jbt20130630_10q.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 June 30, 2013

 

or

 

 

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

 

For the transition period from              to             

 

Commission File Number 1-34036

 


John Bean Technologies Corporation

(Exact name of registrant as specified in its charter)

 


   

Delaware 

91-1650317 

(State or other jurisdiction of

incorporation or organization) 

(I.R.S. Employer

Identification No.) 

 

70 West Madison Street, Chicago, Illinois 

60602 

(Address of principal executive offices) 

(Zip code) 

 

(312) 861-5900

(Registrant’s telephone number, including area code)

 


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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   ☒   No  ☐

 

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

 

       

Large accelerated filer

Accelerated filer

       

Non-accelerated filer

Smaller reporting company

 

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

 

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

 

     

Class 

 

Outstanding at August 1, 2013 

Common Stock, par value $0.01 per share 

 

 28,955,429

 



 

 
 

 

 

 

PART I—FINANCIAL INFORMATION

 

ITEM 1.         FINANCIAL STATEMENTS

 

John Bean Technologies Corporation

Condensed Consolidated statements of income

(Unaudited)

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 

(In millions, except per share data)

 

2013

   

2012

   

2013

   

2012

 

Revenue

  $ 226.9     $ 214.4     $ 412.6     $ 419.1  

Operating expenses:

                               

Cost of sales

    167.8       160.4       303.2       314.7  

Selling, general and administrative expense

    40.5       37.7       81.4       76.7  

Research and development expense

    3.7       3.3       6.9       7.2  

Other expense (income), net

    0.1       (1.0 )     (0.3 )     (1.3 )

Operating income

    14.8       14.0       21.4       21.8  

Interest income

    0.4       -       0.8       0.1  

Interest expense

    (2.0 )     (1.8 )     (3.8 )     (3.5 )

Income from continuing operations before income taxes

    13.2       12.2       18.4       18.4  

Provision for income taxes

    4.4       4.3       5.5       6.5  

Income from continuing operations

    8.8       7.9       12.9       11.9  

Loss from discontinued operations, net of taxes

    (0.2 )     (0.2 )     (0.2 )     (0.3 )

Net income

  $ 8.6     $ 7.7     $ 12.7     $ 11.6  
                                 

Basic earnings per share:

                               

Income from continuing operations

  $ 0.30     $ 0.27     $ 0.44     $ 0.41  

Loss from discontinued operations

    (0.01 )     -       (0.01 )     (0.01 )

Net income

  $ 0.29     $ 0.27     $ 0.43     $ 0.40  

Diluted earnings per share:

                               

Income from continuing operations

  $ 0.30     $ 0.27     $ 0.44     $ 0.40  

Loss from discontinued operations

    (0.01 )     (0.01 )     (0.01 )     -  

Net income

  $ 0.29     $ 0.26     $ 0.43     $ 0.40  

Cash dividends declared per share

  $ 0.09     $ 0.07     $ 0.16     $ 0.14  

 

John Bean Technologies Corporation

Condensed Consolidated statements of comprehensive income

(Unaudited)

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 

(In millions)

 

2013

   

2012

   

2013

   

2012

 

Net income

  $ 8.6     $ 7.7     $ 12.7     $ 11.6  

Other comprehensive income (loss)

                               

Foreign currency translation adjustments

    (5.3 )     (8.1 )     (7.1 )     (3.5 )

Derivatives designated as hedges net of tax

    -       -       -       0.1  

Pension and other postretirement benefits adjustments, net of tax

    0.6       0.3       1.1       0.7  

Other comprehensive loss

    (4.7 )     (7.8 )     (6.0 )     (2.7 )

Comprehensive income (loss)

  $ 3.9     $ (0.1 )   $ 6.7     $ 8.9  

 

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

 

 
2

 

 

John Bean Technologies Corporation

Condensed Consolidated balance sheets

 

 

   

June 30, 2013

   

December 31, 2012

 

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

 

(Unaudited)

         

Assets:

               

Current Assets:

               

Cash and cash equivalents

  $ 21.0     $ 99.0  

Trade receivables, net of allowances of $2.6 and $3.7, respectively

    147.0       188.4  

Inventories

    139.3       109.2  

Other current assets

    60.4       51.5  

Assets held for sale

    3.0       3.0  

Total current assets

    370.7       451.1  

Property, plant and equipment, net of accumulated depreciation of $234.9 and $235.5, respectively

    126.3       126.2  

Other assets

    94.0       100.7  

Total Assets

  $ 591.0     $ 678.0  

Liabilities and Stockholders' Equity:

               

Current Liabilities:

               

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

  $ 4.1     $ 2.0  

Accounts payable, trade and other

    80.4       88.7  

Advance and progress payments

    92.4       74.3  

Other current liabilities

    79.5       85.8  

Total current liabilities

    256.4       250.8  

Long-term debt, less current portion

    100.5       189.1  

Accrued pension and other postretirement benefits, less current portion

    96.6       104.6  

Other liabilities

    28.9       27.9  

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; 2013: 28,955,429 issued and 28,955,429 outstanding; 2012: 28,946,413 issued and 28,732,211 outstanding

    0.3       0.3  

Common stock held in treasury, at cost; 2012: 214,202 shares

    -       (3.4 )

Additional paid-in capital

    63.9       66.2  

Retained earnings

    131.4       123.5  

Accumulated other comprehensive loss

    (87.0 )     (81.0 )

Total stockholders' equity

    108.6       105.6  

Total Liabilities and Stockholders' Equity

  $ 591.0     $ 678.0  

  

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

 

 
3

 

 

John Bean Technologies Corporation

Condensed Consolidated statementS of cash flows

(Unaudited)

 

   

Six Months Ended

June 30,

 

(In millions)

 

2013

   

2012

 

Cash Flows From Operating Activities:

               

Net income

  $ 12.7     $ 11.6  

Loss from discontinued operations, net of income taxes

    0.2       0.3  

Income from continuing operations

    12.9       11.9  

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

               

Depreciation and amortization

    12.5       11.8  

Stock-based compensation

    3.4       3.7  

Other

    (1.2 )     (3.5 )

Changes in operating assets and liabilities:

               

Trade receivables, net

    39.3       44.7  

Inventories

    (33.4 )     (2.8 )

Accounts payable, trade and other

    (6.8 )     (12.0 )

Advance and progress payments

 

19.1

      9.6  

Other assets and liabilities, net

    (15.3 )     (15.4 )

Cash provided by continuing operating activities

    30.5       48.0  

Net cash required by discontinued operating activities

    (0.7 )     (0.3 )

Cash provided by operating activities

    29.8       47.7  

Cash Flows From Investing Activities:

               

Acquisition

    -       (5.0 )

Capital expenditures

    (14.1 )     (11.1 )

Proceeds from disposal of assets

    1.2       0.7  

Cash required by investing activities

    (12.9 )     (15.4 )

Cash Flows From Financing Activities:

               

Net increase (decrease) in short-term debt

    0.1       (0.5 )

Net (payments) proceeds on credit facilities

    (93.7 )     39.9  

Repayment of long-term debt

    (0.1 )     (0.7 )

Issuance of long-term debt

    8.0       0.8  

Excess tax benefits

    0.3       0.6  

Purchase of stock held in treasury

    (0.2 )     -  

Tax withholdings on stock-based compensation awards

    (2.3 )     (2.3 )

Dividends

    (4.9 )     (4.4 )

Other

    (0.1 )     0.1  

Cash provided (required) by financing activities

    (92.9 )     33.5  

Effect of foreign exchange rate changes on cash and cash equivalents

    (2.0 )     (0.2 )

Increase (decrease) in cash and cash equivalents

    (78.0 )     65.6  

Cash and cash equivalents, beginning of period

    99.0       9.0  

Cash and cash equivalents, end of period

  $ 21.0     $ 74.6  

 

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

 

 
4

 

 

John Bean Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1. Description of Business and Basis of Presentation

 

Description of Business

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

 

Basis of Presentation

The preceding condensed consolidated balance sheet as of December 31, 2012, which has been derived from audited financial statements, and unaudited interim condensed consolidated financial statements, together with the notes thereto (the “statements”), of JBT Corporation have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. As permitted under those rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States has been condensed or omitted. Therefore, these statements should be read in conjunction with the audited annual consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012.

 

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

 

Note 2. Inventories

 

Inventories consisted of the following:

 

(In millions)

 

June 30, 2013

   

December 31, 2012

 

Raw materials

  $ 63.1     $ 59.9  

Work in process

    56.6       30.6  

Finished goods

    84.1       82.0  

Gross inventories before LIFO reserves and valuation adjustments

    203.8       172.5  

LIFO reserves and valuation adjustments

    (64.5 )     (63.3 )

Net inventories

  $ 139.3     $ 109.2  

 

Note 3. Pension and Other Postretirement Benefits

 

Components of net periodic benefit cost (income) were as follows:

 

 

   

Pension Benefits

   

Other Postretirement Benefits

 
   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 

(In millions)

 

2013

   

2012

   

2013

   

2012

   

2013

   

2012

   

2013

   

2012

 

Service cost

  $ 0.4     $ 0.4     $ 0.9     $ 0.7     $ -     $ -     $ -     $ -  

Interest cost

    3.4       3.4       6.8       6.9       0.1       0.1       0.2       0.2  

Expected return on assets

    (4.5 )     (4.4 )     (9.0 )     (8.8 )     -       -       -       -  

Amortization of prior service cost (benefit)

    -       0.1       -       0.1       (0.1 )     (0.2 )     (0.2 )     (0.4 )

Amortization of actuarial losses, net

    1.1       0.7       2.1       1.5       -       -       -       -  

Net periodic benefit cost (income)

  $ 0.4     $ 0.2     $ 0.8     $ 0.4     $ -     $ (0.1 )   $ -     $ (0.2 )

 

 
5

 

 

Note 4. 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 Corporation, AOCI is primarily composed of adjustments related to pension and other postretirement benefits plans and foreign currency translation adjustments. Changes in the AOCI balances for the three months ended March 31, 2013 and June 30, 2013 by component are shown in the following table:

 

   

Pension and Other Postretirement Benefits

   

Foreign Currency Translation

   

Total

 

(In millions)

                       

Beginning balance, December 31, 2012

  $ (85.4 )   $ 4.4     $ (81.0 )

Other comprehensive income (loss) before reclassification

    -       (1.8 )     (1.8 )

Amounts reclassified from accumulated other comprehensive income

    0.5       -       0.5  

Net current-period other comprehensive income (loss)

    0.5       (1.8 )     (1.3 )

Ending balance, March 31, 2013

    (84.9 )     2.6       (82.3 )

Other comprehensive loss before reclassification

    -       (5.3 )     (5.3 )

Amounts reclassified from accumulated other comprehensive income

    0.6       -       0.6  

Net current-period other comprehensive income (loss)

    0.6       (5.3 )     (4.7 )

Ending balance, June 30, 2013

  $ (84.3 )   $ (2.7 )   $ (87.0 )

 

Reclassification adjustments from AOCI into earnings for pension and other postretirement benefits plans for three months ended June 30, 2013 were $1.0 million in selling, general and administrative expense and $0.4 million in provision for income taxes. Reclassification adjustments from AOCI into earnings for pension and other postretirement benefits plans for six months ended June 30, 2013 were $1.9 million in selling, general and administrative expense and $0.8 million in provision for income taxes.

 

Note 5. 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 dilutive shares outstanding:

 

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30

 

(In millions, except per share data)

 

2013

   

2012

   

2013

   

2012

 

Basic earnings per share:

                               

Income from continuing operations

  $ 8.8     $ 7.9     $ 12.9     $ 11.9  

Weighted average number of shares outstanding

    29.2       29.1       29.2       29.1  

Basic earnings per share from continuing operations

  $ 0.30     $ 0.27     $ 0.44     $ 0.41  

Diluted earnings per share:

                               

Income from continuing operations

  $ 8.8     $ 7.9     $ 12.9     $ 11.9  

Weighted average number of shares outstanding

    29.2       29.1       29.2       29.1  

Effect of dilutive securities:

                               

Restricted stock

    0.4       0.4       0.4       0.3  

Total shares and dilutive securities

    29.6       29.5       29.6       29.4  

Diluted earnings per share from continuing operations

  $ 0.30     $ 0.27     $ 0.44     $ 0.40  

 

Note 6. Derivative Financial Instruments and Risk Management

 

Derivative Financial Instruments

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

 

We manufacture and sell our products in a number of countries throughout the world and, as a result, are exposed to movements in foreign currency exchange rates. Our major foreign currency exposures involve the markets in Western Europe, South America and Asia. 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 exchange contracts with maturities of less than 2 years. We do not apply hedge accounting to these forward exchange contracts. As of June 30, 2013, we held forward exchange contracts with an aggregate notional value of $440.2 million. Many of our sales and purchase contracts are written contemplating this risk and therefore contain embedded derivatives, which we take into consideration as part of our risk management policy.

 

 
6

 

 

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

 

   

As of June 30, 2013

   

As of December 31, 2012

 

(In millions)

 

Derivative

Assets

   

Derivative

Liabilities

   

Derivative

Assets

   

Derivative

Liabilities

 

Other current assets / liabilities

  $ 5.7     $ 5.1     $ 5.9     $ 6.6  

Other assets / liabilities

    2.9       1.0       1.7       0.4  

Total

  $ 8.6     $ 6.1     $ 7.6     $ 7.0  

 

Refer to Note 7. Fair Value of Financial Instruments, for a description of how the values of the above financial instruments are determined.

 

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. We present our derivatives at gross fair values in the Condensed Consolidated Balance Sheets. As of June 30, 2013 and December 31, 2012, information related to these offsetting arrangements was as follows:

 

 

(in millions)

 

As of June 30, 2013

 

Offsetting of Assets

                         

Gross Amounts Not Offset in the Consolidated Balance Sheets

 
   

Gross Amounts of Recognized Assets

   

Gross Amounts Offset in the Consolidated Balance Sheets

   

Net Presented in

the Consolidated Balance Sheets

   

Financial Instruments

   

Net Amount

 
                                         

Derivatives

  $ 8.6     $ -     $ 8.6     $ (3.6 )   $ 5.0  

Offsetting of Liabilities

 

As of June 30, 2013

 
                           

Gross Amounts Not Offset in the Consolidated Balance Sheets

 
   

Gross Amounts of Recognized Liabilities

   

Gross Amounts Offset in the Consolidated Balance Sheets

   

Net Presented in

the Consolidated Balance Sheets

   

Financial Instruments

   

Net Amount

 

Derivatives

  $ 6.1     $ -     $ 6.1     $ (3.6 )   $ 2.5  

(in millions)

 

As of December 31, 2012

 

Offsetting of Assets

                         

Gross Amounts Not Offset in the Consolidated Balance Sheets

 
   

Gross Amounts of Recognized

Assets

   

Gross Amounts Offset in the Consolidated Balance Sheets

   

Net Presented in

the Consolidated Balance Sheets

   

Financial Instruments

   

Net Amount

 

Derivatives

  $ 7.6     $ -     $ 7.6     $ (3.8 )   $ 3.8  

Offsetting of Liabilities

 

As of December 31, 2012

 
                           

Gross Amounts Not Offset in the Consolidated Balance Sheets

 
   

Gross Amounts of Recognized Liabilities

   

Gross Amounts Offset in the Consolidated Balance Sheets

   

Net Presented in the Consolidated Balance Sheets

   

Financial Instruments

   

Net Amount

 

Derivatives

  $ 7.0     $ -     $ 7.0     $ (3.8 )   $ 3.2  

 

 
7

 

 

The following table presents the location and amount of gains (losses) from derivatives not designated as hedging instruments 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

June 30,

   

Six Months Ended

June 30,

 

(In millions)

   

2013

   

2012

   

2013

   

2012

 

Foreign exchange contracts

Revenue

  $ (2.4 )   $ (1.3 )   $ 1.5     $ 1.9  

Foreign exchange contracts

Cost of sales

    1.0       0.1       (0.1 )     (0.4 )

Foreign exchange contracts

Other income, net

    (0.4 )     0.2       (0.4 )     0.1  

Total

    (1.8 )     (1.0 )     1.0       1.6  

Remeasurement of assets and liabilities in foreign currencies

    0.6       0.4       -       (0.3 )

Net (loss) gain on foreign currency transactions

  $ (1.2 )   $ (0.6 )   $ 1.0     $ 1.3  

 

Credit Risk

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

 

Note 7. 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.

 

 

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

 

 

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

 

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

 

   

As of June 30, 2013

   

As of December 31, 2012

 

(In millions)

 

Total

   

Level 1

   

Level 2

   

Level 3

   

Total

   

Level 1

   

Level 2

   

Level 3

 

Assets:

                                                               

Investments

  $ 10.8     $ 10.8     $ -     $ -     $ 11.1     $ 11.1     $ -     $ -  

Derivatives

  $ 8.6       -       8.6       -       7.6       -       7.6       -  

Total assets

  $ 19.4     $ 10.8     $ 8.6     $ -     $ 18.7     $ 11.1     $ 7.6     $ -  

Liabilities:

                            -       -                          

Derivatives

  $ 6.1     $ -     $ 6.1     $ -     $ 7.0     $ -     $ 7.0     $ -  

 

Investments represent securities held by a 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 included in other assets in the condensed consolidated balance sheets. Investments include an immaterial unrealized gain for the six months ended June 30, 2013 and an unrealized gain of $0.4 million for the year ended December 31, 2012. 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 accounts payables, as well as financial instruments included in other current assets and other current liabilities, approximate fair values because of their short-term maturities.

 

 
8

 

 

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

 

   

As of June 30, 2013

   

As of December 31, 2012

 

(In millions)

 

Carrying

Value

   

Estimated

Fair Value

   

Carrying

Value

   

Estimated

 Fair Value

 

Senior unsecured notes due July 31, 2015

  $ 75.0     $ 81.9     $ 75.0     $ 83.9  

Revolving credit facility, expires November 30, 2017

 

19.7

   

19.7

      113.5       113.5  

Brazilian loan due August 20, 2014

    4.0       4.0       -       -  

Brazilian loan due April 15, 2016

    3.6       3.3       -       -  

Foreign credit facilities

    1.7       1.7       1.8       1.8  

Other

    0.6       0.6       0.8       0.8  

 

The estimate of the all-in interest rate for discounting the senior unsecured notes and the revolving credit facility loan are based on a broker quote for notes and a loan 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 market rates as of June 30, 2013. The Brazilian loan that matures on August 20, 2014 carries an interest rate that is the same as the current market rate as of June 30, 2013, therefore, its carrying value approximates its fair value. The other Brazilian loan that matures on April 15, 2016 is Brazilian real denominated and carries an interest rate subsidized by the Brazil government. Its fair value is estimated by using a reasonable market rate considering the tenor and use of the loan. The carrying value of the remaining borrowings approximates their fair value due to their variable interest rates.

 

 

Note 8. Commitments and Contingencies

 

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

 

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

 

Guarantees and Product Warranties

In the ordinary course of business with customers, vendors and others, we issue standby letters of credit, performance bonds, surety bonds and other guarantees. These financial instruments, which totaled approximately $84.4 million at June 30, 2013, represent guarantees of our future performance. We also have provided approximately $6.0 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, and 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 a small portion of our customers’ financing arrangements and retain recourse to the equipment sold. As of June 30, 2013, the maximum future payment obligation of such guarantees was $2.3 million. Historically, we have not made significant payments associated with guarantees of our customers’ financing arrangements.

 

 
9

 

 

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 warranty liability when additional specific obligations are identified. The obligation reflected in other current liabilities in the condensed consolidated balance sheets is based on historical experience by product and considers failure rates and the related costs in correcting a product failure. Warranty cost and accrual information were as follows:

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 

(In millions)

 

2013

   

2012

   

2013

   

2012

 

Balance at beginning of period

  $ 6.9     $ 6.8     $ 7.3     $ 7.3  

Expense for new warranties

    2.9       1.8       5.2       3.8  

Adjustments to existing accruals

    (0.4 )     (0.2 )     (0.6 )     (0.2 )

Claims paid

    (2.8 )     (1.8 )     (5.3 )     (4.3 )

Balance at end of period

  $ 6.6     $ 6.6     $ 6.6     $ 6.6  

 

Note 9. Business Segment Information

 

Segment operating profit is defined as total segment revenue less segment operating expenses. The following items have been excluded in computing segment operating profit: corporate staff expense, foreign currency related gains and losses, LIFO provisions, certain employee benefit expenses, restructuring costs, interest income and expense and income taxes. Business segment information was as follows:

 

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 

(In millions)

 

2013

   

2012

   

2013

   

2012

 

Revenue

                               

JBT FoodTech

  $ 152.3     $ 137.5     $ 257.1     $ 253.8  

JBT AeroTech

    76.0       77.7       153.9       163.5  

Other revenue (1) and intercompany eliminations

    (1.4 )     (0.8 )     1.6       1.8  

Total revenue

  $ 226.9     $ 214.4     $ 412.6     $ 419.1  
                                 

Income before income taxes

                               

Segment operating profit:

                               

JBT FoodTech

  $ 19.9     $ 14.1     $ 27.6     $ 20.8  

JBT AeroTech

    3.7       7.5       8.1       12.8  

Total segment operating profit

    23.6       21.6       35.7       33.6  

Corporate items:

                               

Corporate expense (2)

    (5.0 )     (4.3 )     (9.5 )     (8.3 )

Other expense, net (1)

    (3.8 )     (3.3 )     (4.8 )     (3.5 )

Net interest expense

    (1.6 )     (1.8 )     (3.0 )     (3.4 )

Total corporate items

    (10.4 )     (9.4 )     (17.3 )     (15.2 )

Income from continuing operations before income taxes

  $ 13.2     $ 12.2     $ 18.4     $ 18.4  

 

(1)

Other revenue comprises certain gains and losses on derivatives related to foreign exchange exposure. Other expense, net, generally includes stock-based compensation, other employee benefits, LIFO adjustments, restructuring costs, foreign exchange gains and losses, and the impact of unusual or strategic transactions not representative of segment operations.

 

In the first quarter of 2012, we released $0.3 million of restructuring reserves recorded in 2010 related to JBT AeroTech.

 

In the fourth quarter of 2011, we implemented a cost reduction plan designed to grow margins by lowering costs in JBT FoodTech across the developed world.  The cost reduction plan consisted primarily of a workforce reduction of approximately 115 positions.  We paid $0.9 million and $0.2 million related to the plan in the first and second quarters of 2013, respectively.  We expect to pay approximately $0.6 million by the end of 2013 to complete the plan.

(2)

Corporate expense primarily includes corporate staff expenses. 

 

 

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

 

Cautionary Note Regarding Forward-Looking Statements

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

 

 
10

 

  

We believe that the factors that could cause our actual results to differ materially 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 review any forward-looking statement made by us or on our behalf, whether as a result of new information, future developments, subsequent events or circumstances or otherwise.

 

Executive Overview

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

 

As we evaluate our operating results, we consider performance indicators like segment revenue and operating profit in addition to the level of inbound orders and order backlog.

 

In the second quarter of 2013, total revenue increased by $12.5 million compared to the same period in 2012. The revenue increase was driven primarily by higher JBT FoodTech equipment sales partly offset by lower equipment sales from JBT AeroTech. Higher recurring revenue from both businesses contributed to the revenue increase. Operating profit margin remained relatively flat as margin expansion in JBT FoodTech was offset by margin decrease in JBT AeroTech.

 

Backlog at June 30, 2013 was $352.3 million, an increase of $44.3 million and $69.2 million compared to June 30 and December 31, 2012, respectively. Second quarter inbound orders were $249.7 million, an increase of $6.7 million compared to the same period in 2012. Debt, net of cash, at June 30, 2013 was $83.6 million, a decrease of $8.5 million since December 31, 2012.

 

 

CONSOLIDATED RESULTS OF OPERATIONS

 

 

 

Three Months Ended

June 30,

   

Favorable /

(Unfavorable)

 

(In millions, except %) 

 

2013

   

2012

       $    

%

 

Revenue

  $ 226.9     $ 214.4     $ 12.5       5.8

%

Cost of sales

    167.8       160.4       (7.4 )     (4.6 )

Gross profit

    59.1       54.0       5.1       9.4  

Selling, general and administrative expense

    40.5       37.7       (2.8 )     (7.4 )

Research and development expense

    3.7       3.3       (0.4 )     (12.1 )

Other expense (income), net

    0.1       (1.0 )     (1.1 )     *  

Operating income

    14.8       14.0       0.8       5.7  

Interest income

    0.4       -       0.4       *  

Interest expense

    (2.0 )     (1.8 )     (0.2 )     11.1  

Income from continuing operations before income taxes

    13.2       12.2       1.0       8.2  

Provision for income taxes

    4.4       4.3       (0.1 )     (2.3 )

Income from continuing operations

    8.8       7.9       0.9       11.4  

Loss from discontinued operations, net of taxes

    (0.2 )     (0.2 )     -       -  

Net income

  $ 8.6     $ 7.7     $ 0.9       11.7

%

 


* Not Meaningful

 

Total revenue increased by $12.5 million in the second quarter of 2013 compared to the same period in 2012. Equipment revenue increased by $8.6 million as a result of higher revenue in JBT FoodTech, partly offset by a decrease in JBT AeroTech. Recurring revenue increased by $2.8 million mainly driven by JBT FoodTech.

 

Operating income increased by 5.7% while margin remained relatively flat in the second quarter of 2013 compared to the same period in 2012 resulting from the following:

 

 

 

Gross profit increased by $5.1 million. Higher sales volume resulted in $3.0 million of higher profit. Lower production costs for high capacity freezers manufactured in the U.S. contributed to the gross profit increase.

  

 
11

 

 

 

 

Selling, general and administrative expenses increased by $2.8 million. Higher selling costs in FoodTech contributed $1.3 million to the increase. Incentive compensation expense and pension expense increased by approximately $0.3 million and $0.2 million, respectively. The remainder of the increase was due to higher compliance-related consulting fees.

 

 

 

Research and development expense increased by $0.4 million due to higher expenditures across FoodTech protein processing product lines in the Asia region as part of our 4G value creation strategy.

 

 

 

Other expense (income), net decreased by $1.1 million, driven primarily by the absence of the gain on the transfer of the French hospital automated systems contracts and services to Swisslog in the 2012 period.

 

Interest expense increased by $0.2 million in the second quarter of 2013 compared to the same period in 2012 due to a higher overall interest rate on our variable rate debt. The increase in interest income of $0.4 million was generated by cash invested overseas during the second quarter of 2013.

 

Income tax expense in the second quarter of 2013 and 2012 reflected an expected effective income tax rate for the full year of 34.2% and 35%, respectively.

 

OPERATING RESULTS OF BUSINESS SEGMENTS

THREE MONTHS ENDED JUNE 30, 2013 AND 2012

 

   

Three Months Ended

June 30,

   

Favorable /

(Unfavorable)

 

(In millions, except %)

 

2013

   

2012

         

%

 

Revenue

                               

JBT FoodTech

  $ 152.3     $ 137.5     $ 14.8       10.8

%

JBT AeroTech

    76.0       77.7       (1.7 )     (2.2 )

Other revenue and intercompany eliminations

    (1.4 )     (0.8 )     (0.6 )     75.0  

Total revenue

  $ 226.9     $ 214.4     $ 12.5       5.8

%

Income before income taxes

                               

Segment operating profit:

                               

JBT FoodTech

  $ 19.9     $ 14.1     $ 5.8       41.1

%

JBT AeroTech

    3.7       7.5       (3.8 )     (50.7 )

Total segment operating profit

    23.6       21.6       2.0       9.3  

Corporate items:

                               

Corporate expense

    (5.0 )     (4.3 )     (0.7 )     (16.3 )

Other expense, net

    (3.8 )     (3.3 )     (0.5 )     (15.2 )

Net interest expense

    (1.6 )     (1.8 )     0.2       11.1  

Total corporate items

    (10.4 )     (9.4 )     (1.0 )     (10.6 )

Income from continuing operations before income taxes

  $ 13.2     $ 12.2     $ 1.0       8.2

%

 

Segment operating profit is defined as total segment revenue less segment operating expenses. The following items have been excluded in computing segment operating profit: corporate staff expense, foreign currency related gains and losses, LIFO provisions, restructuring costs, certain employee benefit expenses, interest income and expense and income taxes.

 

JBT FoodTech

JBT FoodTech revenue increased by $14.8 million in the second quarter of 2013 compared to the same period in 2012. The increase was mainly driven by $11.8 million higher in equipment sales. Fruit and juice processing equipment sales contributed $10.2 million and higher in-container equipment sales added $1.6 million. Revenue from freezing and chilling products and protein processing products remained relatively unchanged as a result of higher revenue in North America offset by lower revenue in Europe and Latin America. Recurring revenue contributed $2.1 million to the total revenue increase mainly driven by aftermarket sales in North America and lease revenue from fruit and juice processing products.

 

JBT FoodTech operating profit increased by $5.8 million in the second quarter of 2013 compared to the same period in 2012. Higher sales volume resulted in $4.2 million of higher profit. Operating margin increased from 10.3% in the second quarter of 2012 to 13.0% in the same period in 2013. Gross profit margin improvement contributed $3.7 million in higher profits. This was primarily as a result of continued lower costs on freezing and chilling products manufactured in North America and a favorable mix from sales of higher margin protein processing equipment. These improvements were offset by a $2.2 million increase in other operating expenses, mainly sales-related costs.

 

 
12

 

 

JBT AeroTech

JBT AeroTech revenue declined by $1.7 million in the second quarter of 2013 compared to the same period in 2012. Lower sales from Jetway® passenger boarding bridges, military loader equipment and automated systems were partly offset by increased revenues from deicer, cargo loaders and aftermarket sales.

 

JBT AeroTech operating profit decreased by $3.8 million during the second quarter of 2013 compared to the same period in 2012, which resulted in an operating margin decline from 9.7% to 4.9%. The absence of a $1.4 million gain on the sale of French hospital automated systems contracts and services to Swisslog in the second quarter of 2012 contributed to the profit decline. Lower sales volume contributed $0.5 million in decreased profit and lower gross profit margins accounted for $1.8 million of lower gross profit. Lower gross profit margins were mainly caused by unfavorable product mix and low margins on certain orders. Other operating expenses were consistent with the second quarter of 2012.

 

Corporate Items

Corporate items increased by $1.0 million in the second quarter of 2013 compared to the same period in 2012. The increase was mainly driven by increased incentive compensation expense, pension expense and higher compliance-related consulting fees.

 

CONSOLIDATED RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012 

 

   

Six Months Ended

June 30,

   

Favorable /

(Unfavorable) 

 

(In millions, except %)

 

2013

   

2012

         

%

 

Revenue

  $ 412.6     $ 419.1     $ (6.5 )     (1.6

)%

Cost of sales

    303.2       314.7       11.5       3.7  

Gross profit

    109.4       104.4       5.0       4.8  

Selling, general and administrative expense

    81.4       76.7       (4.7 )     (6.1 )

Research and development expense

    6.9       7.2       0.3       4.2  

Other income, net

    (0.3 )     (1.3 )     (1.0 )     (76.9 )

Operating income

    21.4       21.8       (0.4 )     (1.8 )

Interest income

    0.8       0.1       0.7       *  

Interest expense

    (3.8 )     (3.5 )     (0.3 )     (8.6 )

Income from continuing operations before income taxes

    18.4       18.4       -       -  

Provision for income taxes

    5.5       6.5       1.0       15.4  

Income from continuing operations

    12.9       11.9       1.0       8.4  

Loss from discontinued operations, net of taxes

    (0.2 )     (0.3 )     0.1       (33.3 )

Net income

  $ 12.7     $ 11.6     $ 1.1       9.5

%


* Not Meaningful 

 

Total revenue decreased by $6.5 million in the six months ended June 30, 2013 compared to the same period in 2012. Product revenue in JBT FoodTech increased by $6.8 million but was more than offset by the product revenue decrease of $8.7 million in JBT AeroTech. Recurring revenue decreased by approximately $4.9 million, primarily in JBT FoodTech.

 

Operating income decreased by $0.4 million in the six months ended June 30, 2013 compared to the same period in 2012 resulting from the following:

 

 

 

Despite lower sales volume, which drove $1.5 million in lower profit, gross profit increased by $5.0 million. Margin improvement contributed approximately $7.4 million of gross profit mainly due to continued lower production costs of high capacity freezers manufactured in the U.S. and other various margin improvement initiatives in JBT FoodTech.

 

 

 

Selling, general and administrative expenses increased by $4.7 million. Higher selling costs in FoodTech contributed $1.8 million to the increase. Incentive compensation expense and pension expense increased by $0.6 million and $0.4 million, respectively.

 

 

 

Research and development expense decreased by $0.3 million as a result of generally lower expenditures across most product lines.

 

 

 

Other income, net decreased by $1.0 million, driven primarily by the absence of the gain on the transfer of the French hospital automated systems contracts and services to Swisslog in the 2012 period.

 

 
13

 

 

Income tax expense in the six months ended June 30, 2013 and 2012 reflected an expected effective income tax rate for the full year of 34.2% and 35%, respectively. In the first quarter of 2013, we recognized $0.7 million in tax benefits discrete to the period, primarily due to the extension of the U.S. research and development tax credit and interest look-through rules.

 

OPERATING RESULTS OF BUSINESS SEGMENTS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

 

   

Six Months Ended

June 30,

   

Favorable /

(Unfavorable)

 

(In millions, except %)

 

2013

   

2012

         

%

 

Revenue

                               

JBT FoodTech

  $ 257.1     $ 253.8     $ 3.3       1.3

%

JBT AeroTech

    153.9       163.5       (9.6 )     (5.9 )

Other revenue and intercompany eliminations

    1.6       1.8       (0.2 )     (11.1 )

Total revenue

  $ 412.6     $ 419.1     $ (6.5 )     (1.6

)%

Income before income taxes

                               

Segment operating profit:

                               

JBT FoodTech

  $ 27.6     $ 20.8     $ 6.8       32.7

%

JBT AeroTech

    8.1       12.8       (4.7 )     (36.7 )

Total segment operating profit

    35.7       33.6       2.1       6.3  

Corporate items:

                               

Corporate expense

    (9.5 )     (8.3 )     (1.2 )     (14.5 )

Other expense, net

    (4.8 )     (3.5 )     (1.3 )     (37.1 )

Net interest expense

    (3.0 )     (3.4 )     0.4       11.8  

Total corporate items

    (17.3 )     (15.2 )     (2.1 )     (13.8 )

Income from continuing operations before income taxes

  $ 18.4     $ 18.4     $ -       -

%

 

Segment operating profit is defined as total segment revenue less segment operating expenses. The following items have been excluded in computing segment operating profit: corporate staff expense, foreign currency related gains and losses, LIFO provisions, restructuring costs, certain employee benefit expenses, interest income and expense and income taxes.

 

JBT FoodTech

JBT FoodTech revenue increased by $3.3 million in the six months ended June 30, 2013 compared to the same period in 2012. The increase was mainly driven by $6.8 million in higher equipment sales. Fruit and juice processing equipment sales contributed $10.3 million in increased revenue. Revenue from freezing and chilling products and protein processing products in North America and Europe contributed to the growth in equipment sales as well. These increases were partly offset by the decrease in recurring revenue of $3.6 million. The decrease in recurring revenue was mainly attributed to a decline in aftermarket sales of freezing and chilling products and protein processing products in Europe and North America.

 

JBT FoodTech operating profit increased by $6.8 million in the second quarter of 2013 compared to the same period in 2012. Operating margin increased from 8.2% in the first half of 2012 to 10.7% in the same period in 2013, primarily as the result of continued lower costs on freezing and chilling products manufactured in North America as well as the positive impact of other margin expansion initiatives across JBT FoodTech. Higher sales volume resulted in $1.2 million of higher profit while margin expansion resulted in $9.1 million of higher profit. The increase was offset by $3.1 million increase in selling, general and administrative expenses that was driven mainly by headcount increase, higher sales commission, relocation costs and other benefit costs.

 

JBT AeroTech

JBT AeroTech revenue declined by $9.6 million in the six months ended June 30, 2013 compared to the same period in 2012. Lower backlog coming into 2013 resulted in a decrease in automated systems revenue of $7.5 million. Military loader sales declined $4.8 million and sales from Jetway® passenger boarding bridges and aftermarket dropped $4.0 million from the prior year period. These decreases were partly offset by an $8.6 million increase in ground support revenues, mainly from higher deicer, cargo loader and aftermarket sales.

 

JBT AeroTech operating profits decreased by $4.7 million during the six months ended June 30, 2013 compared to the same period in 2012, which resulted in an operating margin decline from 7.8% to 5.3%. The absence of a $1.4 million gain on the sale of the French hospital automated systems contracts and services in the second quarter of 2012 contributed to the profit decline compared to the same period in 2013. Lower sales volume resulted in $2.0 million in decreased profits and lower gross margin accounted for $1.2 million of lower profits, mainly as a result of unfavorable product mix within the gate equipment business unit.

  

 
14

 

 

Corporate Items

Corporate items increased by $2.1 million in the six months ended June 30, 2013 compared to the same period in 2012. The increase was mainly driven by increased incentive compensation expense, pension expense and higher compliance-related consulting fees.

 

 

Inbound Orders and Order Backlog

 

Inbound orders represent the estimated sales value of confirmed customer orders received during the reporting period. Inbound orders were as follows:

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 

(In millions)

 

2013

   

2012

   

2013

   

2012

 

JBT FoodTech

  $ 147.3     $ 162.9     $ 304.4     $ 309.8  

JBT AeroTech

    103.8       80.9       175.8       169.5  

Other and intercompany eliminations

    (1.4 )     (0.8 )     1.6       1.8  

Total inbound orders

  $ 249.7     $ 243.0     $ 481.8     $ 481.1  

 

Order backlog is calculated as the estimated sales value of unfilled, confirmed customer orders at the reporting date.

 

   

Order Backlog

 
                         

(In millions)

 

June 30, 2013

   

December 31, 2012

   

June 30, 2012

 

JBT FoodTech

  $ 195.1     $ 147.8     $ 154.5  

JBT AeroTech

    157.2       135.3       153.5  

Total order backlog

  $ 352.3     $ 283.1     $ 308.0  

 

Order backlog in our JBT FoodTech segment at June 30, 2013 increased by $47.3 million over December 31, 2012 and by $40.6 million as compared to June 30, 2012. The increase over December 31, 2012 was driven by approximately $26.0 million of higher backlog for freezing/chilling products and protein processing products in Europe, North America and Asia. Higher backlog for in-container processing and fruit and juice products contributed $16.0 million and $7.0 million, respectively. The increase in order backlog as compared to June 30, 2012 was driven by higher backlog for in-container processing and fruit and juice equipment of $23.0 million and $8.9 million, respectively. Higher backlog for freezing/chilling products and protein processing equipment across North America and Asia contributed $12.0 million.

 

Order backlog in our JBT AeroTech segment at June 30, 2013 increased by $21.9 million over December 31, 2012 mainly driven by orders for ground support equipment, automated systems and gate equipment. Order backlog increased by $3.7 million as compared to June 30, 2012, mainly driven by higher automated system and ground support equipment orders.