Attached files

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EX-32.2 - EXHIBIT 32.2 - John Bean Technologies CORPa93018-jbtexhibit322.htm
EX-32.1 - EXHIBIT 32.1 - John Bean Technologies CORPa93018-jbtexhibit321.htm
EX-31.2 - EXHIBIT 31.2 - John Bean Technologies CORPa93018-jbtexhibit312.htm
EX-31.1 - EXHIBIT 31.1 - John Bean Technologies CORPa93018-jbtexhibit311.htm
EX-15 - EXHIBIT 15 - John Bean Technologies CORPa93018-jbtexhibit15.htm
EX-10.6 - EXHIBIT 10.6 - John Bean Technologies CORPexhibit106twenty-thirdamen.htm
EX-10.5 - EXHIBIT 10.5 - John Bean Technologies CORPexhibit105twenty-secondame.htm
EX-10.4 - EXHIBIT 10.4 - John Bean Technologies CORPexhibit104twenty-firstamen.htm
EX-10.3 - EXHIBIT 10.3 - John Bean Technologies CORPexhibit103twentiethamendme.htm
EX-10.2 - EXHIBIT 10.2 - John Bean Technologies CORPexhibit102nineteenthamendm.htm
EX-10.1 - EXHIBIT 10.1 - John Bean Technologies CORPexhibit101nonqualifiedsa.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, 2018
 
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 every Interactive Data File required to be submitted 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 such files).     Yes  ☒   No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Accelerated filer
 
 
 
 
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.


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 26, 2018
Common Stock, par value $0.01 per share
 
31,607,896

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)
2018
 
2017
 
2018
 
2017
Revenue
$
481.9

 
$
420.8

 
$
1,382.4

 
$
1,151.4

Operating expenses:

 
 
 
 
 
 
Cost of sales
346.8

 
299.3

 
1,003.4

 
817.5

Selling, general and administrative expense
79.0

 
74.0

 
237.4

 
222.1

Research and development expense
5.7

 
6.9

 
20.7

 
19.6

Restructuring expense
11.6

 
0.3

 
32.8

 
1.3

Other expense (income), net
2.2

 
(1.6
)
 
3.4

 
(0.6
)
Operating income
36.6

 
41.9

 
84.7

 
91.5

Other income (expense), net

 
0.3

 
(0.6
)
 
0.9

Interest expense, net
(3.4
)
 
(3.6
)
 
(10.5
)
 
(10.3
)
Income from continuing operations before income taxes
33.2

 
38.6

 
73.6

 
82.1

Provision for income taxes
6.8

 
12.2

 
12.1

 
19.8

Income from continuing operations
26.4

 
26.4

 
61.5

 
62.3

Loss from discontinued operations, net of taxes

 
(0.6
)
 
(0.3
)
 
(1.2
)
Net income
$
26.4

 
$
25.8

 
$
61.2

 
$
61.1

 
 
 
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.83

 
$
0.83

 
$
1.93

 
$
1.99

Loss from discontinued operations

 
(0.02
)
 
(0.01
)
 
(0.04
)
Net income
$
0.83

 
$
0.81

 
$
1.92

 
$
1.95

Diluted earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.82

 
$
0.82

 
$
1.91

 
$
1.97

Loss from discontinued operations

 
(0.02
)
 
(0.01
)
 
(0.04
)
Net income
$
0.82

 
$
0.80

 
$
1.90

 
$
1.93

Cash dividends declared per share
$
0.10

 
$
0.10

 
$
0.30

 
$
0.30


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)
2018
 
2017
 
2018
 
2017
Net income
$
26.4

 
$
25.8

 
$
61.2

 
$
61.1

Other comprehensive (loss) income, net of income taxes
 
 
 
 
 
 
 
Foreign currency translation adjustments
(3.2
)
 
7.3

 
(21.0
)
 
20.3

Pension and other postretirement benefits adjustments, net of tax of ($0.5) and ($1.3) for 2018, and ($0.5) and ($1.4) for 2017, respectively
1.2

 
0.8

 
4.0

 
2.4

Derivatives designated as hedges, net of tax of $0 and ($0.5) for 2018, and ($0.1) and ($0.3) for 2017, respectively

 
0.2

 
1.5

 
0.5

Other comprehensive (loss) income
(2.0
)
 
8.3

 
(15.5
)
 
23.2

Comprehensive income
$
24.4

 
$
34.1

 
$
45.7

 
$
84.3


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

3



JOHN BEAN TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

 
September 30, 2018
 
December 31, 2017
(In millions, except per share data and number of shares)
(Unaudited)
 
 
Assets:
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
38.5

 
$
34.0

Trade receivables, net of allowances of $3.5 and $3.2, respectively
334.0

 
316.4

Inventories
256.6

 
190.2

Other current assets
57.6

 
48.0

Total current assets
686.7

 
588.6

Property, plant and equipment, net of accumulated depreciation of $281.3 and $273.3, respectively
238.9

 
233.0

Goodwill
321.6

 
301.8

Intangible assets, net
221.4

 
216.8

Deferred income taxes
14.4

 
13.1

Other assets
38.2

 
38.1

Total Assets
$
1,521.2

 
$
1,391.4

 
 
 
 
Liabilities and Stockholders' Equity:
 
 
 
Current Liabilities:
 
 
 
Short-term debt and current portion of long-term debt
$
0.1

 
$
10.5

Accounts payable, trade and other
174.1

 
157.1

Advance and progress payments
173.3

 
127.6

Other current liabilities
148.9

 
146.2

Total current liabilities
496.4

 
441.4

Long-term debt, less current portion
486.1

 
372.7

Accrued pension and other postretirement benefits, less current portion
62.5

 
85.9

Other liabilities
43.8

 
49.5

Commitments and contingencies (Note 12)


 


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, 2018: 31,741,607 issued and 31,605,218 outstanding and December 31, 2017: 31,623,079 issued and 31,577,182 outstanding
0.3

 
0.3

Common stock held in treasury, at cost; September 30, 2018: 136,389 shares and December 31, 2017: 45,897 shares
(12.0
)
 
(4.0
)
Additional paid-in capital
245.2

 
252.2

Retained earnings
354.7

 
333.7

Accumulated other comprehensive loss
(155.8
)
 
(140.3
)
Total stockholders' equity
432.4

 
441.9

Total Liabilities and Stockholders' Equity
$
1,521.2

 
$
1,391.4


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) 
2018
 
2017
Cash flows provided by operating activities:
 
 
 
Net income
$
61.2

 
$
61.1

Loss from discontinued operations, net
0.3

 
1.2

Income from continuing operations
61.5

 
62.3

Adjustments to reconcile income from continuing operations to cash provided by continuing operating activities:
 
 
 
Depreciation and amortization
43.1

 
37.9

Stock-based compensation
7.6

 
6.2

Other
(23.6
)
 
1.0

Changes in operating assets and liabilities:
 
 
 
Trade receivables - billed, net
(18.5
)
 
(20.6
)
Inventories
(49.2
)
 
(53.8
)
Accounts payable, trade and other
16.4

 
11.7

Advance and progress payments
17.3

 
37.0

Accrued pension and other postretirement benefits, net
(18.3
)
 
(8.4
)
Other assets and liabilities, net
(9.7
)
 
(4.1
)
Cash provided by continuing operating activities
26.6

 
69.2

Cash required by discontinued operating activities
(0.6
)
 
(1.2
)
Cash provided by operating activities
26.0

 
68.0

 
 
 
 
Cash flows required by investing activities:
 
 
 
Acquisitions, net of cash acquired
(57.6
)
 
(103.1
)
Capital expenditures
(28.5
)
 
(27.5
)
Proceeds from disposal of assets
1.8

 
1.4

Cash required by investing activities
(84.3
)
 
(129.2
)
 
 
 
 
Cash flows provided by financing activities:
 
 
 
Payments in connection with modification of credit facilities
(468.6
)
 

Net proceeds (payments) from domestic credit facilities
576.0

 
(93.1
)
Repayment of long-term debt

 
(1.4
)
Proceeds from stock issuance, net of stock issuance costs

 
184.1

Settlement of taxes withheld on equity compensation awards
(10.6
)
 
(9.5
)
Purchase of treasury stock
(12.0
)
 
(5.0
)
Dividends
(9.8
)
 
(9.6
)
Other
(9.8
)
 
(0.5
)
Cash provided by financing activities
65.2

 
65.0

 
 
 
 
Effect of foreign exchange rate changes on cash and cash equivalents
(2.4
)
 
1.4

 
 
 
 
Increase in cash and cash equivalents
4.5

 
5.2

Cash and cash equivalents, beginning of period
34.0

 
33.2

Cash and cash equivalents, end of period
$
38.5

 
$
38.4


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 and beverage and air transportation industries. We design, produce and service sophisticated products and systems for multi-national and regional 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, 2017, 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 (the “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.

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
Beginning in 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("ASC 606"), plus a number of related ASU’s designed to clarify and interpret ASC 606. The new standard replaced most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU requires revenue recognition based upon newly defined criteria, either at a point in time or over time as control of goods or services is transferred. 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. The new standard became effective for us as of January 1, 2018 and was adopted on a modified-retrospective basis.

Upon adoption of the new standard we have availed ourselves of certain practical expedients and elected certain accounting policies as allowed per ASC 606:

Acquisition costs are expensed and not capitalized as contract assets for contracts with duration of less than one year.
We do not disclose information about remaining performance obligations that have original expected durations of one year or less.
We do not adjust the transaction price for significant financing component for contracts with duration of less than one year.
Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

6




The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASC 606 is below (in millions). The application of IRS guidance issued during the second and third quarters resulted in the conclusion regarding the tax year the revenue recognition impacts of the adoption of ASC 606 would be included for tax purposes.  This resulted in a $2.2 million increase to the income tax impact of adoption reflected within opening retained earnings as well as a $6.6 million reduction in taxes receivable and a $4.4 million increase in deferred tax assets recorded upon the adoption of ASC 606.  
 
As Reported
 
 
 
As Restated
 
December 31, 2017
 
Adjustments due to ASC 606
 
January 1, 2018
Trade receivables, net of allowance
$
316.4

 
$
(31.3
)
 
$
285.1

Inventories
190.2

 
103.6

 
293.8

Other current assets
48.0

 
0.4

 
48.4

Deferred income taxes
$
13.1

 
6.7

 
$
19.8

Total Assets
$
1,391.4

 
$
79.4

 
$
1,470.8

 
 
 
 
 
 
Advance and progress payments
127.6

 
113.1

 
240.7

Other current liabilities
96.4

 
(2.3
)
 
94.1

Other long-term liabilities
49.5

 
(1.2
)
 
48.3

Retained earnings
333.7

 
(30.2
)
 
303.5

Total Liabilities and Stockholders' Equity

$
1,391.4

 
$
79.4

 
$
1,470.8



In October 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory. The new guidance is intended to simplify the accounting for intercompany asset transfers. The core principle requires an entity to immediately recognize the tax consequences of intercompany asset transfers. The ASU is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2017. The Company adopted the new ASU as of January 1, 2018. There was no impact on our consolidated financial statements and related disclosures as a result of adopting the ASU.

In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits ("ASC 715") - Improving the Presentation of Net Periodic Pension Costs and Net Periodic Postretirement Benefit Cost. The core principle of the ASU is to provide more transparency in the presentation of these costs by requiring the service cost component to be reported in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented separately from the service cost component and outside a subtotal of income from operations. The amendments require that the Consolidated Statements of Income impacts be applied retrospectively, while Balance Sheet changes be applied prospectively. The ASU is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2017. The Company adopted the new ASU as of January 1, 2018. As such, the Company revised operating income for the three and nine months ended September 30, 2017 by $0.3 million and $0.9 million, respectively, and reported this income in non operating income. There was no impact to net income or to the Balance Sheet or Statement of Cash Flows.




7




In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging ("ASC 815") - Targeted Improvements to Accounting for Hedging Activities. The core principle is to simplify hedge accounting, as well as improve the financial reporting of hedging results, for both financial and commodity risks, in the financial statements and related disclosures. The ASU is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted in any interim period after the issuance of the amendment, however, any adjustments should be made as of the beginning of the fiscal year in which the interim period occurred. The Company adopted ASU 2017-12 in June 2018 under a modified retrospective approach for hedge accounting treatment, and under a prospective approach for the amended disclosure requirements. Adoption of this ASU, which resulted in the following primary changes, did not have a material impact on the Company's financial condition, results of operations, or cash flows.

The ineffective hedging portion of derivatives designated as hedging instruments is no longer required to be separately measured, recognized or reported. The entire change in the fair value of the designated hedging instrument is recorded in accumulated other comprehensive income;
The Company will perform ongoing prospective and retrospective hedge ineffectiveness assessments qualitatively after performing the initial test of hedge effectiveness on a quantitative basis, and only to the extent that an expectation of high effectiveness can be supported on a qualitative basis in subsequent periods;
For derivatives with components excluded from the assessment of hedge effectiveness, the accumulated gains or losses recorded in accumulated other comprehensive income on such excluded components in a qualifying cash flow or net investment hedging relationship are reclassified to earnings on a systematic and rational basis over the hedge term.

In December 2017, the SEC issued SAB 118 which provides guidance on how companies should account for the tax effects related to The Tax Cuts and Jobs Act (the "Tax Act"). According to SAB 118, companies should make a good faith effort to compute the impact of the Tax Act in a timely manner once the company has obtained, prepared, and analyzed the information needed in order to complete the accounting requirements under ASC 740, Income Taxes, which should not extend beyond one year from the enactment date. However, in situations when the company’s accounting is incomplete, SAB 118 authorizes companies to record a reasonable provisional estimate of the tax impact resulting from the Tax Act. Refer to Note 15. Income Taxes, for further discussion.

Recently issued accounting standards not yet adopted
Beginning in February 2016, the FASB issued ASU No. 2016-02, Leases ("ASC 842"), plus a number of related statements designed to clarify and interpret ASC 842. The new standard will replace most existing lease guidance in U.S. GAAP. The core principle of the ASU is the requirement for lessees 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.

During the nine months ended September 30, 2018 we developed an adoption plan to guide our implementation of ASC 842. We have completed elements of this plan in the third quarter, including surveying our businesses and compiling a central repository of active leases. We are substantially complete with the implementation of our selected lease accounting software, and have made significant progress on extracting and loading lease data elements required for lease accounting into the software solution. We are in the process of developing new lease accounting policies and procedures, changing our internal controls over accounting for leases, developing pro forma disclosures, and concluding on key estimates including the consolidated lessee discount rate used to evaluate lease classification and calculate the lease liability and right of use assets. During the fourth quarter, we will continue to gather and review contracts for embedded leases to ensure we have identified all leases in scope for this standard. Although we are still finalizing our evaluation of the impact of the new lease accounting guidance, we expect to recognize right of use assets and liabilities for our operating leases in the Balance Sheet upon adoption.
   
In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income ("ASC 220"): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The core principle is to reclassify the tax effects of items within accumulated other comprehensive income to retained earnings in order to reflect the adjustment of deferred taxes due to the Tax Cuts and Jobs Act enacted in December 2017. The ASU is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted in any interim period for reporting periods for which financial statements have not yet been issued. The Company is currently evaluating the effect, if any, that the ASU will have on our consolidated financial statements and related disclosures.

8




In August 2018, the FASB issued ASU 2018-13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amends Topic 820, Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The ASU is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company is currently evaluating the impact of adopting ASU 2018-13 on its disclosures.

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The core principle is to clarify the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract, regardless of whether they convey a license to the hosted software. The ASU is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted in any interim period for reporting periods for which financial statements have not yet been issued. The Company is currently evaluating the effect, if any, that the ASU will have on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 modifies disclosure requirements for defined benefit plans by removing, modifying, or adding certain disclosures. The amendments in ASU 2018-14 would need to be applied on a retrospective basis. The ASU is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2018-14 on its disclosures.

9



NOTE 2. ACQUISITIONS

During 2018 and 2017 the Company acquired five businesses for an aggregate consideration of $166.2 million, net of cash acquired. A summary of the acquisitions made during the period is as follows:
Acquisition Date
 
Type
 
Company/Product Line
 
Location (Near)
 
Segment
 
 
 
 
 
 
 
 
 
July 12, 2018
 
Stock
 
FTNON.
 
Almelo, Netherlands
 
FoodTech
 
 
 
 
 
 
 
 
 
A manufacturer of equipment and solutions for the fresh produce, ready meals, and pet food industries.
 
 
 
 
 
 
 
 
 
January 26, 2018
 
Stock
 
Schröder.
 
Breidenbach, Germany
 
FoodTech
 
 
 
 
 
 
 
 
 
Manufacturer of engineered processing solutions to the food industry.
 
 
 
 
 
 
 
 
 
July 31, 2017
 
Stock
 
PLF International Ltd.
 
Harwich (Sussex), England
 
FoodTech
 
 
 
 
 
 
 
 
 
Manufacturer and leading provider of powder filling systems for global food and beverage, and nutraceutical markets.
 
 
 
 
 
 
 
 
 
July 3, 2017
 
Stock
 
Aircraft Maintenance Support Services, Ltd. ("AMSS")
 
Mid Glamorgan, Wales
 
AeroTech
 
 
 
 
 
 
 
 
 
Manufacturer of military and commercial aviation equipment.
 
 
 
 
 
 
 
 
 
February 24, 2017
 
Stock
 
Avure Technologies, Inc.
 
Middletown, OH
 
FoodTech
 
 
 
 
 
 
 
 
 
Manufacturer of high pressure processing (HPP) systems. HPP is a cold pasteurization technology that ensures food safety without heat or preservatives, maintaining fresh food characteristics such as flavor and nutritional value, while extending shelf life.
Each acquisition has been accounted for as a 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 estimated fair value of the net assets received has been recorded as goodwill. The factors that contributed to the recognition of goodwill primarily relate to acquisition-driven anticipated cost savings and revenue enhancement synergies coupled with the assembled workforce acquired.

10



The following presents the allocation of acquisition consideration to the assets acquired and the liabilities assumed, based on their estimated values:
 
 
PLF(2)
 
Avure(2)
 
FTNON(1)
 
Other(3)
 
Total
(In millions)
 
 
 
 
 
 
 
 
 
 
Financial assets
 
$
20.8

 
$
4.3

 
$
19.3

 
$
11.2

 
$
55.6

Inventories
 
1.0

 
14.4

 
2.8

 
10.2

 
28.4

Property, plant and equipment
 
2.2

 
4.5

 
4.4

 
9.9

 
21.0

Other intangible assets(4)
 
17.9

 
20.8

 
19.4

 
8.9

 
67.0

Deferred taxes
 
(3.5
)
 
(3.6
)
 
(4.6
)
 
(0.9
)
 
(12.6
)
Financial liabilities
 
(5.5
)
 
(10.5
)
 
(20.0
)
 
(9.1
)
 
(45.1
)
Total identifiable net assets
 
$
32.9

 
$
29.9

 
$
21.3

 
$
30.2

 
$
114.3


 
 
 
 
 
 
 
 
 
 
Cash consideration paid
 
$
49.8

 
$
58.9

 
$
43.6

 
$
32.6

 
$
184.9

Holdback payments due to seller
 
1.8

 

 

 
1.9

 
3.7

Total purchase price
 
51.6

 
58.9

 
43.6

 
34.5

 
188.6

Cash acquired
 
$
15.5

 
$

 
$
4.7

 
$
2.2

 
$
22.4

Net consideration
 
36.1

 
58.9

 
38.9

 
32.3

 
166.2

 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
$
18.7

 
$
29.0

 
$
22.3

 
$
4.3

 
$
74.3



(1)
The purchase accounting for FTNON is provisional. The valuation of certain working capital balances, property, plant and equipment, intangibles, income tax balances and residual goodwill related to each is not complete. These amounts are subject to adjustment as additional information is obtained within the measurement period (not to exceed 12 months from the acquisition date).
(2)
The purchase accounting for these acquisitions was final as of June 30, 2018.
(3)
Other balances include AMSS and Schröder. The purchase accounting for AMSS was final with tax adjustments recorded as a measurement period adjustment during the three months ended June 30, 2018. The purchase accounting for Schröder is provisional as valuation of certain working capital balances and residual goodwill is not complete. These amounts are subject to adjustment as additional information is obtained within the measurement period (not to exceed 12 months from the acquisition date). All measurement period adjustments in the quarter and nine months ended September 30, 2018 were not material.
(4)
The acquired definite-lived intangibles are being amortized on a straight-line basis over their estimated useful lives, which range from five to twenty years. The tradename intangible assets for Avure and PLF have been identified as indefinite-lived intangible assets and will be reviewed annually for impairment.
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, 2017
$
290.8

 
$
11.0

 
$
301.8

Acquisitions
23.5

 
0.3

 
23.8

Currency translation
(3.7
)
 
(0.3
)
 
(4.0
)
Balance as of September 30, 2018
$
310.6

 
$
11.0

 
$
321.6


11




Intangible assets consisted of the following:

 
September 30, 2018
 
December 31, 2017
(In millions)
Gross carrying amount
 
Accumulated amortization
 
Gross carrying amount
 
Accumulated amortization
Customer relationships
$
166.7

 
$
42.3

 
$
158.8

 
$
33.5

Patents and acquired technology
100.5

 
28.6

 
92.1

 
32.1

Tradenames
23.1

 
17.8

 
20.0

 
9.5

Indefinite lived intangible assets
15.7

 

 
15.9

 

Other
14.5

 
10.4

 
14.5

 
9.4

Total intangible assets
$
320.5

 
$
99.1

 
$
301.3

 
$
84.5



NOTE 4. INVENTORIES

Inventories consisted of the following:
(In millions)
September 30, 2018
 
December 31, 2017
Raw materials
$
89.6

 
$
72.6

Work in process
110.1

 
73.7

Finished goods
122.4

 
109.2

Gross inventories before LIFO reserves and valuation adjustments
322.1

 
255.5

LIFO reserves and valuation adjustments
(65.5
)
 
(65.3
)
Inventories, net
$
256.6

 
$
190.2



NOTE 5. PENSION

Components of net periodic benefit cost (income) were as follows:
 
Pension Benefits
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2018
 
2017
 
2018
 
2017
Service cost
$
0.4

 
$
0.5

 
$
1.4

 
$
1.3

Interest cost
2.7

 
2.7

 
8.1

 
8.1

Expected return on plan assets
(4.4
)
 
(4.3
)
 
(12.9
)
 
(12.9
)
Settlement charge

 

 
0.4

 

Amortization of net actuarial losses
1.7

 
1.3

 
5.0

 
3.9

Net periodic cost
$
0.4

 
$
0.2

 
$
2.0

 
$
0.4


We expect to contribute $20.1 million to our pension and other postretirement benefit plans in 2018, $15.5 million of which would be contributed to our U.S. qualified pension plan. We contributed $15.5 million to our U.S. qualified pension plan during the nine months ended September 30, 2018. The components of net periodic cost other than service cost are included in other income (expense), net below operating income in our consolidated statements of income.

NOTE 6. DEBT

On June 19, 2018, the Company and its wholly owned subsidiary John Bean Technologies Europe B.V. (the “Dutch Borrower” and together with the Company, the “Borrowers”) entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, and the other lenders party thereto. The Credit Agreement provides for a $1 billion revolving credit facility that matures in June 2023. The borrowings under the Credit Agreement were used to repay in

12



full all outstanding indebtedness under an existing credit agreement. Revolving loans under the credit facility bear interest, at our option, at LIBOR (subject to a floor rate of zero) or an alternative base rate (which is the greater of Wells Fargo’s Prime Rate, the Federal Funds Rate plus 50 basis points, and LIBOR plus 1%) plus, in each case, a margin dependent on our leverage ratio. We must also pay an annual commitment fee of 15.0 to 35.0 basis points dependent on our leverage ratio. The Credit Agreement contains customary representations, warranties, and covenants, including a minimum interest coverage ratio and maximum leverage ratio, as well as certain events of default. As of September 30, 2018 we had $489.8 million drawn under the revolving credit facility.

The Borrowers’ obligations under the Credit Agreement are guaranteed by six of the Company’s domestic subsidiaries and subsequently formed or acquired domestic subsidiaries (the “Domestic Subsidiary Guarantors”), and the Dutch Borrower’s obligations under the Credit Agreement are guaranteed by two of the Company’s Dutch subsidiaries and subsequently formed or acquired Dutch subsidiaries (collectively, the “Foreign Subsidiary Guarantors”). The Borrowers’ obligations under the Credit Agreement are secured by a first-priority security interest in substantially all of the tangible and intangible personal property of the Borrowers and the Domestic Subsidiary Guarantors and a pledge of the capital stock of each existing or subsequently acquired or organized domestic Subsidiary or first-tier foreign subsidiary (in each case, limited to 65% of the voting stock and 100% of the non-voting stock of any such foreign subsidiary). The Dutch Borrower’s obligations under the Credit Agreement are secured by a pledge of the existing or subsequently acquired equity interests held directly by the Dutch Borrower and each Foreign Subsidiary Guarantor.

NOTE 7. 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, 2018 and 2017 by component are shown in the following tables:
 
Pension and Other Postretirement Benefits (1)
 
Derivatives Designated as Hedges (1)
 
Foreign Currency Translation (1)
 
Total (1)
(In millions)
 
 
 
 
 
 
 
Beginning balance, June 30, 2018
$
(111.1
)
 
$
2.9

 
$
(45.6
)
 
$
(153.8
)
Other comprehensive income (loss) before reclassification

 
0.3

 
(3.2
)
 
(2.9
)
Amounts reclassified from accumulated other comprehensive income
1.2

 
(0.3
)
 

 
0.9

Ending balance, September 30, 2018
$
(109.9
)
 
$
2.9

 
$
(48.8
)
 
$
(155.8
)
(1) All amounts are net of income taxes.

Reclassification adjustments from AOCI into earnings for pension and other postretirement benefit plans for the three months ended September 30, 2018 were $1.7 million of charges to non-operating other income (expense) net of $0.5 million in provision for income taxes. Reclassification adjustments for derivatives designated as hedges for the same period were $(0.4) million of charges in interest expense, net of $0.1 million in provision for income taxes.

 
Pension and Other Postretirement Benefits (1)
 
Derivatives Designated as Hedges (1)
 
Foreign Currency Translation (1)
 
Total (1)
(In millions)
 
 
 
 
 
 
 
Beginning balance, June 30, 2017
$
(107.0
)
 
$
0.2

 
$
(35.3
)
 
$
(142.1
)
Other comprehensive income (loss) before reclassification

 

 
7.3

 
7.3

Amounts reclassified from accumulated other comprehensive income
0.8

 
0.2

 

 
1.0

Ending balance, September 30, 2017
$
(106.2
)
 
$
0.4

 
$
(28.0
)
 
$
(133.8
)
(1) All amounts are net of income taxes.


13



Reclassification adjustments from AOCI into earnings for pension and other postretirement benefit plans for the three months ended September 30, 2017 were $1.3 million of charges to non-operating other income (expense) net of $0.5 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.

Changes in the AOCI balances for the nine months ended September 30, 2018 and 2017 by component are shown in the following tables:
 
Pension and Other Postretirement Benefits (1)
 
Derivatives Designated as Hedges (1)
 
Foreign Currency Translation (1)
 
Total (1)
(In millions)
 
 
 
 
 
 
 
Beginning balance, December 31, 2017
$
(113.9
)
 
$
1.4

 
$
(27.8
)
 
$
(140.3
)
Other comprehensive income (loss) before reclassification

 
1.9

 
(21.0
)
 
(19.1
)
Amounts reclassified from accumulated other comprehensive income
4.0

 
(0.4
)
 

 
3.6

Ending balance, September 30, 2018
$
(109.9
)
 
$
2.9

 
$
(48.8
)
 
$
(155.8
)
(1) All amounts are net of income taxes.

Reclassification adjustments from AOCI into earnings for pension and other postretirement benefit plans for the nine months ended September 30, 2018 were $5.3 million of charges to non-operating other income (expense) net of $1.3 million in provision for income taxes. Reclassification adjustments for derivatives designated as hedges for the same period were $(0.6) million of charges in interest expense, net of $0.2 million in provision for income taxes.

 
Pension and Other Postretirement Benefits (1)
 
Derivatives Designated as Hedges (1)
 
Foreign Currency Translation (1)
 
Total (1)
(In millions)
 
 
 
 
 
 
 
Beginning balance, December 31, 2016
$
(108.6
)
 
$
(0.1
)
 
$
(48.3
)
 
$
(157.0
)
Other comprehensive income (loss) before reclassification

 
(0.1
)
 
20.3

 
20.2

Amounts reclassified from accumulated other comprehensive income
2.4

 
0.6

 

 
3.0

Ending balance, September 30, 2017
$
(106.2
)
 
$
0.4

 
$
(28.0
)
 
$
(133.8
)
(1) All amounts are net of income taxes.

Reclassification adjustments from AOCI into earnings for pension and other postretirement benefit plans for the nine months ended September 30, 2017 were $3.9 million of charges to non-operating other income (expense) net of $1.5 million in provision for income taxes. Reclassification adjustments for derivatives designated as hedges for the same period were $1.0 million of charges in interest expense, net of $0.4 million in provision for income taxes.

NOTE 8. REVENUE RECOGNITION

We adopted ASC 606 Revenue from Contracts with Customers on January 1, 2018. As a result, we have changed our accounting policy for revenue recognition as detailed below.

Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties when JBT is acting in an agent capacity. We recognize revenue when we satisfy a performance obligation by transferring control of a product or service to a customer.


14



Performance Obligations & Contract Estimates

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation based on its respective stand-alone selling price and recognized as revenue when, or as, the performance obligation is satisfied. A large portion of our revenue across JBT is derived from manufactured equipment, which may be customized to meet customer specifications, or is standard or turnkey.

JBT FoodTech designs, manufactures and services technologically sophisticated food processing systems and customized solutions for the preparation of meat, seafood and poultry products, ready-to-eat meals, shelf stable packaged foods, bakery products, juice and dairy products, and fruit and vegetable products.

JBT AeroTech supplies customized solutions and services used for applications in the air transportation industry, including airport authorities, airlines, airfreight, ground handling companies, the military and defense contractors. We customize our equipment and services utilizing differentiated technology to meet the specific needs of our customers.

Our contracts with customers in both segments often include multiple promised goods and/or services. For instance, a contract may include equipment, installation, optional warranties, periodic service calls, etc. We frequently have contracts for which the equipment and installation are considered a single performance obligation as in these instances the installation services are not separately identifiable. However, due to the varying nature of contracts across JBT, we also have contracts where the installation services are deemed to be separately identifiable and are therefore deemed to be a separate performance obligation.

When an obligation is distinct, as defined in ASC 606, we allocate a portion of the contract price to the obligation and recognize it separately from the other performance obligations. Contract price allocation among multiple obligations is based on standalone selling price of each distinct good or service in the contract. When not sold separately, an estimate of the standalone selling price is determined using cost plus a reasonable margin.

The timing of revenue recognition for each performance obligation is either over time as control transfers or at a point in time. We recognize revenue over time for contracts that provide: service over a period of time, for refurbishments of customer-owned equipment, and for highly customized equipment for which we have a contractual, enforceable right to collect payment upon customer cancellation for performance completed to date. Revenue generated from standard equipment, highly customized equipment contracts without an enforceable right to payment for performance completed to-date, as well as aftermarket parts and services sales, are recognized at a point in time.

We utilize the input method of “cost-to-cost” to recognize revenue over time. We measure progress based on costs incurred to date relative to total estimated cost at completion. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, and certain allocated overhead expenses. Cost estimates are based on various assumptions to project the outcome of future events; including labor productivity and availability, the complexity of the work to be performed, the cost of materials, and the performance of subcontractors.

Revenue attributable to equipment which qualifies as point in time is recognized when our customers take control of the asset. We define this as the point in time in which we are able to objectively verify that the customer has the capability of full beneficial use of the asset as intended per the contract. Service revenue is recognized over time either proportionately over the period of the underlying contract or as invoiced, depending on the terms of the arrangement.

Within our AeroTech segment we also provide maintenance and repair expertise for baggage handling systems, facilities, gate systems, and ground support equipment. The timing of these contract billings is concurrent with the completion of the services, and therefore we have availed ourselves of the practical expedient that allows us to recognize revenue commensurate with the amount to which we have a right to invoice, which corresponds directly to the value to the customer of our performance completed to date.

Transaction price allocated to the remaining performance obligations

The majority of our contracts are completed within twelve months. For performance obligations that extend beyond one year, we had $302 million of remaining performance obligations as of September 30, 2018, 40% of which we expect to recognize as revenue in 2018 and the remainder in 2019 and beyond.


15



Disaggregation of revenue

In the following table, revenue is disaggregated by type of good or service and primary geographical market. The table also includes a reconciliation of the disaggregated revenue with the reportable segments.

 
Three Months Ended
 
Nine Months Ended
in millions
September 30, 2018
 
September 30, 2018
Type of Good or Service
FoodTech
 
AeroTech
 
FoodTech
 
AeroTech
Recurring (1)
$
129.4

 
$
45.7

 
$
387.6

 
$
135.1

Non-recurring (1)
203.1

 
103.8

 
610.1

 
249.5

Total
$
332.5

 
$
149.5

 
$
997.7

 
$
384.6

 
 
 
 
 
 
 
 
Geographical Region (2)
FoodTech
 
AeroTech
 
FoodTech
 
AeroTech
North America
$
174.7

 
$
105.2

 
$
501.5

 
$
298.2

Europe, Middle East and Africa
101.7

 
32.8

 
308.1

 
58.4

Asia Pacific
27.7

 
9.2

 
126.9

 
25.2

Latin America
28.4

 
2.3

 
61.2

 
2.8

Total
$
332.5

 
$
149.5

 
$
997.7

 
$
384.6


(1) Aftermarket parts and services and revenue from leasing contracts are considered recurring revenue. Non-recurring revenue includes new equipment and installation.

(2) Geographical region represents the region in which the end customer resides.

Contract balances

The timing of revenue recognition, billings and cash collections results in Trade receivables, Contract assets, and Advance and progress payments (contract liabilities). Progress billings generally are issued upon the completion of certain phases of the work as stipulated in the contract. Contract assets exist when revenue recognition occurs prior to billings. Contract assets are transferred to trade receivables when the right to payment becomes unconditional (i.e., when receipt of the amount is dependent only on the passage of time). Conversely, we often receive payments from our customers before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the Balance Sheet within Trade receivables and Advance and progress payments, respectively, on a contract-by-contract net basis at the end of each reporting period.

Our contract asset and liability balances for the period were as follows:
 
Balances as of
in millions
January 1, 2018
 
September 30, 2018
Contract Assets
$
18.2

 
$
87.7

Contract Liabilities
$
222.8

 
$
149.1


In the nine months ended September 30, 2018, we recognized approximately 75% of the amount included in Contract Liabilities at January 1, 2018 into revenue.


16



Impacts on financial statements

Under the new standard, revenue recognition for many areas of JBT’s business remains substantially unchanged; including revenue earned from airport services, maintenance and other service agreements, lease agreements and most of our standard equipment and parts. The costs of our revenue do not change as a result of the new standard. This standard does not change our customer billing or cash flows. However, in certain contracts, we qualify for over time recognition for our manufactured equipment that is highly engineered to unique customer specifications. In addition, due to the nature of our equipment and installation services we will combine these into one performance obligation. Under ASC 606, revenue recognized for contracts that meet certain criteria result in revenue being recognized as the equipment is being manufactured which is an acceleration of revenue as compared to our legacy revenue recognition methodology of recognizing revenue, when shipped to the customer. This conclusion, specific to equipment contracts for which the equipment is highly engineered to unique customer specifications, is dependent on whether our contract with the customer provides us, upon customer cancellation, with an enforceable right to payment for performance completed to date. Where the contract does not provide us with an enforceable right to payment for performance completed to-date, revenue will be recognized at a point in time, usually upon completion of the installation of the equipment. Therefore, some revenue will be recognized at a later date than compared to our legacy revenue recognition methodology. This impacts both equipment contracts with installation that qualify as one performance obligation, and that were previously recognized upon shipment, as well as certain equipment contracts for which revenue was recognized under percentage of completion accounting under legacy GAAP.
The following tables summarize the impacts of adopting ASC 606 on the Company's financial statements. These tables provide visibility into our financial statement presentation had we not adopted ASC 606. They do not necessarily reflect values of future earnings or expected balances.

Consolidated Statements of Income:
 
As reported
 
Adjustments
 
Nine Months Ended
 
Nine Months Ended
 
due to
 
September 30, 2018
in millions
September 30, 2018
 
ASC 606
 
Without Adoption
Revenue
$
1,382.4

 
$
(99.9
)
 
$
1,282.5

Cost of sales
1,003.4

 
(75.4
)
 
928.0

Gross profit
379.0

 
(24.5
)
 
354.5

Income from continuing operations before income taxes
73.6

 
(24.5
)
 
49.1

Income tax provision (benefit)
12.1

 
(6.3
)
 
5.8

Net income
61.2

 
(18.2
)
 
43.0


 
As reported
 
Adjustments
 
Three Months Ended
 
Three Months Ended
 
due to
 
September 30, 2018
in millions
September 30, 2018
 
ASC 606
 
Without Adoption
Revenue
$
481.9

 
$
(17.8
)
 
$
464.1

Cost of sales
346.8

 
(13.7
)
 
333.1

Gross profit
135.1

 
(4.1
)
 
131.0

Income from continuing operations before income taxes
33.2

 
(4.1
)
 
29.1

Income tax provision (benefit)
6.8

 
(1.1
)
 
5.7

Net income
26.4

 
(3.0
)
 
23.4




17



Consolidated Balance Sheets:
 

 
 Adjustments
 
 
 
As reported
 
due to
 
Balances without
in millions
September 30, 2018
 
ASC 606
 
Adoption
Trade receivables, net of allowance
$
334.0

 
$
13.6

 
$
347.6

Inventories
256.6

 
(23.7
)
 
232.9

Other current assets
57.6

 
(1.0
)
 
56.6

Total current assets
686.7

 
(11.1
)
 
675.6

Deferred income taxes
14.4

 
(1.5
)
 
12.9

Total Assets
1,521.2

 
(12.6
)
 
1,508.6

 
 
 
 
 
 
Accounts payable, trade and other
174.1

 
0.7

 
174.8

Advance and progress payments
173.3

 
(27.4
)
 
145.9

Other current liabilities
148.9

 
0.8

 
149.7

Total current liabilities
496.4

 
(25.9
)
 
470.5

Other liabilities
43.8

 
1.4

 
45.2

Retained earnings
354.7

 
11.9

 
366.6

Total Liabilities and stockholders' equity
1,521.2

 
(12.6
)
 
1,508.6


NOTE 9. 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)
2018
 
2017
 
2018
 
2017
Basic earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
26.4

 
$
26.4

 
$
61.5

 
$
62.3

Weighted average number of shares outstanding
31.9

 
31.9

 
31.9

 
31.3

Basic earnings per share from continuing operations
$
0.83

 
$
0.83

 
$
1.93

 
$
1.99

Diluted earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
26.4

 
$
26.4

 
$
61.5

 
$
62.3

Weighted average number of shares outstanding
31.9

 
31.9

 
31.9

 
31.3

Effect of dilutive securities:
 
 
 
 
 
 
 
Restricted stock
0.2

 
0.4

 
0.3

 
0.4

Total shares and dilutive securities
32.1

 
32.3

 
32.2

 
31.7

Diluted earnings per share from continuing operations
$
0.82

 
$
0.82

 
$
1.91

 
$
1.97


On August 10, 2018, the Board authorized new share repurchase program of up to $30 million of the Company's common stock, effective January 1, 2019 through December 31, 2021, which replaced the prior share repurchase program. Shares may be purchased from time to time in open market transactions, subject to market conditions. Repurchased shares become treasury shares, which are accounted for using the cost method and are intended to be used for future awards under the Incentive Compensation Plan.



18



NOTE 10. 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, 2018
 
As of December 31, 2017
(In millions)
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments
$
14.0

 
$
14.0

 
$

 
$

 
$
13.1

 
$
13.1

 
$

 
$

Derivatives
7.6

 

 
7.6

 

 
5.2

 

 
5.2

 

Total assets
$
21.6

 
$
14.0

 
$
7.6

 
$

 
$
18.3

 
$
13.1

 
$
5.2

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives
$
5.2

 
$

 
$
5.2

 
$

 
$
5.5

 
$

 
$
5.5

 
$

Total liabilities
$
5.2

 
$

 
$
5.2

 
$

 
$
5.5

 
$

 
$
5.5

 
$


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 Balance Sheets. Investments include an unrealized gain of $0.3 million as of September 30, 2018 and unrealized gain of $0.5 million as of December 31, 2017.

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 of our borrowings approximate their fair values due to their variable interest rates.

NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Derivative Financial Instruments

All derivatives are recorded as other assets or liabilities in the 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 (the “Income Statement”). 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

19



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 had a notional value at September 30, 2018 of $436.8 million, as hedges and therefore do not apply hedge accounting.

The following table presents the fair value of foreign currency derivatives and embedded derivatives included within the Balance Sheets:
 
As of September 30, 2018
 
As of December 31, 2017
(In millions)
Derivative Assets
 
Derivative Liabilities
 
Derivative Assets
 
Derivative Liabilities
Other current assets / liabilities
$
4.0

 
$
3.8

 
$
3.3

 
$
5.7

Total
$
4.0

 
$
3.8

 
$
3.3

 
$
5.7


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 Balance Sheets.  

As of September 30, 2018 and December 31, 2017, information related to these offsetting arrangements was as follows:

(In millions)
As of September 30, 2018
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
$
7.6

 
$

 
$
7.6

 
$
(2.7
)
 
$
4.9


(In millions)
As of September 30, 2018
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
$
5.2

 
$

 
$
5.2

 
$
(2.6
)
 
$
2.6


(In millions)
As of December 31, 2017
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
$
5.2

 
$

 
$
5.2

 
$
(1.3
)
 
$
3.9


(In millions)
As of December 31, 2017
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
$
5.5

 
$

 
$
5.5

 
$
(1.3
)
 
$
4.2



20



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 Income Statement: 
Derivatives Not Designated
as Hedging Instruments
 
Location of Gain (Loss) Recognized
in Income on Derivatives
 
Amount of (Loss) Gain Recognized in Income
on Derivatives
 
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
 
 
 
2018
 
2017
 
2018
 
2017
Foreign exchange contracts
 
Revenue
 
$
(0.8
)
 
$
1.3

 
$
(4.3
)
 
$
1.2

Foreign exchange contracts
 
Cost of sales
 
(0.1
)
 

 
0.1

 
0.7

Foreign exchange contracts
 
Other expense (income), net
 
0.1

 
0.7

 
0.4

 
0.9

Total
 
 
 
(0.8
)
 
2.0

 
(3.8
)
 
2.8

Remeasurement of assets and liabilities in foreign currencies
 
 
 
0.7

 
(1.0
)
 
2.2

 
(1.9
)
Net (loss) Gain on foreign currency transactions
 
 
 
$
(0.1
)
 
$
1.0

 
$
(1.6
)
 
$
0.9


Interest Rates: We have entered into three interest rate swaps to fix the interest rate applicable to certain of our variable-rate debt. The agreements swap one-month LIBOR for fixed rates. We have re-designated these swaps as cash flow hedges of variable-rate interest expense on the new borrowings from the new credit agreement. Refer to Note 6 - Debt for further information regarding the new credit agreement. All changes in fair value of the swaps are recognized in accumulated other comprehensive income.

At September 30, 2018, the fair value of these derivatives designated as cash flow hedges were recorded in the Balance Sheet as other assets of $4.0 million and as other comprehensive income, net of tax, of $2.8 million.

Ineffectiveness from cash flow hedges, all of which are interest rate swaps, was immaterial as of September 30, 2017.

Net Investment hedges: We have entered into a cross currency swap agreement that synthetically swaps $116.4 million of fixed rate debt to Euro denominated fixed rate debt. The agreement is designated as a net investment hedge for accounting purposes. Accordingly, the gain or loss on this derivative instrument is included in the foreign currency translation component of other comprehensive income until the net investment is sold, diluted, or liquidated. Coupons received for the cross currency swap are excluded from the net investment hedge effectiveness assessment and are recorded in interest expense, net on the condensed consolidated statements of income. For the three months and the nine months ended September 30, 2018, gains recorded in interest expense, net under the cross currency swap agreement were $0.6 million.
At September 30, 2018, the fair value of these derivatives designated as net investment hedges were recorded in the Balance Sheet as other liabilities and as other comprehensive income (loss) of $1.5 million.

Refer to Note 10. 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, for all receivables and derivative contracts as of September 30, 2018, is limited to the amount drawn and outstanding on the financial instrument. Allowances for losses are established based on collectability assessments.

NOTE 12. 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

21



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.

In 2013, we received a notice of examination from the Delaware Department of Finance commencing an examination of our books and records to determine compliance with Delaware unclaimed property law. The examination was not complete when, in 2017, Delaware promulgated a law which permitted companies an election to convert an examination to a review under the Secretary of State’s voluntary disclosure agreement program. In December 2017, we elected this alternative and are in the process of meeting the requirements under the voluntary disclosure agreement program. The requirements include reviewing our books and records and filing any previously unfiled reports for all unclaimed property presumed unclaimed, under the law, from 2003. We are required to work with the Secretary of State to complete this exercise by December 2019. We are not able to estimate whether we have significant unclaimed property obligations 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 $232.4 million at September 30, 2018, represent guarantees of our future performance. We also have provided $6.6 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 seventy-five and ninety-five percent of the contract values. In addition, we generally retain recourse to the equipment sold. As of September 30, 2018, the gross value of such arrangements was $6.9 million, of which our net exposure under such guarantees was $0.3 million.

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)
2018
 
2017
 
2018
 
2017
Balance at beginning of period
$
13.2

 
$
14.7

 
$
14.5

 
$
14.5

Expense for new warranties
4.0

 
2.9

 
9.2

 
8.9

Adjustments to existing accruals
(0.3
)
 

 
(1.3
)
 
(0.4
)
Claims paid
(4.0
)
 
(3.4
)
 
(9.4
)
 
(10.8
)
Added through acquisition
0.3

 
0.6

 
0.5

 
2.3

Translation

 
0.2

 
(0.3
)
 
0.5

Balance at end of period
$
13.2

 
$
15.0

 
$
13.2

 
$
15.0


NOTE 13. BUSINESS SEGMENT INFORMATION

Operating segments for the Company are determined based on information used by the chief operating decision maker (CODM) in deciding how to evaluate performance and allocate resources to each of the segments. JBT’s CODM is the Chief Executive Officer (CEO). While there are many measures the CEO reviews in this capacity, the key segment measures reviewed include operating profit, operating profit margin, and EBITDA.


22



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)
2018
 
2017
 
2018
 
2017
Revenue:
 
 
 
 
 
 
 
JBT FoodTech
$
332.5

 
$
296.1

 
$
997.7

 
$
816.6

JBT AeroTech
149.5

 
124.8

 
384.6

 
334.8

Other revenue and intercompany eliminations
(0.1
)
 
(0.1
)
 
0.1

 

Total revenue
$
481.9

 
$
420.8

 
$
1,382.4

 
$
1,151.4

 
 
 
 
 
 
 
 
Income before income taxes
 
 
 
 
 
 
 
Segment operating profit:
 
 
 
 
 
 
 
JBT FoodTech
$
41.9

 
$
37.8

 
$
110.8

 
$
89.4

JBT AeroTech
17.6

 
15.4

 
40.2

 
35.8

Total segment operating profit
59.5

 
53.2

 
151.0

 
125.2

Corporate items:
 
 
 
 
 
 
 
Corporate expense(1)
(11.3
)
 
(11.0
)
 
(33.5
)
 
(32.4
)
Restructuring expense(2)
(11.6
)
 
(0.3
)
 
(32.8
)
 
(1.3
)
Operating income
36.6

 
41.9

 
84.7

 
91.5

 
 
 
 
 
 
 
 
Other income (expense), net (3)

 
0.3

 
(0.6
)
 
0.9

Net interest expense
(3.4
)
 
(3.6
)
 
(10.5
)
 
(10.3
)
Income from continuing operations before income taxes
$
33.2

 
$
38.6

 
$
73.6

 
$
82.1


(1)
Corporate expense generally includes corporate staff-related expense, stock-based compensation, 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 14. Restructuring for further information on restructuring expense.

(3)
Other income (expense), net represents components of net benefit costs other than service costs required to be presented outside of income from operations.

NOTE 14. 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 2016, we implemented our optimization program ("2016 restructuring plan") 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 cost in connection with this plan was approximately $12.0 million. We completed this plan in the first quarter 2018, and in doing so released $1.7 million in remaining liability during the quarter. Approximately half of this release was related to amounts we no longer expect to pay in connection with this plan due to actual severance payments differing from original estimates and natural attrition of employees. The remainder was included in the restructuring liability balance recorded in the first quarter attributable to the 2018 restructuring plan.

During the fourth quarter of 2016 we implemented and acquired a restructuring plan to consolidate certain facilities and optimize our general and administrative infrastructure subsequent to a FoodTech acquisition. The total estimated cost in

23



connection with this plan is approximately $4.0 million. We incurred no additional expense in the quarter, and have incurred $3.0 million to date. We expect to complete this plan by first quarter of 2019.

In the first quarter of 2018, we implemented a restructuring program ("2018 restructuring plan") to address JBT's global processes to flatten the organization, improve efficiency and better leverage general and administrative resources. During the nine months ended September 30, 2018, we incurred $36.3 million in expense primarily associated with the FoodTech segment, of which $22.4 million is related to consulting fees and $13.9 million is related to severance amounts incurred as a direct result of the 2018 restructuring plan. The total estimated cost in connection with this plan is approximately $50 million, of which we have recognized $36.3 million during the nine months ended September 30, 2018, and the remainder we expect to recognize by mid 2019.

The following table details the amounts reported in Restructuring expense on the consolidated statement of income since the implementation of these plans:
 
Cumulative Amount
 
For the Three Months Ended
Cumulative Amount
(In millions)
As of December 31, 2017
 
March 31, 2018
 
June 30, 2018
 
September 30, 2018
 
As of September 30, 2018
2016 restructuring plan
 
 
 
 
 
 
 
 
 
Severance and related expense
$
6.1

 
$

 
$

 
$

 
$
6.1

Other
6.2

 

 

 

 
6.2

2018 and other restructuring plans

 

 

 

 

Severance and related expense

 
11.0

 
2.5

 
0.4

 
13.9

Other

 
3.4

 
7.8

 
11.2

 
22.4

Total Restructuring charges
$
12.3

 
$
14.4

 
$
10.3

 
$
11.6

 
$
48.6


The restructuring expense is primarily associated with the FoodTech segment, and is excluded from our calculation of segment operating profit. Expenses incurred during the nine months ended September 30, 2018 primarily relate to costs to streamline operations and consolidate facilities as a direct result of our plan.

Liability balances for restructuring activities are included in other current liabilities in the accompanying balance sheets. The table below details the activities in 2018:
 
 
 
Impact to Earnings
 
 
 
 
(In millions)
Balance as of
December 31, 2017
 
Charged to
Earnings
 
Release of Liability
 
Payments Made
 
Balance as of
September 30, 2018
Severance and related expense
$
3.2

 
$
13.9

 
$
(3.5
)
 
$
(4.4
)
 
9.2

Other

 
22.4