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 to high-value segments of the food & beverage 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
In accordance with Securities and Exchange Commission (“SEC”) rules for interim periods, the accompanying unaudited condensed consolidated financial statements (the “interim financial statements”) do not include all of the information and notes for complete financial statements as required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). As such, the accompanying interim financial statements should be read in conjunction with the JBT Annual Report on Form 10-K for the year ended December 31, 2015, which provides a more complete understanding of the Company’s accounting policies, financial position, operating results, business, properties, and other matters. The year-end condensed consolidated balance sheet was derived from audited financial statements.
In the opinion of management, the interim financial statements reflect all normal recurring adjustments necessary for a fair presentation of our financial condition and operating results as of and for the periods presented. Revenue, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the interim results and trends in these statements may not be representative of those for the full year or any future period.
We have reclassified the prior year amortization expense of intangible assets not considered contract-related from cost of sales to selling, general and administrative expense to conform with current year presentation.
Use of estimates
Preparation of financial statements that follow U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Recently issued accounting standards not yet adopted
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. The new standard will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU requires companies to reevaluate when revenue is recorded on a transaction based upon newly defined criteria, either at a point in time or over time as goods or services are delivered. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and estimates, and changes in those estimates. The new standard becomes effective for us as of January 1, 2018, and allows for both retrospective and modified-retrospective methods of adoption. We are currently evaluating the effect, if any, that the updated standard will have on our consolidated financial statements and related disclosures.
In July 2015, the FASB issued ASU No. 2015-11,
Inventory (Topic 330) – Simplifying the Measurement of Inventory
. The core principle of the ASU is that entities that historically used the lower of cost or market in the subsequent measurement of inventory will instead be required to measure inventory at the lower of cost and net realizable value. The guidance will not change U.S. GAAP for inventory measured using LIFO or the retail inventory method. The ASU is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2016. The company anticipates the adoption in the effective period and we are currently evaluating the effect, if any, that the ASU will have on our consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
. The new standard will replace most existing lease guidance in U.S. GAAP. The core principle of the ASU is that lessees are required to report a right to use asset and a lease payment obligation on the balance sheet but recognize expenses on their income statements in a manner similar to today’s accounting, and for lessors the guidance remains substantially similar to current U.S. GAAP. The ASU is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2018. However early adoption is
permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. We have not yet evaluated and cannot determine the impact this standard will have on our consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09,
Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting
. The new guidance was developed as part of the FASB's simplification initiative. The core principle of the ASU is that all income tax effects of awards are to be recognized in the income statement when the awards vest or are settled, it allows an employer to repurchase more of an employee's shares than it can today for tax withholding purposes without triggering liability accounting, and allows an employer to make a policy election to account for forfeitures as they occur. The ASU is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2016. However early adoption is permitted. The company anticipates the adoption in the effective period and we are currently evaluating the effect, if any, that the ASU will have on our consolidated financial statements and related disclosures.
NOTE 2. ACQUISITIONS
Consistent with our growth strategy, we completed two acquisitions during 2015 focused on strengthening our Protein and Liquid Foods portfolios.
A&B Process Systems
On October 1, 2015, John Bean Technologies Corporation acquired the shares of A&B Process Systems ("A&B"), located in Stratford, WI, for
$103 million
, including a
$3.0 million
earnout and a working capital adjustment of
$0.1 million
. Because the transaction was completed on October 1, 2015, the purchase accounting is preliminary as the valuation of income tax balances and residual goodwill related to this acquisition is not complete. We are also currently assessing the amount of goodwill that we expect to be deductible for tax purposes. These amounts are subject to adjustment as additional information is obtained within the measurement period (not to exceed 12 months from the acquisition date).
During the quarter ended March 31, 2016 we refined our estimates of the customer relationship by (
$0.9 million
), tradename by (
$0.4 million
), technological know-how for skidded systems by (
$0.2 million
), backlog by (
$0.1 million
), and noncompete agreements by (
$0.1 million
). The impact of these adjustments was reflected as an increase in goodwill of
$1.8 million
, and resulted in an immaterial impact to the consolidated statement of income. No other significant refinements of the valuation occurred during the quarter.
The following table summarizes the provisional fair values recorded for the assets acquired and liabilities assumed for A&B:
|
|
|
|
|
(In millions)
|
|
Assets:
|
|
Accounts receivable
|
$
|
15.7
|
|
Prepaid expenses
|
0.6
|
|
Costs in excess of billings on projects in progress
|
5.1
|
|
Inventories
|
1.0
|
|
Property, plant and equipment
|
18.1
|
|
Other assets
|
0.2
|
|
Intangible assets:
|
|
Customer relationships
|
14.6
|
|
Tradename
|
3.1
|
|
Technological know-how - skidded systems
|
3.9
|
|
Technological know-how - tanks and vessels
|
1.3
|
|
Backlog
|
1.2
|
|
Noncompete agreements
|
0.9
|
|
Total assets
|
$
|
65.7
|
|
|
|
Liabilities:
|
|
Accounts payable
|
$
|
6.1
|
|
Other liabilities
|
3.3
|
|
Billings in excess of costs on projects in process
|
6.6
|
|
Earnout liability
|
3.0
|
|
Total liabilities
|
19.0
|
|
|
|
Cash consideration paid and accrued
|
$
|
100.0
|
|
Contingent consideration
|
3.0
|
|
Total purchase price
|
103.0
|
|
|
|
Goodwill
|
$
|
53.3
|
|
The customer relationships and tradename will be amortized over their estimated useful lives of
eight
and
fourteen
years, respectively. Technological know-how for skidded systems and tanks & vessels will be amortized over their terms of
six
and
nine
years, respectively. The noncompete agreements will be amortized over the contractual life of
five
years, and backlog will be amortized over
six
months, reflecting its expected pattern of use.
The A&B purchase agreement includes an earnout provision providing for a contingent payment due to the sellers to the extent certain financial targets are exceeded. This earnout is payable within the fourth quarter of 2016 if A&B exceeds certain earnings targets for the period from May 1, 2015 through April 31, 2016. The contractual obligation associated with the contingent earnout provision recognized on the acquisition date is
$3.0 million
.
Stork Food & Dairy Systems B.V.
On July 31, 2015, John Bean Technologies Corporation and its wholly-owned subsidiary John Bean Technologies Europe B.V. acquired the shares of Stork Food & Dairy Systems, B.V. (“SFDS”), located in Amsterdam, The Netherlands for
46.2 million
euro (
$50.7 million
), which is net of cash acquired of
1.0 million
euro (
$1.1 million
). Because the transaction was completed on July 31, 2015, the purchase accounting is preliminary as the final review of the intangible asset valuation report, valuation of income tax balances, pension balances and residual goodwill related to this acquisition is not complete. We are also currently assessing the amount of goodwill that we expect to be deductible for tax purposes. These amounts are subject to adjustment as additional information is obtained within the measurement period (not to exceed 12 months from the acquisition date). No significant refinements of the valuation occurred during the quarter.
The following table summarizes the provisional fair values recorded for the assets acquired and liabilities assumed for SFDS:
|
|
|
|
|
(In millions)
|
|
Assets:
|
|
Cash
|
$
|
1.1
|
|
Accounts receivable
|
10.0
|
|
Other receivables
|
2.5
|
|
Inventories
|
4.8
|
|
Costs in excess of billings on projects in progress
|
7.8
|
|
Property, plant and equipment
|
9.8
|
|
Intangible assets:
|
|
Tradename
|
0.2
|
|
Customer relationships
|
4.1
|
|
Patents
|
3.9
|
|
Deferred Tax Asset
|
1.1
|
|
Total assets
|
$
|
45.3
|
|
|
|
Liabilities:
|
|
Accounts payable
|
$
|
9.2
|
|
Billings in excess of costs on projects
|
7.6
|
|
Other liabilities
|
10.2
|
|
Deferred taxes
|
3.3
|
|
Total liabilities
|
$
|
30.3
|
|
|
|
Total purchase price
|
$
|
51.8
|
|
|
|
Goodwill
|
$
|
36.8
|
|
The tradename, patents and customer relationships will be amortized over their estimated useful lives of
seventeen months
,
seven
years, and
fifteen
years, respectively.
NOTE 3. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill by business segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
JBT FoodTech
|
|
JBT AeroTech
|
|
Total
|
Balance as of December 31, 2015
|
$
|
144.8
|
|
|
$
|
7.7
|
|
|
$
|
152.5
|
|
Acquisitions
|
2.2
|
|
|
—
|
|
|
2.2
|
|
Currency translation
|
1.7
|
|
|
—
|
|
|
1.7
|
|
Balance as of March 31, 2016
|
148.7
|
|
|
7.7
|
|
|
156.4
|
|
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
(In millions)
|
Gross carrying amount
|
|
Accumulated amortization
|
|
Gross carrying amount
|
|
Accumulated amortization
|
Customer relationship
|
$
|
70.3
|
|
|
$
|
17.2
|
|
|
$
|
70.8
|
|
|
$
|
15.9
|
|
Patents and acquired technology
|
36.3
|
|
|
24.4
|
|
|
35.4
|
|
|
23.5
|
|
Trademarks
|
19.3
|
|
|
8.1
|
|
|
19.5
|
|
|
7.8
|
|
Other
|
16.4
|
|
|
6.7
|
|
|
13.8
|
|
|
5.5
|
|
Total intangible assets
|
$
|
142.3
|
|
|
$
|
56.4
|
|
|
$
|
139.5
|
|
|
$
|
52.7
|
|
NOTE 4. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
(In millions)
|
March 31, 2016
|
|
December 31, 2015
|
Raw materials
|
$
|
62.1
|
|
|
$
|
55.0
|
|
Work in process
|
57.4
|
|
|
36.8
|
|
Finished goods
|
86.7
|
|
|
81.8
|
|
Gross inventories before LIFO reserves and valuation adjustments
|
206.2
|
|
|
173.6
|
|
LIFO reserves and valuation adjustments
|
(69.3
|
)
|
|
(68.7
|
)
|
Net inventories
|
$
|
136.9
|
|
|
$
|
104.9
|
|
NOTE 5. PENSION AND OTHER POSTRETIREMENT BENEFITS
Components of net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
Three Months Ended
March 31,
|
|
Three Months Ended
March 31,
|
(In millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Service cost
|
$
|
0.4
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
2.8
|
|
|
3.4
|
|
|
|
|
|
0.1
|
|
Expected return on plan assets
|
(4.5
|
)
|
|
(4.8
|
)
|
|
—
|
|
|
—
|
|
Amortization of net actuarial (gains) losses
|
1.0
|
|
|
1.1
|
|
|
—
|
|
|
(0.1
|
)
|
Settlements
|
—
|
|
|
0.3
|
|
|
(0.1
|
)
|
|
—
|
|
Net periodic cost (income)
|
$
|
(0.3
|
)
|
|
$
|
0.4
|
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
We expect to contribute
$14.3 million
to our pension and other postretirement benefit plans in 2016. We contributed
$1.3 million
to our U.S. qualified pension plan during the three months ended March 31, 2016.
NOTE 6. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income or loss (“AOCI”) represents the cumulative balance of other comprehensive income, net of tax, as of the balance sheet date. For JBT, AOCI is primarily composed of adjustments related to pension and other postretirement benefit plans, derivatives designated as hedges, and foreign currency translation adjustments. Changes in the AOCI balances for the three months ended March 31, 2016 by component are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and Other Postretirement Benefits
|
|
Derivatives Designated as Hedges
|
|
Foreign Currency Translation
|
|
Total
|
(In millions)
|
|
|
|
|
|
|
|
Beginning balance, December 31, 2015
|
$
|
(103.8
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
(42.6
|
)
|
|
$
|
(147.2
|
)
|
Other comprehensive income (loss) before reclassification
|
(0.1
|
)
|
|
(2.4
|
)
|
|
7.6
|
|
|
5.1
|
|
Amounts reclassified from accumulated other comprehensive income
|
0.6
|
|
|
0.2
|
|
|
—
|
|
|
0.8
|
|
Ending balance, March 31, 2016
|
$
|
(103.3
|
)
|
|
$
|
(3.0
|
)
|
|
$
|
(35.0
|
)
|
|
$
|
(141.3
|
)
|
Reclassification adjustments from AOCI into earnings for pension and other postretirement benefit plans for the three months ended March 31, 2016 were
$0.9 million
of charges in selling, general and administrative expense, net of
$0.3 million
in provision for income taxes. Reclassification adjustments for derivatives designated as hedges for the same period were
$0.3 million
of charges in interest expense, net of
$0.1 million
in provision for income taxes.
NOTE 7. STOCK-BASED COMPENSATION
On February 18, 2016, we granted
153,144
restricted stock units with a total fair value of
$6.8 million
to certain employees under an existing stock-based compensation plan. The units will vest on April 1, 2019, and generally are expected to be amortized over the vesting period. The amortization period will be shorter if an employee attains age 62, and meets the plan's service requirement provision prior to the vesting date. The Company recognizes compensation expense based on estimated grant date fair values for all share-based awards issued to employees and directors.
Total
compensation expense was
$2.2 million
and
$1.4 million
for the three months ended March 31, 2016 and March 31, 2015, respectively.
NOTE 8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share from continuing operations for the respective periods and our basic and diluted shares outstanding:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
(In millions, except per share data)
|
2016
|
|
2015
|
Basic earnings per share:
|
|
|
|
Income from continuing operations
|
$
|
5.2
|
|
|
$
|
8.0
|
|
Weighted average number of shares outstanding
|
29.5
|
|
|
29.6
|
|
Basic earnings per share from continuing operations
|
$
|
0.18
|
|
|
$
|
0.27
|
|
Diluted earnings per share:
|
|
|
|
Income from continuing operations
|
$
|
5.2
|
|
|
$
|
8.0
|
|
Weighted average number of shares outstanding
|
29.5
|
|
|
29.6
|
|
Effect of dilutive securities:
|
|
|
|
Restricted stock
|
0.3
|
|
|
0.2
|
|
Total shares and dilutive securities
|
29.8
|
|
|
29.8
|
|
Diluted earnings per share from continuing operations
|
$
|
0.17
|
|
|
$
|
0.27
|
|
NOTE 9. 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 March 31, 2016
|
|
As of December 31, 2015
|
(In millions)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
$
|
10.8
|
|
|
$
|
10.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8.9
|
|
|
$
|
8.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivatives
|
7.7
|
|
|
—
|
|
|
7.7
|
|
|
—
|
|
|
7.0
|
|
|
—
|
|
|
7.0
|
|
|
—
|
|
Total assets
|
$
|
18.5
|
|
|
$
|
10.8
|
|
|
$
|
7.7
|
|
|
$
|
—
|
|
|
$
|
15.9
|
|
|
$
|
8.9
|
|
|
$
|
7.0
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
$
|
8.1
|
|
|
$
|
—
|
|
|
$
|
8.1
|
|
|
$
|
—
|
|
|
$
|
2.9
|
|
|
$
|
—
|
|
|
$
|
2.9
|
|
|
$
|
—
|
|
Contingent consideration
|
$
|
3.8
|
|
|
|
|
|
|
3.8
|
|
|
$
|
3.0
|
|
|
|
|
|
|
3.0
|
|
Total liabilities
|
$
|
11.9
|
|
|
$
|
—
|
|
|
$
|
8.1
|
|
|
$
|
3.8
|
|
|
$
|
5.9
|
|
|
$
|
—
|
|
|
$
|
2.9
|
|
|
$
|
3.0
|
|
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 reported separately in Other Assets on the consolidated balance sheet. Investments include an unrealized gain of
$0.1 million
as of March 31, 2016 and unrealized loss of
$0.7 million
as of December 31, 2015.
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. We also perform a qualitative assessment of counterparty credit risk.
The contingent consideration relates to the earnout provision recorded in conjunction with the acquisition of A&B during 2015 for
$3.0 million
, and for Novus in the first quarter of 2016 of
$0.8 million
respectively.
The carrying amounts of cash and cash equivalents, trade receivables and payables, as well as financial instruments included in other current assets and other current liabilities, approximate fair values because of their short-term maturities.
The carrying values and the estimated fair values of our debt financial instruments are summarized on the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
As of December 31, 2015
|
(In millions)
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
Five-year revolving credit facility, expires February 10, 2020
|
296.4
|
|
|
296.4
|
|
|
279.4
|
|
|
279.4
|
|
Brazilian loan due April 15, 2016
|
0.1
|
|
|
0.1
|
|
|
0.3
|
|
|
0.3
|
|
Brazilian loan due October 16, 2017
|
2.6
|
|
|
2.4
|
|
|
2.7
|
|
|
2.4
|
|
Foreign credit facilities
|
0.3
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
Other
|
0.1
|
|
|
0.1
|
|
|
0.3
|
|
|
0.3
|
|
There is no active or observable market for our fixed rate borrowings, which include our Brazilian loans. Therefore, the estimated fair value of the Brazilian loans are based on discounted cash flows using current interest rates available for debt with similar terms and remaining maturities. The estimates of the all-in interest rate for discounting the loans are based on a broker quote for 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 10. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Derivative Financial Instruments
All derivatives are recorded as other assets or liabilities in the condensed consolidated balance sheets at their respective fair values. For derivatives designated as cash flow hedges, the effective portion of the unrealized gain or loss related to the derivatives are recorded in other comprehensive income (loss) until the transaction affects earnings. We assess both at inception of the hedge and on an ongoing basis, whether the derivative in the hedging transaction has been, and will continue to be, highly effective in offsetting changes in cash flows of the hedged item. The impact of any ineffectiveness is recognized in the condensed consolidated statements of income. Changes in the fair value of derivatives that do not meet the criteria for designation as a hedge are recognized in earnings.
Foreign Exchange:
We manufacture and sell products in a number of countries throughout the world and, as a result, we are exposed to movements in foreign currency exchange rates. Our major foreign currency exposures involve the markets in Western Europe, South America and Asia. Some of our sales and purchase contracts contain embedded derivatives due to the nature of doing business in certain jurisdictions, which we take into consideration as part of our risk management policy. The purpose of our foreign currency hedging activities is to manage the economic impact of exchange rate volatility associated with anticipated foreign currency purchases and sales made in the normal course of business. We primarily utilize forward foreign exchange contracts with maturities of less than
2
years in managing this foreign exchange rate risk. We have not designated these forward foreign exchange contracts, which have a notional value at March 31, 2016 of
$352.3 million
, as hedges and therefore do not apply hedge accounting.
The following table presents the fair value of foreign currency derivatives included within the condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
As of December 31, 2015
|
(In millions)
|
Derivative Assets
|
|
Derivative Liabilities
|
|
Derivative Assets
|
|
Derivative Liabilities
|
Other current assets / liabilities
|
$
|
6.6
|
|
|
$
|
2.8
|
|
|
$
|
5.8
|
|
|
$
|
1.3
|
|
Other assets / liabilities
|
1.1
|
|
|
0.2
|
|
|
1.2
|
|
|
0.1
|
|
Total
|
$
|
7.7
|
|
|
$
|
3.0
|
|
|
$
|
7.0
|
|
|
$
|
1.4
|
|
A master netting arrangement allows counterparties to net settle amounts owed to each other as a result of separate offsetting derivative transactions. We enter into master netting arrangements with our counterparties when possible to mitigate credit risk in derivative transactions by permitting us to net settle for transactions with the same counterparty. However, we do not net settle with such counterparties. As a result, we present derivatives at their gross fair values in the consolidated balance sheets.
As of March 31, 2016 and December 31, 2015, information related to these offsetting arrangements was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
As of March 31, 2016
|
Offsetting of Assets
|
Gross Amounts of Recognized Assets
|
|
Gross Amounts Offset in the Consolidated Balance Sheets
|
|
Net Presented in the Consolidated Balance Sheets
|
|
Amount Subject to Master Netting Agreement
|
|
Net Amount
|
Derivatives
|
$
|
7.7
|
|
|
$
|
—
|
|
|
$
|
7.7
|
|
|
$
|
(3.6
|
)
|
|
$
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
Offsetting of Liabilities
|
Gross Amounts of Recognized Liabilities
|
|
Gross Amounts Offset in the Consolidated Balance Sheets
|
|
Net Presented in the Consolidated Balance Sheets
|
|
Amount Subject to Master Netting Agreement
|
|
Net Amount
|
Derivatives
|
$
|
8.1
|
|
|
$
|
—
|
|
|
$
|
8.1
|
|
|
$
|
(3.6
|
)
|
|
$
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
As of December 31, 2015
|
Offsetting of Assets
|
Gross Amounts of Recognized Assets
|
|
Gross Amounts Offset in the Consolidated Balance Sheets
|
|
Net Presented in the Consolidated Balance Sheets
|
|
Amount Subject to Master Netting Agreement
|
|
Net Amount
|
Derivatives
|
$
|
7.0
|
|
|
$
|
—
|
|
|
$
|
7.0
|
|
|
$
|
(1.7
|
)
|
|
$
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
Offsetting of Liabilities
|
Gross Amounts of Recognized Liabilities
|
|
Gross Amounts Offset in the Consolidated Balance Sheets
|
|
Net Presented in the Consolidated Balance Sheets
|
|
Amount Subject to Master Netting Agreement
|
|
Net Amount
|
Derivatives
|
$
|
2.9
|
|
|
$
|
—
|
|
|
$
|
2.9
|
|
|
$
|
(1.7
|
)
|
|
$
|
1.2
|
|
The following table presents the location and amount of the gain (loss) on foreign currency derivatives and on the remeasurement of assets and liabilities denominated in foreign currencies, as well as the net impact recognized in the 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
March 31,
|
(In millions)
|
|
|
|
2016
|
|
2015
|
Foreign exchange contracts
|
|
Revenue
|
|
$
|
(0.5
|
)
|
|
$
|
0.1
|
|
Foreign exchange contracts
|
|
Cost of sales
|
|
(0.1
|
)
|
|
(0.9
|
)
|
Foreign exchange contracts
|
|
Other income, net
|
|
(0.2
|
)
|
|
0.1
|
|
Total
|
|
|
|
(0.8
|
)
|
|
(0.7
|
)
|
Remeasurement of assets and liabilities in foreign currencies
|
|
|
|
(0.3
|
)
|
|
(0.7
|
)
|
Net loss on foreign currency transactions
|
|
|
|
$
|
(1.1
|
)
|
|
$
|
(1.4
|
)
|
Interest Rates
: We have entered into interest rate swaps to fix the interest rate applicable to certain of our variable-rate debt, including a new forward starting interest rate swap entered into on January 15, 2016 covering the period beginning January 19, 2017 to January 19, 2021. The agreements swap one-month LIBOR for fixed rates. We have designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income.
At March 31, 2016, the fair value recorded in other liabilities on the condensed consolidated balance sheet is
$5.1 million
. The effective portion of these derivatives designated as cash flow hedges of
$3.0 million
has been reported in other comprehensive income (loss), net of tax, on the condensed consolidated statements of comprehensive income (loss) as of March 31, 2016.
Ineffectiveness from cash flow hedges, all of which are interest rate swaps, was immaterial as of March 31, 2016.
Refer to Note 9. Fair Value of Financial Instruments, for a description of how the values of the above financial instruments are determined.
Credit Risk
By their nature, financial instruments involve risk including credit risk for non-performance by counterparties. Financial instruments that potentially subject us to credit risk primarily consist of trade receivables and derivative contracts. We manage the credit risk on financial instruments by transacting only with financially secure counterparties, requiring credit approvals and establishing credit limits, and monitoring counterparties’ financial condition. Our maximum exposure to credit loss in the event of non-performance by the counterparty is limited to the amount drawn and outstanding on the financial instrument. Allowances for losses are established based on collectability assessments.
NOTE 11. COMMITMENTS AND CONTINGENCIES
In the normal course of our business, we are at times subject to pending and threatened legal actions, some for which the relief or damages sought may be substantial. Although we are not able to predict the outcome of such actions, after reviewing all pending and threatened actions with counsel and based on information currently available, management believes that the outcome of such actions, individually or in the aggregate, will not have a material adverse effect on our results of operations or financial position. However, it is possible that the ultimate resolution of such matters, if unfavorable, may be material to our results of operations in a particular future period as the time and amount of any resolution of such actions and its relationship to the future results of operations are not currently known.
Liabilities are established for pending legal claims only when losses associated with the claims are judged to be probable, and the loss can be reasonably estimated. In many lawsuits and arbitrations, it is not considered probable that a liability has been incurred or not possible to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case no liability would be recognized until that time.
We are currently the subject of an audit being conducted by the State of Delaware to determine whether we have complied with Delaware unclaimed property (escheat) laws. This audit is being conducted by an outside firm on behalf of the State of Delaware and covers the years from 1986 through the present. In addition to seeking the turnover of unclaimed property subject to escheat laws, the State of Delaware may seek interest, penalties, and other relief. We are not able to reasonably estimate a possible loss from this audit at this time.
Guarantees and Product Warranties
In the ordinary course of business with customers, vendors and others, we issue standby letters of credit, performance bonds, surety bonds and other guarantees. These financial instruments, which totaled
$194.4 million
at March 31, 2016, represent guarantees of our future performance. We also have provided
$6.5 million
of bank guarantees and letters of credit to secure a portion of our existing financial obligations. The majority of these financial instruments expire within
two years
; we expect to replace them through the issuance of new or the extension of existing letters of credit and surety bonds.
In some instances, we guarantee our customers’ financing arrangements. We are responsible for payment of any unpaid amounts but will receive indemnification from third parties for between
sixty
and
ninety-five
percent of the contract values. In addition, we generally retain recourse to the equipment sold. As of March 31, 2016, the gross value of such arrangements was
$8.8 million
, of which our net exposure under such guarantees is
$1.4 million
.
We provide warranties of various lengths and terms to certain of our customers based on standard terms and conditions and negotiated agreements. We provide for the estimated cost of warranties at the time revenue is recognized for products where reliable, historical experience of warranty claims and costs exists. We also provide a warranty liability when additional specific obligations are identified. The warranty obligation reflected in other current liabilities in the consolidated balance sheets is based on historical experience by product and considers failure rates and the related costs in correcting a product failure. Warranty cost and accrual information is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
(In millions)
|
2016
|
|
2015
|
Balance at beginning of period
|
$
|
12.5
|
|
|
$
|
10.2
|
|
Expense for new warranties
|
2.8
|
|
|
2.4
|
|
Adjustments to existing accruals
|
(0.2
|
)
|
|
—
|
|
Claims paid
|
(2.5
|
)
|
|
(2.4
|
)
|
Translation
|
0.2
|
|
|
(0.3
|
)
|
Balance at end of period
|
$
|
12.8
|
|
|
$
|
9.9
|
|
NOTE 12. 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
March 31,
|
(In millions)
|
2016
|
|
2015
|
Revenue
|
|
|
|
JBT FoodTech
|
$
|
177.5
|
|
|
$
|
139.2
|
|
JBT AeroTech
|
90.1
|
|
|
86.2
|
|
Intercompany eliminations
|
(0.5
|
)
|
|
(0.4
|
)
|
Total revenue
|
$
|
267.1
|
|
|
$
|
225.0
|
|
|
|
|
|
Income before income taxes
|
|
|
|
Segment operating profit:
|
|
|
|
JBT FoodTech
|
$
|
18.8
|
|
|
$
|
13.1
|
|
JBT AeroTech
|
8.5
|
|
|
8.4
|
|
Total segment operating profit
|
27.3
|
|
|
21.5
|
|
Corporate items:
|
|
|
|
Corporate expense
(1)
|
(10.4
|
)
|
|
(7.8
|
)
|
Restructuring expense
(2)
|
(7.2
|
)
|
|
—
|
|
Operating income
|
9.7
|
|
|
13.7
|
|
|
|
|
|
Net interest expense
|
(2.0
|
)
|
|
(1.8
|
)
|
Income from continuing operations before income taxes
|
$
|
7.7
|
|
|
$
|
11.9
|
|
(1)
Corporate expense generally includes corporate staff costs, stock-based compensation, pension and other postretirement benefit expenses not related to service, LIFO adjustments, certain foreign currency-related gains and losses, and the impact of unusual or strategic events not representative of segment operations.
(2)
Refer to Note 13.
NOTE 13. RESTRUCTURING
Restructuring costs primarily consist of employee separation benefits under our existing severance programs, foreign statutory termination benefits, certain one-time termination benefits, contract termination costs, asset impairment charges and other costs that are associated with restructuring actions. Certain restructuring charges are accrued prior to payments made in accordance with applicable guidance. For such charges, the amounts are determined based on estimates prepared at the time the restructuring actions were approved by management.
In the first quarter of 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 our general and administrative infrastructure. We have released
$0.3 million
of the charge, which we no longer expect to pay, during the first quarter of 2016 in connection with this plan. Remaining payments required under this plan are expected to be paid during 2016.
In the first quarter of 2016, we implemented our optimization program to realign FoodTech's Protein business in North America and Liquid Foods business in Europe, accelerate JBT's strategic sourcing initiatives, and consolidate smaller facilities. The total estimated cost in connection with this plan is in the range of
$11 million
to
$13 million
with
$7.5 million
recorded in the first quarter of 2016. We anticipate incurring an additional
$3 million
to
$4 million
by the end of 2016. All payments required under this plan are expected to be made during 2016 and 2017.
Additional information regarding the restructuring activities is presented in the tables below:
|
|
|
|
|
|
|
|
|
|
Charges incurred during the three months ended March 31,
|
(In millions)
|
2016
|
|
2015
|
Severance and related expense
|
$
|
5.9
|
|
|
$
|
—
|
|
Asset impairment
|
0.1
|
|
|
—
|
|
Other
|
1.2
|
|
|
—
|
|
Total Restructuring charges
|
$
|
7.2
|
|
|
$
|
—
|
|
The restructuring charges are associated with the FoodTech segment, and are excluded from our calculation of segment operating profit.
Liability balances for restructuring activities are included in other current liabilities in the accompanying condensed consolidated balance sheets. The table below details the activities in 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Balance as of
December 31, 2015
|
|
Charged to
Earnings
|
|
Payments Made
/Charges Applied
|
|
Foreign Exchange
Translation
|
|
Balance as of
March 31, 2016
|
Severance and related expense
|
$
|
2.6
|
|
|
$
|
5.9
|
|
|
$
|
(0.9
|
)
|
|
$
|
—
|
|
|
$
|
7.6
|
|
Asset impairment
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Other
|
—
|
|
|
1.2
|
|
|
(0.7
|
)
|
|
—
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
2.6
|
|
|
$
|
7.2
|
|
|
$
|
(1.6
|
)
|
|
$
|
—
|
|
|
$
|
8.2
|
|
NOTE 14. RELATED PARTY TRANSACTIONS
As a result of an acquisition, we continued a relationship with a supplier of parts for use in our manufacturing of equipment. The general manager who runs this acquired business was hired by JBT as a part of this acquisition, and he has a noncontrolling ownership interest in this supplier. We have made purchases from this supplier of
$0.8 million
and
$1.2 million
during the three months ended March 31, 2016 and 2015, respectively. We have an immaterial amount of outstanding accounts payable to this supplier as of March 31, 2016, and had
$0.3 million
as of March 31, 2015.