Exhibit 99.2
K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands except Per Share Data)
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands except Per Share Data)
(Unaudited) | ||||||||
April 1, | January 2, | |||||||
2010 | 2010 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 66,205 | $ | 62,623 | ||||
Restricted cash | 292 | 292 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $1,320 and $1,387 | 18,070 | 25,878 | ||||||
Inventories, net of inventory reserve of $1,870 and $1,786 | 30,401 | 26,359 | ||||||
Deferred income taxes | 4,234 | 3,109 | ||||||
Prepaid expenses and other current assets | 2,379 | 3,357 | ||||||
Total current assets | 121,581 | 121,618 | ||||||
Property, plant and equipment, net of accumulated depreciation of $46,279 and $49,051 | 22,588 | 23,926 | ||||||
Patents, net of accumulated amortization of $1,885 and $1,843 | 1,271 | 1,297 | ||||||
Goodwill | 31,088 | 30,279 | ||||||
Other intangibles, net of accumulated amortization of $3,849 and $3,616 | 20,200 | 20,433 | ||||||
Other assets | 4,461 | 5,583 | ||||||
Deferred income taxes | 839 | 1,100 | ||||||
Total assets | $ | 202,028 | $ | 204,236 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | — | $ | 1,000 | ||||
Accounts payable | 12,443 | 10,767 | ||||||
Accrued expenses and other current liabilities | 14,590 | 10,221 | ||||||
Accrued commissions | 3,587 | 4,231 | ||||||
Customer advances | 8,193 | 6,820 | ||||||
Income taxes payable | 700 | 2,161 | ||||||
Deferred income taxes | 5,237 | 4,949 | ||||||
Total current liabilities | 44,750 | 40,149 | ||||||
Long-term debt, net of current portion | 7,000 | 7,000 | ||||||
Deferred income taxes | 3,152 | 3,520 | ||||||
Other non-current liabilities | — | 255 | ||||||
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 | 49 | 49 | ||||||
Paid-in capital | 32,354 | 31,891 | ||||||
Retained earnings | 132,488 | 137,904 | ||||||
Accumulated other comprehensive income | 12,310 | 13,543 | ||||||
177,201 | 183,387 | |||||||
Treasury stock, 2,028,297 shares at cost | (30,075 | ) | (30,075 | ) | ||||
Total shareholders’ equity | 147,126 | 153,312 | ||||||
Total liabilities and shareholders’ equity | $ | 202,028 | $ | 204,236 | ||||
See accompanying Notes to Consolidated Financial Statements.
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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Dollars in Thousands except Per Share Data)
(Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Dollars in Thousands except Per Share Data)
(Unaudited)
Three Month | ||||||||
Period Ended | Period Ended | |||||||
April 1, 2010 | April 4, 2009 | |||||||
Revenues: | ||||||||
Equipment and parts | $ | 35,443 | $ | 47,850 | ||||
Services and freight | 2,513 | 1,836 | ||||||
Total revenues | 37,956 | 49,686 | ||||||
Cost of revenues: | ||||||||
Equipment and parts | 19,113 | 27,933 | ||||||
Services and freight | 2,106 | 1,595 | ||||||
Total cost of revenues | 21,219 | 29,528 | ||||||
Gross profit | 16,737 | 20,158 | ||||||
Operating expenses: | ||||||||
Selling, general and administrative | 12,183 | 12,622 | ||||||
Research and development | 584 | 563 | ||||||
Total operating expenses | 12,767 | 13,185 | ||||||
Operating income | 3,970 | 6,973 | ||||||
Other expense: | ||||||||
Interest expense, net | (74 | ) | (312 | ) | ||||
Transaction costs | (10,081 | ) | — | |||||
(Loss) income before income taxes | (6,185 | ) | 6,661 | |||||
Income tax (benefit) provision | (769 | ) | 2,214 | |||||
Net (loss) income | (5,416 | ) | 4,447 | |||||
Per share: | ||||||||
Basic | $ | (1.91 | ) | $ | 1.59 | |||
Diluted | $ | (1.91 | ) | $ | 1.54 | |||
Weighted average common shares outstanding (basic) | 2,840,000 | 2,800,000 | ||||||
Weighted average common and common equivalent shares outstanding (diluted) | 2,888,000 | 2,880,000 | ||||||
See accompanying Notes to Consolidated Financial Statements.
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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended | ||||||||
April 1, | April 4, | |||||||
2010 | 2009 | |||||||
Operating activities: | ||||||||
Net (loss) income | $ | (5,416 | ) | $ | 4,447 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,676 | 1,570 | ||||||
Non-cash compensation | 1,421 | 190 | ||||||
Deferred income taxes | (944 | ) | 66 | |||||
Changes in assets and liabilities, net of business acquired: | ||||||||
Accounts receivable, net | 7,715 | 3,094 | ||||||
Inventories, net | (4,246 | ) | 865 | |||||
Prepaid expenses and other current assets | 536 | 287 | ||||||
Other assets | 6 | (143 | ) | |||||
Accounts payable | 1,786 | (3,578 | ) | |||||
Accrued expenses and other current liabilities | 3,371 | (3,468 | ) | |||||
Net cash provided by operating activities | 5,905 | 3,330 | ||||||
Investing activities: | ||||||||
Business acquired | (346 | ) | — | |||||
Capital expenditures | (154 | ) | (372 | ) | ||||
Restricted cash | — | 45 | ||||||
Other | (17 | ) | (14 | ) | ||||
Net cash used in investing activities | (517 | ) | (341 | ) | ||||
Financing activities: | ||||||||
Principal payments on long-term debt | (1,000 | ) | (1,060 | ) | ||||
Tax benefit from stock option exercises | — | 233 | ||||||
Proceeds from issuance of common stock | — | 270 | ||||||
Net cash used in financing activities | (1,000 | ) | (557 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (806 | ) | (1,427 | ) | ||||
Net increase in cash and cash equivalents | 3,582 | 1,005 | ||||||
Cash and cash equivalents: | ||||||||
Beginning of period | 62,623 | 41,623 | ||||||
End of period | $ | 66,205 | $ | 42,628 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 116 | $ | 325 | ||||
Income taxes | $ | 1,949 | $ | 2,045 |
See accompanying Notes to Consolidated Financial Statements.
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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in Thousands except Per Share Data)
(Unaudited)
For the Three Months ended April 1, 2010
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in Thousands except Per Share Data)
(Unaudited)
For the Three Months ended April 1, 2010
Accumulated | ||||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | Treasury Stock | ||||||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income | Shares | Amount | Total | |||||||||||||||||||||||||
Balance, January 2, 2010 | 4,866,980 | $ | 49 | $ | 31,891 | $ | 137,904 | $ | 13,543 | 2,028,297 | $ | (30,075 | ) | $ | 153,312 | |||||||||||||||||
Comprehensive Loss: | ||||||||||||||||||||||||||||||||
Net loss | — | — | — | (5,416 | ) | — | — | — | (5,416 | ) | ||||||||||||||||||||||
Translation adjustments | — | — | — | — | (1,201 | ) | — | — | (1,201 | ) | ||||||||||||||||||||||
Unrealized loss on interest rate swap, net of tax | — | — | — | — | (32 | ) | — | — | (32 | ) | ||||||||||||||||||||||
Total comprehensive loss | (6,649 | ) | ||||||||||||||||||||||||||||||
Issuance of stock | 3,104 | — | 463 | — | — | — | — | 463 | ||||||||||||||||||||||||
Balance, April 1, 2010 | 4,870,084 | $ | 49 | $ | 32,354 | $ | 132,488 | $ | 12,310 | 2,028,297 | $ | (30,075 | ) | $ | 147,126 | |||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
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K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 1, 2010
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 1, 2010
(Unaudited)
1. | Basis of Presentation | |
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. | ||
2. | Subsequent Event | |
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. | ||
3. | Inventories | |
Inventories consist of the following: |
April 1, | January 2, | |||||||
2010 | 2010 | |||||||
(in thousands) | ||||||||
Components | $ | 21,896 | $ | 22,701 | ||||
Work-in-process | 9,388 | 4,581 | ||||||
Finished goods | 987 | 863 | ||||||
Inventory reserves | (1,870 | ) | (1,786 | ) | ||||
$ | 30,401 | $ | 26,359 | |||||
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4. | Patents and Other Intangible Assets | |
Patents and other intangible assets consist of the following: |
April 1, 2010 | January 2, 2010 | |||||||||||||||
Gross | Gross | |||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
(in thousands) | ||||||||||||||||
Amortized intangible assets: | ||||||||||||||||
Patents | $ | 3,156 | $ | 1,885 | $ | 3,140 | $ | 1,843 | ||||||||
Drawings | 6,140 | 1,312 | 6,140 | 1,251 | ||||||||||||
Customer relationships | 11,299 | 2,537 | 11,299 | 2,365 | ||||||||||||
$ | 20,595 | $ | 5,734 | $ | 20,579 | $ | 5,459 | |||||||||
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 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: |
Amount | ||||
(in thousands) | ||||
Last three quarters fiscal year 2010 | 830 | |||
Fiscal year 2011 | 1,114 | |||
Fiscal year 2012 | 1,123 | |||
Fiscal year 2013 | 1,041 | |||
Fiscal year 2014 | 1,036 | |||
Fiscal year 2015 | 1,029 | |||
Thereafter | 8,688 | |||
$ | 14,861 | |||
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. |
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5. | 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 three-month periods ended April 1, 2010 and April 4, 2009: |
Three Month Periods Ended | ||||||||
April 1, | April 4, | |||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Beginning balance | $ | 2,338 | $ | 2,231 | ||||
Accrual of warranty expense | 272 | 484 | ||||||
Warranty costs incurred | (253 | ) | (455 | ) | ||||
Foreign exchange adjustment | (14 | ) | (44 | ) | ||||
Ending balance | $ | 2,343 | $ | 2,216 | ||||
6. | Long-Term Debt | |
Long-term debt consists of the following, with the annual interest rates shown: |
April 1, | January 2, | |||||||
2010 | 2010 | |||||||
(in thousands) | ||||||||
U.S. revolving line of credit | $ | 7,000 | $ | 7,000 | ||||
U.S. term note, interest at 5.00% | — | 1,000 | ||||||
7,000 | 8,000 | |||||||
Less current portion | — | (1,000 | ) | |||||
$ | 7,000 | $ | 7,000 | |||||
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: |
Principal | Expiration of | Interest Rate at | ||||||||||
Amount | Interest Rate Period | April 1, 2010 | ||||||||||
30 Day LIBOR loan | $ | 2,000,000 | 4/30/2010 | 1.12288 | ||||||||
30 Day LIBOR loan | 5,000,000 | 4/30/2010 | 1.12288 | |||||||||
$ | 7,000,000 | |||||||||||
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. |
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7. | (Loss) Earnings Per Share | |
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: |
(Dollars and Shares in Thousands | For the Three Month Period Ended April 1, 2010 | |||||||||||
except Per Share Data) | Net Loss | Shares | Per Share | |||||||||
Basic and diluted | $ | (5,416 | ) | 2,840 | $ | (1.91 | ) | |||||
(Dollars and Shares in Thousands | For the Three Month Period Ended April 4, 2009 | |||||||||||
except Per Share Data) | Net Income | Shares | Per Share | |||||||||
Basic | $ | 4,447 | 2,800 | $ | 1.59 | |||||||
Common share equivalent of outstanding options | — | 80 | (0.05 | ) | ||||||||
Diluted | $ | 4,447 | 2,880 | $ | 1.54 | |||||||
8. | Share-Based Compensation | |
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: |
Weighted | ||||||||||||||||||||
average | Weighted average | |||||||||||||||||||
option | Aggregate | remaining option | ||||||||||||||||||
Shares | exercise | Intrinsic | term (in years) | |||||||||||||||||
under | price per | Value | Options | Options | ||||||||||||||||
option | share | ($000) | outstanding | exercisable | ||||||||||||||||
Balance, January 2, 2010 | 53,000 | $ | 14.15 | 1.97 | 1.97 | |||||||||||||||
Exercised | (— | ) | — | |||||||||||||||||
Balance, April 1, 2010 | 53,000 | $ | 14.15 | $ | 7,201 | 1.72 | 1.72 | |||||||||||||
-8-
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. | ||
9. | Comprehensive (Loss) Income | |
For the three-month periods ended April 1, 2010 and April 4, 2009, the following table sets forth the Company’s comprehensive (loss) income: |
Three Month Periods Ended | ||||||||
April 1, | April 4, | |||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Net (loss) income | $ | (5,416 | ) | $ | 4,447 | |||
Unrealized (loss) gain on interest rate swaps, net of tax | (32 | ) | 98 | |||||
Foreign currency translation (loss) gain | (1,201 | ) | (2,213 | ) | ||||
Comprehensive (loss) income | $ | (6,649 | ) | $ | 2,332 | |||
10. | 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-month periods ended April 1, 2010 and April 4, 2009, the following tables set forth the Company’s geographic information: |
EMEA/ | Elimi- | Consoli- | ||||||||||||||
Americas | Asia | nations | dated | |||||||||||||
(in thousands) | ||||||||||||||||
THREE MONTH PERIOD ENDED | ||||||||||||||||
April 1, 2010 | ||||||||||||||||
Revenues | ||||||||||||||||
Sales to unaffiliated customers | $ | 24,360 | $ | 13,596 | $ | — | $ | 37,956 | ||||||||
Sales to affiliates | 1,707 | 1,137 | (2,844 | ) | — | |||||||||||
Total sales | $ | 26,067 | $ | 14,733 | $ | (2,844 | ) | $ | 37,956 | |||||||
Operating income | $ | 2,495 | $ | 1,475 | $ | — | $ | 3,970 | ||||||||
Interest expense, net | (74 | ) | ||||||||||||||
Transaction costs | (10,081 | ) | ||||||||||||||
Loss before income taxes | $ | (6,185 | ) | |||||||||||||
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EMEA/ | Elimi- | Consoli- | ||||||||||||||
Americas | Asia | nations | dated | |||||||||||||
(in thousands) | ||||||||||||||||
THREE MONTH PERIOD ENDED | ||||||||||||||||
April 4, 2009 | ||||||||||||||||
Revenues: | ||||||||||||||||
Sales to unaffiliated customers | $ | 35,839 | $ | 13,847 | $ | — | $ | 49,686 | ||||||||
Sales to affiliates | 1,272 | 929 | (2,201 | ) | — | |||||||||||
Total sales | $ | 37,111 | $ | 14,776 | $ | (2,201 | ) | $ | 49,686 | |||||||
Operating income | $ | 5,585 | $ | 1,394 | $ | (6 | ) | $ | 6,973 | |||||||
Interest expense, net | (312 | ) | ||||||||||||||
Income before income taxes | $ | 6,661 | ||||||||||||||
For the three month periods ended April 1, 2010 and April 4, 2009, the following table sets forth revenues from external customers:
Three Months Ended | ||||||||
April 1, | April 4, | |||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Americas: | ||||||||
U.S. | $ | 19,398 | $ | 27,983 | ||||
All others | 4,962 | 7,856 | ||||||
Total | 24,360 | 35,839 | ||||||
EMEA/Asia: | ||||||||
Germany | 2,061 | 1,586 | ||||||
Great Britain | 1,367 | 1,888 | ||||||
Italy | 989 | 1,907 | ||||||
All others | 9,179 | 8,466 | ||||||
Total | 13,596 | 13,847 | ||||||
$ | 37,956 | $ | 49,686 | |||||
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