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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


  

FORM 10-Q

 


  

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

   
  For the quarterly period ended September 30, 2014

 

or

 

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 1-34036

 


 

John Bean Technologies Corporation

(Exact name of registrant as specified in its charter)

 


 

Delaware

91-1650317

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

70 West Madison Street, Chicago, Illinois

60602

(Address of principal executive offices)

(Zip code)

 

(312) 861-5900

(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

 

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   ☒   No  ☐

 

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,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

       

Large accelerated filer

Accelerated filer

       

Non-accelerated filer

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

     

Class

 

Outstanding at November 3, 2014

Common Stock, par value $0.01 per share

 

29,120,327



 
 

 

  

PART I—FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

 

John Bean Technologies Corporation

Condensed Consolidated statements of income

(Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(In millions, except per share data)

 

2014

   

2013

   

2014

   

2013

 

Revenue

  $ 243.2     $ 233.5     $ 688.8     $ 646.1  

Operating expenses:

                               

Cost of sales

    179.0       179.3       504.3       482.5  

Selling, general and administrative expense

    43.5       39.2       132.0       120.6  

Research and development expense

    3.4       3.7       10.6       10.6  

Restructuring expense

    1.3       -       12.5       -  

Other (income) expense, net

    0.8       (0.3 )     0.9       (0.6 )

Operating income

    15.2       11.6       28.5       33.0  

Interest income

    0.3       0.6       1.1       1.4  

Interest expense

    (2.0 )     (1.8 )     (5.6 )     (5.6 )

Income from continuing operations before income taxes

    13.5       10.4       24.0       28.8  

Provision for income taxes

    4.5       3.0       8.3       8.5  

Income from continuing operations

    9.0       7.4       15.7       20.3  

Loss from discontinued operations, net of taxes

    -       (0.6 )     (0.1 )     (0.8 )

Net income

  $ 9.0     $ 6.8     $ 15.6     $ 19.5  
                                 

Basic earnings per share:

                               

Income from continuing operations

  $ 0.30     $ 0.25     $ 0.53     $ 0.69  

Loss from discontinued operations

    -       (0.02 )     -       (0.02 )

Net income

  $ 0.30     $ 0.23     $ 0.53     $ 0.67  

Diluted earnings per share:

                               

Income from continuing operations

  $ 0.30     $ 0.25     $ 0.53     $ 0.68  

Loss from discontinued operations

    -       (0.02 )     (0.01 )     (0.02 )

Net income

  $ 0.30     $ 0.23     $ 0.52     $ 0.66  

Cash dividends declared per share

  $ 0.09     $ 0.09     $ 0.27     $ 0.25  

 

 

JOHN BEAN TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(In millions)

 

2014

   

2013

   

2014

   

2013

 

Net income

  $ 9.0     $ 6.8     $ 15.6     $ 19.5  

Other comprehensive income (loss)

                               

Foreign currency translation adjustments

    (12.3 )     3.6       (12.7 )     (3.5 )

Pension and other postretirement benefits adjustments, net of tax

    0.4       0.8       1.4       1.9  

Other comprehensive income (loss)

    (11.9 )     4.4       (11.3 )     (1.6 )

Comprehensive income (loss)

  $ (2.9 )   $ 11.2     $ 4.3     $ 17.9  

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 
2

 

 

 

 JOHN BEAN TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   

September 30, 2014

   

December 31, 2013

 

(In millions, except per share data and number of shares)

 

(Unaudited)

         

Assets:

               

Current Assets:

               

Cash and cash equivalents

  $ 23.3     $ 29.4  

Trade receivables, net of allowances of $2.7 and $3.7, respectively

    155.1       186.4  

Inventories

    138.6       117.6  

Other current assets

    71.0       63.2  

Total current assets

    388.0       396.6  

Property, plant and equipment, net of accumulated depreciation of $237.0 and $241.9, respectively

    137.6       132.7  

Goodwill

    48.5       30.8  

Intangible assets, net

    41.3       21.4  

Other assets

    33.0       39.7  

Total Assets

  $ 648.4     $ 621.2  
                 

Liabilities and Stockholders' Equity:

               

Current Liabilities:

               

Short-term debt and current portion of long-term debt

  $ 4.4     $ 6.3  

Accounts payable, trade and other

    88.8       88.1  

Advance and progress payments

    95.6       88.3  

Other current liabilities

    112.1       94.9  

Total current liabilities

    300.9       277.6  

Long-term debt, less current portion

    122.9       94.1  

Accrued pension and other postretirement benefits, less current portion

    32.5       52.5  

Deferred income taxes

    15.2       10.9  

Other liabilities

    25.1       31.7  

Stockholders' equity:

               

Preferred stock, $0.01 par value; 20,000,000 shares authorized; no shares issued

    -       -  

Common stock, $0.01 par value; 120,000,000 shares authorized; 2014: 29,138,162 issued and 29,120,327 outstanding; 2013: 28,979,080 issued and outstanding

    0.3       0.3  

Common stock held in treasury, at cost; 2014: 17,835 shares

    (0.5 )     -  

Additional paid-in capital

    69.5       67.7  

Retained earnings

    153.9       146.5  

Accumulated other comprehensive loss

    (71.4 )     (60.1 )

Total stockholders' equity

    151.8       154.4  

Total Liabilities and Stockholders' Equity

  $ 648.4     $ 621.2  

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 
3

 

 

JOHN BEAN TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   

Nine Months Ended

 
   

September 30,

 

(In millions)

 

2014

   

2013

 

Cash Flows From Operating Activities:

               

Net income

  $ 15.6     $ 19.5  

Loss from discontinued operations, net of income taxes

    0.1       0.8  

Income from continuing operations

    15.7       20.3  

Adjustments to reconcile income from continuing operations to cash provided by operating activities of continuing operations:

               

Depreciation and amortization

    18.7       18.8  

Stock-based compensation

    5.6       5.1  

Other

    1.9       0.1  

Changes in operating assets and liabilities:

               

Trade receivables, net

    30.4       45.9  

Inventories

    (24.5 )     (37.2 )

Accounts payable, trade and other

    3.1       (4.5 )

Advance and progress payments

    8.8       18.1  

Other assets and liabilities, net

    (10.2 )     (17.7 )

Cash provided by continuing operating activities

    49.5       48.9  

Net cash required by discontinued operating activities

    (0.4 )     (0.5 )

Cash provided by operating activities

    49.1       48.4  
                 

Cash Flows From Investing Activities:

               

Acquisitions, net of cash acquired

    (37.6 )     -  

Capital expenditures

    (28.0 )     (20.8 )

Proceeds from disposal of assets

    1.3       0.7  

Cash required by investing activities

    (64.3 )     (20.1 )
                 

Cash Flows From Financing Activities:

               

Net increase (decrease) in short-term debt

    1.8       (0.5 )

Net proceeds (payments) on credit facilities

    30.5       (89.0 )

Repayment of long-term debt

    (5.2 )     (0.1 )

Issuance of long-term debt

    -       8.0  

Excess tax benefits

    1.0       0.3  

Tax withholdings on stock-based compensation awards

    (3.5 )     (2.3 )

Purchase of stock held in treasury

    (1.8 )     (0.2 )

Dividends

    (8.1 )     (7.5 )

Other

    -       (0.1 )

Cash provided (required) by financing activities

    14.7       (91.4 )
                 

Effect of foreign exchange rate changes on cash and cash equivalents

    (5.6 )     (0.3 )
                 

Decrease in cash and cash equivalents

    (6.1 )     (63.4 )

Cash and cash equivalents, beginning of period

    29.4       99.0  

Cash and cash equivalents, end of period

  $ 23.3     $ 35.6  

  

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 
4

 

   

John Bean Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(Unaudited) 

 

  

Note 1. Description of Business and Basis of Presentation

 

Description of Business

John Bean Technologies Corporation and its majority-owned consolidated subsidiaries (“JBT” or “we”) provide global technology solutions for the food processing and air transportation industries. We design, manufacture, test and service technologically sophisticated systems and products for customers through our JBT FoodTech and JBT AeroTech segments. We have manufacturing operations worldwide and are strategically located to facilitate delivery of our products and services to our customers.

 

Basis of Presentation

The preceding condensed consolidated balance sheet as of December 31, 2013, which has been derived from audited financial statements, and unaudited interim condensed consolidated financial statements, together with the notes thereto (the “statements”), of JBT have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. As permitted under those rules, certain notes and other financial information that are normally required by accounting principles generally accepted in the U. S. have been condensed or omitted. Therefore, these statements should be read in conjunction with the audited annual consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013.

 

In the opinion of management, the statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of our financial condition and operating results as of and for the periods presented. Revenue, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these statements may not be representative of those for the full year or any future period.

 

Use of estimates

Preparation of financial statements that follow accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes. Actual amounts could differ from these estimates.

 

Recently issued accounting pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The updated standard will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard becomes effective for JBT as of January 1, 2017. We are currently evaluating the effect, if any, that the updated standard will have on our consolidated financial statements and related disclosures.

 

Note 2. Acquisition

 

On July 1, 2014, we completed the acquisition of the outstanding shares of ICS Solutions, a subsidiary of Stork Food & Dairy Systems B.V., for cash consideration of $35.7 million, which is net of cash acquired of $10.0 million. We funded this acquisition with cash on hand as well as borrowings against our revolving line of credit. ICS Solutions, located in Amsterdam, The Netherlands and Gainesville, Georgia (U.S.A.), is a worldwide leader in the engineering, installation and servicing of high-capacity food preservation equipment. While the acquisition will not have a material impact to the Company’s earnings in fiscal year 2014, it is a strategically important acquisition for JBT.  ICS Solutions’ Hydromatic continuous sterilizer is complementary to JBT’s product portfolio of fillers, seamers and in-container sterilization technologies.  With this acquisition, JBT will leverage its worldwide presence and provide a complete range of high-capacity, in-container sterilization solutions to its customers in the growing global beverage, dairy and canning industries.  In addition, this acquisition will allow JBT to improve operational effectiveness as well as enhance sales and service support for its customers through the combination of the businesses.

 

This acquisition has been accounted for as a purchase business combination. Tangible and identifiable intangible assets acquired and liabilities assumed were recorded at their respective estimated fair values. The excess of the consideration transferred over the fair value of net assets has been recorded as goodwill. The factors that contributed to the recognition of goodwill primarily relate to expected synergistic benefits from the expansion of our in-container product portfolio. Approximately $4 million of the goodwill is expected to be deductible for tax purposes.

 

 
5

 

  

Because the transaction was completed in the third quarter, the purchase accounting is preliminary as the analysis of deferred taxes related to this acquisition is still being assembled and reviewed. The following table summarizes the fair values of the assets acquired, liabilities assumed and the resulting goodwill at the date of the acquisition. These amounts are subject to adjustment if additional information is obtained regarding the assets and liabilities within the measurement period (not to exceed 12 months from acquisition date).

 

 

(In millions)

       

Assets:

       

Cash

  $ 10.0  

Accounts receivable

    2.3  

Inventories

    0.4  

Property, plant and equipment

    0.1  

Intangible assets:

       

Customer relationship

    15.7  

Other intangible assets

    8.2  

Total assets

  $ 36.7  
         

Liabilities:

       

Accounts payable

    1.3  

Deferred revenue

    2.3  

Other liabilities

    2.1  

Deferred taxes

    4.1  

Total liabilities

    9.8  
         

Total purchase price

  $ 45.7  
         

Goodwill

  $ 18.8  

 

The customer relationship and other intangible assets will be amortized over a weighted-average useful life of approximately 12 years.

 

ICS Solutions pro forma financial information is not material to our consolidated results and therefore not presented.  

 

Note 3. Goodwill and intangible Assets

 

The changes in the carrying amount of goodwill by business segment were as follows: 

 

(In millions)

 

JBT FoodTech

   

JBT AeroTech

   

Total

 

Balance as of December 31, 2013

  $ 22.9     $ 7.9     $ 30.8  

Acquisition

    18.8       -       18.8  

Currency translation

    (0.9 )     (0.2 )     (1.1 )

Balance as of September 30, 2014

    40.8       7.7       48.5  

 

 
6

 

 

Intangible assets consisted of the following: 

 

   

September 30, 2014

   

December 31, 2013

 

(In millions)

 

Gross carrying amount

   

Accumulated amortization

   

Gross carrying amount

   

Accumulated amortization

 

Customer relationship

  $ 35.6     $ 12.0     $ 20.8     $ 11.2  

Patents and acquired technology

    31.6       22.9       26.6       25.3  

Trademarks

    15.2       8.4       16.1       7.6  

Other

    5.3       3.1       4.4       2.4  

Total intangible assets

  $ 87.7     $ 46.4     $ 67.9     $ 46.5  

  

As a result of the ICS Solutions acquisition, annual intangible asset amortization expense is expected to increase by approximately $1.5 million and $1.8 million for 2014 and 2015, respectively.

 

Note 4. Inventories

 

Inventories consisted of the following:  

 

(In millions)

 

September 30, 2014

   

December 31, 2013

 

Raw materials

  $ 59.3     $ 59.9  

Work in process

    61.4       41.7  

Finished goods

    85.3       80.5  

Gross inventories before LIFO reserves and valuation adjustments

    206.0       182.1  

LIFO reserves and valuation adjustments

    (67.4 )     (64.5 )

Net inventories

  $ 138.6     $ 117.6  

   

Note 5. Pension and Other Postretirement Benefits

 

Components of net periodic benefit cost were as follows: 

 

   

Pension Benefits

   

Other Postretirement Benefits

 
   

Three Months Ended

   

Nine Months Ended

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

   

September 30,

   

September 30,

 

(In millions)

 

2014

   

2013

   

2014

   

2013

   

2014

   

2013

   

2014

   

2013

 

Service cost

  $ 0.4     $ 0.4     $ 1.3     $ 1.3     $ -     $ 0.1     $ -     $ 0.1  

Interest cost

    3.6       3.4       11.0       10.2       0.1       -       0.3       0.2  

Expected return on plan assets

    (4.9 )     (4.5 )     (14.8 )     (13.5 )     -       -       -       -  

Amortization of prior service (credit) cost

    -       0.1       0.1       0.1       -       (0.1 )     -       (0.3 )

Amortization of net actuarial losses

    0.8       1.1       2.1       3.2       (0.1 )     -       -       -  

Settlements

    -       -       0.2       -       -       -       (0.1 )     -  

Net periodic cost (benefit)

  $ (0.1 )   $ 0.5     $ (0.1 )   $ 1.3     $ -     $ -     $ 0.2     $ -  

  

We expect to contribute $17 million to our U.S. qualified pension plan as well as other pension and postretirement benefit plans in 2014; we contributed $9.2 million during the nine months ended September 30, 2014.

 

 
7

 

  

Note 6. accumulated other comprehensive income (loss)

 

Accumulated other comprehensive income or loss (“AOCI”) represents the cumulative balance of other comprehensive income, net of tax, as of the balance sheet date. For JBT, AOCI is primarily composed of adjustments related to pension and other postretirement benefit plans and foreign currency translation adjustments. Changes in the AOCI balances for the three months ended September 30, 2014 by component are shown in the following table: 

 

   

Pension and

Other

Postretirement

Benefits

   

Foreign

Currency

Translation

   

Total

 

(In millions)

                       

Beginning balance, June 30, 2014

  $ (59.0 )   $ (0.5 )   $ (59.5 )

Other comprehensive income before reclassification

    -       (12.3 )     (12.3 )

Amounts reclassified from accumulated other comprehensive income

    0.4       -       0.4  

Ending balance, September 30, 2014

  $ (58.6 )   $ (12.8 )   $ (71.4 )

  

Reclassification adjustments from AOCI into earnings for pension and other postretirement benefit plans for the three months ended September 30, 2014, were $0.7 million in selling, general and administrative expense net of $0.3 million in provision for income taxes.

 

Changes in the AOCI balances for the nine months ended September 30, 2014 by component are shown in the following table: 

 

   

Pension and

Other

Postretirement

Benefits

   

Foreign

Currency

Translation

   

Total

 

(In millions)

                       

Beginning balance, December 31, 2013

  $ (60.0 )   $ (0.1 )   $ (60.1 )

Other comprehensive income before reclassification

    -       (12.7 )     (12.7 )

Amounts reclassified from accumulated other comprehensive income

    1.4       -       1.4  

Ending balance, September 30, 2014

  $ (58.6 )   $ (12.8 )   $ (71.4 )

  

Reclassification adjustments from AOCI into earnings for pension and other postretirement benefit plans for the nine months ended September 30, 2014, which includes prior period settlements, were $2.3 million in selling, general and administrative expense net of $0.9 million in provision for income taxes.

 

 
8

 

  

Note 7. Earnings Per Share

 

The following table sets forth the computation of basic and diluted earnings per share from continuing operations for the respective periods and our basic and diluted shares outstanding:

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(In millions, except per share data)

 

2014

   

2013

   

2014

   

2013

 

Basic earnings per share:

                               

Income from continuing operations

  $ 9.0     $ 7.4     $ 15.7     $ 20.3  

Weighted average number of shares outstanding

    29.6       29.2       29.5       29.2  

Basic earnings per share from continuing operations

  $ 0.30     $ 0.25     $ 0.53     $ 0.69  

Diluted earnings per share:

                               

Income from continuing operations

  $ 9.0     $ 7.4     $ 15.7     $ 20.3  

Weighted average number of shares outstanding

    29.6       29.2       29.5       29.2  

Effect of dilutive securities:

                               

Restricted stock

    0.3       0.5       0.3       0.4  

Total shares and dilutive securities

    29.9       29.7       29.8       29.6  

Diluted earnings per share from continuing operations

  $ 0.30     $ 0.25     $ 0.53     $ 0.68  

  

Note 8. Derivative Financial Instruments and Risk Management

 

Derivative Financial Instruments

We hold derivative financial instruments for the purpose of hedging foreign currency risks for certain identifiable and anticipated transactions.

 

We manufacture and sell our products in a number of countries throughout the world and, as a result, are exposed to movements in foreign currency exchange rates. Our major foreign currency exposures involve the markets in Western Europe, South America and Asia. Many of our sales and purchase contracts are written contemplating this risk and therefore contain embedded derivatives, which we take into consideration as part of our risk management policy. The purpose of our foreign currency hedging activities is to manage the economic impact of exchange rate volatility associated with anticipated foreign currency purchases and sales made in the normal course of business. We primarily utilize forward foreign exchange contracts with maturities of less than 2 years. We do not apply hedge accounting for these forward foreign exchange contracts. As of September 30, 2014, we held forward foreign exchange contracts with an aggregate notional value of $334.2 million.

 

The following table presents the fair value of foreign currency derivatives included within the condensed consolidated balance sheets: 

 

   

As of September 30, 2014

   

As of December 31, 2013

 

(In millions)

 

Derivative Assets

   

Derivative Liabilities

   

Derivative Assets

   

Derivative Liabilities

 

Other current assets / liabilities

  $ 7.0     $ 5.0     $ 5.8     $ 3.0  

Other assets / liabilities

    2.8       -       2.6       0.6  

Total

  $ 9.8     $ 5.0     $ 8.4     $ 3.6  

  

Refer to Note 9. Fair Value of Financial Instruments, for a description of how the values of the above financial instruments are determined.

 

 
9

 

  

A master netting arrangement allows counterparties to net settle amounts owed to each other as a result of separate offsetting derivative transactions. We enter into master netting arrangements with our counterparties when possible in order to mitigate credit risk in derivative transactions by permitting us to net settle for transactions with the same counterparty. However, we do not net settle with such counterparties. As a result, we present our derivatives at gross fair values in the condensed consolidated balance sheets. As of September 30, 2014 and December 31, 2013, information related to these offsetting arrangements was as follows: 

 

(in millions)

 

As of September 30, 2014

 

Offsetting of Assets

                         

Gross Amounts Not Offset in the

Consolidated Balance Sheets

 
   

Gross Amounts of

Recognized

Assets

   

Gross Amounts

in the

Consolidated

Balance Sheets

   

Net Presented in

the Consolidated

Balance Sheets

   

Financial

Instruments

   

Net Amount

 

Derivatives

  $ 9.8     $ -     $ 9.8     $ (3.6 )   $ 6.2  

 

Offsetting of Liabilities

 

As of September 30, 2014

 
                           

Gross Amounts Not Offset in the

Consolidated Balance Sheets

 
   

Gross Amounts of

Recognized

Liabilities

   

Gross Amounts

Offset in the

Consolidated

Balance Sheets

   

Net Presented in

the Consolidated

Balance Sheets

   

Financial

Instruments

   

Net Amount

 

Derivatives

  $ 5.0     $ -     $ 5.0     $ (3.6 )   $ 1.4  

 

(in millions)

 

As of December 31, 2013

 

Offsetting of Assets

                         

Gross Amounts Not Offset in the

Consolidated Balance Sheets

 
   

Gross Amounts of

Recognized

Assets

   

Gross Amounts

Offset in the

Consolidated

Balance Sheets

   

Net Presented in

the Consolidated

Balance Sheets

   

Financial

Instruments

   

Net Amount

 

Derivatives

  $ 8.4     $ -     $ 8.4     $ (2.9 )   $ 5.5  

 

Offsetting of Liabilities

 

As of December 31, 2013

 
                           

Gross Amounts Not Offset in the

Consolidated Balance Sheets

 
   

Gross Amounts of

Recognized

Liabilities

   

Gross Amounts

Offset in the

Consolidated

Balance Sheets

   

Net Presented in

the Consolidated

Balance Sheets

   

Financial

Instruments

   

Net Amount

 

Derivatives

  $ 3.6     $ -     $ 3.6     $ (2.9 )   $ 0.7  

  

The following table presents the location and amount of gain (loss) from derivatives and the remeasurement of assets and liabilities in foreign currencies, as well as the net impact recognized in the condensed consolidated statements of income:

 

Derivatives not designated

as hedging instruments

 

Location of Gain (Loss) Recognized

in Income on Derivatives

 

Amount of Gain (Loss) Recognized in Income

on Derivatives

 
       

Three Months Ended

   

Nine Months Ended

 
       

September 30,

   

September 30,

 

(In millions)

     

2014

   

2013

   

2014

   

2013

 

Foreign exchange contracts

 

Revenue

  $ 1.0     $ (0.6 )   $ (0.5 )   $ 0.9  

Foreign exchange contracts

 

Cost of sales

    (0.5 )     (0.3 )     0.3       (0.4 )

Foreign exchange contracts

 

Other income, net

    (0.1 )     (0.1 )     -       (0.5 )

Total

    0.4       (1.0 )     (0.2 )     -  

Remeasurement of assets and liabilities in foreign currencies

    0.5       (0.6 )     1.4       (0.6 )

Net gain (loss) on foreign currency transactions

  $ 0.9     $ (1.6 )   $ 1.2     $ (0.6 )

  

Credit Risk

By their nature, financial instruments involve risk including credit risk for non-performance by counterparties. Financial instruments that potentially subject us to credit risk primarily consist of trade receivables and derivative contracts. We manage the credit risk on financial instruments by transacting only with financially secure counterparties, requiring credit approvals and credit limits, and monitoring counterparties’ financial condition. Our maximum exposure to credit loss in the event of non-performance by the counterparty is limited to the amount drawn and outstanding on the financial instrument. Allowances for the losses are established based on collectability assessments.

 

 
10

 

  

Note 9. Fair Value of Financial Instruments

 

The fair value framework requires the categorization of assets and liabilities measured at fair value into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

 

 

Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.

 

Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

 

Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

 

Financial assets and financial liabilities measured at fair value on a recurring basis are as follows:  

 

   

As of September 30, 2014

   

As of December 31, 2013

 

(In millions)

 

Total

   

Level 1

   

Level 2

   

Level 3

   

Total

   

Level 1

   

Level 2

   

Level 3

 

Assets:

                                                               

Investments

  $ 12.2     $ 12.2     $ -     $ -     $ 11.9     $ 11.9     $ -     $ -  

Derivatives

  $ 9.8       -       9.8       -     $ 8.4       -       8.4       -  

Total assets

  $ 22.0     $ 12.2     $ 9.8     $ -     $ 20.3     $ 11.9     $ 8.4     $ -  

Liabilities:

                                                               

Derivatives

  $ 5.0     $ -     $ 5.0     $ -     $ 3.6     $ -     $ 3.6     $ -  

  

Investments represent securities held in a trust for the non-qualified deferred compensation plan. Investments are classified as trading securities and are valued based on quoted prices in active markets for identical assets that we have the ability to access. Investments are reported in other assets on the condensed consolidated balance sheets. Investments include immaterial unrealized gains as of September 30, 2014 and December 31, 2013.

 

We use the income approach to measure the fair value of derivative instruments on a recurring basis. This approach calculates the present value of the future cash flow by measuring the change between the derivative contract rate and the published market indicative currency rate, multiplied by the contract notional values, and applying an appropriate discount rate as well as a factor of credit risk.

 

The carrying amounts of cash and cash equivalents, trade receivables and payables, as well as financial instruments included in other current assets and other current liabilities, approximate fair values because of their short-term maturities. 

 

The carrying values and the estimated fair values of our debt financial instruments are summarized in the table below: 

 

   

As of September 30, 2014

   

As of December 31, 2013

 

(In millions)

 

Carrying

Value

   

Estimated

Fair Value

   

Carrying

Value

   

Estimated

Fair Value

 

Senior unsecured notes due July 31, 2015

  $ 75.0     $ 78.5     $ 75.0     $ 80.7  

Revolving credit facility, expires November 30, 2017

    46.9       46.9       16.5       16.5  

Brazilian loan due August 20, 2014

    -       -       4.0       4.0  

Brazilian loan due April 15, 2016

    2.6       2.3       3.4       2.9  

Foreign credit facilities

    2.8       2.8       1.0       1.0  

Other

    -       -       0.5       0.5  

  

There is no active or observable market for our fixed rate borrowings, which include our senior unsecured notes and our Brazilian loans. Therefore, the estimated fair values of the notes and the Brazilian loans are based on discounted cash flows using current interest rates available for debt with similar terms and remaining maturities. The estimates of the all-in interest rate for discounting the notes and the loans are based on a broker quote for notes and loans with similar terms. We do not have a rate adjustment for risk profile changes, covenant issues or credit rating changes, therefore the broker quote is deemed to be the closest approximation of current market rates. The carrying values of the remaining borrowings approximate their fair values due to their variable interest rates.

 

 
11

 

  

Note 10. Commitments and Contingencies

 

We are involved in legal proceedings arising in the ordinary course of business. Although the results of litigation cannot be predicted with certainty, we do not believe that the resolution of the proceedings that we are involved in, either individually or taken as a whole, will have a material adverse effect on our business, results of operations or financial condition.

 

We have assumed liabilities related to specified legal proceedings arising from our business prior to our 2008 spin-off from FMC Technologies, Inc. As a result, although FMC Technologies, Inc. will in many cases remain the named defendant, we will manage the litigation and indemnify FMC Technologies, Inc. for costs, expenses and judgments arising from such litigation. We do not believe that any existing litigation we have assumed will have a material effect on our business, results of operations or financial condition.

 

Guarantees and Product Warranties

In the ordinary course of business with customers, vendors and others, we issue standby letters of credit, performance bonds, surety bonds and other guarantees. These financial instruments, which totaled approximately $91 million at September 30, 2014, represent guarantees of our future performance. We also have provided approximately $10 million of bank guarantees and letters of credit to secure a portion of our existing financial obligations. The majority of these financial instruments expire within two years; we expect to replace them through the issuance of new or the extension of existing letters of credit and surety bonds.

 

In some instances, we guarantee our customers’ financing arrangements. We are responsible for payment of any unpaid amounts but will receive indemnification from third parties for between sixty and ninety-five percent of the contract values. As of September 30, 2014, the gross value of such arrangements was $14.4 million, of which our net exposure under such guarantees is $1.9 million. However, we generally retain recourse to the equipment sold.

 

We provide warranties of various lengths and terms to certain of our customers based on standard terms and conditions and negotiated agreements. We provide for the estimated cost of warranties at the time revenue is recognized for products where reliable, historical experience of warranty claims and costs exists. We also provide a warranty liability when additional specific obligations are identified. The warranty obligation reflected in other current liabilities in the condensed consolidated balance sheets is based on historical experience by product and considers failure rates and the related costs in correcting a product failure. Warranty cost and accrual information is as follows:

  

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(In millions)

 

2014

   

2013

   

2014

   

2013

 

Balance at beginning of period

  $ 9.6     $ 6.6     $ 10.1     $ 7.3  

Expense for new warranties

    2.4       3.2       6.6       8.4  

Adjustments to existing accruals

    -       -       (0.7 )     (0.6 )

Claims paid

    (2.5 )     (2.7 )     (6.5 )     (8.0 )

Balance at end of period

  $ 9.5     $ 7.1     $ 9.5     $ 7.1  

  

 
12

 

  

Note 11. Business Segment Information

 

Segment operating profit is defined as total segment revenue less segment operating expenses. Business segment information was as follows:

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(In millions)

 

2014

   

2013

   

2014

   

2013

 

Revenue

                               

JBT FoodTech

  $ 146.8     $ 149.0     $ 455.9     $ 423.2  

JBT AeroTech

    95.1       86.0       231.8       222.6  

Other revenue (1) and intercompany eliminations

    1.3       (1.5 )     1.1       0.3  

Total revenue

  $ 243.2     $ 233.5     $ 688.8     $ 646.1  

Income before income taxes

                               

Segment operating profit:

                               

JBT FoodTech

  $ 14.8     $ 13.9     $ 49.6     $ 43.0  

JBT AeroTech

    9.7       7.2       17.3       13.8  

Total segment operating profit

    24.5       21.1       66.9       56.8  

Corporate items:

                               

Corporate expense (2)

    (8.0 )     (9.5 )     (25.9 )     (23.8 )

Restructuring expense (3)

    (1.3 )     -       (12.5 )     -  

Operating income

    15.2       11.6       28.5       33.0  
                                 

Net interest expense

    (1.7 )     (1.2 )     (4.5 )     (4.2 )

Income from continuing operations before income taxes

  $ 13.5     $ 10.4     $ 24.0     $ 28.8  

________________

(1)

Other revenue is comprised of certain gains and losses related to foreign exchange exposures.

  

(2)

Corporate expense generally includes corporate staff costs, stock-based compensation, pension and other postretirement benefit expenses not related to service, LIFO adjustments, foreign currency-related gains and losses, and the impact of unusual or strategic events not representative of segment operations.

  

(3)

Refer to Note 12.

   

NOTE 12. RESTRUCTURING

 

Restructuring costs primarily consist of employee separation benefits under our existing severance programs, foreign statutory termination benefits, certain one-time termination benefits, contract termination costs, asset impairment charges and other costs that are associated with restructuring actions. Certain restructuring charges are accrued prior to payments made in accordance with applicable guidance. For such charges, the amounts are determined based on estimates prepared at the time the restructuring actions were approved by management.

 

During the fourth quarter of 2013, we implemented a restructuring plan that included management changes both in the U.S. and in non-U.S. subsidiaries. We incurred severance costs of $1.6 million in connection with this plan in the fourth quarter of 2013. We expect to complete the plan within 2014.

 

In the first quarter of 2014, we implemented a plan to optimize the overall JBT cost structure on a global basis. The initiatives under this plan include streamlining operations, consolidating certain facilities and enhancing the Company’s general and administrative infrastructure. The total estimated cost in connection with this plan is approximately $14 million. Payments required under this plan are expected to be made during the remainder of 2014 and in 2015.

 

 
13

 

 

Additional information regarding the restructuring activities is presented in the tables below: 

 

(In millions)

                               
   

Charges incurred during the three months

ended September 30,

   

Charges incurred during the nine months

ended September 30,

 
   

2014

   

2013

   

2014

   

2013

 

Severance and related expense

  $ 0.4     $ -     $ 9.8     $ -  

Asset write-offs

    -       -       0.5       -  

Other

    0.9       -       2.2       -  

Total Restructuring charges

  $ 1.3     $ -     $ 12.5     $ -  

  

While restructuring charges are excluded from our calculation of segment operating profit, the table below presents the restructuring charges associated with each segment and with corporate activities:

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(In millions)

 

2014

   

2013

   

2014

   

2013

 
                                 

JBT FoodTech

  $ 0.4     $ -     $ 9.9     $ -  

JBT AeroTech

    0.3       -       1.4       -  

Corporate

    0.6       -       1.2       -  

Total Restructuring charges

  $ 1.3     $ -     $ 12.5     $ -  

 

Liability balances for restructuring activities are included in other current liabilities in the accompanying condensed consolidated balance sheets. The table below details the activity in 2014:

 

   

Balance as of

   

Charged to

   

Payments Made

   

Balance as of

 

(In millions)

 

December 31, 2013

   

Earnings

   

/Charges Applied

   

September 30, 2014

 

Severance and related expense

  $ 1.6     $ 9.8     $ (3.7 )   $ 7.7  

Asset write-offs

    -       0.5       (0.5 )     -  

Other

    -       2.2       (2.2 )     -  

Total

  $ 1.6     $ 12.5     $ (6.4 )   $ 7.7  

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Cautionary Note Regarding Forward-Looking Statements

This Form 10-Q, our Annual Report on Form 10-K and other materials filed or to be filed by us with the Securities and Exchange Commission, as well as information in oral statements or other written statements made or to be made by us, contain statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are forward-looking statements. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “foresees” or the negative version of those words or other comparable words and phrases. Any forward-looking statements contained in this Form 10-Q are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. These forward-looking statements include, among others, statements relating to our restructuring and optimization plans, our covenant compliance and our outlook.

 

We believe that the factors that could cause our actual results to differ materially from expectations include but are not limited to the factors we described in our Form 10-K under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If one or more of those or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Consequently, actual events and results may vary significantly from those included in or contemplated or implied by our forward-looking statements. The forward-looking statements included in this Form 10-Q are made only as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statement made by us or on our behalf, whether as a result of new information, future developments, subsequent events or changes in circumstances or otherwise.

 

 
14

 

 

Executive Overview

We are a global technology solutions provider for the food processing and air transportation industries. We design, manufacture, test and service technologically sophisticated systems and products for customers. We have established a large installed base of food processing equipment as well as airport equipment and have built a strong global presence with manufacturing, sourcing, sales and service organizations located on six continents to support our equipment that has been delivered to more than 100 countries.

 

Non-GAAP Financial Measures

 

The results for the three and nine months ended September 30, 2014 and 2013 include several items that affect the comparability of our results. These include significant expenses that are not indicative of our ongoing operations as detailed in the table below:

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(In millions)

 

2014

   

2013

   

2014

   

2013

 
                                 

Income from continuing operations as reported

  $ 9.0     $ 7.4     $ 15.7     $ 20.3  
                                 

Non-GAAP adjustments

                               

Restructuring expense

    1.3       -       12.5       -  

Management succession costs

    0.8       0.9       3.4       1.2  

Strategy and pricing consulting

    0.4       -       2.3       -  
                                 

Impact on tax provision from Non-GAAP adjustments

    (0.8 )     (0.3 )     (5.6 )     (0.4 )

Adjusted income from continuing operations

  $ 10.7     $ 8.0     $ 28.3     $ 21.1  
                                 

(In millions, except per share data)

                               
                                 

Income from continuing operations as reported

    9.0       7.4       15.7       20.3  

Total shares and dilutive securities

    29.9       29.7       29.8       29.6  

Diluted earnings per share from continuing operations

  $ 0.30     $ 0.25     $ 0.53     $ 0.68  
                                 

Adjusted income from continuing operations

    10.7       8.0       28.3       21.1  

Total shares and dilutive securities

    29.9       29.7       29.8       29.6  

Adjusted diluted earnings per share from continuing operations

  $ 0.36     $ 0.27     $ 0.95     $ 0.71  

  

The above table contains non-GAAP financial measures, including adjusted income from continuing operations and adjusted diluted earnings per share. The non-GAAP measures exclude certain amounts for the purpose of determining adjusted income from continuing operations and adjusted diluted earnings per share. Adjusted income from continuing operations and adjusted diluted earnings per share are intended to provide an indication of our underlying operating results and to enhance investors’ overall understanding of our financial performance by eliminating the effects of certain items that are not comparable from one period to the next. In addition, this information is used as a basis for evaluating Company performance and for the planning and forecasting of future periods. This information is not intended to be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP.

 

 
15

 

  

CONSOLIDATED RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

 

   

Three Months Ended

   

Favorable /

 
   

September 30,

   

(Unfavorable)

 

(In millions, except %)

 

2014

   

2013

    $    

%

 

Revenue

  $ 243.2     $ 233.5     $ 9.7       4.2  

Cost of sales

    179.0       179.3       0.3       0.2  

Gross profit

    64.2       54.2       10.0       18.5  

Selling, general and administrative expense

    43.5       39.2       (4.3 )     (11.0 )

Research and development expense

    3.4       3.7       0.3       8.1  

Restructuring expense

    1.3       -       (1.3 )     *  

Other expense (income), net

    0.8       (0.3 )     (1.1 )     *  

Operating income

    15.2       11.6       3.6       31.0  

Interest income

    0.3       0.6       (0.3 )     (50.0 )

Interest expense

    (2.0 )     (1.8 )     (0.2 )     (11.1 )

Income from continuing operations before income taxes

    13.5       10.4       3.1       29.8  

Provision for income taxes

    4.5       3.0       (1.5 )     (50.0 )

Income from continuing operations

    9.0       7.4       1.6       21.6  

Loss from discontinued operations, net of taxes

    -       (0.6 )     0.6       *  

Net income

  $ 9.0     $ 6.8     $ 2.2       32.4  

____________

* Not meaningful

 

Total revenue increased $9.7 million and $12.0 million in constant currency in the third quarter of 2014 compared to the same period in 2013. FoodTech aftermarket revenue and AeroTech equipment sales drove the increase.

 

Operating income increased by $3.6 million compared to the same period in 2013 as a result of the following items:

 

 

Gross profit increased by $10.0 million. Higher sales volume contributed approximately $3 million to the increase. Profit margin expansion accounted for approximately $7 million of the increase, which was mainly attributable to the benefits of cost reduction and strategic pricing initiatives implemented in the beginning of 2014. Favorable product mix also contributed to the margin expansion.

 

 

Selling, general and administrative expense increased by $4.3 million compared to the same period in 2013. This increase is driven by higher selling-related expenses consistent with higher revenue and increased general business spending partly as the result of additional salary for newly acquired businesses.

 

 

We continued our plan to optimize the overall JBT cost structure on a global basis. The initiatives under this plan include streamlining operations, consolidating certain facilities and enhancing our general and administrative infrastructure. The total estimated cost of this plan is approximately $14 million with $12.5 million recorded during the first nine months of 2014. We incurred restructuring costs related to this plan of $1.3 million in the third quarter of 2014.

 

 

Other expense, net, increased by $1.1 million mainly due to incremental acquisition- related costs and lower investment income compared to the same period in 2013.

 

Interest income decreased in the third quarter of 2014 compared to the same period in 2013 mainly driven by decreased interest rates during the third quarter of 2014. Interest expense increased slightly due to higher borrowing costs in the third quarter of 2014 compared to the same period in 2013.

 

Income tax expense in the third quarter of 2014 reflected an expected effective income tax rate of 32.6% and $0.2 million in incremental tax expense reflecting the determination of higher tax liabilities in previous years. Income tax expense in the third quarter of 2013 reflected an effective income tax rate of 34.0% and $0.6 million in incremental tax benefits reflecting the determination of lower tax liabilities in previous years.