Current assets:

Cash and cash equivalents

Restricted cash

Accounts receivable, net of allowance for doubtful accounts of $1,320 and $1,387

Inventories, net of inventory reserve of $1,870 and $1,786

Deferred income taxes

Prepaid expenses and other current assets

 

Total current assets

 

 

Property, plant and equipment, net of accumulated depreciation of $46,279 and $49,051

Patents, net of accumulated amortization of $1,885 and $1,843

Goodwill

Other intangibles, net of accumulated amortization of $3,849 and $3,616

Other assets

Deferred income taxes

 

Total assets

 

 

Current liabilities:

Current portion of long-term debt

Accounts payable

Accrued expenses and other current liabilities

Accrued commissions

Customer advances

Income taxes payable

Deferred income taxes

 

Total current liabilities

 

 

Long-term debt, net of current portion

Deferred income taxes

Other non-current liabilities

Series B Junior Participating Preferred Shares, $.01 par value. Authorized 50,000 shares; issued none

Shareholders’ equity:

Preferred stock, $.01 par value. Authorized 950,000 shares; issued none

Common stock, $.01 par value. Authorized 50,000,000 shares; issued 4,870,084 shares and 4,866,980 shares

Paid-in capital

Retained earnings

Accumulated other comprehensive income

 

 

Treasury stock, 2,028,297 shares at cost

 

Total shareholders’ equity

 

Total liabilities and shareholders’ equity

 

Revenues:

Equipment and parts

Services and freight

 

Total revenues

 

Cost of revenues:

Equipment and parts

Services and freight

 

Total cost of revenues

 

 

Gross profit

 

Operating expenses:

Selling, general and administrative

Research and development

 

Total operating expenses

 

 

Operating income

 

Other expense:

Interest expense, net

Transaction costs

 

 

(Loss) income before income taxes

 

Income tax (benefit) provision

 

 

Net (loss) income

 

Per share:

Basic

 

Diluted

 

 

Weighted average common shares outstanding (basic)

 

 

Weighted average common and common equivalent shares outstanding (diluted)

 

Operating activities:

Net (loss) income

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Non-cash compensation

Deferred income taxes

Changes in assets and liabilities, net of business acquired:

Accounts receivable, net

Inventories, net

Prepaid expenses and other current assets

Other assets

Accounts payable

Accrued expenses and other current liabilities

 

Net cash provided by operating activities

 

 

Investing activities:

Business acquired

Capital expenditures

Restricted cash

Other

 

Net cash used in investing activities

 

 

Financing activities:

Principal payments on long-term debt

Tax benefit from stock option exercises

Proceeds from issuance of common stock

 

Net cash used in financing activities

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

Net increase in cash and cash equivalents

 

Cash and cash equivalents:

Beginning of period

 

End of period

 

 

Supplemental disclosures of cash flow information:

Cash paid during the period for:

Interest

Income taxes

Balance, January 2, 2010

Comprehensive Loss:

Net loss

Translation adjustments

Unrealized loss on interest rate swap, net of tax

 

Total comprehensive loss

 

Issuance of stock

 

Balance, April 1, 2010

 

The accompanying unaudited consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The consolidated financial statements include the accounts of K-Tron International, Inc. and its subsidiaries (“K-Tron” or the “Company”). All intercompany transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of a normal recurring nature) considered necessary for a fair presentation of results for interim periods have been made. Material subsequent events are evaluated and disclosed through the report issuance date, May 28, 2010. All references to the first quarter, first three months of 2010 or 2009 or three months ended April 1, 2010 or three months ended April 4, 2009 mean the period January 3, 2010 through April 1, 2010 or the 13-weeks ended April 4, 2009.

The unaudited financial statements herein should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year ended January 2, 2010 which was filed with the Securities and Exchange Commission on March 15, 2010.

Certain reclassifications were made to the prior year’s consolidated financial statements to conform them to the current year presentation.

On January 8, 2010, Hillenbrand, Inc. (“Hillenbrand”), entered into a merger agreement with K-Tron. The merger closed after the end of business on April 1, 2010, upon which K-Tron became a wholly-owned subsidiary of Hillenbrand. The total consideration paid by Hillenbrand at closing was $435,200,000 ($368,995,000 net of cash of $66,205,000 acquired from K-Tron as of April 1, 2010). The financial information contained herein does not include the effect of the merger except for transaction costs of $10,081,000 incurred by the Company during the three month period ended April 1, 2010.

Inventories consist of the following:

Components

Work-in-process

Finished goods

Inventory reserves

 

 

 

Patents and other intangible assets consist of the following:

 

Amortized intangible assets:

Patents

Drawings

Customer relationships

 

 

 

Unamortized intangible assets:

Trademarks and tradenames

 

The amortized intangible assets are being amortized on the straight-line basis (half-year expense in the year of issuance of a patent) over the expected periods of benefit, which range from 10 to 50 years. The weighted average life of the amortizable intangible assets is 27 years (15 years for patents, 25 years for drawings and 29 years for customer relationships). The amortization expense of intangible assets for each of the three-month periods ended April 1, 2010 and April 4, 2009 was $275,000.

Future annual amortization of intangible assets is as follows:

 

Last three quarters fiscal year 2010

Fiscal year 2011

Fiscal year 2012

Fiscal year 2013

Fiscal year 2014

Fiscal year 2015

Thereafter

 

 

 

Goodwill increased by $809,000 during the first three months of 2010, which related to the acquisition of certain assets of Wuxi Chenghao Machinery Co., Ltd. (“Wuxi Chenghao”). The original acquisition of Wuxi Chenghao occurred in March 2007.

The Company offers a one-year warranty on a majority of its products. Warranty is accrued as a percentage of sales, based upon historical experience, on a monthly basis and is included in accrued expenses and other current liabilities. The following is an analysis of accrued warranty for the three-month periods ended April 1, 2010 and April 4, 2009:

 

Beginning balance

Accrual of warranty expense

Warranty costs incurred

Foreign exchange adjustment

 

Ending balance

 

Long-term debt consists of the following, with the annual interest rates shown:

 

U.S. revolving line of credit

U.S. term note, interest at 5.00%

 

 

Less current portion

 

 

 

All amounts borrowed under the U.S. revolving line of credit are due on September 29, 2011. As of April 1, 2010 interest on the $7,000,000 borrowed under the U.S. revolving line of credit was payable at the following interest rates on the following principal amounts for the periods ending on the dates indicated:

 

30 Day LIBOR loan

30 Day LIBOR loan

 

 

 

The applicable unpaid principal will bear interest at a variable rate based upon either the lender’s prime rate or on 1, 2, 3 or 6 month LIBOR, at the option of the Company.

Basic earnings per share represents net (loss) income divided by the weighted average number of common shares outstanding. Diluted (loss) earnings per share is calculated similarly, except that the denominator includes the weighted average number of common shares outstanding plus the dilutive effect of stock options and restricted stock units.

The Company’s basic and diluted (loss) earnings per share are calculated as follows:

Basic and diluted

 

Basic

Common share equivalent of outstanding options

 

Diluted

 

There was no prospective cost of stock option compensation expensed in the first three months of 2010 or 2009, and there were no stock options granted in the first three months of 2010 or in fiscal year 2009.

The following table provides a summary of the Company’s stock option activity for the three months ended April 1, 2010:

Balance, January 2, 2010

Exercised

 

Balance, April 1, 2010

 

The aggregate intrinsic value at April 1, 2010 represents (i) the difference between the Company’s closing stock price of $150.00 at April 1, 2010 and the weighted average option exercise price per share on that date of $14.15 multiplied by (ii) the number of shares underlying outstanding options on that date.

The Company issued 11,550 shares of restricted common stock units in May 2009 which vest on the four-year anniversary of the date of grant. Compensation expense related to these restricted stock units is recognized ratably over the four years based on the fair value of the underlying shares at the date of grant, which was $70.81 per share.

For the three-month periods ended April 1, 2010 and April 4, 2009, the following table sets forth the Company’s comprehensive (loss) income:

 

Net (loss) income

Unrealized (loss) gain on interest rate swaps, net of tax

Foreign currency translation (loss) gain

 

Comprehensive (loss) income

 

The Company is engaged in one business segment — material handling equipment and systems. The Company operates in two primary geographic locations — North and South America (the “Americas”) and Europe, the Middle East, Africa and Asia (“EMEA/Asia”). For the three-month periods ended April 1, 2010 and April 4, 2009, the following tables set forth the Company’s geographic information:

THREE MONTH PERIOD ENDED

April 1, 2010

Revenues

Sales to unaffiliated customers

Sales to affiliates

 

Total sales

 

 

Operating income

 

Interest expense, net

Transaction costs

 

Loss before income taxes

 

THREE MONTH PERIOD ENDED

April 4, 2009

Revenues:

Sales to unaffiliated customers

Sales to affiliates

 

Total sales

 

 

Operating income

 

Interest expense, net

 

Income before income taxes

 

Americas:

U.S.

All others

 

Total

 

 

EMEA/Asia:

Germany

Great Britain

Italy

All others

 

Total