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EX-15 - EXHIBIT 15 - John Bean Technologies CORPa93016-jbtexhibit15.htm
EX-32.2 - EXHIBIT 32.2 - John Bean Technologies CORPa93016-jbtexhibit322.htm
EX-32.1 - EXHIBIT 32.1 - John Bean Technologies CORPa93016-jbtexhibit321.htm
EX-31.2 - EXHIBIT 31.2 - John Bean Technologies CORPa93016-jbtexhibit312.htm
EX-31.1 - EXHIBIT 31.1 - John Bean Technologies CORPa93016-jbtexhibit311.htm
EX-10.3 - EXHIBIT 10.3 - John Bean Technologies CORPa93016-jbtexhibit103.htm
EX-10.2 - EXHIBIT 10.2 - John Bean Technologies CORPa93016-jbtexhibit102.htm
EX-10.1 - EXHIBIT 10.1 - John Bean Technologies CORPa93016-jbtexhibit101.htm


 
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, 2016

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, Suite 4400
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 October 25, 2016
Common Stock, par value $0.01 per share
 
29,156,847

1



PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

JOHN BEAN TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions, except per share data)
2016
 
2015
 
2016
 
2015
Revenue
$
349.6

 
$
273.3

 
$
945.5

 
$
752.9

Operating expenses:
 
 
 
 
 
 
 
Cost of sales
255.5

 
197.1

 
678.8

 
538.0

Selling, general and administrative expense
56.5

 
48.1

 
168.4

 
142.1

Research and development expense
6.3

 
5.0

 
17.7

 
13.0

Restructuring expense
0.3

 

 
9.4

 

Other expense, net
1.5

 
2.0

 
2.1

 
1.8

Operating income
29.5

 
21.1

 
69.1

 
58.0

Interest income
0.3

 
0.2

 
1.0

 
0.7

Interest expense
(3.1
)
 
(1.7
)
 
(8.0
)
 
(6.0
)
Income from continuing operations before income taxes
26.7

 
19.6

 
62.1

 
52.7

Provision for income taxes
6.1

 
6.9

 
17.5

 
17.6

Income from continuing operations
20.6

 
12.7

 
44.6

 
35.1

Loss from discontinued operations, net

 
(0.1
)
 
(0.1
)
 
(0.1
)
Net income
$
20.6

 
$
12.6

 
$
44.5

 
$
35.0

 
 
 
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.70

 
$
0.43

 
$
1.52

 
$
1.19

Loss from discontinued operations

 

 
(0.01
)
 

Net income
$
0.70

 
$
0.43

 
$
1.51

 
$
1.19

Diluted earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.69

 
$
0.43

 
$
1.50

 
$
1.18

Loss from discontinued operations

 
(0.01
)
 
(0.01
)
 
(0.01
)
Net income
$
0.69

 
$
0.42

 
$
1.49

 
$
1.17

Cash dividends declared per share
$
0.10

 
$
0.09

 
$
0.30

 
$
0.27


The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.  


2



JOHN BEAN TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
Net income
$
20.6

 
$
12.6

 
$
44.5

 
$
35.0

Other comprehensive income (loss)
 
 
 
 
 
 
 
Foreign currency translation adjustments
(1.1
)
 
(9.6
)
 
2.8

 
(19.6
)
Pension and other postretirement benefits adjustments, net
of tax of ($0.4) and ($1.0) for 2016, and $0.5 and $0.8 for 2015
0.6

 
1.4

 
1.8

 
3.0

Derivatives designated as hedges, net of tax of ($0.5) and $1.5 for 2016; ($1.2) for 2015
0.8

 
(1.8
)
 
(2.4
)
 
(1.8
)
Other comprehensive income (loss)
0.3

 
(10.0
)
 
2.2

 
(18.4
)
Comprehensive income
$
20.9

 
$
2.6

 
$
46.7

 
$
16.6


The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.  

3



JOHN BEAN TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

 
September 30, 2016
 
December 31, 2015
(In millions, except per share data and number of shares)
(Unaudited)
 
 
Assets:
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
47.9

 
$
37.2

Trade receivables, net of allowances of $2.1 and $2.1, respectively
240.9

 
212.5

Inventories, net
143.4

 
104.9

Other current assets
40.2

 
41.6

Total current assets
472.4

 
396.2

Property, plant and equipment, net of accumulated depreciation of
$240.8 and $223.8, respectively
187.6

 
181.1

Goodwill
158.0

 
152.5

Intangible assets, net
77.3

 
86.8

Deferred income taxes
35.1

 
32.0

Other assets
30.3

 
27.5

Total Assets
$
960.7

 
$
876.1

 
 
 
 
Liabilities and Stockholders Equity:
 
 
 
Current Liabilities:
 
 
 
Short-term debt and current portion of long-term debt
$
5.4

 
$
2.2

Accounts payable, trade and other
120.7

 
110.7

Advance and progress payments
127.2

 
115.8

Other current liabilities
137.2

 
124.4

Total current liabilities
390.5

 
353.1

Long-term debt, less current portion
300.2

 
280.6

Accrued pension and other postretirement benefits, less current portion
75.3

 
90.7

Other liabilities
25.6

 
22.0

Commitments and contingencies (Note 11)


 


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; September 30, 2016: 29,316,041 issued and 29,156,847 outstanding; December 31, 2015: 29,316,041 issued and 29,147,380 outstanding
0.3

 
0.3

Common stock held in treasury, at cost; September 30, 2016: 159,194 shares;
       December 31, 2015: 168,661 shares
(7.2
)
 
(6.1
)
Additional paid-in capital
74.4

 
71.6

Retained earnings
246.6

 
211.1

Accumulated other comprehensive loss
(145.0
)
 
(147.2
)
Total stockholders’ equity
169.1

 
129.7

Total Liabilities and Stockholders Equity
$
960.7

 
$
876.1


The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

4



JOHN BEAN TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30,
(In millions)
2016
 
2015
Cash flows provided by operating activities:
 
 
 
Net income
$
44.5

 
$
35.0

Loss from discontinued operations, net
0.1

 
0.1

Income from continuing operations
44.6

 
35.1

Adjustments to reconcile income from continuing operations to cash provided by continuing operating activities:
 
 
 
Depreciation and amortization
27.2

 
20.9

Stock-based compensation
7.1

 
5.2

Other
0.9

 
1.8

Changes in operating assets and liabilities:
 
 
 
Trade receivables, net
(27.0
)
 
(0.5
)
Inventories
(37.9
)
 
(17.2
)
Accounts payable, trade and other
10.3

 
14.2

Advance and progress payments
10.3

 
18.9

Other assets and liabilities, net
(8.6
)
 
(30.5
)
Cash provided by continuing operating activities
26.9

 
47.9

Cash required by discontinued operating activities
(0.1
)
 
(0.1
)
Cash provided by operating activities
26.8

 
47.8

 
 
 
 
Cash flows required by investing activities:
 
 
 
Acquisitions, net of cash acquired
(3.2
)
 
(50.9
)
Capital expenditures
(24.9
)
 
(26.5
)
Proceeds from disposal of assets
1.9

 
0.9

Proceeds from property available for sale

 
2.0

Cash required by investing activities
(26.2
)
 
(74.5
)
 
 
 
 
Cash flows provided by financing activities:
 
 
 
Net proceeds (payments) on short-term debt
3.3

 
(1.6
)
Cash provided by refinancing of credit facility

 
183.7

Cash payments to settle existing credit facility

 
(183.7
)
Cash payments to settle private placement debt

 
(75.0
)
Net proceeds (payments) on credit facilities
20.7

 
134.1

Repayment of long-term debt
(1.6
)
 
(0.9
)
Excess tax benefits
1.5

 
2.1

Tax withholdings on stock-based compensation awards
(2.6
)
 
(5.5
)
Purchase of treasury stock
(4.4
)
 
(7.7
)
Dividends
(8.9
)
 
(8.3
)
Cash provided by financing activities
8.0

 
37.2

 
 
 
 
Effect of foreign exchange rate changes on cash and cash equivalents
2.1

 
(5.9
)
 
 
 
 
Increase in cash and cash equivalents
10.7

 
4.6

Cash and cash equivalents, beginning of period
37.2

 
33.3

Cash and cash equivalents, end of period
$
47.9

 
$
37.9


The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

5



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 (the “Company,” “JBT,” “our,” “us,” or “we”) provide global technology solutions to high-value segments of the food & beverage 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
In accordance with Securities and Exchange Commission (“SEC”) rules for interim periods, the accompanying unaudited condensed consolidated financial statements (the “interim financial statements”) do not include all of the information and notes for complete financial statements as required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). As such, the accompanying interim financial statements should be read in conjunction with the JBT Annual Report on Form 10-K for the year ended December 31, 2015, which provides a more complete understanding of the Company’s accounting policies, financial position, operating results, business, properties, and other matters. The year-end condensed consolidated balance sheet was derived from audited financial statements.

In the opinion of management, the interim financial statements reflect all 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 interim results and trends in the interim financial statements may not be representative of those for the full year or any future period.

We have reclassified the prior year amortization expense of intangible assets not considered contract-related from cost of sales to selling, general and administrative expense to conform with current year presentation.

Use of estimates
Preparation of financial statements that follow U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Recently adopted accounting standards
In April 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30) - Simplifying Presentation of Debt Issuance Costs. The core principle of the ASU is that an entity should present debt issuance costs as a direct deduction from the face amount of that debt in the balance sheet similar to the manner in which a debt discount or premium is presented, and not reflected as a deferred charge or deferred credit. Subsequent to the issuance of ASU 2015-03 the SEC staff made an announcement regarding the presentation of debt issuance costs associated with line-of-credit arrangements, which was codified by the FASB in ASU 2015-15. This guidance, which clarifies the exclusion of line-of-credit arrangements from the scope of ASU 2015-03, is effective upon adoption of ASU 2015-03. This guidance became effective for us as of January 1, 2016 and there was no effect on our consolidated financial statements and related disclosures.

In April 2015, the FASB issued ASU No. 2015-05, Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The ASU applies to cloud computing arrangements including software as a service, platform as a service, infrastructure as a service, and other similar hosting arrangements, and was issued to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The ASU provides guidance about whether the arrangement includes a software license. The core principle of the ASU is that if a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change U.S. GAAP for a customer’s accounting for service contracts. This guidance became effective for us as of January 1, 2016 and there was no effect on our consolidated financial statements and related disclosures.

6




In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. The ASU eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. The core principle of the ASU is that entities will be required to recognize the cumulative impact of a measurement period adjustment (including the impact on prior periods) in the reporting period in which the adjustment is identified. This guidance became effective for us as of January 1, 2016 and we determined the guidance did not have a material impact on our consolidated financial statements and related disclosures.

Recently issued accounting standards not yet adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The new standard will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU requires companies to reevaluate when revenue is recorded on a transaction based upon newly defined criteria, either at a point in time or over time as goods or services are delivered. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and estimates, and changes in those estimates. In early 2016, the FASB issued additional guidance: ASU No. 2016-10, 2016-11 and 2016-12. These updates provide further guidance and clarification on specific items within the previously issued ASU. The new standard becomes effective for us as of January 1, 2018, with the option to early adopt the standard for annual periods beginning on or after December 15, 2016, and allows for both retrospective and modified-retrospective methods of adoption. The Company does not plan to early adopt the standard. We have preliminarily concluded that we will adopt this Topic 606 via the retrospective transition method, taking advantage of the allowed practical expedients, and restating our consolidated financial statements for 2016 and 2017. We are substantially complete with our gap assessment and have determined that we will qualify for over-time recognition for a large portion of our manufactured equipment as well as refurbishments. To the extent we begin recognizing revenue over time in the future, we believe this will result in an acceleration of revenue as compared to our current revenue recognition methodology of recognizing revenue at a point in time. We are continuing to quantify the impact of this change, and are in the process of finalizing our implementation plan.

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330) – Simplifying the Measurement of Inventory. The core principle of the ASU is that entities that historically used the lower of cost or market in the subsequent measurement of inventory will instead be required to measure inventory at the lower of cost and net realizable value. The guidance will not change U.S. GAAP for inventory measured using LIFO or the retail inventory method. The ASU is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2016. The Company anticipates the adoption in the effective period and we are currently evaluating the effect, if any, that the ASU will have on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard will replace most existing lease guidance in U.S. GAAP. The core principle of the ASU is that lessees are required to report a right to use asset and a lease payment obligation on the balance sheet but recognize expenses on their income statements in a manner similar to today’s accounting, and for lessors the guidance remains substantially similar to current U.S. GAAP. The ASU is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2018. However, early adoption is permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. We have not yet evaluated and cannot determine the impact this standard will have on our consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting. The new guidance was developed as part of the FASB’s simplification initiative. The core principle of the ASU requires income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It allows an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting, and allows an employer to make a policy election to account for forfeitures as they occur. The ASU is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2016. However, early adoption is permitted. The Company anticipates the adoption in the effective period. While we are still evaluating the impact, we do expect that 278,316 awards will vest in January of 2017, and at the September 30, 2016 stock price we anticipate approximately $5.0 million in incremental tax benefit to be reported in earnings.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The new guidance is intended to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The core principle of the ASU requires the classification of eight specific cash flow issues identified under ASC 230 to be presented as either financing, investing or operating, or some combination thereof, depending upon the

7



nature of the issue. The ASU is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2017. However, early adoption is permitted. Entities are required to use a retrospective transition approach for all of the issues identified to each period presented. We are currently evaluating the effect, if any, that the ASU will have on our consolidated financial statements and related disclosures.

NOTE 2. ACQUISITIONS

Consistent with our growth strategy, we completed two acquisitions during 2015 focused on strengthening our Protein and Liquid Foods portfolios.

A&B Process Systems

On October 1, 2015, John Bean Technologies Corporation acquired the shares of A&B Process Systems (“A&B”), located in Stratford, WI, for $103.0 million, including a $3.0 million earnout and a working capital adjustment of $0.1 million. We have determined that the goodwill amount that is deductible for tax purposes is $60.3 million.

During the quarter ended March 31, 2016, we refined our estimates of the customer relationship by ($0.9 million), trademark by ($0.4 million), technological know-how for skidded systems by ($0.2 million), backlog by ($0.1 million), and noncompete agreements by ($0.1 million). The impact of these adjustments was reflected as an increase in goodwill of $1.8 million, and resulted in an immaterial impact to the consolidated statement of income. No other refinements of the valuation occurred during the quarters ended June 30, 2016 or September 30, 2016.

The following table summarizes the fair values recorded for the assets acquired and liabilities assumed for A&B:
(In millions)
 
Assets:
 
Trade receivables
$
15.7

Inventories
1.0

Prepaid expenses
0.6

Costs in excess of billings on projects in progress
5.1

Property, plant and equipment
18.1

Other assets
0.2

Intangible assets:
 
Backlog
1.2

Customer relationships
14.6

Non-compete agreements
0.9

Trademark
3.1

Technological know-how - skidded systems
3.9

Technological know-how - tanks and vessels
1.3

Total assets
65.7

 
 
Liabilities:
 
Accounts payable
6.1

Billings in excess of costs on projects in progress
6.6

Other liabilities
3.3

Total liabilities
16.0

 
 
Total cash consideration paid and accrued
103.0

 
 
Goodwill
$
53.3


The customer relationships and trademark will be amortized over their estimated useful lives of eight and fourteen years, respectively. Technological know-how for skidded systems and tanks and vessels will be amortized over their terms of six and

8



nine years, respectively. The non-compete agreements will be amortized over the contractual life of five years, and backlog was amortized over six months, consistent with the completion of the backlog.

The A&B purchase agreement includes a payment due to the sellers for $3 million of consideration, contingent upon exceeding an earnings target for the period from May 1, 2015 through April 30, 2016. The contractual obligation associated with the contingent earnout provision recognized on the acquisition date was $3.0 million, which is included in Other current liabilities on the Condensed Consolidated Balance Sheet. Had the earnings target not been achieved, the payment would have been $0. However, the agreed upon financial targets were met and the Company expects to make the $3.0 million payment to the sellers in the fourth quarter of 2016.

Stork Food & Dairy Systems B.V.

On July 31, 2015, John Bean Technologies Corporation and its wholly-owned subsidiary John Bean Technologies Europe B.V. acquired the shares of Stork Food & Dairy Systems, B.V. (“SFDS”), located in Amsterdam, The Netherlands for $50.7 million, which is net of cash acquired of $1.1 million.

During the quarter ended June 30, 2016, we finalized our estimates of the customer relationships and patents, resulting in a reduction in value of $2.0 million and $1.0 million, respectively. We also increased other liabilities by $1.1 million. These changes resulted in an increase to deferred tax assets of $0.5 million and a decrease to deferred tax liabilities $0.6 million. The impact of these adjustments was reflected as an increase in goodwill of $3.0 million and resulted in an immaterial impact to the consolidated statement of income. No refinements of the valuation occurred during the quarter ended March 31, 2016.

The following table summarizes the fair values recorded for the assets acquired and liabilities assumed for SFDS:

(In millions)
 
Assets:
 
Cash
$
1.1

Trade receivables
10.0

Other receivables
2.5

Inventories
4.8

Costs in excess of billings on projects in progress
7.8

Property, plant and equipment
9.8

Intangible assets:
 
Customer relationships
2.1

Patents
2.9

Tradename
0.2

Deferred income taxes
1.6

Total assets
42.8

 
 
Liabilities:
 
Accounts payable
9.2

Billings in excess of costs on projects in progress
7.6

Deferred income taxes
2.7

Other liabilities
11.3

Total liabilities
30.8

 
 
Total purchase price
51.8

 
 
Goodwill
$
39.8



9



We also revised the estimated useful life and amortization period associated with customer relationships from fifteen years to eight years during the quarter ended June 30, 2016. Patents and the tradename will continue to be amortized over their estimated useful lives of seven years and seventeen months, respectively.

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, 2015
$
144.8

 
$
7.7

 
$
152.5

Acquisitions
5.5

 

 
5.5

Balance as of September 30, 2016
$
150.3

 
$
7.7

 
$
158.0


Intangible assets consisted of the following:

 
September 30, 2016
 
December 31, 2015
(In millions)
Gross carrying amount
 
Accumulated amortization
 
Gross carrying amount
 
Accumulated amortization
Customer relationships
$
68.4

 
$
19.6

 
$
70.8

 
$
15.9

Patents and acquired technology
35.7

 
24.3

 
35.4

 
23.5

Trademarks and tradenames
19.0

 
8.4

 
19.5

 
7.8

Other
13.9

 
7.4

 
13.8

 
5.5

Total intangible assets
$
137.0

 
$
59.7

 
$
139.5

 
$
52.7


NOTE 4. INVENTORIES

Inventories consisted of the following:

(In millions)
September 30, 2016
 
December 31, 2015
Raw materials
$
65.9

 
$
55.0

Work in process
63.4

 
36.8

Finished goods
83.1

 
81.8

Gross inventories before LIFO reserves and valuation adjustments
212.4

 
173.6

LIFO reserves and valuation adjustments
(69.0
)
 
(68.7
)
Inventories, net
$
143.4

 
$
104.9



10



NOTE 5. PENSION AND OTHER POSTRETIREMENT BENEFITS

Components of net periodic benefit cost were as follows:

 
Pension Benefits
 
Other Postretirement Benefits
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
0.3

 
$
0.4

 
$
1.0

 
$
1.1

 
$

 
$

 
$

 
$

Interest cost
2.9

 
3.4

 
8.6

 
10.3

 
0.1

 

 
0.1

 
0.2

Expected return on plan assets
(4.5
)
 
(4.8
)
 
(13.5
)
 
(14.3
)
 

 

 

 

Amortization of prior service (credit)

 

 

 

 

 
(0.4
)
 

 
(0.4
)
Amortization of net actuarial (gains) losses
1.0

 
1.2

 
3.1

 
3.4

 

 
(0.1
)
 

 
(0.8
)
Settlements

 

 

 
0.3

 

 

 

 

Net periodic cost (income)
$
(0.3
)
 
$
0.2

 
$
(0.8
)
 
$
0.8

 
$
0.1

 
$
(0.5
)
 
$
0.1

 
$
(1.0
)

We expect to contribute $14.3 million to our pension and other postretirement benefit plans in 2016. We contributed $9.0 million to our U.S. qualified pension plan during the nine months ended September 30, 2016.

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, derivatives designated as hedges, and foreign currency translation adjustments. Changes in the AOCI balances for the three months ended September 30, 2016 by component are shown in the following table:

 
Pension and Other Postretirement Benefits
 
Derivatives Designated as Hedges
 
Foreign Currency Translation
 
Total
(In millions)
 
 
 
 
 
 
 
Beginning balance, June 30, 2016
$
(102.6
)
 
$
(4.0
)
 
$
(38.7
)
 
$
(145.3
)
Other comprehensive income (loss) before reclassification
0.1

 
0.6

 
(1.1
)
 
(0.4
)
Amounts reclassified from accumulated other comprehensive income
0.5

 
0.2

 

 
0.7

Ending balance, September 30, 2016
$
(102.0
)
 
$
(3.2
)
 
$
(39.8
)
 
$
(145.0
)

Reclassification adjustments from AOCI into earnings for pension and other postretirement benefit plans for the three months ended September 30, 2016 were $0.9 million of charges in selling, general and administrative expense, net of $0.4 million in provision for income taxes. Reclassification adjustments for derivatives designated as hedges for the same period were $0.3 million of charges in interest expense, net of $0.1 million in provision for income taxes.


11



Changes in the AOCI balances for the nine months ended September 30, 2016 by component are shown in the following table:

 
Pension and Other Postretirement Benefits
 
Derivatives Designated as Hedges
 
Foreign Currency Translation
 
Total
(In millions)
 
 
 
 
 
 
 
Beginning balance, December 31, 2015
$
(103.8
)
 
$
(0.8
)
 
$
(42.6
)
 
$
(147.2
)
Other comprehensive income (loss) before reclassification
0.1

 
(3.0
)
 
2.8

 
(0.1
)
Amounts reclassified from accumulated other comprehensive income
1.7

 
0.6

 

 
2.3

Ending balance, September 30, 2016
$
(102.0
)
 
$
(3.2
)
 
$
(39.8
)
 
$
(145.0
)

Reclassification adjustments from AOCI into earnings for pension and other postretirement benefit plans for the nine months ended September 30, 2016 were $2.7 million of charges in selling, general and administrative expense, net of $1.0 million in provision for income taxes. Reclassification adjustments for derivatives designated as hedges for the same period were $0.9 million of charges in interest expense, net of $0.3 million in provision for income taxes.

NOTE 7. STOCK-BASED COMPENSATION

During the nine months ended September 30, 2016, we granted a total of 174,898 restricted stock units to certain employees and directors under an existing stock-based compensation plan. The aggregate fair value of the grants was $8.0 million. A portion of the units will vest on May 1, 2017, with the remaining units vesting on April 1, 2019. Grants of share-based awards are generally expected to be amortized over their vesting period. The amortization period will be shorter if an employee attains age 62, and meets the plan’s service requirement provision prior to the vesting date. The Company recognizes compensation expense based on estimated grant date fair values for all share-based awards issued to employees and directors. Total compensation expense was $2.6 million and $7.1 million for the three and nine months ended September 30, 2016, respectively. Total compensation expense recorded in selling, general and administrative expense on the Consolidated Statement of Income was $1.9 million and $5.2 million for the three and nine months ended September 30, 2015, respectively.

NOTE 8. 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
September 30,
 
Nine Months Ended
September 30,
(In millions, except per share data)
2016
 
2015
 
2016
 
2015
Basic earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
20.6

 
$
12.7

 
$
44.6

 
$
35.1

Weighted average number of shares outstanding
29.4

 
29.5

 
29.4

 
29.5

Basic earnings per share from continuing operations
$
0.70

 
$
0.43

 
$
1.52

 
$
1.19

Diluted earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
20.6

 
$
12.7

 
$
44.6

 
$
35.1

Weighted average number of shares outstanding
29.4

 
29.5

 
29.4

 
29.5

Effect of dilutive securities:
 
 
 
 
 
 
 
Restricted stock
0.4

 
0.3

 
0.4

 
0.3

Total shares and dilutive securities
29.8

 
29.8

 
29.8

 
29.8

Diluted earnings per share from continuing operations
$
0.69

 
$
0.43

 
$
1.50

 
$
1.18



12



NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value framework requires the categorization of assets and liabilities 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 that the Company can assess at the measurement date.
Level 2: Observable inputs other than those included in Level 1 that are observable for the asset or liability, either directly or indirectly. 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, 2016
 
As of December 31, 2015
(In millions)
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments
$
11.5

 
$
11.5

 
$

 
$

 
$
8.9

 
$
8.9

 
$

 
$

Derivatives
4.7

 

 
4.7

 

 
7.0

 

 
7.0

 

Total assets
$
16.2

 
$
11.5

 
$
4.7

 
$

 
$
15.9

 
$
8.9

 
$
7.0

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives
$
9.4

 
$

 
$
9.4

 
$

 
$
2.9

 
$

 
$
2.9

 
$

Contingent consideration
0.8

 

 

 
0.8

 
3.0

 

 

 
3.0

Total liabilities
$
10.2

 
$

 
$
9.4

 
$
0.8

 
$
5.9

 
$

 
$
2.9

 
$
3.0


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 separately in Other assets on the Condensed Consolidated Balance Sheets. Investments include an unrealized gain of $0.7 million as of September 30, 2016 and unrealized loss of $0.7 million as of December 31, 2015.

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. We also perform a qualitative assessment of counterparty credit risk.

The contingent consideration relates to the earnout provision recorded in conjunction with the acquisition completed in the first quarter of 2016 for $0.8 million.

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, 2016
 
As of December 31, 2015
(In millions)
Carrying Value
 
Estimated Fair Value
 
Carrying Value
 
Estimated Fair Value
Five-year revolving credit facility, expires February 10, 2020
$
300.0

 
$
300.0

 
$
279.4

 
$
279.4

Brazilian loan due April 15, 2016

 

 
0.3

 
0.3

Brazilian loan due October 16, 2017
2.0

 
1.8

 
2.7

 
2.4

Foreign credit facilities
3.6

 
3.6

 

 

Other

 

 
0.3

 
0.3


13




There is no active or observable market for our fixed rate Brazilian loans. Therefore, the estimated fair value is 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 loans are based on a broker quote for 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.

NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Derivative Financial Instruments

All derivatives are recorded as other assets or liabilities in the Condensed Consolidated Balance Sheets at their respective fair values. For derivatives designated as cash flow hedges, the effective portion of the unrealized gain or loss related to the derivatives are recorded in Other comprehensive income (loss) until the transaction affects earnings. We assess both at inception of the hedge and on an ongoing basis, whether the derivative in the hedging transaction has been, and will continue to be, highly effective in offsetting changes in cash flows of the hedged item. The impact of any ineffectiveness is recognized in the Condensed Consolidated Statements of Income. Changes in the fair value of derivatives that do not meet the criteria for designation as a hedge are recognized in earnings.

Foreign Exchange: We manufacture and sell products in a number of countries throughout the world and, as a result, we are exposed to movements in foreign currency exchange rates. Our major foreign currency exposures involve the markets in Western Europe, South America and Asia. Some of our sales and purchase contracts contain embedded derivatives due to the nature of doing business in certain jurisdictions, 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 in managing this foreign exchange rate risk. We have not designated these forward foreign exchange contracts, which have a notional value at September 30, 2016 of $548.9 million, as hedges and therefore do not apply hedge accounting.

The following table presents the fair value of foreign currency derivatives included within the Condensed Consolidated Balance Sheets:

 
As of September 30, 2016
 
As of December 31, 2015
(In millions)
Derivative Assets
 
Derivative Liabilities
 
Derivative Assets
 
Derivative Liabilities
Other current assets / liabilities
$
3.8

 
$
4.2

 
$
5.8

 
$
1.3

Other assets / liabilities
0.9

 
0.1

 
1.2

 
0.1

Total
$
4.7

 
$
4.3

 
$
7.0

 
$
1.4


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 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 derivatives at their gross fair values in the Condensed Consolidated Balance Sheets.  


14



As of September 30, 2016 and December 31, 2015, information related to these offsetting arrangements was as follows:

(In millions)
As of September 30, 2016
Offsetting of Assets
Gross Amounts of Recognized Assets
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Presented in the Consolidated Balance Sheets
 
Amount Subject to Master Netting Agreement
 
Net Amount
Derivatives
$
4.7

 
$

 
$
4.7

 
$
(2.0
)
 
$
2.7


(In millions)
As of September 30, 2016
Offsetting of Liabilities
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Presented in the Consolidated Balance Sheets
 
Amount Subject to Master Netting Agreement
 
Net Amount
Derivatives
$
9.4

 
$

 
$
9.4

 
$
(2.6
)
 
$
6.8


(In millions)
As of December 31, 2015
Offsetting of Assets
Gross Amounts of Recognized Assets
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Presented in the Consolidated Balance Sheets
 
Amount Subject to Master Netting Agreement
 
Net Amount
Derivatives
$
7.0

 
$

 
$
7.0

 
$
(1.7
)
 
$
5.3


(In millions)
As of December 31, 2015
Offsetting of Liabilities
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Presented in the Consolidated Balance Sheets
 
Amount Subject to Master Netting Agreement
 
Net Amount
Derivatives
$
2.9

 
$

 
$
2.9

 
$
(1.7
)
 
$
1.2


The following table presents the location and amount of the gain (loss) on foreign currency derivatives and on the remeasurement of assets and liabilities denominated 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
September 30,
 
Nine Months Ended
September 30,
(In millions)
 
 
 
2016
 
2015
 
2016
 
2015
Foreign exchange contracts
 
Revenue
 
$
(0.4
)
 
$
(0.3
)
 
$
(0.9
)
 
$

Foreign exchange contracts
 
Cost of sales
 
(0.1
)
 
0.1

 
(0.4
)
 
(0.4
)
Foreign exchange contracts
 
Other income, net
 

 
(0.1
)
 
(0.1
)
 

Total
 
 
 
(0.5
)
 
(0.3
)
 
(1.4
)
 
(0.4
)
Remeasurement of assets and liabilities in foreign currencies
 
 
 
(0.1
)
 
0.5

 
(0.4
)
 
(0.7
)
Net gain (loss) on foreign currency transactions
 
 
 
$
(0.6
)
 
$
0.2

 
$
(1.8
)
 
$
(1.1
)

Interest Rates: We have entered into interest rate swaps to fix the interest rate applicable to certain of our variable-rate debt, including a forward starting interest rate swap entered into on January 15, 2016 covering the period beginning January 19, 2017 to January 19, 2021. The agreements swap one-month LIBOR for fixed rates. We have designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in Accumulated other comprehensive income (loss).

At September 30, 2016, the fair value recorded in other liabilities on the Condensed Consolidated Balance Sheet was $5.3 million. The effective portion of these derivatives designated as cash flow hedges of $3.2 million has been reported in Other comprehensive income (loss), net of tax, on the Condensed Consolidated Statement of Comprehensive Income.

15




Ineffectiveness from cash flow hedges, all of which are interest rate swaps, was immaterial as of September 30, 2016.

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

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 establishing 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 losses are established based on collectability assessments.

NOTE 11. COMMITMENTS AND CONTINGENCIES

In the normal course of our business, we are at times subject to pending and threatened legal actions, some for which the relief or damages sought may be substantial. Although we are not able to predict the outcome of such actions, after reviewing all pending and threatened actions with counsel and based on information currently available, management believes that the outcome of such actions, individually or in the aggregate, will not have a material adverse effect on our results of operations or financial position. However, it is possible that the ultimate resolution of such matters, if unfavorable, may be material to our results of operations in a particular future period as the time and amount of any resolution of such actions and its relationship to the future results of operations are not currently known.

Liabilities are established for pending legal claims only when losses associated with the claims are judged to be probable, and the loss can be reasonably estimated. In many lawsuits and arbitrations, it is not considered probable that a liability has been incurred or not possible to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case no liability would be recognized until that time.

We are currently the subject of an audit being conducted by the State of Delaware to determine whether we have complied with Delaware unclaimed property (escheat) laws. This audit is being conducted by an outside firm on behalf of the State of Delaware and covers the years from 1986 through the present. In addition to seeking the turnover of unclaimed property subject to escheat laws, the State of Delaware may seek interest, penalties, and other relief. We are not able to reasonably estimate a possible assessment from this audit at this time.

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 $206.0 million at September 30, 2016, represent guarantees of our future performance. We also have provided $4.6 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. In addition, we generally retain recourse to the equipment sold. As of September 30, 2016, the gross value of such arrangements was $8.2 million, of which our net exposure under such guarantees was $0.6 million.


16



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 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 were as follows:

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
Balance at beginning of period
$
12.7

 
$
10.0

 
$
12.5

 
$
10.2

Expense for new warranties
3.0

 
3.1

 
8.6

 
8.0

Adjustments to existing accruals
(0.1
)
 

 
(0.5
)
 
(0.3
)
Claims paid
(2.3
)
 
(2.7
)
 
(7.3
)
 
(7.4
)
Added through acquisition

 
0.6

 

 
0.6

Translation

 
(0.1
)
 

 
(0.2
)
Balance at end of period
$
13.3

 
$
10.9

 
$
13.3

 
$
10.9



NOTE 12. 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
September 30,
 
Nine Months Ended
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
Revenue:
 
 
 
 
 
 
 
JBT FoodTech
$
235.9

 
$
177.8

 
$
642.2

 
$
480.9

JBT AeroTech
112.7

 
95.8

 
303.3

 
272.8

Intercompany eliminations
1.0

 
(0.3
)
 

 
(0.8
)
Total revenue
$
349.6

 
$
273.3

 
$
945.5

 
$
752.9

 
 
 
 
 
 
 
 
Income before income taxes
 
 
 
 
 
 
 
Segment operating profit:
 
 
 
 
 
 
 
JBT FoodTech
$
28.2

 
$
20.5

 
$
78.0

 
$
56.1

JBT AeroTech
12.0

 
9.5

 
31.9

 
26.2

Total segment operating profit
40.2

 
30.0

 
109.9

 
82.3

Corporate items:
 
 
 
 
 
 
 
Corporate expense(1)
(10.4
)
 
(8.9
)
 
(31.4
)
 
(24.3
)
Restructuring expense(2)
(0.3
)
 

 
(9.4
)
 

Operating income
29.5

 
21.1

 
69.1

 
58.0

 
 
 
 
 
 
 
 
Net interest expense
(2.8
)
 
(1.5
)
 
(7.0
)
 
(5.3
)
Income from continuing operations before income taxes
$
26.7

 
$
19.6

 
$
62.1

 
$
52.7


(1)
Corporate expense generally includes corporate staff-related expense, stock-based compensation, pension and other postretirement benefit expenses not related to service, LIFO adjustments, certain foreign currency-related gains and losses, and the impact of unusual or strategic events not representative of segment operations.

(2)
Refer to Note 13. Restructuring for further information on restructuring expense.


17



NOTE 13. 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.

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 our general and administrative infrastructure. We released $0.9 million of the liability as of September 30, 2016 which we no longer expect to pay in connection with this plan due to actual severance payments differing from the original estimates and natural attrition of employees. Remaining payments required under this plan are expected to be paid during 2016.

In the first quarter of 2016, we implemented our optimization program to realign FoodTech’s Protein business in North America and Liquid Foods business in Europe, accelerate JBT’s strategic sourcing initiatives, and consolidate smaller facilities. The total estimated cost in connection with this plan is in the range of $11 million to $13 million. We recorded $7.5 million, $2.0 million, and $0.8 million in the first, second and third quarters of 2016, respectively. We anticipate incurring an additional $1 million to $2 million by the end of 2016. All payments required under this plan are expected to be made during 2016 and 2017.

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

 
Charges Incurred During the
 
Charges Incurred During the
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions)
2016
 
2015
 
2016
 
2015
Severance and related expense
$
(0.5
)
 
$

 
$
5.3

 
$

Asset impairment

 

 
0.1

 

Other
0.8

 

 
4.0

 

Total restructuring charges
$
0.3

 
$

 
$
9.4

 
$


The restructuring charges are associated with the FoodTech segment, and are excluded from our calculation of segment operating profit. Charges incurred during the three months ended September 30, 2016 primarily relate to third party consulting services and relocation expenses incurred as a direct result of our plan.

Liability balances for restructuring activities are included in other current liabilities in the accompanying condensed consolidated balance sheets. The table below details the activities in 2016:

(In millions)
Balance as of
December 31, 2015
 
Charged to
Earnings
 
Payments Made/Charges Applied
 
Balance as of
September 30, 2016
Severance and related expense
$
2.6

 
$
5.3

 
$
(2.1
)
 
$
5.9

Asset impairment

 
0.1

 

 
0.1

Other

 
4.0

 
(4.0
)
 

Total
$
2.6

 
$
9.4

 
$
(6.0
)
 
$
6.0



18



NOTE 14. RELATED PARTY TRANSACTIONS

As a result of an acquisition, we continued a relationship with a supplier of parts for use in our manufacturing of equipment. An employee hired by JBT as a part of this acquisition has a noncontrolling ownership interest in this supplier. We made purchases from this supplier of $1.2 million and $2.5 million during the three and nine months ended September 30, 2016, respectively. We made purchases from this supplier of $0.8 million and $2.8 million during the three and nine months ended September 30, 2015, respectively. We had outstanding accounts payable to this supplier of $0.2 million and $0.6 million as of September 30, 2016 and December 31, 2015, respectively.

NOTE 15. SUBSEQUENT EVENTS

On October 3, 2016, the Company signed a definitive agreement to acquire Tipper Tie, Inc. ("Tipper Tie") from Dover Corporation. Tipper Tie, headquartered in Apex, North Carolina, is a leading provider of engineered processing and packing solutions, and related consumables to the food industry. This acquisition will enable us to add complementary package solutions to our existing protein platform, and provide greater value to our customers. The agreed to purchase price is $160.0 million, before customary post-closing adjustments, which we expect to pay by accessing our revolving credit facility. We expect to complete the purchase during the fourth quarter of 2016.

On October 14, 2016, we completed our acquisition of Cooling and Applied Technologies, Inc. (“C.A.T.”), located in Russellville, Arkansas. C.A.T. is a leading manufacturer of value-added food solutions, primarily for the poultry industry, and focuses on chillers, injection, marination, weighing, freezing, and refrigeration systems. This acquisition will enhance our presence in primary and secondary protein processing and advances our strategic acquisition program in Proteins and Liquid Foods. The purchase price was $90.0 million, which was funded with cash on hand as well as borrowings under our revolving credit facility.

We entered into a third amendment to the credit agreement governing our credit facilities (the "Credit Agreement") on October 20, 2016 whereby certain lenders party to the Credit Agreement provided an incremental term loan in an aggregate principal amount of $150.0 million utilizing a portion of its $250 million expansion feature in the Credit Agreement.

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

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on 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 acquisitions, 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.


19



Executive Overview

We are a leading global technology solutions provider to high-value segments of the food & beverage and air transportation industries. We design, manufacture, test and service technologically sophisticated systems and products for customers throughout our JBT FoodTech and JBT AeroTech segments.

In 2016, we continued to implement our Next Level strategy that was developed in 2014 to capitalize on the leadership position of our businesses and accelerate growth and profitability. The Next Level strategy is based on a three-pronged plan to “fix,” “strengthen,” and “grow” JBT.

Fix. We have implemented a “One JBT” cultural transformation across JBT, built on our long-standing values of integrity, accountability, and teamwork. At the organization level, we have implemented a shared services model, consolidating back office operations in the U.S. to standardize practices and leverage the scale of our two businesses. We have also consolidated smaller operations enabling JBT FoodTech and JBT AeroTech to operate shared facilities and are in the process of expanding the shared services model in Europe.

We are driving organization simplification to lay a growth foundation. We have incurred restructuring charges related to our optimization program in 2016 to realign FoodTech’s Protein business in North America and Liquid Foods business in Europe, accelerate JBT’s strategic sourcing initiatives, and consolidate smaller facilities.

Strengthen. In 2016, we continued to implement leadership and management changes in our businesses to better align with our customers’ market needs. To further strengthen the business, we continue to utilize the JBT Excellence Model (“JEM”). JEM includes value-based pricing, which has been rolled out across all major businesses. JEM also includes implementation of Lean initiatives or what we call Relentless Continuous Improvement (“RCI”). This is an integrated focus on safety, quality, delivery, and cost that establishes a sustainable competitive advantage. We also continue to enforce RCI via extensive leadership training and all our JBT production facilities have either started or arewell along implementation of RCI.

Grow. There are specific components to our growth strategy with a focus on food. We continue to invest in the profitable aftermarket business, building a dedicated sales and service network that will capitalize on our global installed base of equipment. We also are capitalizing on growth opportunities in emerging markets through locally-tailored products. We enjoy a robust, direct presence in Asia, which is important for driving long-term growth. In 2014, we opened a joint JBT FoodTech and JBT AeroTech manufacturing center in Kunshan, China. We opened a technology center, which allows customers to conduct test production runs, adjacent to the manufacturing center in January 2016.

Beyond organic growth initiatives, we are pursuing strategic acquisitions. We completed three acquisitions in 2014 and two acquisitions in 2015. In 2016 we completed one acquisition in the first quarter. In addition, we have completed the acquisition of C.A.T. on October 14, 2016, and signed a definitive agreement to acquire Tipper Tie on October 3, 2016. Both acquisitions add highly complementary product lines to our existing Protein businesses. These acquisitions support our strategy of acquiring strong companies that complement our Protein and Liquid Foods portfolios. Looking ahead, we continue to establish a pipeline of mergers and acquisition (“M&A”) opportunities. Our successful acquisition activity is the result of building our corporate M&A capabilities and engaging the field operations in the process of identifying, executing, and integrating acquisitions.

As we evaluate our operating results, we consider our key performance indicators of segment revenue, segment operating profit, the level of inbound orders, as well as certain non-GAAP financial measures such as Adjusted EBITDA.

We continue to enhance a comprehensive approach to Corporate Social Responsibility (“CSR”), building on our culture and long tradition of concern for our employees’ health, safety, and well-being; partnering with our customers to improve their operations; and giving back to the communities where we live and work. Building upon that strong foundation, we cultivate CSR teams at each business unit which share energy efficiency best practices, measure resource utilization, and establish improvement targets across multiple resource streams including energy, water, and waste. Our equipment and technology continues to deliver quality performance while striving to minimize waste and maximize efficiency in order to create shared value for both our food processing and air transportation customers. A key CSR objective is to further align our business with our customers, in order to support their ambitious quality, financial, and CSR goals.


20



Non-GAAP Financial Measures

The results for the three and nine months ended September 30, 2016 include a significant expense that is not indicative of our ongoing operations as detailed in the table below: 

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions, except per share data)
2016
 
2015
 
2016
 
2015
Income from continuing operations as reported
$
20.6

 
$
12.7

 
$
44.6

 
$
35.1

 
 
 
 
 
 
 
 
Non-GAAP adjustments:
 
 
 
 
 
 
 
Restructuring expense
0.3

 

 
9.4

 

Impact on tax provision from Non-GAAP adjustments(1)
(0.1
)
 

 
(3.0
)
 

Adjusted income from continuing operations
$
20.8

 
$
12.7

 
$
51.0

 
$
35.1

 
 
 
 
 
 
 
 
Income from continuing operations as reported
$
20.6

 
$
12.7

 
$
44.6

 
$
35.1

Total shares and dilutive securities
29.8

 
29.8

 
29.8

 
29.8

Diluted earnings per share from continuing operations
$
0.69

 
$
0.43

 
$
1.50

 
$
1.18

 
 
 
 
 
 
 
 
Adjusted income from continuing operations
$
20.8

 
$
12.7

 
$
51.0

 
$
35.1

Total shares and dilutive securities
29.8

 
29.8

 
29.8

 
29.8

Adjusted diluted earnings per share from continuing operations
$
0.70

 
$
0.43

 
$
1.71

 
$
1.18


(1)    Impact on tax provision was calculated using the Company’s annual effective tax rate of 30.6%.

The above table contains adjusted income from continuing operations and adjusted diluted earnings per share from continuing operations, which are non-GAAP financial measures, and are intended to provide an indication of our underlying ongoing 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 our performance and for the planning and forecasting of future periods.

The table below provides a reconciliation of net income to Adjusted EBITDA:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions)
2016
 
2015
 
2016
 
2015
Net income
$
20.6

 
$
12.6

 
$
44.5

 
$
35.0

Loss from discontinued operations, net of taxes

 
(0.1
)
 
(0.1
)
 
(0.1
)
Income from continuing operations as reported
20.6

 
12.7

 
44.6

 
35.1

Provision for income taxes
6.1

 
6.9

 
17.5

 
17.6

Net interest expense
2.8

 
1.5

 
7.0

 
5.3

Depreciation and amortization
9.1

 
7.3

 
27.2

 
20.9

EBITDA
38.6

 
28.4

 
96.3

 
78.9

 
 
 
 
 
 
 
 
Restructuring expense
0.3

 

 
9.4

 

Adjusted EBITDA
$
38.9

 
$
28.4

 
$
105.7

 
$
78.9


The above table provides net income as adjusted by income taxes, net interest expense and depreciation and amortization expense recorded during the period to arrive at EBITDA. Further, we add back to EBITDA significant expenses that are not indicative of our ongoing operations to calculate an Adjusted EBITDA for the periods reported. Given the Company’s Next Level focus on growth through strategic acquisitions, management considers Adjusted EBITDA to be an important non-GAAP

21



financial measure. This measure allows us to monitor business performance while excluding the impact of amortization due to the step up in value of intangible assets, and the depreciation of fixed assets. We use Adjusted EBITDA internally to make operating decisions and believe this information is helpful to investors because it allows more meaningful period-to-period comparisons of our ongoing operating results.

We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation is a non-GAAP financial measure, which excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our financial results in local currency for a period using the average exchange rate for the prior period to which we are comparing. This calculation may differ from similarly-titled measures used by other companies.

The non-GAAP financial measures disclosed in this Quarterly Report on Form 10-Q are not intended to nor should they be considered in isolation or as a substitute for financial measures prepared in accordance with U.S. GAAP.

22



CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 
Three Months Ended September 30,
 
Favorable/(Unfavorable)
(In millions, except %)
2016
 
2015
 
$
 
%
Revenue
$
349.6

 
$
273.3

 
$
76.3

 
27.9

Cost of sales
255.5

 
197.1

 
(58.4
)
 
(29.6
)
Gross profit
94.1

 
76.2

 
17.9

 
23.5

Selling, general and administrative expense
56.5

 
48.1

 
(8.4
)
 
(17.5
)
Research and development expense
6.3

 
5.0

 
(1.3
)
 
(26.0
)
Restructuring expense
0.3

 

 
(0.3
)
 
N/A

Other (income) expense, net
1.5

 
2.0

 
0.5

 
25.0

Operating income
29.5

 
21.1

 
8.4

 
39.8

Interest income
0.3

 
0.2

 
0.1

 
50.0

Interest expense
(3.1
)
 
(1.7
)
 
(1.4
)
 
(82.4
)
Income from continuing operations before income taxes
26.7

 
19.6

 
7.1

 
36.2

Provision for income taxes
6.1

 
6.9

 
0.8

 
11.6

Income from continuing operations
20.6

 
12.7

 
7.9

 
62.2

Loss from discontinued operations, net

 
(0.1
)
 
0.1

 

Net income
$
20.6

 
$
12.6

 
$
8.0

 
63.5


Total revenue for the three months ended September 30, 2016 increased $76.3 million, or $77.4 million in constant currency, compared to the same period in 2015. The increase was driven by revenue from acquired companies, which added $31.5 million, and organic growth of $45.9 million.

Operating income for the three months ended September 30, 2016 increased by $8.4 million compared to the same period in 2015 as a result of the following items:

Gross profit increased $17.9 million. This increase was primarily the result of higher sales volume due to organic growth and acquisitions. Gross profit margins declined slightly as increased profitability from higher aftermarket revenue, strategic pricing, and savings from other Next Level initiatives was partially offset by lower equipment margins in newly acquired businesses.
Selling, general and administrative expense increased $8.4 million, or $9.5 million in constant currency. The increase was primarily a result of the addition of newly acquired businesses, as well as investments to support Next Level initiatives.
Research and development expense increased $1.3 million primarily due to the addition of acquired businesses.
Restructuring expense increased $0.3 million due to costs incurred in connection with our optimization program to realign certain FoodTech businesses, which we commenced during the first quarter of 2016.
Other expense decreased $0.5 million due to gains in our non-qualified retirement plan assets, partially offset by increased acquisition costs in the quarter from recently announced acquisitions.

Interest expense, net increased $1.3 million primarily due to higher average debt levels resulting from 2015 acquisitions.

Income tax expense for the three months ended September 30, 2016 reflected an expected effective income tax rate of approximately 30.6%, compared to 32.9% in the same period in 2015. The decrease in expected effective tax rate was driven by an increase in the R&D tax credit in 2016 compared to 2015. In addition, in 2016 we recorded $1.5 million of favorable discrete adjustments to the income tax provision, primarily reflecting a lower tax liability for fiscal year 2015.

23



OPERATING RESULTS OF BUSINESS SEGMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 
Three Months Ended September 30,
 
Favorable/(Unfavorable)
(In millions, except %)
2016
 
2015
 
$
 
%
Revenue:
 
 
 
 
 
 
 
JBT FoodTech
$
235.9

 
$
177.8

 
$
58.1

 
32.7

JBT AeroTech
112.7

 
95.8

 
16.9

 
17.6

Other revenue and intercompany eliminations
1.0

 
(0.3
)
 
1.3

 
433.3

Total revenue
$
349.6

 
$
273.3

 
$
76.3

 
27.9

 
 
 
 
 
 
 
 
Operating income before income taxes
 
 
 
 
 
 
 
Segment operating profit(1)(2):
 
 
 
 
 
 
 
JBT FoodTech
$
28.2

 
$
20.5

 
$
7.7

 
37.6

JBT AeroTech
12.0

 
9.5

 
2.5

 
26.3

Total segment operating profit
40.2

 
30.0

 
10.2

 
34.0

Corporate items:
 
 
 
 
 
 
 
Corporate expense
(10.4
)
 
(8.9
)
 
(1.5
)
 
(16.9
)
Restructuring expense
(0.3
)
 

 
(0.3
)
 
N/A

Operating income
$
29.5

 
$
21.1

 
$
8.4

 
39.8

 
 
 
 
 
 
 
 
Inbound orders:
 
 
 
 
 
 
 
JBT FoodTech
$
242.2

 
$
190.5

 
 
 
 
JBT AeroTech
104.6

 
96.2

 
 
 
 
Intercompany eliminations

 
(0.2
)
 
 
 
 
Total inbound orders
$
346.8

 
$
286.5

 
 
 
 

(1)
Refer to Note 12. Business Segment Information of the Notes to Condensed Consolidated Financial Statements.

(2)
Segment operating profit is defined as total segment revenue less segment operating expenses. Corporate expense, restructuring expense, interest income and expense and income taxes are not allocated to the segments. Corporate expense generally includes corporate staff-related expense, stock-based compensation, pension and other postretirement benefit expenses not related to service, LIFO adjustments, certain foreign currency-related gains and losses, and the impact of unusual or strategic events not representative of segment operations.



24



JBT FoodTech

JBT FoodTech’s revenue for the three months ended September 30, 2016 increased by $58.1 million, or $58.8 million in constant currency, compared to the same period in 2015. Acquisitions contributed $31.5 million in revenue, and the remaining FoodTech businesses contributed $27.3 million in revenue growth. The key driver of organic revenue performance was higher sales of Protein equipment and aftermarket, and Liquid Foods equipment in Europe and North America, and higher Automated Systems sales in North America.

JBT FoodTech’s operating profit for the three months ended September 30, 2016 increased by $7.7 million, or $7.9 million in constant currency, compared to the same period in 2015. This increase was driven by higher volume from new equipment and aftermarket sales, as well as an increase in volume due to acquisitions, partially offset by increased selling, general and administrative costs of $6.1 million driven by acquisitions. Operating profit margin increased from 11.5% to 12.0%.

JBT AeroTech

JBT AeroTech’s revenue for the three months ended September 30, 2016 increased $16.9 million, or $17.2 million in constant currency, compared to the same period in 2015. Revenues from our fixed equipment business increased $13.0 million primarily due to an increased number of completed passenger boarding bridges and related equipment for domestic airports. Revenues from our airport services business unit improved by $3.5 million as a result of higher revenues from new and existing maintenance contracts. Revenues from our mobile equipment business increased by $0.7 million.

JBT AeroTech’s operating profit for the three months ended September 30, 2016 increased $2.5 million compared to the same period in 2015. Higher sales volume accounted for $3.5 million of improved profit. Lower gross profit margins resulted in a decline of $0.4 million driven largely by a heavier mix of lower margin products partly offset by improved pricing. Selling, administrative and research and development costs increased $0.9 million from the prior period due to inflation and investments to support future growth.

Corporate Expense

Corporate expense for the three months ended September 30, 2016 increased by $1.5 million, compared to the same period in 2015, driven by higher incentive-based compensation of $0.5 million, costs associated with the migration to our new ERP system totaling $0.3 million, and higher corporate staff expenses of $0.7 million to support growth initiatives in acquisitions, strategic sourcing, and continuous improvement.



25



CONSOLIDATED RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 
Nine Months Ended September 30,
 
Favorable/(Unfavorable)
(In millions, except %)
2016
 
2015
 
$
 
%
Revenue
$
945.5

 
$
752.9

 
$
192.6

 
25.6

Cost of sales
678.8

 
538.0