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JBT > SEC Filings for JBT > Form 10-K on 7-Mar-2014All Recent SEC Filings

Show all filings for JOHN BEAN TECHNOLOGIES CORP

Form 10-K for JOHN BEAN TECHNOLOGIES CORP


7-Mar-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 support equipment and have built a strong global presence with manufacturing, sourcing, sales and service organizations located on six continents to support 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, our outgoing Chief Financial Officer announced plans to retire early in 2014, and Brian Deck was appointed Chief Financial Officer in January 2014. During the fourth quarter of 2013, we made certain internal reporting structure changes. Our Automated Systems business, previously part of the JBT AeroTech segment is now included in the JBT FoodTech segment. This change was driven by our long term strategic view of our business. We believe including the Automated Systems business in the FoodTech segment will allow greater synergies among the food processing businesses and accelerate the application of Automated Systems technologies with our food processing customers. The discussion included in Item 7 reflects this change for all periods.

We continued to make progress in our 4G value creation strategy in 2013 and finished the year with increased revenue of $16.9 million, or $19.4 million in constant currency, as compared to 2012. Our FoodTech business delivered strong performance in 2013, particularly the freezing and protein processing business in North America. We strengthened our presence in China, a key emerging market where we achieved success with locally designed and manufactured freezers. Our aftermarket revenue continued to grow in both our FoodTech and AeroTech segments.

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.

CONSOLIDATED RESULTS OF OPERATIONS

                                         Year Ended December 31,                Favorable / (Unfavorable)
                                                                                 2013               2012
                                                                                 vs.                vs.
(in millions)                        2013          2012          2011            2012               2011
Revenue                           $    934.2     $   917.3     $   955.8     $       16.9       $      (38.5 )
Cost of sales                          701.3         686.5         721.2            (14.8 )             34.7
Gross profit                           232.9         230.8         234.6              2.1               (3.8 )
Selling, general and
administrative expense                 164.3         156.6         152.9             (7.7 )             (3.7 )
Research and development
expense                                 14.0          14.3          18.5              0.3                4.2
Restructuring expense                    1.6           0.1          11.6             (1.5 )             11.5
Other income, net                       (0.2 )        (1.1 )        (1.6 )           (0.9 )             (0.5 )
Operating income                        53.2          60.9          53.2             (7.7 )              7.7
Interest income                          2.2           0.5           0.6              1.7               (0.1 )
Interest expense                        (7.6 )        (7.4 )        (7.0 )           (0.2 )             (0.4 )
Income from continuing
operations before income taxes          47.8          54.0          46.8             (6.2 )              7.2
Provision for income taxes              13.8          16.9          16.0              3.1               (0.9 )
Income from continuing
operations                              34.0          37.1          30.8             (3.1 )              6.3
Loss from discontinued
operations, net of income taxes         (0.9 )        (0.9 )        (0.3 )              -               (0.6 )
Net income                        $     33.1     $    36.2     $    30.5     $       (3.1 )     $        5.7

2013 Compared With 2012

Total revenue increased $16.9 million or $19.4 million in constant currency in 2013 compared to 2012. The increase was mainly attributed to higher product and aftermarket revenue and partly offset by $4.1 million of lower airport services revenue. Operating income decreased $7.7 million in 2013 compared to 2012. Operating margin decreased from 6.6% to 5.7%. The decrease in operating income resulted from the following:

? Gross profit increased $2.1 million or $3.1 million in constant currency. This is mainly the result of higher volumes.

? Selling, general and administrative expenses increased by $7.7 million. The increase was attributed to several factors, primarily $3.8 million in investment in our aftermarket sales structure, $2.7 million of costs related to CEO and CFO succession and $1.7 million of higher self-insured healthcare expenses.

? Research and development expense decreased by $0.3 million mainly reflecting a shift of engineering resources from research and development efforts to project production.

? Restructuring expense increased $1.5 million due to severance costs incurred in connection with management restructuring.


Income tax expense for 2013 reflects an income tax rate of 29% compared to 31% in 2012. The lower effective tax rate reflects additional research and development credits of $2.1 million claimed in the U.S.

2012 Compared With 2011

Total revenue decreased by $38.5 million in 2012 compared to 2011. The decrease in revenue was primarily driven by $41.2 million of lower product sales and $18.0 million of unfavorable foreign currency translation impact, offset by $13.7 million of higher aftermarket parts and services sales.

Operating income increased by $7.7 million in 2012 compared to 2011. Operating income margin increased from 5.6% to 6.6%. The increase in operating income resulted from the following:

? Gross profit declined by $3.8 million but increased by $2.3 million in constant currency. Gross profit margin increased by 60 basis points. Gross profit margin improved due to various margin improvement initiatives and cost saving plans executed in 2012, which resulted in $7.3 million of gross profit increase versus 2011. This was offset by $5.0 million in lower profit due to lower sales volume in our JBT AeroTech segment.

? Selling, general and administrative expenses increased by $3.7 million, but increased by $7.0 million in constant currencies, mainly due to higher compensation and benefit costs, including the impact of lower discount rates utilized to estimate U.S. pension costs.

? Research and development expense decreased by $4.2 million as we focused engineering labor on improvements for existing products and customer orders.

? Restructuring expense was significantly lower as we neared completion of a restructuring program initiated in 2011.

Income tax expense for 2012 reflects an income tax rate of 31% compared to 34% in 2011. We recognized $1.3 million in tax benefits in 2012 due to enacted changes in Sweden's corporate income tax rate.

                     OPERATING RESULTS OF BUSINESS SEGMENTS



                                         Year Ended December 31,                Favorable / (Unfavorable)
                                                                                2013               2012
                                                                                 vs.                vs.
(in millions)                        2013          2012          2011           2012               2011
Revenue
JBT FoodTech                      $    611.0     $   589.1     $   588.2     $      21.9       $         0.9
JBT AeroTech                           323.4         325.4         361.7            (2.0 )             (36.3 )
Other revenue and intercompany
eliminations                            (0.2 )         2.8           5.9            (3.0 )              (3.1 )
Total revenue                     $    934.2     $   917.3     $   955.8     $      16.9       $       (38.5 )
Income before income taxes
Segment operating profit:
JBT FoodTech                      $     64.5     $    58.8     $    47.2     $       5.7       $        11.6
JBT AeroTech                            26.6          28.7          31.1            (2.1 )              (2.4 )
Total segment operating profit          91.1          87.5          78.3             3.6                 9.2
Corporate items:
Corporate expense                      (36.3 )       (26.5 )       (13.5 )          (9.8 )             (13.0 )
Restructuring expense                   (1.6 )        (0.1 )       (11.6 )          (1.5 )              11.5
Net interest expense                    (5.4 )        (6.9 )        (6.4 )           1.5                (0.5 )
Total corporate items                  (43.3 )       (33.5 )       (31.5 )          (9.8 )              (2.0 )
Income from continuing
operations before income taxes          47.8          54.0          46.8            (6.2 )               7.2
Provision for income taxes              13.8          16.9          16.0             3.1                (0.9 )
Income from continuing
operations                              34.0          37.1          30.8            (3.1 )               6.3
Loss from discontinued
operations, net of income taxes         (0.9 )        (0.9 )        (0.3 )             -                (0.6 )
Net income                        $     33.1     $    36.2     $    30.5     $      (3.1 )     $         5.7

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, stock-based compensation, foreign currency related gains and losses, LIFO provisions, restructuring costs, certain employee benefit expenses, interest income and expense and income taxes.


JBT FoodTech

2013 Compared With 2012

JBT FoodTech's revenue increased by $21.9 million, or $24.1 million in constant currency, in 2013 compared to 2012. Fruit and juice processing equipment revenue contributed $22.6 million to the increase, but was partly offset by decreased freezing and protein processing product sales in Europe and Latin America markets. Recurring revenue contributed $5.3 million to the increase, which was mainly driven by an increase in in-container processing aftermarket sales and higher leasing revenue from fruit and juice processing products.

JBT FoodTech's operating profit increased by $5.7 million, or $6.4 million in constant currency, in 2013 compared to 2012. Operating profit margin increased from 10.0% to 10.6%. Higher volume and increased profit margins contributed $6.8 million and $3.7 million in increased operating profit, respectively. Gross profit margin improvement mainly resulted from lower costs on freezing and chilling products manufactured in North America that historically were exported from Sweden, improved in-container product margins and the effects of other continuing margin improvement initiatives in FoodTech. These increases were partly offset by increased selling, general and administrative costs of $3.8 million. The increase was primarily due to higher employee compensation reflecting pay for performance for strong results in the fruit and juice and in-container businesses, inflationary expense increases as well as higher legal costs. Research and development costs increased $0.3 million reflecting investment in our protein processing product lines.

2012 Compared With 2011

JBT FoodTech's revenue increased by $0.9 million, or $17.8 million in constant currency, in 2012 compared to 2011. Recurring revenue increased by $18.1 million, driven primarily by higher sales of in-container processing aftermarket products and higher leasing revenue from fruit and juice processing products. Overall, JBT FoodTech equipment sales were higher in 2012.

JBT FoodTech's operating profit increased by $11.6 million, or $13.5 million in constant currency, in the year ended December 31, 2012 compared to 2011. Operating profit margin increased from 8.0% to 10.0%. The increase in operating profit was driven by $15.4 million of higher gross profit. Higher sales volume resulted in an increase of $4.8 million in profits, while higher gross profit margin resulted in $10.6 million of higher profit. Gross profit margin increased as a result of the favorable impact of higher aftermarket revenue and savings from our cost reduction initiatives. General and administrative expenses were $2.8 million higher primarily as a result of higher compensation and relocation costs. The remaining difference in operating profit was primarily due to lower research and development expenditures.

JBT AeroTech

2013 Compared With 2012

JBT AeroTech's revenue decreased by $2.0 million in 2013 compared to 2012. Revenue from gate equipment increased $8.4 million but was more than offset by decreased Halvorsen sales and lower ground support equipment sales. Lower revenue from maintenance contracts accounted for $5.3 million of the decreased revenue, but sales from aftermarket products, parts and services partly offset the decrease.

JBT AeroTech's operating profit decreased by $2.1 million in 2013 compared to 2012. Lower gross profit margin attributable to unfavorable gate equipment product mix and competitive pricing pressure within the ground support system business accounted for $2.9 million of the decrease, which was partly offset by higher margin from Halvorsen parts and services. Selling, general and administrative costs decreased approximately $0.4 million due to various cost cutting measures. Research and development costs decreased $0.7 million due to lower expenditures in research and development activities in gate equipment.

2012 Compared With 2011

JBT AeroTech's revenue decreased by $36.3 million in 2012 compared to 2011. New equipment revenue declined $38.1 million. Several passenger boarding bridge projects were delayed to late 2012 and 2013, creating a production gap in a business with generally longer lead times. This delay, along with the expected 2012 completion of a large U.S. Navy equipment contract, resulted in $40.6 million of lower revenue in 2012 compared to 2011. Higher recurring revenue from service contracts and sales of aftermarket products, parts and services offset the decrease in new equipment revenue.

JBT AeroTech's operating profit decreased by $2.4 million in 2012 compared to 2011. However, operating profit margin increased from 8.6% to 8.8%. Lower sales volume resulted in a decrease in profit of $7.0 million. The decrease in profit was partially offset by gross profit margin improvement resulting in $2.6 million in higher profits and a decrease of $1.8 million in selling, general and administrative costs.


Corporate Items

2013 Compared with 2012

Corporate items increased by $9.8 million in 2013 compared to 2012. The increase was primarily attributable to $3.0 million in lower gains on foreign currency transactions; $2.7 million of costs related to our management succession plan; $1.7 million from higher self-insured healthcare costs; $1.6 million in restructuring expense and $1.0 million of higher corporate strategies consulting costs. These increases were partly offset by higher interest income generated by cash held by our foreign subsidiaries of approximately $1.7 million.

2012 Compared with 2011

Corporate items increased by $2.0 million in the year ended December 31, 2012 compared to the same period in 2011. In 2011, we incurred $11.6 million in connection with a cost reduction program in JBT FoodTech. These costs did not reoccur in 2012. During 2012, we incurred higher corporate items including $5.2 million in lower gains on foreign currency transactions, and $6.1 million in higher compensation and pension-related costs, including the impact of lower discount rates utilized to determine U.S. pension costs. In addition, we incurred $1.7 million in higher expenses for corporate development initiatives.

Inbound Orders and Order Backlog



Inbound orders represent the estimated sales value of confirmed customer orders
received during the years ended December 31,



(In millions)                           2013         2012
JBT FoodTech                          $   655.3     $ 630.1
JBT AeroTech                              372.5       339.0
Other and intercompany eliminations        (0.2 )       2.8
Total inbound orders                  $ 1,027.6     $ 971.9

Order backlog is calculated as the estimated sales value of unfilled, confirmed customer orders as of December 31,

(In millions)          2013        2012
JBT FoodTech          $ 213.7     $ 169.4
JBT AeroTech            162.8       113.7
Total order backlog   $ 376.5     $ 283.1

Order backlog in our JBT FoodTech segment at December 31, 2013 increased by $44.3 million over the December 31, 2012 level. The increase was driven mainly by freezing and protein processing orders for the Asia and Europe markets. Fruit and juice processing as well as in-container processing products contributed to the increase. We expect to convert almost all of the JBT FoodTech backlog at December 31, 2013 into revenue during 2014.

Order backlog in our JBT AeroTech segment at December 31, 2013 increased by $49.1 million compared to December 31, 2012. The increase is primarily attributable to higher orders for gate equipment. We expect to convert approximately 75% of the JBT AeroTech backlog at December 31, 2013 into revenue during 2014.

Outlook

We started 2014 with substantially higher backlog relative to January 1, 2013 and anticipate moderate revenue increase compared to 2013. Under new leadership, we will be implementing ongoing operational excellence initiatives which will bring long-term benefits. We are also finalizing restructuring actions and anticipate incurring related costs in the range of $10 million to $14million which will negatively impact 2014 earnings.

Liquidity and Capital Resources

Our primary sources of liquidity are cash provided by operating activities of our U.S. and foreign operations and borrowings from our credit facility. The cash flows generated by our operations and the credit facility have historically been sufficient to satisfy our working capital needs, research and development activities, capital expenditures, pension contributions, authorized share repurchases, acquisitions and other financing requirements. We are not aware of any circumstances that are likely to result in our required liquidity increasing or decreasing materially.


As of December 31, 2013, we had $29.4 million of cash and cash equivalents, $27.4 million of which was held by our foreign subsidiaries. Although these funds are considered permanently invested in our foreign subsidiaries, we are not presently aware of any restrictions on the repatriation of these funds. We maintain significant operations outside of the U.S., and many of our uses of cash for working capital, capital expenditures and business acquisition arise in these foreign geographies. If these funds were needed to fund our operations or satisfy obligations in the U.S., they could be repatriated and their repatriation into the U.S. could cause us to incur additional U.S. income taxes and foreign withholding taxes. Any additional taxes could be offset, in part or in whole, by foreign tax credits. The amount of such taxes and application of tax credits would be dependent on the income tax laws and other circumstances at the time any of these amounts were repatriated.

As noted above, funds held outside of the U.S. are considered permanently invested in our non-U.S. subsidiaries. At times, these foreign subsidiaries have cash balances that exceed their immediate working capital or other cash needs. In these circumstances, the foreign subsidiaries may loan funds to the U.S. parent company on a temporary basis; the U.S. parent company has in the past and may in the future use the proceeds of these temporary intercompany loans to reduce outstanding borrowings under our committed credit facilities. By using available non-U.S. cash to repay our debt on a short-term basis, we can optimize our leverage ratio, which has the effect of both lowering the rate we pay on certain of our borrowings and lowering our interest costs.

Under Internal Revenue Service (IRS) guidance, no incremental tax liability is incurred on the proceeds of these loans as long as each individual loan has a term of 30 days or less and all such loans from each subsidiary is outstanding for a total of less than 60 days during the year. The amount outstanding subject to this IRS guidance at December 31, 2013 was approximately $105 million. During 2013, each such loan was outstanding for less than 30 days, and all such loans were outstanding for less than 60 days in the aggregate. The U.S. parent used the proceeds of these intercompany loans to reduce outstanding borrowings under our 5-year credit facility. We may choose to access such funds again in the future to the extent they are available and can be transferred without significant cost, and use them on a temporary basis to repay outstanding borrowings or for other corporate purposes, but intend to do so only as allowed under this IRS guidance.

On October 27, 2011, our Board of Directors authorized a share repurchase program for up to $30 million of our common stock through December 31, 2014. We repurchased $0.2 million of common stock in 2013 and have $25.9 million in remaining purchases under the authorization. The timing, price and volume of future repurchases will be based on market conditions, relevant securities laws and other factors.

Defined Benefit Pension Plans

We have defined benefit pension plans that cover certain domestic and international employees. Our largest single pension plan is the U.S. qualified plan. At December 31, 2013, this plan accounted for 84% of our consolidated defined benefit pension plans' projected benefit obligation ("PBO") and 96% of the related plans' assets. Due to an increase in the discount rate used to value the PBO at December 31, 2013, the obligation decreased by approximately $29 million while the assets experienced a gain during 2013 of 10%. We expect to contribute $8 million to our U.S. qualified plan during 2014 and $5 million to our other pension and postretirement benefit plans in 2014.


Contractual Obligations and Off-Balance Sheet Arrangements



The following is a summary of our contractual obligations at December 31, 2013:

                                                                Payments due by period
                                                       Less than 1        1 - 3
(In millions)                      Total payments          year           years        3-5 years       After 5 years
Long-term debt (a)                $           99.4     $        5.3     $    77.6     $      16.5     $             -
Interest payments on long-term
debt (b)                                       9.2              5.3           3.6             0.3                   -
Operating leases                              20.6              5.1           6.3             2.8                 6.4
Unconditional purchase
obligations (c)                               29.9             29.6           0.3               -                   -
Pension and other
postretirement benefits (d)                   13.0             13.0             -               -                   -
Total contractual obligations     $          172.1     $       58.3     $    87.8     $      19.6     $           6.4

(a) Our available long-term debt is dependent upon our compliance with covenants described under the heading "Financing Agreements" later in Item 7. Any violations of covenants or other events of default, which are not waived or cured, could have a material impact on our ability to maintain our committed financial arrangements and could accelerate our obligation to repay the amount due.

(b) Interest payments were determined using the weighted average rates for all debt outstanding as of December 31, 2013.

(c) In the normal course of business, we enter into agreements with our suppliers to purchase raw materials or services. These agreements include a requirement that our supplier provide products or services to our specifications and require us to make a firm purchase commitment to our supplier. As substantially all of these commitments are associated with purchases made to fulfill our customers' orders, the costs associated with these agreements will ultimately be reflected in cost of sales on our consolidated statements of income.

(d) This amount primarily reflects discretionary contributions to our pension plans. Required contributions for future years depend on factors that cannot be determined at this time.

The following is a summary of other off-balance sheet arrangements at December 31, 2013:

                                                         Amount of commitment expiration per period
                                                                                1 - 3
(In millions)                     Total amount        Less than 1 year          years        3-5 years       After 5 years
Letters of credit and bank
guarantees                        $        23.4       $            18.7       $     3.9     $         -     $           0.8
Surety bonds                               55.7                    10.1            31.8            13.8                   -
Total other off-balance sheet
arrangements                      $        79.1       $            28.8       $    35.7     $      13.8     $           0.8

To provide required security regarding our performance on certain contracts, we provide letters of credit, surety bonds and bank guarantees, for which we are contingently liable. In order to obtain these financial instruments, we pay fees to various financial institutions in amounts competitively determined in the marketplace. Our ability to generate revenue from certain contracts is dependent upon our ability to obtain these off-balance sheet financial instruments.

Our off-balance sheet financial instruments may be renewed, revised or released based on changes in the underlying commitment. Historically, our commercial commitments have not been drawn upon to a material extent; consequently, management believes it is not likely that there will be claims against these commitments that would result in a negative impact on our key financial ratios or our ability to obtain financing.

Cash Flows

Cash flows for each of the years in the three-year period ended on December 31,
2013 were as follows:


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