KTII K-Tron International (MM)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 4, 2009

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                           to                          

Commission file number 0-9576

K-TRON INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

New Jersey		22-1759452
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
Routes 55 & 553, P.O. Box 888, Pitman, New Jersey		08071-0888
(Address of Principal Executive Offices)		(Zip Code)

(856) 589-0500
Registrant’s Telephone Number, Including Area Code

Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) 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 þ       No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

Yes o       No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o       No þ

The Registrant had 2,832,137 shares of Common Stock outstanding as of August 7, 2009.

 

 

K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX

				Page No.
PART I.		FINANCIAL INFORMATION
Item 1.		Consolidated Financial Statements.
		Consolidated Balance Sheets as of July 4, 2009 (Unaudited) and January 3, 2009			1
		Consolidated Statements of Income and Retained Earnings (Unaudited) for the Three and Six Months Ended July 4, 2009 and June 28, 2008			2
		Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended July 4, 2009 and June 28, 2008			3
		Notes to Consolidated Financial Statements (Unaudited)			4 – 13
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.			14 – 22
Item 3.		Quantitative and Qualitative Disclosures About Market Risk.			22 – 23
Item 4.		Controls and Procedures.			23
PART II.		OTHER INFORMATION
Item 4.		Submission of Matters to a Vote of Security Holders			24
Item 6.		Exhibits.			24
SIGNATURES					25

PART I. FINANCIAL INFORMATION

Item 1 . Consolidated Financial Statements .

K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands except Per Share Data)

		(Unaudited)
		July 4,				January 3,
		2009				2009
ASSETS
Current assets:
Cash and cash equivalents		$	49,159			$	41,623
Restricted cash			485				530
Accounts receivable, net of allowance for doubtful accounts of $1,321 and $1,214			30,532				36,625
Inventories, net			25,580				28,776
Deferred income taxes			2,371				2,371
Prepaid expenses and other current assets			4,959				4,498
Total current assets			113,086				114,423
Property, plant and equipment, net			24,940				26,701
Patents, net			1,336				1,381
Goodwill			29,279				29,059
Other intangibles, net			20,900				21,366
Other assets			6,724				6,438
Deferred income taxes			347				76
Total assets		$	196,612			$	199,444
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	1,000			$	1,662
Accounts payable			9,443				13,156
Accrued expenses and other current liabilities			7,216				11,198
Accrued commissions			4,572				5,285
Customer advances			7,795				7,828
Income taxes payable			2,173				4,170
Deferred income taxes			3,430				3,430
Total current liabilities			35,629				46,729
Long-term debt, net of current portion			19,000				22,000
Deferred income taxes			4,177				3,771
Other non-current liabilities			555				892
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 4,836,980 shares and 4,800,139 shares			48				48
Paid-in capital			30,491				28,455
Retained earnings			126,054				116,349
Accumulated other comprehensive income			9,716				9,483
			166,309				154,335
Treasury stock, 2,017,338 shares and 2,008,192 shares, at cost			(29,058	)			(28,283	)
Total shareholders’ equity			137,251				126,052
Total liabilities and shareholders’ equity		$	196,612			$	199,444

See accompanying Notes to Consolidated Financial Statements.

K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Dollars in Thousands except Per Share Data)
(Unaudited)

		Three Months Ended								Six Months Ended
		July 4,				June 28,				July 4,				June 28,
		2009				2008				2009				2008
Revenues:
Equipment and parts		$	47,347			$	56,947			$	95,197			$	111,423
Services and freight			2,690				3,263				4,526				6,185
Total revenues			50,037				60,210				99,723				117,608
Cost of revenues:
Equipment and parts			26,772				32,302				54,705				63,090
Services and freight			2,260				2,406				3,855				4,767
Total cost of revenues			29,032				34,708				58,560				67,857
Gross profit			21,005				25,502				41,163				49,751
Operating expenses:
Selling, general and administrative			12,182				14,615				24,804				29,676
Research and development			387				631				950				1,284
Total operating expenses			12,569				15,246				25,754				30,960
Operating income			8,436				10,256				15,409				18,791
Interest expense, net			282				246				594				625
Income before income taxes			8,154				10,010				14,815				18,166
Income tax provision			2,896				2,852				5,110				5,357
Net income			5,258				7,158				9,705				12,809
Retained earnings:
Beginning of period			120,796				96,227				116,349				90,576
End of period		$	126,054			$	103,385			$	126,054			$	103,385
Earnings per share:
Basic		$	1.87			$	2.62			$	3.46			$	4.70
Diluted		$	1.82			$	2.49			$	3.37			$	4.47
Weighted average common shares outstanding (basic)			2,816,000				2,733,000				2,808,000				2,725,000
Weighted average common and common equivalent shares outstanding (diluted)			2,891,000				2,877,000				2,879,000				2,868,000

See accompanying Notes to Consolidated Financial Statements.

K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

		Six Months Ended
		July 4,				June 28,
		2009				2008
Operating activities:
Net income		$	9,705			$	12,809
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			3,073				3,091
Non-cash compensation			374				248
Deferred income taxes			135				(44	)
Changes in assets and liabilities, net of business acquired:
Accounts receivable, net			6,068				(5,034	)
Inventories, net			3,187				(1,713	)
Prepaid expenses and other current assets			(291	)			939
Other assets			(20	)			(12	)
Accounts payable			(3,709	)			2,690
Accrued expenses and other current liabilities			(6,732	)			746
Net cash provided by operating activities			11,790				13,720
Investing activities:
Businesses acquired, net of cash received			—				(500	)
Capital expenditures			(805	)			(1,811	)
Restricted cash			45				602
Other			(41	)			(18	)
Net cash used in investing activities			(801	)			(1,727	)
Financing activities:
Proceeds from issuance of long-term debt			—				8,250
Principal payments on long-term debt			(3,662	)			(18,441	)
Purchase of common stock			(775	)			(769	)
Tax benefit from stock option exercises			528				1,022
Proceeds from issuance of common stock			490				118
Net cash used in financing activities			(3,419	)			(9,820	)
Effect of exchange rate changes on cash and cash equivalents			(34	)			3,118
Net increase in cash and cash equivalents			7,536				5,291
Cash and cash equivalents:
Beginning of period			41,623				30,853
End of period		$	49,159			$	36,144
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	718			$	1,017
Income taxes		$	5,253			$	3,536

See accompanying Notes to Consolidated Financial Statements.

K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 4, 2009
(Unaudited)

1.		Basis of Presentation
		The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all of the information and footnotes required by 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, August 10, 2009. All references to the second quarter or first six months of 2009 or 2008 mean the 13-week or 26-week period ended July 4, 2009 or June 28, 2008.
		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 3, 2009 which was filed with the Securities and Exchange Commission on March 13, 2009.
		Certain reclassifications were made to the prior year’s consolidated financial statements to conform them to the current year presentation.
2.		Acquisitions
		On March 27, 2007, the Company purchased certain assets of Wuxi Chenghao Machinery Co., Ltd. (“Wuxi Chenghao”), a privately-owned company in the People’s Republic of China. The total cost of the transaction over a five-year period, including the $1,000,000 purchase price and other possible contingent payments under certain arrangements with one of Wuxi Chenghao’s owners, could be as much as approximately $3,500,000.
		On September 14, 2007, the Company purchased all of the outstanding stock of Rader Companies, Inc. (“Rader”). The preliminary purchase price was $15,945,000, all of which was paid in cash, including $2,300,000 deposited in escrow to satisfy any potential indemnification claims made by the Company. Following the closing, this purchase price was adjusted upward to $17,632,000 to reflect a $1,687,000 increase in Rader’s net working capital between January 1, 2007 and the September 14, 2007 closing date, which adjustment was paid to the sellers on February 5, 2008.
		In the third quarter of 2008, the Company completed the valuation of the assets and liabilities of Rader as of the September 14, 2007 acquisition date. On September 12, 2008, the Company filed an indemnification claim against the sellers related to the valuation of Rader’s inventory on the closing date, which was settled on October 9, 2008. As part of the settlement, the sellers agreed to reduce the purchase price by approximately $257,000, with payments to the Company from the escrow fund of approximately $117,000 on September 26, 2008 and $140,000 on October 10, 2008. Due to these payments of $257,000 and the release of $743,000 from the escrow fund to the sellers

		pursuant to the terms of the escrow agreement, the escrow fund was reduced to $1,300,000 plus accrued interest at the end of fiscal year 2008. The purchase price allocation was updated at the end of fiscal year 2008 to record this settlement as well as the final inventory valuation and related deferred taxes as of the date of the acquisition, resulting in a net increase in goodwill of $1,320,000 in fiscal year 2008.
		The purchase price of $17,632,000, after being reduced by the $257,000 payment received as part of the inventory valuation settlement, has become an adjusted purchase price of $17,375,000, including the $1,300,000 held in escrow. Of this $1,300,000, an additional $1,000,000 was released to the sellers in July 2009, leaving an escrow balance of $300,000.
3.		New Accounting Pronouncements
		In December 2007, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141(R) (revised 2007), “Business Combinations”. SFAS No. 141(R) requires the acquiring entity in a business combination to recognize, at full fair value, all the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquiring entity to disclose information needed to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141(R) also changes the accounting for contingent consideration, in process research and development, and restructuring costs. In addition, after SFAS No. 141(R) is adopted, changes in uncertain tax positions or valuation allowances for deferred tax assets acquired in a business combination are recognized as adjustments to income tax expense or contributed capital, as appropriate. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively. The Company will prospectively apply SFAS No.141(R) to all business combinations occurring after January 3, 2009. The Company did not enter into any business combinations in the first six months of 2009.
		In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities, an Amendment to FASB Statement No. 133”. SFAS No. 161 is intended to improve financial reporting with respect to derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand the effects of these instruments and activities on an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company has interest rate swaps that are derivative instruments to which SFAS No. 161 applies. The adoption of SFAS No. 161 by the Company effective January 4, 2009 did not have a material impact on the Company’s consolidated financial statements.
		In April 2008, the FASB issued Staff Position No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”), which amends SFAS No. 142, “Goodwill and Other Intangible Assets”. This pronouncement requires that companies estimating the useful life of a recognized intangible asset consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, to consider assumptions that market participants would use about renewal or extension. FSP FAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008, and must be applied prospectively

		to intangible assets acquired after the effective date. The Company will prospectively apply FSP FAS 142-3 to all intangible assets acquired after January 3, 2009.
		In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”. The objective of SFAS No. 165 is to establish general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS No. 165 is effective for interim or annual periods ending after June 15, 2009. The Company implemented SFAS No. 165 during the quarter ended July 4, 2009 and evaluated for subsequent events through August 10, 2009, the filing date of this quarterly report on Form 10-Q. There were no subsequent events required to be recognized or disclosed in the financial statements.
		In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162”. SFAS No. 168 replaces SFAS No. 162, and establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative U.S. generally accepted accounting principles (“U.S. GAAP”). The Codification, which modifies structure hierarchy and referencing of financial standards, is effective for interim and annual financial periods ending after September 15, 2009. The Codification is not intended to change or alter existing U.S. GAAP, and will not have a material impact on the Company’s consolidated financial statements.
4.		Inventories
		Inventories consist of the following:

		July 4,				January 3,
		2009				2009
		(in thousands)
Components		$	19,526			$	22,434
Work-in-process			6,880				6,647
Finished goods			873				1,085
Inventory reserves			(1,699	)			(1,390	)
		$	25,580			$	28,776

5.		Intangible Assets
		Intangible assets consist of the following:

		July 4, 2009								January 3, 2009
		Gross								Gross
		Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
		(in thousands)
Amortized intangible assets:
Patents		$	3,094			$	1,758			$	3,054			$	1,673
Drawings			6,140				1,128				6,140				1,005
Customer relationships			11,299				2,021				11,299				1,678
		$	20,533			$	4,907			$	20,493			$	4,356
Unamortized intangible assets:
Trademarks and tradenames		$	6,610							$	6,610

		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 26 years (15 years for patents, 25 years for drawings and 29 years for customer relationships). The amortization expense of intangible assets for the six-month periods ended July 4, 2009 and June 28, 2008 was $551,000 and $579,000.
		Future annual amortization of intangible assets is as follows:

		Amount
		(in thousands)
Last two quarters fiscal year 2009		$	564
Fiscal year 2010			1,106
Fiscal year 2011			1,106
Fiscal year 2012			1,106
Fiscal year 2013			1,105
Fiscal year 2014			1,023
Thereafter			9,616
		$	15,626

Goodwill increased by $220,000 during the first six months of 2009, solely as a result of the acquisition of certain assets of Wuxi Chenghao.

6.		Accrued Warranty
		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 six-month periods ended July 4, 2009 and June 28, 2008:

		Six Months Ended
		July 4,				June 28,
		2009				2008
		(in thousands)
Beginning balance		$	2,231			$	2,194
Accrual of warranty expense			755				1,339
Warranty costs incurred			(751	)			(1,136	)
Foreign exchange adjustment			(1	)			104
Ending balance		$	2,234			$	2,501

7.		Long-Term Debt
		Long-term debt consists of the following, with the annual interest rates shown:

		July 4,				January 3,
		2009				2009
		(in thousands)
U.S. revolving line of credit		$	19,000			$	21,000
U.S. mortgage, interest at 6.45%			—				662
U.S. term note, interest at 5.00%			1,000				2,000
			20,000				23,662
Less current portion			(1,000	)			(1,662	)
		$	19,000			$	22,000

All amounts borrowed under the U.S. revolving line of credit are due on September 29, 2011. As of July 4, 2009, interest on the $19,000,000 borrowed under the U.S. revolving line of credit was payable at the following rates on the following principal amounts for the periods ending on the dates indicated:

		Principal				Expiration of
		Amount				Interest Rate Period				Per Annum Rate
Two-year interest rate swap			2,000,000				09/24/2009				5.605	%
Three-year interest rate swap			5,000,000				10/13/2009				6.085	%
Two-year interest rate swap			3,000,000				10/31/2009				5.385	%
Two-year interest rate swap			2,000,000				11/30/2009				4.925	%
Three-year interest rate swap			2,000,000				09/24/2010				5.665	%
Four-year interest rate swap			5,000,000				10/13/2010				6.095	%
		$	19,000,000

		Upon expiration of each interest rate swap agreement, 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.
8.		Earnings Per Share
		Basic earnings per share represents net income divided by the weighted average number of common shares outstanding. Diluted earnings per share is calculated similarly, except that the denominator includes the weighted average number of common shares outstanding plus the dilutive effect of stock options and restricted stock units.
		The Company’s basic and diluted earnings per share are calculated as follows:

		For the Three Months Ended July 4, 2009
		Net Income Available
(Dollars and Shares in Thousands		To Common								Earnings
except Per Share Data)		Shareholders				Shares				Per Share
Basic		$	5,258				2,816			$	1.87
Common share equivalent of outstanding options and restricted stock units			—				75				(0.05	)
Diluted		$	5,258				2,891			$	1.82

		For the Three Months Ended June 28, 2008
		Net Income Available
(Dollars and Shares in Thousands		To Common								Earnings
except Per Share Data)		Shareholders				Shares				Per Share
Basic		$	7,158				2,733			$	2.62
Common share equivalent of outstanding options			—				144				(0.13	)
Diluted		$	7,158				2,877			$	2.49

		For the Six Months Ended July 4, 2009
		Net Income Available
(Dollars and Shares in Thousands		To Common								Earnings
except Per Share Data)		Shareholders				Shares				Per Share
Basic		$	9,705				2,808			$	3.46
Common share equivalent of outstanding options and restricted stock units			—				71				(0.09	)
Diluted		$	9,705				2,879			$	3.37

		For the Six Months Ended June 28, 2008
		Net Income Available
(Dollars and Shares in Thousands		To Common								Earnings
except Per Share Data)		Shareholders				Shares				Per Share
Basic		$	12,809				2,725			$	4.70
Common share equivalent of outstanding options			—				143				(0.23	)
Diluted		$	12,809				2,868			$	4.47

9.		Share-Based Compensation
		The Company adopted SFAS No. 123(R), “Share-Based Payment”, effective January 1, 2006. SFAS No. 123(R) requires the Company to recognize expense related to the fair value of share-based compensation awards.
		There was no prospective cost of stock option compensation expensed in the first six months of 2009 or 2008. There were no stock options granted in the first six months of 2009 or in fiscal year 2008.
		The following table provides a summary of the Company’s stock option activity for the six months ended July 4, 2009:

														Weighted average
														remaining option
		Shares				Weighted average								term (in years)
		under				option exercise				Aggregate intrinsic				Options				Options
		option				price per share				value ($000)				outstanding				exercisable
Balance, January 3, 2009			117,000			$	13.72								2.48				2.48
Exercised			(17,000	)			15.90
Balance, April 4, 2009			100,000				13.35			$	5,519				2.47				2.47
Exercised			(17,000	)			12.93
Balance, July 4, 2009			83,000			$	13.44			$	5,504				2.31				2.31

		The aggregate intrinsic value at July 4, 2009 represents (i) the difference between the Company’s closing stock price of $79.75 at July 4, 2009 and the weighted average option exercise price per share on that date of $13.44 multiplied by (ii) the number of shares underlying outstanding options on that date.
		The Company issued 2,500 shares of restricted common stock in February 2008 and 9,000 shares of restricted common stock in July 2008, with each grant vesting on the four-year anniversary of the date of grant. Compensation expense related to this restricted stock is recognized ratably over the four years based on the fair values of the shares at their respective grant dates, which were $117.00 per share in February 2008 and $130.66 per share in July 2008.
		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 the

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.

10.		Comprehensive Income
		For the three and six-month periods ended July 4, 2009 and June 28, 2008, the following table sets forth the Company’s comprehensive income:

		Three Months Ended								Six Months Ended
		July 4,				June 28,				July 4,				June 28,
		2009				2008				2009				2008
		(in thousands)
Net income		$	5,258			$	7,158			$	9,705			$	12,809
Unrealized gain (loss) on interest rate swaps, net of tax			104				237				202				(67	)
Foreign currency translation gain (loss)			2,224				(1,026	)			31				4,215
Comprehensive income		$	7,586			$	6,369			$	9,938			$	16,957

11.		Management Geographic Information
		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 and six-month periods ended July 4, 2009 and June 28, 2008, the following table sets forth the Company’s geographic information:

						EMEA/
		Americas				Asia				Eliminations				Consolidated
		(in thousands)
THREE MONTHS ENDED
July 4, 2009
Revenues
Sales to unaffiliated customers		$	38,939			$	11,098			$	—			$	50,037
Sales to affiliates			2,424				1,097				(3,521	)			—
Total sales		$	41,363			$	12,195			$	(3,521	)		$	50,037
Operating income		$	7,814			$	556			$	66			$	8,436
Interest expense, net															282
Income before income taxes														$	8,154

						EMEA/
		Americas				Asia				Eliminations				Consolidated
		(in thousands)
THREE MONTHS ENDED
June 28, 2008
Revenues
Sales to unaffiliated customers		$	40,572			$	19,638			$	—			$	60,210
Sales to affiliates			2,910				1,627				(4,537	)			—
Total sales		$	43,482			$	21,265			$	(4,537	)		$	60,210
Operating income		$	6,390			$	3,839			$	27			$	10,256
Interest expense, net															246
Income before income taxes														$	10,010

						EMEA/
		Americas				Asia				Eliminations				Consolidated
		(in thousands)
SIX MONTHS ENDED
July 4, 2009
Revenues
Sales to unaffiliated customers		$	74,778			$	24,945			$	—			$	99,723
Sales to affiliates			3,696				2,026				(5,722	)			—
Total sales		$	78,474			$	26,971			$	(5,722	)		$	99,723
Operating income		$	13,399			$	1,950			$	60			$	15,409
Interest expense, net															594
Income before income taxes														$	14,815

						EMEA/
		Americas				Asia				Eliminations				Consolidated
		(in thousands)
SIX MONTHS ENDED
June 28, 2008
Revenues
Sales to unaffiliated customers		$	77,871			$	39,737			$	—			$	117,608
Sales to affiliates			4,627				2,640				(7,267	)			—
Total sales		$	82,498			$	42,377			$	(7,267	)		$	117,608
Operating income		$	11,542			$	7,288			$	(39	)		$	18,791
Interest expense, net															625
Income before income taxes														$	18,166

For the three and six-month periods ended July 4, 2009 and June 28, 2008, the following table sets forth revenues from external customers:

		Three Months Ended								Six Months Ended
		July 4,				June 28,				July 4,				June 28,
		2009				2008				2009				2008
		(in thousands)
Americas
U.S.		$	30,920			$	30,252			$	58,903			$	54,994
Canada			3,025				4,750				5,270				10,525
All others			4,994				5,570				10,605				12,352
Total			38,939				40,572				74,778				77,871
EMEA/Asia
Germany			1,891				3,915				3,477				7,006
Italy			613				473				2,520				2,293
Netherlands			361				569				664				1,725
United Kingdom			2,112				2,143				4,001				4,357
All others			6,121				12,538				14,283				24,356
Total			11,098				19,638				24,945				39,737
		$	50,037			$	60,210			$	99,723			$	117,608

Item 2 .		Management’s Discussion and Analysis of Financial Condition and Results of Operations .

Introduction

     We are engaged in one principal business segment — material handling equipment and systems. We operate in two primary geographic locations — North and South America (the “Americas”) and Europe, the Middle East, Africa and Asia (“EMEA/Asia”). Within the material handling equipment and systems segment, we have two main business lines (“business lines”), which are our process and size reduction business lines.

     We are an industrial capital goods supplier, and many of the markets for our products are cyclical. During periods of economic expansion, when capital spending normally increases, we generally benefit from greater demand for our products. During periods of economic contraction, when capital spending normally decreases, we generally are adversely affected by declining demand for our products, and the credit worthiness of our customers is a greater concern.

     Our process business line designs, produces, markets, sells and services both feeding and pneumatic conveying equipment. Markets served include the plastics compounding, base resin production, food, chemical and pharmaceutical industries. The plastics compounding and base resin production markets represent the largest markets for our process business line, and are sensitive to changes in U.S. and global economic conditions, especially as these changes relate to the use of plastics in building materials and automotive products. The food and pharmaceutical markets for our process business line tend to be less cyclical than the plastics compounding and base resin production markets.

     Our size reduction business line designs, produces, markets and sells size reduction, conveying, screening and related equipment. The main industries served by our size reduction business line are the power generation, coal mining, pulp and paper, wood and forest products and biomass energy generation industries, and a majority of the revenues and profits are generated by replacement part sales instead of by the sale of new equipment. Historically, the markets for our size reduction business line related to power generation and coal mining have been less cyclical than have the pulp and paper and wood and forest products markets. Our size reduction business line’s exposure to economic swings is generally moderated by the fact that a majority of its sales is for replacement parts needed by customers to keep their machines operating.

     The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with our consolidated financial statements and accompanying notes. All references in this Item 2 to the second quarter or first six months of 2009 or 2008 mean the 13-week or 26-week period ended July 4, 2009 or June 28, 2008.

Critical Accounting Assumptions, Estimates and Policies; Recent Pronouncements

     This discussion and analysis of our financial condition and results of operations is based on the accounting policies used and disclosed in our 2008 consolidated financial statements and accompanying notes that were prepared in accordance with accounting principles generally

accepted in the United States of America and included as part of our annual report on Form 10-K for the fiscal year ended January 3, 2009 which was filed with the Securities and Exchange Commission on March 13, 2009 (our “2008 Form 10-K”). The preparation of those financial statements required management to make assumptions and estimates that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements as well as the reported amounts of revenues and expenses during the reporting periods. Actual amounts or results could differ from those based on such assumptions and estimates.

     Our critical accounting policies, assumptions and estimates are described in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Assumptions and Estimates” in our 2008 Form 10-K. There have been no changes in these accounting policies.

     Our significant accounting policies are described in Note 2 to our 2008 consolidated financial statements contained in our 2008 Form 10-K. Information concerning our implementation and the impact of recent accounting standards issued by the Financial Accounting Standards Board is included in the notes to our 2008 consolidated financial statements and also in Note 3 to our consolidated financial statements contained in this quarterly report on Form 10-Q. We did not adopt any accounting policy in the first six months of 2009 that had a material impact on our consolidated financial statements.

Results of Operations

Overview

     For the second quarter and first six months of 2009, we reported revenues of $50,037,000 and $99,723,000 and net income of $5,258,000 and $9,705,000, compared to revenues of $60,210,000 and $117,608,000 and net income of $7,158,000 and $12,809,000 for the same periods in 2008. The decreases in our revenues and net income in the second quarter of 2009 and in the first six months of 2009 compared to the same periods in 2008 were primarily due to lower sales to customers of our process business line, especially in EMEA/Asia, and the negative effect of a stronger U.S. dollar versus the same periods in 2008 on the translation of the revenues and profits of our foreign operations into U.S. dollars, which more than offset somewhat higher sales to customers of our size reduction business line in both periods. Net income in both periods of 2009 was also adversely affected by a higher tax rate. Our effective tax rates for the second quarter and first six months of 2009 were 35.5% and 34.5%, up from 28.5% and 29.5% in the same periods of 2008. These increases were primarily due to a higher proportion of our earnings coming from the United States where these earnings are taxed at an overall higher rate than are our earnings in EMEA/Asia. In addition, our income tax expense in the second quarter and first six months of 2008 was reduced by two items totaling approximately $223,000, of which $173,000 was from the reversal of a previously recorded foreign tax contingency and $50,000 was from a tax refund due from the U.S. Treasury related to the completion of an Internal Revenue Service audit of the Company’s U.S. corporation tax filings for 2004, 2005 and 2006.

Foreign Exchange Rates

     We are an international company, and we derived approximately 25% and 34% of our revenues for the first six months of 2009 and 2008 from products manufactured in, and sales

made and services performed from, our facilities located outside the United States, primarily in Europe. With our global operations, we are sensitive to changes in foreign currency exchange rates (“foreign exchange rates”), which can affect both the translation of financial statement items into U.S. dollars as well as transactions where the revenues and related expenses may initially be accounted for in different currencies, such as sales made from our Swiss manufacturing facility in currencies other than the Swiss franc. We are also exposed to foreign currency transactional gains and losses caused by the marking to market of certain balance sheet items of our foreign subsidiaries that are measured in other currencies, particularly of non-Swiss franc values, including the euro and the British pound sterling, on the balance sheet of our Swiss subsidiary.

     Since we receive substantial revenues from activities in foreign jurisdictions, our results can be significantly affected by changes in foreign exchange rates, particularly in U.S. dollar exchange rates with respect to the Swiss franc, euro, British pound sterling, Canadian dollar and Swedish krona and, to a lesser degree, other currencies. When the U.S. dollar weakens against these currencies, the U.S. dollar value of non-U.S. dollar-based sales increases. When the U.S. dollar strengthens against these currencies, the U.S. dollar value of non-U.S. dollar-based sales decreases. 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, our revenues in U.S. dollars generally benefit from a weaker dollar and are adversely affected by a stronger dollar relative to major currencies worldwide, especially those identified above. In particular, a general weakening of the U.S. dollar against other currencies would positively affect our revenues, gross profit and operating income as expressed in U.S. dollars (provided that the gross profit and operating income numbers from foreign operations are not losses, since in the case of a loss, the effect would be to increase the loss), whereas a general strengthening of the U.S. dollar against such currencies would have the opposite effect. In addition, our revenues and income with respect to sales transactions may be affected by changes in foreign exchange rates where the sale is made in a currency other than the functional currency of the facility manufacturing the product subject to the sale.

     For the second quarter and first six months of 2009 and 2008, the changes in certain key foreign exchange rates affecting us were as follows:

		Three Months Ended												Six Months Ended
		July 4,								June 28,				July 4,								June 28,
		2009								2008				2009								2008
Average U.S. dollar equivalent of one Swiss franc			0.903								0.971				0.887								0.956
% change vs. prior year							-7.0	%											-7.2	%
Average U.S. dollar equivalent of one euro			1.368								1.564				1.337								1.532
% change vs. prior year							-12.5	%											-12.7	%
Average U.S. dollar equivalent of one British pound sterling			1.563								1.975				1.504								1.976
% change vs. prior year							-20.9	%											-23.9	%
Average U.S. dollar equivalent of one Canadian dollar			0.863								0.990				0.834								0.992
% change vs. prior year							-12.8	%											-15.9	%
Average U.S. dollar equivalent of one Swedish krona			0.127								0.167				0.123								0.163
% change vs. prior year							-24.0	%											-24.5	%
Average Swiss franc equivalent of one euro			1.515								1.611				1.507								1.603
% change vs. prior year							-6.0	%											-6.0	%
Average Swiss franc equivalent of one British pound sterling			1.731								2.035				1.696								2.067
% change vs. prior year							-14.9	%											-18.0	%

Presentation of Results and Analysis

     The following table sets forth our results of operations, expressed as a percentage of total revenues, for the periods indicated:

		Three Months Ended								Six Months Ended
		July 4,				June 28,				July 4,				June 28,
		2009				2008				2009				2008
Total revenues			100.0	%			100.0	%			100.0	%			100.0	%
Cost of revenues			58.0				57.6				58.7				57.7
Gross profit			42.0				42.4				41.3				42.3
Selling, general and administrative			24.2				24.3				24.9				25.2
Research and development			0.9				1.1				1.0				1.1
Operating income			16.9				17.0				15.4				16.0
Interest expense, net			0.6				0.4				0.6				0.5
Income before income taxes			16.3				16.6				14.8				15.5
Income tax provision			5.8				4.7				5.1				4.6
Net income			10.5	%			11.9	%			9.7	%			10.9	%