Joy Global Inc.
JOY GLOBAL INC (Form: 10-Q, Received: 09/07/2011 12:30:21)


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    July 29, 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 August 29, 2011
Common Stock, $1 par value
 
105,096,841
 


 
 

 

JOY GLO BAL INC.

FORM 10-Q -- INDEX
July 29, 2011

PART I. – FINANCIAL INFORMATION
PAGE No.
   
Item 1 – Financial Statements:
 
   
4
   
5
   
6
   
7 – 27
   
28 – 38 
   
39
   
39
   
PART II. – OTHER INFORMATION
 
   
40
   
40
   
40
   
40
   
40
   
40
   
40 – 41
   
42
 
 
 

 
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 (including our pending acquisition of International Mining Machinery Holdings Ltd. (“IMM”) and pending disposition of the drilling products business 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.

 
 

 
PA RT I. - FINANCIAL INFORMATION
Item 1. Financial Statements

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

   
Quarter Ended
   
Nine Months Ended
 
   
July 29,
2011
   
July 30,
2010
   
July 29,
2011
   
July 30,
2010
 
                         
Net sales
  $ 1,136,352     $ 850,002     $ 3,068,613     $ 2,475,446  
Costs and expenses:
                               
Cost of sales
    739,626       560,217       2,013,615       1,653,427  
Product development, selling and administrative expenses
    165,325       118,262       438,985       354,547  
Other income
    (4,591 )     (903 )     (7,839 )     (3,054 )
                                 
Operating income
    235,992       172,426       623,852       470,526  
Interest income
    3,438       3,508       11,595       9,272  
Interest expense
    (9,470 )     (7,447 )     (25,195 )     (22,137 )
Reorganization items
    -       (145 )     (35 )     (740 )
                                 
Income from continuing operations before income taxes
    229,960       168,342       610,217       456,921  
Provision for income taxes
    58,155       49,839       174,208       141,760  
Income from continuing operations
    171,805       118,503       436,009       315,161  
Income from discontinued operations, net of income taxes
    1,300       -       1,300       -  
                                 
Net income
  $ 173,105     $ 118,503     $ 437,309     $ 315,161  
                                 
Basic earnings per share:
                               
Continuing operations
  $ 1.63     $ 1.15     $ 4.16     $ 3.06  
Discontinued operation
    0.01       -       0.01       -  
Net Income
  $ 1.64     $ 1.15     $ 4.17     $ 3.06  
                                 
Diluted earnings per share:
                               
Continuing operations
  $ 1.61     $ 1.13     $ 4.09     $ 3.01  
Discontinued operation
    0.01       -       0.01       -  
Net Income
  $ 1.62     $ 1.13     $ 4.10     $ 3.01  
                                 
Dividends per share
  $ 0.175     $ 0.175     $ 0.525     $ 0.525  
                                 
Weighted average shares outstanding:
                               
Basic
    105,204       103,333       104,803       103,084  
Diluted
    106,735       104,964       106,475       104,732  

See Notes to Condensed Consolidated Financial Statements.
 
 
4


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

   
July 29,
2011
   
October 29,
2010
 
   
(Unaudited)
   
(Restated)
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 443,092     $ 815,581  
Accounts receivable, net
    852,376       674,135  
Inventories, net
    1,240,189       764,945  
Other current assets
    166,526       107,266  
Current assets of discontinued operations
    351,579       -  
Total current assets
    3,053,762       2,361,927  
                 
Property, plant and equipment, net
    504,384       378,024  
Investment, at fair value
    134,814       -  
Other intangible assets, net
    403,283       178,831  
Goodwill
    393,657       125,686  
Deferred income taxes (see footnote 2)
    141,551       149,654  
Other non-current assets
    65,827       76,891  
Non-current assets of discontinued operations
    233,080       -  
Total assets
  $ 4,930,358     $ 3,271,013  
                 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Short-term notes payable, including current portion of long-term obligations
  $ 33,700     $ 1,550  
Trade accounts payable
    357,620       291,742  
Employee compensation and benefits
    129,628       128,132  
Advance payments and progress billings
    790,570       376,300  
Accrued warranties
    79,223       62,351  
Other accrued liabilities
    178,611       163,249  
Current liabilities of discontinued operations
    200,740       -  
Total current liabilities
    1,770,092       1,023,324  
                 
Long-term obligations
    873,366       396,326  
Accrued pension costs
    325,964       428,348  
Other liabilities
    82,565       80,649  
                 
Total liabilities
    3,051,987       1,928,647  
                 
Shareholders’ equity (see footnote 2)
    1,878,371       1,342,366  
                 
Total liabilities and shareholders’ equity
  $ 4,930,358     $ 3,271,013  

See Notes to Condensed Consolidated Financial Statements.

 
5


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

   
Nine Months Ended
 
   
July 29,
2011
   
July 30,
2010
 
Operating Activities:
           
Income from continuing operations
  $ 436,009     $ 315,161  
Income from discontinued operations
    1,300       -  
Adjustments to continuing operations:
               
Depreciation and amortization
    50,669       44,870  
Change in deferred income taxes
    (11,883 )     6,001  
Excess income tax benefit from share-based payment awards
    (17,837 )     (5,446 )
Contributions to retiree benefit plans
    (134,352 )     (73,876 )
Retiree benefit plan expense
    38,429       40,252  
Other, net
    18,369       7,192  
Changes in Working Capital Items Attributed to Continuing Operations, net of acquisition:
               
Accounts receivable, net
    (64,902 )     (7,231 )
Inventories, net
    (259,180 )     (21,472 )
Other current assets
    (41,574 )     1,067  
Trade accounts payable
    18,894       50,712  
Employee compensation and benefits
    (12,169 )     (7,509 )
Advance payments and progress billings
    303,475       30,309  
Other accrued liabilities
    22,186       (7,101 )
Net cash provided by operating activities – continuing operations
    346,134       372,929  
Net cash used by operating activities – discontinued operations
    (2,444 )     -  
Net cash provided by operating activities
    343,690       372,929  
Investing Activities:
               
Property, plant and equipment acquired
    (75,189 )     (51,325 )
Investment in International Mining Machinery shares
    (140,613 )     -  
Acquisition of LeTourneau net of cash acquired
    (1,041,161 )     -  
Other, net
    2,514       (1,614 )
Net cash used by investing activities – continuing operations
    (1,254,449 )     (52,939 )
Net cash used by investing activities – discontinued operations
    (361 )     -  
Net cash used by investing activities
    (1,254,810 )     (52,939 )
Financing Activities:
               
Share-based payment awards
    70,426       24,187  
Dividends paid
    (54,870 )     (54,003 )
Change in short and long-term obligations, net
    508,861       (13,085 )
Financing fees
    (9,435 )     -  
Net cash provided (used) by financing activities – continuing operations
    514,982       (42,901 )
Net cash provided (used) by financing activities – discontinued operations
    -       -  
Net cash provided (used) by financing activities
    514,982       (42,901 )
Effect of Exchange Rate Changes on Cash and Cash Equivalents
    23,649       (132 )
(Decrease) Increase in Cash and Cash Equivalents
    (372,489 )     276,957  
Cash and Cash Equivalents at Beginning of Period
    815,581       471,685  
Cash and Cash Equivalents at End of Period
  $ 443,092     $ 748,642  

See Notes to Condensed Consolidated Financial Statements.

 
6


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 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.

Acquisition of LeTourneau Technologies, Inc.

On June 22, 2011, we completed the acquisition of LeTourneau Technologies, Inc. (“LeTourneau”).  LeTourneau operates in three businesses, mining equipment, steel products and drilling products.  Subsequent to the acquisition we entered into a definitive agreement with Cameron International Corporation (“Cameron”) to sell the drilling products business of LeTourneau. The results of operations for LeTourneau have been included in the accompanying condensed consolidated financial statements from the acquisition date forward, with results of the drilling products business being included as results of discontinued operations while the mining equipment and steel products business results are included in continuing operations as part of the surface mining equipment segment.

We purchased all of the outstanding shares of LeTourneau.  The preliminary purchase price for the acquisition was as follows:

(in thousands)
     
Cash consideration
  $ 1,100,000  
Working capital purchase price adjustments
    (54,346 )
    $ 1,045,654  

The final purchase price is pending and is based upon the level of net working capital transferred at closing.  The preliminary allocation of the purchase price to the assets acquired and liabilities assumed is based upon the estimated fair values at the date of acquisition.  The fair values of the assets and liabilities included in the table below are preliminary and subject to change principally as we are currently in the process of obtaining third-party valuations of assets acquired and liabilities assumed.

 
7


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

The excess of the purchase price over the net tangible and identifiable intangible assets is reflected as goodwill.  The amount allocated to intangible assets and goodwill for tax purposes is expected to be tax deductible as a result of our election under Section 338(h) (10) of the Internal Revenue Code.  The following table summarizes the preliminary estimates of fair value of the assets acquired and the liabilities assumed as of the acquisition date:

(in thousands)
     
Assets Acquired:
     
Cash and cash equivalents
  $ 4,714  
Accounts receivable
    57,237  
Inventories
    199,214  
Other current assets
    187  
Current assets of discontinued operations
    330,268  
Property, plant and equipment
    85,609  
Other intangible assets and goodwill
    488,162  
Other non-current assets
    535  
Non-current assets of discontinued operations
    234,240  
Total assets acquired
    1,400,166  
         
Liabilities Assumed:
       
Accounts payable
    (37,161 )
Employee compensation and benefits
    (10,576 )
Advance payments and progress billings
    (97,228 )
Other accrued liabilities
    (20,039 )
Current liabilities of discontinued operations
    (189,508 )
Total liabilities assumed
    (354,512 )
    $ 1,045,654  

The fair value for acquired assets was primarily determined based upon discounted expected cash flows.  Of the $488.2 million of intangible assets and goodwill, $232.0 million has been preliminarily assigned to intangible assets which are being amortized.  The determination of the useful life was based upon historical experience, economic factors, and future cash flows of the assets acquired.

The results of LeTourneau have been included in the condensed consolidated financial statements since the date of acquisition.  For the six-week period, the mining equipment and steel products businesses of LeTourneau combined had net sales of $43.3 million and net income of $6.3 million.  We incurred $8.6 million of acquisition costs related to LeTourneau.

The following unaudited pro forma financial information for the three and nine months ended July 29, 2011 and July 30, 2010 reflect the results of continuing operations as if the acquisition had been completed on October 30, 2010 and October 31, 2009, respectively.  Pro forma adjustments have been made for changes in depreciation and amortization expenses related to the valuation of the acquired fixed and intangible assets at fair value, the elimination of non-recurring items, the addition of incremental costs related to debt used to finance the acquisition, and the tax benefits related to the increased costs.

 
8


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

   
Quarter Ended
   
Nine Months Ended
 
   
July 29,
2011
   
July 30,
2010
   
July 29,
2011
   
July 30,
2010
 
Net sales
  $ 1,203,786     $ 922,202     $ 3,284,766     $ 2,641,619  
Income from continuing operations
  $ 175,015     $ 124,192     $ 446,593     $ 318,915  
Basic earnings per share from continuing operatons
  $ 1.66     $ 1.20     $ 4.26     $ 3.09  
Diluted earnings per share from continuing operatons
  $ 1.64     $ 1.18     $ 4.19     $ 3.05  

The unaudited pro forma financial information is presented for information purposes only.  It is not necessarily indicative of what our financial position or results of operations actually would have been had we completed the acquisition at the dates indicated, nor does it purport to project the future financial position or operating results of the combined company.

Discontinued operations of LeTourneau

On August 29, 2011 we entered into a definitive agreement with Cameron to sell the drilling products business purchased from LeTourneau for $375.0 million in cash, subject to a post-closing 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 drilling products business has been reflected as a discontinued operation and all assets and liabilities of the segment have been reflected as such in the Condensed Consolidated Balance Sheet and all results of operations have been reflected as discontinued operations in the Condensed Consolidated Statement of Income.

The operating results of the discontinued operations included in the consolidated financial statements for the three months and nine months ended July 29, 2011 follow:

(in thousands)
     
Net sales
  $ 19,536  
Income before income taxes
    1,941  
Provision for income taxes
    641  
Income from discontinued operations, net of tax
  $ 1,300  
 
 
9


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

The following are the assets and liabilities of the discontinued operations as of July 29, 2011:

(in thousands)
 
July 29,
2011
 
Accounts receivable, net
  $ 49,399  
Inventories
    274,674  
Other current assets
    27,506  
Total current assets of discontinued operations
  $ 351,579  
         
Property, plant and equipment, net
  $ 116,528  
Other intangible assets and goodwill
    115,834  
Other non-current assets
    718  
Total non-current assets of discontinued operations
  $ 233,080  
         
Accounts payable
  $ 52,536  
Employee compensation and benefits
    12,709  
Advance payments and progress billings
    102,043  
Other accrued liabilities
    33,452  
Total current liabilities of discontinued operations
  $ 200,740  

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 U.S. 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.

Total shareholders’ equity and deferred income taxes have been adjusted by $13.0 million for a change in the deferred tax asset valuation allowance originally recorded in 2006.

 
10


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

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 $1.0 million for the quarters ended July 29, 2011 and July 30, 2010, respectively.  Ineffectiveness related to these derivative contracts was recorded in the Consolidated Statement of Income as a gain of $0.6 million and a gain of $3.7 million for the nine months ended July 29, 2011 and July 30, 2010, respectively.

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 July 29, 2011 and July 30, 2010 we recorded a $2.3 million loss and a $0.1 million gain, 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 nine months ended July 29, 2011 and July 30, 2010 we recorded a loss of $0.7 million and $0.1 million, respectively, in the Consolidated Statement of Income related to fair value hedges which was offset by foreign exchange fluctuations of the underlying receivables.

 
11


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

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

In thousands
 
Effective 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
 
               
Quarter ended July 29, 2011
             
               
Foreign currency
             
forward contracts
  $ 2,945  
Cost of sales
  $ 413  
         
Sales
    456  
                   
Nine months ended July 29, 2011
                 
                   
Foreign currency
                 
forward contracts
  $ 9,392  
Cost of sales
  $ 3,357  
         
Sales
    4,039  
Quarter ended July 30, 2010
                 
                   
Foreign currency
                 
forward contracts
  $ 11,529  
Cost of sales
  $ (7,175 )
         
Sales
    3,019  
                   
Nine months ended July 30, 2010
                 
                   
Foreign currency
                 
forward contracts
  $ 6,397  
Cost of sales
  $ (7,333 )
         
Sales
    3,876  
                   

We are exposed to credit risk in the event of nonperformance by counterparties to the forward contracts.  The contract amount, along with other terms of the forward, determines the amount and timing of amounts to be exchanged and the contract is generally subject to credit risk only when the contract has a positive fair value.  We currently have a concentration of these contracts with Bank of America, N.A.

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.

 
12


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

4.
Borrowings and Credit Facilities

Direct borrowings and capital lease obligations consisted of the following:
 
In thousands
 
July 29,
2011
   
October 29,
2010
 
   
Term Loan due 2016
  $ 500,000     $ -  
6.0% Senior Notes due 2016
    247,924       247,677  
6.625% Senior Notes due 2036
    148,435       148,417  
Short-term notes payable and bank overdrafts
    8,500       1,208  
Capital leases and other
    2,207       574  
      907,066       397,876  
Less:  Amounts due within one year
    (33,700 )     (1,550 )
                 
Long-term obligations
  $ 873,366     $ 396,326  
 
As of June 21, 2011 we have exercised our option under the unsecured revolving credit facility (the “Credit Agreement”) to increase the aggregate revolving commitment available by an additional $200.0 million.  As increased, the $700.0 million Credit Agreement is 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 amount. At July 29, 2011, we were in compliance with all financial covenants of the Credit Agreement and had no restrictions on the payment of dividends or return of capital.
 
At July 29, 2011, there was $441.8 million available for borrowings under the Credit Agreement.   Outstanding letters of credit issued under the Credit Agreement, which count toward the $700.0 million credit limit, totaled $258.2 million.  At July 29, 2011, and October 29, 2010, there were no outstanding direct borrowings under the Credit Agreement.
 
The LeTourneau acquisition was funded in part by utilizing the full $500.0 million commitment under the term loan commitment (the “Term Loan”) dated June 16, 2011.  The Term Loan requires quarterly principal payments beginning September 20, 2011 and matures June 16, 2016.  The Term Loan contains terms and conditions that are substantially similar to the terms and conditions of the Credit Agreement.  Outstanding borrowings for the Term Loan bear interest equal to the Eurodollar rate plus a margin that varies with the Company’s credit rating and base rate loans (defined as the higher of the prime rate, Federal Funds Effective Rate plus 0.5% or one month Eurodollar Rate plus 1.0%) plus a margin that varies with the Company’s credit rating.  The Term Loan requires the maintenance of certain financial covenants, including leverage and interest coverage ratios.  At July 29, 2011, we were in compliance with all financial covenants of the Term Loan.
 
 
13


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 29, 2011
(Unaudited)
 
On July 11, 2011 we entered into a Share Purchase Agreement (“SPA”) to acquire approximately 41.1% of the outstanding common stock of International Mining Machinery Holdings Ltd., a Hong Kong listed designer and manufacturer of underground and coal mining equipment located in China.  Pursuant to Rule 26.1 of the Hong Kong Takeovers Code, upon receipt of regulatory approval and closing of the purchase under the SPA, we will be required to make an offer for the remaining IMM shares.  In conjunction with the SPA, we entered into a $1.5 billion senior unsecured bridge term loan facility (the “Bridge Loan Agreement”).  Under the Bridge Loan Agreement we have the ability to draw up to a maximum of $650.0 million on the closing date of the SPA and subsequently in multiple draws of no less the $10.0 million at any time during the period beginning on the commencement of the mandatory tender offer and ending on the date on which all amounts payable with respect to the tender offer have been paid.  Any unused commitments of the Bridge Loan Agreement shall expire on the earlier of (i) the date on which the SPA is terminated without the purchase having been consummated, (ii) March 11, 2012, unless the purchase is consummated on or prior to such date, (iii) the date that is 90 days following the 41.1% purchase date, as defined in the Bridge Loan Agreement, (iv) the date on which all amounts payable pursuant to the tender offer have been paid, (v) the date on which the commitments are terminated, reduced or prepaid, or (vi) May 11, 2012.  Outstanding borrowings bear interest equal to Eurodollar rate plus a margin that varies with the credit rating and base rate loans (defined as the higher of the prime rate, Federal Funds Effective Rate plus 0.5% or one month Eurodollar Rate plus 1.0%) plus a margin that varies with the credit rating.  We also pay a commitment fee ranging from 0.25% to 0.375% on the undrawn portion of the credit facility based on our credit rating.  The Bridge Loan Agreement requires the maintenance of certain financial covenants, including leverage and interest coverage ratios that are substantially similar to those in the Credit Agreement.  At July 29, 2011, no amounts were outstanding under the Bridge Loan Agreement and we were in compliance with all financial covenants of the Bridge Loan Agreement.

5.
Warranties

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

   
Quarter Ended
   
Nine Months Ended
 
In thousands
 
July 29,
2011
   
July 30,
2010
   
July 29,
2011
   
July 30,
2010
 
Balance, beginning of period
  $ 66,776     $ 59,726     $ 62,351     $ 58,947  
Accrual for warranty expensed during the period
    9,780       6,415       27,376       24,359  
Settlements made during the period
    (9,408 )     (7,549 )     (25,076 )     (23,385 )
Change in liability for pre-existing warranties during the period, including expirations
    928       (117 )     1,170       (778 )
Effect of foreign currency translation
    (398 )     (505 )     1,857       (1,173 )
Acquired warranty accrual – LeTourneau
    11,545       -       11,545       -  
Balance, end of period
  $ 79,223     $ 57,970     $ 79,223     $ 57,970  
 
 
14


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 29, 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
   
Nine Months Ended
                       
In thousands except per share data
 
July 29,
2011
   
July 30,
2010
   
July 29,
2011
   
July 30,
2010
 
Numerator:
                       
Income from continuing operations
  $ 171,805     $ 118,503     $ 436,009     $ 315,161  
Income from discontinued operations
    1,300       -       1,300       -  
Net income
  $ 173,105     $ 118,503     $ 437,309     $ 315,161  
                                 
Denominator:
                               
Denominator for basic net income per share -
                               
Weighted average shares
    105,204       103,333       104,803       103,084  
Effect of dilutive securities:
                               
Stock options, restricted stock units and performance shares
    1,531       1,631       1,672       1,648  
Denominator for diluted net income per share -
                               
Adjusted weighted average shares and assumed conversions
    106,735       104,964       106,475       104,732  
                                 
Basic earnings per share:
                               
Continuing operations
  $ 1.63     $ 1.15     $ 4.16     $ 3.06  
Discontinued operations
    0.01       -       0.01       -  
Net income
  $ 1.64     $ 1.15     $ 4.17     $ 3.06  
                                 
Diluted earnings per share:
                               
Continuing operations
  $ 1.61     $ 1.13     $ 4.09     $ 3.01  
Discontinued operations
    0.01       -       0.01       -  
Net income
  $ 1.62     $ 1.13     $ 4.10     $ 3.01  

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.

 
15


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

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” $10.0 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 July 29, 2011, we were contingently liable to banks, financial institutions, and others for approximately $282.8 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 $282.8 million, approximately $15.7 million relates to surety bonds and $8.9 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.

 
16


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

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 July 29, 2011 and October 29, 2010 we did not have any Level 3 assets or liabilities.

Fair Value Measurements at July 29, 2011
                       
In thousands
 
Carrying Value
   
Total Fair
Value
   
Level 1
   
Level 2
 
                         
Current Assets
                       
Cash and cash equivalents
  $ 443,092     $ 443,092     $ 443,092     $ -  
                                 
Other Current Assets
                               
Derivatives
  $ 14,388     $ 14,388     $ -     $ 14,388  
                                 
Other Long-term Assets
                               
Investment, at fair value
  $ 134,814     $ 134,814     $ 134,814     $ -  
                                 
Short-term notes payable,
                               
Including current portion of long-term obligations
                               
Current portion of Term Loan
  $ 25,000     $ 25,000     $ -     $ 25,000  
                                 
Other Accrued Liabilities
                               
Derivatives
  $ 5,207     $ 5,207     $ -     $ 5,207  
                                 
Long-term Obligations
                               
6.0 % Senior Notes
  $ 247,924     $ 282,500     $ 282,500     $ -  
6.625% Senior Notes
  $ 148,435     $ 162,933     $ 162,933     $ -  
Term Loan
  $ 475,000     $ 475,000     $ -     $ 475,000  
                                 

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     $ -  
                                 

 
17


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

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.

Investment, at fair value:   The fair value of the investment is estimated based on an active quoted market price at the respective period end.  See Note 13 for further information related to Investment, at fair value.

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

Term Loan : The fair value of the Term Loan is estimated using discounted cash flows and current market conditions.

9.
Inventories

Consolidated inventories consisted of the following:

In thousands
 
July 29,
2011
   
October 29,
2010
 
Finished goods
  $ 749,532     $ 503,356  
Work in process and purchased parts
    289,561       183,658  
Raw materials
    201,096       77,931  
    $ 1,240,189     $ 764,945  

10.
Share-Based Compensation

We recognized total share-based compensation expense for the quarters ended July 29, 2011 and July 30, 2010 of approximately $6.7 million and $4.5 million, respectively.  We recognized total share-based compensation expense for the nine months ended July 29, 2011 and July 30, 2010 of approximately $18.9 million and $18.8 million, respectively.  For the quarters ended July 29, 2011 and July 30, 2010 we had 55,960 and 70,376 stock options exercised, respectively.  For the nine months ended July 29, 2011 and July 30, 2010 we had 1,425,450 and 763,312 stock options exercised, respectively.

11.
Comprehensive Income

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

   
Quarter Ended
   
Nine Months Ended
 
In thousands
 
July 29,
2011
   
July 30,
2010
   
July 29,
2011
   
July 30,
2010
 
                         
Net income
  $ 173,105     $ 118,503     $ 437,309     $ 315,161  
Other comprehensive income (loss):
                               
Pension & postretirement adjustments
    11,438       5,416       23,210       16,194  
Translation adjustments
    (1,777 )     (6,654 )     50,055       (13,346 )
Investment fair value adjustments
    (5,799 )     -       (5,799 )     -  
Derivative fair value adjustments
    1,360       4,793       1,309       1,911  
Total other comprehensive income
    5,222       3,555       68,775       4,759  
Comprehensive income
  $ 178,327     $ 122,058     $ 506,084     $ 319,920  
 
 
18


JOY GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 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
Quarter Ended
   
Postretirement Benefits
Quarter Ended
 
In thousands
 
July 29,
2011
   
July 30,
2010
   
July 29,
2011
   
July 30,
2010
 
                         
Service cost
  $ 5,223     $ 5,273     $ 166     $ 171  
Interest cost
    21,800       21,328       343       394  
Expected return on assets
    (23,833 )     (22,070 )     (71 )     (37 )
Amortization of:
                               
Prior service cost
    343       289       12       -  
Actuarial loss (gain)
    8,999       8,203       (214 )     (366 )
Net periodic benefit cost
  $ 12,532     $ 13,023     $ 236     $ 162  


   
Pension Benefits
Nine Months Ended
   
Postretirement Benefits
Nine Months Ended
 
In thousands
 
July 29,
2011
   
July 30,
2010
   
July 29,
2011
   
July 30,
2010
 
                         
Service cost
  $ 15,493     $ 15,819     $ 736     $ 687  
Interest cost
    64,182       63,960       1,155       1,214  
Expected return on assets
    (69,540 )     (65,537 )     (255 )     (169 )
Amortization of:
                               
Prior service cost
    1,031       869       36       -  
Actuarial loss (gain)
    26,573       24,495       (982 )     (1,070 )
Net periodic benefit cost
  $ 37,739     $ 39,606     $ 690     $ 662  

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 $175.0 million to $185.0 million to our defined benefit employee pension plans.

13.
Investment, at Fair Value

On July 28, 2011, we purchased approximately 136.5 million shares of International Mining Machinery Holdings Ltd. (“IMM”) for $140.6 million.  These shares were purchased on the open market and represent 10.5% of the total outstanding shares.  Unrealized gains and losses arising from the revaluation of the current investment, net of applicable deferred income taxes, is carried in accumulated other comprehensive income (loss).

On July 14, 2011 we announced that we entered into an agreement on July 11, 2011 to purchase approximately 41.1% of IMM’s outstanding shares for approximately $585 million (U.S.) or HK$8.50 per share.  The July 11, 2011 purchase agreement is subject to approval from the Anti-monopoly Bureau of the Ministry of Commerce (“MOFCOM”) of the People’s Republic of China.  Upon obtaining approval from MOFCOM, we will apply the acquisition method of accounting re-measuring the preexisting interest at fair value with the resulting gain or loss recorded into earnings and we will be required to make an unconditional cash tender offer to purchase the remaining outstanding shares.

 
19


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

14.
Segment Information

We have historically operated 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 consist of the surface applications of crushing and conveying included in both operating segments. On June 22, 2011 we completed the acquisition of LeTourneau from Rowan Companies, Inc.  LeTourneau historically operated in three business segments, mining equipment, steel products and drilling products.  Results of mining equipment and steel products have been combined with our Surface Mining Equipment segment.  The drilling products segment has been classified as a discontinued operation.  See Note 1 for discussion on discontinued operations.

 
In thousands
 
Underground
Mining
Machinery
   
Surface
Mining
Equipment
   
Corporate
   
Eliminations
   
Total
 
Quarter ended July 29, 2011
                             
Net sales
  $ 669,179     $ 507,552     $ -     $ (40,379 )   $ 1,136,352  
Operating income (loss)
    156,437       113,760       (24,392 )     (9,813 )     235,992  
Interest and reorganization items
    -       -       (6,032 )     -       (6,032 )
Income from continuing operations before income taxes
  $ 156,437     $ 113,760     $ (30,424 )   $ (9,813 )   $ 229,960  
Depreciation and amortization
  $ 10,618     $ 8,344     $ 59     $ -     $ 19,021  
Capital expenditures
  $ 8,546     $ 12,745     $ 800     $ -     $ 22,091  
                                         
Quarter ended July 30, 2010
                                       
Net sales
  $ 510,817     $ 372,942     $ -     $ (33,757 )   $ 850,002  
Operating income (loss)
    107,084       82,857       (9,541 )     (7,974 )     172,426  
Interest and reorganization items
    -       -       (4,084 )     -       (4,084 )
Income before income taxes
  $ 107,084     $ 82,857     $ (13,625 )   $ (7,974 )   $ 168,342  
Depreciation and amortization
  $ 10,329     $ 5,179     $ 33     $ -     $ 15,541  
Capital expenditures
  $ 12,590     $ 6,598     $ 13     $ -     $ 19,201  
                                         
Nine months ended July 29, 2011
                                       
Net sales
  $ 1,828,481     $ 1,333,372     $ -     $ (93,240 )   $ 3,068,613  
Operating income (loss)
    406,807       290,673       (50,548 )     (23,080 )     623,852  
Interest and reorganization items
    -       -       (13,635 )     -       (13,635 )
Income from continuing operations before income taxes
  $ 406,807     $ 290,673     $ (64,183 )   $ (23,080 )   $ 610,217  
Depreciation and amortization
  $ 30,769     $ 19,725     $ 175     $ -     $ 50,669  
Capital expenditures
  $ 39,359     $ 35,030     $ 800     $ -     $ 75,189  
                                         
Nine months ended July 30, 2010
                                       
Net sales
  $ 1,478,835     $ 1,084,555     $ -     $ (87,944 )   $ 2,475,446  
Operating income (loss)
    284,571       240,248       (32,677 )     (21,616 )     470,526  
Interest and reorganization items
    -       -       (13,605 )     -       (13,605 )
Income before income taxes
  $ 284,571     $ 240,248     $ (46,282 )   $ (21,616 )   $ 456,921  
Depreciation and amortization
  $ 29,339     $ 15,439     $ 92     $ -     $ 44,870  
Capital expenditures
  $ 25,253     $ 25,953     $ 119     $ -     $ 51,325  
 
 
20


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

15.
Subsequent Events

On August 16, 2011 we purchased approximately 102 million, or 7.9%, of additional outstanding shares of IMM on the open market for approximately $105.1 million, bringing our total ownership stake to 18.3%.

On August 22, 2011, our Board of Directors declared a cash dividend of $0.175 per outstanding share of common stock.  The dividend will be paid on September 19, 2011 to all shareholders of record at the close of business on September 5, 2011.

On August 29, 2011 we entered into a definitive agreement with Cameron to sell the drilling products business purchased from LeTourneau for $375.0 million in cash, subject to a post-closing 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 drilling products business has been reflected as a discontinued operation and all assets and liabilities of the segment have been reflected as such in the Condensed Consolidated Balance Sheet and all results of operations have been reflected as discontinued operations in the Condensed Consolidated Statement of Income.

16.
Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, “Comprehensive Income (Topic 220):  Presentation of Comprehensive Income.”   ASU No. 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of shareholders’ equity.  ASU 2011-05 will be effective for the quarter ending January 25, 2013.  The adoption of this guidance will have no impact on our financial condition or results of operations but will impact the presentation of the financial statements.  We are currently evaluating the presentation options.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820):  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.”   This ASU clarifies and changes the application of various fair value measurement principles and disclosure requirements, and will be effective for the quarter ending April 27, 2012.  The adoption is not expected to have a material impact on our consolidated financial statements.

In December 2009, the FASB issued 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.

 
21


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

17.
Subsidiary Guarantors
 
The following tables present condensed consolidated financial information of continuing operations as of July 29, 2011 and October 29, 2010 and for the quarters and nine months ended July 29, 2011 and July 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., LeTourneau Technologies, Inc., 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.

Condensed Consolidating Statement of Income
Quarter Ended July 29, 2011
(In thousands)

   
Parent
Company
   
Subsidiary
Guarantors
   
Non-Guarantor
Subsidiaries
   
Eliminations
   
Consolidated
 
                               
Net sales
  $ -     $ 712,779     $ 718,079     $ (294,506 )   $ 1,136,352  
                                         
Cost of sales
    -       476,603       488,767       (225,744 )     739,626  
                                         
Product development, selling and administrative expenses
    24,102       80,652       60,571       -       165,325  
Other (income) expense
    -       15,975       (20,566 )     -       (4,591 )
Operating income (loss)
    (24,102 )     139,549       189,307       (68,762 )     235,992  
                                         
Intercompany items
    4,778       (7,054 )     (34,681 )     36,957       -  
Interest income (expense) - net
    (8,687 )     382       2,273       -       (6,032 )
Reorganization items
    -       -       -       -       -  
                                         
Income (loss) from continuing operations before income taxes and equity
    (28,011 )     132,877       156,899       (31,805 )     229,960  
                                         
Provision  (benefit) for income taxes
    (29,103 )     56,015       31,243       -       58,155  
Equity in income (loss) of subsidiaries
    170,713       41,721       -       (212,434 )     -  
                                         
Income from continuing operations
  $ 171,805     $ 118,583     $ 125,656     $ (244,239 )   $ 171,805  
 
 
22


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

Condensed Consolidating Statement of Income
Quarter Ended July 30, 2010
(In thousands)

   
Parent
Company
   
Subsidiary
Guarantors
   
Non-Guarantor
Subsidiaries
   
Eliminations
   
Consolidated
 
                               
Net sales
  $ -     $ 493,029     $ 521,045     $ (164,072 )   $ 850,002  
                                         
Cost of sales
    -       329,182       357,507       (126,472 )     560,217  
                                         
Product development, selling and administrative expenses
    9,503       60,506       48,253       -       118,262  
Other (income) expense
    -       14,885