JBT Marel Corporation

Thank you, Ashley. Good morning, everyone, and welcome to our fourth quarter 2011 conference call.

With me on the call are our Chairman and CEO, Charlie Cannon; and our Vice President and CFO, Ron Mambu.

Before we begin, I would like to remind everyone the forward-looking statements in today's call are subject to the Safe Harbor language in yesterday's press release and 8-K filing. Our 2010 Form 10-K also contains information regarding certain risk factors that may have an impact on our results.

These documents are available on our Investor Relations website.

Now I would like to turn the call over to Charlie.

Thanks, Debarshi, and good morning, everyone. On today's call, I will discuss our full year 2011 performance and outlook for 2012.

Ron will cover our fourth quarter results before we open up the call to questions.

Before we get started, I would like to take a minute to welcome Debarshi Sengupta, our new Director of Investor Relations. I would also like to congratulate Cindy Shiao on her appointment as Chief Financial and Administrative Officer for Asia Pacific.

This is a new position we have established, underscoring our strategy to grow our presence in the region.

Now moving to our full year 2011 performance. We ended the year with mixed results.

AeroTech performed very well, delivering its second best yearly top line and earnings performance ever. This segment delivered double-digit revenue growth and grew operating margins 70 basis points.

In particular, both our gate equipment and automated systems businesses achieved record earnings in 2011. We were also pleased with our company's overall aftermarket revenue growth of about 9% driven by both segments.

However, we were disappointed with the margin performance in FoodTech. As we have reported in the last 2 earnings calls, we faced significant headwinds, including foreign currency impact, resulting from a strong Swedish krona, mix effects and higher material costs that contributed to significantly lower margins in 2011.

Segment revenue was essentially flat in constant currencies.

To respond to these challenges, we decisively acted to bring FoodTech operating margins back on track. First, we completed our initiative to shift production of some of our high-capacity freezer product lines from Sweden to North America.

Second, we expanded our presence in China by establishing production of a low capacity freezer line. A majority of the freezers produced thus far out of these 2 initiatives will ship in the first quarter of 2012, albeit at lower margins due to learning curve.

We expect the negative impact of the learning curve to be behind us by the second quarter of 2012.

Third, we completed an operational efficiency project with one of our AeroTech businesses, and that project is on track to generate savings of a couple million dollars annually. We are very pleased with this outcome and have since engaged a similar project for one of our FoodTech businesses.

Lastly, in January, we announced a restructuring plan targeted at lowering costs in multiple FoodTech operations across Europe and North America. This is an investment that we expect will reduce costs by about $9 million pretax annually by 2013.

While we anticipate half of these savings will be realized in 2012, the savings will be back-end loaded as we continue to implement actions throughout the first half. These strategic actions underscore our serious focus on bringing margins back on track to achieve our long-term margin goals.

Now let me provide some commentary on the business environment for our 2 segments.

First, JBT FoodTech. Order activity for freezing and protein processing started 2011 on a strong note.

We were seeing good momentum across our developed markets in Europe and North America and healthy growth in emerging markets, notably the Middle East and Asia Pacific. As the year progressed, the political turmoil in the Middle East, the economic headwinds in Europe and the combination of sustained high corn and low poultry prices in North America contributed to a slowdown in order activity.

Heading into 2012, we expect that the European markets we serve will at best see an uneven recovery.

In North America, corn prices are expected to remain at unfavorable levels. However, chicken prices are increasing as supplies continue to align with demand, likely resulting in a return to profitability for poultry processors, which bodes well for us.

In addition, we continue to see robust activity in developing markets.

Turning to fruit and juice processing, the USDA Florida orange crop estimate for the 2011/2012 season is 146 million boxes, a 4% increase from the prior season. This modest growth is good for the U.S.

citrus industry in general.

Moving to the sterilization product line, after a slow start in the first quarter of 2011, we saw order activity pick up in the second half of the year. This was largely driven by demand out of Asia Pacific, where major food manufacturers were actively expanding and by a recovery in North America.

Based on current discussions with customers, we expect this trend to continue throughout 2012.

For FoodTech overall, healthy inbound activity since the beginning of this year is already restoring FoodTech backlog. We expect FoodTech revenue and earnings in the first half of 2012 will be comparable to the prior year.

Looking at the full year, savings from the strategic actions implemented are expected to have a significant positive impact in the second half of 2012. We are targeting to return FoodTech EBIT margins to double digits for the full year of 2012.

Moving to AeroTech. The global airline industry achieved estimated profits of $6.9 billion in 2011.

For 2012, passenger traffic growth is forecasted at 4% for the year, while cargo volume is forecasted to be essentially flat relative to 2011. Most importantly for us, the global industry is expected to be profitable again in 2012, albeit roughly at half of the 2011 level.

This continued profitability drives a generally positive sentiment in the industry.

As mentioned earlier, gate equipment delivered record performance in 2011. However, year-end backlog was lower relative to the prior year.

While inbound orders have been steady since the beginning of 2012, customer-requested delays for previously backlogged passenger boarding bridges are creating a significant production gap in the first half of 2012. As a result, we are anticipating significantly lower gate equipment revenue and earnings during the first half.

To mitigate the earnings impact of the production delays, we have implemented temporary layoffs. We chose temporary layoffs as we anticipate a volume rebound in the back half of 2012.

The ground support equipment business achieved double-digit growth in 2011. Entering 2012, order activity is expected to hold strong, supported by the January award of a contract in excess of $6 million from a large airfreight carrier.

Moving to Airport Services, we continue to see a pipeline of smaller sized projects up for bid in 2012, very similar to 2011.

Lastly, as noted earlier, our automated systems business delivered record profits in 2011. Moreover, as a testament to our technology leadership in the automated guided vehicles industry, we recently announced a partnership agreement with Swisslog, a global provider of integrated logistics solutions.

In summary, while airline industry sentiment is expected to remain positive in 2012, we expect AeroTech's revenue and EBIT margins to be significantly lower in the first half due to the production gap for passenger boarding bridges. We anticipate the slippage in order timing in this business will be largely offset by continued strength in other AeroTech businesses, with revenue and margins recovering in the second half of 2012, which is our normal seasonality.

While this recovery should result in stronger AeroTech sales and earnings in the second half of 2012, we anticipate full year AeroTech results to be flat to slightly down from its strongest performance ever.

To recap, we ended 2011 with mixed results. AeroTech performed very well, delivering its second best yearly performance.

We were also pleased with our company's aftermarket performance. However, we were disappointed with the margin performance in FoodTech and acted decisively to bring FoodTech operating margins back on track.

Looking out to 2012, we expect significantly lower revenue and earnings in the first half, largely due to the production gap for passenger boarding bridges. However, our inbound for January and February was well above 2011 rates, giving us confidence that Q1 inbound will be higher sequentially and year-over-year.

For the full year, even in an environment of flat top line growth, we expect earnings to substantially rebound as savings from the strategic actions implemented in 2011 and the first half of 2012 will drive significant margin improvement in the second half.

Finally, I'd like to take this opportunity to thank our employees, our management team and our Board of Directors for their dedication and hard work in 2011. We made some tough choices in the past year, underscoring our commitment to our 4G business strategy and to delivering value to our stakeholders.

Now, I'll turn it over to Ron Mambu to provide more details on our fourth quarter results.

Thank you, Charlie. Revenue for the fourth quarter was $272 million, up 18% sequentially but down 5% relative to the prior-year quarter.

During the quarter, we recorded $10.3 million in pretax restructuring charges for cost-reduction actions in our FoodTech segment. The restructuring costs are included as part of our corporate items.

Fourth quarter 2011 diluted earnings per share from continuing operations was $0.25, net of $0.23 per diluted share in restructuring charges. This compares to fourth quarter 2010 diluted earnings per share from continuing ops of $0.56, net of $0.07 per share from AeroTech restructuring.

Fourth quarter inbound orders of $207 million and backlog of $246 million decreased 10% and 14%, respectively, from the same period last year.

I'll now comment on our operating segment performance and then on corporate items. FoodTech's fourth quarter revenue of $152 million declined 4% from the same period in 2010.

This decline was primarily due to lower freezing and protein processing equipment in Europe and North America. Partially offsetting the decline was the shipment of a large fruit processing order to the Middle East and favorable aftermarket volume in the quarter.

Segment operating profit margin of 9.5% decreased 320 basis points from the prior year, largely driven by lower volume and unfavorable product mix. Fourth quarter FoodTech inbound orders of $123 million and backlog of $99 million declined 16% and 5%, respectively.

We received 4 large tomato and fruit processing orders totaling $25 million in the same period last year, which drove the prior year inbound and backlog. Differences related to foreign currency translation for the quarter versus the prior-year quarter were minimal.

AeroTech fourth quarter revenue of $119 million declined 5% relative to a record fourth quarter in 2010. Two large deicer shipments in the prior year quarter were only partly replaced with smaller shipments in the current quarter.

Operating profit margin of 10% decreased 90 basis points from the prior-year quarter, primarily driven by lower Halvorsen loader volume and higher R&D investment for new mobile preconditioned air products. The decline was partially offset by savings achieved in the quarter from the operational efficiency project that Charlie mentioned earlier.

AeroTech fourth quarter inbound orders totaled $84 million, essentially flat compared to the prior year. Year-end backlog was $148 million, a decline of 20% from the prior-year quarter.

The unfavorable backlog comparison was primarily due to shipments in 2011 of a large multiyear order received from the U.S. Navy in 2010 and, to a lesser extent, timing of a large gate equipment order that was delayed to early 2012.

Now regarding corporate items, our full year effective tax rate for 2011 was 34.1%, coming in at the lower end of our guidance range. Total corporate items in the fourth quarter, excluding net interest expense, were $14 million, up $9 million year-over-year, primarily driven by the higher restructuring expenses recorded in the quarter.

Full year cash generated by operating activities was $37 million, which included the funding of $10 million to the company's pension and other postretirement plans in 2011.

Full year capital expenditures totaled $21 million, and depreciation and amortization totaled $24 million. Capital expenditures came in lower than planned as spending on the Lakeland, Florida, facility shifted to 2012.

As a result, we expect total capital spending in 2012 to be in the range of $26 million to $30 million.

At December 31, we had debt, net of cash, of $131 million. Net interest expense for the quarter was $1.5 million, a reduction of $400,000 from the prior-year quarter, reflecting lower average interest rates on our variable rate debt.

As you know, we announced the share repurchase program in November 2011. This program authorizes the repurchase of up to $30 million of our common stock through December 2014, and we did that via a 10b5-1 program.

As of year-end, we purchased $300,000 worth of common stock. We plan to file our 10-K tomorrow, so there will be more detailed information readily available for your review.

In summary, we ended 2011 with mixed results. AeroTech performed very well, delivering its second best yearly performance.

In addition, we were pleased with the company's overall aftermarket performance for the year. We were disappointed with the margin performance in FoodTech, and we're taking actions to return FoodTech operating margins back to double-digit levels in 2012.

For 2012, we expect significantly lower revenue and earnings in the first half of the year, largely due to the production gap for passenger boarding bridges. For the full year, we expect earnings to substantially rebound as savings from the strategic actions implemented in 2011 are expected to have a significant impact on margins in the second half of 2012.

Also, current order rates give us confidence that we will have a typically, seasonally stronger second half.

With that, we'd like to take your questions. So operator, please open up the call.

My questions mainly, I think, relate to FoodTech. Orders were a bit soft.

You mentioned the large orders last year. And since the quarter ended, you had a couple of large orders in your most recent releases.

In general, do you think you're still playing small ball there, to use your expression? Or are you seeing signs that maybe indicate opening up for capacity expansion projects?

It's always hard to predict these based on timing, but you saw the recent press releases. I think we had a couple in the last 8 weeks.

So I call those medium to getting to be a little bit bigger ball. For example, the $6 million milk processing order, that will be delivered in the last quarter.

So when I have orders that size, it gives us little more visibility later in the year. We are -- there are some larger projects that are on the agenda that we're talking to customers about that could happen mid to late this year with long gestation times.

And those are just so hard to predict, but it is encouraging that we do have a few of those conversations going on. I mean, 1 or 2 of them are in Asia.

Okay, and then for freezing and protein processing, you mentioned North America poultry producers seeing improved profitably, even with corn prices. How soon does something like that potentially translate to equipment demand?

It's hard to say, Jason, but we're just encouraged that we're seeing chicken prices heading up. And I'm not an expert in how they manage supply in terms of egg sets and all that sort of stuff, but they are -- it looks like the industry is taking action to get -- on the supply side, to get their realized pricing up on the protein side.

Okay, and in citrus, I guess, what -- you mentioned the Lakeland facility in 2012 CapEx. What's the status on that?

And since North America citrus is somewhat tied to volume, do you expect to lose any capacity there as you update the facility?

I don't think we anticipate any -- we're actually -- we changed plans. Originally -- what's caused the delay, real quickly, is we had looked at going to a new location and not from where we are now just because the place we have has got so much property we don't need.

But both of those real estate deals kind of ran into snags, and rather than mess around anymore, we said, "You know what? We can demolish and build in stages on our current property."

So that's the planning and architectural work going on right now. But that's caused delays into this year.

But we think we're going to be able to do this in place in stages over a couple of year period. And that's where we are today.

Okay. And just on margins in FoodTech, I understand the commentary for relatively flat revenue outlook, and you have some expenses still moving into the first half.

But if you strip out the restructuring, the cost related to the freezer, the Swedish krona, the price consultants, account for some mix shift that you had on fruit process versus protein, where do you think normalized margins are for that segment now? How much do you think the pricing initiatives could add to that normal level, even on a flat revenue base?

And then longer term, what level do you think you could achieve with the whole 4G strategy if you add pricing and volume?

Well, just to put it in very simplistic terms, if we just take the Swedish krona headwind, we finished the year in FoodTech with margins -- EBIT margins of 7.8%, I think. And if you take the impact of the kronor, if that had not occurred, it would have been 9.3%.

And if you take out the material cost inflation we saw, they would have been 10.4%. That's before we even talk about spending on 4Gs.

So the headwinds we had were big. In terms of where I forecast we're heading, I said in my remarks that our target is to get FoodTech margins at year end at 2012 for the full year will be double digit.

That's our -- that's what we're targeting. And then long term, with our 4G strategy, we've always said it's kind of lumpy.

It doesn't happen every 1 year. But we’re internally targeting "50 basis point a year" margin improvement year after year after year.

And that's in our long-range plan. Unfortunately, in 2011, we took a big step backwards in FoodTech, which is why we've taken these big actions to get us back on track.

Do you want to add something, Ron?

Yes. I mean, I -- what I'd add to that is the items that Charlie just indicated get you back to above double digits.

But even with the Swedish kronor where it is today, and we're not forecasting exchange rates to get us back to that level, the Swedish krona and U.S. dollar and the euro, where they are.

If it stays there, we still think we'll get back to double digits as a result of some of these things that we've done. And in terms of the cost reduction actions, the restructuring and also the shift in production on freezers to the U.S.

and to China, I think, are going to give us not only incremental volume, but also at better margins than what we've seen in the past. So those are the kinds of things that we think still move FoodTech to double digits.

And our goal of 50-basis-point improvement from that point is still intact.

Okay. I appreciate those details.

And just quick last question, any update on the acquisition market? How active is the pipeline?

Are you seeing any more motivated sellers out there given that most of them are private?

Well, it's always difficult for us to talk about pipeline, but we have conversations going on right now. We'll see how we do.

Hopefully, we'll be able to wrestle 1 or 2 to the ground this year.

I just had a couple of questions. One, on the FoodTech side, did you say earlier in the call that you were seeing some healthy activity in the first quarter so far?

Yes, on the inbound side, we took a look at our inbound. We're just impressed with the closing of February books, but the inbound order rate in FoodTech in January and February was running above 20% ahead of last year.

AeroTech also was running, say, 15% to 20%. That's 2 months, but it's encouraging.

So I said in my remarks, we anticipate that order rate is going mean that FoodTech inbound is going to be higher not only sequentially, but also year-over-year. That's part of the -- even without perfect visibility in the back half, that's part of the confidence builder that it gives us, that we can see that level of activity.

And on the FoodTech side, is there any particular geography that you would point to or product line?

I would say if you want to anecdotally kind of go around the world, it's been broad-based in FoodTech, but we're particularly encouraged with the developing world. In particular, one standout is Asia in canning.

There's quite a bit of activity, multinationals making investments in China, western companies. And for that big market, we're seeing a lot of activity there.

I mean, it would be nice to get some other areas of the world, like the Middle East, which has kind of gone quiet on us and that we still don't see the activity. But in general, I said that Europe might be uneven this year, but so far this year, out of the box, we've been pleased with Europe as well.

So we'll see how that holds up given the Greek crisis, et cetera.

And then on the AeroTech side, you referenced some customer delays. Is that what you said?

Yes, the Jetway business, as you know, is our largest one in AeroTech, and it's big and lumpy. And normally, it has our best visibility of any product line because we have orders in Jetway that we know don't deliver until 2013, for example.

What happened this year was almost like the parting of the Red Sea. At the last earnings call, we thought we were going to get that order for -- I don't think we could say the customer's name, but a large gate order that we received in January, and the press release was February.

Originally, we thought we were getting that in the fourth quarter of '11 and would be shipping it mid to late year this year. What's happened, not due to us, but due to the project on the ground, that's been shipped out, we got the order 3 months later than we thought.

And now, it looks like most of that production is 2013. And in addition to that, we had some stuff in backlog that customers pulled up on us that actually shipped fourth quarter of '11.

So you sort of wake up on January 1, and you go, "Oh my gosh, we've got a big hole in our production." And obviously, the resulting volume variance that you've got to deal with, given that large product line.

So we did a pretty large temporary layoff, and we asked ourselves a very tough question, "Is this a downturn? Or is this a gap?"

And the level of activity around the world in Jetway remains strong. And like I said, some stuff, we have in backlog for '13 already that we don't want -- we didn't want to do a permanent restructuring.

We just -- we're trying to get through the 5- or 6-month downturn.

And I mean, is there any -- these customer delays, is there any particular thing you would see that you would cite as being a reason behind it? Any more specific or not really?

No. They're more site specific, like this municipality is behind schedule on the overall big project and called us and said, "We don't need the bridges when we first told you we did."

So it's more -- it's not market as much it is more site specific.

And then can you also talk about your stock buyback? Did you buy any stock back in the quarter?

Yes, we did, Gary. We bought back $300,000 worth.

We -- the quarter was a short quarter for this program. We announced the program in mid-November and set up a 10b5-1 program so that we're not doing this ourselves and shut out in quiet time.

So it ran for the latter part in November and December. And as you know, the market and the stock took a step up, but we’ve got $300,000 worth.

And we'll revisit the program from time to time.

And what kind -- even though it's small, what kind of average price?

Yes. You'll see it in the K tomorrow.

The price, I think, we paid was around $15, maybe slightly under $15 a share.

Okay, and then just lastly on the aftermarket number. You gave out the 9% growth rate for aftermarket.

How does that compare to the other quarters or last year? Is that the higher end of the growth for aftermarket?

How does that sit?

The 9% was for the year overall. It wasn't consistent quarter by quarter, but when you took the whole year, it was 9%.

And would that be strong compared to prior years? Or how would -- or sort of consistent with prior years?

I'd say consistent.

I'm sorry if you already stated this, but the order delay you're seeing in gate equipment, could you give us a sense of what type of customers that's coming from, A and B? Where does that come from geographically?

Well, the order that is now in backlog, it was for a U.S. customer and an airport in the South Central United States, and it was a $7 million order, I think.

And that delay is because of their -- where they stand in their overall project. Some of the other delays are orders that are international.

And that is one of the hazards as you look more internationally in Jetway. Those orders tend to -- can slip on you just for the -- they just take longer gestation time to bring them to the ground.

So I don't know if that's helpful.

It is. What's the demand picture been like over the last 2 quarters or so for Jetway in the U.S.?

Well, Jetway had a record year in 2010. And in 2011, they beat that record and posted another record year.

So Jetway has been on a hot hand here for a couple of years. I would say -- I don't know if I have an inbound number for U.S.

in '10, but -- or in '11, but we did say that we ended the year with a backlog less than last year because we were missing like the big Navy air conditioning order that we had the previous year.

Okay. I just want to make sure that I'm understanding the restructuring efforts correctly.

What portion of the restructuring is complete? How much cost have you taken out on an annual basis so far?

And was the $9 million you talked about today additional cost savings announced today? Or was that already part of something you previously announced?

We previously announced that when we announced the restructuring in January, and our commitment was that we believed we would achieve $9 million in annualized savings, beginning in 2013. When you talk this year in restructuring -- we started at the end of last year, and it's still ongoing.

It's harder because it depends on what the pace is. And as you can imagine, there's -- as you deal with restructuring around the globe, there's different rules in different countries.

And so it's hard to peg to the exact dime when the restructuring is complete, when you start seeing the savings. But in rough terms, we’ve said we think we'll get about half of that -- we'll get about half of it in 2012.

But most of that is going to be in the back half of the year.

Okay. And do the cost savings you outlined include any additional temporary layoffs?

No, the temporary layoffs didn't -- it was not a restructuring. In our Jetway operation in Utah, we have -- we do -- it's the only union we have in the company, and we're allowed to do layoffs in the labor contract and also in the white-collar areas.

We did temporary because we see a lot of activity level. Now if that activity level doesn't appear, we can always take actions that are more long term.

But right now, we're going with a very large temporary layoff.

Okay, I meant the cost savings you announced, not the restructuring, sorry about that. One last question -- actually, 2 last questions.

First on FoodTech, you talked a lot about the mix shift at FoodTech, but can you give us a better idea of what's going on in the cost side of that business? I mean, what's...

Let me help you a little bit with that. On the mix side, it bears on costs.

Last year, we had a number of projects that -- we call them the tomato and other fruit juice processing projects, which tend to be higher cost for us. There's a lot -- some pass-through and there are lower margins.

And I think what we're seeing now coming in, in terms of orders and backlog, is actually a better mix of projects. They give us a little bit more confidence about the longer-term margin picture.

Yes, I would answer what's happening on the cost side. I gave you the 2 bullets that drove the margins, the 2 headwinds.

I mean, the first is we were manufacturing freezers in one of the highest cost countries in the world, and we tried to respond to that. So I mean, the Swedish krona headwind alone was 150 basis points of margin.

And the other was we did have material cost inflation in some of our product lines. In our citrus coatings, we had dramatic increases in the price of shellac, for example.

I mean, detail -- a lot of little details I could go into that we're working to overcome. But if I take those 2 factors, that would add like 200 -- over 200 basis points back to our margins.

So that's the headwinds we've been fighting against and caused us to do restructuring.

Is there anything on the pricing side? Are you seeing any pricing pressure at FoodTech?

I don't think we're seeing more than we normally have. We are working that side of the equation.

We don't talk too much about that. But we are working outside the equation, both in aftermarket and really looking product line by product line.

Maybe it would be good if I could take the opportunity to kind of go back to my comments and give you in broad terms how I see 2012. Maybe I can amplify a little bit what my remarks were.

I mean, here's how we're viewing the shape of this year. We're entering the year, as you can see from the numbers, with lower backlog in both segments.

And the implication of that is the first quarter of this year is going to be behind last year. But then again, the first quarter of every year is always our seasonally weakest.

So it's always a small number. But we're starting out in a hole because our backlogs are behind last year.

On the FoodTech side in the first half, we see the -- getting the learning curve on all these freezers that we produced in new areas and went through the learning curve and had to change design from metric to imperial and had to invest in supply chain, et cetera, to get set up. We think that will be behind us by the end of the first quarter.

And so we think the first half, despite starting out weak in the first quarter, FoodTech should be comparable in terms of revenue and earnings to last year. And then all the good news on the restructuring should start kicking in the whole second half.

In addition to that restructuring, we got the good news of, as I mentioned earlier, the FoodTech inbound has been significantly above last year's inbound in January and February. So all that together makes us -- gives us some level of confidence about how we end up the year in FoodTech.

On the AeroTech side, as I mentioned, this Jetway production gap. AeroTech also starts out the year with lower backlog.

In addition, we're not going to ship as many Halvorsens in the first quarter. So they're going to be behind last year as well.

And then we've got this big production gap in Jetway. We think -- if you'll recall, the seasonality in AeroTech is you start weak, you get stronger in the second, stronger in third, stronger in the fourth.

We think that seasonality will again hold this year, and we're encouraged again by the inbound and the activity level we have in AeroTech. So basically, Ron and I are looking at this as a -- we're watching it very, very carefully, but we're not seeing any kind of big downturn.

We're hopeful that the back half of this year is going to be very strong.

All right, very helpful. Just one last question for Ron.

I'm sorry if you already spoke to this as well, but are you going to see any additional pension contributions in 2012, given the lower discount rate?

Yes, you know what, the -- I mean, I think we had always thought we'd be making pension contributions. As we look forward, a few years back, I think we were thinking that they'd be headed down given that the plans froze and there are no longer any service credits.

But last year was a tough year for most pension plans. The discount rates dropping causes an increase in the liability.

We've been pretty conscientious about funding. And for PBGC purposes, we can keep our funded ratio above 80% and not have to fund, but I don't think that's a prudent course for us.

So long answer to your question, but we are thinking about funding and planning to fund, you'll see that in our 10-K comment, at a level that's about even with the 2011 funding. So about $8 million for the U.S.

and then there's a couple million more for the international plans. Last year, for our pension plan and I think for many others, it was a difficult year not only in terms of the discount rate, but also the investment return.

So our investment return, based on our allocation, was about breakeven. I think we were slightly negative, maybe half a point.

So we're looking at our funding and perhaps even thinking about funding earlier than we did last year and maybe making even a potentially higher funding. But we'll figure that out sometime in -- late in the year, maybe latter part of September or something like that.

Can we talk a little bit more about aftermarket? Those are typically higher gross margin product lines.

Did that help any in the quarter to help offset some of the margin pressures you called out on the other lines?

Yes, it absolutely did. On an absolute basis, on mix, it did.

Now the actual -- the same kind of krona pressure we had for new products also impacts aftermarket. You've got to think about me shipping all those freezer parts out of Sweden to all the Western European countries, for example, or somewhere else.

So we felt pressure on the margin on the aftermarket. But having said that, as you pointed out, those are higher margins overall than we have in new products.

Okay. And on the inventory, you had a step down.

Was that because you finished 2009 with lower than normal levels? Ron, how did that sort of work through the cash flow statement?

The inventory situation is -- we did make a step down on receivables, which we expected in terms of going from '10 to '11. But inventories actually are up in year-end '11 versus '10.

Some of that, the higher costs we have with our large North American freezers that are built and reflect part of the learning curve of making these in the state. So we've got higher costs that are partly what Charlie was talking about in terms of adversely impacting our margin picture in the first quarter of 2012 because they'll be rolling in.

So what drove our higher inventory at the end of '11 was largely the higher inventory levels in freezers associated with the learning curves both in China, as well as in North America. And we also had planned a little bit higher inventories for some potential orders that we'll be shipping in the first part of 2012.

So we did get the step down in receivables. We just didn't get it in inventories, and we're working on that.

You'll see that come through in 2012, albeit at lower margins.

One thing I would like to add about this freezer learning curve. I think with the benefit of hindsight, this project we took on, in direct response both to our strategy but also to the high currency costs, we bit off a big chew.

The North American high-capacity freezers are actually 3 different models and a lot of volume we handle at once. In retrospect, we were -- you could say we were overly aggressive.

Having said that, now that we've taken this pain, it's really gratifying to see our responsiveness in North America. In terms of lead times, it's going to be a lot better.

And we just had a meeting last week on China manufacturing, and the prospect list for freezers in China, I'll say, was -- had a lot of names I had never heard of before. And so having us make freezers in China means we're going to be able to penetrate deeper into local production than we've ever -- we couldn’t reach that market before shipping from Sweden.

So in addition to margin and cost improvement, I think we're going to be more responsive to our customers by being closer to them in the region.

Just to circle back on the original inventory question, as this thing works through, through the first half of the year, we should be able to expect a nice improvement in the cash flow profiles from this part of the working capital line?

Absolutely. That's what we're expecting.

Just a follow-up. I wanted to ask just a bigger picture question about FoodTech.

Aside from some of the turmoil you mentioned in the Middle East, Western Europe, your customers that are spending money, what's the level of innovation for new products are they seeing? I guess the reason I'm asking this is because demand for food service equipment sold in the quick service restaurants over the past 4 quarters has been relatively healthy.

I understand that's a different customer base in general, but it seems like they're innovating. Are the processors innovating as well?

Are some of the things we talked about initially, as far as new packaging and different types of quick service foods, is that still a growth driver among your customers that are spending money? Or have they just kind of stopped spending on that sort of thing right now and they're looking more at refreshes?

No, Mike. There was just an article in the Journal, I think, a couple of days ago talking about Campbell's Soup and another company looking at innovation in pouches, to put soup in pouches as opposed to cans.

We're working on a development project with a customer right now to try to take a rotary pressure sterilizer and adapt it, which is -- the advantages of the rotary is it's continuous. So it's lower cost, but it typically handles cans.

But we're looking at developing carriers to put other kinds of packages in. So there continues to be innovation.

Now I will say if you talk to food industry veterans, they sort of mourn the days when General Foods had an R&D facility with 500 scientists working on innovation. I mean, those days are long gone.

So you'll see in the food industry, a lot of innovation carried out by small companies that develop a product, then the big companies buy them after the innovations occur. But incrementally, there's still innovation going on incrementally and developments that we're working with customers on.

Okay. Any other areas outside the sterilization world that's happening?

Oh, yes, in the -- a lot of our innovation has to do with getting throughputs and capacity in the footprint, reduced energy cost, providing more -- having more uptime. You mentioned the innovation in the QSRs.

A lot of times, those innovations in the QSRs help drive innovation in our stuff to produce the products. I mean, another area that's kind of exciting is Coca-Cola's got a list of billion dollar brands, one of which is a product in China called Pulpy, which is -- it's mostly water, but you add a little bit of juice and a little bit of pulp to give it mouth feel.

And so the entire world of pulp is becoming -- as opposed to viewing citrus pulp as a byproduct, they're viewing it as an ingredient. We're doing a lot of technology innovation with some of those big drink companies.

You've seen some in the Middle East, Dojan [ph] and with Coke and others, we're developing aseptic techniques to package pulp in higher density, be able to transport it at less energy cost because it's aseptic, you don't need have it frozen, and things like that. So there's -- incrementally on the margin and across FoodTech, there's developments going on.

Thank you, everyone, for joining us this morning. A replay of our call will be available on our IR website early this afternoon.

If you have any further questions, please give us a call. Have a good day.