Joy Global Inc.
JOY GLOBAL INC (Form: 10-Q, Received: 06/06/2011 14:26:29)


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    April 29, 2011
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD from  _____________ to_________________
 
Commission File number 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 May 26, 2011
Common Stock, $1 par value
 
 105,039,581
 


 
 

 
 
JOY GLOBAL INC.

FORM 10-Q -- INDEX
April 29, 2011

PART I. – FINANCIAL INFORMATION
PAGE No.
   
Item 1 –  Financial Statements (unaudited):
 
   
4
   
5
   
6
   
7 – 23
   
24 – 34
   
34
   
34
   
PART II. – OTHER INFORMATION
 
   
Item 1 –   Legal Proceedings
35
   
Item 1A – Risk Factors
35
   
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds  35
   
35
   
Item 4 – Reserved
35
   
35
   
Item 6 – Exhibits
35
   
36
 
 
 

 
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 pending acquisition of LeTourneau Technologies, Inc., 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
   
Six Months Ended
 
   
April 29,
   
April 30,
   
April 29,
   
April 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Net sales
  $ 1,062,729     $ 896,224     $ 1,932,261     $ 1,625,444  
Costs and expenses:
                               
Cost of sales
    689,858       590,772       1,273,989       1,093,210  
Product development, selling and administrative expenses
    141,530       126,270       273,660       236,285  
Other income
    (2,721 )     (1,358 )     (3,248 )     (2,151 )
 
                               
Operating income
    234,062       180,540       387,860       298,100  
Interest income
    4,713       2,900       8,158       5,764  
Interest expense
    (7,895 )     (7,230 )     (15,726 )     (14,690 )
Reorganization items
    -       (545 )     (35 )     (595 )
                                 
Income before income taxes
    230,880       175,665       380,257       288,579  
Provision for income taxes
    68,908       55,224       116,053       91,921  
                                 
Net income
  $ 161,972     $ 120,441     $ 264,204     $ 196,658  
                                 
Basic earnings per share
  $ 1.54     $ 1.17     $ 2.53     $ 1.91  
                                 
Diluted earnings per share
  $ 1.52     $ 1.15     $ 2.48     $ 1.88  
                              1  
Dividends per share
  $ 0.175     $ 0.175     $ 0.35     $ 0.35  
                                 
Weighted average shares outstanding:
                               
Basic
    105,048       103,160       104,603       102,959  
Diluted
    106,646       104,850       106,345       104,616  
 
See Notes to Condensed Consolidated Financial Statements.
 
 
4

 
JOY GLOBAL INC.
CO NDENSE D CONSOLIDATED BALANCE SHEET
(In thousands)
 
   
April 29,
   
October 29,
 
   
2011
   
2010
 
   
(Unaudited)
       
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 1,071,141     $ 815,581  
Accounts receivable, net
    745,413       674,135  
Inventories
    936,820       764,945  
Other current assets
    126,477       107,266  
Total current assets
    2,879,851       2,361,927  
                 
Property, plant and equipment, net
    412,919       378,024  
Other intangible assets, net
    174,712       178,831  
Goodwill
    127,424       125,686  
Deferred income taxes
    136,694       162,682  
Other non-current assets
    84,776       76,891  
Total assets
  $ 3,816,376     $ 3,284,041  
                 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Short-term notes payable, including current portion of long-term obligations
  $ 4,879     $ 1,550  
Trade accounts payable
    321,624       291,742  
Employee compensation and benefits
    90,160       128,132  
Advance payments and progress billings
    619,798       376,300  
Accrued warranties
    66,776       62,351  
Other accrued liabilities
    147,784       163,249  
Total current liabilities
    1,251,021       1,023,324  
                 
Long-term obligations
    396,348       396,326  
Accrued pension costs
    360,632       428,348  
Other liabilities
    86,256       80,649  
                 
Total liabilities
    2,094,257       1,928,647  
                 
Shareholders’ equity
    1,722,119       1,355,394  
                 
Total liabilities and shareholders’ equity
  $ 3,816,376     $ 3,284,041  
 
See Notes to Condensed Consolidated Financial Statements.
 
 
5


JOY GLOBAL INC.
CONDENSED CONSOLIDA TED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
 
   
Six Months Ended
 
   
April 29,
   
April 30,
 
   
2011
   
2010
 
Operating Activities:
           
Net income
  $ 264,204     $ 196,658  
Depreciation and amortization
    31,648       29,329  
Change in deferred income taxes
    3,303       6,982  
Excess income tax benefit from share-based payment awards
    (16,880 )     (5,013 )
Contributions to retiree benefit plans
    (87,872 )     (41,297 )
Retiree benefit plan expense
    25,653       27,045  
Other, net
    6,579       3,516  
                 
Changes in Working Capital Items:
               
Accounts receivable, net
    (34,610 )     (1,180 )
Inventories
    (152,507 )     37,780  
Other current assets
    (16,160 )     5,282  
Trade accounts payable
    24,993       13,464  
Employee compensation and benefits
    (40,698 )     (25,735 )
Advance payments and progress billings
    221,899       (43,927 )
Other accrued liabilities
    20,283       (34,891 )
                 
Net cash provided by operating activities
    249,835       168,013  
                 
Investment Activities:
               
Property, plant and equipment acquired
    (53,098 )     (32,124 )
Other, net
    164       (1,588 )
                 
Net cash used by investment activities
    (52,934 )     (33,712 )
                 
Financing Activities:
               
Share-based payment awards
    67,617       21,938  
Dividends paid
    (36,488 )     (35,948 )
Change in short and long-term obligations, net
    3,151       (8,520 )
Financing fees
    (135 )     -  
                 
Net cash provided (used) by financing activities
    34,145       (22,530 )
                 
Effect of Exchange Rate Changes on Cash and Cash Equivalents
    24,514       (423 )
                 
Increase in Cash and Cash Equivalents
    255,560       111,348  
Cash and Cash Equivalents at Beginning of Period
    815,581       471,685  
                 
Cash and Cash Equivalents at End of Period
  $ 1,071,141     $ 583,033  
 
See Notes to Condensed Consolidated Financial Statements.
 
 
6

 
JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 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 October 2012.  Ineffectiveness related to these derivative contracts was recorded in the Consolidated Statement of Income as a gain of $0.3 million and $0.2 million for the quarters ended April 29, 2011 and April 30, 2010, respectively.  Ineffectiveness related to these derivative contracts was recorded in the Consolidated Statement of Income as a gain of $0.3 million and $2.7 million for the six months ended April 29, 2011 and April 30, 2010, respectively.

 
7

 
JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 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 April 29, 2011 and April 30, 2010 we recorded a $1.7 million gain and a $0.2 million loss, respectively, in the Consolidated Statement of Income related to fair value hedges which was offset by foreign exchange fluctuations of the underlying receivables.  For the six months ended April 29, 2011 and April 30, 2010 we recorded a $1.5 million gain and a $0.2 million loss, respectively, in the Consolidated Statement of Income related to fair value hedges which was offset by foreign exchange fluctuations of the underlying receivables.
 
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 April 29, 2011
                 
                       
Foreign currency forward contracts
  $ 4,978  
Cost of sales
  $ 3,766  
Cost of sales
  $ -  
         
Sales
    644            
Six months ended April 29, 2011
                     
                             
Foreign currency forward contracts
  $ 6,446  
Cost of sales
  $ 2,944  
Cost of sales
  $ -  
         
Sales
    3,583            
Quarter ended April 30, 2010
                     
                             
Foreign currency forward contracts
  $ (174 )
Cost of sales
  $ 1,426  
Cost of sales
  $ -  
         
Sales
    (956 )          
Six months ended April 30, 2010
                     
                             
Foreign currency forward contracts
  $ (5,131 )
Cost of sales
  $ 1,556  
Cost of sales
  $ -  
         
Sales
    (857 )          
 
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.
 
 
8

 
JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 2011
(Unaudited)
 
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.

4.
Borrowings and Credit Facilities

Direct borrowings and capital lease obligations consisted of the following:
 
   
April 29,
   
October 29,
 
In thousands
 
2011
   
2010
 
             
6.0% Senior Notes due 2016
  $ 247,840     $ 247,677  
6.625% Senior Notes due 2036
    148,429       148,417  
Short-term notes payable and bank overdrafts
    4,589       1,208  
Capital leases and other
    369       574  
      401,227       397,876  
Less:  Amounts due within one year
    (4,879 )     (1,550 )
                 
Long-term obligations
  $ 396,348     $ 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 April 29, 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 April 29, 2011, there was $255.3 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 $244.7 million.  At April 29, 2011, there were no outstanding direct borrowings under the Credit Agreement.
 
 
9


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 2011
(Unaudited)
 
5.
Warranties

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

   
Quarter Ended
   
Six Months Ended
 
   
April 29,
   
April 30,
   
April 29,
   
April 30,
 
In thousands
 
2011
   
2010
   
2011
   
2010
 
Balance, beginning of period
  $ 61,479     $ 61,397     $ 62,351     $ 58,947  
Accrual for warranty expensed during the period
    11,031       9,680       17,596       17,944  
Settlements made during the period
    (7,238 )     (10,505 )     (15,668 )     (15,836 )
Change in liability for pre-existing warranties during the period, including expirations
    98       (546 )     242       (661 )
Effect of foreign currency translation
    1,406       (300 )     2,255       (668 )
Balance, end of period
  $ 66,776     $ 59,726     $ 66,776     $ 59,726  
 
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
   
Six Months Ended
 
   
April 29,
   
April 30,
   
April 29,
   
April 30,
 
In thousands except per share data
 
2011
   
2010
   
2011
   
2010
 
Numerator:
                       
Net income
  $ 161,972     $ 120,441     $ 264,204     $ 196,658  
                                 
Denominator:
                               
Denominator for basic net income per share -
                               
Weighted average shares
    105,048       103,160       104,603       102,959  
Effect of dilutive securities:
                               
Stock options, restricted stock units and performance shares
    1,598       1,690       1,742       1,657  
Denominator for diluted net income per share -
                               
Adjusted weighted average shares and assumed conversions
    106,646       104,850       106,345       104,616  
                                 
Basic earnings per share:
  $ 1.54     $ 1.17     $ 2.53     $ 1.91  
                                 
Diluted earnings per share:
  $ 1.52     $ 1.15     $ 2.48     $ 1.88  

 
10

 
JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 2011
(Unaudited)
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.

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 April 29, 2011, we were contingently liable to banks, financial institutions, and others for approximately $275.2 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 $275.2 million, approximately $15.7 million relates to surety bonds and $14.8 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.

 
11

 
JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 2011
(Unaudited)
 
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 April 29, 2011 and October 29, 2010 we did not have any Level 3 assets or liabilities.

Fair Value Measurements
                       
at April 29, 2011
                       
   
Carrying
   
Total Fair
             
In thousands
 
Value
   
Value
   
Level 1
   
Level 2
 
                         
Current Assets
                       
Cash and cash equivalents
  $ 1,071,141     $ 1,071,141     $ 1,071,141     $ -  
                                 
Other Current Assets
                               
Derivatives
  $ 18,625     $ 18,625     $ -     $ 18,625  
                                 
                                 
Other Accrued Liabilities
                               
Derivatives
  $ 9,219     $ 9,219     $ -     $ 9,219  
                                 
Long-term Obligations
                               
6.0 % Senior Notes
  $ 247,840     $ 280,343     $ 280,343     $ -  
6.625% Senior Notes
  $ 148,429     $ 158,513     $ 158,513     $ -  
 
 
12


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 2011
(Unaudited)
 
Fair Value Measurements
                       
at October 29, 2010
                       
   
Carrying
   
Total Fair
             
In thousands
 
Value
   
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.

9.
Inventories

Consolidated inventories consisted of the following:

   
April 29,
   
October 29,
 
In thousands
 
2011
   
2010
 
Finished goods
  $ 652,888     $ 503,356  
Work in process and purchased parts
    207,987       183,658  
Raw  materials
    75,945       77,931  
    $ 936,820     $ 764,945  
 
 
13

 
JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 2011
(Unaudited)
 
10.
Share-Based Compensation

We recognized total share-based compensation expense for the quarters ended April 29, 2011 and April 30, 2010 of approximately $6.1 million and $9.2 million, respectively.  We recognized total share-based compensation expense for the six months ended April 29, 2011 and April 30, 2010 of approximately $12.2 million and $14.4 million, respectively.  For the quarters ended April 29, 2011 and April 30, 2010 we had 307,500 and 239,224 stock options exercised, respectively.  For the six months ended April 29, 2011 and April 30, 2010 we had 1,369,490 and 692,936 stock options exercised, respectively.

Restricted Stock Units

A summary of Restricted Stock Unit activity under all plans is as follows:

   
Number of
Units
   
Weighted-Average
Grant Date
Fair Value
   
Aggregate
Intrinsic
Value
(In Thousands)
 
                   
Outstanding at October 29, 2010
    681,501     $ 35.03        
                       
Units granted
    249,106       81.09        
Units earned from dividends
    3,464       89.23        
Units settled
    (34,450 )     48.63     $ 2,812  
Units deferred
    (14,251 )     51.08       1,115  
Units forfeited
    (33,124 )     47.78          
                         
Outstanding at April 29,  2011
    852,246     $ 47.40          
 
11.
Comprehensive Income

Comprehensive income consisted of the following net of taxes where applicable:
 
   
Quarter Ended
   
Six Months Ended
 
   
April 29,
   
April 30,
   
April 29,
   
April 30,
 
In thousands
 
2011
   
2010
   
2011
   
2010
 
                         
Net income
  $ 161,972     $ 120,441     $ 264,204     $ 196,658  
Other comprehensive income (loss):
                               
Pension & postretirement adjustments
    5,886       2,694       11,772       10,778  
Translation adjustments
    47,179       3,044       51,832       (6,692 )
Derivative fair value adjustments
    371       1,847       (51 )     (2,882 )
Total other comprehensive income
    53,436       7,585       63,553       1,204  
Comprehensive income
  $ 215,408     $ 128,026     $ 327,757     $ 197,862  

 
14

 
JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 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
 
   
April 29,
   
April 30,
   
April 29,
   
April 30,
 
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
    (22,830 )     (21,851 )     (93 )     (126 )
Amortization of:
                               
Prior service cost
    344       290       12       -  
Actuarial loss (gain)
    8,787       8,146       (384 )     (352 )
Net periodic benefit cost
  $ 12,627     $ 13,174     $ 226     $ 190  
 
   
Pension Benefits
   
Postretirement Benefits
 
   
Six Months Ended
   
Six Months Ended
 
   
April 29,
   
April 30,
   
April 29,
   
April 30,
 
In thousands
 
2011
   
2010
   
2011
   
2010
 
                         
Service cost
  $ 10,270     $ 10,546     $ 570     $ 516  
Interest cost
    42,382       42,632       812       820  
Expected return on assets
    (45,715 )     (43,505 )     (184 )     (132 )
Amortization of:
                               
Prior service cost
    688       580       24       -  
Actuarial loss (gain)
    17,574       16,292       (768 )     (704 )
Net periodic benefit cost
  $ 25,199     $ 26,545     $ 454     $ 500  
 
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. During 2011 we expect to contribute approximately $135.0 to $145.0 million to our U.S. defined benefit employee pension plans.

 
15

 
JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 2011
(Unaudited)

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.

   
Underground
   
Surface
                   
   
Mining
   
Mining
                   
In thousands
 
Machinery
   
Equipment
   
Corporate
   
Eliminations
   
Total
 
Quarter ended April 29, 2011
                             
Net sales
  $ 648,364     $ 439,977     $ -     $ (25,612 )   $ 1,062,729  
                                         
Operating income (loss)
    154,999       101,028       (15,442 )     (6,523 )     234,062  
Interest and reorganization items
    -       -       (3,182 )     -       (3,182 )
Income before income taxes
  $ 154,999     $ 101,028     $ (18,624 )   $ (6,523 )   $ 230,880  
                                         
Depreciation and amortization
  $ 9,963     $ 5,764     $ 59     $ -     $ 15,786  
                                         
Capital expenditures
  $ 11,110     $ 13,586     $ -     $ -     $ 24,696  
                                         
Quarter ended April 30, 2010
                                       
Net sales
  $ 544,287     $ 383,613     $ -     $ (31,676 )   $ 896,224  
                                         
Operating income (loss)
    109,264       92,007       (12,886 )     (7,845 )     180,540  
Interest and reorganization items
    -       -       (4,875 )     -       (4,875 )
Income before income taxes
  $ 109,264     $ 92,007     $ (17,761 )   $ (7,845 )   $ 175,665  
                                         
Depreciation and amortization
  $ 10,274     $ 5,149     $ 32     $ -     $ 15,455  
                                         
Capital expenditures
  $ 4,331     $ 13,712     $ -     $ -     $ 18,043  
                                         
Six months ended April 29, 2011
                                       
Net sales
  $ 1,159,302     $ 825,820     $ -     $ (52,861 )   $ 1,932,261  
                                         
Operating income (loss)
    250,370       176,913       (26,156 )     (13,267 )     387,860  
Interest and reorganization items
    -       -       (7,603 )     -       (7,603 )
Income before income taxes
  $ 250,370     $ 176,913     $ (33,759 )   $ (13,267 )   $ 380,257  
                                         
Depreciation and amortization
  $ 20,151     $ 11,381     $ 116     $ -     $ 31,648  
                                         
Capital expenditures
  $ 30,813     $ 22,285     $ -     $ -     $ 53,098  
                                         
Six months ended April 30, 2010
                                       
Net sales
  $ 968,018     $ 711,613     $ -     $ (54,187 )   $ 1,625,444  
                                         
Operating income (loss)
    177,487       157,391       (23,136 )     (13,642 )     298,100  
Interest and reorganization items
    -       -       (9,521 )     -       (9,521 )
Income before income taxes
  $ 177,487     $ 157,391     $ (32,657 )   $ (13,642 )   $ 288,579  
                                         
Depreciation and amortization
  $ 19,010     $ 10,260     $ 59     $ -     $ 29,329  
                                         
Capital expenditures
  $ 12,663     $ 19,355     $ 106     $ -     $ 32,124  
 
 
16


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 2011
(Unaudited)
 
14.
Subsequent Events

On May 19, 2011, our Board of Directors declared a cash dividend of $0.175 per outstanding share of common stock.  The dividend will be paid on June 20, 2011 to all shareholders of record at the close of business on June 6, 2011.

On May 13, 2011 we entered into a definitive agreement with Rowan Companies, Inc. to purchase all of the outstanding capital stock of LeTourneau Technologies, Inc. (“LeTourneau”) for $1.1 billion, subject to a working capital adjustment.  We expect to close the transaction following receipt of necessary regulatory approvals, and satisfaction of customary closing conditions, which is expected to occur within 60 days of the agreement date.  The transaction will be financed through a combination of cash and additional borrowings.

LeTourneau operates in two businesses, mining products and drilling products.  The mining business is a leading manufacturer of large wheel loaders for surface mining.  The drilling business designs, builds and supports offshore jack-up rigs, drilling rigs and drilling equipment, as well as the major components to support these rigs, for the oil and gas industries.

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 was 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 was 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.
Subsidiary Guarantors
 
The following tables present condensed consolidated financial information as of April 29, 2011 and October 29, 2010 and for the quarters and six months ended April 29, 2011 and April 30, 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. (the “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 (the “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.

 
17

 
JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 2011
(Unaudited)
 
Condensed Consolidating Statement of Income
Quarter Ended April 29, 2011
(In thousands)
 
   
Parent
Company
   
Subsidiary
Guarantors
   
Non-Guarantor
Subsidiaries
   
Eliminations
   
Consolidated
 
                                         
Net sales
  $ -     $ 700,775     $ 644,627     $ (282,673 )   $ 1,062,729  
                                         
Cost of sales
    -       470,381       436,296       (216,819 )     689,858  
                                         
                                         
Product development, selling and administrative expenses
    14,970       70,916       55,644       -       141,530  
Other (income) expense
    -       15,971       (18,692 )     -       (2,721 )
Operating income (loss)
    (14,970 )     143,507       171,379       (65,854 )     234,062  
                                         
Intercompany items
    14,602       (12,436 )     (31,914 )     29,748       -  
Interest income (expense) - net
    (7,467 )     889       3,396       -       (3,182 )
Reorganization items
    -       -       -       -       -  
                                         
Income (loss) before income taxes and equity
    (7,835 )     131,960       142,861       (36,106 )     230,880  
                                         
Provision  (benefit) for income taxes
    (15,548 )     47,074       37,382       -       68,908  
Equity in income (loss) of subsidiaries
    154,259       64,285       -       (218,544 )     -  
                                         
Net income
  $ 161,972     $ 149,171     $ 105,479     $ (254,650 )   $ 161,972  

 
18

 
JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 2011
(Unaudited)
 
Condensed Consolidating Statement of Income
Quarter Ended April 30, 2010
(In thousands)

   
Parent
   
Subsidiary
   
Non-Guarantor
             
   
Company
   
Guarantors
   
Subsidiaries
   
Eliminations
   
Consolidated
 
                               
Net sales
  $ -     $ 548,242     $ 542,053     $ (194,071 )   $ 896,224  
                                         
Cost of sales
    -       372,665       378,932       (160,825 )     590,772  
                                         
Product development, selling and administrative expenses
    12,831       67,429       46,010       -       126,270  
Other (income) expense
    -       15,037       (16,395 )     -       (1,358 )
Operating income (loss)
    (12,831 )     93,111       133,506       (33,246 )     180,540  
                                         
Intercompany items
    11,213       (13,253 )     (14,791 )     16,831       -  
Interest income (expense) - net
    (6,428 )     699       1,399       -       (4,330 )
Reorganization items
    (545 )     -       -       -       (545 )
                                         
Income (loss) before income taxes and equity
    (8,591 )     80,557       120,114       (16,415 )     175,665  
                                         
Provision  (benefit) for income taxes
    (9,832 )     50,004       15,052       -       55,224  
Equity in income (loss) of subsidiaries
    119,200       41,864       -       (161,064 )     -  
                                         
Net income
  $ 120,441     $ 72,417     $ 105,062     $ (177,479 )   $ 120,441  

 
19


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 2011
(Unaudited)
 
Condensed Consolidating Statement of Income
Six Months Ended April 29, 2011
(In thousands)

   
Parent
   
Subsidiary
   
Non-Guarantor
             
   
Company
   
Guarantors
   
Subsidiaries
   
Eliminations
   
Consolidated
 
                               
Net sales
  $ -     $ 1,232,915     $ 1,162,829     $ (463,483 )   $ 1,932,261  
                                         
Cost of sales
    -       828,916       805,128       (360,055 )     1,273,989