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 third quarter or first nine months of 2009 or 2008 mean the 13-week or 39-week period ended October 3, 2009 or September 27, 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 (the "United States" or the "U.S.") 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 nine months of 2009 that had a material impact on our consolidated financial statements. Results of Operations
Overview
For the third quarter and first nine months of 2009, we reported revenues of $47,321,000 and $147,044,000 and net income of $6,768,000 and $16,473,000, compared to revenues of $59,631,000 and $177,239,000 and net income of $6,767,000 and $19,576,000 for the same periods in 2008. Our net income for the third quarter and first nine months of 2009 included a gain of $2,972,000 on the September 2009 sale of our 19.9% investment in Hasler International, SA ("Hasler"). The decreases in our revenues and net income in the third quarter and the first nine months of 2009 compared to the same periods in 2008, excluding in the case of net income the gain related to the sale of our Hasler investment, were primarily due to lower sales to customers of our process business line, especially in EMEA/Asia, which more than offset somewhat higher sales to customers of our size reduction business line in both periods. The decreases in our revenues and net income in the first nine months of 2009 were also due to the negative effect of a generally 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. Net income in both periods of 2009 was also adversely affected by a higher tax rate. Our effective tax rates for the third quarter and first nine months of 2009 were 35.0% and 34.7%, up from 27.1% and 28.7% 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 first nine months of 2008 was reduced by two second quarter 2008 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 an income tax refund 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 26% and 35% of our revenues for the first nine 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 third quarter and first nine months of 2009 and 2008, the changes in certain key foreign exchange rates affecting us were as follows:

                                         Three Months Ended                                  Nine Months Ended
                            October 3,                     September 27,        October 3,                     September 27,
                               2009                            2008                2009                            2008

Average U.S. dollar
equivalent of one Swiss
franc                             0.945                             0.932             0.906                             0.948
% change vs. prior year                         +1.4 %                                              -4.4 %

Average U.S. dollar
equivalent of one euro            1.434                             1.503             1.369                             1.523
% change vs. prior year                         -4.6 %                                             -10.1 %

Average U.S. dollar
equivalent of one
British pound sterling            1.637                             1.894             1.548                             1.949
% change vs. prior year                        -13.6 %                                             -20.6 %

Average U.S. dollar
equivalent of one
Canadian dollar                   0.916                             0.962             0.861                             0.982
% change vs. prior year                         -4.8 %                                             -12.3 %

Average U.S. dollar
equivalent of one
Swedish krona                     0.139                             0.159             0.128                             0.162
% change vs. prior year                        -12.6 %                                             -21.0 %

Average Swiss franc
equivalent of one euro            1.517                             1.613             1.511                             1.607
% change vs. prior year                         -5.9 %                                              -5.9 %

Average Swiss franc
equivalent of one
British pound sterling            1.732                             2.032             1.709                             2.056
% change vs. prior year                        -14.8 %                                             -16.9 %

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                     Nine Months Ended
                                       October 3,         September 27,       October 3,        September 27,
                                          2009                2008               2009               2008

Total revenues                               100.0 %               100.0 %          100.0 %              100.0 %

Cost of revenues                              58.0                  58.4             58.5                 57.9


Gross profit                                  42.0                  41.6             41.5                 42.1

Selling, general and administrative           24.8                  24.6             24.8                 25.0

Research and development                       0.9                   1.1              0.9                  1.1


Operating income                              16.3                  15.9             15.8                 16.0

Interest expense, net                         (0.5 )                (0.3 )           (0.6 )               (0.5 )

Gain on sale of investment                     6.3                     -              2.0                    -


Income before income taxes                    22.1                  15.6             17.2                 15.5

Income tax provision                           7.8                   4.3              6.0                  4.5


Net income                                    14.3 %                11.3 %           11.2 %               11.0 %

Total revenues decreased by $12,310,000 or 20.6% in the third quarter of 2009 and by $30,195,000 or 17.0% in the first nine months of 2009 compared to the same periods in 2008. These decreases were primarily due to lower sales to customers of our process business line, especially in EMEA/Asia, which more than offset somewhat higher sales to customers of our size reduction business line in both periods of 2009. The decrease in our revenues in the first nine months of 2009 was also due to the negative effect of a generally stronger U.S. dollar versus the same period in 2008 on the translation of the revenues and profits of our foreign operations into U.S. dollars.
Gross profit as a percentage of total revenues increased to 42.0% in the third quarter of 2009 from 41.6% for the same period in 2008 and decreased to 41.5% in the first nine months of 2009 from 42.1% for the same period last year. We believe that the changes between periods primarily reflected a change in the sales mix of the products and services sold by our two business lines during these periods. Sales mix refers to the relative amounts of different products sold and services provided. Gross margin levels vary with the products sold or services provided. For example, sales of replacement parts in our size reduction business line generally carry a higher gross margin than sales of equipment within that line.
Selling, general and administrative ("SG&A") expense decreased by $2,933,000 or 20.0% in the third quarter of 2009 and by $7,805,000 or 17.6% in the first nine months of 2009 compared to the same periods in 2008. These decreases were primarily due to lower compensation and related costs associated with reduced staffing and adjusted work schedules, reduced discretionary spending related to cost reduction programs, decreased commissions related to decreased revenues, the favorable effects of foreign exchange on transaction exposure caused by the marking to market of non-Swiss franc balances to Swiss franc values on the balance sheet of our Swiss subsidiary, and the favorable effect of a stronger U.S. dollar on the translation of foreign costs into U.S. dollars. As a percentage of revenues, SG&A for the third quarter of 2009 increased to 24.8% compared to 24.6% in the same period of 2008 and decreased to 24.8% in the first nine months of 2009 compared to 25.0% in the first nine months of 2008.

Research and development expense decreased by $194,000 or 30.6% in the third quarter of 2009 and by $528,000 or 27.5% in the first nine months of 2009 compared to the same periods in 2008, primarily due to reduced spending. Interest expense, net of interest income, increased by $73,000 or 40.8% in the third quarter of 2009 and by $42,000 or 5.2% in the first nine months of 2009 compared to the same periods in 2008. The increases for the third quarter of 2009 and first nine months of 2009 were primarily due to the effect of lower interest income earned on cash deposits partially offset by lower interest expense on lower debt levels.
Gain on sale of investment of $2,972,000 reflected the sale of the Company's interest in Hasler.
Income before income taxes increased to $10,408,000 in the third quarter of 2009 and decreased to $25,223,000 in the first nine months of 2009 compared to $9,283,000 and $27,449,000 for the same periods in 2008. The increase of $1,125,000 in the third quarter of 2009 and the decrease of $2,226,000 in the first nine months of 2009 were primarily the net result of the items discussed above.
The income tax provisions for the third quarter and first nine months of 2009 were $3,640,000 and $8,750,000 compared to $2,516,000 and $7,873,000 for the same periods in 2008. The overall effective income tax rates were 35.0% and 34.7% for the third quarter and the first nine months of 2009 versus 27.1% and 28.7% for the same periods in 2008. The higher effective tax rates in 2009 compared to 2008 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 first nine months of 2008 was reduced by two second quarter 2008 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 an income tax refund related to the completion of an Internal Revenue Service audit of the Company's U.S. corporation tax filings for 2004, 2005 and 2006. The following table sets forth our order backlog at the dates indicated:

                                                   October 3, 2009        January 3, 2009        September 27, 2008

Backlog (at October 3, 2009 foreign exchange
rates, in thousands of dollars)                   $          50,076      $          69,179      $             74,959

Our order backlog at constant foreign exchange rates decreased by $19,103,000 or 27.6% at the end of the third quarter of 2009 compared to the end of fiscal year 2008. Our order backlog at constant foreign exchange rates decreased by $24,883,000 or 33.2% at the end of the third quarter of 2009 compared to the end of the third quarter of 2008. These declines reflected the severe global economic slowdown of 2009, which resulted in sharply reduced demand for our equipment from many customers, most notably in the plastic compounding, base resin production, pulp and paper and wood and forest products industries.

Liquidity and Capital Resources
Capitalization
Our capitalization at the end of the third quarter of 2009 and at the end of
fiscal year 2008 is summarized below:

                                                         October 3,        January 3,
(Dollars in Thousands)                                      2009              2009

Short-term debt, including current portion of
long-term debt                                          $      1,000      $      1,662
Long-term debt                                                17,000            22,000

Total debt                                                    18,000            23,662
Shareholders' equity                                         146,789           126,052

Total debt and shareholders' equity (total
capitalization)                                         $    164,789      $    149,714

Percent total debt to total capitalization                        11 %              16 %
Percent long-term debt to equity                                  12 %              17 %
Percent total debt to equity                                      12 %              19 %

The weighted average annual interest rate on total debt at October 3, 2009 was 5.74%.
Total debt decreased by $5,662,000 in the first nine months of 2009. At October 3, 2009, and subject to certain conditions which may limit the amount that may be borrowed at any particular time, we had $30,901,000 of unused borrowing capacity under our U.S. revolving credit facility and $6,234,000 of unused borrowing capacity under our foreign loan agreements. Other Items
At October 3 2009, our working capital was $85,902,000 compared to $67,694,000 at January 3, 2009, and the ratio of our current assets to our current liabilities at those dates was 3.29 and 2.45. In the first nine months of 2009, we utilized internally generated funds to meet our working capital needs. Net cash provided by operating activities was $25,656,000 in the first nine months of 2009 compared to net cash provided by operating activities of $15,694,000 for the same period in 2008. This increase in net cash provided by operating activities in 2009 was primarily from reductions in accounts receivable and inventory partially offset by lower net income and decreases in accrued expenses and accounts payable.
Net cash of $1,538,000 used in investing activities in the first nine months of 2009 was primarily for property, plant and equipment additions, while net cash of $2,357,000 used in investing activities in the first nine months of 2008 was primarily for property, plant and equipment additions and an installment payment related to the purchase of certain assets of Wuxi Chenghao Machinery Co., Ltd.

Net cash used in financing activities in the first nine months of 2009 was primarily for principal payments on debt and the purchase of 20,105 shares of the Company's common stock, partially offset by the proceeds from stock option exercises and the tax benefit associated therewith. Net cash used in financing activities in the first nine months of 2008 was primarily for net principal payments on debt and the purchase of 5,618 shares of the Company's common stock, partially offset by the proceeds from stock option exercises and the tax benefit associated therewith.
Shareholders' equity increased $20,737,000 in the first nine months of 2009, of which $16,473,000 was from net income, $2,676,000 was from the issuance of common stock in connection with share-based compensation and stock option exercises, $317,000 was from an unrealized gain, net of taxes, attributable to five interest rate swaps and $3,063,000 was from changes in foreign exchange, primarily the translation of Swiss francs into U.S. dollars, during the nine-month period ended October 3, 2009, partially offset by $1,792,000 used to purchase shares of the Company's common stock in connection with the exercise of stock options and the vesting of restricted stock grants. Future Payments Under Contractual Obligations We are obligated to make future payments under various contracts such as debt agreements and lease agreements, and we are subject to certain other commitments and contingencies. There have been no material changes to Future Payments Under Contractual Obligations as reflected in the Liquidity and Capital Resources section of Management's Discussion and Analysis in our 2008 Form 10-K, except for a $4,000,000 decrease in the principal amount due in 2011 under our U.S. revolving credit facility. Refer to Notes 8 and 15 to the consolidated financial statements in our 2008 Form 10-K for additional information on long-term debt and commitments and contingencies.
Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors." in our 2008 Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our 2008 Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may have a materially adverse affect our business, financial condition or operating results.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe harbor for forward-looking statements made by us or on our behalf. We and our 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 our shareholders and news releases. All statements that express expectations, estimates, forecasts or 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 us or on our behalf. 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 contingencies which are difficult to predict. These risks and uncertainties include, but are not limited to, the risks described above under the heading "Risk Factors". Many of the factors that will determine our future results are beyond our ability to control or predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by any forward-looking statements that we may make. The forward-looking statements contained in this report include, but are not limited to, statements regarding the effect of changes in foreign exchange rates and interest rates on our business and financial results. We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.