Joy Global Inc.
JOY GLOBAL INC (Form: 10-Q, Received: 03/02/2012 12:35:17)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(MARK ONE)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED January 27, 2012

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   ¨

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   ¨

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   ¨
NON-ACCELERATED FILER   ¨    SMALLER REPORTING COMPANY   ¨

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

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

 

Class

 

Outstanding at February 24, 2012

Common Stock, $1 par value   105,822,684

 

 

 


Table of Contents

JOY GLOBAL INC.

FORM 10-Q INDEX

January 27, 2012

 

 

 

     PAGE
NO.

PART I. – FINANCIAL INFORMATION

  

Item 1 – Financial Statements:

  

Condensed Consolidated Statement of Income – Quarter Ended January 27, 2012 and January  28, 2011

   4

Condensed Consolidated Balance Sheet – January 27, 2012 and October 28, 2011

   5

Condensed Consolidated Statement of Cash Flows – Quarter Ended January 27, 2012 and January  28, 2011

   6

Notes to Condensed Consolidated Financial Statements

   7 – 27

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

   28 – 35

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

   36

Item 4 – Controls and Procedures

   36

PART II. – OTHER INFORMATION

  

Item 1 – Legal Proceedings

   37

Item 1A – Risk Factors

   37

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

   37

Item 3 – Defaults Upon Senior Securities

   37

Item 4 – Mine Safety Disclosures

   37

Item 5 – Other Information

   37

Item 6 – Exhibits

   37

Signature

   38


Table of Contents

Forward-Looking Statements

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), 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,” “could,” “estimate,” “expect,” “foremost,” “indicate,” “intend,” “may be,” “objective,” “plan,” “potential,” “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, risks associated with acquisitions, and the risks discussed in Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for our fiscal year ended October 28, 2011, 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.


Table of Contents

PART I. - FINANCIAL INFORMATION

Item 1. Financial Statements

JOY GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

(In thousands, except per share amounts)

 

     Quarter Ended  
     January 27,
2012
    January 28,
2011
 

Net sales

   $ 1,136,201      $ 869,532   

Costs and expenses:

    

Cost of sales

     772,776        584,131   

Product development, selling and administrative expenses

     171,356        132,130   

Other income

     (21,677     (527
  

 

 

   

 

 

 

Operating income

     213,746        153,798   

Interest income

     1,193        3,445   

Interest expense

     (17,270     (7,831

Reorganization items

     —          (35
  

 

 

   

 

 

 

Income from continuing operations before income taxes

     197,669        149,377   

Provision for income taxes

     55,150        47,145   
  

 

 

   

 

 

 

Income from continuing operations

     142,519        102,232   

Income from continuing operations attributable to non-controlling interest

     (109     —     
  

 

 

   

 

 

 

Income from continuing operations attributable to Joy Global Inc.

     142,410        102,232   
  

 

 

   

 

 

 

Loss from discontinued operations, net of income taxes

     (58     —     

Loss from discontinued operations, net of income taxes attributable to non-controlling interest

     —          —     
  

 

 

   

 

 

 

Loss from discontinued operations, net of income taxes attributable to Joy Global Inc.

     (58     —     
  

 

 

   

 

 

 

Net income

     142,461        102,232   

Net income attributable to non-controlling interest

     (109     —     
  

 

 

   

 

 

 

Net income attributable to Joy Global Inc.

   $ 142,352      $ 102,232   
  

 

 

   

 

 

 

Basic earnings per share:

    

Continuing operations

   $ 1.35      $ 0.98   

Discontinued operation

     —          —     
  

 

 

   

 

 

 

Net Income

   $ 1.35      $ 0.98   
  

 

 

   

 

 

 

Diluted earnings per share:

    

Continuing operations

   $ 1.33      $ 0.96   

Discontinued operation

     —          —     
  

 

 

   

 

 

 

Net Income

   $ 1.33      $ 0.96   
  

 

 

   

 

 

 

Dividends per share

   $ 0.175      $ 0.175   
  

 

 

   

 

 

 

Weighted average shares outstanding:

    

Basic

     105,405        104,158   
  

 

 

   

 

 

 

Diluted

     106,752        106,043   
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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JOY GLOBAL INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

(In thousands)

 

     January 27,
2012
     October 28,
2011
 

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 283,246       $ 288,321   

Cash held in escrow

     276,314         866,000   

Accounts receivable, net

     1,103,166         884,696   

Inventories

     1,558,825         1,334,134   

Other current assets

     210,619         190,568   

Current assets of discontinued operations

     —           288   
  

 

 

    

 

 

 

Total current assets

     3,432,170         3,564,007   

Property, plant and equipment, net

     662,473         539,571   

Investment in unconsolidated affiliate

     —           380,114   

Other intangible assets, net

     419,946         385,441   

Goodwill

     1,483,352         428,478   

Deferred income taxes

     72,643         73,123   

Other non-current assets

     95,952         55,448   

Non-current assets of discontinued operations

     —           172   
  

 

 

    

 

 

 

Total assets

   $ 6,166,536       $ 5,426,354   
  

 

 

    

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

     

Current liabilities:

     

Short-term notes payable, including current portion of long-term obligations

   $ 53,070       $ 35,895   

Trade accounts payable

     481,102         452,519   

Employee compensation and benefits

     96,777         147,664   

Advance payments and progress billings

     901,863         771,841   

Accrued warranties

     101,816         82,737   

Other accrued liabilities

     240,028         206,588   

Current liabilities of discontinued operations

     26,086         27,327   
  

 

 

    

 

 

 

Total current liabilities

     1,900,742         1,724,571   

Long-term obligations

     1,343,979         1,356,412   

Accrued pension costs

     296,409         332,452   

Other liabilities

     83,720         61,124   
  

 

 

    

 

 

 

Total liabilities

     3,624,850         3,474,559   
  

 

 

    

 

 

 

Shareholders’ equity attributable to Joy Global Inc.

     2,111,034         1,951,795   

Non-controlling interest

     430,652         —     
  

 

 

    

 

 

 

Total Equity

     2,541,686         1,951,795   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 6,166,536       $ 5,426,354   
  

 

 

    

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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JOY GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(In thousands)

 

     Quarter Ended  
     January 27,
2012
    January 28,
2011
 

Operating Activities:

    

Net income

   $ 142,461      $ 102,232   

Loss from discontinued operations

     58        —     

Adjustments to continuing operations:

    

Depreciation and amortization

     26,779        15,862   

Deferred income taxes

     (2,558     829   

Excess income tax benefit from share-based payment awards

     (17,500     (14,260

Contributions to retiree benefit plans

     (45,864     (43,774

Retiree benefit plan expense

     14,858        12,800   

Other, net

     (33,992     548   

Changes in Working Capital Items Attributed to Continuing Operations, net of acquisition:

    

Accounts receivable, net

     38,988        12,132   

Inventories, net

     (167,210     (70,818

Other current assets

     (14,862     (9,010

Trade accounts payable

     (51,789     (33,682

Employee compensation and benefits

     (49,804     (52,408

Advance payments and progress billings

     121,894        77,305   

Other accrued liabilities

     24,397        (4,733
  

 

 

   

 

 

 

Net cash used by operating activities – continuing operations

     (14,144     (6,977

Net cash used by operating activities – discontinued operations

     (4,363     —     
  

 

 

   

 

 

 

Net cash used by operating activities

     (18,507     (6,977
  

 

 

   

 

 

 

Investing Activities:

    

Property, plant and equipment acquired

     (49,435     (28,402

Acquisition of controlling interest in International Mining Machinery, net of cash acquired

     (513,761     —     

Withdrawal of cash held in escrow

     589,686        —     

Other, net

     151        53   
  

 

 

   

 

 

 

Net cash provided (used) by investing activities – continuing operations

     26,641        (28,349

Net cash provided by investing activities – discontinued operations

     —          —     
  

 

 

   

 

 

 

Net cash provided (used) by investing activities

     26,641        (28,349
  

 

 

   

 

 

 

Financing Activities:

    

Share-based payment awards

     19,476        53,163   

Dividends paid

     (18,397     (18,133

Change in short and long-term obligations, net

     (10,571     3,030   

Financing fees

     (1,628     (75
  

 

 

   

 

 

 

Net cash (used) provided by financing activities – continuing operations

     (11,120     37,985   

Net cash provided by financing activities – discontinued operations

     —          —     
  

 

 

   

 

 

 

Net cash (used) provided by financing activities

     (11,120     37,985   
  

 

 

   

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

     (2,089     1,306   
  

 

 

   

 

 

 

(Decrease) Increase in Cash and Cash Equivalents

     (5,075     3,965   

Cash and Cash Equivalents at Beginning of Period

     288,321        815,581   
  

 

 

   

 

 

 

Cash and Cash Equivalents at End of Period

   $ 283,246      $ 819,546   
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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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 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 such adjustments made are of a normal recurring nature. The preparation of the financial statements in conformity with GAAP requires us 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 28, 2011. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

 

3. Acquisitions

Acquisition of a Controlling Interest In International Mining Machinery Holdings Limited

On December 29, 2011, we completed the purchase of 534.8 million shares of International Mining Machinery Holdings Limited (“IMM”). The shares, which represented approximately 41.1% of IMM’s outstanding common stock, were purchased pursuant to a stock purchase agreement, dated July 11, 2011, as amended and restated on July 14, 2011. The shares were purchased for HKD8.50 per share, or approximately $584.6 million. As a result of this and prior open market purchases, we acquired a controlling interest of approximately 69.2% of IMM’s outstanding common stock and were required by Rule 26.1 of the Hong Kong Takeovers Code to commence a tender offer to purchase all of the outstanding shares of IMM common stock and options to purchase IMM common stock that we did not already own. The tender offer commenced on January 6, 2012. At January 27, 2012 we owned approximately 69.8% of IMM’s outstanding common stock. As described in Note 14, Subsequent Events, we completed the tender offer on February 10, 2012 and currently own 98.9% of IMM’s outstanding common stock.

Prior to obtaining control on December 29, 2011, the investment in IMM had been accounted for under the equity method. Upon obtaining control, we applied the acquisition method of accounting, re-measured the preexisting interest at fair value and recorded a gain of $19.4 million. The gain is reported in the Condensed Consolidated Statement of Income under “other income.” The results of operations for IMM have been included in the accompanying Condensed Consolidated Financial Statements from December 29, 2011 forward as part of the Underground Mining Machinery segment. Prior to obtaining control, our share of income from IMM was reported in the Condensed Consolidated Statement of Income under “other income” and included in Corporate.

 

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Due to the limited amount of time since the date of acquisition, the initial purchase price allocation has preliminarily been assigned based on the historical net book value of the assets acquired, with the remainder assigned to goodwill.

Acquisition of LeTourneau Technologies, Inc.

We completed the acquisition of LeTourneau Technologies, Inc. (“LeTourneau”) on June 22, 2011. LeTourneau historically operated in three businesses; mining equipment, steel products and drilling products. Subsequent to the acquisition, we entered into a definitive agreement to sell the drilling products business of LeTourneau and that transaction closed on October 24, 2011. 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 purchase price for the acquisition was as follows:

 

(in thousands)

      

Cash consideration

   $ 1,100,000   

Working capital purchase price adjustments

     (46,323
  

 

 

 
   $ 1,053,677   
  

 

 

 

The purchase price has been finalized, yet the allocation of the purchase price is subject to change for certain potential adjustments related to working capital. 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 finalizing the disposition of certain assets and liabilities related to the drilling products business. Adjustments have been made in the current quarter to reflect additional warranty liability, certain personnel related liabilities, and to update estimates related to the disposition of certain liabilities related to the drilling products business.

 

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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 fair value of the assets acquired and the liabilities assumed as of the acquisition date:

 

(in thousands)

      

Assets Acquired:

  

Cash and cash equivalents

   $ 4,769   

Accounts receivable

     52,910   

Inventories

     200,050   

Other current assets

     187   

Current assets of discontinued operations

     331,412   

Property, plant and equipment

     106,394   

Other intangible assets and goodwill

     554,253   

Other non-current assets

     2,776   

Non-current assets of discontinued operations

     233,096   
  

 

 

 

Total assets acquired

     1,485,847   

Liabilities Assumed:

  

Accounts payable

     (37,217

Employee compensation and benefits

     (10,576

Advance payments and progress billings

     (97,228

Other accrued liabilities

     (97,641

Current liabilities of discontinued operations

     (189,508
  

 

 

 

Total liabilities assumed

     (432,170
  

 

 

 
   $ 1,053,677   
  

 

 

 

The fair value for acquired assets was primarily determined based on discounted expected cash flows. Adjustments have been made to the above information from the preliminary purchase price allocation at October 28, 2011. Of the $554.3 million of intangible assets and goodwill related to continuing operations, $181.2 million has been assigned to intangible assets that are being amortized and $37.2 million has been assigned to trademarks which are not being amortized. The determination of the useful life was based on historical experience, economic factors, and future cash flows of the assets acquired. The intangible assets have been assigned to the following categories and are being amortized over a weighted-average useful life of 18 years:

 

(in thousands)

      

Customer relationships

   $ 76,500   

Patents

     69,900   

Unpatented technology

     31,600   

Backlog

     3,200   
  

 

 

 
   $ 181,200   
  

 

 

 

 

4. Inventories

Consolidated inventories consisted of the following:

 

(in thousands)

   January 27,
2012
     October 28,
2011
 

Finished goods

   $ 954,463       $ 832,730   

Work in process and purchased parts

     369,177         269,798   

Raw materials

     235,185         231,606   
  

 

 

    

 

 

 
   $ 1,558,825       $ 1,334,134   
  

 

 

    

 

 

 

IMM added $73.2 million to January 27, 2012 inventories.

 

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5. Warranties

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

 

     Quarter Ended  

(in thousands)

   January 27,
2012
    January 28,
2011
 

Balance, beginning of period

   $ 82,737      $ 62,351   

Accrual for warranty expensed during the period

     11,355        6,565   

Settlements made during the period

     (9,147     (8,430

Change in liability for pre-existing warranties during the period, including expirations

     10,841        144   

Effect of foreign currency translation

     (617     849   

Acquired warranty - IMM

     6,647        —     
  

 

 

   

 

 

 

Balance, end of period

   $ 101,816      $ 61,479   
  

 

 

   

 

 

 

An adjustment was made in the current quarter to reflect a $10.0 million change in the liability for pre-existing warranties related to the mining equipment business of LeTourneau, as noted in Note 3.

 

6. Borrowings and Credit Facilities

Direct borrowings and capital lease obligations consisted of the following:

 

(in thousands)

   January 27,
2012
    October 28,
2011
 

Term Loan due 2016

   $ 487,500      $ 493,750   

6.0% Senior Notes due 2016

     248,095        248,008   

6.625% Senior Notes due 2036

     148,447        148,441   

5.125% Senior Notes due 2021

     495,837        495,755   

Short-term notes payable and bank overdrafts

     15,570        4,140   

Capital leases and other

     1,600        2,213   
  

 

 

   

 

 

 
     1,397,049        1,392,307   

Less: Amounts due within one year

     (53,070     (35,895
  

 

 

   

 

 

 

Long-term obligations

   $ 1,343,979      $ 1,356,412   
  

 

 

   

 

 

 

We have a $700.0 million unsecured revolving credit facility (“Credit Agreement”) set to expire November 3, 2014. Under the terms of the Credit Agreement 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. 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% depending upon our credit rating) or the Base Rate (defined as the highest of the Prime Rate, Federal Funds Rate plus 0.5%, or Eurodollar Rate plus 1.0%) at our option. The Credit Agreement requires the maintenance of certain financial covenants including leverage and interest coverage ratios. The Credit Agreement also restricts payment of dividends or other return of capital when the consolidated leverage ratio exceeds a stated level amount. At January 27, 2012, 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.

 

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At January 27, 2012, there were no direct borrowings under the Credit Agreement. Outstanding letters of credit issued under the Credit Agreement, which count toward the $700.0 million credit limit, totaled $255.6 million. At January 27, 2012, there was $444.4 million available for borrowings under the Credit Agreement.

In November 2006, we issued $250.0 million aggregate principal amount of 6.0% Senior Notes due 2016 and $150.0 million aggregate principal amount of 6.625% Senior Notes due 2036 (the “Notes”) with interest on the Notes being paid semi-annually in arrears on May 15 and November 15 of each year, starting on May 15, 2007. The Notes are guaranteed by each of our current and future material domestic subsidiaries. The Notes were issued in a private placement under an exemption from registration provided by the Securities Act, as amended. In the second quarter of fiscal 2007, the Notes were exchanged for substantially identical notes that are registered under the Securities Act. At our option, we may redeem some or all of the Notes at a redemption price of the greater of 100% of the principal amount of the Notes to be redeemed or the sum of the present values of the principal amounts and the remaining scheduled interest payments using a discount rate equal to the sum of a treasury rate of a comparable treasury issue plus 0.3% for the 2016 Notes and 0.375% for the 2036 Notes.

On June 16, 2011, we entered into a credit agreement, which matures June 16, 2016, and provided for a $500.0 million term loan commitment (the “Term Loan”). The Term Loan requires quarterly principal payments that began in the fourth quarter of fiscal year 2011. The Term Loan contains terms and conditions that are substantially similar to the terms and conditions of the Credit Agreement. Outstanding borrowings bear interest equal to LIBOR (defined as applicable LIBOR rate for the equivalent interest period plus 1.25% to 2.125% depending upon our credit rating) or the Base Rate (defined as the highest of the Prime Rate, Federal Funds Rate plus 0.5%, or Eurodollar Rate plus 1.0%) at our option. The Term Loan is guaranteed by each of our current and future material domestic subsidiaries and requires the maintenance of certain financial covenants, including leverage and interest coverage ratios. At January 27, 2012, we were in compliance with all financial covenants of the Term Loan.

On July 11, 2011, in conjunction with the IMM share purchase agreement, we entered into a $1.5 billion senior unsecured bridge term loan facility (the “Bridge Loan Agreement”). The commitment under the Bridge Loan Agreement has been reduced pursuant to its terms by the value of open market purchases of IMM shares, cash deposits into escrow from the new 5.125% Senior Notes due October 15, 2021 (the “2021 Notes”), proceeds from the sale of LeTourneau’s drilling products business and voluntary reductions. At January 27, 2012, no amounts were outstanding under the Bridge Loan Agreement and we were in compliance with all financial covenants of the Bridge Loan Agreement. The Bridge Loan Agreement was subsequently terminated on February 10, 2012.

On October 12, 2011, we issued $500.0 million aggregate principal amount of the 2021 Notes at a discount of $4.2 million in an offering that was registered under the Securities Act. Interest on the 2021 Notes will be paid semi-annually in arrears on October 15 and April 15 of each year, starting on April 15, 2012 and the 2021 Notes are guaranteed by each of our current and future material domestic subsidiaries. At our option, we may redeem some or all of the 2021 Notes at a redemption price of the greater of 100% of the principal amount of the 2021 Notes to be redeemed or the sum of the present values of the principal amounts and the remaining scheduled interest payments using a discount rate equal to the sum of a treasury rate of a comparable treasury issue plus 0.5%.

On October 31, 2011, we entered into a credit agreement that provides for a further $250.0 million term loan commitment (the “Commitment”). The Commitment requires quarterly principal payments beginning in the second quarter of fiscal year 2012 and matures June 16, 2016. The Commitment contains terms and conditions that are substantially similar to the terms and conditions of the Credit Agreement and the Term Loan. Outstanding borrowings bear interest equal to LIBOR (defined as applicable LIBOR rate for the equivalent interest period plus 1.50% to 2.50% depending on our credit rating) or the Base Rate (defined as the highest of the Prime Rate, Federal Funds Rate plus 0.5%, or Eurodollar Rate plus 1.0%) at our option. The Commitment is guaranteed by each of our current and future material domestic subsidiaries and requires the maintenance of certain financial covenants, including leverage and interest coverage ratios. At January 27,

 

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2012, no amounts were outstanding under the Commitment and we were in compliance with all financial covenants of the Commitment. The Commitment was subsequently drawn in full on February 10, 2012, in conjunction with the settlement of the IMM tender offer.

 

7. Share-Based Compensation

We recognized total share-based compensation expense for the quarter ended January 27, 2012 and January 28, 2011 of approximately $7.2 million and $6.0 million, respectively.

Stock Options

 

     Number of
Options
    Weighted-
Average
Exercise
Price per
Share
     Aggregate
Intrinsic
Value

(In  Millions)
 

Outstanding at October 28, 2011

     1,834,348      $ 46.05       $ 82.8   

Options granted

     424,500        89.56      

Options exercised

     (160,489     27.80         9.5   

Options forfeited and cancelled

     (8,999     47.51      
  

 

 

   

 

 

    

Outstanding at January 27, 2012

     2,089,360      $ 56.18       $ 77.2   
  

 

 

   

 

 

    

 

 

 

Exercisable at January 27, 2012

     1,174,976      $ 37.91       $ 64.9   
  

 

 

   

 

 

    

 

 

 

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

 

     Quarter
Ended
January 27,
2012
 

Risk free interest rate

     0.39

Expected volatility

     44.92

Expected life in years

     3.73   

Dividend yield

     0.81

Weighted average estimated fair value at grant date

   $ 28.71   

Restricted Stock Units

 

     Number
of Units
    Weighted-
Average
Grant
Date Fair
Value
     Aggregate
Intrinsic
Value

(In  Millions)
 

Outstanding at October 28, 2011

     867,974      $ 48.32      

Units granted

     220,200        89.57      

Units earned from dividends

     2,357        73.05      

Units settled

     (59,278     28.67       $ 5.2   

Units deferred

     (25,252     34.87         2.2   

Units forfeited

     (7,987     61.51      
  

 

 

   

 

 

    

Outstanding at January 27, 2012

     998,014      $ 58.88      
  

 

 

   

 

 

    

 

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Performance Shares

 

     Number
of Shares
    Weighted-
Average
Grant
Date Fair
Value
     Aggregate
Intrinsic
Value
(In Millions)
 

Outstanding at October 28, 2011

     669,749      $ 38.38      

Shares granted

     101,900        89.62      

Shares distributed

     (450,855     21.69       $ 36.9   
  

 

 

   

 

 

    

Outstanding at January 27, 2012

     320,794      $ 78.11      
  

 

 

   

 

 

    

 

8. 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)

   January 27,
2012
    January 28,
2011
    January 27,
2012
    January 28,
2011
 

Service cost

   $ 5,413      $ 5,135      $ 250      $ 285   

Interest cost

     21,187        21,191        363        406   

Expected return on assets

     (24,423     (22,884     (90     (92

Amortization of:

        

Prior service cost

     361        344        13        12   

Actuarial loss (gain)

     12,083        8,787        (299     (384
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 14,621      $ 12,573      $ 237      $ 227   
  

 

 

   

 

 

   

 

 

   

 

 

 

The actuarial loss (gain) arises from differences in estimates and actual experiences for certain assumptions including changes in discount rate and expected return on assets. During fiscal 2012 we expect to contribute approximately $180.0 million to $190.0 million to our defined benefit employee pension plans.

 

9. 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 January 2014. Ineffectiveness related to these derivative contracts was recorded in the Condensed Consolidated Statement of Income as a gain of $1.2 million and an immaterial gain for the quarters ended January 27, 2012 and January 28, 2011, respectively.

 

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For derivative contracts that are designated and qualify as a fair value hedge, gain or loss is recorded in the Condensed Consolidated Statement of Income under the heading Cost of Sales. For the quarters ended January 27, 2012 and January 28, 2011, we recorded a $0.9 million loss and a $0.2 million loss, respectively, in the Condensed 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  
      

Amount of
Gain/(Loss)

Recognized

     Gain/(Loss) Reclassified
from AOCI into Earnings
 

Derivative Hedging Relationship

   in OCI      Location    Amount  

Foreign currency forward contracts

        

Quarter ended January 27, 2012

   $ 1,734       Cost of sales    $ 800   
      Sales      (234

Quarter ended January 28, 2011

   $ 1,469       Cost of sales    $ (822
      Sales      2,939   

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.

 

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10. Equity and Noncontrolling Interest

Changes in consolidated equity attributable to Joy Global Inc. and noncontrolling interest consisted of the following, net of taxes where applicable:

 

     Quarter Ended January 27, 2012     Quarter Ended January 28, 2011  
     Equity
Attributable
to Joy Global
Inc.
    Equity
Attributable to
Noncontrolling
Interests
    Total Equity     Equity
Attributable
to Joy Global
Inc.
    Equity
Attributable to
Noncontrolling
Interests
     Total Equity  

Beginning balance

   $ 1,951,795      $ —        $ 1,951,795      $ 1,342,366      $ —         $ 1,342,366   

Acquisition of controlling interest in IMM

     —          437,654        437,654        —          —           —     

Comprehensive income (loss):

             

Net income

     142,352        109        142,461        102,232        —           102,232   

Change in pension liability, net of taxes

     8,719        —          8,719        5,886        —           5,886   

Derivative instrument fair market value adjustment, net of taxes

     760        —          760        (422     —           (422

Currency translation adjustment

     7,316        —          7,316        4,653        —           4,653   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total comprehensive income:

     159,147        437,763        596,910        112,349        —           112,349   

Other changes in equity:

             

Cash dividends

     (18,397     —          (18,397     (18,133     —           (18,133

Purchase of IMM shares from noncontrolling interest

     —          (7,111     (7,111     —          —           —     

Other, including share based payment awards and options exercised

     18,489        —          18,489        67,716        —           67,716   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance

   $ 2,111,034      $ 430,652      $ 2,541,686      $ 1,504,298      $ —         $ 1,504,298   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

11. Basic and Diluted Net Income Per Share

Basic net income per share is computed by dividing net income attributable to Joy Global Inc. by the weighted-average number of shares outstanding during each period. Diluted net income per share is computed by dividing net income attributable to Joy Global Inc. by the weighted-average number of shares outstanding during each period, plus dilutive potential shares considered outstanding during the period.

 

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

 

     Quarter Ended  

(in thousands except per share data)

   January 27,
2012
    January 28,
2011
 

Numerator:

    

Income from continuing operations available to common shareholders

   $ 142,410      $ 102,232   

Loss from discontinued operations available to common shareholders

     (58     —     
  

 

 

   

 

 

 

Net income available to common shareholders

   $ 142,352      $ 102,232   
  

 

 

   

 

 

 

Denominator:

    

Denominator for basic net income per share -

    

Weighted average shares

     105,405        104,158   

Effect of dilutive securities:

    

Stock options, restricted stock units and performance shares

     1,347        1,885   
  

 

 

   

 

 

 

Denominator for diluted net income per share -

    

Adjusted weighted average shares and assumed conversions

     106,752        106,043   
  

 

 

   

 

 

 

Basic earnings per share:

    

Continuing operations

   $ 1.35      $ 0.98   

Discontinued operations

     —          —     
  

 

 

   

 

 

 

Net income

   $ 1.35      $ 0.98   
  

 

 

   

 

 

 

Diluted earnings per share:

    

Continuing operations

   $ 1.33      $ 0.96   

Discontinued operations

     —          —     
  

 

 

   

 

 

 

Net income

   $ 1.33      $ 0.96   
  

 

 

   

 

 

 

 

12. 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: Quoted prices in active markets for identical instruments

Level 2: Inputs, other than quoted prices in active markets that are observable for the instrument either directly or indirectly or quoted prices for similar instruments in active markets

Level 3: Unobservable inputs for the instrument 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.

 

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The following tables present the fair value hierarchy for those assets and liabilities measured at fair value and disclose the fair value of long-term obligations recorded at cost as of January 27, 2012 and October 28, 2011. As of January 27, 2012 and October 28, 2011, we did not have any level 3 assets or liabilities.

Fair Value Measurements

at January 27, 2012

 

(in thousands)

   Carrying
Value
     Total Fair
Value
     Level 1      Level 2  

Current Assets

           

Cash and cash equivalents

   $ 283,246       $ 283,246       $ 283,246       $ —     

Cash held in escrow

   $ 276,314       $ 276,314       $ 276,314       $ —     

Other Current Assets

           

Derivatives

   $ 10,792       $ 10,792       $ —         $ 10,792   

Other Accrued Liabilities

           

Derivatives

   $ 9,677       $ 9,677       $ —         $ 9,677   

Long-term Obligations Including Amounts due within One Year

           

6.0 % Senior Notes

   $ 248,095       $ 285,058       $ 285,058       $ —     

6.625% Senior Notes

   $ 148,447       $ 160,527       $ 160,527       $ —     

Term Loan due 2016

   $ 487,500       $ 481,114       $ —         $ 481,114   

5.125% Senior Notes

   $ 495,837       $ 543,000       $ 543,000       $ —     

Fair Value Measurements

at October 28, 2011

 

(in thousands)

   Carrying
Value
     Total Fair
Value
     Level 1      Level 2  

Current Assets

           

Cash and cash equivalents

   $ 288,321       $ 288,321       $ 288,321       $ —     

Cash held in escrow

   $ 866,000       $ 866,000       $ 866,000       $ —     

Other Current Assets

           

Derivatives

   $ 8,904       $ 8,904       $ —         $ 8,904   

Other Long-term Assets

           

Investment in unconsolidated affiliate

   $ 380,114       $ 371,802       $ 371,802       $ —     

Other Accrued Liabilities

           

Derivatives

   $ 4,004       $ 4,004       $ —         $ 4,004   

Long-term Obligations Including Amounts due within One Year

           

6.0 % Senior Notes

   $ 248,008       $ 281,878       $ 281,878       $ —     

6.625% Senior Notes

   $ 148,441       $ 164,504       $ 164,504       $ —     

Term Loan due 2016

   $ 493,750       $ 486,949       $ —         $ 486,949   

5.125% Senior Notes

   $ 495,755       $ 536,350       $ 536,350       $ —     

 

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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 based on the short-term nature of these instruments.

Cash held in escrow : The carrying value approximates fair value.

Derivatives : The fair value of forward foreign exchange contracts is based on a valuation model that discounts cash flows resulting from the differential between the contract price and the market-based forward rate.

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 our Term Loan is estimated using discounted cash flows and market conditions.

Investment in Unconsolidated Affiliate : The fair value of the investment is estimated based upon an active quoted market price at the respective period end. We obtained control of IMM on December 29, 2011 and the results of operations of IMM have been included with our Underground Mining Equipment segment from the acquisition date forward. See Note 3 for further information.

 

13. 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 reorganization of our predecessor Harnischfeger Industries, Inc. in 1999 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 was that our predecessor 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. That motion was denied and stricken by the court on November 22, 2011. Any appeal by DWD was due on December 22, 2011. DWD did not appeal and thus the case remains resolved in our favor and is over.

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

On January 27, 2012, we were contingently liable to banks, financial institutions, and others for approximately $281.7 million for outstanding letters of credit, bank guarantees, and surety bonds securing performance of sales contracts and other guarantees in the ordinary course of business. Of the $281.7

 

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million, approximately $15.8 million relates to surety bonds and $10.3 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.

 

14. Subsequent Events

On February 17, 2012, our Board of Directors declared a cash dividend of $0.175 per outstanding share of common stock. The dividend will be paid on March 19, 2012 to all shareholders of record at the close of business on March 5, 2012.

On February 3, 2012 we extended the previously announced tender offer for the outstanding shares and options of IMM to February 10, 2012. On February 10, 2012, we completed our tender offer. In the tender offer, IMM shareholders tendered approximately 384.9 million shares of IMM common stock, representing approximately 29.6% of the outstanding common stock of IMM, and elections to cancel approximately 17.9 million options to purchase IMM common stock, representing 100% of IMM options. We have accepted for purchase all tendered shares and elections to cancel options and have paid aggregate consideration for these securities of $426.8 million. The tender offer settlement was funded from cash held in escrow and our draw on February 10, 2012 of the full $250.0 million under the Commitment. In conjunction with the draw, the Bridge Loan Agreement was terminated.

The tender offer, combined with our prior purchases, resulted in our beneficial ownership of 1.3 billion IMM shares, or approximately 98.9% of the outstanding common stock, for total consideration of approximately $1.4 billion. We intend to effect the compulsory acquisition of the remaining IMM shares under applicable provisions of the Cayman Island Companies Law, under which IMM is incorporated. We expect to pay consideration of approximately $16.3 million, calculated at present exchange rates, to complete the compulsory acquisition. We currently expect to complete the compulsory acquisition of the remaining shares of IMM common stock in the third fiscal quarter of 2012. The combined effect of these transactions will result in our beneficial ownership of 100% of the common stock of IMM.

 

15. 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 consist of the surface applications of crushing and conveying included in both operating segments. On June 22, 2011 we completed the acquisition of LeTourneau. LeTourneau historically operated in three business segments, mining equipment, steel products, and drilling products. Results of mining equipment and steel products are included with our Surface Mining Equipment segment. The drilling products segment was sold on October 24, 2011 and results from the drilling products segment are classified as discontinued operations. On December 29, 2011, we obtained control of IMM. IMM is a leading designer and manufacturer of underground coal mining equipment in China. The results of operations for IMM have been included in the Underground Mining Machinery segment from the acquisition date forward.

 

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In thousands

   Underground
Mining
Machinery
     Surface
Mining
Equipment
     Corporate     Eliminations     Total  

Quarter ended January 27, 2012

            

Net sales

   $ 639,303       $ 532,306       $ —        $ (35,408   $ 1,136,201   

Operating income (loss)

     131,508         97,210         (6,859     (8,113     213,746   

Interest and reorganization items

     —           —           (16,077     —          (16,077
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

   $ 131,508       $ 97,210       $ (22,936   $ (8,113   $ 197,669   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Depreciation and amortization

   $ 9,975       $ 16,757       $ 47      $ —        $ 26,779   

Capital expenditures

   $ 15,926       $ 31,908       $ 1,601      $ —        $ 49,435   

Total assets

   $ 3,680,747       $ 2,031,243       $ 454,546      $ —        $ 6,166,536   

Quarter ended January 28, 2011

            

Net sales

   $ 510,938       $ 385,843       $ —        $ (27,249   $ 869,532   

Operating income (loss)

     95,371         75,885         (10,714     (6,744     153,798   

Interest and reorganization items

     —           —           (4,421     —          (4,421
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

   $ 95,371       $ 75,885       $ (15,135   $ (6,744   $ 149,377   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Depreciation and amortization

   $ 10,188       $ 5,617       $ 57      $ —        $ 15,862   

Capital expenditures

   $ 19,703       $ 8,699       $ —        $ —        $ 28,402   

Total assets

   $ 1,846,120       $ 872,081       $ 637,676      $ —        $ 3,355,877   

 

16. Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) No. 2011-08, “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment.” ASU No. 2011-08 provides us the option to perform a qualitative assessment to determine whether further goodwill impairment testing is necessary. If, as a result of the qualitative assessment, it is determined that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, the two-step quantitative impairment test is required. Otherwise, no further testing is required. ASU 2011-08 will be effective for the goodwill impairment tests performed in fiscal 2013, with early adoption permitted. The adoption is not expected to have any impact on our financial condition or results of operations.

In June 2011, the FASB issued 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.

 

17. Subsidiary Guarantors

The following tables present condensed consolidated financial information of continuing operations as of January 27, 2012 and October 28, 2011 and for the quarter ended January 27, 2012 and January 28, 2011 for: (a) the Company; (b) on a combined basis, the guarantors of the Credit Agreement, the Term Loan, the Bridge Loan 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

 

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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”).

The borrowings are fully and unconditionally guaranteed on a joint and several unsecured basis by the Subsidiary Guarantors, which are direct and indirect wholly-owned subsidiaries of Joy Global Inc. We conduct all of our business and derive essentially all of our income from our subsidiaries. Therefore, our ability to make payments on the obligations is dependent on the earnings and distribution of funds from our subsidiaries. There are no restrictions on the ability of any of our domestic subsidiaries to transfer funds to the Parent Company. Separate financial statements of the Subsidiary Guarantors are not presented because we believe such separate statements or disclosures would not be useful to investors.

Condensed Consolidating Statement of Income

Quarter Ended January 27, 2012

(In thousands)

 

     Parent
Company
    Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales

   $ —        $ 708,243      $ 751,944      $ (323,986   $ 1,136,201   

Cost of sales

     —          489,349        537,889        (254,462     772,776   

Product development, selling and administrative expenses

     26,995        82,703        61,658        —          171,356   

Other (income) expense

     —          7,864        (29,541     —          (21,677
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (26,995     128,327        181,938        (69,524     213,746   

Intercompany items

     14,723        (7,435     (32,753     25,465        —     

Interest income (expense) - net

     (16,693     102        514        —          (16,077

Reorganization items

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes and equity

     (28,965     120,994        149,699        (44,059     197,669   

Provision (benefit) for income taxes

     (13,242     47,367        21,025        —          55,150   

Equity in income (loss) of subsidiaries

     158,242        57,563        —          (215,805     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     142,519        131,190        128,674        (259,864     142,519   

Income from continuing operations attributable to non-controlling interest

     (109     —          (109     109        (109
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations attributable to Joy Global Inc.

   $ 142,410      $ 131,190      $ 128,565      $ (259,755   $ 142,410   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidating Statement of Income

Quarter Ended January 28, 2011

(In thousands)

 

     Parent
Company
    Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales

   $ —        $ 532,140      $ 518,202      $ (180,810   $ 869,532   

Cost of sales

     —          358,535        368,832        (143,236     584,131   

Product development, selling and administrative expenses

     10,688        64,009        57,433        —          132,130   

Other (income) expense

     —          19,113        (19,640     —          (527
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (10,688     90,483        111,577        (37,574     153,798   

Intercompany items

     11,634        (14,430     (16,213     19,009        —     

Interest income (expense) - net

     (7,483     870        2,227        —          (4,386

Reorganization items

     (35     —          —          —          (35
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes and equity

     (6,572     76,923        97,591        (18,565     149,377   

Provision (benefit) for income taxes

     (6,830     33,848        20,127        —          47,145   

Equity in income (loss) of subsidiaries

     101,974        28,667        —          (130,641     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

   $ 102,232      $ 71,742      $ 77,464      $ (149,206   $ 102,232   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidating Balance Sheets:

As of January 27, 2012

(In thousands)

 

     Parent
Company
     Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

ASSETS

            

Current assets

   $ 421,828       $ 1,287,747       $ 1,997,102      $ (274,507   $ 3,432,170   

Property, plant and equipment-net

     3,084         342,637         316,752        —          662,473   

Intangible assets-net

     —           822,199         1,081,099        —          1,903,298   

Other assets

     3,788,077         2,042,442         1,040,619        (6,702,543     168,595   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 4,212,989       $ 4,495,025       $ 4,435,572      $ (6,977,050   $ 6,166,536   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

            

Current liabilities

   $ 44,684       $ 887,915       $ 1,077,540      $ (135,483   $ 1,874,656   

Current liabilities of discontinued operation

     —           51,132         (25,046     —          26,086   

Long-term debt

     1,342,379         1,533         67        —          1,343,979   

Accrued pension costs

     282,190         7,252         6,967        —          296,409   

Other non-current liabilities

     2,050         13,491         68,179        —          83,720   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities

     1,671,303         961,323         1,127,707        (135,483     3,624,850   

Shareholders’ equity attributable to Joy Global Inc.

     2,541,686         3,533,702         2,877,213        (6,841,567     2,111,034   

Noncontrolling interest

     —           —           430,652        —          430,652   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total equity

     2,541,686         3,533,702         3,307,865        (6,841,567     2,541,686   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 4,212,989       $ 4,495,025       $ 4,435,572      $ (6,977,050   $ 6,166,536   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

As of October 28, 2011

(In thousands)

 

     Parent
Company
     Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

ASSETS

             

Current assets

   $ 1,053,875       $ 1,224,326       $ 1,508,026       $ (222,220   $ 3,564,007   

Property, plant and equipment-net

     1,530         324,505         213,536         —          539,571   

Intangible assets-net

     —           792,972         20,947         —          813,919   

Other assets

     2,632,946         1,966,826         1,182,149         (5,273,064     508,857   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 3,688,351       $ 4,308,629       $ 2,924,658       $ (5,495,284   $ 5,426,354   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

             

Current liabilities

   $ 61,269       $ 909,006       $ 854,915       $ (100,619   $ 1,724,571   

Long-term debt

     1,354,704         1,638         70         —          1,356,412   

Accrued pension costs

     318,173         6,950         7,329         —          332,452   

Other non-current liabilities

     2,410         9,373         49,341         —          61,124   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     1,736,556         926,967         911,655         (100,619     3,474,559   

Shareholders’ equity attributable to Joy Global Inc.

     1,951,795         3,381,662         2,013,003         (5,394,665     1,951,795   

Noncontrolling interest

     —           —           —           —          —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     1,951,795         3,381,662         2,013,003         (5,394,665     1,951,795   

Total liabilities and shareholders’ equity

   $ 3,688,351       $ 4,308,629       $ 2,924,658       $ (5,495,284   $ 5,426,354   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidating Statement of Cash Flows:

Quarter Ended January 27, 2012

(In thousands)

 

     Parent
Company
    Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    Consolidated  

Net cash provided (used) by operating activities – continuing operations

   $ (19,035   $ 28,333      $ (23,442   $ (14,144

Net cash used by operating activities – discontinued operations

     —          —          (4,363     (4,363
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided (used) by operating activities

     (19,035     28,333        (27,805     (18,507

Investing Activities:

        

Acquisition of controlling interest in IMM, net of cash acquired

     (589,686     —          75,925        (513,761

Withdrawal of cash held in escrow

     589,686        —          —          589,686   

Other

     (1,641     (31,666     (15,977     (49,284
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided (used) by investing activities – continuing operations

     (1,641     (31,666     59,948        26,641   

Net cash used by investing activities – discontinued operations

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided (used) by investing activities

     (1,641     (31,666     59,948        26,641   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used by financing activities – continuing operations

     (6,799     (100     (4,221     (11,120

Net cash used by financing activities – discontinued operations

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used by financing activities

     (6,799     (100     (4,221     (11,120
  

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     —          —          (2,089     (2,089
  

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (27,475     (3,433     25,833        (5,075

Cash and cash equivalents at beginning of period

     100,181        16,152        171,988        288,321   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 72,706      $ 12,719      $ 197,821      $ 283,246   
  

 

 

   

 

 

   

 

 

   

 

 

 

Quarter Ended January 28, 2011

(In thousands)

 

     Parent
Company
    Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    Consolidated  

Net cash provided (used) by operating activities

   $ 9,276      $ 33,613      $ (49,866   $ (6,977

Net cash used by investing activities

     (109     (16,536     (11,704     (28,349

Net cash provided by financing activities

     34,955        —          3,030        37,985   

Effect of exchange rate changes on cash and cash equivalents

     —          —          1,306        1,306   
  

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     44,122        17,077        (57,234     3,965   

Cash and cash equivalents at beginning of period

     439,295        16,262        360,024        815,581   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 483,417      $ 33,339      $ 302,790      $ 819,546   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

18. Supplemental Subsidiary Guarantors

The following tables present condensed consolidated financial information as of January 27, 2012 and October 28, 2011 and for the quarter ended January 27, 2012 for: (a) the Company; (b) on a combined basis, the guarantors of the 2021 Notes issued in October 2011, which include Joy Technologies Inc., P&H Mining Equipment Inc., N.E.S. Investment Co., Continental Crushing & Conveying Inc. and LeTourneau Technologies, Inc. (the “Supplemental Subsidiary Guarantors”); and (c) on a combined basis, the non-guarantors, which include all of our foreign subsidiaries and a number of small domestic subsidiaries (“Non-Guarantor Subsidiaries”).

 

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Table of Contents

The borrowings are fully and unconditionally guaranteed on a joint and several unsecured basis by the Supplemental Subsidiary Guarantors, which are direct and indirect wholly owned subsidiaries of Joy Global Inc. We conduct all of our business and derive essentially all of our income from our subsidiaries. Therefore, our ability to make payments on the obligations is dependent on the earnings and distribution of funds from our subsidiaries. There are no restrictions on the ability of any of our domestic subsidiaries to transfer funds to the Parent Company. Separate financial statements of the Supplemental Subsidiary Guarantors are not presented because we believe such separate statements or disclosures would not be useful to investors.

Condensed Consolidating Statement of Income

Quarter Ended January 27, 2012

(In thousands)

 

     Parent
Company
    Supplemental
Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales

   $ —        $ 692,872      $ 767,315      $ (323,986   $ 1,136,201   

Cost of sales

     —          478,418        548,820        (254,462     772,776   

Product development, selling and administrative expenses

     26,995        80,815        63,546        —          171,356   

Other (income) expense

     —          7,970        (29,647     —          (21,677
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (26,995     125,669        184,596        (69,524     213,746   

Intercompany items

     14,723        (7,435     (32,753     25,465        —     

Interest income (expense) - net

     (16,693     110        506        —          (16,077

Reorganization items

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes and equity

     (28,965     118,344        152,349        (44,059     197,669   

Provision (benefit) for income taxes

     (13,242     47,334        21,058        —          55,150   

Equity in income (loss) of subsidiaries

     158,242        57,563        —          (215,805     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     142,519        128,573        131,291        (259,864     142,519   

Income from continuing operations attributable to non-controlling interest

     (109     —          (109     109        (109
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations attributable to Joy Global Inc.

   $ 142,410      $ 128,573      $ 131,182      $ (259,755   $ 142,410   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidating Balance Sheets:

As of January 27, 2012

(In thousands)

 

     Parent
Company
     Supplemental
Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

ASSETS

            

Current assets

   $ 421,828       $ 1,241,080       $ 2,043,769      $ (274,507   $ 3,432,170   

Property, plant and equipment-net

     3,084         334,838         324,551        —          662,473   

Intangible assets-net

     —           822,199         1,081,099        —          1,903,298   

Other assets

     3,788,077         2,042,389         1,040,672        (6,702,543     168,595   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 4,212,989       $ 4,440,506       $ 4,490,091      $ (6,977,050   $ 6,166,536   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

            

Current liabilities

   $ 44,684       $ 880,724       $ 1,084,731      $ (135,483   $ 1,874,656   

Current liabilities of discontinued operation

     —           51,132         (25,046     —          26,086   

Long-term debt

     1,342,379         1,533         67        —          1,343,979   

Accrued pension costs

     282,190         7,252         6,967        —          296,409   

Other non-current liabilities

     2,050         13,491         68,179        —          83,720   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities

     1,671,303         954,132         1,134,898        (135,483     3,624,850   

Shareholders’ equity attributable to Joy Global Inc.

     2,541,686         3,486,374         2,924,541        (6,841,567     2,111,034   

Noncontrolling Interest

     —           —           430,652        —          430,652   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total equity

     2,541,686         3,486,374         3,355,193        (6,841,567     2,541,686   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 4,212,989       $ 4,440,506       $ 4,490,091      $ (6,977,050   $ 6,166,536   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

As of October 28, 2011

(In thousands)

 

     Parent
Company
     Supplemental
Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

ASSETS

             

Current assets

   $ 1,053,875       $ 1,180,749       $ 1,551,603       $ (222,220   $ 3,564,007   

Property, plant and equipment-net

     1,530         316,377         221,664         —          539,571   

Intangible assets-net

     —           792,972         20,947         —          813,919   

Other assets

     2,632,946         1,966,826         1,182,149         (5,273,064     508,857   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 3,688,351       $ 4,256,924       $ 2,976,363       $ (5,495,284   $ 5,426,354   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

             

Current liabilities

   $ 61,269       $ 900,871       $ 863,050       $ (100,619   $ 1,724,571   

Long-term debt

     1,354,704         1,638         70         —          1,356,412   

Accrued pension costs

     318,173         6,950         7,329         —          332,452   

Other non-current liabilities

     2,410         9,373         49,341         —          61,124   

Shareholders’ equity

     1,951,795         3,338,092         2,056,573         (5,394,665     1,951,795   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 3,688,351       $ 4,256,924       $ 2,976,363       $ (5,495,284   $ 5,426,354   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidating Statement of Cash Flows:

Quarter Ended January 27, 2012

(In thousands)

 

     Parent
Company
    Supplemental
Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    Consolidated  

Net cash provided (used) by operating activities – continuing operations

   $ (19,035   $ 24,921      $ (20,030   $ (14,144

Net cash used by operating activities – discontinued operations

     —          —          (4,363     (4,363
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided (used) by operating activities

     (19,035     24,921        (24,393     (18,507

Investing Activities:

        

Acquisition of controlling interest in IMM, net of cash acquired

     (589,686     —          75,925        (513,761

Withdrawal of cash held in escrow

     589,686        —          —          589,686   

Other

     (1,641     (31,635     (16,008     (49,284
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided (used) by investing activities – continuing operations

     (1,641     (31,635     59,917        26,641   

Net cash used by investing activities – discontinued operations

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided (used) by investing activities

     (1,641     (31,635     59,917        26,641   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used by financing activities – continuing operations

     (6,799     (100     (4,221     (11,120

Net cash used by financing activities – discontinued operations

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used by financing activities

     (6,799     (100     (4,221     (11,120
  

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     —          —          (2,089     (2,089
  

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (27,475     (6,814     29,214        (5,075

Cash and cash equivalents at beginning of period

     100,181        16,152        171,988        288,321   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 72,706      $ 9,338      $ 201,202      $ 283,246   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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

The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes to the Condensed Consolidated Financial Statements in Item 1 of this report. Dollar amounts are in thousands, except share and per share data and as indicated.

Overview

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

International Mining Machinery

On July 11, 2011, we entered into a Share Purchase Agreement (“SPA”) with TJCC Holdings Limited, a corporation controlled by The Jordan Company, L.P., to acquire 534.8 million shares of common stock, or approximately 41.1%, of IMM, for HKD8.50 per share. IMM is a leading designer and manufacturer of underground coal mining equipment in China. On July 28, 2011, August 16, 2011 and September 2, 2011 we purchased approximately 136.5 million, 102.0 million and 127.2 million shares, respectively, of IMM for a total of $376.7 million. These shares were purchased on the open market and represented approximately 28.1% of the total outstanding shares of IMM. On December 20, 2011, the Anti-monopoly Bureau of the Ministry of Commerce (“MOFCOM”) approved the purchase of IMM shares covered by the SPA and the acquisition closed on December 29, 2011 for $584.6 million. At such time, we acquired a controlling interest of approximately 69.2% of IMM’s outstanding common stock and we recognized a $19.4 million gain on the re-measurement of our pre-existing equity interest in IMM. On January 6, 2012 in accordance with Rule 26.1 of the Hong Kong Takeovers Code we commenced an unconditional cash tender offer to purchase the outstanding IMM shares and options to purchase IMM shares that we did not own at a per share purchase price of HKD8.50 or, for options, the amount by which HKD8.50 exceeded the exercise price for each option. On February 3, 2012, the original expiration date, we extended that tender offer to February 10, 2012. On February 10, 2012, we completed the tender offer. As a result of the tender offer, we beneficially own approximately 98.9% of the outstanding common stock, for which we have paid approximately $1.4 billion. The purchase of shares acquired in the tender offer was funded from cash held in escrow and borrowings under the October 31, 2011 term loan commitment drawn on February 10, 2012. We intend to effect the compulsory acquisition of the remaining shares under applicable provisions of the Cayman Island Companies Law, under which IMM is incorporated. We expect to pay consideration of approximately $16.3 million, calculated at present exchange rates, to complete the compulsory acquisition. We expect to complete the compulsory acquisition of the remaining shares in our third fiscal quarter of 2012. The combined effect of these transactions will result in our ownership of 100% of the common stock of IMM. We adjusted our estimated share of income from our equity investment prior to obtaining control and recognized $0.8 million, which includes a reduction of $0.6 million related to the acceleration of share based payment expense on the change of control, of equity income during the first quarter of 2012.

 

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Table of Contents

Operating Results

Bookings in the first quarter of 2012 were approximately $1.4 billion, an increase of 16.8% from the prior year first quarter. Original equipment bookings increased $41.6 million or 6.5%, while aftermarket bookings increased $164.9 million or 28.1% as parts, service and rebuild orders remain strong across most regions. The Surface Mining Equipment segment original equipment bookings excluding LeTourneau increased 80.7% when compared to the prior year first quarter with strong orders in South America and South Africa. Original equipment orders for the Underground Mining Machinery segment decreased as a result of a significant Australian booking in the prior year’s first quarter that did not repeat in the current year. Foreign currency translation unfavorably impacted bookings by $9.3 million when compared to the prior year first quarter.

Net sales in the first quarter of 2012 were approximately $1.1 billion, an increase of 30.7% from the prior year, which includes a $96.2 million increase in aftermarket sales and a $170.5 million increase in original equipment sales. Sales increased in most regions for both segments. Foreign currency translation unfavorably impacted sales by $3.9 million when compared to the first quarter of the prior year.

Operating profit in the first quarter of 2012 increased $59.9 million to $213.7 million, an increase of 39.0%, as a result of higher sales volume, favorable manufacturing overhead absorption and favorable price realization. These benefits were partially offset by higher product development, selling and administrative expenses, including $14.3 million of acquisition related costs.

The results of LeTourneau’s mining equipment business are included with our Surface Mining Equipment segment. For the first quarter, LeTourneau’s mining equipment business had bookings of $84.3 million, net sales of $78.3 million and operating income of $3.1 million. Operating income was reduced by $9.1 million for purchase accounting charges, of which $5.1 million was attributable to acquired inventories.

The results of IMM are included with our Underground Mining Machinery segment. For the four week period during the first quarter in which the results of IMM are consolidated, IMM had bookings of $15.5 million, net sales of $10.5 million and operating income of $0.5 million. Operating income was reduced by $0.3 million for purchase accounting charges.

Net income from continuing operations attributable to Joy Global was $142.4 million, or $1.33 per diluted share in the first quarter of 2012 compared to $102.2 million or $0.96 per diluted share in 2011.

Market Outlook

The end markets for the commodities that are mined by the Company’s customers are defined by an improving global economic outlook on one hand and mild winter weather in North America on the other. Improvements in the U.S. economy as well as evidence of a “soft landing” in China, are giving confidence to commodity markets despite potential lingering headwinds from the Eurozone debt crises.

While some 2012 economic forecasts were revised downward in the second half of 2011, the overall emerging market growth story remains intact. The Chinese economy performed stronger than expected in the fourth quarter at almost 9% annual growth, and should continue to drive commodity demand. The build out of the western electricity grid and social housing programs will further support double digit year-over-year growth in Chinese industrial production. In addition, Japan’s industrial production is expected to rebound by 5% over last year. Finally, global manufacturing improved through the second half of 2011, and provides increasing support to commodity markets.

Copper prices have increased almost 13% this year to $3.97 per pound as uncertainty surrounding Eurozone debt issues abates and positive economic news comes from the U.S. Global copper demand grew an estimated 4% in 2011, with China’s consumption increasing by 8% to 7.8 million tonnes. In 2012, global copper demand is forecasted to rise 2%, driven by a 7% increase in Chinese demand. Chinese demand was met by destocking in 2011, and current inventory levels signal a need for an extended restocking in 2012, which will add to end-use demand.

 

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Global steel production declined in the final months of 2011, led by a sharp decline in China. The decline in China steel production was coincident with a similar decline in dealer inventories as the result of credit tightening policies. With recently relaxed credit policies, dealers are expected to replenish their steel inventories in 2012 and this will add support to demand for met coal and iron ore.

Seaborne thermal coal markets remain strong, supported by Chinese and Indian imports. In 2011, China’s coal-fired power generation rose 14%, resulting in record imports of 182 million tonnes. India’s coal-fired power generation rose 9% year-over-year in 2011, supporting a 35% increase in thermal coal imports to nearly 85 million tonnes for the year. An estimated 90 gigawatts of coal-fired power generating capacity is under construction globally and will require more than 300 million tonnes of additional coal.

Extremely low natural gas prices and unusually mild winter weather have reduced coal demand at electrical utilities in the U.S. Much of this power demand loss was offset by exports, which reached their highest levels since 1991 at 107 million metric tons. Metallurgical coal exports for the year reached nearly 70 million short tons. The most notable factor for 2011 exports was the 45% increase in thermal coal exports. 2011 U.S. coal exports benefitted from supply constraints due to flooding in Australia that caused consumers in India, Japan and South Korea to look to alternative supplies. U.S. exports are expected to return to more normalized levels in 2012 as Australian production returns to the seaborne market. With slowing export growth and low demand for power generation, some U.S. producers have announced production cuts and mine closures. Conversely, U.S. producers are investing in lowering their overall production costs by expanding their better, lower cost mines. They also continue to invest in expansion of port capacity in anticipation of increased demand for U.S. exports into both the Atlantic and the Pacific seaborne markets.

Company Outlook

With global mining at high levels of capacity utilization and an improving global economic outlook, the Company’s mining customers expect organic growth projects to provide the highest returns on capital. As a result, international miners have announced increases in their capital expenditures for 2012 by over 15%, led by the major diversified mining houses whose capital budgets are increasing by more than 20%. International capital expenditures are going into new mine and mine expansion projects primarily for coal in China, Australia and Russia; for copper in South America; and for iron ore in Africa and South America.

Capital expenditure budgets for U.S. mining customers are also up in 2012, although more modestly at 5%. These capital expenditures are primarily focused on expanding port facilities to increase coal exports and for selected production expansion at lower cost mines to rebalance their mine portfolios and lower production costs.

 

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Results of Operations

Quarter Ended January 27, 2012 to Quarter Ended January 28, 2011

Net Sales

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

 

     Quarter Ended        

In thousands

   January 27,
2012
    January 28,
2011
    $ Change     % Change  

Net Sales

        

Underground Mining Machinery

   $ 639,303      $ 510,938      $ 128,365        25.1   

Surface Mining Equipment

     532,306        385,843        146,463        38.0   

Eliminations

     (35,408     (27,249     (8,159     (29.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,136,201      $ 869,532      $ 266,669        30.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

First quarter 2012 Underground Mining Machinery net sales were $639.3 million, compared to $510.9 million in the prior year first quarter and included a $79.3 million increase in original equipment sales and a $49.1 million increase in aftermarket sales. IMM added $10.5 million of sales to the first quarter. The increase in original equipment is related to increased sales in Australasia, Eurasia and in the United States partially offset by lower sales in China. Aftermarket sales increased in all regions with the exception of South Africa. Parts sales increased $36.2 million from the prior year on strong demand from the United States, Australasia and China. Foreign currency translation unfavorably impacted sales by $2.6 million.

First quarter 2012 Surface Mining Equipment net sales were $532.3 million, compared to the $385.8 million in the prior year first quarter and included a $95.8 million increase in original equipment sales and a $50.7 million increase in aftermarket sales. The mining equipment business of LeTourneau added $78.3 million of sales during the quarter. Original equipment sales were up in all regions and were led by increased sales in South America and South Africa. The increase in aftermarket sales is primarily related to parts sales in North and South America partially offset by decreased parts and service sales in Australia and South Africa. Foreign currency translation unfavorably impacted sales by $1.3 million.

Operating Income

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

 

     Quarter Ended  
     January 27, 2012      January 28, 2011  

In thousands

   Operating
Income
(loss)
    % of
Net
Sales
     Operating
Income
(loss)
    % of
Net
Sales
 

Underground Mining Machinery

   $ 131,508        20.6       $ 95,371        18.7   

Surface Mining Equipment

     97,210        18.3         75,885        19.7   

Corporate Expense

     (6,859     —           (10,714     —     

Eliminations

     (8,113     —           (6,744     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 213,746        18.8       $ 153,798        17.7   
  

 

 

   

 

 

    

 

 

   

 

 

 

Operating income for the Underground Mining Machinery segment was $131.5 million in the first quarter of 2012 compared to $95.4 million in the first quarter of 2011. Operating income, which includes $0.5 million from IMM, net of purchase accounting charges of $0.3 million, was favorably impacted by $43.7 million due to higher sales volumes, $3.6 million in favorable price realization and $2.8 million due to favorable manufacturing overhead absorption. These increases were partially offset by an increase of $6.3 million in product development, selling and administrative expenses.

 

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Operating income for the Surface Mining Equipment segment was $97.2 million in the first quarter of 2012, compared to $75.9 million in the first quarter of 2011. Operating income, which includes $3.1 million from LeTourneau’s mining equipment business, net of excess purchase accounting charges of $5.9 million, was favorably impacted by $24.0 million due to higher sales volumes. Operating income was unfavorably impacted by increased product development and selling and administrative expense of $5.4 million.

Corporate expense decreased from $10.7 million in the first quarter of 2011 to $6.9 million in the first quarter of 2012. The decrease is the result of a gain of $19.4 million on the re-measurement of our equity interest in IMM and the recording of equity income in IMM of $0.8 million which was partially offset by increased acquisition costs of $14.3 million and increased incentive and performance based compensation of $1.2 million.

Product Development, Selling and Administrative Expense

Product development, selling and administrative expense totaled $171.4 million, or 15.1% of sales, compared to $132.1 million, or 15.2% of sales, in the first quarter of 2011. Excluding acquisition costs of $14.3 million in 2012, product development, selling and administrative expenses totaled $157.1 million, or 13.8% of sales. Product development costs increased in the first quarter by $6.9 million primarily due to increased personnel costs. Selling costs increased in the quarter by $4.6 million due to the inclusion of $2.4 million from the LeTourneau mining equipment business and warehousing costs which was partially offset by decreased advertising and promotion costs. Administrative expense, excluding acquisition costs, increased by $13.2 million, primarily due to professional service fees, incentive and performance based compensation and increased retiree related expenses.

Provision for Income Taxes

Income tax expense from continuing operations was $55.2 million in the first quarter of 2012 as compared to $47.1 million in the first quarter of 2011. The effective income tax rate was 27.9% in the first quarter of 2012 compared to 31.6% in the first quarter of 2011. The reduction in the tax rate is primarily attributable to permanent tax differences arising from the share gain and acquisition costs associated with the IMM transaction, and other discrete tax benefits recorded during the quarter. The effective income tax rate excluding discrete tax adjustments was 31.0%.

Bookings and Backlog

Bookings represent the cumulative amounts receivable under new original equipment and aftermarket contracts exclusive of Life Cycle Management arrangements awarded to us during the reporting period. We record bookings when firm orders are received and adds the amount of bookings in a period to our backlog. Bookings for the first quarter of 2012 and 2011 are the following:

 

     Quarter Ended              

In thousands

   January 27,
2012
    January 28,
2011
    $ Change     % Change  

Underground Mining Machinery

   $ 822,069      $ 821,430      $ 639        0.1   

Surface Mining Equipment

     696,270        436,063        260,207        59.7   

Eliminations

     (84,418     (30,019     (54,399     181.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Bookings

   $ 1,433,921      $ 1,227,474      $ 206,447        16.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Underground Mining Machinery original equipment orders, which included $12.0 million from IMM, decreased $83.8 million compared to the prior year quarter. The decrease in original equipment orders is due to a significant order in Australasia in the prior year quarter, which was only partially offset by several smaller orders in Australasia and the United States in the current quarter. Original equipment orders for Surface Mining Equipment increased $164.8 million compared to the prior year quarter of which $48.8 million was provided by LeTourneau. Increased new equipment orders were received from customers primarily in South America and South Africa. Foreign currency translation unfavorably impacted original equipment bookings by $2.2 million.

 

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Underground Mining Machinery aftermarket bookings increased $84.4 million compared to the prior year quarter and were led by higher rebuild and parts orders in the United States and increased parts demand in Australasia and China. IMM aftermarket bookings added $3.5 million to the first quarter total. Surface Mining Equipment aftermarket orders increased $95.4 million compared to the prior year quarter of which $35.5 million was provided by LeTourneau. Aftermarket orders increased in all regions, with North and South America leading the way. Foreign currency translation unfavorably impacted aftermarket bookings by $7.1 million.

Backlog as of January 27, 2012 and October 28, 2011 is as follows:

 

In thousands

   January 27,
2012
    October 28,
2011
 

Underground Mining Machinery

   $ 1,969,277      $ 1,739,932   

Surface Mining Equipment

     1,716,594        1,560,393   

Eliminations

     (115,325     (46,991
  

 

 

   

 

 

 

Total Backlog

   $ 3,570,546      $ 3,253,334   
  

 

 

   

 

 

 

Backlog increased by $317.2 million from October 28, 2011, and ended the first quarter at $3.6 billion. The increase in backlog is due to increased orders for original equipment and aftermarket products and the inclusion of $46.6 million related to IMM. Backlog does not include anticipated revenues from long-term maintenance and repair contracts.

Liquidity and Capital Resources

The following table reconciles trade working capital related to continuing operations to total working capital related to continuing operations as of January 27, 2012 and October 28, 2011, respectively.

 

In thousands

   January 27,
2012
    October 28,
2011
 

Accounts receivable

   $ 1,103,166      $ 884,696   

Inventories

     1,558,825        1,334,134   

Accounts payable

     (481,102     (452,519

Advance payments

     (901,863     (771,841
  

 

 

   

 

 

 

Trade Working Capital

   $ 1,279,026      $ 994,470   

Other current assets

     210,619        190,568   

Short-term notes payable

     (53,070     (35,895

Employee compensation and benefits

     (96,777     (147,664

Accrued warranties

     (101,816     (82,737

Other current liabilities

     (240,028     (206,588
  

 

 

   

 

 

 

Working Capital Excluding Cash and Cash Equivalents

   $ 997,954      $ 712,154   

Cash and Cash Equivalents

     283,246        288,321   
  

 

 

   

 

 

 

Working Capital (exclusive of cash held in escrow)

   $ 1,281,200      $ 1,000,475   
  

 

 

   

 

 

 

LeTourneau and IMM added $161.9 million and $233.8 million to trade working capital, respectively, at January 27, 2012.

 

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Table of Contents

We use trade working capital and cash flow from continuing operations as two financial measurements to evaluate the performance of our operations and our ability to meet our financial obligations. We require trade working capital investment because our service model requires us to maintain certain inventory levels to support our customers’ machine availability. This information also provides focus on our receivable terms and collection efforts and our ability to obtain advance payments on original equipment orders. As part of our continuous improvement of purchasing and manufacturing processes, we continue to strive for alignment of inventory levels with customer demand and current production schedules.

During the first quarter of 2012 cash used by continuing operating activities was $14.1 million compared to cash used by continuing operating activities of $7.0 million in the first quarter of 2011. The increase in cash used by operating activities is driven by increased inventory levels of $96.4 million to support increasing customer demand. This was partially offset by cash collected on accounts receivable and advance payments and progress billings of $26.9 million and $44.6 million, respectively.

During the first quarter of 2012 cash provided by continuing investing activities was $26.6 million compared to cash used by continuing investing activities of $28.3 million during the first quarter of 2011. The change in cash provided by continuing investing activities is the result of our acquisition of 541.3 million shares of IMM for $589.7 million being funded from cash held in escrow and our investment being reduced by $75.9 million for the cash acquired. The increase in cash used in capital spending is for the continued investment in our service center capabilities globally and our manufacturing capabilities in the emerging markets.

During the first quarter of 2012 cash used by continuing financing activities was $11.1 million compared to cash provided by continuing financing activities of $38.0 million during the first quarter of 2011. The primary driver for the change was the decrease in proceeds from share based payment awards of $33.7 million and the quarterly payment on our Term Loan of $6.3 million.

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

Retiree Benefits

For the first quarter of 2012 we have recognized $14.6 million of defined benefit pension expense compared to $12.6 million for the comparable prior year period. Through January 27, 2012, we have contributed $45.9 million to our defined benefit plans and we plan to contribute approximately $180.0 million to $190.0 million for 2012. The investment performance of the pension plans’ assets along with the movement in the discount rate used to calculate the pension plans’ liabilities will determine the amount and timing of additional contributions to the pension plans in subsequent years.

Share Repurchase Program

Our current share repurchase program expired on December 31, 2011. Other uses of cash, such as manufacturing and service expansion projects, and completed and potential acquisition opportunities associated with the planned growth of the business are taking a priority.

Credit Agreement

We have a $700.0 million unsecured revolving credit facility (the “Credit Agreement”) set to expire November 3, 2014. Under the terms of the Credit Agreement 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. 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% depending upon our credit rating) or the Base Rate (defined as the highest of the Prime Rate, Federal Funds Rate plus 0.5%, or Eurodollar Rate plus 1.0%) at our option. The Credit Agreement requires the maintenance of certain financial covenants including leverage and interest coverage ratios. The Credit

 

34


Table of Contents

Agreement also restricts payment of dividends or other return of capital when the consolidated leverage ratio exceeds a stated level amount. At January 27, 2012, 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.

Bridge Loan Agreement

On July 11, 2011 in conjunction with the IMM share purchase agreement, we entered into a $1.5 billion senior unsecured bridge term loan facility (the “Bridge Loan Agreement”). The commitment under the Bridge Loan Agreement has been reduced pursuant to its terms by the value of open market purchases of IMM shares, cash deposits into escrow from the new 5.125% Senior Notes due October 15, 2021 (the “2021 Notes”), sales proceeds from the sale of LeTourneau’s drilling products business and voluntary reductions. At January 27, 2012, no amounts were outstanding under the Bridge Loan Agreement and we were in compliance with all financial covenants of the Bridge Loan Agreement. The Bridge Loan Agreement was subsequently terminated on February 10, 2012.

Term Loan Agreement

On October 31, 2011, we entered into a credit agreement that provides for a further term loan commitment (the “Commitment”) of $250.0 million. The Commitment requires quarterly principal payments beginning in the second quarter of fiscal year 2012 and matures June 16, 2016. The Commitment contains terms and conditions that are substantially similar to the terms and conditions of the Credit Agreement and the Term Loan. Outstanding borrowings bear interest equal to the LIBOR (defined as applicable LIBOR rate for the equivalent interest period plus 1.50% to 2.50% depending on our credit rating) or the Base Rate (defined as the highest of the Prime Rate, Federal Funds Rate plus 0.5%, or Eurodollar Rate plus 1.0%) at our option. The Commitment is guaranteed by each of our current and future material domestic subsidiaries and requires the maintenance of certain financial covenants, including leverage and interest coverage ratios. At January 27, 2012, no amounts were outstanding under the Commitment and we were in compliance with all financial covenants of the Commitment. The Commitment was subsequently drawn in full on February 10, 2012 in conjunction with the settlement of the IMM tender offer.

Financial Condition

As of January 27, 2012, we had $283.2 million in cash and cash equivalents and $444.4 million available for borrowings under the Credit Agreement. Our current cash requirements include working capital, completion of the IMM share purchase agreement, defined benefit pension contributions, capital expenditures, dividends, principal payments, and interest payments. We will also continue to evaluate strategic acquisitions, including mining-related product line additions or service extensions. Based upon our current and forecasted level of operations, we believe that cash flows from operations, together with cash and cash equivalents on hand, available borrowings under the Credit Agreement and access to public markets will be adequate to meet our anticipated future cash requirements.

Off-Balance Sheet Arrangements

We lease various assets under operating leases. No significant changes to lease commitments have occurred since our year ended October 28, 2011. We have no other off-balance sheet arrangements, other than as noted in Note 13 to the Condensed Consolidated Financial Statements.

Critical Accounting Estimates, Assumptions and Policies

Our discussion and analysis of financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. We evaluate, on an ongoing basis, our estimates and

 

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Table of Contents

judgments, including those related to bad debts, excess inventory, warranty, intangible assets, income taxes, pension and postretirement benefits and costs, and contingencies. We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

We believe our accounting policies for revenue recognition, inventories, goodwill and other intangible assets, accrued warranties, pension and post-retirement benefits and costs, and income taxes are the ones that most frequently require us to make estimates and judgments, and therefore are critical to the understanding of our results of operations. See Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended October 28, 2011 for a discussion of these policies. There were no material changes to these policies during the first quarter of 2012.

Recent Accounting Pronouncements

Our new accounting pronouncements are set forth under Part I, Item 1 of this Quarterly Report on Form 10-Q and are incorporated by reference.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As more fully described in our Annual Report on Form 10-K for the year ended October 28, 2011, we are exposed to various types of market risks, primarily foreign currency risks and volatility in interest rates. We monitor our risks on a continuous basis and generally enter into forward foreign currency contracts to minimize our foreign currency exposures. We do not engage in speculation in our derivative strategies. Gains and losses from foreign currency contract activities are offset by changes in the underlying costs of the transactions being hedged. There have been no material changes to our primary market risk exposures or how such risks are managed since our year ended October 28, 2011.

 

Item 4. Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating to us, including our consolidated subsidiaries, is made known on a timely basis to the officers who certify our financial reports and to other members of senior management and the Board of Directors.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures are effective (1) in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and (2) to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There have not been any changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during our quarter ended January 27, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

No change.

 

Item 1A. Risk Factors

No change.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

  (a) Not applicable.

 

  (b) Not applicable.

 

  (c) Not applicable.

 

Item 3. Defaults upon Senior Securities

Not applicable.

 

Item 4. Mine Safety Disclosures

Not applicable.

 

Item 5. Other Information

Not applicable.

 

Item 6. Exhibits

 

10.1    Form of Nonqualified Stock Option Agreement, dated December 5, 2011, between the registrant and each of its executive officers in connection with nonqualified stock options granted under the Joy Global Inc. 2007 Stock Incentive Plan.
10.2    Form of Performance Share Agreement, dated December 5, 2011, between the registrant and each of its executive officers in connection with performance share awards granted under the Joy Global Inc. 2007 Stock Incentive Plan.
10.3    Form of Restricted Stock Unit Award Agreement, dated December 5, 2011, between the registrant and certain of its executive officers in connection with restricted stock unit awards granted under the Joy Global Inc. 2007 Stock Incentive Plan.
31.1    Chief Executive Officer Rule 13a-14(a)/15d-14(a) Certifications
31.2    Chief Financial Officer Rule 13a-14(a)/15d-14(a) Certifications
32    Section 1350 Certifications
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

37


Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  JOY GLOBAL INC.
  (Registrant)
 

/s/ Michael S. Olsen

Date: March 2, 2012   Michael S. Olsen
  Executive Vice President and Chief Financial Officer
  (Principal Financial Officer)
 

/s/ Ricky T. Dillon

Date: March 2, 2012   Ricky T. Dillon
  Vice President, Controller
  and Chief Accounting Officer
  (Principal Accounting Officer)

 

38

Exhibit 10.1

NONQUALIFIED STOCK OPTION AGREEMENT

THIS AGREEMENT is entered into as of December 5, 2011, between Joy Global Inc., a Delaware Corporation, (the “Company”) and (the “Employee”). In consideration of the mutual promises and covenants made in this Agreement and the mutual benefits to be derived from this Agreement, the Company and the Employee agree as follows:

 

  1. Grant of Stock Option .

 

  (a) Subject to the provisions of this Agreement and the provisions of the Joy Global Inc. 2007 Stock Incentive Plan (as amended from time to time, the “Plan”), the Company hereby grants to the Employee as of December 5, 2011, (the “Grant Date”) the right and option (the “Stock Option”) to purchase shares of common stock of the Company, par value $1.00 per share (“Common Stock”), at the exercise price of $89.65 per share, which was the Fair Market Value of one share of Common Stock on the Grant Date (the “Exercise Price”). The Stock Option is a Nonqualified Stock Option. Unless earlier terminated pursuant to the terms of this Agreement, the Stock Option shall expire on the tenth anniversary of the Grant Date. Capitalized terms used and not defined in this Agreement have the meanings given to them in the Plan.

 

  (b) Employee agrees to comply with the Company’s Executive Leadership Team Stock Ownership Policy, which is attached as Exhibit 1, with respect to Stock Options awarded under this Agreement.

 

  (c) If for any reason the Employee does not acknowledge and accept this Agreement by 5:00 p.m. Milwaukee time on December 4, 2012, then (1) the Employee shall be considered to have declined the grant of the Stock Option, (2) the Company’s grant of the Stock Option shall be deemed automatically rescinded and the Stock Option shall be null and void and (3) the Employee’s acceptance of this Agreement after such time shall have no legal effect and the Company shall not be bound by any such acceptance.


2. Exercisability of the Stock Option . The Stock Option shall become vested and exercisable as follows: one-third of the shares covered thereby (rounded up to the next whole share) on December 5, 2012 an additional one-third of such shares (rounded up to the next whole share) on December 5, 2013, and the remainder of such shares on December 5, 2014, subject in each case to the prior termination of the Stock Option. Notwithstanding the foregoing, the Stock Option, to the extent outstanding, shall become immediately vested and fully exercisable upon (a) a Change in Control or (b) a Termination of Employment due to death or Disability. Upon the effective date of the Employee’s Termination of Employment for any reason other than death or Disability, any portion of the Stock Option that is not vested as of such date in accordance with the foregoing provisions of this Paragraph 2 shall cease vesting and terminate immediately.

 

  3. Method of Exercise of the Stock Option .

 

  (a) The portion of the Stock Option as to which the Employee is vested shall be exercisable by delivery to the Secretary of the Company of a written notice stating the number of whole shares to be purchased pursuant to this Agreement and the date on which the Employee elects to exercise the Stock Option and shall be accompanied by payment of the full Exercise Price of the shares of Common Stock to be purchased.

 

  (b) The full Exercise Price of the Stock Option shall be paid in cash, by wire transfer, or by certified check or bank draft payable to the order of the Company, by exchange of shares of unrestricted Common Stock of the Company already owned by the Employee (that were purchased on the open market by the Employee or held for at least six months prior to exercise) and having an aggregate Fair Market Value equal to the full Exercise Price, or by any other procedure approved by the Committee, or by a combination of the foregoing.

 

  (c) Notice and payment of the Exercise Price may also be made through a brokerage firm pursuant to an arrangement approved by the Company in advance.

 

  4. Terminations of Employment .

 

  (a) If the Employee incurs a Termination of Employment due to Disability, the Stock Option, to the extent outstanding at the time of such Termination of Employment, shall become immediately vested and fully exercisable and may be exercised by the Employee at any time prior to the first to occur of (i) one year after such Termination of Employment or (ii) the expiration date of the Stock Option, and shall thereafter expire.

 

  (b) If the Employee incurs a Termination of Employment due to death, the Stock Option, to the extent outstanding at the time of such Termination of Employment, shall become immediately vested and fully exercisable and may be exercised by the Employee’s estate or by a person who acquired the right to exercise such Stock Option by bequest, inheritance or otherwise by reason of the death of the Employee at any time prior to the first to occur of (i) one year after such Termination of Employment or (ii) the expiration date of the Stock Option, and shall thereafter expire.

 

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  (c) If the Employee incurs a Termination of Employment due to Retirement, the portion of the Stock Option, if any, which is exercisable at the time of such Termination of Employment may be exercised at any time prior to the first to occur of (i) three years after such Termination of Employment or (ii) the expiration date of the Stock Option, and shall thereafter expire. Any portion of the Stock Option that is not exercisable at the time of such Termination of Employment shall expire as of such Termination of Employment.

 

  (d) If the Employee incurs a voluntary Termination of Employment by the Employee (other than Retirement), the portion of the Stock Option, if any, which is exercisable at the time of such Termination of Employment may be exercised at any time prior to the first to occur of (i) 30 days after such Termination of Employment or (ii) the expiration date of the Stock Option, and shall thereafter expire. Any portion of the Stock Option that is not exercisable at the time of such Termination of Employment shall expire as of such Termination of Employment.

 

  (e) If the Employee incurs a Termination of Employment by the Company without Cause, the portion of the Stock Option, if any, which is exercisable at the time of such Termination of Employment may be exercised at any time prior to the first to occur of (i) 90 days after such Termination of Employment or (ii) the expiration date of the Stock Option, and shall thereafter expire. Any portion of the Stock Option that is not exercisable at the time of such Termination of Employment shall expire as of such Termination of Employment.

 

  (f) If the Employee incurs a Termination of Employment by the Company for Cause, the entire Stock Option shall immediately expire as of such Termination of Employment.

5. Nontransferability . The Stock Option is not transferable by the Employee, whether voluntarily or involuntarily, by operation of law or otherwise, except as provided in the Plan. Any assignment, pledge, transfer or other disposition, voluntary or involuntary, of the Stock Option made, or any attachment, execution, garnishment, or lien issued against or placed upon the Stock Option, except as provided in the Plan, shall be void.

6. No Shareholder Rights Before Exercise . The Employee or a transferee of the Stock Option shall have no rights as a shareholder with respect to any shares covered by the Stock Option until the Employee or transferee has given written notice of exercise, has paid in full for such shares and, if requested by the Company, has given the representation described in Section 12(a) of the Plan. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions of other rights for which the record date is prior to the date the events set forth above in this Paragraph 6 have occurred.

7. Adjustment in the Event of Change in Stock . In the event of a stock split, spin-off, or other distribution of stock or property of the Company, or any reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code), the number of shares subject to the Stock Option and the exercise price per share shall be equitably adjusted by the Committee as it determines to be appropriate in its sole discretion; provided, however , that the number of shares subject to the Stock Option shall always be a whole number. In the event of any other change in corporate capitalization (including, but not limited to, a

 

3


change in the number of shares of Common Stock outstanding) or a corporate transaction, such as any merger, consolidation or separation or any partial or complete liquidation of the Company, the number and kind of shares subject to the Stock Option and/or the exercise price per share may be adjusted by the Board or Committee as the Board or Committee may determine to be appropriate in its sole discretion; provided, however , that the number of shares subject to the Stock Option shall always be a whole number. The determination of the Board or Committee regarding any adjustment will be final and conclusive.

 

  8. Event of Restatement

 

  (a) If the Company restates any previously reported financial statements and such restatement is required as a result of the Company’s material noncompliance with any financial reporting requirement under the federal securities laws:

 

  (i) the Employee shall pay to the Company any gain the Employee received in connection with the award under this Agreement to the extent, determined by the Board or Committee, that the Employee would have received less gain based upon the restated financial results, and “gain” for this purpose shall include the proceeds of any sale of stock of the Company, after the award has been settled;

 

  (ii) the amount of the award under this Agreement shall be reduced to the extent, determined by the Board or Committee, such amount would have been lower based upon the restated financial results;

 

  (iii) the Employee shall be required to reimburse or repay to the Company any other amount that the Company determines to be due pursuant to any policy the Board or Committee adopts pursuant to section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (or pursuant to any regulation, rule, stock exchange listing standard or other guidance implementing such section).

 

  (b) The Company may seek recovery of the amounts due under subsection (a) by all legal means available, including, to the extent permitted by law, seeking direct repayment from the Employee, withholding such amount from other amounts owed by the Company to the Employee (or with respect to the Employee), and causing the cancellation of any outstanding incentive award.

 

  (c) The determination of the Board or Committee regarding the consequence of any event of restatement as described in this Paragraph 8 shall be final and conclusive. This Paragraph 8 does not affect the Company’s ability to pursue any and all available legal rights and remedies under governing law.

9. Payment of Transfer Taxes, Fees and Other Expenses . The Company agrees to pay any and all original issue taxes and stock transfer taxes that may be imposed on the issuance of shares acquired pursuant to exercise of the Stock Option, together with any and all other fees and expenses necessarily incurred by the Company in connection therewith.

 

4


10. Other Restrictions on Exercisability . The exercise of the Stock Option and the delivery of share certificates upon such exercise shall be subject to the requirement that, if at any time the Committee shall determine that (a) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law or (b) the consent or approval of any government regulatory body is, in the case of (a) or (b), necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto, then in any such event such exercise shall not be effective unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.

11. Taxes and Withholdings . No later than the date of exercise of the Stock Option granted hereunder, the Employee shall pay to the Company or make arrangements satisfactory to the Committee regarding payment of any federal, state, local and applicable non-U.S. taxes of any kind required by law to be withheld upon the exercise of such Stock Option, and the Company shall, to the extent permitted or required by law, have the right to deduct from any payment of any kind due to the Employee federal, state, local and applicable non-U.S. taxes of any kind required by law to be withheld upon the exercise of such Stock Option.

12. Confidential Information; Noncompetition; Nonsolicitation .

Nothing in this Agreement or that follows limits the Company’s or Affiliates’ rights with respect to Trade Secrets which are defined by and protected by Wis. Stat. § 134.90. Each of the following provisions impose covenants on the Employee that are to be interpreted and applied independent of the other covenants contained in this Agreement.

 

  (a) (i) The Employee acknowledges he or she will hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its Affiliates and their respective businesses that the Employee obtains during the Employee’s employment by the Company or any of its Affiliates and that (x) is not public knowledge or (y) became public knowledge as a result of the Employee’s violation of this Paragraph 12(a) (“Confidential Information”). The Employee acknowledges that the Confidential Information is highly sensitive and proprietary and includes, without limitation: product design information, product specifications and tolerances, manufacturing processes and methods, information regarding new product or new feature development, information regarding how to satisfy particular customer needs, expectations and applications, information regarding strategic or tactical planning, information regarding pending or planned competitive bids, information regarding costs, margins, and methods of estimating, and information regarding personnel matters of key employees. The Employee shall not use, communicate, divulge or disseminate Confidential Information to any person, firm, corporation, partnership or entity of any kind whatsoever under any circumstances reasonably likely to result in the use of such Confidential Information to the competitive disadvantage of the Company or any of its Affiliates. This Paragraph 12(a)(i) shall apply only in geographic areas in which such use or disclosure of Confidential Information as defined above would competitively harm the Company or its Affiliates and only for a period of two (2) years following the Termination of Employment, except with the prior written consent of the Company or as otherwise required by law or legal process.

 

5


(ii) All computer software, business cards, telephone lists, customer lists, price lists, contract forms, catalogs, records, files and know-how acquired while an employee of the Company or any of its Affiliates are acknowledged to be the property of the Company or the applicable Affiliate(s) and shall not be duplicated, removed from the possession or premises of the Company or such Affiliate(s) or made use of other than in pursuit of the business of the Company and its Affiliates or as may otherwise be required by law or any legal process, and, upon Termination of Employment for any reason, Employee shall deliver to the Company (or the applicable Affiliate, if the Employee is employed outside the United States), without further demand, all such items and any copies thereof which are then in his or her possession or under his or her control.

 

  (b) The Employee acknowledges that his or her employment may place him or her in a position of contact and trust with customers of the Company or its Affiliates, and that in the course of employment the Employee may be given access to and asked to maintain and develop relationships with such customers. The Employee acknowledges that such relationships are of substantial value to the Company and its Affiliates and that it is reasonable for the Company to seek to prevent Employee from giving competitors unfair access to such relationships. Employee further acknowledges that the Company and its Affiliates and their competitors operate and compete worldwide.

 

  (c) Prior to and through an eighteen-month period following the Termination of Employment date, the Employee will not within the geographic area where the Company or any of its Affiliates do business, except upon prior written permission signed by the President or an Executive Vice President of the Company, consult with or advise or, directly or indirectly, as owner, partner, officer or employee, engage in business with any company or entity in competition with the Company or any of its Affiliates in the business of manufacturing, selling, servicing, or repairing equipment or parts within the Company’s industry, (which are defined only as those entities and their affiliates set forth in the attached Exhibit 2) in a capacity where the Employee’s knowledge of Confidential Information or Trade Secrets of the Company or any of its Affiliates would reasonably be likely to place the Company or any of its Affiliates at a competitive disadvantage. Notwithstanding the foregoing, the Employee may make and retain investments in not more than three percent of the equity of any such company if such equity is listed on a national securities exchange or regularly traded in an over-the-counter market.

 

  (d)

Prior to and through a two-year period following the Termination of Employment date, the Employee will not, directly or indirectly solicit or induce for employment on behalf of any company or entity in competition with the Company or any of its Affiliates in the business of manufacturing, selling, servicing or repairing mining equipment or parts which are defined only as those entities and their affiliates set forth in the attached Exhibit 2 (other than any personal assistant

 

6


  hired to work directly for the Employee), any individual employed by the Company or any of its Affiliates on the Termination of Employment date or any person who was so employed by the Company or any of its Affiliates at any time during the preceding three months.

 

  (e) Prior to and through a one-year period following the Termination of Employment, the Employee will not, directly or indirectly, interfere with, or endeavor to entice away from Company or any of its Affiliates, any person, firm, corporation, partnership or entity of any kind whatsoever which is a customer of Company or any of its Affiliates, or which was a customer of Company or any of its Affiliates, within one year prior to the Termination of Employment date, and, which the Employee regularly performed services for, or regularly dealt with, or regularly had contact with such customer on behalf of the Company or any of its Affiliates, and the Employee obtained knowledge, as a result of his or her position with the Company or any of its Affiliates, which would be beneficial to Employee’s efforts to convince such customer to cease doing business with the Company or any of its Affiliates, in whole or in part.

 

  (f) In the event of a breach of the Employee’s covenants under this Paragraph 12, the entire Stock Option shall immediately expire as of the date of such breach. The Employee acknowledges and agrees that such expiration is not expected to adequately compensate the Company and its Affiliates for any such breach and that such expiration shall not substitute for or adversely affect the remedies to which the Company or any of its Affiliates is entitled under Paragraph 12(g) or at law.

 

  (g) In the event of a breach of the Employee’s covenants under this Paragraph 12, it is understood and agreed that the Company and any Affiliate(s) that employed the Employee shall be entitled to injunctive relief, as well as any other legal or equitable remedies. The Employee acknowledges and agrees that the covenants, obligations and agreements of the Employee in Paragraphs 12(a), (b), (c), (d) and (e) of this Agreement relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants, obligations or agreements will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, the Employee agrees that the Company and any Affiliate(s) that employed the Employee shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) as a court of competent jurisdiction may deem necessary or appropriate to restrain the Employee from committing any violation of such covenants, obligations or agreements. These injunctive remedies are cumulative and in addition to any other rights and remedies that the Company or its Affiliates may have.

 

  (h)

The Company and the Employee hereby irrevocably submit to the exclusive jurisdiction of the courts of Wisconsin and the federal court of the United States of America, located in Milwaukee, Wisconsin, in respect of all disputes involving Confidential Information, trade secrets or the violation of the provisions of this Paragraph 12 and the interpretation and enforcement of this Paragraph 12, and the parties hereto hereby irrevocably agree that (i) the sole and exclusive appropriate venue for any suit or proceeding relating to such matters shall be in such a court,

 

7


  (ii) all claims with respect to any such matters shall be heard and determined exclusively in such court, (iii) such court shall have exclusive jurisdiction over the person of such parties and over the subject matter of any such dispute, and (iv) each hereby waives any and all objections and defenses based on forum, venue or personal or subject matter jurisdiction as they may relate to any suit or proceeding brought before such a court in accordance with the provisions of this Paragraph 12.

13. Notices . All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by facsimile, overnight courier, or registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Employee:

 

If to the Company:    Joy Global Inc.
   100 East Wisconsin Avenue, Suite 2780
   Milwaukee, WI 53202
   Attention: Corporate Secretary
   Facsimile: 414-319-8510

or to such other address or facsimile number as any party shall have furnished to the other in writing in accordance with this Paragraph 13. Notice and communications shall be effective when actually received by the addressee.

14. Successors . Except as otherwise provided hereunder, this Agreement shall be binding upon and shall inure to the benefit of any successor or successors of the Company, and to any transferee or successor of the Employee pursuant to Paragraph 8.

15. Laws Applicable to Construction . The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Delaware as applied to contracts executed in and performed wholly within the State of Delaware, without reference to principles of conflict of laws with the exception of Paragraph 12, which will be interpreted, enforced, and governed by the laws of the State of Wisconsin, without reference to principles of conflict of laws.

16. Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement is held invalid or unenforceable to any extent, the remainder of this Agreement shall not be affected by that provision and that provision shall be enforced to the greatest extent permitted by law.

17. Conflicts and Interpretation . In the event of any conflict between this Agreement and the Plan, the Plan shall control. In the event of any ambiguity in this Agreement, any term which is not defined in this Agreement, or any matters as to which this Agreement is silent, the Plan shall govern including, without limitation, the provisions thereof pursuant to which the Committee has the power, among others, to (a) interpret the Plan, (b) prescribe, amend and rescind rules and regulations relating to the Plan and (c) make all other determinations deemed necessary or advisable for the administration of the Plan.

 

8


18. Headings . The headings of paragraphs herein are included solely for convenience of reference and shall not affect the meaning or interpretation of any of the provisions of this Agreement.

19. Amendment . This Agreement may not be modified, amended or waived except by an instrument in writing signed by both parties hereto. The waiver by either party of compliance with any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement.

20. Counterparts . This Agreement may be executed in counterparts, which together shall constitute one and the same original.

21. Miscellaneous .

 

  (a) This Agreement shall not confer upon the Employee any right to continue as an employee of the Company or its Affiliates, nor shall this Agreement interfere in any way with the right of the Company or its Affiliates to terminate the employment of the Employee at any time.

 

  (b) This Agreement shall be subject to all applicable laws, rules and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required.

IN WITNESS WHEREOF, the Employee has executed this Agreement, and the Company has caused this Agreement to be executed in its name and on its behalf, all as of the date first written above.

 

    JOY GLOBAL INC.

LOGO

Sean D. Major

Executive Vice President, General Counsel and

    Secretary

EMPLOYEE:

By:                                                                                             

 

 

9


EXHIBIT 1

EXECUTIVE LEADERSHIP TEAM

STOCK OWNERSHIP POLICY

Members of the Company’s Executive Leadership Team are subject to the following minimum ownership requirements for shares of the Company’s common stock:

 

   

CEO: Five times annual salary. Until the five times annual salary requirement has been met, the executive is required to retain shares of Common Stock having a market value at least equal to 50% of the pre-tax compensation realized upon settlement of any restricted stock units, payment of any performance shares, exercise of any stock options or settlement of any other stock awards. After the five times annual salary requirement has been met, the CEO is required to retain, at the retention rate specified in the preceding sentence, a sufficient number of shares of Common Stock received by the CEO from subsequent settlements of restricted stock units, payments of performance shares, exercises of stock options and settlements of other stock awards as may be necessary at that time to satisfy the five times annual salary requirement.

 

   

Other Executive Officers: Two and one-half times annual salary. Until the two and one-half times annual salary requirement has been met, the executive is required to retain shares of Common Stock having a market value at least equal to 25% of the pre-tax compensation realized upon settlement of any restricted stock units, payment of any performance shares, exercise of any stock options or settlement of any other stock awards. After the two and one-half times annual salary requirement has been met, the executive is required to retain, at the retention rate specified in the preceding sentence, a sufficient number of shares of Common Stock from subsequent settlements of restricted stock units, payments of performance shares, exercises of stock options and settlements of other stock awards as may be necessary at that time to satisfy the two and one-half times annual salary requirement.

 

   

Each executive shall not sell, transfer or otherwise dispose of shares of Common Stock (i) until the respective ownership requirement has been met or (ii) after the respective ownership requirement has been met, to the extent that the executive would no longer satisfy the ownership requirement immediately following such sale, transfer or other disposition.