Joy Global Inc.
JOY GLOBAL INC (Form: 10-Q, Received: 03/04/2011 16:02:00)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

(MARK ONE)

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED    January 28, 2011
OR
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD from                     to                       
 
Commission File number 001-09299

JOY GLOBAL INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
39-1566457
(State of Incorporation)
(I.R.S. Employer Identification No.)

100 East Wisconsin Ave, Suite 2780
Milwaukee, Wisconsin  53202
(Address of principal executive offices)
(Zip Code)
(414) 319-8500
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.  Yes   x   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files.)   Yes x   No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "accelerated filer,” “large accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
LARGE ACCELERATED FILER x ACCELERATED FILER o
NON-ACCELERATED FILER o SMALLER REPORTING COMPANY o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   o   No   x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class
 
Outstanding at February 24, 2011
Common Stock, $1 par value
  104,786,946
 


 
 

 

JOY GLOBAL INC.

FORM 10-Q -- INDEX
January 28, 2011

PART I. – FINANCIAL INFORMATION
PAGE No.
   
Item 1 –
Financial Statements (unaudited):
 
 
4
   
 
5
   
 
6
   
 
7 – 20
   
Item 2 –
21-27
     
Item 3 –
28
     
Item 4 –
28
     
PART II. – OTHER INFORMATION
 
     
Item 1 –
29
     
Item 1A – 
29
     
Item 2 –
29
     
Item 3 –
29
     
Item 4 –
29
     
Item 5 –
29
     
Item 6 –
29
   
30

 
 


Forward-Looking Statements

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These statements are identified by forward-looking terms such as “anticipate,” “believe,” “estimate,” “expect,” “indicate,” “may be,” “objective,” “plan,” “predict,” “should,” “will be,” and similar expressions.  Forward-looking statements are based on our expectations and assumptions at the time they are made and are subject to risks and uncertainties, that may cause actual results to differ materially from the forward-looking statements.  In addition, certain market outlook information is based on third party sources that we cannot independently verify, but that we believe to be reliable.  Important factors that could cause our actual results to differ materially from the results anticipated by the forward-looking statements include general economic and industry conditions in the markets in which we operate, risks associated with conducting business in foreign countries, and the risks discussed in Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for our fiscal year ended October 29, 2010, and in other filings that we make with the SEC. Any or all of these factors could cause our actual results and financial or legal status for future periods to differ materially from those expressed or referred to in any forward-looking statement.  All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

 
 


PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements

JOY GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands except per share amounts)

   
Quarter Ended
 
   
January 28,
   
January 29,
 
   
2011
   
2010
 
             
Net sales
  $ 869,532     $ 729,220  
Costs and expenses:
               
Cost of sales
    584,131       502,438  
Product development, selling and administrative expenses
    132,130       110,015  
Other income
    (527 )     (793 )
Operating income
    153,798       117,560  
Interest income
    3,445       2,864  
Interest expense
    (7,831 )     (7,460 )
Reorganization items
    (35 )     (50 )
Income before income taxes
    149,377       112,914  
Provision for income taxes
    47,145       36,697  
Net income
  $ 102,232     $ 76,217  
Basic earnings per share
  $ 0.98     $ 0.74  
Diluted earnings per share
  $ 0.96     $ 0.73  
Dividends per share
  $ 0.175     $ 0.175  
Weighted average shares outstanding:
               
Basic
    104,158       102,759  
Diluted
    106,043       104,383  

See Notes to Condensed Consolidated Financial Statements.
 
 
4


JOY GLOBAL INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)

   
January 28,
   
October 29,
 
   
2011
   
2010
 
   
(Unaudited)
       
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 819,546     $ 815,581  
Accounts receivable, net
    670,473       674,135  
Inventories
    836,972       764,945  
Other current assets
    115,757       107,266  
Total current assets
    2,442,748       2,361,927  
                 
Property, plant and equipment, net
    394,754       378,024  
Other intangible assets, net
    176,797       178,831  
Goodwill
    125,920       125,686  
Deferred income taxes
    138,700       162,682  
Other non-current assets
    76,958       76,891  
Total assets
  $ 3,355,877     $ 3,284,041  
                 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Short-term notes payable, including current portion of long-term obligations
  $ 4,711     $ 1,550  
Trade accounts payable
    257,036       291,742  
Employee compensation and benefits
    76,148       128,132  
Advance payments and progress billings
    454,906       376,300  
Accrued warranties
    61,479       62,351  
Other accrued liabilities
    125,260       163,249  
Total current liabilities
    979,540       1,023,324  
                 
Long-term obligations
    396,283       396,326  
Accrued pension costs
    394,338       428,348  
Other liabilities
    81,418       80,649  
Total liabilities
    1,851,579       1,928,647  
                 
Shareholders’ equity
    1,504,298       1,355,394  
                 
Total liabilities and shareholders’ equity
  $ 3,355,877     $ 3,284,041  

See Notes to Condensed Consolidated Financial Statements.

 
5


JOY GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)

   
Quarter Ended
 
   
January 28,
   
January 29,
 
   
2011
   
2010
 
Operating Activities:
           
Net income
  $ 102,232     $ 76,217  
Depreciation and amortization
    15,862       13,874  
Change in deferred income taxes
    829       74  
Excess income tax benefit from share-based payment awards
    (14,260 )     (3,175 )
Contributions to retiree benefit plans
    (43,774 )     (7,439 )
Retiree benefit plan expense
    12,800       13,681  
Other, net
    548       3,562  
                 
Changes in Working Capital Items:
               
Accounts receivable, net
    12,132       39,124  
Inventories
    (70,818 )     (433 )
Other current assets
    (9,010 )     7,406  
Trade accounts payable
    (33,682 )     (26,020 )
Employee compensation and benefits
    (52,408 )     (44,943 )
Advance payments and progress billings
    77,305       16,970  
Other accrued liabilities
    (4,733 )     (29,359 )
                 
Net cash (used) provided by operating activities
    (6,977 )     59,539  
                 
Investment Activities:
               
Property, plant and equipment acquired
    (28,402 )     (14,081 )
Other, net
    53       (1,642 )
                 
Net cash used by investment activities
    (28,349 )     (15,723 )
                 
Financing Activities:
               
Share-based payment awards
    53,163       13,945  
Dividends paid
    (18,133 )     (17,930 )
Change in short and long-term obligations, net
    3,030       (3,575 )
Financing fees
    (75 )     -  
                 
Net cash provided (used) by financing activities
    37,985       (7,560 )
                 
Effect of Exchange Rate Changes on Cash and Cash Equivalents
    1,306       (2,891 )
                 
Increase in Cash and Cash Equivalents
    3,965       33,365  
Cash and Cash Equivalents at Beginning of Period
    815,581       471,685  
                 
Cash and Cash Equivalents at End of Period
  $ 819,546     $ 505,050  

See Notes to Condensed Consolidated Financial Statements.

 
6


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 28, 2011
(Unaudited)

1.
Description of Business

Joy Global Inc. (the “Company”) is a worldwide leader in high productivity mining solutions, and we manufacture and market original equipment and aftermarket parts and services for both underground and surface mining and certain industrial applications.  Our equipment is used in major mining regions throughout the world to mine coal, copper, iron ore, oil sands and other minerals.  We operate in two business segments: underground mining machinery (Joy Mining Machinery or “Joy”) and surface mining equipment (P&H Mining Equipment or “P&H”).  Joy is a major manufacturer of underground mining equipment for the extraction of coal and other bedded minerals and offers comprehensive service locations near major mining regions worldwide.  P&H is a major producer of surface mining equipment for the extraction of ores and minerals and provides extensive operational support for many types of equipment used in surface mining.

2.
Basis of Presentation

The Condensed Consolidated Financial Statements presented in this quarterly report on Form 10-Q are unaudited and have been prepared by us in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission.  In our opinion, all adjustments necessary for the fair presentation on a going concern basis of the results of operations, cash flows and financial position for all periods presented have been made.  All adjustments made are of a normal recurring nature.  The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual amounts could differ from the estimates.

These financial statements should be read in conjunction with the financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended October 29, 2010.  The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

3.
Derivatives

We enter into derivative contracts, primarily foreign currency forward contracts, to hedge the risks of certain identified and anticipated transactions in currencies other than the functional currency of the respective operating unit.  The types of risks hedged are those arising from the variability of future earnings and cash flows caused by fluctuations in foreign currency exchange rates.  We have designated substantially all of these contracts as cash flow hedges.  These contracts are for forecasted transactions and committed receivables and payables denominated in foreign currencies and are not entered into for speculative purposes.

We are exposed to certain foreign currency risks in the normal course of our global business operations.  For derivative contracts that are designated and qualify for a cash flow hedge, the effective portion of the gain or loss of the derivative contract is recorded as a component of other comprehensive income, net of tax.  This amount is reclassified into the income statement on the line associated with the underlying transaction for the period(s) in which the hedged transaction affects earnings.  The amounts recorded in accumulated other comprehensive income for existing cash flow hedges are generally expected to be reclassified into earnings within one year and all of the existing hedges will be reclassified into earnings by February 2012.

 
7


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 28, 2011
(Unaudited)

For derivative contracts that are designated and qualify as a fair value hedge, gain or loss is recorded in the Consolidated Statement of Income under the heading Cost of Sales.  For the quarters ended January 28, 2011 and January 29, 2010 we recorded $0.2 million loss and an immaterial gain, respectively, in the Consolidated Statement of Income related to fair value hedges which was offset by foreign exchange fluctuations of the underlying receivable.
 
We are exposed to credit-related losses in the event of non-performance by counterparties to our forward exchange contracts.  We currently have a concentration of these contracts held with Bank of America, N.A., which maintains an investment grade rating as of quarter end.  We do not expect any counterparties, including Bank of America, N.A., to fail to meet their obligations.  A contract is generally subject to credit risk only when it has a positive fair value and the maximum exposure is the amount of the positive fair value.

Forward exchange contracts are entered into to protect the value of forecasted transactions and committed future foreign currency receipts and disbursements and consequently any market-related loss on the forward contract would be offset by changes in the value of the hedged item.  As a result, we are generally not exposed to net market risk associated with these instruments.

The following table summarizes the effect of cash flow hedges on the Consolidated Statement of Income:

In thousands
 
Effective Portion
 
Ineffective Portion
 
                       
Derivative Hedging Relationship
 
Amount of Gain/(Loss) Recognized in OCI
 
Location of Gain/(Loss) Reclassified from AOCI into Earnings
 
Amount of Gain/(Loss) Reclassified from AOCI into Earnings
 
Location of Gain/(Loss) Reclassified from AOCI into Earnings
 
Amount of Gain/(Loss) Reclassified from AOCI into Earnings
 
                       
Quarter ended January  28, 2011
                 
                       
Foreign currency forward contracts
  $ 1,469  
Cost of sales
  $ (822 )
Cost of sales
  $ 22  
         
Sales
    2,939            
                             
Quarter ended January 29, 2010
                     
                             
Foreign currency forward contracts
  $ (4,958 )
Cost of sales
  $ 329  
Cost of sales
  $ 2,550  
         
Sales
    (100 )          

 
8


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 28, 2011
(Unaudited)

4.
Borrowings and Credit Facilities

Direct borrowings and capital lease obligations consisted of the following:
 
   
January 28,
   
October 29,
 
In thousands
 
2011
   
2010
 
   6.0% Senior Notes due 2016
  $ 247,758     $ 247,677  
   6.625% Senior Notes due 2036
    148,423       148,417  
   Short-term notes payable and bank overdrafts
    4,362       1,208  
   Capital leases and other
    451       574  
      400,994       397,876  
Less:  Amounts due within one year
    (4,711 )     (1,550 )
                 
Long-term obligations
  $ 396,283     $ 396,326  

We have a $500.0 million unsecured revolving credit facility (“Credit Agreement”) set to expire November 3, 2014.  Outstanding borrowings bear interest equal to the London Interbank Offered Rate (“LIBOR”) (defined as applicable LIBOR rate for the equivalent interest period plus 1.75% to 2.75%) or the Base Rate (defined as the higher of the Prime Rate, Federal Funds Effective Rate plus 0.5%,or Eurodollar Rate plus 1.0%) at our option.  We pay a commitment fee ranging from 0.25% to 0.5% on the unused portion of the revolving credit facility based on our credit rating.  The Credit Agreement requires the maintenance of certain financial covenants, including leverage and interest coverage ratios.  The Credit Agreement also restricts payments of dividends or other return of capital when the consolidated leverage ratio exceeds a stated level amount. At January 28, 2011, we were in compliance with all financial covenants in the Credit Agreement and had no restrictions on the payment of dividends or return of capital.

At January 28, 2011, there was $294.3 million available for borrowings under the Credit Agreement.   Outstanding letters of credit issued under the Credit Agreement, which count toward the $500.0 million credit limit, totaled $205.7 million.  At January 28, 2011, there were no outstanding direct borrowings under the Credit Agreement.

5.
Warranties

The following table reconciles the changes in the product warranty reserve:

   
Quarter Ended
 
   
January 28,
   
January 29,
 
In thousands
 
2011
   
2010
 
Balance, beginning of period
  $ 62,351     $ 58,947  
Accrual for warranty expensed during the period
    6,565       8,264  
Settlements made during the period
    (8,430 )     (5,331 )
Change in liability for pre-existing warranties during the period, including expirations
    144       (115 )
Effect of foreign currency translation
    849       (368 )
Balance, end of period
  $ 61,479     $ 61,397  

 
9


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 28, 2011
(Unaudited)

6.
Basic and Diluted Net Income Per Share

Basic net income per share is computed based on the weighted-average number of shares outstanding during each period.  Diluted net income per share is computed based on the weighted-average number of shares outstanding during each period, plus dilutive potential shares considered outstanding during the period.

The following table sets forth the computation of basic and diluted net income per share:

   
Quarter Ended
 
   
January 28,
   
January 29,
 
In thousands except per share data
 
2011
   
2010
 
Numerator:
           
Net income
  $ 102,232     $ 76,217  
                 
Denominator:
               
Denominator for basic net income per share -
               
Weighted average shares
    104,158       102,759  
Effect of dilutive securities:
               
Stock options, restricted stock units and performance shares
    1,885       1,624  
Denominator for diluted net income per share -
               
Adjusted weighted average shares and assumed conversions
    106,043       104,383  
                 
Basic earnings per share:
  $ 0.98     $ 0.74  
                 
Diluted earnings per share:
  $ 0.96     $ 0.73  

7.
Contingent Liabilities

We and our subsidiaries are involved in various unresolved legal matters that arise in the normal course of operations, the most prevalent of which relate to product liability (including over 1,000 asbestos and silica-related cases), employment, and commercial matters .  Also, as a normal part of operations, our subsidiaries undertake contractual obligations, warranties, and guarantees in connection with the sale of products or services.  Although the outcome of these matters cannot be predicted with certainty and favorable or unfavorable resolutions may affect the results of operations on a quarter-to-quarter basis, we believe that the outcome of such legal and other matters will not have a materially adverse effect on our consolidated financial position, results of operations, or liquidity.

During the Chapter 11 reorganization of Harnischfeger Industries, Inc. (our “Predecessor Company”), in 1999 through the filing of a voluntary petition under Chapter 11 of the United States Bankruptcy Code, the Wisconsin Department of Workforce Development (“DWD”) filed claims against Beloit Corporation (“Beloit”), a former majority owned subsidiary, and us in federal bankruptcy court seeking “at least” $10 million in severance benefits and penalties, plus interest, on behalf of former Beloit employees.  DWD’s claim against Beloit included unpaid severance pay due under a severance policy Beloit established in 1996.  DWD alleges that Beloit violated its alleged contractual obligations under the 1996 policy when it amended the policy in 1999.  The Federal District Court for the District of Delaware removed DWD’s claims from the bankruptcy court and granted summary judgment in our favor on all of DWD’s claims in December 2001.  DWD appealed the decision and the judgment was ultimately vacated in part and remanded.  Following further proceedings, DWD’s only remaining claim against us is that our Predecessor Company tortiously interfered with Beloit's decision to amend its severance policy.  We concluded a trial on DWD’s remaining claim during the week of March 1, 2010.  On September 21, 2010, the court granted judgment in our favor.  DWD then filed a post-judgment motion asking the court to change its decision.  We await a ruling on DWD’s latest motion.  If the court denies DWD’s motion, we expect that DWD will file an appeal with the United States Court of Appeals for the Third Circuit.  We do not believe these proceedings will have a significant effect on our financial condition, results of operations, or liquidity.

 
10


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 28, 2011
(Unaudited)

Because DWD’s claims were still being litigated as of the effective date of our plan of reorganization, the plan of reorganization provided that the claim allowance process with respect to DWD’s claims would continue as long as necessary to liquidate and determine these claims.

On January 28, 2011, we were contingently liable to banks, financial institutions, and others for approximately $228.7 million for outstanding letters of credit, bank guarantees, and surety bonds securing performance of sales contracts and other guarantees in the ordinary course of business.  Of the $228.7 million, approximately $14.2 million relates to surety bonds and $12.4 million relates to outstanding letters of credit or other guarantees issued by non-U.S. banks for non-U.S. subsidiaries under locally provided credit facilities.

From time to time we and our subsidiaries become involved in proceedings relating to environmental matters.  We believe that the resolution of such environmental matters will not have a materially adverse effect on our consolidated financial position, results of operations or liquidity.

8.
Fair Value Measurements

GAAP establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:

Level 1: Observable inputs such as quoted prices in active markets

Level 2: Inputs, other than quoted prices in active markets that are observable either directly or indirectly

Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions

GAAP requires the use of observable market data, when available, in making fair value measurements.  When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

The following tables present the fair value hierarchy for those assets and liabilities measured at fair value and disclose the fair value of certain other liabilities.   As of January 28, 2011 and October 29, 2010 we did not have any level 3 assets or liabilities.

 
11


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 28, 2011
(Unaudited)

Fair Value Measurements
 
at January 28, 2011
 
In thousands
 
Carrying Value
   
Total Fair Value
   
Level 1
   
Level 2
 
                         
Current Assets
                       
Cash and cash equivalents
  $ 819,546     $ 819,546     $ 819,546     $ -  
                                 
Other Current Assets
                               
Derivatives
  $ 8,322     $ 8,322     $ -     $ 8,322  
                                 
Other Accrued Liabilities
                               
Derivatives
  $ 1,765     $ 1,765     $ -     $ 1,765  
                                 
Long-term Obligations
                               
6.0 % Senior Notes
  $ 247,758     $ 277,500     $ 277,500     $ -  
6.625% Senior Notes
  $ 148,423     $ 150,720     $ 150,720     $ -  

Fair Value Measurements
 
at October 29, 2010
 
In thousands
 
Carrying Value
   
Total Fair Value
   
Level 1
   
Level 2
 
                         
Current Assets
                       
Cash and cash equivalents
  $ 815,581     $ 815,581     $ 815,581     $ -  
                                 
Other Current Assets
                               
Derivatives
  $ 10,643     $ 10,643     $ -     $ 10,643  
                                 
Other Accrued Liabilities
                               
Derivatives
  $ 4,212     $ 4,212     $ -     $ 4,212  
                                 
Long-term Obligations
                               
6.0 % Senior Notes
  $ 247,677     $ 273,125     $ 273,125     $ -  
6.625% Senior Notes
  $ 148,417     $ 152,438     $ 152,438     $ -  

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents : The carrying value approximates fair value because of the short maturity of those instruments.

Derivatives : The fair value of forward foreign exchange contracts represents the estimated amounts receivable (payable) to terminate such contracts at the respective period end based on foreign exchange market prices at that date.

Senior Notes :  The fair market value of the Senior Notes is estimated based on market quotations at the respective period end.

 
12


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 28, 2011
(Unaudited)

9.
Share-Based Compensation

We recognized total share-based compensation expense for the quarter ended January 28, 2011 and January 29, 2010 of approximately $6.0 million and $5.2 million, respectively.

Stock Options

   
Number of Options
   
Weighted-Average Exercise Price per Share
   
Aggregate Intrinsic Value
(In Millions)
 
                   
Outstanding at October 29, 2010
    2,846,686     $ 35.09     $ 102.1  
                         
Options granted
    500,500       80.62          
Options exercised
    (1,061,990 )     36.63       52.1  
Options forfeited and cancelled
    (17,499 )     31.47          
Outstanding at January 28, 2011
    2,267,697     $ 44.44     $ 92.8  
Exercisable at January 28, 2011
    863,308     $ 34.72     $ 43.7  

The fair value of the stock awards is the estimated fair value at grant date using the Black-Scholes valuation model and is recognized as expense on a straight line basis over the vesting period, which is three years.  The weighted average assumptions and resulting estimated fair value is as follows:

   
Quarter Ended January 28, 2011
 
Risk free interest rate
    0.78 %
Expected volatility
    41.07 %
Expected life in years
    3.83  
Dividend yield
    0.90 %
Weighted average estimated fair value at grant date
  $ 24.20  

Restricted Stock Units

   
Number of Units
   
Weighted-Average Grant Date Fair Value
   
Aggregate Intrinsic Value (In Millions)
 
                   
Outstanding at October 29, 2010
    681,501     $ 35.03        
                       
Units granted
    238,250       80.63        
Units earned from dividends
    1,771       86.63        
Units settled
    (26,446 )     46.15     $ 2.1  
Units deferred
    (14,251 )     51.08       1.1  
Units forfeited
    (6,345 )     36.27          
Outstanding at January 28,  2011
    874,480     $ 47.78          

 
13


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 28, 2011
(Unaudited)

Performance Shares

   
Number of Shares
   
Weighted-Average Grant Date Fair Value
   
Aggregate Intrinsic Value
(In Millions)
 
                   
Outstanding at October 29, 2010
    762,611     $ 36.57        
                       
Shares granted
    75,000       80.69        
Shares distributed
    (158,970 )     56.87     $ 13.7  
Shares forfeited
    (7,650 )     30.84          
Outstanding at January 28, 2011
    670,991     $ 36.76          

10.
Inventories

Consolidated inventories consisted of the following:

   
January 28,
   
October 29,
 
In thousands
 
2011
   
2010
 
Finished goods
  $ 560,786     $ 503,356  
Work in process and purchased parts
    206,389       183,658  
Raw  materials
    69,797       77,931  
    $ 836,972     $ 764,945  

11.
Comprehensive Income

Comprehensive income consisted of the following net of taxes where applicable:

   
Quarter Ended
 
   
January 28,
   
January 29,
 
In thousands
 
2011
   
2010
 
             
Net income
  $ 102,232     $ 76,217  
Other comprehensive income (loss):
               
Pension & postretirement adjustments
    5,886       8,084  
Translation adjustments
    4,653       (9,736 )
Derivative fair value adjustments
    (422 )     (4,729 )
Total other comprehensive income (loss)
    10,117       (6,381 )
Comprehensive income
  $ 112,349     $ 69,836  

 
14


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 28, 2011
(Unaudited)

12.
Retiree Benefits

The components of the net periodic pension and other post-retirement benefits expense recognized are as follows:

   
Pension Benefits
   
Postretirement Benefits
 
   
Quarter Ended
   
Quarter Ended
 
   
January 28,
   
January 29,
   
January 28,
   
January 29,
 
In thousands
 
2011
   
2010
   
2011
   
2010
 
Service cost
  $ 5,135     $ 5,273     $ 285     $ 258  
Interest cost
    21,191       21,316       406       410  
Expected return on assets
    (22,884 )     (21,593 )     (92 )     (67 )
Amortization of:
                               
Prior service cost
    344       290       12       -  
Actuarial loss (gain)
    8,787       8,146       (384 )     (352 )
Net periodic benefit cost
  $ 12,573     $ 13,432     $ 227     $ 249  

The actuarial loss (gain) arises from differences in estimates and actual experiences for certain assumptions including changes in discount rate, expected return on assets and future salary rate increases.  For 2011, we expect to contribute approximately $135.0 to $145.0 million to our defined benefit employee pension plans globally.

13.
Segment Information

We operate in two reportable segments: Underground Mining Machinery and Surface Mining Equipment.  Crushing and conveying operating results related to surface applications are reported as part of the Surface Mining Equipment segment, while total crushing and conveying operating results are included with the Underground Mining Machinery segment.  Eliminations include the surface applications of crushing and conveying included in both operating segments.

 
15


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 28, 2011
(Unaudited)

In thousands
 
Underground Mining Machinery
   
Surface Mining Equipment
   
Corporate
   
Eliminations
   
Total
 
First Quarter 2011
                             
Net sales
  $ 510,938     $ 385,843     $ -     $ (27,249 )   $ 869,532  
Operating income (loss)
    95,371       75,885       (10,714 )     (6,744 )     153,798  
Interest and reorganization items
    -       -       (4,421 )     -       (4,421 )
Income before income taxes
  $ 95,371     $ 75,885     $ (15,135 )   $ (6,744 )   $ 149,377  
Depreciation and amortization
  $ 10,188     $ 5,617     $ 57     $ -     $ 15,862  
Capital expenditures
  $ 19,703     $ 8,699     $ -     $ -     $ 28,402  
First Quarter 2010
                                       
Net sales
  $ 423,731     $ 328,000     $ -     $ (22,511 )   $ 729,220  
Operating income (loss)
  $ 68,223     $ 65,384     $ (10,250 )   $ (5,797 )   $ 117,560  
Interest and reorganization items
    -       -       (4,646 )     -       (4,646 )
Income before income taxes
  $ 68,223     $ 65,384     $ (14,896 )   $ (5,797 )   $ 112,914  
Depreciation and amortization
  $ 8,736     $ 5,111     $ 27     $ -     $ 13,874  
Capital expenditures
  $ 8,332     $ 5,635     $ 114     $ -     $ 14,081  

14.
Subsequent Event

On February 16, 2011, our Board of Directors declared a cash dividend of $0.175 per outstanding share of common stock.  The dividend will be paid on March 18, 2011 to all shareholders of record at the close of business on March 4, 2011.

15.
Recent Accounting Pronouncements

In December 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-17, “ Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities .”  ASU No. 2009-17 clarifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting should be consolidated.  This ASU is effective for us beginning in the first quarter of fiscal 2011 (October 30, 2010).  The adoption of ASU No. 2009-17 did not have a material impact on our consolidated financial statements.

In October 2009, FASB issued ASU No. 2009-13, “ Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force .”  ASU No. 2009-13 establishes the accounting and reporting guidance for arrangements under which a vendor will perform multiple revenue-generating activities.  Specifically, this ASU addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting.  This ASU is effective for us beginning in the first quarter of fiscal 2011 (October 30, 2010). The adoption ASU No. 2009-13 did not have a material impact on our consolidated financial statements.

 
16


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 28, 2011
(Unaudited)

16.
Subsidiary Guarantors
 
 
The following tables present condensed consolidated financial information as of January 28, 2011 and October 29, 2010 and for the quarters ended January 28, 2011, January 29, 2010 and October 29, 2010 for: (a) the parent company; (b) on a combined basis, the guarantors of the Credit Agreement and Senior Notes issued in November 2006, which include the significant domestic operations of Joy Technologies Inc., P&H Mining Equipment Inc., N.E.S. Investment Co., and Continental Crushing & Conveying Inc. (“Subsidiary Guarantors”); and (c) on a combined basis, the non-guarantors, which include all of our foreign subsidiaries and a number of small domestic subsidiaries (“Non-Guarantor Subsidiaries”).  Separate financial statements of the Subsidiary Guarantors are not presented because the guarantors are unconditionally, jointly, and severally liable under the guarantees, and we believe such separate statements or disclosures would not be useful to investors.

Condensed Consolidating Statement of Income
Quarter Ended January 28, 2011
(In thousands)

   
Parent Company
   
Subsidiary Guarantors
   
Non-Guarantor Subsidiaries
   
Eliminations
   
Consolidated
 
                               
Net sales
  $ -     $ 532,140     $ 518,202     $ (180,810 )   $ 869,532  
                                         
Cost of sales
    -       358,535       368,832       (143,236 )     584,131  
                                         
Product development, selling and administrative expenses
    10,688       64,009       57,433       -       132,130  
Other (income) expense
    -       19,113       (19,640 )     -       (527 )
Operating income (loss)
    (10,688 )     90,483       111,577       (37,574 )     153,798  
                                         
Intercompany items
    11,634       (14,430 )     (16,213 )     19,009       -  
Interest income (expense) - net
    (7,483 )     870       2,227       -       (4,386 )
Reorganization items
    (35 )     -       -       -       (35 )
Income (loss) before income taxes and equity
    (6,572 )     76,923       97,591       (18,565 )     149,377  
                                         
Provision  (benefit) for income taxes
    (6,830 )     33,848       20,127       -       47,145  
Equity in income  of subsidiaries
    101,974       28,667       -       (130,641 )     -  
                                         
Net income
  $ 102,232     $ 71,742     $ 77,464     $ (149,206 )   $ 102,232  

 
17


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 28, 2011
(Unaudited)

Condensed Consolidating Statement of Income
Quarter Ended January 29, 2010
(In thousands)

   
Parent Company
   
Subsidiary Guarantors
   
Non-Guarantor Subsidiaries
   
Eliminations
   
Consolidated
 
                               
Net sales
  $ -     $ 445,793     $ 416,602     $ (133,175 )   $ 729,220  
                                         
Cost of sales
    -       307,378       303,279       (108,219 )     502,438  
                                         
Product development, selling and administrative expenses
    10,252       56,844       42,919       -       110,015  
Other income
    -       16,173       (16,966 )     -       (793 )
Operating income (loss)
    (10,252 )     65,398       87,370       (24,956 )     117,560  
                                         
Intercompany items
    9,649       (15,932 )     (14,650 )     20,933       -  
Interest income (expense) - net
    (7,164 )     866       1,702       -       (4,596 )
Reorganization items
    (50 )     -       -       -       (50 )
Income (loss) before income taxes and equity
    (7,817 )     50,332       74,422       (4,023 )     112,914  
                                         
Provision (benefit) for income taxes
    (5,538 )     34,342       7,893       -       36,697  
Equity in income (loss) of subsidiaries
    78,496       40,148       -       (118,644 )     -  
                                         
Net income
  $ 76,217     $ 56,138     $ 66,529     $ (122,667 )   $ 76,217  

 
18


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 28, 2011
(Unaudited)

Condensed Consolidating Balance Sheets:
As of January 28, 2011
(In thousands)

   
Parent Company
   
Subsidiary Guarantors
   
Non-Guarantor Subsidiaries
   
Eliminations
   
Consolidated
 
ASSETS
                             
Current assets
  $ 539,167     $ 804,903     $ 1,199,820     $ (101,142 )   $ 2,442,748  
Property, plant and equipment-net
    907       194,011       199,836       -       394,754  
Intangible assets-net
    -       282,995       19,722       -       302,717  
Other assets
    1,752,973       516,562       1,042,262       (3,096,139 )     215.658  
Total assets
  $ 2,293,047     $ 1,798,471     $ 2,461,640     $ (3,197,281 )   $ 3,355,877  
                                         
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                       
Current liabilities
  $ (5,647 )   $ 479,042     $ 537,443     $ (31,298 )   $ 979,540  
Long-term debt
    396,181       -       102       -       396,283  
Accrued pension costs
    379,277       8,016       7,045       -       394,338  
Other non-current liabilities
    18,938       13,095       49,385       -       81,418  
Shareholders’ equity
    1,504,298       1,298,318       1,867,665       (3,165,983 )     1,504,298  
Total liabilities and shareholders’ equity
  $ 2,293,047     $ 1,798,471     $ 2,461,640     $ (3,197,281 )   $ 3,355,877  

As of October 29, 2010
(In thousands)

   
Parent Company
   
Subsidiary Guarantors
   
Non-Guarantor Subsidiaries
   
Eliminations
   
Consolidated
 
ASSETS
                             
Current assets
  $ 488,248     $ 744,525     $ 1,236,264     $ (107,110 )   $ 2,361,927  
Property, plant and equipment-net
    964       185,073       191,987       -       378,024  
Intangible assets-net
    -       284,993       19,524       -       304,517  
Other assets
    1,727,028       501,526       963,265       (2,952,246 )     239,573  
Total assets
  $ 2,216,240     $ 1,716,117     $ 2,411,040     $ (3,059,356 )   $ 3,284,041  
                                         
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                       
Current liabilities
  $ 21,885     $ 477,105     $ 561,519     $ (37,185 )   $ 1,023,324  
Long-term debt
    396,094       -       232       -       396,326  
Accrued pension costs
    413,302       7,926       7,120       -       428,348  
Other non-current liabilities
    29,565       13,794       37,290       -       80,649  
Shareholders’ equity
    1,355,394       1,217,292       1,804,879       (3,022,171 )     1,355,394  
Total liabilities and shareholders’ equity
  $ 2,216,240     $ 1,716,117     $ 2,411,040     $ (3,059,356 )   $ 3,284,041  

 
19


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 28, 2011
(Unaudited)

Condensed Consolidating Statement of Cash Flows:
Quarter Ended January 28, 2011
(In thousands)

   
Parent Company
   
Subsidiary Guarantors
   
Non-Guarantor Subsidiaries
   
Consolidated
 
                         
Net cash provided (used) by operating activities
  $ 9,276     $ 33,613     $ (49,866 )   $ (6,977 )
Net cash used by investing activities
    (109 )     (16,536 )     (11,704 )     (28,349 )
Net cash provided by financing activities
    34,955       -       3,030       37,985  
                                 
Effect of exchange rate changes on cash and cash equivalents
    -       -       1,306       1,306  
Increase (decrease) in cash and cash equivalents
    44,122       17,077       (57,234 )     3,965  
Cash and cash equivalents at beginning of period
    439,295       16,262       360,024       815,581  
Cash and cash equivalents at end of  period
  $ 483,417     $ 33,339     $ 302,790     $ 819,546  
 
Quarter Ended January 29, 2010
(In thousands)

   
Parent Company
   
Subsidiary Guarantors
   
Non-Guarantor Subsidiaries
   
Consolidated
 
                         
Net cash provided (used) by operating activities
  $ 57,714     $ (5,951 )   $ 7,776     $ 59,539  
Net cash used  by investing activities
    (154 )     (4,827 )     (10,742 )     (15,723 )
Net cash (used) provided  by financing activities
    (8,360 )     4       796       (7,560 )
                                 
Effect of exchange rate changes on cash and cash equivalents
    -       -       (2,891 )     (2,891 )
Increase (decrease) in cash and cash equivalents
    49,200       (10,774 )     (5,061 )     33,365  
Cash and cash equivalents at beginning of period
    146,223       19,028       306,434       471,685  
Cash and cash equivalents at end of  period
  $ 195,423     $ 8,254     $ 301,373     $ 505,050  

 
20


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes to the Condensed Consolidated Financial Statements in Part I of this report.  Dollar amounts are in thousands, except share and per share data and as indicated.

Overview

Joy Global Inc. is a worldwide leader in high-productivity mining solutions.  We manufacture and market original equipment and aftermarket parts and services for both underground and surface mining and certain industrial applications through two business segments: Underground Mining Machinery (Joy Mining Machinery or “Joy”) and Surface Mining Equipment (P&H Mining Equipment or “P&H”).  Our principal manufacturing facilities are located in the United States, including facilities in Pennsylvania, Wisconsin, and Alabama, and in China, the United Kingdom, South Africa, Chile and Australia.

Operating Results

Bookings in the first quarter of 2011 were $1.2 billion, an increase of 52% from the prior year first quarter.  Aftermarket bookings increased $90.5 million or 18% from the prior year first quarter as parts orders were up across most regions.  Original equipment bookings increased $328.9 million or 106% from the prior year driven by a significant underground order in Australia and room and pillar equipment orders in the United States.

Net sales in the first quarter of 2011 were $869.5 million, an increase of 19% from the prior year.  Sales growth was driven by aftermarket parts and services from both the underground and surface divisions.  Original equipment sales were up 12% in the first quarter of 2011.

Operating profit in the first quarter of 2011 was $153.8 million, an increase of 31% from the prior year.  Operating profit margins increased to 17.7%, as compared to 16.1% in the prior year first quarter due from a favorable mix effect with a higher proportion of aftermarket sales, partially offset by increased product development, selling and administrative expense.

Net sales and operating profit were unfavorably impacted by $24.0 million and $7.9 million, respectively, from delays in shipments associated with flooding in Queensland, Australia.  All delayed shipments are expected to be caught up over the remainder of 2011.

The weaker U.S. dollar in the first quarter of 2011 as compared to the prior year first quarter provided a benefit to orders, net sales and operating income of $57.2 million, $14.5 million and $2.5 million, respectively.

Market Outlook

International commodity markets continue to be driven by strong growth in emerging markets and recovery in industrialized economies.  Industrial sector inventory levels that were drawn down in 2009 have remained at historically low levels.  With the improved outlook, companies are planning to increase inventory levels to support higher sales.  This restocking effect will add another element to global commodity demand.  In the emerging markets, China and India have announced major infrastructure projects as they continue on their path of industrialization.  These infrastructure projects will continue to drive high demand for commodities such as coal, copper and iron ore.
 
Global steel production was essentially flat during much of 2010, but growth resumed in the fourth quarter and production is expected to be up in 2011.  Supply constraints have kept upward pressure on both iron ore and metallurgical coal prices.  Iron ore supply has been limited by export restrictions from India and rapidly declining ore grades in China.  Although contract prices for iron ore at the end of 2010 were up from the year prior, they are below spot prices and are set to increase further in 2011.  The major seaborne iron ore producers have plans to increase production, but markets should remain tight for the next several years as these expansions will take five to six years to complete.  Metallurgical coal prices were also on the rise in 2010, moving from $200 per tonne at the end of 2009 to $225 in the fourth quarter of 2010.

 
21


The seaborne market for thermal coal continues to be driven by demand from China and India.  China and India’s share of seaborne coal trade has doubled in the last three years.  China’s domestic coal production has been growing over 15% per year and is expected to continue that growth.  India produced about 550 million tonnes of coal in 2010 and has plans to grow to 700 million tonnes in five years.  Despite this strong domestic growth, imports will continue to grow in China and India.   China coal imports are expected to grow in 2011 and India’s imports are expected to grow over the same period.  This continued growth in demand has raised contract prices for seaborne thermal coal from $98 per tonne last year to $125 per tonne for the first quarter of 2011.  As a result, there are a large number of mine expansion projects in seaborne exporting countries such as Australia, South Africa and South America.

Flooding and cyclones disrupted coal supplies from Australia, which supplies 50% of seaborne metallurgical coal and 8% of seaborne thermal coal.  Prices have spiked in response to supply shortages estimated to be 10 to 20 million tonnes for the year.  Metallurgical coal prices increased to $380 per tonne and thermal coal to $145 per tonne.  However, mines were better prepared after the flooding in 2008 and are expected to return to full production sooner.  Coal prices are expected to moderate in the second half of this year, but still show significant year over year growth based on longer term supply-demand fundamentals.

The U.S. coal market improved during 2010, driven by increased coal burn for power generation, declining utility stockpiles, increasing exports and rising prices.  Demand for coal grew in 2010.  Electricity demand was up 5.5% in 2010 and two-thirds of that increase was fueled by coal.  Utility stockpiles declined in 2010, and they should decline again in 2011 at current supply levels.  In addition, there are 22 gigawatts of new coal fired capacity that will come on line by 2012.  Exports increased in 2010, and export growth is expected to continue.   Producers in the Powder River Basin (“PRB”) are investing in capacity to increase their exports from West Coast ports.  As a result of this improved outlook, prices for Eastern and PRB coal are up more than 30% and 50%, respectively.  U.S. customers are renewing and expanding their equipment fleets, with some new mine projects being discussed.
 
While China primarily supported the copper market through 2009, the rest of the world created 60% of demand growth in 2010. Global copper demand was in excess of supply in 2010 and the annual deficit is expected to grow in 2011.  Copper has the longest lead time and highest risk associated with new green field capacity, and this adds support for copper prices.  Today’s prices of $4.50 per pound are expected to top $5.00 later this year.   The long-term strong demand and pricing outlook is driving expansion projects in low cost regions such as South America and in higher cost regions such as North America.  In addition, there is an increasing pace of investment in longer term capacity from Central Africa and Mongolia.

With rising oil prices, the oil sands continue to increase production via brown field expansion.  In addition, several delayed projects should be reactivated in 2011.  And finally, aftermarket activity will increase as shovels delivered in the past three to four years reach their first rebuild cycle.

The strong outlook for commodity demand is increasing commodity prices to levels needed to support broad based expansion, including expansion in high cost regions.  Customer capital expenditures are expected to be up in 2011, after rising last year.  There is a strong correlation between customer capital expenditures and our bookings for original equipment.

 
22


Company Outlook

We expect continued strength in the demand for mining equipment and aftermarket services as our customers increase their production levels and add to their mine expansion plans.  This outlook is supported by two underlying trends.  First, the list of qualified machine prospects continues to increase even with the strong growth in original equipment bookings.  As a result, the prospect list is growing faster than bookings, and this provides the basis for an expectation of continued increases in order rates.  Secondly, our customers are moving discussions from single projects to expansion programs that span four to five years and involve multiple projects.  In combination, these underlying trends provide confidence that we are in the early stages of a long-term growth phase.

We have been projecting our original equipment order rate to grow modestly through the first half of this year, with stronger increases in the second half.  This was driven by our view that the transition from brown field to green field projects would occur later because of the longer lead time for the green field projects.  We are now seeing the impact of certain green field projects that were previously deferred.  We therefore expect a blended transition, with sustainable increases in order rates that are representative of the earlier stages of the prior growth cycle, but not a rapid acceleration of order rates.

Results of Operations

Quarter Ended January 28, 2011 to Quarter Ended January 29, 2010
 
Net Sales

The following table sets forth the combined net sales included in our Condensed Consolidated Statement of Income:

   
Quarter Ended
             
   
January 28,
   
January 29,
    $     %  
In thousands
 
2011
   
2010
   
Change
   
Change
 
Net Sales
                         
Underground Mining Machinery
  $ 510,938     $ 423,731     $ 87,207       20.6  
Surface Mining Equipment
    385,843       328,000       57,843       17.6  
Eliminations
    (27,249 )     (22,511 )     (4,738 )     (21.0 )
Total
  $ 869,532     $ 729,220     $ 140,312       19.2  

First quarter of 2011 Underground Mining Machinery net sales were $510.9 million compared to the prior year first quarter of $423.7 million, which included a $64.8 million increase in aftermarket sales and $22.4 million increase in original equipment sales.  Aftermarket sales were driven by parts sales and rebuilds.  Parts sales increased in most regions globally, led by increases of $13.4 million and $13.9 million in the United States and China, respectively.  Rebuilds increased in the United States, Africa and the United Kingdom.  Original equipment sales increases were primarily related to the Chinese and United States markets.  Original equipment sales increased in China by $39.5 million primarily due to longwall application equipment while in the United States a $12.6 million increase was driven by room and pillar and conveyor equipment.  Original equipment sales decreased in the United Kingdom, Africa and Australia, led by an $11.7 million decrease in the United Kingdom primarily due to decreased longwall application equipment sales.

 
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First quarter of 2011 Surface Mining Equipment net sales were $385.8 million compared to the prior year first quarter of $328.0 million, which included a $44.5 million increase in aftermarket sales and a $13.3 million increase in original equipment sales.  The increase in aftermarket sales was primarily related to activity in North and South America coal and copper markets.  Original equipment sales increased primarily due to increased alliance sales of $9.2 million.

Operating Income

The following table sets forth the operating income (loss) included in our Condensed Consolidated Statement of Income:

   
Quarter Ended
 
   
January 28, 2011
   
January 29, 2010
 
   
Operating
   
%
   
Operating
   
%
 
In thousands
 
Income (loss)
   
of Net Sales
   
Income (loss)
   
of Net Sales
 
Underground Mining Machinery
  $ 95,371       18.7 %   $ 68,223       16.1 %
Surface Mining Equipment
    75,885       19.7 %     65,384       19.9 %
Corporate Expense
    (10,714 )     -       (10,250 )     -  
Eliminations
    (6,744 )     -       (5,797 )     -  
Total
  $ 153,798       17.7 %   $ 117,560       16.1 %

Operating income for Underground Mining Machinery was $95.4 million in the first quarter of 2011 compared to operating income of $68.2 million in the first quarter of 2010.  Operating income was favorably impacted by $34.7 million associated with higher sales volumes and $7.4 million from a favorable mix effect with a higher proportion of aftermarket sales.  Partially offsetting these increases was $12.9 million of increased selling, product and administrative expenses.

Operating income for Surface Mining Equipment was $75.9 million in the first quarter of 2011 compared to operating income of $65.4 million in the first quarter of 2010.  Operating income was favorably impacted by $19.1 million associated with higher sales volumes and $5.0 million from a favorable mix effect with a higher proportion of aftermarket sales.  Partially offsetting these increases was $8.8 million of increased selling, product and administrative expenses.

Product Development, Selling and Administrative Expense

Product development, selling and administrative expense was $132.1 million, or 15.2% of sales, in the first quarter of 2011, compared to $110.0 million, or 15.1% of sales, in the first quarter of 2010.  Product development, selling and administrative expense increased in the first quarter of 2011 due to increased administrative expense of $11.4 million, selling expense of $8.5 million and increased product development costs of $2.8 million.  Product development costs increased from the first quarter of 2010 primarily due to the funding of certain research and developments costs as these projects move into the final testing phase.  Increased selling and administrative costs are associated with initiatives, such as operational excellence programs, which are creating efficiencies on the shop floor, through the onsite erection process. Selling and administrative costs also were up in the first quarter of 2011 due to increased activity in China and other emerging markets.

 
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Provision for Income Taxes

Income tax expense was $47.1 million in the first quarter of 2011 as compared to $36.7 million in the first quarter of 2010, with effective income tax rates for the first quarter of 2011 and 2010 of 31.6% and 32.5%, respectively. The decrease in the effective tax rate in the first quarter of 2011 primarily relates to a higher proportion of sales in the quarter into lower tax jurisdictions.  The effective income tax rate differs from the United States federal corporate income tax rate primarily due to foreign and state differentials.

Bookings and Backlog

Bookings for the first quarter of 2011 and 2010 are the following:

   
Quarter Ended
 
   
January 28,
   
January 29,
 
In thousands
 
2011
   
2010
 
Underground Mining Machinery
  $ 821,430     $ 473,975  
Surface Mining Equipment
    436,063       355,783  
Eliminations
    (30,019 )     (21,696 )
Total  Bookings
  $ 1,227,474     $ 808,062  

Underground Mining Machinery original equipment orders increased by $326.7 million and were led by an Australian green field longwall project and room and pillar equipment orders in the United States.  The longwall order was a full scope, turnkey solution, which includes all of the ancillary equipment needed to operate the longwall.  United States original equipment order rates remain strong as customers continue to upgrade and expand their fleets.   Original equipment orders for Surface Mining Equipment were essentially flat with the prior year and primarily consisted of electric mining shovels destined for Australia, Canada, Chile and India.

Aftermarket orders in Underground Mining Machinery increased by $20.8 million in the quarter.  Compared to the first quarter of 2010, parts demand increased across all regions, but rebuild bookings decreased in the United States.  Surface Mining Equipment aftermarket orders increased by $76.0 million in the quarter compared to the prior year quarter, led by increased demand for parts and service across all regions.

Backlog as of January 28, 2011 and October 29, 2010 is as follows:

   
January 28,
   
October  29,
 
In thousands
 
2011
   
2010
 
             
Underground Mining Machinery
  $ 1,524,761     $ 1,208,181  
Surface Mining Equipment
    687,270       637,050  
Eliminations
    (34,992 )     (24,973 )
Total  Backlog
  $ 2,177,039     $ 1,820,258  

The increase in backlog was due to the increase in bookings for both businesses for both original equipment and aftermarket products.  Backlog does not include anticipated revenues from long-term maintenance and repair contracts.

 
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Liquidity and Capital Resources

The following table reconciles trade working capital to working capital as of January 28, 2011 and October 29, 2010, respectively:

In thousands
 
January 28,
2011
   
October 29,
2010
 
Accounts receivable