jbtc20130930_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 September 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 October 29, 2013 

Common Stock, par value $0.01 per share

 

28,957,777

 



 
 

 

 

PART I—FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

 

John Bean Technologies Corporation

Condensed Consolidated statements of income

(Unaudited)

 

 

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(In millions, except per share data)

 

2013

   

2012

   

2013

   

2012

 

Revenue

  $ 233.5     $ 205.3     $ 646.1     $ 624.4  

Operating expenses:

                               
Cost of sales     179.3       153.3       482.5       468.0  
Selling, general and administrative expense     39.2       37.9       120.6       114.6  
Research and development expense     3.7       3.3       10.6       10.5  
Other (income) expense, net     (0.3 )     0.5       (0.6 )     (0.8 )

Operating income

    11.6       10.3       33.0       32.1  
Interest income     0.6       0.1       1.4       0.2  
Interest expense     1.8       1.9       5.6       5.4  

Income from continuing operations before income taxes

    10.4       8.5       28.8       26.9  
Provision for income taxes     3.0       2.3       8.5       8.8  

Income from continuing operations

    7.4       6.2       20.3       18.1  
Loss from discontinued operations, net of taxes     0.6       0.1       0.8       0.4  

Net income

  $ 6.8     $ 6.1     $ 19.5     $ 17.7  
                                 

Basic earnings per share:

                               
Income from continuing operations   $ 0.25     $ 0.21     $ 0.69     $ 0.62  
Loss from discontinued operations     (0.02 )     -       (0.02 )     (0.01 )
Net income   $ 0.23     $ 0.21     $ 0.67     $ 0.61  

Diluted earnings per share:

                               
Income from continuing operations   $ 0.25     $ 0.21     $ 0.68     $ 0.61  
Loss from discontinued operations     (0.02 )     (0.01 )     (0.02 )     (0.01 )
Net income   $ 0.23     $ 0.20     $ 0.66     $ 0.60  

Cash dividends declared per share

  $ 0.09     $ 0.07     $ 0.25     $ 0.21  

 

 

John Bean Technologies Corporation

Condensed Consolidated statements of comprehensive income

(Unaudited)

 

 

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(In millions)

 

2013

   

2012

   

2013

   

2012

 

Net income

  $ 6.8     $ 6.1     $ 19.5     $ 17.7  

Other comprehensive income (loss)

                               
Foreign currency translation adjustments     3.6       4.0       (3.5 )     0.5  
Derivatives designated as hedges net of tax     -       0.1       -       0.2  
Pension and other postretirement benefits adjustments, net of tax     0.8       0.3       1.9       1.0  

Other comprehensive income (loss)

    4.4       4.4       (1.6 )     1.7  

Comprehensive income

  $ 11.2     $ 10.5     $ 17.9     $ 19.4  

 

 

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

 

 
2

 

 

John Bean Technologies Corporation

Condensed Consolidated balance sheets

 

 

 

   

September 30, 2013

   

December 31, 2012

 

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

 

(Unaudited)

         

Assets:

               

Current Assets:

               
Cash and cash equivalents   $ 35.6     $ 99.0  
Trade receivables, net of allowances of $2.5 and $3.7, respectively     141.3       188.4  
Inventories     145.0       109.2  
Other current assets     58.4       51.5  
Assets held for sale     3.0       3.0  

Total current assets

    383.3       451.1  

Property, plant and equipment, net of accumulated depreciation of $241.0 and $235.5, respectively

    129.1       126.2  

Other assets

    94.7       100.7  

Total Assets

  $ 607.1     $ 678.0  
                 

Liabilities and Stockholders' Equity:

               

Current Liabilities:

               
Short-term debt and current portion of long-term debt   $ 5.9     $ 2.0  
Accounts payable, trade and other     83.9       88.7  
Advance and progress payments     92.6       74.3  
Other current liabilities     79.8       85.8  

Total current liabilities

    262.2       250.8  

Long-term debt, less current portion

    102.6       189.1  

Accrued pension and other postretirement benefits, less current portion

    93.3       104.6  

Other liabilities

    30.2       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: 28,957,777 issued and 28,957,777 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     65.6       66.2  
Retained earnings     135.5       123.5  
Accumulated other comprehensive loss     (82.6 )     (81.0 )

Total stockholders' equity

    118.8       105.6  

Total Liabilities and Stockholders' Equity

  $ 607.1     $ 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)

 

 

   

Nine Months Ended

 
   

September 30,

 

(In millions)

 

2013

   

2012

 

Cash Flows From Operating Activities:

               

Net income

  $ 19.5     $ 17.7  

Loss from discontinued operations, net of income taxes

    0.8       0.4  

Income from continuing operations

   

20.3

      18.1  

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

               

Depreciation and amortization

    18.8       17.9  

Stock-based compensation

    5.1       5.4  

Other

    0.1       3.3  

Changes in operating assets and liabilities:

               

Trade receivables, net

    45.9       42.5  

Inventories

    (37.2 )     (18.9 )

Accounts payable, trade and other

    (4.5 )     (4.5 )

Advance and progress payments

    18.1       33.0  

Other assets and liabilities, net

    (17.7 )     (28.2 )

Cash provided by continuing operating activities

    48.9       68.6  

Net cash required by discontinued operating activities

    (0.5 )     (0.5 )

Cash provided by operating activities

    48.4       68.1  
                 

Cash Flows From Investing Activities:

               

Acquisition

    -       (5.0 )

Capital expenditures

    (20.8 )     (17.3 )

Proceeds from disposal of assets

    0.7       0.9  

Cash required by investing activities

    (20.1 )     (21.4 )
                 

Cash Flows From Financing Activities:

               

Net decrease in short-term debt

    (0.5 )     (0.7 )

Net (payments) proceeds on credit facilities

    (89.0 )     37.6  

Repayment of long-term debt

    (0.1 )     (1.1 )

Issuance of long-term debt

    8.0       0.8  

Excess tax benefits

    0.3       0.6  

Tax withholdings on stock-based compensation awards

    (2.3 )     (2.3 )

Dividends

    (7.5 )     (6.4 )

Other

    (0.3 )     0.1  

Cash (required) provided by financing activities

    (91.4 )     28.6  
                 

Effect of foreign exchange rate changes on cash and cash equivalents

    (0.3 )     0.1  
                 

(Decrease) increase in cash and cash equivalents

    (63.4 )     75.4  

Cash and cash equivalents, beginning of period

    99.0       9.0  

Cash and cash equivalents, end of period

  $ 35.6     $ 84.4  

 

  

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

 

 
4

 

 

John Bean Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

Note 1. Description of Business and Basis of Presentation

 

 

Description of Business

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

 

 

Basis of Presentation

The preceding condensed consolidated balance sheet as of December 31, 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 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)

 

September 30, 2013

   

December 31, 2012

 

Raw materials

  $ 64.7     $ 59.9  

Work in process

    55.0       30.6  

Finished goods

    90.7       82.0  

Gross inventories before LIFO reserves and valuation adjustments

    210.4       172.5  

LIFO reserves and valuation adjustments

    (65.4 )     (63.3 )
Net inventories   $ 145.0     $ 109.2  

 

Note 3. INCOME TAXES

 

The provision for income taxes for 2013 is based on a 34% effective tax rate and includes favorable discrete adjustments reflecting a lower tax liability for fiscal year 2012 of $0.6 million and $1.3 million for the three and nine month periods ended September 30, 2013, respectively. For 2012, the provision for income taxes is based on a 35% effective tax rate and includes favorable discrete adjustments reflecting a lower tax liability for fiscal year 2011 of $0.7 million and $0.6 million for the three and nine month periods ended September 30, 2012, respectively.

 

 
5

 

 

Note 4. Pension and Other Postretirement Benefits

 

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

 

   

Pension Benefits

   

Other Postretirement Benefits

 
   

Three Months Ended

   

Nine Months Ended

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

   

September 30,

   

September 30,

 

(In millions)

 

2013

   

2012

   

2013

   

2012

   

2013

   

2012

   

2013

   

2012

 

Service cost

  $ 0.4     $ 0.4     $ 1.3     $ 1.1     $ 0.1     $ -     $ 0.1     $ -  

Interest cost

    3.4       3.4       10.2       10.3       -       0.1       0.2       0.3  

Expected return on assets

    (4.5 )     (4.4 )     (13.5 )     (13.2 )     -       -       -       -  

Amortization of prior service cost (benefit)

    0.1       -       0.1       0.1       (0.1 )     (0.2 )     (0.3 )     (0.6 )

Amortization of actuarial losses, net

    1.1       0.9       3.2       2.4       -       -       -       -  

Net periodic benefit cost (income)

  $ 0.5     $ 0.3     $ 1.3     $ 0.7     $ -     $ (0.1 )   $ -     $ (0.3 )

 

 

Note 5. 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 benefits plans and foreign currency translation adjustments. Changes in the AOCI balances for the quarter ended September 30, 2013 by component are shown in the following table:

 

   

Pension and

Other

Postretirement

Benefits

   

Foreign

Currency

Translation

   

Total

 

(In millions)

                       

Beginning balance, June 30, 2013

  $ (84.3 )   $ (2.7 )   $ (87.0 )

Other comprehensive income before reclassification

    -       3.6       3.6  

Amounts reclassified from accumulated other comprehensive income

    0.8       -       0.8  

Net current period other comprehensive income

    0.8       3.6       4.4  

Ending balance, September 30, 2013

  $ (83.5 )   $ 0.9     $ (82.6 )
 

 

Reclassification adjustments from AOCI into earnings for pension and other postretirement benefits plans for the three months ended September 30, 2013 were $1.1 million in selling, general and administrative expense and $0.3 million in provision for income taxes.

 

Changes in the AOCI balances for the nine months ended September 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 loss before reclassification

    -       (3.5 )     (3.5 )

Amounts reclassified from accumulated other comprehensive income

    1.9       -       1.9  

Net current period other comprehensive income (loss)

    1.9       (3.5 )     (1.6 )

Ending balance, September 30, 2013

  $ (83.5 )   $ 0.9     $ (82.6 )
 

 

Reclassification adjustments from AOCI into earnings for pension and other postretirement benefits plans for the nine months ended September 30, 2013 were $3.0 million in selling, general and administrative expense and $1.1 million in provision for income taxes.

  

 
6

 

 

Note 6. 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

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(In millions, except per share data)

 

2013

   

2012

   

2013

   

2012

 

Basic earnings per share:

                               

Income from continuing operations

  $ 7.4     $ 6.2     $ 20.3     $ 18.1  

Weighted average number of shares outstanding

    29.2       29.2       29.2       29.1  

Basic earnings per share from continuing operations

  $ 0.25     $ 0.21     $ 0.69     $ 0.62  

Diluted earnings per share:

                               

Income from continuing operations

  $ 7.4     $ 6.2     $ 20.3     $ 18.1  

Weighted average number of shares outstanding

    29.2       29.2       29.2       29.1  

Effect of dilutive securities:

                               

Restricted stock

    0.5       0.4       0.4       0.4  

Total shares and dilutive securities

    29.7       29.6       29.6       29.5  

Diluted earnings per share from continuing operations

  $ 0.25     $ 0.21     $ 0.68     $ 0.61  
 

 

Note 7. Derivative Financial Instruments and Risk Management

 

Derivative Financial Instruments

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

 

We manufacture and sell our products in a number of countries throughout the world and, as a result, are exposed to movements in foreign currency exchange rates. Our major foreign currency exposures involve the markets in Western Europe, South America and Asia. Many of our sales and purchase contracts are written contemplating this risk and therefore contain embedded derivatives, which we take into consideration as part of our risk management policy. The purpose of our foreign currency hedging activities is to manage the economic impact of exchange rate volatility associated with anticipated foreign currency purchases and sales made in the normal course of business. We primarily utilize forward foreign exchange contracts with maturities of less than 2 years. We do not apply hedge accounting for these forward foreign exchange contracts. As of September 30, 2013, we held forward foreign exchange contracts with an aggregate notional value of $486.8 million.

 

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

 

   

As of September 30, 2013

   

As of December 31, 2012

 

(In millions)

 

Derivative Assets

   

Derivative Liabilities

   

Derivative Assets

   

Derivative Liabilities

 

Other current assets / liabilities

  $ 3.7     $ 3.8     $ 5.9     $ 6.6  

Other assets / liabilities

    2.6       0.5       1.7       0.4  

Total

  $ 6.3     $ 4.3     $ 7.6     $ 7.0  
 

Refer to Note 8. Fair Value of Financial Instruments, for a description of how the values of the above financial instruments are determined.

 

 

 
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. We present our derivatives at gross fair values in the condensed consolidated balance sheets. As of September 30, 2013 and December 31, 2012, information related to these offsetting arrangements was as follows:

 

(in millions)

 

As of September 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

  $ 6.3     $ -     $ 6.3     $ (3.2 )   $ 3.1  

 

Offsetting of Liabilities

 

As of September 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

  $ 4.3     $ -     $ 4.3     $ (3.2 )   $ 1.1  

 

(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  

 

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 September 30,

   

Nine Months Ended September 30,

 

(In millions)

   

2013

   

2012

   

2013

   

2012

 

Foreign exchange contracts

Revenue

  $ (0.6 )   $ 1.3     $ 0.9     $ 3.2  

Foreign exchange contracts

Cost of sales

    (0.3 )     (0.6 )     (0.4 )     (1.0 )

Foreign exchange contracts

Other income, net

    (0.1 )     0.1       (0.5 )     0.2  

Total

    (1.0 )     0.8       -       2.4  

Remeasurement of assets and liabilities in foreign currencies

    (0.6 )     (0.8 )     (0.6 )     (1.1 )

Net (loss) gain on foreign currency transactions

  $ (1.6 )   $ -     $ (0.6 )   $ 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.

 

 

 
8

 

 

 

Note 8. 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 September 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

  $ 11.2     $ 11.2     $ -     $ -     $ 11.1     $ 11.1     $ -     $ -  

Derivatives

  $ 6.3       -       6.3       -       7.6       -       7.6       -  

Total assets

  $ 17.5     $ 11.2     $ 6.3     $ -     $ 18.7     $ 11.1     $ 7.6     $ -  

Liabilities:

                                                               

Derivatives

  $ 4.3     $ -     $ 4.3     $ -     $ 7.0     $ -     $ 7.0     $ -  
 

Investments represent securities held in a trust for the non-qualified deferred compensation plan. Investments are classified as trading securities and are valued based on quoted prices in active markets for identical assets that we have the ability to access. Investments are included in other assets in the condensed consolidated balance sheets. Investments include an unrealized gain of $0.4 million as of September 30, 2013 and an unrealized gain of $0.4 million as of 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.

 

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

 

   

As of September 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     $ 81.2     $ 75.0     $ 83.9  

Revolving credit facility, expires November 30, 2017

    24.4       24.4       113.5       113.5  

Brazilian loan due August 20, 2014

    4.0       4.0       -       -  

Brazilian loan due April 15, 2016

    3.5       3.0       -       -  

Foreign credit facilities

    1.0       1.0       1.8       1.8  

Other

    0.6       0.6       0.8       0.8  
 

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

 

 

Note 9. 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.

 

 
9

 

  

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 $87.0 million at September 30, 2013, represent guarantees of our future performance. We also have provided $5.2 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 September 30, 2013, the maximum future payment obligation of such guarantees was $2.7 million. Historically, we have not made significant payments associated with guarantees of our customers’ financing arrangements.

 

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

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(In millions)

 

2013

   

2012

   

2013

   

2012

 

Balance at beginning of period

  $ 6.6     $ 6.6     $ 7.3     $ 7.3  

Expense for new warranties

    3.2       2.5       8.4       6.3  

Adjustments to existing accruals

    -       (0.6 )     (0.6 )     (0.8 )

Claims paid

    (2.7 )     (2.9 )     (8.0 )     (7.2 )

Balance at end of period

  $ 7.1     $ 5.6     $ 7.1     $ 5.6  
 

 

Note 10. Business Segment Information

 

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

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(In millions)

 

2013

   

2012

   

2013

   

2012

 

Revenue

                               

JBT FoodTech

  $ 138.2     $ 117.1     $ 395.3     $ 370.9  

JBT AeroTech

    97.0       88.0       250.9       251.5  

Other revenue (1) and intercompany eliminations

    (1.7 )     0.2       (0.1 )     2.0  

Total revenue

  $ 233.5     $ 205.3     $ 646.1     $ 624.4  

Income before income taxes

                               

Segment operating profit:

                               

JBT FoodTech

  $ 12.3     $ 9.0     $ 39.9     $ 29.8  

JBT AeroTech

    8.8       8.4       16.9       21.2  

Total segment operating profit

    21.1       17.4       56.8       51.0  

Corporate items:

                               

Corporate expense (2)

    (5.5 )     (4.0 )     (15.0 )     (12.3 )

Other expense, net (1)

    (4.0 )     (3.1 )     (8.8 )     (6.6 )

Net interest expense

    (1.2 )     (1.8 )     (4.2 )     (5.2 )

Total corporate items

    (10.7 )     (8.9 )     (28.0 )     (24.1 )

Income from continuing operations before income taxes

  $ 10.4     $ 8.5     $ 28.8     $ 26.9  

 

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.

 

(2) Corporate expense primarily includes corporate staff expenses. 

 

 
10

 

 

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 net workforce reduction of approximately 115 positions. We paid $0.9 million, $0.2 million and $0.3 million related to the plan in the first, second and third quarters of 2013, respectively. We expect to pay approximately $0.2 million in the fourth quarter of 2013 to complete the plan.

 

 

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.

 

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. 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.

 

We announced the implementation of a management succession plan in the third quarter of 2013. The Company named Tom Giacomini President and Chief Executive Officer, effective September 9, 2013. Charlie Cannon, previously Chairman, Chief Executive Officer and President, remains with the company as Executive Chairman of the Board. Ron Mambu, Chief Financial Officer, announced plans to retire upon the identification of his successor.

 

We report financial results for two business segments: JBT FoodTech and JBT AeroTech.

 

Third Quarter Summary:

 

Revenue increased $28.2 million or 13.7% in third quarter 2013, compared to the same period in 2012

 

Our FoodTech and AeroTech segment generated operating income of $12.3 million and $8.8 million, respectively, in the third quarter of 2013, compared to $9.0 million and $8.4 million, respectively, in the third quarter of 2012

 

We generated cash from continuing operating activities of $48.9 million during the nine months ended September 30, 2013 compared to $68.6 million in the same period in 2012

 

Backlog at September 30, 2013 was $366.3 million, an increase of $22.4 million and $83.2 million compared to September 30 and December 31, 2012, respectively. Third quarter inbound orders were $247.5 million, a decrease of $11.2 million compared to the same period in 2012

 

Debt, net of cash, at September 30, 2013 was $72.9 million, a decrease of $19.2 million since December 31, 2012.

 

 
11

 

  

CONSOLIDATED RESULTS OF OPERATIONS

 

   

Three Months Ended

   

Favorable /

 
   

September 30,

   

(Unfavorable)

 

(In millions, except %)

 

2013

   

2012

    $    

%

 

Revenue

  $ 233.5     $ 205.3     $ 28.2       13.7  

Cost of sales

    179.3       153.3       (26.0 )     (17.0 )

Gross profit

    54.2       52.0       2.2       4.2  

Selling, general and administrative expense

    39.2       37.9       (1.3 )     (3.4 )

Research and development expense

    3.7       3.3       (0.4 )     (12.1 )

Other (income) expense, net

    (0.3 )     0.5       0.8       *  

Operating income

    11.6       10.3       1.3       12.6  

Interest income

    0.6       0.1       0.5       *  

Interest expense

    1.8       1.9       0.1       5.3  

Income from continuing operations before income taxes

    10.4       8.5       1.9       22.4  

Provision for income taxes

    3.0       2.3       (0.7 )     (30.4 )

Income from continuing operations

    7.4       6.2       1.2       19.4  

Loss from discontinued operations, net of taxes

    0.6       0.1       (0.5 )     *  

Net income

  $ 6.8     $ 6.1     $ 0.7       11.5  
____________

* Not meaningful

 

Total revenue increased $28.2 million in the third quarter of 2013 compared to the same period in 2012. Equipment revenue increased $21.4 million in the third quarter of 2013 driven by both FoodTech and AeroTech. Aftermarket sales contributed $9.3 million in increased revenue with $6.9 million of the increase attributable to FoodTech and $2.4 million achieved by AeroTech. These increases were partially offset by a decrease of approximately $2 million in AeroTech airport service revenue and unfavorable foreign currency translation of approximately $1.1 million that was primarily the result of a weaker Brazilian real.

 

Operating income increased by $1.3 million or 12.6% in the third quarter of 2013 compared to the same period in 2012 resulting from the following:

 

 

Gross profit increased by $2.2 million. Higher volume contributed $7.4 million but was partly offset by lower gross margin which decreased operating profit by $4.8 million. Lower gross profit margin was mostly the result of a shift in mix as a higher proportion of revenue came from lower margin product lines in the three months ended September 30, 2013.

 

 

Selling, general and administrative expenses increased by $1.3 million. The increase was primarily attributable to $1.0 million of cost related to a management succession plan. The remaining increase was driven by higher incentive compensation and pension expense.

 

 

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

 

 

Other expense (income), net improved by $0.8 million, driven primarily by the absence of the strategy expenses incurred in the same period of 2012.

 

Interest expense remained relatively flat in the third quarter of 2013 compared to the same period in 2012. The increase in interest income of $0.5 million was generated by cash invested overseas during the third quarter of 2013.

 

Income tax expense in the third quarter of 2013 and 2012 reflected an expected effective income tax rate for the full year of 34% and 35%, respectively. We recognized tax benefits of $0.6 million in the three months ended September 30, 2013, reflecting the determination of lower income tax liabilities for previous years.

 

 
12

 

 

 

OPERATING RESULTS OF BUSINESS SEGMENTS

THREE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

 

   

Three Months Ended

   

Favorable /

 
   

September 30,

   

(Unfavorable)

 

(In millions, except %)

 

2013

   

2012

           

%

 

Revenue

                               

JBT FoodTech

  $ 138.2     $ 117.1     $ 21.1       18.0  

JBT AeroTech

    97.0       88.0       9.0       10.2  

Other revenue and intercompany eliminations

    (1.7 )     0.2       (1.9 )     *  

Total revenue

  $ 233.5     $ 205.3     $ 28.2       13.7  

Income before income taxes

                               

Segment operating profit:

                               

JBT FoodTech

  $ 12.3     $ 9.0     $ 3.3       36.7  

JBT AeroTech

    8.8       8.4       0.4       4.8  

Total segment operating profit

    21.1       17.4       3.7       21.3  

Corporate items:

                               

Corporate expense

    (5.5 )     (4.0 )     (1.5 )     (37.5 )

Other expense, net

    (4.0 )     (3.1 )     (0.9 )     (29.0 )

Net interest expense

    (1.2 )     (1.8 )     0.6       33.3  

Total corporate items

    (10.7 )     (8.9 )     (1.8 )     (20.2 )

Income from continuing operations before income taxes

  $ 10.4     $ 8.5     $ 1.9       22.4  
____________

* Not meaningful

 

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 $21.1 million in the third quarter of 2013 compared to the same period in 2012. Higher equipment sales and aftermarket revenue contributed $14.6 million and $6.9 million, respectively. In-container equipment sales added $6.2 million while fruit and juice processing equipment sales contributed $4.7 million. Freezing and protein processing products sales increased by $3.4 million which was driven mostly by growth in North America and Asia. The strongest growth in aftermarket sales was in-container equipment also with contribution from North America freezing and protein processing products. These increases were partially offset by lower freezing equipment volume out of Europe which decreased revenue by approximately $11 million. Unfavorable foreign currency translation that was primarily the result of a weaker Brazilian real impacted revenue by $0.8 million.

 

JBT FoodTech operating profit increased by $3.3 million in the third quarter of 2013 compared to the same period in 2012. Operating margin increased from 7.7% in the third quarter of 2012 to 8.9% in the same period in 2013. This was primarily driven by higher sales volume which contributed $6.3 million in higher profit. Lower gross profit margin decreased operating profit by $1.7 million, primarily the result of a higher proportion of revenue from certain lower margin in-container equipment product lines. Selling, general and administrative expense increased by $0.6 million primarily driven by business growth of in-container equipment as well as increased employee-related expense in Asia and Latin America. Research and development expense increased by $0.4 million reflecting investment in protein processing product lines.

 

JBT AeroTech

JBT AeroTech revenue increased by $9.0 million in the third quarter of 2013, compared to the same period in 2012. Higher revenue was driven primarily by improved deicer demand as well as increased automated systems sales. Higher ground supports and gate equipment aftermarket sales also contributed to the higher revenue. These increases were partially offset by a decrease in airport service revenue and Halvorsen product line sales.

 

JBT AeroTech third quarter operating profit increased by $0.4 million but operating margin declined compared to the same period in 2012. Higher volume in ground support equipment and automated systems contributed $2.0 million in profit. The increase was offset by a decrease in profit of $2.2 million due to lower gross margins which was mainly the result of an unfavorable gate equipment product mix. Selling, general and administrative expense decreased by $0.6 million, compared to the same period in 2012, as the result of lower employee-related costs and legal expenses. 

 

 
13

 

 

Corporate Items

Corporate items increased by $1.8 million in the third quarter of 2013 compared to the same period in 2012. The increase was primarily driven by costs related to a management succession plan of approximately $1.0 million and higher foreign currency losses of approximately $1.6 million. The increase was offset by lower net interest expense of $0.6 million.

 

CONSOLIDATED RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

 

   

Nine Months Ended

   

Favorable /

 
   

September 30,

   

(Unfavorable)

 

(In millions, except %)

 

2013

   

2012

           

%

 

Revenue

  $ 646.1     $ 624.4     $ 21.7       3.5  

Cost of sales

    482.5       468.0       (14.5 )     (3.1 )

Gross profit

    163.6       156.4       7.2       4.6  

Selling, general and administrative expense

    120.6       114.6       (6.0 )     (5.2 )

Research and development expense

    10.6       10.5       (0.1 )     (1.0 )

Other income, net

    (0.6 )     (0.8 )     (0.2 )     (25.0 )

Operating income

    33.0       32.1       0.9       2.8  

Interest income

    1.4       0.2       1.2       *  

Interest expense

    5.6       5.4       (0.2 )     3.7  

Income from continuing operations before income taxes

    28.8       26.9       1.9       7.1  

Provision for income taxes

    8.5       8.8       0.3       3.4  

Income from continuing operations

 

20.3

      18.1       2.2       12.2  

Loss from discontinued operations, net of taxes

    0.8       0.4       (0.4 )     *  

Net income

  $ 19.5     $ 17.7     $ 1.8       10.2  
___________

* Not meaningful

 

Total revenue increased by $21.7 million in the nine months ended September 30, 2013 compared to the same period in 2012. Increased revenue was driven primarily by new equipment sales of $21.4 million in FoodTech. Strong aftermarket sales growth of $5.5 million from both FoodTech and AeroTech also contributed to the revenue increase. These increases were partially offset by decreased airport service revenue of $3.9 million and unfavorable foreign exchange impact of $2.3 million that primarily was the result of weaker a Brazilian real.

 

Operating income increased $0.9 million or 2.8% in the nine months ended September 30, 2013 compared to the same period in 2012 resulting from the following:

 

 

Higher sales volume drove $6.0 million in higher operating profit. Margin improvement contributed $3.2 million. The lower production costs of high capacity freezers manufactured in the U.S. and various margin improvement initiatives across JBT FoodTech contributed $7.5 million. This was partially offset by a decrease of $4.9 million due to lower margins in gate equipment in JBT AeroTech.

 

 

Selling, general and administrative expenses increased by $6.0 million. Higher selling costs, employee-related costs and legal costs in JBT FoodTech contributed approximately $3.7 million to the increase. Incentive compensation expense and pension expense increased by $0.9 million and $0.6 million, respectively.

 

 

Research and development spending are consistent with the same period in 2012.

 

 

Other income, net decreased by $0.2 million primarily due to foreign currency losses.

 

Income tax expense in the nine months ended September 30, 2013 and 2012 reflected an expected effective income tax rate for the full year of 34% and 35%, respectively. We recognized tax benefits of $1.3 million in the nine months ended September 30, 2013, reflecting the determination of lower income tax liabilities for the previous years.

 

 
14

 

 

OPERATING RESULTS OF BUSINESS SEGMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

 

 

   

Nine Months Ended

   

Favorable /

 
   

September 30,

   

(Unfavorable)

 

(In millions, except %)

 

2013

   

2012

           

%

 

Revenue

                               

JBT FoodTech

  $ 395.3     $ 370.9     $ 24.4       6.6  

JBT AeroTech

    250.9       251.5       (0.6 )     (0.2 )

Other revenue and intercompany eliminations

    (0.1 )     2.0       (2.1 )     *  

Total revenue

  $ 646.1     $ 624.4     $ 21.7       3.5  

Income before income taxes

                               

Segment operating profit:

                               

JBT FoodTech

  $ 39.9     $ 29.8     $ 10.1       33.9  

JBT AeroTech

    16.9       21.2       (4.3 )     (20.3 )

Total segment operating profit

    56.8       51.0       5.8       11.4  

Corporate items:

                               

Corporate expense

    (15.0 )     (12.3 )     (2.7 )     (22.0 )

Other expense, net

    (8.8 )     (6.6 )     (2.2 )     (33.3 )

Net interest expense

    (4.2 )     (5.2 )     1.0       19.2  

Total corporate items

    (28.0 )     (24.1 )     (3.9 )     (16.2 )

Income from continuing operations before income taxes

  $ 28.8     $ 26.9     $ 1.9       7.1  

 ____________

* Not meaningful

 

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 $24.4 million in the nine months ended September 30, 2013 compared to the same period in 2012. The increase was primarily driven by approximately $21 million in higher new equipment sales. Fruit and juice processing equipment sales contributed $14.0 million and in-container equipment added $5.5 million. Revenue from freezing and protein processing products increased by $1.1 million primarily driven by growth in North America partially offset by lower revenue in Europe. Aftermarket revenue increased by $2.4 million primarily driven by in-container aftermarket sales. Unfavorable foreign currency translation that was primarily the result of a weaker Brazilian real reduced revenue by $1.8 million.

 

JBT FoodTech operating profit increased by $10.1 million in the nine months ended September 30, 2013 compared to the same period in 2012. Strong sales volume resulted in $7.4 million of higher profit. Operating margin increased from 8.0% in the third quarter of 2012 to 10.0% in the same period in 2013. Higher gross profit margin contributed $7.5 million of higher profit which was primarily the result of lower costs on freezing and chilling products manufactured in North America, historically exported from Sweden. Savings from cost reduction initiatives across FoodTech and improved productivity also contributed to the higher gross profit margin. Selling, general and administrative expense increased by $3.7 million. The increase was primarily driven by higher legal costs in Europe and increased employee-related spending in Europe and Asia. An increase in selling costs due to in-container equipment business growth also contributed to the increase. Research and development expense increased by $0.5 million reflecting investment in protein processing product lines.

 

JBT AeroTech

JBT AeroTech’s revenue in the nine months ended September 30, 2013 remained relatively flat compared to the same period of 2012. Revenue increases from ground support equipment and aftermarket contributed $10.5 million and $5.0 million, respectively. The higher product revenue was primarily driven by higher demand for deicers. These increases were partially offset by decreased equipment sales of $2.0 million in gate equipment and decreased automated systems sales of $3.2 million. Halvorsen products sales declined by $5.7 million. Airport services sales decreased by $3.7 million.

 

JBT AeroTech’s operating profit decreased by $4.3 million in the nine months ended September 30, 2013, compared to the same period of 2012. Operating margin decreased from 8.4% in third quarter of 2012 to 6.7% in the same period of 2013. Lower profit margin accounted for $3.5 million of the profit decline that was primarily attributable to an unfavorable gate equipment product mix. The absence of a $1.4 million gain on the sale of our French hospital automated systems contracts and services to Swisslog in the second quarter of 2012 also contributed to the profit decline. Selling, general and administrative spending remained relatively consistent with the same period in 2012. Research and development expense decreased by $0.6 million as the result of shifting engineering resources from research and development efforts to project production.

 

 
15

 

 

Corporate Items

Corporate items increased by $3.9 million in the nine months ended September 30, 2013 compared to the same period in 2012. The increase was primarily driven by higher foreign currency loss of $1.9 million, higher long term incentive compensation and pension expenses of $1.4 million, approximately $1.0 million in costs related to a management succession plan and $0.6 million higher consulting expense. The increases were partly offset by $1.0 million lower net interest expense.