JBT MAREL Corp 10-Q for FY2022 Q3
JBT MAREL Corp (JBTM)
10-Q
2022-10-28
For: 2022-09-30
View Original
Added on
April 07, 2026
About this 10-Q
JBT MAREL Corp filed this 10-Q on October 28, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $555.4M
- up 16.3% from $477.4M a year earlier
- Net income
- $34.2M
- up 16.7% from net income of $29.3M a year earlier
- Diluted EPS
- $1.07
- up 17.6% from $0.91 a year earlier
| UNITED STATES | ||
| SECURITIES AND EXCHANGE COMMISSION | ||
| Washington, D.C. 20549 | ||
| FORM | |||||
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||||||||
For the quarterly period ended September 30, 2022
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
| (Exact name of registrant as specified in its charter) | |||||||||||||||||||||||
| (State or other jurisdiction of | (I.R.S. Employer | ||||||||||||||||||||||
| incorporation or organization) | Identification No.) | ||||||||||||||||||||||
| (Address of principal executive offices) | (Zip code) | ||||||||||||||||||||||
(312 ) 861-5900
(Registrant’s telephone number, including area code)
| Securities registered pursuant to section 12(b) of the Act: | ||||||||||||||
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||||||||
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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | ||||||||||
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 21, 2022 | |||||||
| Common Stock, par value $0.01 per share | ||||||||
1
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JOHN BEAN TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions, except per share data) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Product revenue | $ | $ | $ | $ | |||||||||||||||||||
| Service revenue | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Cost of products | |||||||||||||||||||||||
| Cost of services | |||||||||||||||||||||||
| Selling, general and administrative expense | |||||||||||||||||||||||
| Restructuring expense | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Pension expense, other than service cost | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Net income before income taxes | |||||||||||||||||||||||
| Income tax provision | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Basic earnings per share: | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share: | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
2
JOHN BEAN TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income, net of income taxes | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ( | |||||||||||||||||||
| Pension and other postretirement benefits adjustments | |||||||||||||||||||||||
| Derivatives designated as hedges | |||||||||||||||||||||||
| Other comprehensive income | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
3
JOHN BEAN TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (In millions, except per share data and number of shares) | September 30, 2022 | December 31, 2021 | |||||||||
| Assets: | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Trade receivables, net of allowances | |||||||||||
| Contract assets | |||||||||||
| Inventories | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
Property, plant and equipment, net of accumulated depreciation of $ | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| Liabilities and Stockholders' Equity: | |||||||||||
| Current Liabilities: | |||||||||||
| Short-term debt | $ | $ | |||||||||
| Accounts payable, trade and other | |||||||||||
| Advance and progress payments | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Accrued pension and other postretirement benefits, less current portion | |||||||||||
| Other liabilities | |||||||||||
| Commitments and contingencies (Note 13) | |||||||||||
| Stockholders' Equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
Common stock held in treasury, at cost September 30, 2022: | ( | ||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders' equity | |||||||||||
| Total Liabilities and Stockholders' Equity | $ | $ | |||||||||
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
4
JOHN BEAN TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation | |||||||||||
| Other | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Trade receivables, net and contract assets | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Accounts payable, trade and other | |||||||||||
| Advance and progress payments | |||||||||||
| Accrued pension and other postretirement benefits, net | ( | ( | |||||||||
| Other assets and liabilities, net | ( | ||||||||||
| Cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisitions, net of cash acquired | ( | ( | |||||||||
| Capital expenditures | ( | ( | |||||||||
| Proceeds from disposal of assets | |||||||||||
| Cash required by investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Net payments on short-term debt | ( | ||||||||||
| Net proceeds (payments) for domestic credit facilities | ( | ||||||||||
| Proceeds from issuance of 2026 convertible senior notes, net of issuance costs | |||||||||||
| Purchase of convertible bond hedge | ( | ||||||||||
| Proceeds from sale of warrants | |||||||||||
| Settlement of taxes withheld on stock-based compensation awards | ( | ( | |||||||||
| Payment of acquisition date earnout liability | ( | ||||||||||
| Dividends | ( | ( | |||||||||
| Common stock repurchases | ( | ||||||||||
| Cash provided by financing activities | |||||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | ( | ( | |||||||||
| (Decrease) increase in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents, beginning of period | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
| Supplemental Cash Flow Information: | |||||||||||
| Non-cash investing in capital expenditures, accrued but not paid | $ | $ | |||||||||
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
5
JOHN BEAN TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
| Three Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||
| (In millions) | Common Stock | Common Stock Held in Treasury | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Equity | |||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of treasury stock | — | ( | — | — | |||||||||||||||||||||||||||||||
| Share repurchases | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||
Common stock cash dividends, $ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of income taxes of ($ | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Derivatives designated as hedges, net of income taxes of ($ | — | — | — | — | |||||||||||||||||||||||||||||||
Pension and other postretirement liability adjustments, net of income taxes of ($ | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||
| (In millions) | Common Stock | Common Stock Held in Treasury | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Equity | |||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of treasury stock | — | ( | — | — | |||||||||||||||||||||||||||||||
| Share repurchases | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||
Common stock cash dividends, $ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of income taxes of ($ | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Derivatives designated as hedges, net of income taxes of ($ | — | — | — | — | |||||||||||||||||||||||||||||||
Pension and other postretirement liability adjustments, net of income taxes of ($ | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Taxes withheld on issuance of stock-based awards | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
6
| Three Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||
| (In millions) | Common Stock | Common Stock Held in Treasury | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Equity | |||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
Common stock cash dividends, $ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of income taxes of ($ | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Derivatives designated as hedges, net of income taxes of ($ | — | — | — | — | |||||||||||||||||||||||||||||||
Pension and other postretirement liability adjustments, net of income taxes of ($ | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Taxes withheld on issuance of stock-based awards | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||
| (In millions) | Common Stock | Common Stock Held in Treasury | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Equity | |||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of treasury stock | — | ( | — | — | |||||||||||||||||||||||||||||||
Common stock cash dividends, $ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of income taxes of ($ | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Derivatives designated as hedges, net of income taxes of ($ | — | — | — | — | |||||||||||||||||||||||||||||||
| Proceeds from sale of warrants | — | — | — | — | |||||||||||||||||||||||||||||||
Purchase of convertible bond hedge, net of income tax of $ | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
Pension and other postretirement liability adjustments, net of income taxes of ($ | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Taxes withheld on issuance of stock-based awards | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
7
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 (the “Company,” “JBT,” “our,” “us,” or “we”) provide global technology solutions to high-value segments of the food and beverage and air transportation industries. The Company designs, produces and services sophisticated products and systems for multi-national and regional customers through JBT FoodTech and JBT AeroTech segments. The Company has manufacturing operations worldwide that are strategically located to facilitate delivery of its products and services to its 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 Annual Report on Form 10-K for the year ended December 31, 2021, which provides a more complete description 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, but does not include all annual disclosures required by accounting principles generally accepted in the United States of America.
In the opinion of management, the interim financial statements reflect all normal recurring adjustments necessary for a fair statement of the Company's 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 the interim financial statements may not be representative of those for the full year or any future period.
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 revenue and expenses during the reporting period. Actual results could differ from these estimates.
Recently Issued Accounting Standards Not Yet Adopted
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This standard is effective for annual periods beginning after December 15, 2021 and should be applied either prospectively or retrospectively. The Company is currently evaluating the impact of adopting ASU 2021-10 within its Form 10-K for the fiscal year 2022.
8
NOTE 2. ACQUISITIONS
During the nine months ended September 30, 2022 and fiscal year 2021 the Company acquired 100 % of voting equity of two and three businesses, respectively. A summary of the acquisitions made during the periods is as follows:
| Date | Type | Company/Product Line | Location (Near) | Segment | ||||||||||||||||||||||
| September 1, 2022 | Stock | Bevcorp, LLC ("Bevcorp") | Eastlake, Ohio | JBT FoodTech | ||||||||||||||||||||||
| A provider of beverage processing and packaging solutions in blending, handling, filling, and closing technologies. The Bevcorp acquisition expands the Company's presence in the ready-to-drink carbonated beverage production market and provides significant cross-selling opportunity in filling and seaming food and beverage applications. | ||||||||||||||||||||||||||
| July 1, 2022 | Stock | Alco-food-machines GmbH & Co. KG ("Alco") | Bad Iburg, Germany | JBT FoodTech | ||||||||||||||||||||||
| A provider of further food processing equipment and production lines for a broad range of food applications. The Alco acquisition extends the Company's capabilities in further processing offerings and strengthens existing full line offerings. | ||||||||||||||||||||||||||
| November 2, 2021 | Stock | Urtasun Tecnología Alimentaria S.L ("Urtasun") | Navarra, Spain | JBT FoodTech | ||||||||||||||||||||||
| A provider of fruit and vegetable processing solutions, particularly in the fresh packaged and frozen markets. The Urtasun acquisition extends the Company's capabilities in providing fruit and vegetable processing solutions. | ||||||||||||||||||||||||||
| July 2, 2021 | Stock | CMS Technology, Inc ("Prevenio") | Bridgewater, New Jersey | JBT FoodTech | ||||||||||||||||||||||
| A provider of innovative food safety solutions primarily for the poultry industry as well as produce applications. Prevenio provides a pathogen protection solution through its anti-microbial delivery equipment that enhances food safety and integrity, and creates a safer work environment for its customers and their employees. This acquisition enhances the Company’s recurring revenue portfolio and furthers its investment in solutions that support its customers’ daily operations. | ||||||||||||||||||||||||||
| February 28, 2021 | Stock | AutoCoding Systems Ltd. ("ACS") | Cheshire, U.K. | JBT FoodTech | ||||||||||||||||||||||
| A provider of a central command solution for the integration of packaging process devices. The ACS acquisition extends the Company's capabilities in packaging line equipment and associated devices, including coding and label inspection and verification. | ||||||||||||||||||||||||||
9
| (In millions) | Bevcorp(1) | Alco(1) | Urtasun(2) | Prevenio(3) | ACS(4) | Total | |||||||||||||||||||||||||||||
| Financial assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Inventories | |||||||||||||||||||||||||||||||||||
| Property, plant and equipment | |||||||||||||||||||||||||||||||||||
Customer relationship (5) | |||||||||||||||||||||||||||||||||||
Patents and acquired technology (5) | |||||||||||||||||||||||||||||||||||
Trademarks (5) | |||||||||||||||||||||||||||||||||||
| Deferred taxes | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Financial liabilities | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Total identifiable net assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Cash consideration paid | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Cash acquired | |||||||||||||||||||||||||||||||||||
| Net consideration | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Goodwill (6) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
(1)The purchase accounting for each of Alco and Bevcorp is provisional. The valuation of certain working capital balances, property, plant and equipment, intangibles, income tax balances and residual goodwill is not complete. For each, these amounts are subject to adjustment as additional information is obtained within the measurement period (not to exceed 12 months from the acquisition date).
(2)The purchase accounting for Urtasun is final as of September 30, 2022. During the quarter ended September 30, 2022, the Company made no significant measurement period adjustments for this acquisition.
(3)The purchase accounting for Prevenio was final as of June 30, 2022.
(4)The purchase accounting for ACS was final as of December 31, 2021.
(5)The acquired intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from to twenty-four years . The intangible assets acquired during the nine months ended September 30, 2022 and fiscal year 2021 have weighted average useful lives of 19 years for customer relationship, 8 years for patents and acquired technology, and 22 years for trademarks.
Bevcorp and Alco had aggregate revenue of $17.2 million and aggregate operating loss of $0.3 million for the period subsequent to their respective acquisition dates through September 30, 2022.
10
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, 2021 | $ | $ | $ | ||||||||||||||
| Acquisitions | |||||||||||||||||
| Currency translation | ( | ( | ( | ||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | ||||||||||||||
Intangible assets consisted of the following:
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| (In millions) | Gross carrying amount | Accumulated amortization | Gross carrying amount | Accumulated amortization | |||||||||||||||||||
| Customer relationship | $ | $ | $ | $ | |||||||||||||||||||
| Patents and acquired technology | |||||||||||||||||||||||
| Trademarks | |||||||||||||||||||||||
| Non-amortizing intangible assets | — | — | |||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total intangible assets | $ | $ | $ | $ | |||||||||||||||||||
NOTE 4. INVENTORIES
Inventories consisted of the following:
| (In millions) | September 30, 2022 | December 31, 2021 | |||||||||
| Raw materials | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Gross inventories before LIFO reserves and valuation adjustments | |||||||||||
| LIFO reserves | ( | ( | |||||||||
| Valuation adjustments | ( | ( | |||||||||
| Net inventories | $ | $ | |||||||||
NOTE 5. PENSION
Components of net periodic benefit cost were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Settlement charge | |||||||||||||||||||||||
| Amortization of net actuarial losses | |||||||||||||||||||||||
| Net periodic cost | $ | $ | $ | $ | |||||||||||||||||||
11
NOTE 6. DEBT
The components of the Company's borrowings were as follows:
| (In millions) | Maturity Date | September 30, 2022 | December 31, 2021 | ||||||||||||||
Revolving credit facility (1) | $ | $ | |||||||||||||||
| Less: unamortized debt issuance costs | $ | ( | $ | ( | |||||||||||||
| Revolving credit facility, net | $ | $ | |||||||||||||||
Convertible senior notes (2) | $ | $ | |||||||||||||||
| Less: unamortized debt issuance costs | $ | ( | $ | ( | |||||||||||||
| Convertible senior notes, net | $ | $ | |||||||||||||||
| Long-term debt, net | $ | $ | |||||||||||||||
(1) Weighted-average interest rate at September 30, 2022 was 3.24 %
(2) Effective interest rate for the Notes (as defined below) for the quarter ended September 30, 2022 was 0.82 %
Components of interest expense recognized for the 0.25 % Convertible Senior Notes due 2026 (the "Notes") were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Contractual interest expense | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost related to amortization of issuance costs | |||||||||||||||||||||||
| Total interest expense | $ | $ | $ | $ | |||||||||||||||||||
Convertible Note Hedge Transactions
On May 28, 2021, the Company closed a private offering of $402.5 million aggregate principal amount of the Notes to qualified institutional buyers. The initial conversion rate of the Notes is 5.8958 shares of the Company's common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $169.61 per share. The conversion rate of the Notes is subject to adjustment upon the occurrence of certain specified events.
On May 28, 2021, the Company paid an aggregate amount of $65.6 million for the Convertible Note Hedge Transactions (the "Hedge Transactions"). The Hedge Transactions cover, subject to anti-dilution adjustments substantially similar to those in the Notes, approximately 2.4 million shares of the Company's common stock. These are the same number of shares initially underlying the Notes, at a strike price of $169.61 , subject to customary adjustments. The Hedge Transactions will expire upon the maturity of the Notes, subject to earlier exercise or termination.
The Hedge Transactions are expected generally to reduce the potential dilutive effect of the conversion of the Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted Notes, in the event that the market price per share of the Company's common stock, as measured under the terms of the Hedge Transactions, is greater than the Hedge Transactions strike price of $169.61 . The Hedge Transactions meet the criteria in ASC 815-40 to be classified within Stockholders' Equity, and therefore these transactions are not revalued after their issuance.
The Company made a tax election to integrate the Notes and the Hedge Transactions. The accounting impact of this tax election makes the Hedge Transactions deductible as original issue discount interest for tax purposes over the term of the note, and results in a $17.1 million deferred tax asset recorded as an adjustment to Additional paid-in capital on our Balance Sheet as of September 30, 2022.
12
Warrant Transactions
In addition, concurrently with entering into the Hedge Transactions, the Company separately entered into privately-negotiated Warrant Transactions (the "Warrant Transactions"), whereby the Company sold to the counterparties warrants to acquire, collectively, subject to anti-dilution adjustments, 2.4 million shares of its common stock at an initial strike price of $240.02 per share. The Company received aggregate proceeds of $29.5 million from the Warrant Transactions with the counterparties, with such proceeds partially offsetting the costs of entering into the Hedge Transactions. The warrants expire in August 2026. If the market value per share of the common stock, exceeds the strike price of the warrants, the warrants will have a dilutive effect on our earnings per share, unless the Company elects, subject to certain conditions, to settle the warrants in cash. The warrants meet the criteria in ASC 815-40 to be classified within Stockholders' Equity, and therefore the warrants are not revalued after issuance.
NOTE 7. 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 the Company, AOCI is 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 September 30, 2022 and 2021 by component are shown in the following tables:
Pension and Other Postretirement Benefits (1) | Derivatives Designated as Hedges (1) | Foreign Currency Translation (1) | Total (1) | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Beginning balance, June 30, 2022 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Other comprehensive income (loss) before reclassification | ( | ( | |||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | ( | ( | |||||||||||||||||||||
| Ending balance, September 30, 2022 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
(1) All amounts are net of income taxes.
Reclassification adjustments from AOCI into earnings for pension and other postretirement benefit plans for the three months ended September 30, 2022 were $1.9 million of charges to pension expense, other than service cost, net of $0.5 million income tax benefit. Reclassification adjustments for derivatives designated as hedges for the same period were $0.9 million of interest income, net of $0.2 million income tax provision.Reclassification adjustments for foreign currency translation related to net investment hedges for the three months ended September 30, 2022 were $0.8 million of benefit in interest expense, net of $0.2 million income tax provision.
Pension and Other Postretirement Benefits (1) | Derivatives Designated as Hedges (1) | Foreign Currency Translation(1) | Total (1) | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Beginning balance, June 30, 2021 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive income (loss) before reclassification | ( | ( | ( | ||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | ( | ||||||||||||||||||||||
| Ending balance, September 30, 2021 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
(1) All amounts are net of income taxes.
Reclassification adjustments from AOCI into earnings for pension and other postretirement benefit plans for the three months ended September 30, 2021 were $2.3 million of charges to pension expense, other than service cost, net of $0.6 million in benefit for income taxes. Reclassification adjustments for derivatives designated as hedges for the same period were $0.5 million of interest expense, net of $0.2 million income tax benefit. Reclassification adjustments for foreign currency translation related to net investment hedges for the three months ended September 30, 2021 were $0.8 million of benefit in interest expense, net of $0.2 million income tax provision.
13
Pension and Other Postretirement Benefits (1) | Derivatives Designated as Hedges (1) | Foreign Currency Translation (1) | Total (1) | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Beginning balance, December 31, 2021 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Other comprehensive income (loss) before reclassification | ( | ( | |||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | ( | ( | |||||||||||||||||||||
| Ending balance, September 30, 2022 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
(1) All amounts are net of income taxes.
Reclassification adjustments from AOCI into earnings for pension and other postretirement benefit plans for the nine months ended September 30, 2022 were $5.9 million of charges to pension expense, other than service cost, net of $1.5 million income tax benefit. Reclassification adjustments for derivatives designated as hedges for the same period were $0.5 million of interest income, net of $0.1 million income tax provision. Reclassification adjustments for foreign currency translation related to net investment hedges for the nine months ended September 30, 2022 were $2.2 million of benefit in interest expense, net of $0.6 million income tax provision.
Pension and Other Postretirement Benefits (1) | Derivatives Designated as Hedges (1) | Foreign Currency Translation(1) | Total (1) | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Beginning balance, December 31, 2020 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive income before reclassification | |||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | ( | ||||||||||||||||||||||
| Ending balance, September 30, 2021 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
(1) All amounts are net of income taxes.
Reclassification adjustments from AOCI into earnings for pension and other postretirement benefit plans for the nine months ended September 30, 2021 were $6.9 million of charges to pension expense, other than service cost, net of $1.8 million in benefit for income taxes. Reclassification adjustments for derivatives designated as hedges for the same period were $1.4 million of interest expense, net of $0.4 million income tax benefit. Reclassification adjustments for foreign currency translation related to net investment hedges for the nine months ended September 30, 2021 were $2.2 million of benefit in interest expense, net of $0.6 million income tax provision.
NOTE 8. REVENUE RECOGNITION
Transaction price allocated to remaining performance obligations
The Company has estimated that $1.0 billion in revenue is expected to be recognized in the future periods related to remaining performance obligations from the Company's contracts with customers outstanding as of September 30, 2022. The Company expects to complete these obligations and recognize 45 % as revenue in 2022, 43 % in 2023, 11 % in 2024 and the remaining after 2024.
14
Disaggregation of Revenue
In the following table, revenue is disaggregated by type of good or service, primary geographical market, and timing of recognition for each reportable segment. The table also includes a reconciliation of the disaggregated revenue to total revenue of each reportable segment.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | September 30, 2022 | ||||||||||||||||||||||
| (In millions) | JBT FoodTech | JBT AeroTech | JBT FoodTech | JBT AeroTech | |||||||||||||||||||
| Type of Good or Service | |||||||||||||||||||||||
Recurring (1) | $ | $ | $ | $ | |||||||||||||||||||
Non-recurring (1) | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
Geographical Region (2) | |||||||||||||||||||||||
| North America | |||||||||||||||||||||||
| Europe, Middle East and Africa | |||||||||||||||||||||||
| Asia Pacific | |||||||||||||||||||||||
| Latin America | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
| Timing of Recognition | |||||||||||||||||||||||
| Point in Time | |||||||||||||||||||||||
| Over Time | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2021 | September 30, 2021 | ||||||||||||||||||||||
| (In millions) | JBT FoodTech | JBT AeroTech | JBT FoodTech | JBT AeroTech | |||||||||||||||||||
| Type of Good or Service | |||||||||||||||||||||||
Recurring (1) | $ | $ | $ | $ | |||||||||||||||||||
Non-recurring (1) | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
Geographical Region (2) | |||||||||||||||||||||||
| North America | |||||||||||||||||||||||
| Europe, Middle East and Africa | |||||||||||||||||||||||
| Asia Pacific | |||||||||||||||||||||||
| Latin America | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
| Timing of Recognition | |||||||||||||||||||||||
| Point in Time | |||||||||||||||||||||||
| Over Time | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
(1) Aftermarket parts and services and revenue from lease and long-term service contracts are considered recurring revenue. Non-recurring revenue includes new equipment and installation.
(2) Geographical region represents the region in which the end customer resides.
15
Contract balances
The timing of revenue recognition, billings and cash collections results in trade receivables, contract assets, and advance and progress payments (contract liabilities). Contract assets exist when revenue recognition occurs prior to billings. Contract assets are transferred to trade receivables when the right to payment becomes unconditional (i.e., when receipt of the amount is dependent only on the passage of time). Conversely, the Company often receives payments from its customers before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the Balance Sheet as Contract assets and within Advance and progress payments, respectively, on a contract-by-contract net basis at the end of each reporting period.
Contract asset and liability balances for the period were as follows:
| Balances as of | |||||||||||
| (In millions) | September 30, 2022 | December 31, 2021 | |||||||||
| Contract Assets | $ | $ | |||||||||
| Contract Liabilities | |||||||||||
| Balances as of | |||||||||||
| September 30, 2021 | December 31, 2020 | ||||||||||
| Contract Assets | |||||||||||
| Contract Liabilities | |||||||||||
NOTE 9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share from net income for the respective periods and basic and diluted shares outstanding:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions, except per share data) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Basic earnings per share: | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average number of shares outstanding | |||||||||||||||||||||||
| Basic earnings per share from net income | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share: | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average number of shares outstanding | |||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Restricted stock | |||||||||||||||||||||||
| Total shares and dilutive securities | |||||||||||||||||||||||
| Diluted earnings per share from net income | $ | $ | $ | $ | |||||||||||||||||||
16
NOTE 10. 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 that the Company can assess at the measurement date.
•Level 2: Observable inputs other than those included in Level 1 that are observable for the asset or liability, either directly or indirectly. 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, 2022 | As of December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||
| Investments | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Derivatives | |||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
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 the Company has the ability to access. Investments are reported separately in other assets on the Balance Sheet, and include an unrealized loss of $4.2 million and $0.5 million as of September 30, 2022 and December 31, 2021, respectively.
The Company uses 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 Notes are not registered securities nor listed on any securities exchange but may be traded by qualified institutional buyers. The fair value of the Notes estimated using Level 2 inputs was $336.6 million as of September 30, 2022.
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 of the Company's revolving credit facility recorded in long-term debt on the Balance Sheet approximate their fair values due to their variable interest rates.
NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Derivative Financial Instruments
All derivatives are recorded as assets or liabilities in the Balance Sheet at their respective fair values. For derivatives designated as cash flow hedges, the unrealized gain or loss related to the derivatives is recorded in Other comprehensive income (loss) until the hedged transaction affects earnings. The Company assesses at inception of the hedge, whether the derivative in the hedging transaction will be highly effective in offsetting changes in cash flows of the hedged item. Changes in the fair value of derivatives that do not meet the criteria for designation as a hedge are recognized in earnings.
17
Foreign Exchange: The Company manufactures and sells products in a number of countries throughout the world and, as a result, the Company is exposed to movements in foreign currency exchange rates. Major foreign currency exposures involve the markets in Western Europe, South America and Asia. Some of the Company's sales and purchase contracts contain embedded derivatives due to the nature of doing business in certain jurisdictions, which are taken into consideration as part of the Company's risk management policy. The purpose of the Company's 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. The Company primarily utilizes forward foreign exchange contracts with maturities of less than 2 years in managing this foreign exchange rate risk. The Company has not designated these forward foreign exchange contracts, which had a notional value at September 30, 2022 of $705.2 million, as hedges and therefore does not apply hedge accounting.
Commodity Price Risk: The Company's operations subject us to risk related to the price volatility of certain commodities. We principally use a combination of purchase orders and various short-term supply arrangements in connection with the purchase of our raw materials and components required to manufacture our products. To mitigate the commodity price risk associated with the Company's operations, the Company may enter into commodity derivative instruments. During April 2022, the Company entered into various commodity forward contracts with a maturity of less than 1 year to mitigate this commodity price volatility. The Company has not designated these commodity forward contracts, which had a notional value at September 30, 2022 of $0.8 million, as hedges and therefore does not apply hedge accounting.
The fair values of our foreign currency and commodity derivative assets are recorded within other current assets and other assets, and the fair values of foreign currency and commodity derivative liabilities are recorded within other current liabilities and other liabilities. The following table presents the fair value of foreign currency derivatives and embedded derivatives included within the Balance Sheet:
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||||||||||||||
| (In millions) | Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | |||||||||||||||||||
| Foreign exchange contracts | $ | $ | $ | $ | |||||||||||||||||||
| Commodity contracts | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
A master netting arrangement allows counterparties to net settle amounts owed to each other as a result of separate offsetting derivative transactions. The Company enters into master netting arrangements with its counterparties for foreign exchange contracts, when possible, to mitigate credit risk in derivative transactions by permitting the Company to net settle for transactions with the same counterparty. However, it does not net settle with such counterparties. As a result, derivatives are presented at their gross fair values in the Balance Sheet.
18
As of September 30, 2022 and December 31, 2021, information related to these offsetting arrangements was as follows:
| (In millions) | As of September 30, 2022 | ||||||||||||||||||||||||||||
| Offsetting of Assets | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Consolidated Balance Sheet | Net Presented in the Consolidated Balance Sheet | Amount Subject to Master Netting Agreement | Net Amount | ||||||||||||||||||||||||
| Derivatives | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| (In millions) | As of September 30, 2022 | ||||||||||||||||||||||||||||
| Offsetting of Liabilities | Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Consolidated Balance Sheet | Net Presented in the Consolidated Balance Sheet | Amount Subject to Master Netting Agreement | Net Amount | ||||||||||||||||||||||||
| Derivatives | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| (In millions) | As of December 31, 2021 | ||||||||||||||||||||||||||||
| Offsetting of Assets | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Consolidated Balance Sheet | Net Presented in the Consolidated Balance Sheet | Amount Subject to Master Netting Agreement | Net Amount | ||||||||||||||||||||||||
| Derivatives | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| (In millions) | As of December 31, 2021 | ||||||||||||||||||||||||||||
| Offsetting of Liabilities | Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Consolidated Balance Sheet | Net Presented in the Consolidated Balance Sheet | Amount Subject to Master Netting Agreement | Net Amount | ||||||||||||||||||||||||
| Derivatives | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
The following table presents the location and amount of the gain (loss) on foreign currency and commodity derivatives and on the remeasurement of assets and liabilities denominated in foreign currencies, as well as the net impact recognized in the Income Statement:
| Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivatives | Amount of Gain (Loss) Recognized in Income | |||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
| Foreign exchange contracts | Revenue | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||
| Foreign exchange contracts | Cost of sales | ( | ( | ( | |||||||||||||||||||||||||
| Foreign exchange contracts | Selling, general and administrative expense | ||||||||||||||||||||||||||||
| Commodity contracts | Cost of sales | ( | ( | ||||||||||||||||||||||||||
| Total | ( | ( | ( | ||||||||||||||||||||||||||
| Remeasurement of assets and liabilities in foreign currencies | ( | ||||||||||||||||||||||||||||
| Net gain (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||
Interest Rates: The Company has entered into four interest rate swaps executed in March 2020 with a combined notional amount of $200 million expiring in April 2025, and one interest rate swap executed in May 2020 with a notional amount of $50 million expiring in May 2025. These interest rate swaps fix the interest rate applicable to certain of the Company's variable-rate debt. The agreements swap one-month LIBOR for fixed rates. The Company has designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income (loss).
At September 30, 2022, the fair value of these derivatives designated as cash flow hedges were recorded in the Balance Sheet as other assets of $20.6 million and as accumulated other comprehensive income, net of tax, of $15.3 million.
19
Net Investment: The Company has entered into a cross currency swap agreement that synthetically swaps $116.4 million of fixed rate debt to Euro denominated fixed rate debt. The agreement is designated as a net investment hedge for accounting purposes. Accordingly, the gain or loss on this derivative instrument is included in the foreign currency translation component of other comprehensive income until the net investment is sold, diluted, or liquidated. Coupons received for the cross currency swap are excluded from the net investment hedge effectiveness assessment and are recorded in interest expense, net on the condensed consolidated statements of income. Coupon interest from cross currency swap agreement recorded in interest expense, net was approximately $2.2
At September 30, 2022, the fair value of these derivatives designated as net investment hedges were recorded in the Balance Sheet as other current assets of $18.5 million and as accumulated other comprehensive income, net of tax, of $13.7 million.
Refer to Note 10. 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 the Company to credit risk primarily consist of trade receivables and derivative contracts. The Company manages 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. Maximum exposure to credit loss in the event of non-performance by the counterparty, for all receivables and derivative contracts as of September 30, 2022, is limited to the amount drawn and outstanding on the financial instrument. Refer to Note 1. Description of Business and Basis of Presentation in Item 8. Financial Statements and Supplementary Data of the Company's most recent Annual Report on Form 10-K, for a description of how allowance for credit loss is determined on financial assets measured at amortized cost, which includes Trade receivables, Contract assets, and non-current receivables.
NOTE 12. LEASES
The following table provides the required information regarding operating and sales-type leases for which the Company is lessor.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Fixed payment revenue | $ | $ | $ | $ | |||||||||||||||||||
| Variable payment revenue | |||||||||||||||||||||||
| Operating lease revenue | $ | $ | $ | $ | |||||||||||||||||||
| Sales-type lease revenue | $ | $ | $ | $ | |||||||||||||||||||
Refer to Note 16. Related Party Transactions for details of operating lease agreements with related parties.
NOTE 13. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is at times subject to pending and threatened legal actions, some for which the relief or damages sought may be substantial. Although the Company is 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 the Company's results of operations or financial position. However, it is possible that the ultimate resolution of such matters, if unfavorable, may be material to its 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.
20
Guarantees and Product Warranties
In the ordinary course of business with customers, vendors and others, the Company issues standby letters of credit, performance bonds, surety bonds and other guarantees. These financial instruments, which totaled $140.2 million at September 30, 2022, represent guarantees of future performance. The Company has also provided $6.2 million of bank guarantees and letters of credit to secure a portion of its existing financial obligations. The majority of these financial instruments expire within one year and are expected to be replaced through the issuance of new or the extension of existing letters of credit and surety bonds.
In some instances, the Company guarantees its customers’ financing arrangements. The Company is responsible for payment of any unpaid amounts, but will receive indemnification from third parties for ninety-five percent of the contract values. In addition, the Company generally retains recourse to the equipment sold. As of September 30, 2022, the gross value of such arrangements was $1.5 million, of which the Company's net exposure under such guarantees was $0.3 million.
The Company provides warranties to certain of its customers based on standard terms and conditions and negotiated agreements. The Company provides for the estimated cost of warranties at the time revenue is recognized. Cost of warranties includes an estimate for products where reliable, historical experience of failure rates, as well as the related costs in correcting a product failure warranty claims and cost exist. The Company also provides a warranty liability when additional specific warranty costs are identified. The warranty obligation reflected in other current liabilities in the consolidated Balance Sheet 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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Expense for new warranties | |||||||||||||||||||||||
| Adjustments to existing accruals | ( | ( | ( | ||||||||||||||||||||
| Claims paid | ( | ( | ( | ( | |||||||||||||||||||
| Added through acquisition | |||||||||||||||||||||||
| Translation | ( | ( | ( | ( | |||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | |||||||||||||||||||
NOTE 14. BUSINESS SEGMENT INFORMATION
Operating segments for the Company are determined based on information used by the chief operating decision maker (CODM) in deciding how to evaluate performance and allocate resources to each of the segments. JBT’s CODM is the Chief Executive Officer (CEO). While there are many measures the CEO reviews in this capacity, the key segment measures reviewed include operating profit, EBITDA, adjusted when applicable, and EBITDA margins.
Reportable segments are:
•JBT FoodTech—provides comprehensive solutions throughout the food production value chain extending from primary processing through packaging systems for a large variety of food and beverage groups, including poultry, beef, pork, seafood, ready-to-eat meals, fruits, vegetables, dairy, bakery, pet foods, soups, sauces, plant-based meats, juices, and carbonated beverages.
•JBT AeroTech— supplies customized solutions and services used for applications in the air transportation industry, including airport authorities, airlines, airfreight, ground handling companies, militaries and defense contractors.
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 expense, restructuring costs, pension expense, other than service cost, interest income and expense, and income taxes. See the table below for further details on corporate expense.
21
Business segment information was as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| JBT FoodTech | $ | $ | $ | $ | |||||||||||||||||||
| JBT AeroTech | |||||||||||||||||||||||
| Other revenue and intercompany eliminations | ( | ( | |||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Segment operating profit: | |||||||||||||||||||||||
| JBT FoodTech | |||||||||||||||||||||||
| JBT AeroTech | |||||||||||||||||||||||
| Total segment operating profit | |||||||||||||||||||||||
| Corporate items: | |||||||||||||||||||||||
Corporate expense (1) | |||||||||||||||||||||||
Restructuring expense (2) | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Pension expense, other than service cost | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Net income before income taxes | $ | $ | $ | $ | |||||||||||||||||||
(1)Corporate expense generally includes corporate staff-related expense, stock-based compensation, 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 15. Restructuring for further information on restructuring charges.
NOTE 15. RESTRUCTURING
Restructuring charges primarily consist of employee separation benefits under 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. Inventory write offs due to restructuring are reported in Cost of products and are included in each segment's operating profit given the nature of the item. All other restructuring charges that are reported as Restructuring expenses are excluded from the calculation of each segment's operating profit.
In the third quarter of 2020, the Company implemented a restructuring plan ("2020 restructuring plan") for manufacturing capacity rationalization affecting both the JBT FoodTech and JBT AeroTech segments. The Company completed the 2020 restructuring plan as of June 30, 2022. The total cost in connection with the 2020 restructuring plan was $11.0 million for FoodTech and $6.0 million for AeroTech.
In the third quarter of 2022, the Company implemented the first phase of a restructuring plan (the "2022/2023 restructuring plan") to optimize the overall JBT FoodTech cost structure on a global basis. The initiatives under this plan will include streamlining operations and enhancing our general and administrative infrastructure. The total cost as of September 30, 2022 related to this plan is $1.3 million.
22
The following table details the cumulative restructuring charges reported in operating income for the 2022 and 2020 restructuring plans since the implementation of these plans:
| Cumulative Amount | For the Three Months Ended | Cumulative Amount | |||||||||||||||||||||||||||
| (In millions) | Balance as of December 31, 2021 | March 31, 2022 | June 30, 2022 | September 30, 2022 | Balance as of September 30, 2022 | ||||||||||||||||||||||||
| 2020 restructuring plan | |||||||||||||||||||||||||||||
| Severance and related expense | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Inventory write-off | |||||||||||||||||||||||||||||
| Employee overlap costs | |||||||||||||||||||||||||||||
| Retention bonus | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| 2022/2023 restructuring plan | |||||||||||||||||||||||||||||
| Severance and related expense | |||||||||||||||||||||||||||||
| Total Restructuring charges | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Restructuring charges, net of related release of liability, is reported within the following financial statement line items of the accompanying Consolidated Statements of Income:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Cost of products (1) | |||||||||||||||||||||||
| Restructuring expense | |||||||||||||||||||||||
| Total restructuring charge | $ | $ | $ | $ | |||||||||||||||||||
(1) Restructuring charge reported in Cost of products is related to inventory write-off resulting from the 2020 restructuring plan.
Liability balances for restructuring activities are included in other current liabilities in the accompanying Balance Sheet. The table below details the activities in 2022:
| Impact to Earnings | |||||||||||||||||||||||||||||
| (In millions) | Balance as of December 31, 2021 | Charged to Earnings | Releases | Cash Payments | Balance as of September 30, 2022 | ||||||||||||||||||||||||
| 2020 restructuring plan | |||||||||||||||||||||||||||||
| Severance and related expense | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||
| Employee overlap costs | ( | ||||||||||||||||||||||||||||
| Retention bonus | ( | ||||||||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||||||||
| 2022/2023 restructuring plan | |||||||||||||||||||||||||||||
| Severance and related expense | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||
The Company released $0.2 million of liability during the nine months ended September 30, 2022 which it no longer expects to pay in connection with the 2020 restructuring plan due to actual severance payments differing from the original estimates and natural attrition of employees.
NOTE 16. RELATED PARTY TRANSACTIONS
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on 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 the expected impact of the COVID-19 pandemic on our business and our results of operations, our plans to mitigate the impact of the pandemic, our strategic plans, our restructuring plans and expected cost savings from those plans, our liquidity and our covenant compliance. The factors that could cause our actual results to differ materially from expectations include but are not limited to the following factors:
•higher energy and other input costs adversely impacting financial condition of our customers, especially in Europe, and demand for our goods and services from our customers;
•impact of the on-going COVID-19 pandemic on our ability to operate our business and facilities, on our customers, on our workforce resulting in higher labor absenteeism, on our supply chains due to extended delivery times and unavailability of required components, labor and freight, on our cost of labor due to higher labor turnover and shortage of skilled labor and on the economy generally;
•fluctuations in our financial results;
•unanticipated delays or acceleration in our sales cycles;
•deterioration of economic conditions;
•disruptions in the political, regulatory, economic and social conditions of the countries in which we conduct business;
•changes to trade regulation, quotas, duties or tariffs;
•risks associated with acquisitions or strategic investments;
•fluctuations in currency exchange rates;
•increases in energy or raw material prices, freight costs, and inflationary pressures;
•changes in food consumption patterns;
•impacts of pandemic illnesses, food borne illnesses and diseases to various agricultural products;
•weather conditions and natural disasters;
•impact of climate change and environmental protection initiatives;
•our ability to comply with the laws and regulations governing our U.S. government contracts;
•acts of terrorism or war, including the current conflict between Russia and Ukraine;
•termination or loss of major customer contracts and risks associated with fixed-price contracts, particularly during periods of high inflation;
•customer sourcing initiatives;
•competition and innovation in our industries;
•difficulty in implementing our business strategies, including the timing of our previously announced review of strategic alternatives for the AeroTech platform, our ability to identify or develop any strategic alternatives, execute on material aspects of such strategic alternatives, and whether we can achieve the potential benefits of such strategic alternatives;
•our ability to develop and introduce new or enhanced products and services and keep pace with technological developments;
•difficulty in developing, preserving and protecting our intellectual property or defending claims of infringement;
•catastrophic loss at any of our facilities and business continuity of our information systems;
•cyber-security risks such as network intrusion or ransomware schemes;
•loss of key management and other personnel;
•potential liability arising out of the installation or use of our systems;
•our ability to comply with U.S. and international laws governing our operations and industries;
•increases in tax liabilities;
•work stoppages;
•fluctuations in interest rates and returns on pension assets;
•availability of and access to financial and other resources; and
24
•the factors described under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q.
In addition, the uncertainty surrounding the COVID-19 pandemic and in global economic conditions can result in substantial volatility in our operating results depending on economic environment in the markets we serve. Given the highly fluid nature of the COVID-19 pandemic and current deteriorating global economic conditions, it is not possible to predict all such risks and uncertainties. Refer to the section below titled “Business Conditions and Outlook" in this Form 10-Q for additional information. 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 leading global technology solutions provider to high-value segments of the food and beverage industry. We design, produce, and service sophisticated products and systems for multi-national and regional customers through our FoodTech segment. We also sell critical equipment and services to domestic and international air transportation customers through our AeroTech segment.
In early 2022, we announced our Elevate 2.0 strategy that capitalizes on favorable trends, as well as our leadership position, in the food and beverage processing industry. This strategy is based on a four-pronged approach to deliver continued growth and margin expansion.
•Organic Growth. Our broad application knowledge, engineering expertise, and global sales and service allow us to work alongside our customers to develop critical FoodTech products and solutions across a diverse set of food & beverage end markets. JBT is operating in commercial markets which we believe over the long term create meaningful opportunities for continued new product innovation and R&D in support of our customers’ needs. Additionally, our cross-selling abilities, investment opportunities in developing geographies, and aftermarket capabilities provide meaningful growth opportunities for FoodTech globally.
•Digital Transformation. We are investing to evolve our iOPS platform into a new digital solution called OmniBlu™, a customer-centric platform that delivers improved access to inventory and service, advanced functionality, and measurable results for customers, while also expanding JBT's recurring revenue from aftermarket parts and services.
•Margin Enhancement. We see opportunities to improve our operating margins by 200 basis points or more in the medium-term, primarily through supply chain and strategic sourcing initiatives. Key areas of focus include supply base consolidation, make versus buy decisions, value engineering and component standardization, and best cost country sourcing.
•Acquisitions. We are also continuing our strategic acquisition program focused on companies that add complementary products and technology solutions, which enable us to offer more comprehensive solutions to customers and meet our economic criteria for returns and synergies.
In pursuit of the above strategy, we are considering a full range of strategic alternatives for AeroTech and expect to complete our strategic assessment in the first half of 2023.
We operate under the JBT Business System, which provides a level of process rigor across the Company and is designed to standardize and streamline reporting and problem resolution processes for increased visibility, efficiency, effectiveness and productivity in all business units.
25
Our approach to Environmental, Social and Corporate Governance (ESG) builds on our culture and long tradition of concern for our employees’ health, safety, and well-being; partnering with our customers to find ways to make better use of the earth’s precious resources; and giving back to the communities where we live and work. Our FoodTech equipment and technologies continue to deliver quality performance while striving to minimize food waste, extend food product life, and maximize efficiency in order to create shared value for our food and beverage customers. Our AeroTech equipment business offers a variety of power options, including electrically powered ground support equipment, that help customers meet their environmental objectives. We recognize the responsibility we have to make a positive impact on our shareholders, the environment and our communities in a manner that is consistent with our fiduciary duties. We have engaged in structured education for enhancing inclusive leadership skills in our organization designed to ensure more diversity in our leadership and hiring practices.
We evaluate our operating results considering key performance indicators including segment operating profit, segment operating profit margin, segment EBITDA (adjusted when appropriate) and segment EBITDA margins.
Business Conditions and Outlook
During the third quarter of 2022, demand for our goods and services has declined in Europe primarily due to delay in investment decisions by our customers as a result of rising energy and other input costs in that region. We also experienced a moderating demand for our FoodTech goods and services in North America due to rising interest rates, causing some customers to delay new capital investment projects. However, the global consumer demand for food continues to grow despite rising food costs. Therefore, we expect ongoing demand in FoodTech to be driven by our customers' continued need for greater capacity, labor savings, and new product introductions to support this growth. While the recovery on the AeroTech side continues to gain momentum with orders exceeding expectations in the current year, we do not expect a full recovery for AeroTech to pre-pandemic level until the year 2023, at the earliest.
Despite the continued growth in our revenues, our operating margins declined in the current year due to the challenges associated with supply chain disruptions, high inflation, and labor availability affecting both FoodTech and AeroTech. Unlike in the past, where our JBT Business System enabled us to plan and optimize production efficiency, supply chain disruptions and labor shortages meant we often had to stop and start production based on availability. We expect these trends to continue throughout 2022, and potentially be further impacted by the ongoing conflict in Ukraine, as we anticipate continued disruptions, shortages and price increases - the effect of which will depend in part on our ability to successfully mitigate and offset the impact of these events. Thus far, actions taken by us to mitigate supply chain disruptions and inflation, including productivity improvements, expanding our supplier network, and price increases, have generally been successful in offsetting some, but not all, of the impact of these trends. We have continued to enhance our internal operating efficiency with the ongoing benefits of our 2020 restructuring program, and this quarter we began a new restructuring program to optimize our cost structure across FoodTech, with the intent to further expand this program in the coming months. The actions taken thus far have resulted in operating margins for the quarter improving sequentially for both FoodTech and AeroTech.
As a result of the war in Ukraine, we have suspended commercial activities in Russia, Belarus and occupied regions of Ukraine since March 2022. This consisted of ceasing our efforts to seek new business opportunities in these areas, as well as suspending any in-process projects to allow for an assessment of our ability to complete those projects and to receive payments in full compliance with applicable sanction programs, and without risk to our personnel and subcontractors. The direct impact of these actions to our consolidated results of operations is and is expected to remain immaterial. Furthermore, we have no direct active operations in any of these countries or regions.
26
CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
| Three Months Ended September 30, | Favorable/(Unfavorable) | ||||||||||||||||||||||
| (In millions, except %) | 2022 | 2021 | Change | % | |||||||||||||||||||
| Total revenue | $ | 555.4 | $ | 477.4 | $ | 78.0 | 16.3 | % | |||||||||||||||
| Cost of sales | 395.7 | 334.9 | (60.8) | (18.2) | % | ||||||||||||||||||
| Gross profit | 159.7 | 142.5 | 17.2 | 12.1 | % | ||||||||||||||||||
| Gross profit % | 28.8 | % | 29.8 | % | -100 bps | ||||||||||||||||||
| Selling, general and administrative expense | 112.3 | 100.9 | (11.4) | (11.3) | % | ||||||||||||||||||
| Restructuring expense | 1.5 | 1.1 | (0.4) | (36.4) | % | ||||||||||||||||||
| Operating income | 45.9 | 40.5 | 5.4 | 13.3 | % | ||||||||||||||||||
| Operating income % | 8.3 | % | 8.5 | % | -20 bps | ||||||||||||||||||
| Pension expense, other than service cost | 0.1 | 0.1 | — | — | % | ||||||||||||||||||
| Interest expense, net | 3.6 | 2.1 | (1.5) | (71.4) | % | ||||||||||||||||||
| Net income before income taxes | 42.2 | 38.3 | 3.9 | 10.2 | % | ||||||||||||||||||
| Income tax provision | 8.0 | 9.0 | 1.0 | 11.1 | % | ||||||||||||||||||
| Net income | $ | 34.2 | $ | 29.3 | $ | 4.9 | 16.7 | % | |||||||||||||||
Total revenue for the three months ended September 30, 2022 increased $78 million or 16.3% compared to the same period in 2021. Organic revenue grew $77.8 million, acquisitions provided additional revenue of $26.5 million, and foreign currency translation was unfavorable by $26.3 million in the quarter compared to the prior year. Growth from organic revenue was the result of increases in both recurring and non-recurring revenues.
Operating income margin was 8.3% for the three months ended September 30, 2022 compared to 8.5% in the same period in 2021, a decrease of 20 bps, as a result of the following drivers:
•Gross profit margin decreased 100 bps to 28.8% compared to 29.8% in the same period last year. This decrease was the result of ongoing supply chain disruptions and resulting inefficiencies driving increases in material, logistics and labor costs.
•Selling, general and administrative expense increased $11.4 million from the prior year period driven by higher costs attributable to recently acquired businesses as well as costs related to the implementation of our new digital solution OmniBlu™. Selling, general and administrative expense improved, however, as a percentage of total revenue by 91 bps to 20.2% in the third quarter of 2022 down from 21.1% in the prior year driven by leveraging of fixed costs as revenue increased year-over-year.
•Currency translation decreased operating income by $3.9 million.
Increase in net interest expense was driven by a higher average debt balance as well as higher interest rates on additional borrowings to fund the acquisitions in the third quarter of 2022, compared to the same period in 2021.
As of the third quarter of 2022, our estimated annual effective tax rate, which excludes discrete tax impacts, was 21.3%. Our actual effective tax rate for the three months ended September 30, 2022 of 19.0% was favorably impacted by a discrete tax benefit of $0.8 million from the utilization of additional foreign tax credits.
As of the third quarter of 2021, our estimated annual effective tax rate, which excluded discrete tax impacts, was 24.2%. Our actual effective tax rate for the three months ended September 30, 2021 was 23.6%.
The reduction in our estimated annual effective operating tax rate is primarily driven by current year benefits related to the UK patent box regime, non-taxable Brazilian state incentives, and a reduction in non-deductible executive compensation.
27
OPERATING RESULTS OF BUSINESS SEGMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
| Three Months Ended September 30, | Favorable/(Unfavorable) | ||||||||||||||||||||||
| (In millions, except %) | 2022 | 2021 | Change | % | |||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| JBT FoodTech | $ | 398.9 | $ | 359.1 | $ | 39.8 | 11.1 | % | |||||||||||||||
| JBT AeroTech | 156.6 | 118.3 | 38.3 | 32.4 | % | ||||||||||||||||||
| Other revenue and intercompany eliminations | (0.1) | — | (0.1) | (100.0) | % | ||||||||||||||||||
| Total revenue | $ | 555.4 | $ | 477.4 | $ | 78.0 | 16.3 | % | |||||||||||||||
| Operating income before income taxes | |||||||||||||||||||||||
Segment operating profit(1)(2): | |||||||||||||||||||||||
| JBT FoodTech | $ | 57.3 | $ | 48.9 | $ | 8.4 | 17.2 | % | |||||||||||||||
| JBT FoodTech segment operating profit % | 14.4 | % | 13.6 | % | 80 bps | ||||||||||||||||||
| JBT AeroTech | 11.6 | 7.0 | 4.6 | 65.7 | % | ||||||||||||||||||
| JBT AeroTech segment operating profit % | 7.4 | % | 5.9 | % | 150 bps | ||||||||||||||||||
| Total segment operating profit | 68.9 | 55.9 | 13.0 | 23.3 | % | ||||||||||||||||||
| Total segment operating profit % | 12.4 | % | 11.7 | % | 70 bps | ||||||||||||||||||
| Corporate items: | |||||||||||||||||||||||
| Corporate expense | 21.5 | 14.3 | (7.2) | (50.3) | % | ||||||||||||||||||
| Restructuring expense | 1.5 | 1.1 | (0.4) | (36.4) | % | ||||||||||||||||||
| Operating income | $ | 45.9 | $ | 40.5 | $ | 5.4 | 13.3 | % | |||||||||||||||
| Operating income % | 8.3 | % | 8.5 | % | -20 bps | ||||||||||||||||||
| Inbound orders: | |||||||||||||||||||||||
| JBT FoodTech | $ | 348.5 | $ | 382.0 | |||||||||||||||||||
| JBT AeroTech | 113.2 | 138.7 | |||||||||||||||||||||
| Total inbound orders | $ | 461.7 | $ | 520.7 | |||||||||||||||||||
(1)Refer to Note 14. Business Segment Information of the Notes to Condensed Consolidated Financial Statements.
(2)Segment operating profit is defined as total segment revenue less segment operating expense. Corporate expense, restructuring expense, interest income and expense and income taxes are not allocated to the segments. Corporate expense generally includes corporate staff-related expense, stock-based compensation, LIFO adjustments, certain foreign currency-related gains and losses, and the impact of unusual or strategic events not representative of segment operations.
28
JBT FoodTech
FoodTech revenue increased by $39.8 million or 11% for the third quarter ended September 30, 2022 compared to the same period in 2021. Organic revenue grew $38.6 million in the period compared to the prior year and acquisitions provided additional revenue of $26.5 million during the quarter. Foreign currency translation was unfavorable by $25.3 million in the quarter. Non-recurring revenue represented 46% of the organic revenue growth, with $17.8 million of additional revenue in the year compared to 2021. Recurring revenue drove the remaining increase in organic revenue of $20.8 million.
Food Tech's operating profit increased $8.4 million or 17.2% in the third quarter of 2022 compared to 2021. Gross profit margin improvement and higher leverage on fixed cost contributed to an operating profit margin of 14.4% compared to 13.6% in the prior year, reflecting an increase of 80 bps. Gross profit margins improved 30 bps driven by higher pricing partially offset by the continued supply chain disruptions and pressures resulting in inefficiencies that drove ongoing increases in material, freight, and labor costs. Selling, general and administrative expense increased $6.5 million from prior year, including $2.8 million from acquired companies, but as a percent of revenue improved 40 bps to 20%. Currency translation decreased operating income by $3.9 million in the quarter.
JBT AeroTech
JBT AeroTech's revenue increased $38.3 million or 32% in the third quarter of 2022 compared to the same period in 2021. This increase is comprised of a $22.7 million increase from our mobile equipment business, a $10.5 million increase in our fixed equipment business and a $6.1 million increase in our service business. Foreign currency translation was unfavorable by $1.0 million. The increase in our mobile equipment business was driven by higher equipment sales to cargo and other customers and higher aftermarket sales primarily as a result of the continued industry recovery from COVID-19. The increase in our fixed equipment business was due to higher equipment and aftermarket sales to domestic customers. The increase in service revenue was a result of an increase in service hours on our maintenance contracts as activity at US airports continued to increase as a result of the elimination of customer-imposed service hour reductions relating to COVID-19 and higher project related revenues compared to the prior year.
JBT AeroTech’s operating profit increased $4.6 million or 65.7% in the third quarter of 2022 compared to 2021. JBT AeroTech’s operating profit margin was 7.4% compared to 5.9% in the prior year, reflecting an increase of 150 bps. Gross profit margins decreased 80 bps driven by higher material, labor and freight costs. Selling, general and administrative expenses increased marginally year over year but were 230 bps below the prior year as a percent of sales. The increase in 2022 was mostly due to inflation. Currency translation had an immaterial impact.
Corporate Expense
Corporate expense increased $7.2 million during the three months ended September 30, 2022, compared to the same period in 2021. The increase was driven primarily by costs related to the development of our new digital solution and additional LIFO expense resulting from the current inflationary environment.
29
CONSOLIDATED RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
| Nine Months Ended September 30, | Favorable/(Unfavorable) | ||||||||||||||||||||||
| (In millions, except %) | 2022 | 2021 | Change | % | |||||||||||||||||||
| Total revenue | $ | 1,566.9 | $ | 1,370.7 | $ | 196.2 | 14.3 | % | |||||||||||||||
| Cost of sales | 1,116.4 | 945.1 | (171.3) | (18.1) | % | ||||||||||||||||||
| Gross profit | 450.5 | 425.6 | 24.9 | 5.9 | % | ||||||||||||||||||
| Gross profit % | 28.8 | % | 31.0 | % | -220 bps | ||||||||||||||||||
| Selling, general and administrative expense | 329.0 | 296.9 | (32.1) | (10.8) | % | ||||||||||||||||||
| Restructuring expense | 2.8 | 3.1 | 0.3 | 9.7 | % | ||||||||||||||||||
| Operating income | 118.7 | 125.6 | (6.9) | (5.5) | % | ||||||||||||||||||
| Operating income % | 7.6 | % | 9.2 | % | -160 bps | ||||||||||||||||||
| Pension expense, other than service cost | 0.1 | 0.1 | — | — | % | ||||||||||||||||||
| Interest expense, net | 8.2 | 6.3 | (1.9) | (30.2) | % | ||||||||||||||||||
| Net income before income taxes | 110.4 | 119.2 | (8.8) | (7.4) | % | ||||||||||||||||||
| Income tax provision | 17.2 | 32.4 | 15.2 | 46.9 | % | ||||||||||||||||||
| Net income | $ | 93.2 | $ | 86.8 | $ | 6.4 | 7.4 | % | |||||||||||||||
Total revenue for the nine months ended September 30, 2022 increased $196.2 million or 14.3% compared to the same period in 2021. Organic revenue grew $195.9 million in the period, acquisitions provided additional revenue of $55.8 million, and foreign currency translation was unfavorable by $55.5 million in the period compared to the prior year. Growth from organic revenue was the result of increases in both recurring and non-recurring revenues.
Operating income margin was 7.6% for the nine months ended September 30, 2022 compared to 9.2% in the same period in 2021, a decrease of 160 bps, as a result of the following drivers:
•Gross profit margin decreased 220 bps to 28.8% compared to 31.0% in the same period last year. This decrease was the result of the ongoing supply chain disruptions and resulting inefficiencies driving increases in material, logistics and labor costs.
•Selling, general and administrative expense increased $32.1 million from the prior year period driven by higher costs attributable to recently acquired businesses as well as costs related to the implementation of our new digital solution. It improved, however, as a percentage of total revenue by 70 bps to 21.0% compared to 21.7% in the same period last year. This improvement was due to leveraging of fixed costs as volumes increased year-over-year.
•Currency translation decreased operating income by $6.7 million.
Increase in net interest expense was primarily due to a higher average debt balance as well as higher interest rates on additional borrowings to fund the acquisitions in the third quarter of 2022.
As of the third quarter of 2022, our estimated annual effective tax rate, which excludes discrete tax impacts was 21.3%. The actual effective tax rate for the nine months ended September 30, 2022 of 15.6% was favorably impacted by discrete items totaling $6.3 million, primarily driven by benefits from stock based compensation, the UK patent box regime, Brazilian tax litigation, and the utilization of additional foreign tax credits in the US.
As of the third quarter of 2021, our estimated annual effective tax rate, which excluded discrete tax impacts was 24.2%. The actual effective tax rate for the nine months ended September 30, 2021 of 27.3% was unfavorably impacted by discrete items totaling $3.7 million, primarily driven by a $4.4 million tax expense from the remeasurement of deferred taxes due to the enactment of a tax rate increase in the UK.
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The reduction in our estimated annual effective operating tax rate is primarily driven by current year benefits related to the UK patent box regime, non-taxable Brazilian state incentives, and a reduction in non-deductible executive compensation. In addition, beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures immediately in the year incurred, and requires taxpayers to amortize such expenditures in the U.S. over five years. While the capitalization requirement has a material negative impact on cash flows, there are offsetting benefits from the enactment of this provision that we have included in our estimated annual effective tax rate, including an increase to our R&D tax credit. Congress has proposed tax legislation to delay the effective date of this change, but it is uncertain whether the proposed delay will ultimately be enacted into law. If it is delayed, these effective tax rate benefits will not be realized in the current year.
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OPERATING RESULTS OF BUSINESS SEGMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
| Nine Months Ended September 30, | Favorable/(Unfavorable) | ||||||||||||||||||||||
| (In millions, except %) | 2022 | 2021 | Change | % | |||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| JBT FoodTech | $ | 1,149.3 | $ | 1,031.6 | $ | 117.7 | 11.4 | % | |||||||||||||||
| JBT AeroTech | 417.8 | 339.1 | 78.7 | 23.2 | % | ||||||||||||||||||
| Other revenue and intercompany eliminations | (0.2) | — | (0.2) | 100.0 | % | ||||||||||||||||||
| Total revenue | $ | 1,566.9 | $ | 1,370.7 | $ | 196.2 | 14.3 | % | |||||||||||||||
| Operating income before income taxes | |||||||||||||||||||||||
Segment operating profit(1)(2): | |||||||||||||||||||||||
| JBT FoodTech | $ | 147.4 | $ | 141.9 | $ | 5.5 | 3.9 | % | |||||||||||||||
| JBT FoodTech segment operating profit % | 12.8 | % | 13.8 | % | -100 bps | ||||||||||||||||||
| JBT AeroTech | 28.4 | 29.0 | (0.6) | (2.1) | % | ||||||||||||||||||
| JBT AeroTech segment operating profit % | 6.8 | % | 8.6 | % | -180 bps | ||||||||||||||||||
| Total segment operating profit | 175.8 | 170.9 | 4.9 | 2.9 | % | ||||||||||||||||||
| Total segment operating profit % | 11.2 | % | 12.5 | % | -130 bps | ||||||||||||||||||
| Corporate items: | |||||||||||||||||||||||
| Corporate expense | 54.3 | 42.2 | (12.1) | (28.7) | % | ||||||||||||||||||
| Restructuring expense | 2.8 | 3.1 | 0.3 | 9.7 | % | ||||||||||||||||||
| Operating income | $ | 118.7 | $ | 125.6 | $ | (6.9) | (5.5) | % | |||||||||||||||
| Operating income % | 7.6 | % | 9.2 | % | -160 bps | ||||||||||||||||||
| Inbound orders: | |||||||||||||||||||||||
| JBT FoodTech | $ | 1,155.9 | $ | 1,165.3 | |||||||||||||||||||
| JBT AeroTech | 434.1 | 421.6 | |||||||||||||||||||||
| Total inbound orders | $ | 1,590.0 | $ | 1,586.9 | |||||||||||||||||||
(1)Refer to Note 14. Business Segment Information of the Notes to Condensed Consolidated Financial Statements.
(2)Segment operating profit is defined as total segment revenue less segment operating expense. Corporate expense, restructuring expense, interest income and expense and income taxes are not allocated to the segments. Corporate expense generally includes corporate staff-related expense, stock-based compensation, LIFO adjustments, certain foreign currency-related gains and losses, and the impact of unusual or strategic events not representative of segment operations.
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JBT FoodTech
FoodTech revenue increased by $117.7 million or 11.4% for the nine months ended September 30, 2022 compared to the same period in 2021. Organic revenue grew $115.4 million in the period and revenue from acquisitions grew $55.8 million. Foreign currency translation was unfavorable by $53.5 million in the period. Non-recurring revenue represented 54% of the organic revenue growth, with $62.1 million of additional revenue in the year compared to 2021. Recurring revenue drove the remaining increase in organic revenue of $53.3 million.
FoodTech operating profit increased $5.5 million, or 3.9%, for the nine months ended September 30, 2022 compared to the same period in 2021. The increased costs contributed to an operating profit margin of 12.8% compared to 13.8% in the prior year, reflecting a decline of 100 bps. Gross profit margins declined 130 bps driven by the continued supply chain disruptions and pressures resulting in inefficiencies that drove ongoing increases in material, freight, and labor costs. Selling, general and administrative expense increased $20.5 million from prior year, including $10.5 million from acquired companies, but as a percent of revenue improved 40 bps to 20.8%. Currency translation decreased operating income by $6.8 million in the nine months ended September 30, 2022.
JBT AeroTech
JBT AeroTech's revenue increased $78.7 million or 23.2% for the nine months ended September 30, 2022 compared to the same period in 2021. This increase is comprised of a $52.5 million increase from our mobile equipment business, a $8.2 million increase in our fixed equipment business and a $19.9 million increase in our service business. Foreign currency translation was unfavorable by $1.9 million. The increase in our mobile equipment business was driven by higher equipment sales to cargo and other customers and higher aftermarket sales primarily as a result of the continued industry recovery from COVID-19. The increase in our fixed equipment business was primarily due to higher demand for passenger boarding bridges and related equipment from domestic customers. The increase in service revenue was a result of an increase in service hours on our maintenance contracts and project related revenues as activity at US airports continued to increase as a result of the elimination of customer-imposed service hour reductions relating to COVID-19 compared to the prior year.
JBT AeroTech’s operating profit declined $0.6 million or 2.1% for the first nine months of 2022 compared to the same period in 2021. JBT AeroTech’s operating profit margin was 6.8% compared to 8.6% in the prior year, reflecting a decline of 180 bps. Gross profit margins decreased 300 bps driven by higher material, labor and freight costs. Selling, general and administrative expenses in 2022 were $4.0 million above 2021 which is an increase of 10% but 130 bps below the prior year as a percent of sales. The increase in 2022 was mostly due to higher labor and other variable costs that were reduced in the prior year as a result of the impact of COVID-19. Currency translation had an immaterial impact.
Corporate Expense
Corporate expense increased $12.1 million during the nine months ended September 30, 2022, compared to the same period in 2021. The increase was driven primarily by costs related to the development of our new digital solution and additional LIFO expense resulting from the current inflationary environment.
Use of Non-GAAP Financial Measure
We present certain financial information on a constant currency basis in this quarterly report on Form 10-Q to provide greater transparency into our operating results and trends, and a more meaningful comparison of our ongoing operating results, consistent with how management evaluates performance. We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation excludes the impact of fluctuations in foreign currency exchange rates. We calculate constant currency percentages by converting our financial results in local currency for a period using the average exchange rate for the prior period to which we are comparing.
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Restructuring
In the third quarter of 2020, the Company implemented a restructuring plan ("2020 restructuring plan") for manufacturing capacity rationalization affecting both the JBT FoodTech and JBT AeroTech segments. The Company completed the 2020 restructuring plan as of June 30, 2022. The total cost in connection with the 2020 restructuring plan was $11.0 million for FoodTech and $6.0 million for AeroTech.
In the third quarter of 2022, the Company implemented the first phase of a restructuring plan (the "2022/2023 restructuring plan") to optimize the overall JBT FoodTech cost structure on a global basis. The initiatives under this plan will include streamlining operations and enhancing our general and administrative infrastructure. The total cost as of September 30, 2022 related to this plan is $1.3 million. Cumulative savings associated with the first phase of this plan is approximately $3.0 million.
The following table details the cumulative amount of annualized savings and incremental savings for the 2020 restructuring plans:
| Cumulative Amount | Incremental Amount | Cumulative Amount | |||||||||||||||||||||
| (In millions) | As of December 31, 2021 | During the quarter ended March 31, 2022 | During the quarter ended June 30, 2022 | As of June 30, 2022 | |||||||||||||||||||
| Cost of sales | $ | 5.0 | $ | 1.0 | $ | 0.4 | $ | 6.4 | |||||||||||||||
| Selling, general and administrative | 1.9 | 0.5 | 0.3 | 2.7 | |||||||||||||||||||
| Total restructuring savings | $ | 6.9 | $ | 1.5 | $ | 0.7 | $ | 9.1 | |||||||||||||||
For the 2020 restructuring plan, incremental cost savings has been completed as of June 30, 2022.
For additional financial information about restructuring, refer to Note 15. Restructuring of the Notes to Condensed Consolidated Financial Statements.
Liquidity and Capital Resources
Overview of Sources and Uses of Cash
Our primary sources of liquidity are cash flows provided by operating activities from our U.S. and foreign operations, borrowings from our revolving credit facility, and proceeds from the issuance of the convertible notes on May 28, 2021.
As of September 30, 2022, we had $52.6 million of cash and cash equivalents, $41.4 million of which was held by our foreign subsidiaries. Although certain funds are considered permanently invested in our foreign subsidiaries, we are not presently aware of any restriction 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 acquisitions arise in these foreign jurisdictions. 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 tax and foreign withholding taxes. The foreign withholding taxes on these repatriations to the U.S. would potentially be partially offset by U.S. foreign tax credits.
As noted above, certain 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 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 are outstanding for a total of less than 60 days during the year. During 2022, any such loan was outstanding for less than 30 days, and all such loans were outstanding for less than 60 days in the aggregate. We used the proceeds of these intercompany loans to reduce outstanding borrowings under our revolving 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. The amount outstanding subject to this IRS guidance as of September 30, 2022 was approximately $34.0 million.
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Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures in the U.S. over five years. Congress has proposed tax legislation to delay the effective date of this change, but it is uncertain whether the proposed delay will ultimately be enacted into law. If the current effective date remains in place, our assessment is that we will experience a material decrease in cash from operations in 2022 and the impact will continue over the five-year amortization period, but the impact will decrease each year.
For the nine months ended September 30, 2022, we had total operating cash flow of $74.6 million. For full year 2022, we expect to generate positive cash flows. Our liquidity as of September 30, 2022, or cash plus borrowing ability under our revolving credit facilities, was $424.8 million.
The cash flows generated by our operations and borrowings are expected to be sufficient to satisfy our principal cash requirements both in the short term and long term, which include our working capital needs, new product development, restructuring expenses, capital expenditures, income taxes, debt repayments, dividends, share repurchases, periodic pension contributions, payments under the CARES Act for payroll tax deferral, and other financing arrangements.
Based on our current capital allocation objectives, during 2022 we anticipate capital expenditures to be approximately $90 million, which includes about $45 million of capitalized investment in our digital strategy, compared to $54.1 million in the prior year. Our level of capital expenditures varies from time to time as a result of actual and anticipated business conditions. We believe JBT's strong balance sheet, operating cash flows, and access to capital, as of September 30, 2022, positions us to successfully navigate through the current challenging economic conditions as we continue to invest in growth strategies including our acquisition program and new product development.
Cash Flows
Cash flows for the nine months ended September 30, 2022 and 2021 were as follows:
| Nine Months Ended September 30, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Cash provided by operating activities | $ | 74.6 | $ | 163.3 | |||||||
| Cash required by investing activities | (394.5) | (217.2) | |||||||||
| Cash provided by financing activities | 298.6 | 66.9 | |||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | (4.9) | (2.3) | |||||||||
| (Decrease) increase in cash and cash equivalents | $ | (26.2) | $ | 10.7 | |||||||
Cash provided by operating activities during the nine months ended September 30, 2022 was $74.6 million, representing an $88.7 million decrease compared to the same period in 2021. This decrease was driven primarily by higher investment in inventory and lower customer collections for trade receivables and advance payments from customers, partially offset by lower pension contributions.
Cash required by investing activities during the nine months ended September 30, 2022 was $394.5 million, an increase of $177.3 million compared to the same period in 2021 primarily due to increased spending on acquisitions and capital expenditures year over year.
Cash provided by financing activities was $298.6 million during the nine months ended September 30, 2022, which is an increase of $231.7 million compared to same period in 2021. This increase is primarily driven by higher borrowings to fund acquisitions in the current year, partially offset by prior year activity that did not recur in the current year. Specifically the cash provided by financing activities of $66.9 million during the nine months ended September 30, 2021 was primarily due to proceeds from the issuance of the convertible notes, bond hedge and warrant transactions, partially offset by paying down borrowings under our revolving credit facility and payment of acquisition date earn-out liability.
Financing Arrangements
As of September 30, 2022, we had $587.0 million drawn on and $706.6 million of availability under the revolving credit facility. Our ability to use this revolving credit facility is limited by the leverage ratio covenant described below.
Our credit agreement includes 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. Restrictive covenants include a minimum interest coverage ratio, a maximum leverage ratio, as well as certain events of default. As of September 30, 2022, we
35
were in compliance with all covenants in our credit agreement. We expect to remain in compliance with all 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 covenants, or that we will continue to be able to access the capital and credit markets on terms acceptable to us or at all.
On May 28, 2021, we closed a private offering of $402.5 million aggregate principal amount of the Company's 0.25% Convertible Senior Notes due 2026 to qualified institutional buyers, resulting in net proceeds to us of approximately $392.2 million after deducting initial purchasers’ discounts. The convertible notes will mature on May 15, 2026 unless earlier converted, redeemed or repurchased. Concurrently with the issuance of the convertible notes, we entered into the convertible note hedge transactions that reduce potential dilution upon conversion of the Notes and into the warrant transactions to raise additional capital to partially offset the costs of entering into the convertible note hedge transactions.
For additional information about our convertible secured notes, convertible note hedge and warrant transactions, refer to Note 6. Debt of the Notes to Condensed Consolidated Financial Statements.
As of September 30, 2022, we have entered into four interest rate swaps executed in March 2020 with a combined notional amount of $200 million expiring in April 2025, and one interest rate swap executed in May 2020 with a notional amount of $50 million expiring in May 2025. 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 (loss).
As of September 30, 2022, a significant portion of our total outstanding debt of $989.5 million effectively remains fixed rate debt, with the Convertible Senior Notes subject to a fixed rate of .25% and a portion of revolving credit facility subject to an average fixed rate of 0.81%. Therefore, approximately $337 million, or 34%, remained subject to floating, or market, rates. To the extent interest rates increase in future periods, our earnings could be negatively impacted by higher interest expense.
CRITICAL ACCOUNTING ESTIMATES
There were no material changes in our judgments and assumptions associated with the development of our critical accounting estimates during the period ended September 30, 2022. Refer to our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of our critical accounting estimates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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, 2021.
ITEM 4. CONTROLS AND PROCEDURES
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 September 30, 2022. We have concluded that, as of September 30, 2022, our disclosure controls and procedures were:
i)effective in ensuring that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and
ii)effective in ensuring that information required to be disclosed is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
In the ordinary course of business, we review our system of internal control over financial reporting and make changes to our systems and processes to improve such controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, automating manual processes and updating existing systems.
There were no changes in controls identified during the quarter ended September 30, 2022 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.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material legal proceedings identified or material developments in existing material legal proceedings during the three months ended September 30, 2022.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the risk factor below and factors discussed in Item 1A. "Risk Factors" in JBT's Annual Report on Form 10-K for the year ended December 31, 2021.
BUSINESS STRATEGY RISKS
We face risks associated with our evaluation of strategic alternatives for our AeroTech platform.
As previously disclosed, we are evaluating strategic alternatives for our AeroTech platform. The goal of this evaluation is to identify the most value-creating opportunity for our shareholders. Potential risks include the diversion of management’s attention from other business concerns, the potential loss of key employees and customers, potential impairment charges or losses if a business were to be divested at a loss, and restructuring and other disposal charges. Any or all these risks could impact the Company’s financial results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table includes information about the Company’s stock repurchases during the three months ended September 30, 2022:
| (Dollars in millions, except per share amounts) | |||||||||||||||||||||||
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as part of Publicly Announced Program | Approximate Dollar Value of Shares that may yet be Purchased under the Program (1) | |||||||||||||||||||
| July 1, 2022 through July 31, 2022 | — | $ | — | — | $ | 27.7 | |||||||||||||||||
| August 1, 2022 through August 31, 2022 | 4,114 | 109.95 | 4,114 | 27.3 | |||||||||||||||||||
| September 1, 2022 through September 30, 2022 | — | — | — | 27.3 | |||||||||||||||||||
| 4,114 | $ | 109.95 | 4,114 | $ | 27.3 | ||||||||||||||||||
(1)Shares that may be repurchased under a share repurchase program for up to $30 million of common stock that was authorized by the Board of Directors on December 1, 2021 and is set to expire on December 31, 2024. Shares may be purchased from time to time in open market transactions, subject to market conditions. Repurchased shares become treasury shares, which are accounted for using the cost method and are intended to be used for future awards under the Incentive Compensation Plan.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
37
EXHIBIT INDEX
| Number in Exhibit Table | Description | |||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 31.1* | ||||||||
| 31.2* | ||||||||
| 32.1* | ||||||||
| 32.2* | ||||||||
| 101.INS* | XBRL Instance Document | |||||||
| 101.SCH* | XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104* | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document). | |||||||
| * | Filed herewith. | |||||||
38
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.
| John Bean Technologies Corporation | |||||
| (Registrant) | |||||
| /s/ Jessi L. Corcoran | |||||
| Jessi L. Corcoran | |||||
| Vice President, Corporate Controller and duly authorized officer | |||||
| (Principal Accounting Officer) | |||||
Date: October 28, 2022
39
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Brian A. Deck, certify that:
1.I have reviewed this quarterly report on Form 10-Q of John Bean Technologies Corporation (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: October 28, 2022
| /s/ Brian A. Deck | |||||
| Brian A. Deck | |||||
| President and Chief Executive Officer | |||||
| (Principal executive officer) | |||||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Matthew J. Meister, certify that:
1.I have reviewed this quarterly report on Form 10-Q of John Bean Technologies Corporation (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: October 28, 2022
| /s/ Matthew J. Meister | |||||
| Matthew J. Meister | |||||
| Executive Vice President and Chief Financial Officer | |||||
| (Principal financial officer) | |||||
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Brian A. Deck, President and Chief Executive Officer of John Bean Technologies Corporation (the “Company”), do hereby certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(a) the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2022, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: October 28, 2022
| /s/ Brian A. Deck | |||||
| Brian A. Deck | |||||
| President and Chief Executive Officer | |||||
| (Principal executive officer) | |||||
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Matthew J. Meister, Executive Vice President and Chief Financial Officer of John Bean Technologies Corporation (the “Company”), do hereby certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(a) the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2022, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: October 28, 2022
| /s/ Matthew J. Meister | |||||
| Matthew J. Meister | |||||
| Executive Vice President and Chief Financial Officer | |||||
| (Principal financial officer) | |||||