John Bean Technologies CORP - Quarter Report: 2014 March (Form 10-Q)

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

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NOTE 10. RESTRUCTURING

Restructuring costs primarily consist of employee separation benefits under our existing severance programs, foreign statutory termination benefits, certain one-time termination benefits, contract termination costs, asset impairment charges and other costs that are associated with restructuring actions. Restructuring charges are determined based on estimates prepared at the time the restructuring actions were approved by the management and also include amounts recognized as incurred.

During the fourth quarter of 2013, we implemented a restructuring plan that included management changes both in the U.S. and in non-U.S. subsidiaries. We incurred severance costs of $1.6 million in connection with this plan in the fourth quarter of 2013; such costs were determined based on the Company’s existing severance programs and other one-time termination benefits arrangements. We made payments of approximately $1.1 million under this plan in the first quarter of 2014 and expect to complete the plan within 2014.

In the first quarter of 2014, we implemented a plan to optimize the overall JBT cost structure on a global basis. The initiatives under this plan include streamlining operations, consolidating certain facilities and enhancing the Company’s general and administrative infrastructure. The total estimated cost in connection with this plan is in the range of $12 million to $13 million with $10.2 million recorded in the first quarter of 2014. We anticipate incurring approximately $2 million to $3 million by the end of 2014. All payments required under this plan are expected to be made during 2014 and 2015.

Additional information regarding the restructuring charges for all ongoing activities is presented in the table below:

While restructuring charges are excluded from our calculation of segment operating profit, the table below presents the restructuring charges associated with each segment:

 Restructuring reserves are included in other current liabilities in the accompanying condensed consolidated balance sheets. The table below details the activities in 2014:

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. These forward-looking statements include, among others, statements relating to our restructuring and optimization plans, our covenant compliance and our outlook.

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 revise any forward-looking statement made by us or on our behalf, whether as a result of new information, future developments, subsequent events or changes in circumstances or otherwise.

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.

CONSOLIDATED RESULTS OF OPERATIONS

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* Not meaningful

Total revenue increased $12.3 million, or $14.2 million in constant currency, in the first quarter of 2014 compared to the same period in 2013. Equipment revenue increased $9.6 million with higher sales of FoodTech equipment partly offset by lower sales of AeroTech equipment. Aftermarket sales contributed $5.1 million of increased revenue.

Operating income decreased by $11.8 million as compared to the first quarter of 2013 as a result of the following items:

Interest income and expense remained relatively flat in the first quarter of 2014 as compared to the same period in 2013, as our mix of debt and cash worldwide did not change significantly in the first quarter of 2014 compared to the same period in 2013.

Income tax expense in the first quarter of 2014 and 2013 reflected an expected effective income tax rate for the full year of 32.6% and 33.5%, respectively. As of the first quarter of 2014, the effective tax rate does not reflect a tax benefit related to the U.S. research and development tax credit, which expired as of December 31, 2013 and has not been reenacted into law. In the first quarter of 2013, we recognized $0.7 million in discrete tax benefits reflecting extension of certain U.S. tax credits into 2013.

Non-GAAP Financial Measure

The results for the periods ended March 31, 2014 and 2013 include several items that affect the comparability of our results. These include significant expenses that are not indicative of our on-going operations as detailed in the table below:

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(1) Total shares and dilutive securities of 29.8 million used in the adjusted earnings per share calculation above includes 0.4 million of restricted stock that were excluded from the GAAP diluted earnings per share calculation because their effect was anti-dilutive due to the loss reported.

The above table contains non-GAAP financial measures, including adjusted income from continuing operations and adjusted earnings per share information. The adjustments listed in the table exclude certain GAAP amounts for the purpose of determining adjusted income from continuing operations and adjusted earnings per share. Adjusted income from continuing operations and adjusted earnings per share information are intended to provide an indication of our underlying operating results and to enhance investors’ overall understanding of our financial performance by eliminating the effects of certain items that are not comparable from one period to the next. In addition, this information is used as a basis for evaluating company performance and for the planning and forecasting of future periods. This information is not intended to be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP.

OPERATING RESULTS OF BUSINESS SEGMENTS

THREE MONTHS ENDED MARCH 31, 2014 AND 2013

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* 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’s revenue increased by $23.5 million, or $25.6 million in constant currency in the first quarter of 2014 compared to the same period in 2013. Product revenue increased by $21.0 million across all product lines, principally driven by conversion of 2013 year-end backlog into revenue. Aftermarket revenue increased by $4.0 million reflecting higher parts sales as well as completion of overhaul projects in Europe.

JBT FoodTech’s operating profit increased by $3.5 million in the first quarter of 2014, compared to the same period in 2013. Operating margin increased from 7.1% to 8.5%. The increase in operating profit was mainly driven by higher volume and resulting leverage of fixed expenses.

JBT AeroTech

JBT AeroTech’s revenue decreased by $8.1 million in the first quarter of 2014 compared to the same period in 2013. The decrease was primarily driven by lower sales of ground support equipment to air carrier customers and lower revenue related to Jetway® passenger boarding bridge completions. These decreases were partly offset by higher revenue across AeroTech from aftermarket products and services.

JBT AeroTech’s operating profit decreased by $1.8 million in the first quarter of 2014 compared to the same period in 2013. Operating margin declined from 5.9% in the first quarter of 2013 to 3.8% in the same period in 2014. The decrease in operating profit is primarily attributed to lower sales volume.

Corporate Items

Corporate expense increased by $3.3 million in the first quarter of 2014 compared to the same period in 2013. The increase was primarily driven by the absence of foreign currency gains of $1.8 million, higher costs related to our management succession plan of $1.2 million, and $0.9 million in strategy and pricing consulting expenses. These increases were partly offset by lower incentive compensation costs.

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:

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

Order backlog in our JBT FoodTech segment at March 31, 2014 increased by $25.1 million over December 31, 2013 and by $13.3 million as compared to March 31, 2013. The increase since December 31, 2013 was mostly attributable to higher freezing and cooking orders in Europe and North America markets. Fruit and juice solution orders also contributed to the increase. The inbound orders for the three months ended March 31, 2014 decreased by $7.5 million compared to the same period in 2013.

Order backlog in our JBT AeroTech segment at March 31, 2014 increased by $37.8 million and $96.6 million over December 31, 2013 and March 31, 2013, respectively. The increase since December 31, 2013 was primarily driven by increased demand from the airframe industry and global airports. The inbound orders for the three months ended March 31, 2014 increased by $39.4 million compared to same period in 2013.

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, dividends, 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 March 31, 2014, we had $19.1 million of cash and cash equivalents, $16.1 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 March 31, 2014 was approximately $117.1 million. During the first quarter of 2014, 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.

Cash Flows

Cash flows for the three months ended March 31, 2014 and 2013 were as follows:

Cash provided by continuing operating activities during the three months ended March 31, 2014 was $21.1 million, representing a $3.2 million increase compared to 2013. The change in operating cash flows was primarily attributable to the timing of a $4.0 million discretionary contribution to our U.S. qualified pension plan made during the first quarter of 2013.  We expect to contribute $18 million to our U.S. qualified pension plan as well as other pension and postretirement benefit plans in 2014. We also expect to make cash payments of approximately $10 million under our restructuring plan in 2014.

Cash required by investing activities during the three months ended March 31, 2014 was $9.9 million, an increase of $1.9 million compared to the same period in 2013. The increase was due to an acquisition spending of $1.7 million that occurred during the first quarter of 2014. Much of our capital spending supports the maintenance and upgrading of our installed base of leased equipment. We anticipate spending approximately $19 million in total on construction of a new JBT FoodTech plant in Lakeland, Florida to replace the existing plant in the same area. We spent approximately $7 million on this project in 2013. We spent approximately $3 million during the first quarter of 2014 on this project. We expect to spend approximately $7 million in the remainder of 2014 and additional $2 million in 2015. 

Cash required by financing activities during the three months ended March 31, 2014 was $21.7 million compared to cash required of $93.6 million in the same period in 2013. The change in financing cash flow was primarily driven by lower payments on our borrowings under the 5-year revolving credit facility.

Financing Arrangements

We have a $300 million 5-year revolving credit facility that expires on November 30, 2017. Borrowings under the credit facility bear interest, at our option, at LIBOR or an alternative base rate, which is the greater of JPMorgan Chase, N.A.’s Prime Rate, the Federal Funds Rate plus 50 basis points, and LIBOR plus 1%, plus a margin dependent on our leverage ratio. We are required to make periodic interest payments on the borrowed amounts and pay an annual facility fee ranging from 15.0 to 27.5 basis points, depending on our leverage ratio. As of March 31, 2014, we had $2.3 million drawn on the credit facility, $9.1 million in letters of credit issued under the credit facility and approximately $289 million of additional available funds.

We have $75 million of 6.66% senior unsecured notes outstanding. The senior unsecured notes are due on July 31, 2015 and require us to make semiannual interest payments.

Our Brazilian subsidiary entered into two loans during 2013. The first loan was a $4.0 million loan with an annual interest cost of 5.5% that had a first installment payment of $2.0 million which was made on February 21, 2014, and a second installment payment that is due at maturity on August 20, 2014. The second loan was a Brazilian real denominated loan in the amount of Br7.9 million (approximately $3.5 million) that bears an annual interest rate of 5.5%. The first principal payment on this loan is due on May 14, 2014, with equal monthly payments required for 24 months thereafter.

We have several credit facilities in China and India under which we have drawn $0.6 million and have $9.2 million of additional available funds as of March 31, 2014.

Our credit agreement and notes include restrictive covenants that, if not met, could lead to a renegotiation of our credit lines, a requirement to repay our borrowings and/or a significant increase in our cost of financing. At March 31, 2014, we were in compliance with all covenants of our contractual obligations.

We expect to remain in compliance with all restrictive covenants in the foreseeable future. However, there can be no assurance that continued or increased volatility in global economic conditions will not impair our ability to meet our restrictive covenants, or that we will continue to be able to access the capital and credit markets on terms acceptable to us or at all.

Outlook

For the full year, we anticipate revenue growth to be in the mid-single digit range. We expect total segment operating margin in 2014 to remain relatively flat as compared to 2013. Projected savings of approximately $6 million from operational excellence and restructuring initiatives are expected to fund planned spending on our strategic initiatives during the year. We expect to incur $6.7 million in total management succession costs including approximately $3 million in expenses associated with non-qualified pension plans for retiring executives. For the full year 2014, we project adjusted diluted earnings per share to be in the range of $1.35 - $1.50. On a GAAP basis, diluted earnings per share is expected to be in the range of $.90 - $1.50.

CRITICAL ACCOUNTING ESTIMATES

Refer to our Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of our critical accounting estimates. During the three months ended March 31, 2014, there were no material changes in our judgments and assumptions associated with the development of our critical accounting estimates.

There have been no material changes in reported market risks from the information reported in our Annual Report on Form 10-K for the year ended December 31, 2013.

Under the direction of our principal executive officer and principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2014. We have concluded that our disclosure controls and procedures were:

There were no changes in controls identified in the evaluation for the quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

John Bean Technologies Corporation:

We have reviewed the accompanying condensed consolidated balance sheet of John Bean Technologies Corporation and subsidiaries as of March 31, 2014, and the related condensed consolidated statements of income (loss), comprehensive income (loss) and cash flows for the three-month periods ended March 31, 2014 and 2013.These condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of John Bean Technologies Corporation and subsidiaries as of December 31, 2013, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 6, 2014, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2013, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

Chicago, Illinois

May 7, 2014

PART II—OTHER INFORMATION

There have been no material legal proceedings identified or material developments in existing legal proceedings during the three months ended March 31, 2014.

There have been no material changes in reported risk factors from the information reported in our Annual Report on Form 10-K for the year ended December 31, 2013.

We had no unregistered sales of equity securities during the three months ended March 31, 2014.

None.

Not applicable.

None.

All exhibits as set forth on the Exhibit Index, which is incorporated herein by reference. 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX