807
------- ------- -------
Total debt 12,309 13,767 21,668
Shareholders' equity 19,981 18,892 13,194
------- ------- -------
Total debt and shareholders= equity $32,290 $32,659 $34,862
======= ======= =======
Percent total debt to total capitalization 38% 42% 62%
Percent long-term debt to equity 50% 56% 158%
Percent total debt to equity 62% 73% 164%
</TABLE>
At January 3, 1998, the Company=s Swiss subsidiary achieved better than
a 1.5 to 1.0 debt to equity ratio and, accordingly, on March 31, 1998 the 2%
interest premium on borrowed funds terminated and certain other restrictions
ended. Moreover, the Swiss subsidiary and the Swiss lenders terminated the
forbearance agreement on March 31, 1998. New lines of credit arrangements have
either been entered into or agreed to in principal with the Swiss lenders for
8.0 million Swiss francs ($5.2 million). As of April 4, 1998, 2.0 million Swiss
francs ($1.3 million) was outstanding under these agreements at an interest rate
of 3.75%.
Total debt decreased by $1.5 million in the first three months of 1998,
of which $.6 million was due to the effect of foreign exchange translation.
Total debt without the effect of the foreign exchange translation decreased by
$.9 million. European and U.S. debt decreased by $.7 million and $.2 million,
respectively. At April 4, 1998, the Company had $5.7 million of availability
under its U.S. revolving credit agreement and $3.9 million of availability under
its new Swiss loan arrangements.
At April 4, 1998, there was working capital of $10.7 million as
compared to $9.4 million at January 3, 1998, and the ratio of current assets to
current liabilities at those dates was 1.50 and 1.41, respectively.
-8-
<PAGE> 11
In the first three months of 1998 and 1997, the Company utilized
earnings from operations and internally-generated funds to meet its working
capital needs and reduce debt.
Net cash provided by operating activities was $.3 million in the first
three months of 1998 as compared to $3.5 million in the same period of 1997. The
decrease in operating cash flow was primarily from an increase in accounts
receivable and inventories and a decrease in the total amount of accounts
payable and accrued expenses.
Net cash used in investing activities in the first three months of 1998
and 1997 was for capital additions.
Net cash used in financing activities in the first three months of 1998
and 1997 was for the reduction of debt and was obtained from the cash provided
by operating activities.
Changes in foreign exchange rates, particularly with respect to the
Swiss franc and Deutsche mark, caused a translation adjustment decrease in
shareholders' equity of $.5 million in the first three months of 1998.
-9-
<PAGE> 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K for the three months ended
April 4, 1998.
-10-
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
K-TRON INTERNATIONAL, INC.
Date: May 4, 1998
By: /s/ ROBERT L. WEINBERG
-----------------------
Robert L. Weinberg
Senior Executive Vice President
& Chief Financial Officer
(Duly authorized officer and
principal financial officer
of the registrant)
By: /s/ ALAN R. SUKONECK
---------------------
Alan R. Sukoneck
Vice President, Chief Accounting
& Tax Officer
(Duly authorized officer and
principal accounting officer
of the registrant)
-11-
<PAGE> 14
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-2-1999
<PERIOD-START> JAN-4-1998
<PERIOD-END> APR-4-1998
<CASH> 3,995
<SECURITIES> 0
<RECEIVABLES> 17,420
<ALLOWANCES> 1,087
<INVENTORY> 9,918
<CURRENT-ASSETS> 32,270
<PP&E> 39,540
<DEPRECIATION> 24,436
<TOTAL-ASSETS> 52,802
<CURRENT-LIABILITIES> 21,562
<BONDS> 9,896
0
0
<COMMON> 43
<OTHER-SE> 19,938
<TOTAL-LIABILITY-AND-EQUITY> 52,802
<SALES> 21,455
<TOTAL-REVENUES> 21,455
<CGS> 11,815
<TOTAL-COSTS> 11,815
<OTHER-EXPENSES> 7,590
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 208
<INCOME-PRETAX> 1,842
<INCOME-TAX> 535
<INCOME-CONTINUING> 1,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,307
<EPS-PRIMARY> .40
<EPS-DILUTED> .39
</TABLE>
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