JOHN BEAN TECHNOLOGIES CORPORATION We are a leading global technology solutions provider to high-value segments of the food and beverage industry with focus on proteins, liquid foods and automated guided vehicle systems. 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. Our Elevate plan was designed to capitalize on the leadership position of our businesses and favorable macroeconomic trends. The Elevate plan is based on a four-pronged approach to deliver continued growth and margin expansion.
• Accelerate New Product &
development of innovative products and services to provide customers
with solutions that enhance yield and productivity and reduce lifetime
cost of ownership.
• Grow Recurring Revenue. We are capitalizing on our extensive installed
base to expand recurring revenue from aftermarket parts and services,
equipment leases, consumables and our Airport Services offerings.
• Execute Impact Initiatives. We are enhancing organic growth through
initiatives that enable us to sell the entire FoodTech portfolio
globally, including enhancing our international sales and support
infrastructure, localizing targeted products for emerging markets, and
strategic cross selling of products. In AeroTech, we plan to continue
to develop advanced military product offering and customer support
capability to service global military customers. Additionally, our
impact initiatives are designed to support the reduction in operating
cost including strategic sourcing, relentless continuous improvement
(lean) efforts, and the optimization of organization structure
• Maintain a Disciplined Acquisition Program. We are also continuing our
strategic acquisition program focused on companies that add
complementary products, which enable us to offer more comprehensive
solutions to customers, and meet our strict economic criteria for
returns and synergies.
We developed the JBT Operating System in 2018, introducing a new level of
process rigor across the company beginning in the first quarter of 2019. The
system is designed to standardize and streamline reporting and problem
resolution processes for increased visibility, efficiency, effectiveness and
productivity in all business units.
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 food resources; and giving back to the communities where we
live and work. Both our FoodTech equipment and AeroTech equipment businesses
have significant growth potential related to clean technologies. 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 know we can do more. We ended this year by
commencing a comprehensive evaluation to determine which ESG topics are most
pressing for our business. We are gathering input from investors, customers,
employees and other stakeholders. The result will be a materiality matrix
informing our development of an ESG strategy, balanced to ensure we invest
responsibly in initiatives that can address the risks, and opportunities,
presented by ESG.
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 2019, operating margins have exceeded our expectations due to the strength of our aftermarket business and the contribution from recent acquisitions. Additionally, we have continued to enhance our internal operating efficiency with the ongoing benefits of our restructuring program and management through the JBT operating system.
In terms of top-line growth, the environment in 2019 was characterized by business uncertainty and impacted our ability to convert healthy commercial activity into order commitments at FoodTech. However, trends remained strong at AeroTech. Moreover, revenue from recurring sources (aftermarket parts and services and lease revenues), which represented more than 40% of total JBT revenue, has created a more resilient JBT with greater stability and higher profitability.
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While the demand environment at FoodTech remains uncertain, we have captured
sustainable structural improvements from our restructuring program. In addition,
the real-time production information provided by the JBT Operating System
enables us to proactively align costs with current market conditions.
Non-GAAP Financial Measures
The results for the periods endedDecember 31, 2019 , 2018 and 2017 include several items that affect the comparability of our results. These non-GAAP financial measures exclude certain amounts that are included in a measure calculated underU.S. GAAP, or include certain amounts that are excluded from a measure calculated underU.S. GAAP. By excluding or including these items, we believe we 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. Management uses these non-GAAP financial measures in financial and operational evaluation, planning and forecasting. These calculations may differ from similarly-titled measures used by other companies. The non-GAAP financial measures are not intended to be used as a substitute for, nor should they be considered in isolation of, financial measures prepared in accordance withU.S. GAAP.
Additional details for each Non-GAAP financial measure follow:
• Adjusted income from continuing operations and Adjusted diluted earnings
per share from continuing operations: We adjust earnings for restructuring
expense and merger and acquisition related costs ("M&A related costs"),
which include integration costs and the amortization of inventory step-up
from business combinations, and transaction costs for both potential and
completed M&A transactions.
• EBITDA and Adjusted EBITDA: We define EBITDA as earnings before income
taxes, interest expense and depreciation and amortization. We define
Adjusted EBITDA as EBITDA before restructuring expense, pension expense
other than service cost and M&A related costs. While the Company's
acquired intangible assets and fixed assets contribute to generation of
our revenue, management believes that due to the Company's focus on growth
through acquisitions EBITDA and Adjusted EBITDA facilitate an evaluation
of business performance by excluding the impact of amortization and
depreciation, and, in the case of Adjusted EBITDA, without the
fluctuations in the amount of certain costs that do not reflect our
underlying operating results.We use EBITDA and Adjusted EBITDA internally
to make operating decisions and believe this information is helpful to
investors because it allows more meaningful period-to-period comparisons
of our ongoing operating results.
• Segment Adjusted Operating Profit and Segment Adjusted EBITDA: We report
segment operating profit, which is the measure of segment profit or loss
required to be disclosed in accordance with GAAP. We adjust segment
operating profit for restructuring expense and M&A related costs. Webelieve segment adjusted operating profit allows more meaningful period-to
period comparisons of our ongoing operating results, without the
fluctuations in the amount of certain costs that do not reflect our
underlying operating results. We calculate segment Adjusted EBITDA bysubtracting depreciation and amortization from segment adjusted operating
profit. While Company's acquired intangible assets and fixed assets
contribute to generation of Company's revenue, management believes that
due to the Company's focus on growth through acquisitions segment Adjusted
EBITDA facilitates an evaluation of business segment performance by
excluding the impact of amortization due to the step up in value of
intangible assets and depreciation of fixed assets.
• Free cash flow: We define free cash flow as cash provided by continuing
operating activities, less capital expenditures, plus proceeds from sale
of fixed assets and pension contributions. For free cash flow purposes we
consider contributions to pension plans to be more comparable to payment
of debt, and therefore exclude these contributions from the calculation of
free cash flow. We use free cash flow internally as a key indicator of our
liquidity and ability to service debt, invest in business combinations,
and return money to shareholders. We believe this information is useful to
investors because it provides an understanding of the cash available to
fund these initiatives.
• Constant currency measures: 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.
The tables included below reconcile each non-GAAP financial measure to the most comparable GAAP financial measure.
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--------------------------------------------------------------------------------The table below provides a reconciliation of cash provided by continuing operating activities to free cash flow:
Year Ended December 31,
(In millions) 2019 2018
2017
Cash provided by continuing operating activities
37.9 39.8 37.9
Plus: proceeds from sale of fixed assets 2.1 2.9 2.2 Plus: pension contributions 8.0 19.5 11.2 Free cash flow (FCF)$ 82.8 $ 137.2 $ 81.8 The table below provides a reconciliation of income from continuing operations as reported to adjusted income from continuing operations and adjusted diluted earnings per share from continuing operations. Year Ended December 31, (In millions, except per share data) 2019 2018
2017
Income from continuing operations as reported
$ 82.1 Non-GAAP adjustments Restructuring expense 13.5 47.0 1.7 M&A related costs(1) 24.7 4.8 5.1 Impact on tax provision from Non-GAAP adjustments(2) (7.6 ) (13.6 ) (2.1 ) Impact on tax provision from mandatory repatriation (0.8 ) 0.4
7.7
Impact on tax provision from rate change on deferred taxes - (1.5 )
7.8
Adjusted income from continuing operations
Income from continuing operations as reported
$ 82.1 Total shares and dilutive securities 32.0 32.2
31.9
Diluted earnings per share from continuing operations$ 4.03 $ 3.24
Adjusted income from continuing operations 159.1 141.5
102.3
Total shares and dilutive securities 32.0 32.2
31.9
Adjusted diluted earnings per share from continuing operations$ 4.96 $ 4.39 $ 3.21 (1) Beginning in the first quarter of 2019, we changed our presentation of non-GAAP measures to exclude M&A related costs. M&A related costs are excluded from the prior year results to conform to the current year presentation.
(2) Impact on tax provision was calculated using the Company's annual tax rate
excluding discrete adjustments of 24.5%, 26.3%, 30.9% for the years ended
December 31, 2019 , 2018, and 2017, respectively. In 2019, we have also
included certain discrete adjustments related to restructuring.
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The table below provides a reconciliation of net income to EBITDA to Adjusted
EBITDA:
Year Ended December 31,
(In millions) 2019 2018 2017
Net income $ 129.0 $ 104.1 $ 80.5
Loss from discontinued operations, net of taxes 0.3 0.3 1.6
Income from continuing operations as reported 129.3 104.4 82.1
Income tax provision 37.6 24.6 50.1
Interest expense, net 18.8 13.9 13.6
Depreciation and amortization 65.6 57.7 51.7
EBITDA 251.3 200.6 197.5
Restructuring expense 13.5 47.0 1.7
Pension expense, other than service cost 2.5 0.9 (2.0 )
M&A related costs(1) 24.7 4.8 5.1
Adjusted EBITDA $ 292.0 $ 253.3 $ 202.3 The tables below provide a reconciliation of segment operating profit to segment adjusted operating profit and segment Adjusted EBITDA:
Year Ended December 31, 2019
Corporate
(In millions) JBT FoodTech JBT AeroTech (Unallocated) Consolidated
Operating profit $ 184.7 $ 78.9 $ (75.4 ) $ 188.2
Restructuring expense - - 13.5 13.5
M&A related costs(1) 13.9 0.9 9.9 24.7
Adjusted operating profit 198.6 79.8 (52.0 ) 226.4
Depreciation and amortization 58.2 4.7 2.7 65.6
Adjusted EBITDA $ 256.8 $ 84.5 $ (49.3 ) $ 292.0
Revenue $ 1,329.4 $ 615.9 $ 0.4 $ 1,945.7
Operating profit % 13.9 % 12.8 % 9.7 %
Adjusted operating profit % 14.9 % 13.0 % 11.6 %
Adjusted EBITDA % 19.3 % 13.7 % 15.0 %
Year Ended December 31, 2018
Corporate
(In millions) JBT FoodTech JBT AeroTech (Unallocated) Consolidated
Operating profit $ 169.5 $ 64.1 $ (89.8 ) $ 143.8
Restructuring expense - - 47.0 47.0
M&A related costs(1) 4.2 0.6 - 4.8
Adjusted operating profit 173.7 64.7 (42.8 ) 195.6
Depreciation and amortization 51.7 2.9 3.1 57.7
Adjusted EBITDA $ 225.4 $ 67.6 $ (39.7 ) $ 253.3
Revenue $ 1,361.4 $ 558.1 $ 0.2 $ 1,919.7
Operating profit % 12.5 % 11.5 % 7.5 %
Adjusted operating profit % 12.8 % 11.6 % 10.2 %
Adjusted EBITDA % 16.6 % 12.1 % 13.2 %
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Year Ended December 31, 2017
Corporate
(In millions) JBT FoodTech JBT AeroTech (Unallocated) Consolidated
Operating profit $ 139.1 $ 50.7 $ (46.0 ) $ 143.8
Restructuring expense - - 1.7 1.7
M&A related costs(1) 4.9 0.2 - 5.1
Adjusted operating profit 144.0 50.9 (44.3 ) 150.6
Depreciation and amortization 46.8 2.5 2.4 51.7
Adjusted EBITDA $ 190.8 $ 53.4 $ (41.9 ) $ 202.3
Revenue $ 1,171.9 $ 463.0 $ 0.2 $ 1,635.1
Operating profit % 11.9 % 11.0 % 8.8 %
Adjusted operating profit % 12.3 % 11.0 % 9.2 %
Adjusted EBITDA % 16.3 % 11.5 % 12.4 %
(1) Beginning in the first quarter of 2019, we changed our presentation of
non-GAAP measures to exclude M&A related costs. M&A related costs are
excluded from the prior year results to conform to the current year
presentation.
We evaluate our results of operations on both as reported and a constant
currency basis. The constant currency presentation is a non-GAAP financial
measure, which excludes the impact of fluctuations in foreign currency exchange
rates. We believe providing constant currency information provides valuable
supplemental information regarding our results of operations, consistent with
how we evaluate our performance. 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. This
calculation may differ from similarly-titled measures used by other companies.
The non-GAAP financial measures disclosed in this Annual Report on Form 10-K are
not intended to nor should they be considered in isolation or as a substitute
for financial measures prepared in accordance with U.S. GAAP.
Impact to 2018 Revenue from Change in Revenue Recognition Rules
During the quarter and year endedDecember 31, 2018 , reported revenues were positively impacted by the adoption of ASC 606 by approximately$27 million and$127 million , respectively. The following table shows the components of this change, for each of the quarterly periods in 2018. in millions Q1 Q2 Q3 Q4 YTD
Previously Recognized (1)
(1) Previously Recognized amounts represent revenue reported in the period for
contracts where installation was completed in 2018, but that were previously
recognized under legacy GAAP during 2017 when the equipment was shipped for
contracts previously recognized upon shipment, or progress was made for former
percentage of completion contracts.
(2) Accelerated amounts represent revenue accelerated into the period as we
are recognizing revenue over time on projects that did not ship by the end of
the quarter. This reflects a positive impact on our results comparable to 2017,
solely due to adoption of ASC 606. Deferred amounts represent revenue not
recognized in the period, but would have been under legacy GAAP. This reflects a
negative impact on our results compared to 2017, solely due to adoption of ASC
606.
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--------------------------------------------------------------------------------Results of Continuing Operations
A discussion of our results of operations for 2019 compared to 2018 is set forth below. For a discussion of our results of operations, including our segment results of operations, for 2018 compared to 2017, refer to the discussion under the subcaptions "2018 Compared With 2017" in Item 7 - MD&A in Part II of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2018 , which discussion is incorporated by reference herein. CONSOLIDATED RESULTS OF OPERATIONS
Year Ended December 31, Favorable / (Unfavorable)
(In millions) 2019 2018 Change Change %
Revenue $ 1,945.7 $ 1,919.7 $ 26.0 1.4 %
Cost of sales 1,347.6 1,382.1 34.5 2.5 %
Gross profit 598.1 537.6 60.5 11.3 %
Gross Profit % 30.7 % 28.0 % 270 bps
Selling, general and administrative
expense 396.4 346.8 (49.6 ) (14.3 )%
Restructuring expense 13.5 47.0 33.5 71.3 %
Operating income 188.2 143.8 44.4 30.9 %
Operating income % 9.7 % 7.5 % 220 bps
Pension expense (income), other than
service cost 2.5 0.9 (1.6 ) (177.8 )%
Interest expense, net 18.8 13.9 (4.9 ) (35.3 )%
Income from continuing operations
before income taxes 166.9 129.0 37.9 29.4 %
Income tax provision 37.6 24.6 (13.0 ) (52.8 )%
Income from continuing operations 129.3 104.4 24.9 23.9 %
Loss from discontinued operations, net
of income taxes 0.3 0.3 - - %
Net income $ 129.0 $ 104.1 $ 24.9 23.9 %
2019 Compared With 2018
Total revenue increased $26.0 million in 2019 compared to 2018. This increase
reflects a 7% gain from acquisitions and 3% growth from organic revenue,
partially offset by a 7% decline in revenue due to recognition of a one-time
transition benefit in 2018 from adoption of the new revenue recognition
standard, and a 2% unfavorable foreign currency translation. Recurring revenue
represented 40% of total revenue compared with 37% in the prior year period.
Operating income margin was 9.7% in 2019 compared to 7.5% in 2018. This increase
of 220 bps, was as a result of the following items, partially offset by a net
currency translation loss of $5.7 million in 2019:
• Gross profit margin increased 270 bps to 30.7% compared to 28.0% in 2018.
This increase was the result of
driven by continuing restructuring activities along with higher pricing
and an increase in the mix of recurring revenue.
• Selling, general and administrative expense increased in dollars and as a
percentage of revenue primarily due to an increase in acquisition costs
and amortization expense from new acquisitions. As a percentage of
revenue, these expenses have increased 230 bps to 20.4% compared to 18.1%
in the same period last year.
• Restructuring expense decreased
restructuring expense of
restructuring plan described below. As a percent of revenue, these
expenses have declined 170 bps to 0.7% compared to 2.4% in the same period
last year.
Pension expense, other than service cost increased by
Interest expense, net increased$4.9 million driven by higher interest of$6.5 million resulting from higher average borrowings to fund acquisitions, partially offset by a benefit of$1.6 million from cross currency swaps.
Income tax expense for 2019 reflected an effective income tax rate of 22.6%
compared to 19.1% in 2018. The higher effective tax rate in 2019 resulted
primarily from a decreased discrete tax benefit from vesting of stock based
compensation awards of
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2019 compared to $4.9 million in 2018. Additionally, the 2018 effective tax rate
included a $1.5 million tax adjustment related to the remeasurement of US
deferred taxes to reflect the US income tax rate decrease effective January 1,
2018 .
Restructuring
In the first quarter of 2018, we implemented a program ("2018 restructuring
plan") to address our global processes to flatten the organization, improve
efficiency and better leverage general and administrative resources. During the
fourth quarter ended December 31, 2019 , we have refined our total estimated
costs in connection with this plan, with the original estimate of $60.0 million
to be recognized by the end of 2019, to a range of $62.0 million to $64.0
million to be completed in 2020. These changes reflect additional costs
identified in order to achieve expected savings.
The cumulative cost savings for the 2018 restructuring plan at the end of year
2019 was $35.9 million with savings of $21.3 million in cost of sales and $14.6
million in selling, general and administrative expense. Incremental cost savings
for the 2018 restructuring plan during the twelve months ended December 31, 2019
was $28.5 million , with savings of $17 million in cost of sales and $11.5
million in selling, general and administrative expense. A portion of the $28.5
million in savings was used to invest in our JBT Elevate growth initiatives. For
the 2018 restructuring plan, we expect to generate total annualized savings of
approximately $55 million . Approximate incremental cost savings we expect to
realize during the year 2020 are as follows:
(In millions) December 31, 2020
Cost of sales $ 11.4
Selling, general and administrative expenses 7.6
Total incremental cost savings $ 19.0
The timing for certain incremental cost savings has shifted from 2020 to 2019,
with an additional $8.5 million of cost savings realized during the year 2019.
This shift in cost savings was driven by earlier than estimated benefit from
productivity improvements and reductions in force, and results in no change to
the cumulative expected cost savings and therefore no expected impact to future
operating results or liquidity.
For additional financial information about restructuring, refer to Note 19. Restructuring of this Annual Report on Form 10-K.
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OPERATING RESULTS OF BUSINESS SEGMENTS
Year Ended December 31, Favorable / (Unfavorable)
(In millions) 2019 2018 Change Change %
Revenue
JBT FoodTech $ 1,329.4 $ 1,361.4 $ (32.0 ) (2.4 )%
JBT AeroTech 615.9 558.1 57.8 10.4 %
Other revenue and intercompany
eliminations 0.4 0.2 0.2 100.0 %
Total revenue $ 1,945.7 $ 1,919.7 $ 26.0 1.4 %
Income before income taxes
Segment operating profit(1)(2):
JBT FoodTech $ 184.7 $ 169.5 $ 15.2 9.0 %
JBT FoodTech segment operating profit
% 13.9 % 12.5 % 140 bps
JBT AeroTech 78.9 64.1 14.8 23.1 %
JBT AeroTech segment operating profit
% 12.8 % 11.5 % 130 bps
Total segment operating profit 263.6 233.6 30.0 12.8 %
Total segment operating profit % 13.5 % 12.2 % 130 bps
Corporate items:
Corporate expense 61.9 42.8 (19.1 ) (44.6 )%
Restructuring expense 13.5 47.0 33.5 71.3 %
Operating income 188.2 143.8 44.4 30.9 %
Operating income % 9.7 % 7.5 % 220 bps
Pension expense (income), other than
service cost 2.5 0.9 (1.6 ) (177.8 )%
Net interest expense 18.8 13.9 (4.9 ) (35.3 )%
Income from continuing operations
before income taxes 166.9 129.0 37.9 29.4 %
Income tax provision 37.6 24.6 (13.0 ) (52.8 )%
Income from continuing operations 129.3 104.4 24.9 23.9 %
Loss from discontinued operations,
net of income taxes 0.3 0.3 - - %
Net income $ 129.0 $ 104.1 $ 24.9 23.9 %
(1) Refer to Note 18. Business Segments 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.
JBT FoodTech 2019 Compared With 2018 FoodTech revenue declined 2.4% for the year endedDecember 31, 2019 compared to 2018. Revenue from acquisitions, a 7.8% increase, and organic growth of 1.0% were offset by an 8.3% decline reflecting the absence of the ASC 606 transition benefit included in the year-ago period, and a 2.7% unfavorable currency translation. Organically, growth in recurring revenue streams, including aftermarket parts and services, contributed 3% in revenue growth which was offset by 2% decline in equipment revenue. During a period of business uncertainty that has slowed the conversion of commercial activity to customer commitments, JBT's focus on providing comprehensive solutions - including upgrades, enhancements, and refurbishments of existing equipment and service to our large and expanding installed base - has demonstrated the diversity of our revenue streams. 40 --------------------------------------------------------------------------------
FoodTech operating profit increased by
•
•
•
Gross profit margins improved 380 bps driven by higher pricing and an increase in the mix of recurring revenue to equipment along with$15 million in savings from restructuring activities in the year endedDecember 31, 2019 as compared to 2018. Selling, general and administrative expenses increased by$24.9 million in the year endedDecember 31, 2019 as compared to 2018. Savings from restructuring activities of$9.2 million were more than offset by$16.0 million in incremental costs associated with acquired companies along with higher compensation and continued investments in growth initiatives.
JBT AeroTech
2019 Compared With 2018
JBT AeroTech's revenue increased$57.8 million in 2019 compared to 2018. This is a 10.4% increase with a 7.4% increase in organic growth, a 5.8% increase from acquisitions, a one-time transition benefit in 2018 from adoption of the new revenue recognition standard resulted in a 2.4% unfavorable impact, and currency translation had a 0.4% unfavorable impact. Revenue from our mobile equipment business increased$27.6 million resulting from$32.4 million in revenue from acquisitions partly offset by a decline of$4.8 million in organic sales mainly driven by fewer deicers sold to commercial customers. Revenue from our organic fixed equipment business increased$23.8 million primarily due to higher sales of passenger boarding bridges and related products to domestic airports. Service revenue increased by$8.7 million driven mainly by higher revenue from new and existing maintenance contracts and currency translation had an unfavorable impact of$2.3 million . JBT AeroTech operating profit increased$14.8 million in 2019 compared to 2018. JBT AeroTech's operating profit margin was 12.8% compared to 11.5% in the prior year, reflecting an increase of 130 bps. Gross profit margins improved by 150 bps primarily due to pricing,$2.1 million in efficiency improvements resulting from continuing restructuring activities and the impact of higher gross profit margins from an acquisition. Selling, general and administrative expenses in 2019 were$7.1 million higher than 2018, including$7.3 million from acquisitions,$1.6 million in savings from restructuring, and were 30 bps higher as a percent of sales compared to 2018. Currency translation did not have a significant impact on our operating profit comparative results for JBT AeroTech. Corporate Expense
2019 Compared With 2018
Corporate expense increased by$19.1 million compared to 2018, driven primarily by an increase in M&A related costs, investments in global sourcing, pension expense, and higher incentive compensation. Corporate expense as a percent of revenues increased to 3.2% in 2019 compared to 2.2% in 2018.
Inbound Orders and Order Backlog
Inbound orders represent the estimated sales value of confirmed customer orders
received during the years ended
(In millions) 2019 2018 JBT FoodTech$ 1,272.2 $ 1,298.7 JBT AeroTech 604.5 597.2 Intercompany eliminations/other 0.5 0.2 Total inbound orders$ 1,877.2 $ 1,896.1 41
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Order backlog is calculated as the estimated sales value of unfilled, confirmed
customer orders as of
(In millions) 2019 2018 JBT FoodTech$ 401.3 $ 405.4 JBT AeroTech 304.6 305.9 Total order backlog$ 705.9 $ 711.3 Order backlog in our JBT FoodTech segment atDecember 31, 2019 decreased by$4.1 million compared toDecember 31, 2018 . We expect to convert almost all of JBT FoodTech backlog atDecember 31, 2019 into revenue during 2020.
Order backlog in our JBT AeroTech segment at
Seasonality
We experience seasonality in our operating results. Historically, our revenues and operating income have been lower in the first quarter and highest in the fourth quarter primarily as a result of our customers' purchasing trends. Liquidity and Capital Resources Our primary sources of liquidity are cash provided by operating activities of ourU.S. and foreign operations and borrowings from our credit facility. Our liquidity as ofDecember 31, 2019 , or cash plus borrowing capacity under our credit facilities was$324.5 million . The cash flows generated by our operations and the credit facility are expected to be sufficient to satisfy our working capital needs, research and development activities, restructuring costs, capital expenditures, pension contributions, dividend payments, anticipated share repurchases, acquisitions and other financing requirements. Furthermore, management continues to evaluate our capital structure. As ofDecember 31, 2019 , we had$39.5 million of cash and cash equivalents,$37.1 million of which was held by our foreign subsidiaries. Although these funds are considered permanently invested in our foreign subsidiaries, we are not presently aware of any restriction on the repatriation of these funds. We maintain significant operations outside of theU.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 theU.S. , they could be repatriated and their repatriation into theU.S. could cause us to incur additionalU.S. income taxes and foreign withholding taxes. As noted above, funds held outside of theU.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 theU.S. parent company on a temporary basis; theU.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 2019, each 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 thisIRS guidance. There are no loans subject to thisIRS guidance as ofDecember 31, 2019 . The Board authorized a new share repurchase program of up to$30 million of the Company's common stock, effectiveJanuary 1, 2019 throughDecember 31, 2021 , which replaced the prior share repurchase program. Shares may be purchased from time to time in open market transactions, subject to market conditions. Repurchased shares become treasury shares, which are accounted for using the cost method and are intended to be used for future awards under the Incentive Compensation Plan. No shares were repurchased under this program in 2019. Refer to Note 11. Stockholders' Equity for further details. 42 --------------------------------------------------------------------------------
Contractual Obligations and Off-Balance Sheet Arrangements
The following is a summary of our contractual obligations atDecember 31, 2019 : Payments due by period Total Less than 1 1 - 3 3-5 After 5 (In millions) payments year years years years Long-term debt (a)$ 700.9 $ - $ -$ 700.9 $ - Interest payments on long-term debt (b) 90.9 20.2 40.4 30.3 - Operating leases 36.7 11.5 13.3 7.2 4.7 Amounts due sellers from acquisitions (c) 19.9 1.0 18.9 - - Unconditional purchase obligations (d) 56.8 56.8 - - - Pension and other postretirement benefits (e) 12.5 12.5 - - - Tax Act (f) 4.9 - 0.2 2.7 2.0
Total contractual obligations
(a) Our available long-term debt is dependent upon our compliance with
covenants described under the heading "Financing Arrangements" in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Any violations of covenants or other events of default, which
are not waived or cured, could have a material impact on our ability tomaintain our committed financial arrangements or accelerate our obligation
to repay the amount due. We were in compliance with all debt covenants as
of December 31, 2019 .
(b) Interest payments were determined using the weighted average rates for all
debt outstanding as of December 31, 2019 .
(c) See Note 2. Acquisitions for further details on our recent acquisitions.
Amounts remaining due to sellers, subject to certain conditions, relate to
the acquisitions of Proseal and Prime.
(d) In the normal course of business, we enter into agreements with oursuppliers to purchase raw materials or services. These agreements include
a requirement that our supplier provide products or services to our
specifications and require us to make a firm purchase commitment to our
supplier. As substantially all of these commitments are associated withpurchases made to fulfill our customers' orders, the costs associated with
these agreements will ultimately be reflected in cost of sales on our
Consolidated Statements of Income.
(e) This amount reflects planned contributions in 2020 to our pension plans.
Required contributions for future years depend on factors that cannot be
determined at this time.
(f) This amount reflects the transition tax on the previously untaxed and
unrepatriated current and accumulated post-1986 foreign earnings of
certain foreign subsidiaries as required by the Tax Act.
The following is a summary of other off-balance sheet arrangements at
December 31, 2019 :
Amount of commitment expiration per period
Total Less than 1 1 - 3 3-5 After 5
(In millions) amount year years years years
Letters of credit and bank
guarantees $ 23.9 $ 21.8 $ 2.0 $ - $ 0.1
Surety bonds 129.3 53.8 75.5 - -
Total other off-balance sheet
arrangements $ 153.2 $ 75.6 $ 77.5 $ - $ 0.1
To provide required security regarding our performance on certain contracts, we
provide letters of credit, surety bonds and bank guarantees, for which we are
contingently liable. In order to obtain these financial instruments, we pay fees
to various financial institutions in amounts competitively determined in the
marketplace. Our ability to generate revenue from certain contracts is dependent
upon our ability to obtain these off-balance sheet financial instruments.
Our off-balance sheet financial instruments may be renewed, revised or released based on changes in the underlying commitment. Historically, our commercial commitments have not been drawn upon to a material extent; consequently, management believes it is
43
--------------------------------------------------------------------------------not likely that there will be claims against these commitments that would result in a negative impact on our key financial ratios or our ability to obtain financing.
Cash Flows
Cash flows for each of the years ended
(In millions) 2019
2018
Cash provided by continuing operating activities
154.6
Cash required by investing activities (401.7 ) (94.4 ) Cash (required) provided by financing activities 287.5 (48.3 ) Cash required by discontinued operating activities (0.4 )
(0.7 ) Effect of foreign exchange rate changes on cash and cash equivalents
0.5 (2.2 )
(Decrease) increase in cash and cash equivalents $ (3.5 ) $ 9.0
2019 Compared with 2018
Cash provided by continuing operating activities in 2019 was $110.6 million ,
representing a $44.0 million decrease compared to 2018. The decrease in the
operating cash flows is driven by higher trade receivables and lower advance and
progress payments from customers. These decreases in operating cash flows were
partially offset by higher income in 2019 compared to 2018 combined with lower
payments related to pension and restructuring.
Cash required by investing activities during 2019 was $401.7 million ,
representing a $307.3 million increase compared to 2018. The change was due
primarily to a higher level of investments in acquired companies, where we paid
$365.9 million for acquisitions completed during 2019 compared to payments of
$57.5 million in 2018.
Cash provided by financing activities in 2019 was $287.5 million , representing a
$335.8 million increase in cash provided by financing activities compared to
2018. The change was due primarily to higher borrowing required to fund higher
investment in acquisitions, partially offset by lower deferred acquisition
payments and no stock repurchases in 2019, compared to $20 million in 2018.
Financing Arrangements
As of
Our credit agreement includes 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. As ofDecember 31, 2019 , we 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.
For additional information about our credit agreement, refer to Note 6. Debt of this Annual Report on Form 10-K.
We have entered into interest rate swaps to fix the interest rate applicable to certain of our variable-rate debt, with agreements for$175 million notional value expiring inFebruary 2020 , and agreements for$50 million of notional value expiring inJanuary 2021 . These agreements swap one-month LIBOR for fixed rates. We have designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income (loss). As a result, as ofDecember 31, 2019 , a portion of our variable rate debt was effectively fixed rate debt, while approximately$475.9 million , or 68%, remained subject to floating, or market, rates. SinceDecember 31, 2019 , agreements for$175 million notional amount have expired, and as a result, approximately$650.9 million , or 93%, of our outstanding debt as ofDecember 31, 2019 is now subject to floating interest rates. To the extent interest rates increase in future periods, our earnings could be negatively impacted by higher interest expense. 44
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Critical Accounting Estimates
We prepare our consolidated financial statements in conformity withU.S. generally accepted accounting principles. As such, we are required to make certain estimates, judgments and assumptions about matters that are inherently uncertain. On an ongoing basis, our management re-evaluates these estimates, judgments and assumptions for reasonableness because of the critical impact that these factors have on the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the periods presented. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors and the Audit Committee has reviewed this disclosure. We believe that the following are the critical accounting estimates used in preparing our financial statements.
Intangible Asset Valuation
Accounting for business combinations requires management to make significant estimates and assumptions at the acquisition date specifically for the valuation of intangible assets. In the year of such acquisitions, critical estimates in valuing certain of the intangible assets we have acquired include, but are not limited to, growth rates for future expected cash flows, discount rates, customer attrition rates and royalty rates. The discount rates used to discount expected future cash flows to present value are typically derived from a weighted-average cost of capital analysis and adjusted to reflect inherent risks. Unanticipated events and circumstances may occur that could affect either the accuracy or validity of such assumptions, estimates or actual results.
Revenue Recognition
We recognize a significant portion of our revenue over time, utilizing the input method of "cost-to-cost" for contracts that provide highly customized equipment and refurbishments of customer-owned equipment for which we have a contractual, enforceable right to collect payment upon customer cancellation for performance completed to date. We utilize the input method of "cost-to-cost" to recognize revenue over time which requires that we measure progress based on costs incurred to date relative to total estimated cost at completion. These cost estimates are based on significant assumptions and estimates to project the outcome of future events including labor productivity and availability, the complexity of the work to be performed, the cost of materials, and the performance of subcontractors.
Income Taxes
In determining our current income tax provision, we assessed temporary differences resulting from differing treatments of items for tax and accounting purposes. These differences resulted in deferred tax assets and liabilities which are recorded in our consolidated balance sheet. When we maintain deferred tax assets, we must assess the likelihood that these assets will be recovered through adjustments to future taxable income. To the extent we believe, based on available evidence, it is more likely than not that all or some portion of the asset will not be realized, we establish a valuation allowance. We record an allowance reducing the asset to a value we believe is more likely than not to be realized based on our expectation of future taxable income. We believe the accounting estimate related to the valuation allowance is a critical accounting estimate because it is highly susceptible to change from period to period as it requires management to make assumptions about our future income over the lives of the deferred tax assets, and the impact of increasing or decreasing the valuation allowance is potentially material to our results of operations. Forecasting future income requires us to use a significant amount of judgment. In estimating future income, we use our internal operating budgets and long-range planning projections. We developed our budgets and long-range projections based on recent results, trends, economic and industry forecasts influencing our segments' performance, our backlog, planned timing of new product launches, and customer sales commitments. Significant changes in the expected realization of the net deferred tax assets would require that we adjust the valuation allowance, resulting in a change to net income. Defined Benefit Pension The measurement of pension plans' costs requires the use of assumptions for discount rates, investment returns, employee turnover rates, retirement rates, mortality rates and other factors. The actuarial assumptions used in our pension reporting are reviewed annually and compared with external benchmarks to ensure that they appropriately account for our future pension and post-retirement benefit obligations. While we believe that the assumptions used are appropriate, differences between assumed and actual experience may affect our operating results. Our accrued pension liability reflects the funded status of our worldwide plans, or the projected benefit obligation net of plan assets. Our discount rate assumption is determined by developing a yield curve based on high quality corporate bonds with maturities matching the plan's expected benefit payment streams. The plans' expected cash flows are then discounted by the resulting year-by-year spot rates. The projected benefit obligation is sensitive to changes in our estimate of the discount rate. The discount rate used in calculating the projected benefit obligation for theU.S. pension plan, which represents 85% of all pension plan obligations, was 3.28% 45 --------------------------------------------------------------------------------
in 2019 and 3.73% in 2018 and 2017. A decrease of 50 basis points in the
discount rate used in our calculation would increase our projected benefit
obligation by
Our pension expense is sensitive to changes in our estimate of the expected rate of return on plan assets. The expected return on assets used in calculating the pension expense for theU.S. pension plan, which represents 96% of all pension plan assets, was 5.75% for 2019, 6.50% for 2018 and 6.75% for 2017. For 2020, the rate is expected to be 5.0%. A change of 50 basis points in the expected return on assets assumption would impact pension expense by$1.3 million (pre-tax). See Note 8. Pension and Post-Retirement and Other Benefit Plans of the notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for additional discussion of our assumptions and the amounts reported in the Consolidated Financial Statements.
Recent Accounting Pronouncements
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements see Note 1 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
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