JBT MAREL Corp (JBTM) FY 2021 MD&A

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

Executive Overview

We are a leading global technology solutions provider to high-value segments of the food and beverage industry with focus on proteins, diversified food and health 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 & Service Development. We are accelerating the 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 defense product offering and customer support capability to service global defense customers. Additionally, our impact initiatives are designed to support the reduction in operating costs including strategic sourcing, relentless continuous improvement (lean) efforts, and the optimization of organizational 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 operate under the JBT Operating 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.

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 have completed a comprehensive evaluation to determine which ESG topics are most pressing for our business resulting in 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.

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Business Conditions and Outlook

In terms of top–line growth, the commercial environment in 2021 was characterized by a robust demand for our goods and services in most geographical regions. Higher demand in FoodTech is driven by customer needs for greater capacity, labor savings, and new product introductions. On the AeroTech side, we continue to experience a slower recovery, as expected, however we believe we are moving in a positive direction. We are not expecting full recovery for AeroTech to pre-pandemic level until the year 2023, at the earliest. Looking ahead, we anticipate revenue growth to be consistent and solid through 2022 due to continued momentum in overall customer demand for our products and services and a record backlog entering into 2022.

Despite significant growth in our revenues, our operating margins declined due to the unprecedented challenges associated with supply chain disruptions, high inflation, and labor availability affecting both FoodTech and AeroTech. Unlike in the past, where our JBT operating 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 that these trends will continue into 2022 as we anticipate further 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. Additionally, we have continued to enhance our internal operating efficiency with the ongoing benefits of our restructuring program.

Impact of COVID-19 on our Business

The COVID-19 pandemic has resulted and is expected to continue to result in significant economic disruption, and our business has been adversely affected as a result. While we have seen and expect to continue to see positive signs of economic recovery, the following uncertainties still exist and may contribute to additional negative impacts on our overall financial results, particularly if there is a significant resurgence of COVID-19 infections in locations where we or our customers operate:

•our ability to obtain raw material and required components from domestic and international suppliers required to manufacture our products and provide services;

•our ability to efficiently operate our facilities and meet customer obligations due to modified employee work patterns resulting from social distancing guidelines, absence due to illness and cautionary quarantines and/or government ordered closures, or due to labor shortages;

•our ability to secure inbound and outbound logistics to and from our facilities, with additional delays linked to international border crossings and the associated approvals and documentation;

•our ability to access customer locations in order to execute installations, new product deliveries, maintenance and repair services;

•limitations on the ability of our customers to conduct their business, and resulting impacts to our customers' purchasing patterns, from food and travel disruption, social distancing guidelines, absence due to illness or government ordered closures; and

•limitations on the ability of our customers to meet their financial obligations to JBT.

As a result of the global COVID-19 related restrictions and social distancing requirements that have continued from 2020 through 2021, the food industry continues to experience a notable rise in retail demand. In addition, with these global health restrictions lifting in certain parts of the world as a result of decreased infection rates and political pressures, foodservice continues to revitalize as restaurants reopen and travel increases. These increases in demand, however promising, are dependent on the continued trend towards reopening which can be negatively impacted by new variants, such as the omicron variant first identified in November 2021, and a resulting increase in COVID-19 infections and hospitalizations. As there continues to be uncertainty, the pace of recovery from the COVID-19 pandemic remains unpredictable.

As FoodTech customers are present in both the retail and foodservice channels, the shifts in demand have and may continue to create volatility and uncertainty in our customer's purchasing patterns. However, in the fourth quarter of 2021, our inbound FoodTech orders increased by 25% compared to the same period in 2020 as we continued to see positive recovery specifically for food processors in the quick service restaurant businesses, those servicing the sustained "eat-at-home" trend and ready meals, as well as capital investments continuing to ramp back up for our foodservice and pet food customers. Our customers appear to be investing more to support these trends, addressing immediate capacity needs and creating strong interest in FoodTech's broad product offerings. This is the fourth consecutive quarter of year over year improvement in orders for the FoodTech segment, a positive indicator of recovery in the industry. Despite these improvements, we expect that continued supply chain challenges as well as labor shortages that have impacted many of our markets will continue to drive delays and inefficiencies in our production process and offset some of these improvements

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in orders. In addition to the above considerations, although the pandemic continues to have negative impacts on our results of operations in FoodTech, we believe it has accelerated the demand for automation solutions, increased focus on food safety and hygiene requirements and lead to innovation to respond to changes in consumer preferences. Furthermore, recurring revenue for the FoodTech segment has increased 10% year over year. This improvement is driven largely by the continued increase in demand across the foodservice industry noted above, price increases as well as sustained operations within the food processing companies requiring critical maintenance and parts.

For AeroTech, a large portion of our revenue depends on the passenger airline industry. Passenger air travel continues to increase from 2020 levels with declining infection rates and reopening of travel routes. Activity at US airports continued to increase during the third and fourth quarters compared to the prior year, driving improving demand for our equipment and services. However, global passenger traffic continues to be well below pre-pandemic levels which directly impact our mobile equipment business. We are not expecting full recovery for AeroTech to pre-pandemic level until the year 2023, at the earliest . Although our projections are subject to more uncertainty than in pre-pandemic periods, we expect higher demand and inbound orders for these products in the year 2022. During the fourth quarter, supply chain disruptions and labor shortages continued to drive shipment delays, operational inefficiencies, and higher material, labor and freight costs which reduced AeroTech's profitability. However, with the ongoing benefits of cost controls including restructuring, as well as the diversity of revenue streams within the business, AeroTech remained profitable despite these headwinds with further improvement in its profitability expected in the year 2022.

Specifically for aftermarket revenue streams within the AeroTech segment, we have begun to see recovery in demand as equipment utilization increases for our customers in line with air traffic demand. While aftermarket revenue during the fourth quarter of 2021 was lower by 4.5% compared to third quarter of 2021, it was higher by 15.3% on a year over year basis compared to the fourth quarter of 2020. We note, however, that these improvements may not continue if a broader resurgence in COVID-19 cases causes broader restrictions to be reinstated.

Furthermore, while an outbreak of COVID-19 in any of our production manufacturing facilities could lead to a temporary shut-down that may negatively impact our results, there are no significant concentrations of our operations across our manufacturing facilities such that a short-term single plant closure would be expected to have a material impact to our consolidated results.

Although we cannot reasonably estimate the duration and severity, or potential for resurgence, of these COVID-19 related events or the continued impact pandemic will have on the global economy or our business, we believe that our positive order trends, improving revenues and strong balance sheet and cash flows will allow us to emerge from these events well-positioned for long-term growth.

Our Strategy to Mitigate Impacts of COVID-19

As we manage through these uncertainties, our focus is on obtaining orders, maintaining disciplined working capital management, identifying ways to mitigate the supply chain disruptions, labor shortages and resulting inefficiencies, and investing in key growth strategies so that we can continue to execute our operating strategies as a critical supplier to the essential food and air transportation industries. As of the date of this filing, all of our factories and warehouses are operational.

We continue to maintain protocols under the guidance of our Crisis Response Team to protect the health and safety of our workers in our facilities, including daily symptoms screening for clearance to work, social distancing requirements in our workplaces, face covering requirements where social distancing is not possible, facilitation of work from home arrangements for our employees who can perform work functions remotely, and global travel restrictions consistent with the Centers for Disease Control and Prevention and local government guidelines. We are evaluating our options to source and manage COVID testing at our facilities in order to assist our employees' efforts to remain healthy and reduce absenteeism. Our Crisis Response Team issues frequent guidance to our managers and employees to reinforce these protocols and policies which are designed to keep our employees safe, maintain our business operations, and allow us to effectively and efficiently manage through positive COVID cases and potential shut downs in our facilities. Furthermore, we are providing enhanced remote support options and extended hours to our customers to support them through the disruption caused by the pandemic.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees and our other stakeholders.

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Non-GAAP Financial Measures

The results for the periods ended December 31, 2021, 2020 and 2019 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 under U.S. GAAP, or include certain amounts that are excluded from a measure calculated under U.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. The adjustments generally fall within the following categories: restructuring costs, M&A related costs, pension-related costs, constant currency adjustments and other major items affecting comparability of our ongoing operating results.

The non-GAAP financial measures presented in this report 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 with U.S. GAAP.

Additional details for each Non-GAAP financial measure follow:

•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.

•Adjusted income from continuing operations and Adjusted diluted earnings per share from continuing operations: We adjust earnings for restructuring and merger and acquisition related costs, which include integration costs and the amortization of inventory step-up from business combinations, earnout adjustments to fair value, transaction costs for both potential and completed M&A transactions (“M&A related costs”), management succession costs, and the impacts from remeasurements of deferred taxes.

•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, pension expense other than service cost, M&A related costs, and management succession 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, and M&A related costs. We calculate segment Adjusted EBITDA by subtracting depreciation and amortization from segment adjusted operating profit. We believe 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 by subtracting 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.

•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.

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In the third quarter of 2020, we adjusted certain of our non-GAAP financial measures for management succession costs. We are excluding these succession costs from certain non-GAAP financial measures because they are not part of our regular compensation program, and we believe that excluding the effects of costs associated with the recruiting and implementing transition of our chief executive officer and chief financial officer positions allows more meaningful period-to-period comparisons of our ongoing operating results. Refer to Note 20. Management Succession Costs of the Notes to Consolidated Financial Statements for additional information about management succession costs incurred during the year 2020.

The tables included below reconcile each non-GAAP financial measure to the most comparable GAAP financial measure.

The table below provides a reconciliation of cash provided by continuing operating activities to free cash flow:

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:

(1)     Impact on tax provision was calculated using the enacted rate for the relevant jurisdiction for the years ended December 31, 2021, 2020, and 2019, respectively. In 2020 and 2019, we have also included certain discrete adjustments related to management succession costs and restructuring related costs, respectively.

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The table below provides a reconciliation of net income to EBITDA to Adjusted EBITDA:

The tables below provide a reconciliation of segment operating profit to segment adjusted operating profit and segment Adjusted EBITDA:

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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.

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Results of Continuing Operations

A discussion of our results of operations for 2021 compared to 2020 is set forth below. For a discussion of our results of operations, including our segment results of operations, for 2020 compared to 2019, refer to the discussion under the sub-caption "2020 Compared With 2019" in Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of our Annual Report on Form 10–K for the fiscal year ended December 31, 2020, which discussion is incorporated by reference herein.

CONSOLIDATED RESULTS OF OPERATIONS

2021 Compared With 2020

Total revenue in 2021 increased $140.5 million compared to 2020. This is an 8% increase, with a 5% growth in organic revenue, a 2% gain from acquisitions and a 1% gain from foreign currency translation. Organic revenue growth resulted from higher equipment revenue for FoodTech and higher recurring revenue across both segments, partially offset by lower equipment revenue for AeroTech due to delays in shipments caused by supply chain issues and labor shortages.

Operating income margin was 8.6% in 2021 compared to 9.4% in 2020, a decrease of 80 bps, and was caused by the following items:

•Gross profit margin decreased 60 bps to 30.3% compared to 30.9% in 2020. This decrease was driven by a higher mix of revenue from the faster growing equipment revenue stream for FoodTech as compared to the higher margin recurring revenue streams across both segments. In addition, margins were negatively impacted by supply chain disruptions, labor availability, and resulting inefficiencies driving increases in material, freight and labor costs.

•Selling, general and administrative expense increased $42.6 million from prior year, and as a percent of revenue increased 80 bps to 21.5% compared to 20.7% for 2020. This was due to an increase in M&A related costs, incentive compensation expense, wage increases and the return of variable costs that were reduced in the prior year as a result of the impact of COVID-19, all of which were partially offset by our ability to better leverage fixed costs as volumes increased year over year.

•Restructuring expense decreased $6.5 million. As a percent of revenue, these expenses have decreased 40 bps to 0.3% compared to 0.7% for 2020.

•Currency translation increased operating income by $2.5 million.

Pension expense, other than service cost decreased by $5.0 million resulting from a lower interest cost on pension obligations and a higher than expected return on pension assets.

Interest expense decreased $5.2 million resulting from lower interest rates, primarily due to issuance of convertible notes in May 2021 and lower average debt levels compared to 2020.

Income tax expense for 2021 reflected an effective income tax rate of 22.4% compared to 25.1% in 2020.

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Restructuring

In the first quarter of 2018, the Company implemented a restructuring plan ("2018 restructuring plan") to address its global processes, flatten the organization, improve efficiency and better leverage general and administrative resources primarily within the JBT FoodTech segment. We recognized cumulative restructuring charges of $62.2 million, net of cumulative releases of the related liability of $11.9 million. We completed this plan in the third quarter of 2020.

In the first quarter of 2020, the Company implemented an immaterial restructuring plan primarily within the JBT AeroTech segment. Through December 31, 2020, we recognized restructuring charges of $2.4 million related to severance, net of a cumulative release of the related liability of $0.2 million. We completed this plan during the third quarter 2020.

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. During the third quarter 2021, we revised our total estimated costs in connection with this plan, with the original estimate of $9 million to $10 million for FoodTech to be recognized by end of the year 2022, to a range of $10 million to $11 million to be completed by second quarter of 2022. These changes are due to a delay in transfer of the manufacturing process under this plan. The total estimated cost for AeroTech in connection with this plan is approximately $6 million. We recognized restructuring charges of $17.2 million, net of a cumulative release of the related liability of $1.5 million, through December 31, 2021.

The following table details the cumulative amount of annualized and incremental savings for the 2020 restructuring plan:

For the 2020 restructuring plan, incremental cost savings we expect to realize during the year 2022 are as follows:

For additional financial information about restructuring, refer to Note 19. Restructuring of the Notes to Consolidated Financial Statements.

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OPERATING RESULTS OF BUSINESS SEGMENTS

(1)Refer to Note 18. Business Segments of the Notes to 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

2021 Compared With 2020

FoodTech revenue increased by $165.9 million or 13% for the year ended December 31, 2021 compared to 2020. Organic revenue grew $111.9 million in the period, revenue from acquisitions grew $29.3 million, and favorable foreign currency translation provided an additional $24.7 million in revenue year over year. Equipment revenue represented 74% of the organic revenue growth on a constant currency basis, with $83.1 million of additional revenue in the year compared to 2020. Recurring revenue drove the remaining increase of $28.8 million.

FoodTech operating profit increased $16.4 million, or 10%, year over year for the year ended December 31, 2021 compared to 2020. Gross profit margins declined ~90 bps year over year contributing to a lower operating profit margin of 13.4% in 2021 compared to 13.8% in the prior year. Operating and gross profit margins declined in 2021 compared to 2020 despite revenue growth due largely to supply chain disruptions and pressures resulting in inefficiencies that drove increases in material, freight, and labor costs. Decline in these margins also reflect a higher mix of revenue from the faster growing equipment revenue stream as compared to the higher margin recurring revenue streams, with recurring revenue dropping from 49.5% to 48% of total revenue. Selling, general and

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administrative expense increased $32.1 million from prior year, but as a percent of revenue remained flat at ~21% in both the current and prior year. Currency translation increased operating income by $3.1 million for the year ended December 31, 2021.

JBT AeroTech

2021 Compared With 2020

JBT AeroTech's revenue declined $25.8 million compared to 2020, which represents a 5% decrease. The reduction was comprised of a $34.9 million decline from our fixed equipment business and a $3.5 million decline in our mobile equipment business partially offset by a $10.6 million increase from our service business. The decline in our fixed equipment business was primarily due to supply chain issues, labor shortages and customer related delays partially offset by an increase in aftermarket sales. The decline in our mobile equipment business was primarily due to supply chain delays partially offset by an increase in aftermarket sales. The increase in service revenue was a result of an increase in service hours on our maintenance contracts as activity at US airports began to increase as a result of the elimination of customer-imposed service hour reductions relating to COVID-19 compared to the prior year. The impact of currency translation resulted in a $2.0 million increase in revenues compared to 2020.

JBT AeroTech’s operating profit declined $20.3 million compared to 2020. Operating profit margin was 7.0% compared to 10.7% in the prior year, reflecting a decline of 370 bps. Gross profit margins decreased 170 bps driven by higher material, labor and freight costs and lost leverage of fixed manufacturing costs as a result of lower revenue partially offset by a favorable mix of aftermarket revenues. Selling, general and administrative expenses in 2021 were $7.1 million above 2020 which is an increase of 15%. The increase in 2021 was mostly due to wage increases and the return of 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

2021 Compared With 2020

Corporate expense increased by $5.6 million compared to 2020, driven primarily by higher M&A related costs and incentive compensation expense, both of which were reduced in the prior year as a result of the impact of COVID-19 pandemic. The increase was partially offset by lower costs relating to management succession costs incurred only in the prior year. Corporate expense as a percent of revenues increased slightly to 2.9% in 2021 compared to 2.8% in 2020.

Inbound Orders and Order Backlog

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

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

Order backlog in our JBT FoodTech segment at December 31, 2021 increased by $208.5 million compared to December 31, 2020. We expect to convert 90% of JBT FoodTech backlog at December 31, 2021 into revenue during 2022.

Order backlog in our JBT AeroTech segment at December 31, 2021 increased by $84.8 million compared to December 31, 2020. We expect to convert 89% of the JBT AeroTech backlog at December 31, 2021 into revenue during 2022.

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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

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. We used a portion of the net proceeds from the convertible notes to pay the net cost of the convertible note hedge and the warrant transactions, and to partially pay down our borrowings under our revolving credit facility. We have used the remaining net proceeds from the convertible notes for general corporate purposes, including acquisitions.

As of December 31, 2021, we had $78.8 million of cash and cash equivalents, $42.4 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 2021, 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. There were no amounts outstanding subject to this IRS guidance at December 31, 2021.

For the year ended December 31, 2021, we had total operating cash flow of $225.7 million and $190.4 million in free cash flow, which includes $5.1 million in benefits from deferred payroll tax payments under the CARES Act. Our liquidity as of December 31, 2021, or cash plus borrowing ability under our revolving credit facilities was $702.5 million. Increase in our liquidity year over year was in part due to structural changes in the leverage calculation of our credit facility, modified in the fourth quarter of 2021, that has allowed us increased access to the capacity under our secured credit facility. Furthermore, our liquidity improved resulting from lower borrowing required from our secured credit facility as of December 31, 2021, due to our funding requirements met by the issuance of unsecured convertible notes in May 2021.

The cash flows generated by our operations and borrowings are expected to be sufficient to satisfy our principal cash requirements that include our working capital needs, new product development, restructuring expenses, capital expenditures, income taxes, debt repayments, dividends, 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 between $90 million and $95 million, which includes about $45 million of capitalized investment in our digital strategy. Our level of capital expenditures varies from time to time as a result of actual and anticipated business conditions. The increase in our capital expenditure year over year is due to our limited capital spending in prior year as part of our strategy to mitigate the impact of COVID-19 on our liquidity, as well as higher current and anticipated capital spending driven, in part, by strategic investments in our digital capabilities. We believe JBT's strong balance sheet, operating cash flows, and access to capital as of December 31, 2021 positions us to successfully navigate through the challenging economic conditions associated with the COVID-19 pandemic as we continue to invest in growth strategies including our acquisition program and new product development.

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Contractual Obligations

The following is a summary of our significant contractual obligations at December 31, 2021:

(a)A summary of our long-term debt obligations as of December 31, 2021 can be found in Note 6, “Debt”, of the Notes to the Consolidated Financial Statements.

(b)Interest payments were determined using the weighted average rates for all debt outstanding as of December 31, 2021.

(c)A summary of our operating lease obligations as of December 31, 2021 can be found in Note 17, “Leases”, of the Notes to the Consolidated Financial Statements.

(d)This amount reflects planned contributions in 2022 to our pension plans. Required contributions for future years depend on factors that cannot be determined at this time.

We also have outstanding firm purchase orders with certain suppliers for the purchase of raw materials and services, which are not included in the table above. These purchase orders are generally short-term in nature and 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. The costs associated with these agreements will be reflected in cost of sales on our Consolidated Statements of Income as substantially all of these commitments are associated with purchases made to fulfill our customers’ orders.

The following is a summary of other off-balance sheet arrangements at December 31, 2021:

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

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

Cash Flows

Cash flows for each of the years ended December 31, 2021 and 2020 were as follows:

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2021 Compared with 2020

Cash provided by continuing operating activities in 2021 was $225.7 million, representing a $26.3 million decrease compared to 2020. This decrease was driven primarily by a higher investment in inventory and an increase in outstanding trade receivables. These were partially offset by higher customer collections of advance payments and an increase in accounts payable.

Cash required by investing activities during 2021 was $272.9 million, representing a $235.6 million increase compared to 2020, primarily due to increased acquisition and capital expenditure spending year over year.

Cash provided by financing activities of $80.8 million in 2021 was primarily due to net 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 the payment of acquisition date earn-out liability. Cash required by financing activities of $207.4 million in 2020 was primarily due to paying down our borrowings under the domestic credit facility in 2020.

Financing Arrangements

As of December 31, 2021 we had $282.9 million drawn on and $1,009.4 million of availability under the revolving credit facility. Our ability to use this availability is limited by the restrictive covenants 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 December 31, 2021, 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.

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 (the "Notes") to qualified institutional buyers, resulting in net proceeds to us of approximately $392.2 million after deducting initial purchasers’ discounts. The Notes will mature on May 15, 2026 unless earlier converted, redeemed or repurchased. Concurrently with the issuance of the Notes, we entered into the 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 Note hedge transactions.

For additional information about our credit agreement, Notes, convertible note hedge and warrant transactions, refer to Note 6. Debt of the Notes to Consolidated Financial Statements.

As of December 31, 2021, we have 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 a result, as of December 31, 2021, a portion of our variable rate debt was effectively fixed rate debt subject to an average fixed rate of 0.82%, while approximately $32.9 million, or 11%, 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

We prepare our consolidated financial statements in conformity with U.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.

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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. We use the multi-period excess earnings method to determine the fair value of the customer relationships and the relief-from-royalty approach to determine the fair value of the tradename and proprietary technology.

Critical estimates and assumptions in valuing certain of the intangible assets we have acquired include, but are not limited to, forecasted revenue growth rates, EBITDA margins, 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.

Sensitivities related to acquisition of CMS Technology, Inc ("Prevenio")

The valuation of Prevenio's intangible assets were based in part on the key assumptions of customer attrition rate and discount rate for customer relationship intangible assets, and royalty rate for patents and acquired technology intangible assets. The customer attrition rate was selected based on historical experience and information obtained from Prevenio's management. An increase or decrease of 250 basis points in the customer attrition rate would result in a decrease of $6 million or an increase of $8 million, respectively, in the value of Prevenio's customer relationship intangible assets. Additionally, a change in the discount rate of 100 basis points would result in a change of $3 million in the value of Prevenio's customer relationship intangible assets. The royalty rate used in the valuation of Prevenio's patents and acquired technology intangible asset was based on a detailed analysis considering the importance of the technology to the overall enterprise and market royalty data. An increase or decrease of 20% in the royalty rate would result in an increase of $3.5 million or a decrease of $4 million, respectively, in the valuation of these assets.

Revenue Recognition

We recognize a large portion of our product revenue over time, 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 assumptions and estimates to project the outcome of future events including estimated labor and material costs required to complete open projects.

Defined Benefit Pension Plans

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 the U.S. pension plan, which represents 87% of all pension plan obligations, was 2.90% in 2021, 2.57% in 2020 and 3.28% 2019. A decrease of 50 basis points in the discount rate used in our calculation would increase our projected benefit obligation by $18.2 million.

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 the U.S. pension plan, which represents 96% of all pension plan assets, was 5.75% for 2021, 5.0% for 2020 and 5.75% for 2019. For 2022, the rate is expected to be 5.50%. 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 the Notes to Consolidated Financial Statements.

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