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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [NO FEE REQUIRED] for the fiscal year ended January 2, 1999 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [NO FEE REQUIRED] for the transition period from
________ to ________
COMMISSION FILE NUMBER 0-9576
K-TRON INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
New Jersey 22-1759452
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Routes 55 and 553
P.O. Box 888
Pitman, New Jersey 08071-0888
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609)589-0500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
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]
2
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this annual report on Form 10-K or any amendment to
this annual report on Form 10-K. /X/
As of March 12, 1999, the aggregate market value of the Common Stock held by
non-affiliates of the registrant was $49,043,196. Such aggregate market value
was computed by reference to the closing sale price of the Common Stock as
reported on the Nasdaq National Market on such date. For purposes of making this
calculation only, the registrant has defined affiliates as including all
directors and executive officers, but excluding David L. Babson & Company,
Incorporated, which is the only beneficial owner of more than ten percent of the
registrant's Common Stock.
As of March 12, 1999, there were 2,945,605 shares of the registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
As stated in Part III of this annual report on Form 10-K, portions of the
following document are incorporated herein by reference:
Definitive proxy statement to be filed within 120 days after the end of
the fiscal year covered by this annual report on Form 10-K.
Unless the context indicates otherwise, the terms "K-Tron" and "Company" refer
to K-Tron International, Inc. and, where appropriate, one or more of its
subsidiaries.
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PART I
ITEM 1. BUSINESS.
GENERAL
K-Tron International, Inc. was incorporated in New Jersey in 1964. The
Company's operations are conducted primarily through subsidiaries, and its
principal business is the design, production, marketing and sale of gravimetric
and volumetric feeders and related equipment for the handling of bulk solids in
a wide variety of manufacturing processes. K-Tron feeders control by mass or
weight (gravimetric feeding) or by volume (volumetric feeding) the rate at which
ingredients are fed into the manufacturing processes of numerous products. The
major industries served are plastics, food, chemical, pharmaceutical and cement,
but the Company's feeders are also used in many other industries.
In addition to feeding equipment, K-Tron designs, produces, markets and
sells pneumatic conveying systems and related equipment for the food, plastics
and pharmaceutical industries, which may be used either in conjunction with
certain K-Tron feeders or on a stand-alone basis, as well as electronic
assemblies.
K-Tron has manufacturing facilities in the United States, Switzerland
and Canada, and its equipment is sold throughout the world. The Company provides
service and spare parts for its feeding and pneumatic conveying equipment on a
worldwide basis, and it offers customer and employee training through its K-Tron
Institute in the United States and similar programs in Switzerland and
elsewhere.
See Note 12 of Notes to consolidated financial statements, included in
Item 8 of this annual report on Form 10-K, for certain financial information
about foreign and domestic operations.
BRAND NAMES
The Company produces, markets and sells its feeding and pneumatic
conveying equipment under three brand names: K-Tron Soder (feeders for other
than heavy industries), Hasler (feeders for heavy industries) and Hurricane
(pneumatic conveying equipment). The Company sells these brands on both an
equipment and total systems basis.
FEEDING EQUIPMENT
The Company's feeders control the flow of materials into a
manufacturing process by mass or weight (gravimetric feeding) or by volume
(volumetric feeding). Feeding equipment manufactured by the Company is used in
many different industries.
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Weigh Belt Feeders. Weigh belt feeders move dry bulk material along a
belt, continuously weighing the material and adjusting the belt speed in order
to control precisely the flow rate of the material being fed into the
manufacturing process. The feeder regulates the flow rate according to the set
points in its electronic controller. A typical application would incorporate
several feeders, each supplying an ingredient of the final product, and
electronic controllers that determine the feed rate of each ingredient and are
capable of instantly altering individual feed rates to maintain the desired
proportion of each ingredient.
Weigh belt feeders may also be used as batchers, to feed bulk material
into bags and other containers, or as meters, to measure accurately the amount
of material flowing into or out of a container.
Loss-in-Weight Feeders. The loss-in-weight principle involves weighing
the entire feeding system, both equipment and material, which may be either dry
or liquid. The feeding mechanism controls the rate at which material is
discharged into the manufacturing process based upon a change in the total
weight of the system as material flows from the feeder. Electronic controllers
determine the feed rate and are capable of instantly altering feed rates to
maintain an accurate flow of materials. In dry material applications,
loss-in-weight feeders usually utilize an auger (single or twin screw) or
vibratory feeding mechanism, and the outflow is adjusted continuously to
maintain the desired feed rate. In liquid applications, the flow rate is
maintained by a pump or valve. Loss-in-weight feeders are especially suitable
for applications requiring a very high degree of accuracy, as in adding minor
ingredients to food processes or colorants to plastics, or applications
requiring a closed system, as in feeding dusty materials. Loss-in-weight feeders
virtually never need recalibration and may also be used as batchers.
Volumetric Feeders. Volumetric feeders utilize single or twin screw
feeding mechanisms or other systems to regulate flow by volume instead of
weight, thereby offering an economical method of feeding bulk solids where
demands for accuracy are less stringent. They also can be used to make batches
by feeding sequentially into a hopper which is weighed and using the weight
signal to start and stop each feeder.
K-Tron Soder Brand. The K-Tron Soder brand of products offers feeding
equipment and systems to control precisely the flow of ingredients in the
manufacture of numerous products in industries other than heavy industries.
K-Tron Soder feeders, including loss-in-weight feeders, weigh belt feeders,
volumetric feeders, flow meters and related controls, are assembled at Company
facilities in the United States and Switzerland in a complete range of feeding
equipment types and sizes for these industries. The plastics compounding, food,
chemical, detergent and pharmaceutical industries are among those served by
K-Tron Soder feeders.
Hasler Brand. The Hasler brand of products includes weight belt
feeders, belt scales, flow meters, electronic ears, loss-in-weight feeders and
related controls. Hasler feeders, like K-Tron Soder feeders, control the flow of
ingredients into a process, but Hasler feeders serve heavy industry applications
which generally require high rates of material flow in rugged
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environments. Hasler feeders are used in cement mills, mines and quarries and in
the fertilizer, aluminum, coal, glass and steel industries. They are primarily
assembled at Company facilities in Switzerland and also at Company facilities in
the United States.
PNEUMATIC CONVEYING EQUIPMENT
In 1997, K-Tron acquired Hurricane Pneumatic Conveying Inc., a Canadian
company that manufactures pneumatic conveying systems and related equipment
primarily for the food, plastics and pharmaceutical industries. Hurricane's
brand of products, which include both self-contained and central systems for
powder and pellet applications, may be used in conjunction with certain K-Tron
Soder feeders or on a stand-alone basis. Hurricane products are assembled at
Company facilities in Canada.
K-TRON ELECTRONICS
K-Tron Electronics designs, produces and tests electronic assemblies
for outside customers as well as for use by the Company in its products and also
produces controller hardware for the Company. Its facilities, which are located
in the United States, provide automated surface mount as well as through-hole
assembly capabilities and testing equipment.
CUSTOMERS
The Company sells its equipment throughout the world to a wide variety
of customers in its addressed markets, ranging from large, global companies to
regional and local businesses. No single customer accounted for more than 10% of
the Company's total revenues in fiscal 1998.
MANUFACTURING AND SUPPLIERS
The Company's primary manufacturing activities consist of the assembly,
calibration and testing of equipment, the machining and fabrication of certain
components and the producing of electronic assemblies and controllers. The
Company also manufactures the weight sensors which are used in most of its
gravimetric feeders. The Company assembles a number of components used in its
products that are manufactured by others to its specifications. These components
include sheet metal parts, screws, castings, integrated circuits, printed
circuit boards and enclosures.
The Company produces a number of basic feeder models. Feeder units are
completed to specific customer orders, and customization is generally limited to
combining existing mechanical and electronic modules to meet a customer's
application requirements.
Although certain components of the Company's products are currently
purchased from sole sources, the Company believes that comparable components can
be obtained readily from alternative suppliers or can be manufactured by the
Company internally, at prices competitive
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with those of its current sources. The Company has never had a significant
production delay which was primarily attributable to an outside supplier.
PATENTS
The Company's technology is protected by numerous patents in the United
States and in other major countries which offer patent protection. Certain of
the Company's patents have expired and others will expire at various future
dates. The loss of such patent protection is not expected to have a significant
adverse effect on the Company's operations.
RESEARCH AND DEVELOPMENT
The Company invests in research and development to maintain a
technological leadership position in the feeding equipment industry. R&D focuses
on new products as well as on improvements to existing products. Current efforts
are aimed at developing new products, shortening the time spent in the
development of such products, recycling existing product designs into lower cost
products and analyzing the price/performance relationship for both new and
existing products.
A centralized R&D approach facilitates the development of common or
compatible products for the Company's three brands. The Company utilizes a
common weighing technology for both of its feeder brands.
The Company's research and development expenses were $2,980,000,
$2,768,000 and $2,316,000 in fiscal 1998, 1997 and 1996, respectively.
COMPETITION
The Company is a leading worldwide producer of feeders and related
equipment for the handling of bulk solids in manufacturing processes. The
Company believes it has reached this position primarily because of its use of
electronic and digital control technology, its use of digital weighing
technology and its development of mechanical design improvements to its
products. The Company also relies on other technological advantages and on its
reputation and experience in serving the needs of its large customer base to
maintain a competitive advantage.
The Company entered the pneumatic conveying equipment market late in
1997 with its acquisition of the Hurricane brand. This is a very large market,
and the Company's strategy is to target specific niches within the overall
market and to sell its pneumatic conveying equipment in connection with certain
K-Tron Soder feeders as well as on a stand-alone basis.
K-Tron Electronics was established to design and manufacture electronic
assemblies and controller hardware for use by the Company and also to sell such
assemblies to third parties, generally focusing on small production runs for
customers in New Jersey, eastern Pennsylvania
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and Delaware. The market for electronic assemblies is very large, and K-Tron
Electronics is one of many suppliers to this market in the region identified.
Strong competition exists in every major market that the Company
serves. Competitors range in size from large corporations (or subsidiaries or
divisions thereof) with a broad line of products to regional organizations which
may specialize in a limited range of products.
BACKLOG
At the end of fiscal 1998, the Company's backlog of unfilled orders was
approximately $22,354,000, compared to a backlog of approximately $18,211,000 at
the end of fiscal 1997, an increase of approximately 22.8%. Using January 2,
1999 exchange rates, the backlog of such orders at the end of fiscal 1997 was
approximately $18,693,000, representing an increase in the 1998 backlog of
approximately 19.6%. The backlog of orders at the end of fiscal 1998, excluding
the effect of foreign currency exchange translations, exceeded the fiscal 1997
year-end backlog primarily due to increased orders from customers in the United
States and Europe.
The bulk of the Company's backlog represents orders that will be ready
for delivery in fiscal 1999. It is expected that approximately 40% of the
backlog as of the end of fiscal 1998 will be shipped in the first quarter of
fiscal 1999.
EMPLOYEES
At the end of fiscal 1998, the Company had 496 employees, of which 290
were located in Europe, 188 in the United States, 14 in Singapore, 3 in Canada
and 1 in China.
None of the Company's employees are represented by labor unions. The
Company considers relations with its employees to be good.
ITEM 2. PROPERTIES.
In North America, the Company owns a 92,000 square foot building on 17
acres in Pitman, New Jersey where it has manufacturing facilities,
administrative offices, its corporate headquarters, research and development
offices and a tech center for product demonstrations and training. A portion
(approximately 10,000 square feet) of the Company's Pitman facility is leased to
a sheet metal business which is a major supplier to the Company. The Company
also has leased facilities in Blackwood, New Jersey where it produces electronic
assemblies and controller hardware, and in Brantford, Ontario where it assembles
pneumatic conveying equipment.
In Niederlenz, Switzerland, the Company owns a 60,000 square foot
building where it has manufacturing facilities and a tech center for product
demonstrations, and an adjacent five floor, 40,000 square foot office building
which houses administrative offices, training facilities and
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research and development offices. One floor of the office building is leased to
third parties. The Company also occupies an adjacent leased facility where it
manufactures weight sensors.
In Colombier, Switzerland, the Company leases a 51,000 square foot
building where it has manufacturing facilities, administrative offices, training
facilities and research and development offices.
Certain sales and service activities are conducted at Company-owned
facilities in England (20% leased to a third party) and Germany and from leased
office space in Germany, France, Singapore and China.
The Company believes that its present facilities will be sufficient to
meet its needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
This item is not applicable because there were no matters submitted to
a vote of security holders during the fourth quarter of 1998.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company are as follows:
Name Age Position
Edward B. Cloues, II 51 Chairman of the Board of
Directors and Chief Executive
Officer
Robert L. Weinberg 62 Senior Executive Vice President,
Chief Financial Officer and
Treasurer
Lukas Guenthardt 40 Senior Vice President -
Strategic Planning, Product
Development and Marketing
Kevin C. Bowen 47 President and Chief Executive
Officer of K-Tron America, Inc.
Edward B. Cloues, II has been a director since July 1985 and was most
recently reelected at the 1997 annual meeting of shareholders. He became
Chairman of the Board of Directors and Chief Executive Officer of the Company on
January 5, 1998. From May 1985 until May 1998, Mr. Cloues served as Secretary of
the Company. Prior to joining the Company, Mr. Cloues was a senior partner in
the law firm of Morgan, Lewis & Bockius LLP, which is the Company's general
counsel. He is also a director and non-executive Chairman of the Board of AMREP
Corporation and a director of AmeriQuest Technologies, Inc.
Robert L. Weinberg has been with the Company in various positions since
October 1988 and in his current position as Senior Executive Vice President,
Chief Financial Officer and Treasurer since March 1994.
Lukas Guenthardt has been Senior Vice President - Strategic Planning,
Product Development and Marketing of the Company since June 1, 1998. Mr.
Guenthardt was Managing Director of K-Tron (Switzerland) Ltd. from July 1995 to
June 1, 1998, Managing Director of the Soder Division of K-Tron (Switzerland)
Ltd. from March 1994 to July 1995, and Director of International Research and
Development of the Company from July 1992, when he joined K-Tron, until March
1994.
Kevin C. Bowen has been President and Chief Executive Officer of K-Tron
America, Inc. since March 1995. From March 1994 to March 1995, Mr. Bowen was
President of K-Tron
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North America, the North American sales division of K-Tron America. Mr. Bowen
served as President of K-Tron America from May 1990 to March 1994 and has been
with the Company in various other capacities since 1979.
The executive officers are elected or appointed by the Board of
Directors of the Company or its appropriate subsidiary to serve until the
appointment or election and qualification of their successors or their earlier
death, resignation or removal.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on the Nasdaq National Market under
the symbol "KTII." The following table sets forth the high and low sales prices
for each quarter in fiscal 1997 and 1998 as quoted on the Nasdaq National
Market.
Fiscal Year 1997 High Low
- ---------------- ---- ---
First Quarter ................................. $11.75 $10.25
Second Quarter ................................ $15.25 $10.25
Third Quarter ................................. $15.75 $13.00
Fourth Quarter ................................ $19.75 $14.00
Fiscal Year 1998
First Quarter ................................. $17.938 $15.625
Second Quarter ................................ $20.875 $17.00
Third Quarter ................................. $19.813 $17.50
Fourth Quarter ................................ $19.125 $16.875
On March 12, 1999, the closing sale price of a share of common stock as
reported by the Nasdaq National Market was $17.75.
The number of record holders of the Company's common stock as of March
12, 1999 was 334.
DIVIDEND POLICY
The Company has never paid a cash dividend on its common stock, and it
currently intends to retain all earnings for use in its business. The
declaration and payment of dividends in the future will be determined by the
Board of Directors in light of conditions then existing, including the Company's
earnings, financial condition, capital requirements and other factors.
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data presented below for, and as of
the end of, each of the Company's last five fiscal years have been derived from
and are qualified by reference to the Company's consolidated financial
statements. The consolidated financial statements of the Company for the fiscal
years ended January 2, 1999, January 3, 1998, December 28, 1996, December 30,
1995 and December 31, 1994 have been audited by Arthur Andersen LLP, independent
public accountants.
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This information should be read in conjunction with the Company's consolidated
financial statements and the related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere herein.
The Company has not paid any cash dividends on its shares of common stock during
the periods presented.
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FISCAL YEAR ENDED
---------------------------------------------------------------------------
JAN. 2 JAN. 3 DEC. 28 PRO DEC. 30 DEC. 31
1999 1998 1996 FORMA 1995 1994
1995(1)
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SUMMARY($000):
Revenues $ 89,142 $ 87,152 $ 89,871 $ 89,640 $ 110,394 $ 104,772
Income (loss) before loss on disposition
of businesses and taxes 8,718 7,309 5,841 2,717 834 (6,200)
Income (loss) on disposition of businesses (2) -- -- -- -- (11,278) (852)
Net income (loss) 6,593 5,444 4,026 1,408 (9,294) (6,826)
Total assets 56,617 54,249 55,330 69,296 109,950
Working capital 11,446 9,423 15,362 23,114 (549)
Additions to property, plant and equipment 2,713 3,000 2,081 370 2,467
Depreciation and amortization 3,158 2,977 3,334 4,844 6,314
PER SHARE ($):
Basic net earnings (loss) $ 2.10 $ 1.72 $ 1.29 $ .45 $ (3.00) $ (2.22)
Diluted net earnings (loss) 2.03 1.69 1.28 .45 (3.00) (2.22)
Book value 7.34 5.87 4.21 3.03 6.00
CAPITALIZATION ($000):
Shareholders' equity $ 22,274 $ 18,892 $ 13,194 $ 9,421 $ 18,521
Long-term debt 9,638 10,619 20,807 35,004 27,413
Short-term debt (3) 1,534 3,148 861 2,133 32,512
Total debt 11,172 13,767 21,668 37,137 59,925
RATIOS:
Return on average shareholders' equity (%) 32.0 33.9 35.6 10.1 N/A N/A
Return on revenues (%) 7.4 6.2 4.5 1.6 N/A N/A
Long-term debt to shareholders' equity (%) 43.3 56.2 157.7 371.6 148.0
Current assets to current liabilities 1.5 1.4 1.8 2.1 1.0
Average inventory turnover 4.7 4.1 3.2 2.9 2.9
Average accounts receivable turnover 5.2 5.5 4.8 4.3 3.8
OTHER DATA:
Shares outstanding (000) (4) 3,033 3,218 3,137 3,113 3,088
Shareholders of record (5) 304 342 350 383 423
Number of employees 496 491 461 466 683
(1) Reflects pro forma adjustments for loss on disposition of businesses
described in (2) below and the discontinuance of the Company's other
Colortronic brand business, all as more fully explained in Note 3 of
the Company's 1997 consolidated financial statements, as if such
dispositions and discontinuances had been consummated as of the
beginning of the 1995 fiscal year.
(2) 1995 - loss on disposition of businesses of $10,529 from sale of
Colortronic GmbH and rights to several related patents and patent
applications and $749 loss on the sale of Hasler France and Brazilian
businesses; 1994 reserves established for the anticipated sale of
Hasler France and Brazilian businesses.
(3) Including current portion of long-term debt.
(4) Net of treasury stock of 1,063 shares for fiscal years 1994 through
1996, 1,053 for fiscal year 1997 and 1,295 for fiscal year 1998.
(5) Does not include shareholders whose shares are held in street name.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following provides information which management believes is
relevant to an assessment and understanding of the Company's consolidated
results of operations and financial condition. The discussion should be read in
conjunction with the Company's consolidated financial statements and
accompanying notes. All references to 1998, 1997 and 1996 mean the fiscal years
ended January 2, 1999, January 3, 1998 and December 28, 1996, respectively.
OVERVIEW
In 1998, 1997 and 1996, the Company reported net income of $6,593,000,
$5,444,000 and $4,026,000, respectively.
During early 1996, all Company indebtedness for money borrowed was
subject to forbearance agreements with the Company's U.S. and Swiss lenders
which had been entered into as a result of significant operating losses incurred
by the Company in 1994 and the first half of 1995, including by subsidiaries and
other business operations disposed of in 1995. In June 1996, the Company
replaced its U.S. lenders, and in early 1997 it negotiated revised financing
arrangements with its Swiss lenders. The U.S. forbearance agreement was
terminated in June 1996 and the Swiss forbearance agreement on March 31, 1998,
and today the Company enjoys normal relationships with all of its lenders.
Since mid-1995, the Company's results have improved significantly, and
it has reported fourteen consecutive quarters in which net income has exceeded
net income in the comparable prior year period. Cash flow from operations has
been strong, enabling the Company to reduce its debt by $2,595,000 in 1998,
$7,901,000 in 1997 and $15,469,000 in 1996. In July 1998, the Company also
repurchased 250,000 shares of its common stock for $4,531,250.
On January 29, 1999, the Company repurchased an additional 100,000
shares of its common stock for $1,812,500, which was funded by a combination of
cash in the amount of $312,000 and bank borrowings of $1,500,000.
K-Tron is an international company which derived approximately 58%, 59%
and 62% of its 1998, 1997 and 1996 revenues, respectively, from products
manufactured in, and services performed from, its facilities located outside the
United States, primarily in Europe. As such, the financial position and
performance of the Company is sensitive to changes in foreign currency exchange
rates ("foreign exchange rates"), which can affect both the translation of
financial statement items into U.S. dollars and the impact of transactions where
the revenues and related expenses may initially be accounted for in different
currencies, such as sales made from the Company's Swiss manufacturing facilities
in currencies other than the Swiss franc.
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RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations
expressed as a percentage of total revenues for the periods indicated.
Fiscal Year
----------------------------------------
1998 1997 1996
---- ---- ----
Total revenues 100.0% 100.0% 100.0%
Cost of revenues 54.9 55.2 56.6
--------- --------- ---------
Gross profit 45.1 44.8 43.4
Selling, general and
administrative 31.2 31.9 32.1
Research and development 3.3 3.2 2.5
--------- --------- ---------
Operating income 10.6 9.7 8.8
Interest .8 1.3 2.3
--------- --------- ---------
Income before income taxes 9.8% 8.4% 6.5%
========= ========= =========
Year-end backlog (at year-end
1998 foreign exchange rates, in
thousands) $ 22,354 $ 18,693 $ 20,161
========= ========= =========
As noted above under the Overview, more than half of the Company's
revenues are normally derived from activities in foreign jurisdictions.
Consequently, the Company's results can be significantly affected by changes in
foreign exchange rates, particularly in U.S. dollar exchange rates with respect
to the Swiss franc and German mark and, to a lesser degree, the British pound
sterling, French franc and other currencies. When the U.S. dollar strengthens
against these currencies, the U.S. dollar value of non-U.S. dollar-based sales
decreases. When the U.S. dollar weakens against these currencies, the U.S.
dollar value of non-U.S. dollar-based sales increases. Correspondingly, the U.S.
dollar value of non-U.S. dollar-based costs increases when the U.S. dollar
weakens and decreases when the U.S. dollar strengthens. Overall, the Company
typically receives a majority of its revenues in currencies other than the U.S.
dollar and, as such, benefits from a weaker dollar and is adversely affected by
a stronger dollar relative to major currencies worldwide, especially those
identified above. Accordingly, changes in foreign exchange rates, and in
particular a strengthening of the U.S. dollar, may adversely affect the
Company's total revenues, gross profit and operating income as expressed in U.S.
dollars.
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 currencies other
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than the functional currency of the facility manufacturing the product subject
to the sale, including in particular the U.S. dollar/Swiss franc (for
inter-company transactions) and German mark/Swiss franc (for sales from the
Company's Swiss manufacturing facilities which are made in German marks)
exchange rates. For 1998, 1997 and 1996, the changes in these and the U.S.
dollar/German mark exchange rates were as follows:
Fiscal Year
-----------------------------------------
1998 1997 1996
---- ---- ----
Average U.S. dollar equivalent
of one Swiss franc $.692 $.689 $.810
% change vs. prior year NIL -14.9%
Average U.S. dollar equivalent
of one German mark $.570 $.577 $.666
% change vs. prior year -0.1% -13.4%
Average Swiss franc equivalent
of one German mark .824 .837 .822
% change vs. prior year -1.6% +1.8%
Total revenues increased by $1,990,000 or 2.3% in 1998 when compared
to 1997. The increase was due to higher U.S. and European shipments offset by
lower shipments to Asia from the Company's European manufacturing facilities.
Foreign exchange translation rates minimally affected 1998 when compared to
1997.
Total revenues decreased by $2,719,000 or 3.0% in 1997 when compared to
1996. The decrease in revenues was due to lower exchange translation rates of
certain currencies into U.S. dollars. If the average foreign exchange
translation rates for 1997 were applied to 1996, 1997 revenues would have
increased 6.8% over 1996. The local currency revenue increase was in the United
States and Europe.
Gross profit as a percent of total revenues improved to 45.1% in 1998
as compared to 44.8% in 1997 and 43.4% in 1996. The improvements in gross margin
in 1998 and 1997 were primarily due to sales mix and increased volume in local
currencies.
Selling, general and administrative (SG&A) expense remained constant in
1998 when compared to 1997. SG&A expense decreased by $1,019,000 or 3.5% in 1997
as compared to 1996. The decrease in 1997 SG&A was due to the lower foreign
exchange translation rates previously described offset in part by higher selling
expenses. As a percent of total revenues, SG&A was 31.2% in 1998, 31.9% in 1997
and 32.1% in 1996.
Research and development (R&D) expenditures increased by $212,000 or
7.7% in 1998 and by $452,000 or 19.5% in 1997 as compared to 1997 and 1996,
respectively. R&D
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expenses increased due to greater emphasis on the development of new products
and enhancements to existing products. The 1997 increase as compared to 1996 was
offset in part by lower foreign exchange translation rates. R&D expense as a
percent of total revenues was 3.3% in 1998, 3.2% in 1997 and 2.5% in 1996.
Interest expense decreased by $419,000 or 37.0% in 1998 and by $902,000
or 44.3% in 1997 as compared to 1997 and 1996, respectively. The 1998 decrease
from 1997 was primarily due to lower debt levels and reduced interest rates,
while the 1997 decrease from 1996 was primarily due to lower debt levels and
lower foreign exchange translation rates. Interest expense as a percent of total
revenues was 0.8% in 1998, 1.3% in 1997 and 2.3% in 1996.
Income before income taxes was $8,718,000 in 1998, $7,309,000 in 1997
and $5,841,000 in 1996. The increases during the periods were the result of the
other changes discussed above.
The 1998, 1997 and 1996 provisions for income tax of $2,125,000,
$1,865,000 and $1,815,000, respectively, were related primarily to the Company's
results in the United States and Germany. The effective tax rates were 24.4% for
1998, 25.5% for 1997 and 31.1% for 1996. The Company has New Jersey state and
foreign tax loss carryforwards that total $4,000,000 and $7,800,000,
respectively, which, if realized, would have an estimated future benefit of
$242,000 and $2,203,000, respectively.
The Company does not believe that inflation has had a material impact
on the results of operations during the last three years.
The Company's backlog increased by 19.6% at the end of 1998 compared to
1997 (at constant foreign exchange rates), primarily due to increased order
volume at the United States and European manufacturing facilities. Whereas in
prior years the bulk of the Company's backlog has represented orders that will
be ready for delivery in less than 120 days, this was not the case at the end of
1998. The year-end 1998 backlog consisted of orders most of which will be
delivered in 1999, but only about 40% of such backlog is expected to be shipped
in the first quarter of 1999.
The Company's backlog decreased by 7.3% at the end of 1997 compared to
1996 (at constant foreign exchange rates), primarily due to reduced order volume
for shipment to customers in the United States.
LIQUIDITY AND CAPITAL RESOURCES
As noted earlier under the Overview, the forbearance agreement between
the Company's Swiss subsidiary and its Swiss lenders terminated on March 31,
1998, and the Company now enjoys normal banking relationships with all of its
lenders in the United States
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18
and Switzerland. All current loan agreements are with the Company's U.S. and
Swiss manufacturing subsidiaries.
During the first part of 1998, new short-term lines of credit were
entered into with the Swiss lenders for 6.0 million Swiss francs ($4,372,000).
At January 2, 1999, the Company's Swiss subsidiary had borrowed $254,000 under
these short-term lines of credit and $4,118,000 was available for future
borrowings. The interest rate on the amounts borrowed at January 2, 1999 was
6.5%.
In addition to the short-term lines of credit, at January 2, 1999 the
Company's Swiss subsidiary had mortgage borrowings of 10.35 million Swiss francs
($7,542,000) with maturities through 2002. These mortgages carried interest
rates from 2.95% to 5.00%.
In June 1998, the Company's U.S. manufacturing subsidiary refinanced
its 20-year mortgage for $2,700,000 at an interest rate of 7.625%. Monthly
principal and interest payments are $25,143. Every five years the bank has the
right to review the mortgage and adjust its terms, including due dates and
interest rates, with the first such right occurring in June 2003. At January 2,
1999, the amount borrowed under the mortgage was $2,644,000.
Also in June 1998, the Company's U.S. manufacturing subsidiary entered
into a two-year secured revolving credit facility with the same bank that
provides for a maximum borrowing of $5,000,000, subject to certain borrowing
limitations based upon inventory and accounts receivable levels. The interest
rate as of January 2, 1999 was 7.75% (prime rate as published). At January 2,
1999, there were no outstanding borrowings under the facility, and $5,000,000
was available for future borrowings.
Under the terms of the U.S. mortgage and revolving credit facility,
fixed assets with a book value of $3,161,000 and accounts receivable and
inventory with a book value of $12,091,000 are pledged as collateral,
respectively. Under the Swiss mortgages, fixed assets with a book value of
$5,117,000 are pledged as collateral.
-18-
19
The Company's capitalization at the end of 1998, 1997 and 1996 is set
forth below:
(Dollars in thousands)
Fiscal Year
--------------------------------
1998 1997 1996
---- ---- ----
Short-term debt, including current
portion of long-term debt $ 1,534 $ 3,148 $ 861
Long-term debt 9,638 10,619 20,807
------- ------- -------
Total debt 11,172 13,767 21,668
Shareholders' equity 22,274 18,892 13,194
------- ------- -------
Total debt and shareholders' equity $33,446 $32,659 $34,862
(total capitalization) ======= ======= =======
Percent total debt to total capitalization 33% 42% 62%
Percent long-term debt to equity 43% 56% 158%
Percent total debt to equity 50% 73% 164%
Total debt decreased in 1998 and 1997 by $2,595,000 and $7,901,000,
respectively, of which $3,031,000 and $7,103,000 were from cash provided by
operations. A $436,000 increase in 1998 and a $798,000 decrease in 1997 were due
to the effect of foreign currency translation.
At the end of 1998 and 1997, working capital was $11,446,000 and
$9,423,000, respectively, and the ratio of current assets to current liabilities
was 1.49 and 1.41, respectively. Working capital increased in 1998 primarily due
to funds provided from operations.
In 1998, 1997 and 1996, the Company utilized internally generated funds
to meet its working capital needs.
Net cash provided by operating activities was $7,615,000 in 1998,
$12,594,000 in 1997 and $13,969,000 in 1996. The decrease in operating cash flow
since 1996 was primarily the result of an increase in accounts receivable and
inventory. In 1998, net income and depreciation and amortization were the
principal components of cash provided.
Excluding the effect of foreign currency translation, accounts
receivable and inventory provided cash of $3,241,000 in 1997, while the total
amount of accounts payables and accrued expenses increased $1,642,000 during
1997. Significant cash was also provided in 1997 by net income and depreciation
and amortization.
-19-
20
The average number of days to convert accounts receivable to cash was
70 days in 1998 compared to 66 days in 1997 and 76 days in 1996. The average
number of days to convert inventory into accounts receivable was 77 days in 1998
compared to 88 days in 1997 and 114 days in 1996. Improved asset management
enabled the Company to reduce accounts receivable and inventory levels since
1996.
Net cash used in investing activities was $2,835,000, $3,955,000 and
$2,128,000 in 1998, 1997 and 1996, respectively. Capital expenditures were
$2,713,000, $3,000,000 and $2,081,000 in 1998, 1997 and 1996, respectively.
Funds used in 1997 to acquire a Canadian company were $783,000. The Company has
no outstanding material commitments for capital improvements, but it does expect
to make capital expenditures necessary to maintain its facilities and operations
in a normal fashion and, where required, to further its growth and other
business objectives.
Cash used in financing activities in 1998 was primarily used for the
purchase of 250,000 shares of the Company's common stock and for debt reduction.
Cash used in financing activities in 1997 and 1996 was primarily used for debt
reduction. In all three years, this cash was primarily obtained from the cash
flow provided by operations. Cash and short-term investments decreased to
$3,220,000 at the end of fiscal 1998 from $5,514,000 a year earlier due to the
250,000 share common stock repurchase discussed above.
Changes in foreign exchange rates, particularly with respect to the
Swiss franc and German mark, caused a translation increase in shareholders'
equity of $574,000 in 1998 following decreases of $560,000 and $393,000 in 1997
and 1996, respectively.
READINESS FOR YEAR 2000
The Company has substantially completed an evaluation of its
information technology infrastructure for Year 2000 compliance and has
substantially implemented its Year 2000 compliance strategy. The cost to modify
its information technology infrastructure to be Year 2000 compliant has not been
and is not expected to be material to its financial condition or results of
operations. The Company does not anticipate any material disruptions in its
business as a result of any failure by the Company to be Year 2000 compliant.
The Company anticipates having all systems Year 2000 compliant no later
than September 30, 1999 and has not developed a contingency plan. If Year 2000
compliance issues are discovered, the Company then will evaluate the need for a
contingency plan relative to those issues.
The Company is also in the process of obtaining information concerning
the Year 2000 compliance status of its significant suppliers, customers and
business partners to determine the extent to which the Company is vulnerable to
these third parties' failure to remedy their Year
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21
2000 problems. There can be no assurance that such suppliers, customers and
business partners are or will be Year 2000 compliant. The risk to the Company
resulting from the failure of third parties in the public and private sector to
attain Year 2000 readiness is the same as for other firms in the Company's
industry or other business enterprises generally and could involve many
different types of disruption to the Company's business.
The costs to complete the Company's Year 2000 evaluation and to secure
Year 2000 compliance are based on management's best estimates. These estimates
were derived using numerous assumptions, including continued availability of
resources, third party contingency plans and other factors. However, there can
be no assurance that these estimates will be achieved and actual results could
differ materially from those anticipated. The following are representative of
the types of risks that could result in the event a critical component of the
Company's information systems, factories or facilities fails to be Year 2000
ready, or there is a similar failure by one or more major third party suppliers
to the Company: (i) information systems--could include interruptions or
disruptions of business and transaction processing such as customer billing,
payroll, accounts payable and other operating and information processes, until
systems can be remedied or replaced; (ii) factories and facilities--could
include interruptions or disruptions of manufacturing processes and facilities
with delays in delivery of products, until non-compliant conditions or
components can be remedied or replaced; and (iii) major suppliers to the
Company--could include interruptions or disruptions of the supply of materials
and supplies which could cause interruptions or disruptions of manufacturing and
delays in delivery of products, until the third party supplier can remedy the
problem or contingency measures can be implemented.
EUROPEAN MONETARY UNION-EURO
On January 1, 1999, the eleven member countries of the European Union,
which does not include Switzerland, established fixed conversion rates between
their existing sovereign currencies, and adopted the euro as their new common
legal currency. As of that date, the euro began trading on currency exchanges,
but the legacy currencies will remain legal tender in the participating
countries for a transition period between January 1, 1999 and January 1, 2002.
During the transition period, non-cash payments can be made in the
euro, and parties can elect to pay for goods and services and transact business
using either the euro or a legacy currency. Between January 1, 2002 and July 1,
2002, the participating countries will introduce euro notes and coins and
withdraw all legacy currencies so that they will no longer be available.
The Company has been planning for the euro's introduction and has not
encountered significant difficulties with the euro. Since the Company's sales in
Europe are from two manufacturing plants located in Switzerland, and since some
sales are made in Swiss francs and others in local currencies, the relationship
of the euro to the Swiss franc will be important
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22
to the Company, just as the relationship of the Swiss franc to the German mark
has been important in the past.
The euro conversion may affect cross-border competition by creating
cross-border price transparency. The Company is assessing its pricing and
marketing strategies in order to ensure that it remains competitive in the
European market. The Company also implemented a new information technology
system in Europe on January 4, 1999 to allow for transactions to take place in
both the legacy currencies and the euro and also for the eventual elimination of
the legacy currencies, and is reviewing whether any existing contracts will need
to be modified. The Company's foreign currency exchange risk in participating
countries may be reduced as the legacy currencies are converted to the euro. The
Company will continue to evaluate issues involving the introduction of the euro,
including accounting, tax and legal issues. Based on current information and the
Company's current assessment, the Company does not expect that the euro
conversion will have a material adverse effect on its business, results of
operations, cash flows or financial condition.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a safe harbor for forward-looking statements made by or on behalf of
the Company. The Company and its representatives may from time to time make
written or oral statements that are "forward-looking," including statements
contained in this report and other filings with the Securities and Exchange
Commission, reports to the Company's shareholders and news releases. All
statements that express expectations, estimates, forecasts and projections are
forward-looking statements within the meaning of the Act. In addition, other
written or oral statements which constitute forward-looking statements may be
made by or on behalf of the Company. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts,"
"may," "should," variations of such words and similar expressions are intended
to identify such forward-looking statements. These statements are not guarantees
of future performance and involve certain risks, uncertainties and assumptions
which are difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expressed or forecasted in or suggested by such
forward-looking statements. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
A wide range of factors could materially affect future developments and
performance of the Company, including the following: (i) increasing price and
product/service competition by domestic and foreign competitors, including new
entrants; (ii) the mix of products/services; (iii) rapid technological changes
and developments and the Company's ability to continue to introduce competitive
new products on a timely and cost-effective basis; (iv) changes in U.S. and
global financial and currency markets, including significant interest rate and
foreign currency exchange rate fluctuations; (v) the outcome and impact of Year
2000; (vi) protection and validity of patent and other intellectual property
rights, both of the Company and its competitors; (vii) the
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23
cyclical nature of the Company's business as a capital goods supplier; (viii)
possible future litigation and governmental proceedings; (ix) the availability
of financing and financial resources in the amounts, at the times and on the
terms required to support the Company's future business, including capacity
expansions and possible acquisitions; (x) the loss of key customers, employees
or suppliers; (xi) the failure to carry out marketing and sales plans; (xii) the
failure successfully to integrate acquired businesses, if any, into the Company
without substantial costs, delays or other operational or financial problems;
(xiii) economic, business and regulatory conditions and changes which may affect
the level of new investments and purchases made by customers, including general
economic and business conditions that are less favorable than expected; and
(xiv) domestic and international political and economic conditions.
This list of factors that may affect future performance and the
accuracy of forward-looking statements is illustrative, but by no means
exhaustive. Accordingly, all forward-looking statements should be evaluated with
the understanding of their inherent uncertainty.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company and its
subsidiaries and supplementary data required by this item are attached to this
annual report on Form 10-K beginning on page F-1.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
-23-
24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning directors and compliance with Section 16(a)
of the Securities Exchange Act of 1934 called for by Item 10 of Form 10-K will
be set forth under the captions "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive proxy
statement, to be filed within 120 days after the end of the fiscal year covered
by this annual report on Form 10-K, and is incorporated herein by reference.
The required information as to executive officers is set forth in Part
I hereof and incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by Items 11 and 12 of Form 10-K will be set
forth under the captions "Executive Compensation" and "Security Ownership of
Certain Beneficial Owners and Management," respectively, in the Company's
definitive proxy statement, to be filed within 120 days after the end of the
fiscal year covered by this annual report on Form 10-K, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. Financial Statements listed in the
accompanying Index to Financial Statements and Financial Statement Schedules
appearing on page F-1 are filed as part of this annual report on Form 10-K.
2. Financial Statement Schedules. Financial Statement Schedules listed
in the accompanying Index to Financial Statements and Financial Statement
Schedules appearing on page F-1 are filed as part of this annual report on Form
10-K.
3. Exhibits. (see (c) below).
-24-
25
(b) Reports on Form 8-K.
The Company did not file a report on Form 8-K during the
quarter ended January 2, 1999.
(c) Exhibits.
The following is a list of exhibits filed as part of this
annual report on Form 10-K. Where so indicated, exhibits which were previously
filed are incorporated by reference. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated in parentheses.
3.1 Restated Certificate of Incorporation, as amended by the Certificate of
Amendment to the Restated Certificate of Incorporation of K-Tron
International, Inc.+
3.2 By-Laws, as amended (Filed as Exhibit 3.2 to the Company's annual
report on Form 10-K for the year ended January 1, 1994 ("1993 Form
10-K") and incorporated herein by reference)
4.1 Form of Certificate for Shares of Common Stock*
4.2 Rights Agreement dated as of October 3, 1991 with First Interstate Bank
of Arizona, N.A., as Rights Agent (Filed as Exhibit 1 to the Company's
report on Form 8-K dated October 3, 1991 and incorporated herein by
reference)
10.1 1986 Stock Option Plan, as amended and restated (Filed as Exhibit
10.2.1 to the to the Company's annual report on Form 10-K for the year
ended January 4, 1992 ("1991 Form 10-K") and incorporated herein by
reference)**
10.2 1988 Stock Option Plan for Non-Employee Directors (Filed as Exhibit
10.2.4 to the Company's annual report on Form 10-K for the fiscal year
ended December 31, 1988 ("1988 Form 10-K") and incorporated herein by
reference)**
10.3 K-Tron International, Inc. 1996 Equity Compensation Plan, as amended*
10.4 K-Tron International, Inc. Amended and Restated Employee Stock Purchase
Plan (Filed as Exhibit 10.2 to the Company's quarterly report on Form
10-Q for the fiscal quarter ended September 28, 1996 and incorporated
herein by reference)**
-25-
26
10.5 K-Tron International, Inc. Profit-Sharing and Thrift Plan, as amended
and restated (Filed as Exhibit 10.2.5 to the Company's annual report on
Form 10-K for the year ended December 30, 1989 and incorporated herein
by reference)**
10.6 Amendment No. 1992-1 to K-Tron International, Inc. Profit-Sharing and
Thrift Plan (Filed as Exhibit 10.2.6 to the 1991 Form 10-K and
incorporated herein by reference)**
10.7 Amendment No. 1996-1 to K-Tron International, Inc. Profit-Sharing and
Thrift Plan (Filed as Exhibit 10.2.7 to the Company's annual report on
Form 10-K for the fiscal year ended December 28, 1996 and incorporated
herein by reference)**
10.8 K-Tron International, Inc. Supplemental Executive Retirement Plan
(Filed as Exhibit 10.2.7 to the 1991 Form 10-K and incorporated herein
by reference)**
10.9 Form of Employment Agreement with certain employees of the Company
listed on Schedule 10.12, which are identical in all material respects
except for the employee, amount of salary to be paid and date of
execution **
10.10 Employment Agreement dated as of October 6, 1997 by and between K-Tron
International, Inc. and Edward B. Cloues, II (Filed as Exhibit 10.1 to
the Company's quarterly report on Form 10-Q for the fiscal quarter
ended September 27, 1997 and incorporated herein by reference)**
10.11 Amendment No. 1 to Employment Agreement dated October 5, 1998 by and
between K-Tron International, Inc. and Edward B. Cloues, II (Filed as
Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the
fiscal quarter ended October 3, 1998 and incorporated herein by
reference)**
10.12 Indemnification Agreement with Leo C. Beebe, dated March 23, 1987, and
Schedule 10.2.9 listing other indemnification agreements which are
identical in all material respects except for the director or officer
who is a party thereto (Filed as Exhibit 10.2.9 to the Company's annual
report on Form 10-K for the year ended January 2, 1988 and incorporated
herein by reference)**
10.13 Schedule 10.2.11 listing other indemnification agreements which are
dated November 18, 1988 and are identical in all material respects to
the Indemnification Agreement set forth in Exhibit 10.12 except for the
director or officer who is a party thereto (Filed as Exhibit 10.2.11 to
the 1988 Form 10-K and incorporated herein by reference)**
-26-
27
10.14 Schedule 10.2.16 listing other indemnification agreements which are
dated September 20, 1993, November 12, 1993 and January 14, 1994 and
are identical in all material respects to the Indemnification Agreement
set forth in Exhibit 10.12 except for the director or officer who is a
party thereto (Filed as Exhibit 10.2.16 to the 1993 Form 10-K and
incorporated herein by reference)**
10.15 Leasing Agreement, dated October 30, 1990, between CS Immobilien
Leasing AG, Zurich and Hasler Freres SA, with limited guaranty of
K-Tron Soder AG (Filed as Exhibit 10.1(b) to the Company's report on
Form 8-K dated October 30, 1990 and incorporated herein by reference)
10.16 Amendment, dated January 25, 1991, to Leasing Agreement, dated October
30, 1990, between CS Immobilien Leasing AG, Zurich and Hasler Freres SA
and to the related limited guaranty of K-Tron Soder AG (Filed as
Exhibit 10.3.3 to the Company's annual report on Form 10-K for the year
ended December 29, 1990 and incorporated herein by reference)
21.1 Subsidiaries*
23.1 Consent of Arthur Andersen LLP*
24.1 Power of Attorney (Included on Signature Page)
27.1 Financial Data Schedule*
- -----------
+ Portion of exhibit filed herewith
* Filed herewith
** Management contract or compensatory plan or arrangement required to be
filed or incorporated as an exhibit
COPIES OF THE EXHIBITS ARE AVAILABLE TO SHAREHOLDERS (UPON PAYMENT OF A
$.20 PER PAGE FEE TO COVER THE COMPANY'S EXPENSES IN FURNISHING THE
EXHIBITS) FROM ROBERT L. WEINBERG, SENIOR EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER, K-TRON INTERNATIONAL, INC., ROUTES 55 AND 553,
P.O. BOX 888, PITMAN, NEW JERSEY 08071- 0888.
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28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
K-TRON INTERNATIONAL, INC.
Date: March 22, 1999 By /s/ Edward B. Cloues, II
----------------------------------
Edward B. Cloues, II
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Each person in so signing also makes, constitutes and appoints Edward
B. Cloues, II, Chairman and Chief Executive Officer of K-Tron International,
Inc., and Robert L. Weinberg, Senior Executive Vice President, Chief Financial
Officer and Treasurer of K-Tron International, Inc., and each of them acting
alone, as his true and lawful attorneys-in-fact, in his name, place and stead,
to execute and cause to be filed with the Securities and Exchange Commission any
or all amendments to this report.
Signature Date Capacity
- --------- ---- --------
/s/ Edward B. Cloues, II March 22, 1999 Chief Executive Officer
- ------------------------------ (principal executive officer) and
Edward B. Cloues, II Chairman of the Board of Directors
/s/ Robert L. Weinberg March 22, 1999 Senior Executive Vice President,
- ------------------------------ Chief Financial Officer and
Robert L. Weinberg Treasurer (principal financial
officer)
/s/ Alan R. Sukoneck March 22, 1999 Vice President, Chief
- ------------------------------ Accounting and Tax Officer
Alan R. Sukoneck (principal accounting officer)
/s/ Leo C. Beebe March 22, 1999 Director
- --------------------------------
Leo C. Beebe
29
Signature Date Capacity
- --------- ---- --------
/s/ Norman Cohen March 22, 1999 Director
- --------------------------------
Norman Cohen
/s/ Richard J. Pinola March 22, 1999 Director
- --------------------------------
Richard J. Pinola
/s/ Hans-Jurg Schurmann March 22, 1999 Director
- --------------------------------
Hans-Jurg Schurmann
/s/ Jean Head Sisco March 22, 1999 Director
- --------------------------------
Jean Head Sisco
/s/ Johannes Wirth March 22, 1999 Director
- --------------------------------
Johannes Wirth
30
K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 2, 1999
TOGETHER WITH AUDITORS' REPORT
31
K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES:
Consolidated Balance Sheets--January 2, 1999 and January 3, 1998 F-3
Consolidated Statements of Operations for the Fiscal Years Ended January 2,
1999, January 3, 1998 and December 28, 1996 F-5
Consolidated Statements of Changes in Shareholders' Equity for the Fiscal
Years Ended January 2, 1999, January 3, 1998 and December 28, 1996 F-6
Consolidated Statements of Cash Flows for the Fiscal Years Ended
January 2, 1999, January 3, 1998 and December 28, 1996 F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9
Schedule II--Valuation Reserves S-1
F-1
32
[LETTERHEAD ARTHUR ANDERSEN LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To K-Tron International, Inc.:
We have audited the accompanying consolidated balance sheets of K-Tron
International, Inc. (a New Jersey corporation) and subsidiaries as of January 2,
1999 and January 3, 1998, and the related consolidated statements of operations,
changes in shareholders' equity, and cash flows for each of the three fiscal
years in the period ended January 2, 1999. These financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
this schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of K-Tron
International, Inc. and subsidiaries as of January 2, 1999 and January 3, 1998,
and the results of their operations and their cash flows for each of the three
fiscal years in the period ended January 2, 1999, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements as of January 2, 1999 and for each of the three years in
the period ended January 2, 1999, is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Philadelphia, Pa., /s/ Arthur Andersen LLP
February 8, 1999 ------------------------
F-2
33
K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
January 2, January 3,
1999 1998
------- -------
CURRENT ASSETS:
Cash and cash equivalents $ 3,220 $ 5,154
Accounts receivable (less allowance for doubtful
accounts of $1,286 and $1,119) 19,034 15,336
Inventories 10,743 10,010
Deferred income taxes 819 950
Prepaid expenses and other current assets 1,177 1,196
------- -------
Total current assets 34,993 32,646
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation of $27,066 and $24,588 16,215 15,437
PATENTS, net of accumulated amortization of $479
and $2,997 751 694
GOODWILL, net of accumulated amortization
of $4,113 and $3,376 4,454 4,844
OTHER ASSETS 204 628
------- -------
Total assets $56,617 $54,249
======= =======
The accompanying notes are an integral part of these financial statements.
F-3
34
K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
January 2, January 3,
1999 1998
-------- --------
CURRENT LIABILITIES:
Notes payable to banks $ 254 $ 2,088
Current portion of long-term debt 1,280 1,060
Accounts payable 6,965 5,426
Accrued expenses and other current liabilities 4,034 4,270
Accrued payroll 4,307 3,869
Accrued commissions 2,609 2,463
Customer advances 1,810 1,627
Accrued warranty 1,055 912
Income taxes payable 1,233 1,508
-------- --------
Total current liabilities 23,547 23,223
-------- --------
LONG-TERM DEBT, net of current portion 9,638 10,619
-------- --------
DEFERRED INCOME TAXES 423 431
-------- --------
OTHER NONCURRENT LIABILITIES 735 1,084
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 11)
SERIES A JUNIOR PARTICIPATING PREFERRED SHARES, $.01 par value, 50,000
shares authorized; none issued -- --
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 950,000 shares
authorized; none issued -- --
Common stock, $.01 par value; 50,000,000 shares authorized; 4,328,555
and 4,271,300 shares issued 43 43
Paid-in capital 15,505 14,833
Retained earnings 21,839 15,246
Cumulative translation adjustment (192) (766)
-------- --------
37,195 29,356
Treasury stock, 1,295,450 and 1,052,950 shares, at cost (14,921) (10,464)
-------- --------
Total shareholders' equity 22,274 18,892
-------- --------
Total liabilities and shareholders' equity $ 56,617 $ 54,249
======== ========
The accompanying notes are an integral part of these financial statements.
F-4
35
K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands except share data)
For the Fiscal Year Ended
--------------------------------------------
January 2, January 3, December 28,
1999 1998 1996
---------- ---------- ----------
REVENUES $ 89,142 $ 87,152 $ 89,871
COST OF REVENUES 48,946 48,121 50,839
---------- ---------- ----------
Gross profit 40,196 39,031 39,032
---------- ---------- ----------
OPERATING EXPENSES:
Selling, general and administrative 27,784 27,821 28,840
Research and development 2,980 2,768 2,316
---------- ---------- ----------
30,764 30,589 31,156
---------- ---------- ----------
Operating income 9,432 8,442 7,876
INTEREST EXPENSE 714 1,133 2,035
---------- ---------- ----------
Income before income taxes 8,718 7,309 5,841
INCOME TAX PROVISION 2,125 1,865 1,815
---------- ---------- ----------
Net income $ 6,593 $ 5,444 $ 4,026
========== ========== ==========
BASIC EARNINGS PER SHARE $ 2.10 $ 1.72 $ 1.29
========== ========== ==========
DILUTED EARNINGS PER SHARE $ 2.03 $ 1.69 $ 1.28
========== ========== ==========
AVERAGE COMMON SHARES OUTSTANDING 3,133,000 3,162,000 3,120,000
AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 3,243,000 3,227,000 3,136,000
The accompanying notes are an integral part of these financial statements.
F-5
36
K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(dollars in thousands)
Common Stock Cumulative Treasury Stock
------------------- Paid-in Retained Translation ---------------------
Shares Amount Capital Earnings Adjustment Shares Amount Total
------ ------ ------- -------- ---------- ------ ------ -----
BALANCE,
DECEMBER 31, 1995 4,175,585 $ 42 $ 13,980 $ 5,776 $ 187 1,062,950 $ (10,564) $ 9,421
Comprehensive income-
Net income -- -- -- 4,026 -- -- -- 4,026
Translation adjustments
-- -- -- -- (393) -- -- (393)
--------
Total comprehensive
income 3,633
--------
Issuance of stock 24,743 -- 140 -- -- -- -- 140
---------- ------ ---------- ---------- ------ ---------- ---------- --------
BALANCE,
DECEMBER 28, 1996 4,200,328 42 14,120 9,802 (206) 1,062,950 (10,564) 13,194
Comprehensive income-
Net income -- -- -- 5,444 -- -- -- 5,444
Translation adjustments
-- -- -- -- (560) -- -- (560)
--------
Total comprehensive
income 4,884
--------
Issuance of stock 70,972 1 713 -- -- (10,000) 100 814
---------- ------ ---------- ---------- ------ ---------- ---------- --------
BALANCE,
JANUARY 3, 1998 4,271,300 43 14,833 15,246 (766) 1,052,950 (10,464) 18,892
Comprehensive income-
Net income -- -- -- 6,593 -- -- -- 6,593
Translation adjustments
-- -- -- -- 574 -- -- 574
--------
Total comprehensive
income 7,167
--------
Issuance of stock 57,255 -- 672 -- -- (7,500) 74 746
Purchase of treasury shares
-- -- -- -- -- 250,000 (4,531) (4,531)
---------- ------ ---------- ---------- ------ ---------- ---------- --------
BALANCE,
JANUARY 2, 1999 4,328,555 $ 43 $ 15,505 $ 21,839 $ (192) 1,295,450 $ (14,921) $ 22,274
========== ====== ========== ========== ====== ========== ========== ========
The accompanying notes are an integral part of these financial statements.
F-6
37
K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
For the Fiscal Year Ended
-------------------------------------
January 2, January 3, December 28,
1999 1998 1996
-------- -------- --------
OPERATING ACTIVITIES:
Net income $ 6,593 $ 5,444 $ 4,026
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 3,158 2,977 3,338
Amortization of deferred gain on
sale/leaseback transaction (374) (380) (447)
Deferred income taxes 81 (321) 443
Changes in assets and liabilities--
Accounts receivable, net (3,113) 250 3,266
Inventories (442) 2,991 4,101
Prepaid expenses and other
current assets (53) 88 20
Other assets 229 (532) 52
Accounts payable 1,314 (286) (3,027)
Accrued expenses and other
current liabilities 285 1,928 1,598
Accrued warranty 99 112 18
Income taxes (162) 323 581
-------- -------- --------
Net cash provided by
operating activities 7,615 12,594 13,969
-------- -------- --------
INVESTING ACTIVITIES:
Business acquired -- (783) --
Capital expenditures (2,713) (3,000) (2,081)
Investment in patents (122) (172) (47)
-------- -------- --------
Net cash used in investing
activities (2,835) (3,955) (2,128)
-------- -------- --------
(Continued)
F-7
38
K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Continued)
For the Fiscal Year Ended
----------------------------------------
January 2, January 3, December 28,
1999 1998 1996
-------- -------- --------
FINANCING ACTIVITIES:
Net repayments under notes payable to banks $ (1,142) $ (6,925) $(17,684)
Proceeds from issuance of long-term debt 1,005 689 6,037
Principal payments on long-term debt (2,894) (867) (299)
Purchase of treasury stock (4,531) -- --
Proceeds from issuance of common stock 746 814 140
-------- -------- --------
Net cash used in
financing activities (6,816) (6,289) (11,806)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 102 (275) (195)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,934) 2,075 (160)
CASH AND CASH EQUIVALENTS:
Beginning of year 5,154 3,079 3,239
-------- -------- --------
End of year $ 3,220 $ 5,154 $ 3,079
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 772 $ 1,182 $ 1,928
======== ======== ========
Income taxes $ 2,275 $ 1,951 $ 699
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-8
39
K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEAR ENDED JANUARY 2, 1999
1. NATURE OF OPERATIONS:
K-Tron International, Inc. and its subsidiaries (the "Company") design, produce,
market, and sell gravimetric and volumetric feeders, pneumatic conveying systems
and related equipment for the handling of bulk solids in a wide variety of
manufacturing processes. The Company has manufacturing facilities in the United
States, Switzerland and Canada, and its equipment is sold throughout the world.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All material intercompany
accounts and transactions have been eliminated.
Fiscal Year
The Company's fiscal year is reported on a fifty-two/fifty-three week period.
The fiscal year ended January 3, 1998 (referred to herein as "1997") includes
fifty-three weeks, while the fiscal years ended January 2, 1999 (referred to
herein as "1998") and December 28, 1996 (referred to herein as "1996") each
include fifty-two weeks.
Cash and Cash Equivalents
Cash equivalents represent all highly liquid, interest-bearing investments
purchased with maturities of three months or less.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Property, Plant and Equipment
Property, plant and equipment is carried at cost and is depreciated on a
straight-line basis over the following estimated useful lives: buildings and
improvements, 30 to 50 years; automotive equipment, 3 years; machinery and
equipment, 3 to 10 years; and furniture and fixtures, 5 to 7 years. Leasehold
improvements are amortized over the shorter of the estimated useful lives of
such assets or the remaining term of the applicable lease.
F-9
40
Patents
Patents are stated at cost less accumulated amortization. The costs of patents
are amortized on a straight-line basis over the remaining economic life of the
respective asset, but in no event longer than the remaining legal life.
Goodwill
Excess of cost over net assets acquired is being amortized on a straight-line
basis over 15 years. Subsequent to an acquisition, the Company continually
evaluates whether later events and circumstances have occurred that indicate the
remaining estimated useful life of this asset may warrant revision or that the
remaining balance may not be recoverable.
Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Deferred
income taxes are provided for differences between amounts shown for financial
reporting purposes and those included with tax return filings that will reverse
in future periods. Additionally, the effects of income taxes are measured based
upon enacted tax laws and rates.
Research and Development
Expenditures for research, development and engineering of products are expensed
as incurred.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated to U.S.
dollars at current rates of exchange. Revenues and expenses are translated at
average rates prevailing during the year. The Company incurred foreign currency
transaction gains of approximately $4,000 and $177,000 for 1998 and 1997,
respectively, and a loss amounting to $96,000 in 1996. Translation gains and
losses are recorded as a separate component of shareholders' equity.
Fair Value Disclosures
The carrying value of financial instruments such as cash, accounts receivables
and payables and other current assets and liabilities approximates their fair
value, based on the short-term nature of these instruments. The carrying amount
of the Company's long-term debt and notes payable approximates their fair value.
The fair value is estimated based on the current rates offered to the Company
for debt and notes payable of the same remaining maturities.
F-10
41
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
New Accounting Pronouncements
In 1998, the Company was required to adopt for all years presented the
provisions of SFAS 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 the current year
change in cumulative translation adjustments which is the only nonowner change
in equity.
Also in 1998, the Company was required to adopt the provisions of SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." This is
further discussed in Note 12 to the consolidated financial statements.
In 2000, the Company is required to adopt the provisions of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The Company does
not anticipate that the adoption will have a material impact on the consolidated
financial statements.
3. INVENTORIES:
Inventories consist of the following:
January 2, January 3,
1999 1998
------- -------
(in thousands)
Components $ 8,504 $ 7,926
Work-in-process 1,820 1,796
Finished goods 419 288
------- -------
$10,743 $10,010
======= =======
F-11
42
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
January 2, January 3,
1999 1998
-------- --------
(in thousands)
Land $ 1,215 $ 1,163
Buildings and improvements 17,240 16,736
Automotive equipment 676 592
Machinery and equipment 12,169 11,282
Furniture and fixtures 11,981 10,252
-------- --------
43,281 40,025
Less- Accumulated depreciation
and amortization (27,066) (24,588)
-------- --------
$ 16,215 $ 15,437
======== ========
Depreciation of property, plant and equipment for 1998, 1997 and 1996 was
$2,345,000, $2,457,000 and $2,467,000, respectively.
5. NOTES PAYABLE TO BANKS AND LONG-TERM DEBT:
The Swiss lenders to the Company's Swiss subsidiary terminated a forbearance
agreement on March 31, 1998 after the Swiss subsidiary achieved at January 3,
1998 the required debt-to-equity ratio. During 1998, new short-term lines of
credit were entered into with the Swiss lenders for 6.0 million Swiss francs
($4.4 million). At January 2, 1999, the Company's Swiss subsidiary had $254,000
borrowed under short-term lines of credit with its Swiss lenders and $4,118,000
was available for future borrowings. The interest rate on the amounts borrowed
at January 2, 1999 was 6.5%. In addition to the short-term lines of credit, the
Company's Swiss subsidiary had mortgage borrowings of 10.4 million Swiss francs
($7.5 million) with maturities through 2002 from its Swiss bank lenders.
In June 1998, the Company's U.S. manufacturing subsidiary refinanced its 20-year
mortgage for $2.7 million at an interest rate of 7.625%. Monthly principal and
interest payments are $25,143. The bank has the right to review and adjust the
terms of the mortgage every five years.
Also in June 1998, the U.S. manufacturing subsidiary entered into a two-year
secured revolving credit facility with a lender that provides for a maximum
borrowing of $5.0 million, subject to certain maximum borrowing limitations
based upon inventory and receivable levels. The interest rate as of January 2,
1999 was 7.75%. As of January 2, 1999, there were no outstanding borrowings
under the agreement and $5.0 million was available for future borrowings.
F-12
43
Under the terms of the U.S. mortgage and revolving credit facilities, fixed
assets with a book value of $3,161,000 and accounts receivable and inventory
with a book value of $12,091,000, are pledged as collateral. In addition, fixed
assets with a book value of $5,117,000 are pledged as collateral under Swiss
mortgages.
Long-term debt consists of the following:
January 2, January 3,
1999 1998
-------- --------
(in thousands)
U.S. mortgage, interest at 7.625% per annum $ 2,644 $ 2,632
Non-U.S. mortgages, interest at market rates
(2.95% to 5.0% at January 2, 1999 and
5.5% to 7.25% at January 3, 1998) 7,542 7,934
Other 732 1,113
-------- --------
10,918 11,679
Less- Current portion (1,280) (1,060)
-------- --------
$ 9,638 $ 10,619
======== ========
Future annual payments required on long-term debt are as follows (in thousands):
Fiscal Year Amount
----------- ------
1999 $ 1,280
2000 2,461
2001 97
2002 3,722
2003 86
Thereafter 3,272
-------
$10,918
6. EMPLOYEE BENEFIT PLANS:
The Company has a profit-sharing and thrift plan for all U.S. employees who have
worked for the Company for at least one year and who are employed at the end of
the year. All Company contributions to the plan are at the discretion of the
Board of Directors. The Company's profit-sharing contribution vests over a
seven-year period. In addition, employees may voluntarily participate in the
thrift plan and authorize payroll deductions ranging from 1% to 15% of their
compensation. Related matching Company contributions are vested immediately. The
Board of Directors authorized matching contributions of 110% of the first 6% of
participants' compensation for 1998 and 100% of the first 6% of participants'
compensation for 1997 and 1996. The Board of Directors did not authorize any
1998, 1997 or 1996 contribution to the profit-sharing portion of the plan.
F-13
44
Substantially all foreign employees participate in defined contribution group
pension plans. Contributions are paid by the employee and employer at
percentages that vary according to age and other factors.
The expense associated with the thrift plan for 1998, 1997 and 1996 was
$443,000, $355,000 and $269,000, respectively. The foreign pension expense for
1998, 1997 and 1996 was $1,231,000, $1,066,000 and $1,122,000, respectively.
In June 1981, the Company adopted an employee stock purchase plan under which
eligible employees of the Company may elect to participate through payroll
deductions for up to 10% of their gross compensation. Such deductions are used
to purchase common stock of the Company at a price equal to 85% of the market
value, not to exceed $25,000 in stock in any year. Under this plan, the Company
issued 14,241 shares of common stock at an average price of $14.92 in 1998,
17,468 shares of common stock at an average price of $10.72 in 1997 and 24,743
shares of common stock at an average price of $5.67 in 1996.
7. SHAREHOLDERS' EQUITY:
In 1991, the Board of Directors determined the rights on 50,000 shares of the
authorized preferred stock as the Series A Junior Participating Preferred Shares
(the "Series A Preferred Shares"). Each one one-hundredth of a share of the
Series A Preferred Shares carries voting and dividend rights that are equivalent
to one share of the common stock. The voting and dividend rights are subject to
adjustment in the event of a dividend on common stock which is payable in common
stock or any subdivisions or combinations with respect to the outstanding shares
of common stock (see Note 8).
The Board of Directors has not determined the rights on the remaining 950,000
shares of the authorized preferred stock as of January 2, 1999.
The Company had a stock option plan for nonemployee directors (the "1988 plan")
which expired in November 1998, but which option grants remain outstanding. The
plan provided that each eligible director was granted a single option to
purchase 10,000 shares of the Company's common stock at a price equal to the
fair market value at the date of grant. The aggregate number of shares which
could be issued under the plan was 100,000. These options had a term of ten
years and became exercisable in four equal annual installments beginning on the
date of the grant.
The Company's 1986 Stock Option Plan, as amended (the "1986 plan"), expired in
January 1996, but option grants under the 1986 plan remain outstanding. Key
employees of and consultants to the Company could be granted options to purchase
shares of the Company's common stock. These options could be either incentive
stock options or nonqualified stock options. The Stock Option Committee under
the 1986 plan determined the term of each option, but no option could be
exercisable more than ten years from the date the option was granted. The Stock
Option Committee also determined the option exercise price per share. With
respect to incentive stock options, the exercise price must at least equal the
fair market value of a share of common stock as of the date the option was
granted.
F-14
45
In 1996, the Company adopted the 1996 Equity Compensation Plan, (the "1996
plan"), with features similar to the 1986 plan, except that the maximum number
of shares that may be issued is 450,000. The 1996 plan was amended in 1998,
increasing the maximum number of shares that may be issued to 600,000 and
allowing nonemployee directors to receive grants thereunder at fair market
value. The 1996 plan is administered by a committee selected by the Board of
Directors.
A summary of the Company's stock option and restricted stock grant activity for
the plans referred to above for the three fiscal years ended January 2, 1999, is
as follows:
Average
Price
Outstanding Per Share Available
----------- --------- ---------
BALANCE,
DECEMBER 31, 1995 253,684 $ 299,631
Canceled (5,000) 8.45 --
1996 plan adoption -- -- 450,000
1986 plan expiration -- -- (249,631)
------- --------
BALANCE,
DECEMBER 28, 1996 248,684 500,000
Granted 100,000 14.00 (100,000)
Canceled (1,500) 8.00 --
Exercised (56,150) 9.37 --
------- --------
BALANCE,
JANUARY 3, 1998 291,034 400,000
1996 plan amendment 150,000
Granted 105,000 17.75 (105,000)
Canceled (5,850) 9.33 1,000
Exercised (43,550) 10.07 --
Restricted stock granted 20,000 -- (20,000)
Restricted stock exercised (7,500) -- --
1988 plan expiration -- -- (50,000)
------- --------
BALANCE,
JANUARY 2, 1999 359,134 376,000
======= ========
As of January 2, 1999, thirty-three employees held options under the 1986 plan
for an aggregate of 113,734 shares at exercise prices from $6.25 to $12.50 with
a weighted average option price of $8.44. These options expire in varying
amounts through the year 2005. As of January 2, 1999, twenty-eight employees and
six nonemployee directors held options under the 1996 plan for an aggregate of
204,000 shares at exercise prices from $14.00 to $19.00 with a weighted average
option price of $15.92. These options expire through 2008. In addition, one
employee held a restricted stock grant for 12,500 shares. As of January 2, 1999,
under the 1988 plan, three directors held options for an aggregate of 28,900
shares at exercise prices from $9.25 to $11.00 with a weighted average option
price of $10.18. These options expire in varying amounts through the year 2004.
F-15
46
In July 1998, the Company repurchased 250,000 shares of its common stock,
representing approximately 7.7% of its outstanding common stock. The purchase
price was $4,531,250, or $18.125 a share.
Subsequent Event
In January 1999, the Company repurchased an additional 100,000 shares of its
common stock, representing approximately 3.3% of its outstanding common stock.
The purchase price of $1,812,500, or $18.125 a share, was funded by a
combination of cash in the amount of $312,500 and bank borrowings of $1,500,000.
Pro Forma Information
As permitted under SFAS No. 123, the Company has elected to continue to account
for compensation cost using the intrinsic value-based method of accounting as
prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees." SFAS No. 123 does require the Company to disclose
pro forma net income and pro forma earnings per share amounts as if compensation
expense were recognized for options granted after fiscal year 1994. Using this
approach, net income and earnings per share would have been reduced to the pro
forma amounts indicated in the table:
1998 1997 1996
------ ------ ------
(millions, except per share)
Net income - as reported $6,593 $5,444 $4,026
Net income - pro forma 6,090 5,256 3,947
Basic earnings per share - as reported 2.10 1.72 1.29
Basic earnings per share - pro forma 1.94 1.66 1.27
Diluted earnings per share - as reported 2.03 1.69 1.28
Diluted earnings per share - pro forma 1.88 1.63 1.26
This pro forma impact may not be representative of the effects for future years
and could increase if additional options are granted and amortized over the
vesting period.
For disclosure purposes, the fair value of each stock option granted is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions: no dividend yield; expected
volatility of 44.13%, 43.60% and 41.60%; risk-free interest rate of 5.85%, 6.02%
and 6.06%; and expected life of 6.38 years, 6.00 years and 6.00 years in 1998,
1997 and 1996, respectively.
The Black-Scholes option-pricing model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of subjective
assumptions, including the expected stock price volatility.
F-16
47
8. SHAREHOLDER RIGHTS PLAN:
The Company has a Shareholder Rights Plan (the "Rights Agreement") which was
adopted by the Board of Directors on October 3, 1991. The Rights Agreement
provides that each share of the Company's common stock outstanding as of October
14, 1991 has associated with it one right ("Right") to purchase one
one-hundredth of a share of the Series A Preferred Shares at an exercise price
of $40 per share. Such exercise price is subject to adjustment as described in
the Rights Agreement.
The Rights will be exercisable only 10 days following a public announcement that
a person or group has acquired or obtained the right to acquire beneficial
ownership of 20% or more of the outstanding common stock of the Company, or not
later than 65 days after the commencement of a tender offer or an exchange offer
that would result in a person or group beneficially owning 20% or more of the
outstanding common stock. In either such case, the Rights would entitle
shareholders (other than the 20% acquiror) to purchase for $40 the number of
shares of the Company's common stock which would have a market value of $80. In
the event that the Company is acquired in a merger or other business
combination, the Rights would entitle the shareholders (other than the acquiror)
to purchase securities of the surviving company at a similar discount. In lieu
of requiring payment of the exercise price of the Rights upon the occurrence of
the above-noted events, the Company may permit the holders to simply surrender
the Rights and receive the number of shares of the Company's common stock which
would have a market value of $40.
The Company can redeem the Rights at $.01 per Right at any time until the 20th
day following a public announcement that a person or a group has acquired or
obtained the right to acquire beneficial ownership of at least 20% of the
Company's outstanding common stock. Under certain circumstances set forth in the
Rights Agreement, the decision to redeem shall require the concurrence of a
majority of the Continuing Directors, as defined in the Rights Agreement. The
redemption period may be extended by the Board of Directors as long as the
Rights are still redeemable. The Rights expire October 14, 2001.
9. INCOME TAXES:
Following are the domestic and foreign components of the income before income
taxes:
Fiscal Year Ended
-----------------------------------
January 2, January 3, December 28,
1999 1998 1996
------ ------ ------
(in thousands)
United States $6,595 $2,387 $2,648
Foreign 2,123 4,922 3,193
------ ------ ------
Income before income taxes $8,718 $7,309 $5,841
====== ====== ======
F-17
48
The income tax provision (benefit) consists of the following:
Fiscal Year Ended
------------------------------------
January 2, January 3, December 28,
1999 1998 1996
------- ------- -------
(in thousands)
Current:
Federal and state $ 1,938 $ 2,061 $ 1,056
Foreign 106 125 316
------- ------- -------
Total current 2,044 2,186 1,372
------- ------- -------
Deferred:
Federal and state 56 (325) (141)
Foreign 25 4 (8)
Benefit of foreign net operating
loss carryforwards -- -- 592
------- ------- -------
Total deferred (benefit) 81 (321) 443
------- ------- -------
Total income tax provision $ 2,125 $ 1,865 $ 1,815
======= ======= =======
Significant components of the deferred tax accounts at January 2, 1999 and
January 3, 1998, are as follows:
January 2, January 3,
1999 1998
------- -------
(in thousands)
Deferred tax assets:
Depreciation $ 126 $ 172
Accrued liabilities 501 672
Net operating loss carryforwards 2,445 2,790
Inventory basis differences 223 291
Other 213 177
------- -------
3,508 4,102
Valuation allowance (2,580) (2,993)
------- -------
Total assets 928 1,109
------- -------
Deferred tax liabilities:
Depreciation (230) (210)
Other (302) (380)
------- -------
Total liabilities (532) (590)
------- -------
Net deferred asset $ 396 $ 519
======= =======
F-18
49
Foreign and U.S. state operating loss carryforwards as of January 2, 1999 were
$7.8 million and $4 million, respectively. Of the $7.8 million of foreign
losses, $6.4 million are available to offset future income through 2005. The
balance of $1.4 million has an unlimited carryforward period. U.S. state
operating losses are available through 2005.
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company has
established valuation allowances for all foreign and state net operating loss
carryforwards and certain other deferred tax assets for which realization is
dependent on future taxable earnings.
At January 2, 1999, retained earnings include $12 million of undistributed net
income of foreign subsidiaries. Management considers such income to have been
permanently invested and, therefore, no federal income taxes have been provided
for these items.
A reconciliation of the provision for income taxes and the amounts that would be
computed using the statutory federal income tax rates is set forth below:
Fiscal Year Ended
-----------------------------------
January 2, January 3, December 28,
1999 1998 1996
------- ------- -------
(in thousands)
Income tax provision on income before income
tax at statutory federal income tax rates $ 2,964 $ 2,485 $ 1,986
Foreign tax rate differential (58) (237) 80
State tax, net of federal benefit 263 133 28
U.S. and foreign permanent tax
differences (440) 708 325
Change in valuation allowance (532) (1,307) (640)
Other (72) 83 36
------- ------- -------
Income tax provision $ 2,125 $ 1,865 $ 1,815
======= ======= =======
10. EARNINGS PER SHARE:
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.
F-19
50
The Company's Basic and Diluted Earnings Per Share are calculated as follows:
Income Available
To Common Per Share
Shareholders Shares Amount
For the Fiscal Year Ended January 2, 1999
---------------------------------------------------
Basic Net Income $ 6,593,000 3,133,000 $ 2.10
Common Share Equivalent of
Options Issued -- 110,000 (.07)
------------- ---------- -------
Diluted $ 6,593,000 3,243,000 $ 2.03
============= =========== =======
For the Fiscal Year Ended January 3, 1998
------------------------------------- --------
Basic Net Income $ 5,444,000 3,162,000 $ 1.72
Common Share Equivalent of
Options Issued -- 65,000 (.03)
------------- ---------- ------
Diluted $ 5,444,000 3,227,000 $ 1.69
============= ========== ======
For the Fiscal Year Ended December 28, 1996
---------------------------------------------
Basic Net Income $ 4,026,000 3,120,000 $ 1.29
Common Share Equivalent of
Options Issued -- 16,000 ( .01)
------------- ---------- -------
Diluted $ 4,026,000 3,136,000 $ 1.28
============= ========== =======
Diluted 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.
F-20
51
11. COMMITMENTS AND CONTINGENCIES:
The Company leases certain office and plant facilities and equipment under
noncancelable leases. These leases expire in periods ranging from one to five
years and, in certain instances, provide for purchase options.
Immediately prior to the 1990 acquisition of Hasler, the Company's heavy feeder
division, the acquired company entered into a sale/leaseback agreement on its
real property in Switzerland. The net proceeds of this transaction were
distributed to the seller as a dividend. The gain from this transaction has been
classified as Other Noncurrent Liabilities in the Company's consolidated balance
sheets. This deferred gain is being amortized over the life of the resulting
operating lease (ten years). Amortization of the deferred gain for 1998, 1997,
and 1996 was $374,000, $380,000 and $447,000, respectively.
As of January 2, 1999, future minimum payments under operating leases having
noncancelable terms in excess of one year are summarized below:
Operating
Leases
---------
(in thousands)
1999 $ 774
2000 468
2001 50
2002 23
2003 67
---------
$ 1,382
=========
Rent expense for 1998, 1997 and 1996 was $702,000, $647,000 and $1,129,000,
respectively.
The Company has employment contracts with eight executives. Except in one case
when two years advance notice is required, these contracts may be terminated by
the Company on one year's advance notice. Under the agreements, each individual
is guaranteed minimum compensation over the contract period. As of January 2,
1999, the estimated future obligation under these contracts is $1,346,300 (1999)
and $400,000 (2000).
12. MANAGEMENT SEGMENT INFORMATION:
As discussed in Note 2 to the consolidated financial statements, the Company has
adopted the provisions of SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 introduces a new model for
segment reporting called the management approach. The management approach is
based on the way that the chief operating decision maker organizes segments
within a company for making operating decisions and assessing performance.
The Company is engaged in one business segment, the development, manufacturing
and marketing of gravimetric and volumetric feeders, pneumatic conveying systems
and related equipment. The Company operates in two primary geographic locations,
North America and Western Europe.
F-21
52
North Western Elimi- Consoli-
America Europe nations dated
--------- --------- ----------- ---------
(in thousands)
FISCAL YEAR ENDED
JANUARY 2, 1999:
Revenues-
Sales to unaffiliated customers $ 37,642 $ 51,500 $ -- $ 89,142
Sales to affiliates 3,645 1,881 (5,526) --
--------- --------- ----------- ---------
Total sales $ 41,287 $ 53,381 $ (5,526) $ 89,142
========= ========= =========== =========
Operating income $ 6,860 $ 2,425 $ 147 $ 9,432
========= ========= ===========
Interest expense (714)
---------
Income before income taxes $ 8,718
=========
Capital expenditures $ 1,121 $ 1,592 $ 2,713
Depreciation and amortization
expense 1,376 1,782 3,158
Total assets 20,212 36,405 56,617
FISCAL YEAR ENDED
JANUARY 3, 1998:
Revenues-
Sales to unaffiliated customers $ 35,507 $ 51,645 $ -- $ 87,152
Sales to affiliates 1,976 1,931 (3,907) --
--------- --------- ----------- ---------
Total sales $ 37,483 $ 53,576 $ (3,907) $ 87,152
========= ========= =========== =========
Operating income $ 3,040 $ 5,607 $ (205) $ 8,442
========= ========= ===========
Interest expense (1,133)
----------
Income before income taxes $ 7,309
=========
Capital expenditures $ 1,003 $ 1,997 $ 3,000
Depreciation and amortization
expense 1,005 1,972 2,977
Total assets 21,276 32,973 54,249
FISCAL YEAR ENDED
DECEMBER 28, 1996:
Revenues-
Sales to unaffiliated customers $ 34,123 $ 55,748 $ -- $ 89,871
Sales to affiliates 4,204 2,995 (7,199) --
--------- --------- ----------- ---------
Total sales $ 38,327 $ 58,743 $ (7,199) $ 89,871
========= ========= =========== =========
Operating income $ 3,297 $ 4,485 $ 94 $ 7,876
========= ========= ===========
Interest expense (2,035)
---------
Income before income taxes $ 5,841
=========
Capital expenditures $ 686 $ 1,395 $ 2,081
Depreciation and amortization
expense 1,281 2,057 3,338
Total assets 17,863 37,467 55,330
F-22
53
SCHEDULE II
K-TRON INTERNATIONAL, INC.
VALUATION RESERVES
Balance at Additions
Beginning Charged Balance at
of Period to Income Deductions(1) End of Period
--------- --------- ------------- -------------
FISCAL YEAR ENDED
JANUARY 2, 1999:
Allowance for doubtful accounts $1,119,000 $ 208,000 $ 41,000 $1,286,000
FISCAL YEAR ENDED
JANUARY 3, 1998:
Allowance for doubtful accounts 1,037,000 184,000 102,000 1,119,000
FISCAL YEAR ENDED
DECEMBER 28, 1996:
Allowance for doubtful accounts 1,077,000 366,000 406,000 1,037,000
(1) Accounts written off less recoveries, net of foreign exchange
translation adjustment.
S-1
54
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3.1 Restated Certificate of Incorporation, as amended by the
Certificate of Amendment to the Restated Certificate of
Incorporation of K-Tron International, Inc.+
3.2 By-Laws, as amended (Filed as Exhibit 3.2 to the Company's
annual report on Form 10-K for the year ended January 1, 1994
("1993 Form 10-K") and incorporated herein by reference)
4.1 Form of Certificate for Shares of Common Stock*
4.2 Rights Agreement dated as of October 3, 1991 with First
Interstate Bank of Arizona, N.A., as Rights Agent (Filed as
Exhibit 1 to the Company's report on Form 8-K dated October 3,
1991 and incorporated herein by reference)
10.1 1986 Stock Option Plan, as amended and restated (Filed as
Exhibit 10.2.1 to the to the Company's annual report on Form
10-K for the year ended January 4, 1992 ("1991 Form 10-K")
and incorporated herein by reference)**
10.2 1988 Stock Option Plan for Non-Employee Directors (Filed as
Exhibit 10.2.4 to the Company's annual report on Form 10-K for
the fiscal year ended December 31, 1988 ("1988 Form 10-K")
and incorporated herein by reference)**
10.3 K-Tron International, Inc. 1996 Equity Compensation Plan, as
amended*
10.4 K-Tron International, Inc. Amended and Restated Employee
Stock Purchase Plan (Filed as Exhibit 10.2 to the Company's
quarterly report on Form 10-Q for the fiscal quarter ended
September 28, 1996 and incorporated herein by reference)**
10.5 K-Tron International, Inc. Profit-Sharing and Thrift Plan, as
amended and restated (Filed as Exhibit 10.2.5 to the Company's
annual report on Form 10-K for the year ended December 30,
1989 and incorporated herein by reference)**
10.6 Amendment No. 1992-1 to K-Tron International, Inc. Profit-
Sharing and Thrift Plan (Filed as Exhibit 10.2.6 to the 1991
Form 10-K and incorporated herein by reference)**
55
10.7 Amendment No. 1996-1 to K-Tron International, Inc. Profit-
Sharing and Thrift Plan (Filed as Exhibit 10.2.7 to the
Company's annual report on Form 10-K for the fiscal year ended
December 28, 1996 and incorporated herein by reference)**
10.8 K-Tron International, Inc. Supplemental Executive Retirement
Plan (Filed as Exhibit 10.2.7 to the 1991 Form 10-K and
incorporated herein by reference)**
10.9 Form of Employment Agreement with certain employees of the
Company listed on Schedule 10.12, which are identical in all
material respects except for the employee, amount of salary to
be paid and date of execution **
10.10 Employment Agreement dated as of October 6, 1997 by and
between K-Tron International, Inc. and Edward B. Cloues, II
(Filed as Exhibit 10.1 to the Company's quarterly report on
Form 10-Q for the fiscal quarter ended September 27, 1997 and
incorporated herein by reference)**
10.11 Amendment No. 1 to Employment Agreement dated October 5, 1998
by and between K-Tron International, Inc. and Edward B.
Cloues, II (Filed as Exhibit 10.1 to the Company's quarterly
report on Form 10-Q for the fiscal quarter ended October 3,
1998 and incorporated herein by reference)**
10.12 Indemnification Agreement with Leo C. Beebe, dated March 23,
1987, and Schedule 10.2.9 listing other indemnification
agreements which are identical in all material respects except
for the director or officer who is a party thereto (Filed as
Exhibit 10.2.9 to the Company's annual report on Form 10-K for
the year ended January 2, 1988 and incorporated herein by
reference)**
56
10.13 Schedule 10.2.11 listing other indemnification agreements
which are dated November 18, 1988 and are identical in all
material respects to the Indemnification Agreement set forth
in Exhibit 10.12 except for the director or officer who is a
party thereto (Filed as Exhibit 10.2.11 to the 1988 Form 10-K
and incorporated herein by reference)**
10.14 Schedule 10.2.16 listing other indemnification agreements
which are dated September 20, 1993, November 12, 1993 and
January 14, 1994 and are identical in all material respects to
the Indemnification Agreement set forth in Exhibit 10.12
except for the director or officer who is a party thereto
(Filed as Exhibit 10.2.16 to the 1993 Form 10-K and
incorporated herein by reference)**
10.15 Leasing Agreement, dated October 30, 1990, between CS
Immobilien Leasing AG, Zurich and Hasler Freres SA, with
limited guaranty of K-Tron Soder AG (Filed as Exhibit 10.1(b)
to the Company's report on Form 8-K dated October 30, 1990 and
incorporated herein by reference)
10.16 Amendment, dated January 25, 1991, to Leasing Agreement, dated
October 30, 1990, between CS Immobilien Leasing AG, Zurich and
Hasler Freres SA and to the related limited guaranty of K-Tron
Soder AG (Filed as Exhibit 10.3.3 to the Company's annual
report on Form 10-K for the year ended December 29, 1990 and
incorporated herein by reference)
21.1 Subsidiaries*
23.1 Consent of Arthur Andersen LLP*
24.1 Power of Attorney (Included on Signature Page)
27.1 Financial Data Schedule*
+ Portion of exhibit filed herewith
* Filed herewith
** Management contract or compensatory plan or arrangement required to
be filed or incorporated as an exhibit