Joy Global Inc.
JOY GLOBAL INC (Form: 10-K, Received: 12/13/2013 17:00:30)
Table of Contents

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED October 25, 2013
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)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of each exchange on which registered
Common Stock, par value $1 per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ý     No   ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨     No   ý
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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   ý     No   ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filed or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
LARGE ACCELERATED FILER
ý
 
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 Act).    Yes   ¨     No   ý
The aggregate market value of the voting and non-voting common stock held by non-affiliates as of April 26, 2013 , the last business day of our most recently completed second fiscal quarter, was approximately $6.0 billion , based on a closing price of $56.60 per share.
The number of shares outstanding of registrant’s common stock as of December 6, 2013 was 102,032,137 .
 
 
Documents Incorporated by Reference
The information required by Part III of Form 10-K, is incorporated herein by reference to the definitive proxy statement for the registrant’s 2014 annual meeting of stockholders.


Table of Contents

Joy Global Inc.
INDEX TO
ANNUAL REPORT ON FORM 10-K
For The Year Ended October 25, 2013
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents


























This Page
Intentionally
Left Blank


Table of Contents

PART I
This document contains forward-looking statements, including estimates, projections, statements relating to our business plans, objectives, pending acquisitions, expected operating results and other non-historical information, and the assumptions upon which those statements are based. These statements constitute “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,” “forecast,” “indicate,” “intend,” “may be,” “objective,” “plan,” “potential,” “predict,” “should,” “will be” and similar expressions. Forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from any forward-looking statement. In addition, certain market outlook information and other market statistical data contained herein 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 conditions, including those affecting the global mining industry;
changes affecting our industry, including demand for coal, copper, iron ore and other commodities, cyclical demand for equipment we manufacture and competitive pressures;
risks associated with international operations, including country specific or regional economic conditions and fluctuations in currency exchange rates;
our ability to develop products to meet the needs of our customers and the mining industry generally;
changes affecting our customers, including access to capital and regulations pertaining to mine safety, the environment or greenhouse gas emissions;
changes in laws and regulations or their interpretation and enforcement, including with respect to environmental matters;
changes in tax rates;
availability and cost of raw materials and manufactured components from third party suppliers;
our ability to protect our intellectual property;
our ability to hire and retain qualified employees and to avoid labor disputes and work stoppages;
our ability to generate cash from operations, obtain external funding on favorable terms and manage liquidity needs;
changes in interest rates;
changes in accounting standards or practices;
failure or breach in security of our information technology systems; and
our ability to integrate businesses that we acquire.
In addition to the foregoing factors, the forward-looking statements contained herein are qualified with respect to the risks disclosed elsewhere in this document, including in Item 1A, Risk Factors , Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 7A, Quantitative and Qualitative Disclosures about Market Risk . Any or all of these factors could cause our results of operations, financial condition or liquidity for future periods to differ materially from those expressed in or implied by any forward-looking statement. Furthermore, there may be other factors that could cause our actual results to differ materially from the results referred to in the forward-looking statements. We undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of unanticipated events, except as required by law.
 
Item 1. Business
General
Joy Global Inc. (the "Company," “we” and “us”) is a leading manufacturer and servicer of high productivity mining equipment for the extraction of coal and other minerals and ores. 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, gold and other minerals. We operate in two business segments: Underground Mining Machinery and Surface Mining Equipment. We are a major manufacturer of underground mining machinery for the extraction of coal and other bedded minerals and offer comprehensive service locations near major mining regions worldwide. We are also a major producer of surface mining equipment for the extraction of ores and minerals and we provide extensive operational support for many types of equipment used in surface mining. Our principal manufacturing facilities are located in the United States, including facilities in Pennsylvania, Wisconsin, Texas and Alabama, and internationally, including facilities in China, the United Kingdom, South Africa and Australia.
Sales of original equipment for the mining industry, as a class of products, accounted for 45% , 48% and 41% of our consolidated net sales for fiscal 2013 , 2012 and 2011 , respectively. Aftermarket sales, which includes revenues from maintenance and repair services, diagnostic analysis, fabrication, mining equipment and electric motor rebuilds, equipment erection services,

4

Table of Contents

training and sales of replacement parts, account for the remainder of our consolidated sales for each of those years. We are the direct successor to a business begun almost 130 years ago.
During the third quarter of fiscal 2011, we completed the acquisition of LeTourneau Technologies, Inc. (“LeTourneau”). LeTourneau designs, builds and supports equipment for the mining industry and has been a leader in the earthmoving equipment industry since the 1920s. Through its mining equipment business, LeTourneau is the world's leading manufacturer of large wheel loaders for surface mining, providing the industry's largest model sizes and payload capacities. LeTourneau historically operated in three business segments: mining equipment, steel products and drilling products. Subsequent to the acquisition, we sold the drilling products business of LeTourneau in the fourth quarter of fiscal 2011. LeTourneau's operations are included in our Surface Mining Equipment segment.
During fiscal 2011 and 2012, we completed a series of transactions that resulted in our acquisition of International Mining Machinery Holdings Limited (“IMM”), a leading designer and manufacturer of underground mining equipment in China. IMM's operations are included in our Underground Mining Machinery segment.
Underground Mining Machinery
We are the world’s largest producer of high productivity underground mining machinery for the extraction of coal and other bedded materials. We have manufacturing facilities in Australia, South Africa, the United Kingdom, China and the United States, as well as sales offices and service facilities in India, Poland and Russia. Our products are used in the mining and/or processing of coal, potash, salt, trona and other minerals and ores. We also maintain an extensive network of service and distribution centers to rebuild and service equipment and to sell replacement parts and consumables in support of our installed base. This network includes five service centers in the United States and eight outside the United States, all of which are strategically located in major underground mining regions.
Products and Services:
Armored face conveyors – Armored face conveyors are used in longwall mining to transport material cut by the shearer away from the longwall face.
Battery haulers – Battery haulers transport material from continuous miners to the feeder breaker and are powered by portable rechargeable batteries. Battery haulers feature a flexible center joint allowing them to maneuver in tight conditions and do not use a trailing cable, which allows for maximum flexibility in the mining process.
Continuous chain haulage systems – Continuous chain haulage systems transport material from continuous miners to main mine belts on a continuous basis. The continuous chain haulage system is made up of a series of connected bridge structures that utilize chain conveyors that transport the coal from one bridge structure to the next bridge structure and ultimately to the main mine belts.
Continuous miners – Electric crawler mounted continuous miners cut material using carbide-tipped bits on a horizontal rotating cutterhead. The continuous miner is also configured in some applications with roof bolters to place roof bolts when advancing the cut. Once cut, the material is gathered onto an internal conveyor and loaded into a haulage vehicle or continuous haulage system for transportation to the feeder breaker.
Conveyor systems – Conveyor systems are used in both underground and surface applications. The primary components of a conveyor system are the idlers, idler structure and the terminal, which itself consists of a drive, discharge, take-up and tail loading section.
Feeder breakers – Feeder breakers are used in both underground and surface applications. A feeder breaker is a form of crusher that uses a rotating drum with carbide-tipped bits to break down the size of the mined material for loading onto a conveyor system or feeding into processing facilities. Mined material is typically loaded into the feeder breaker by a shuttle car or battery hauler in underground applications and by haul trucks in surface applications.
Flexible conveyor trains ("FCT") – An FCT is an electric-powered, single operator, self-propelled conveyor system that provides continuous haulage of material from a continuous miner to the main mine belt. The FCT uses a rubber belt similar to a standard fixed conveyor. The FCT operates independently from the track crawler system, allowing the FCT to move and convey material simultaneously. Available in lengths of up to 570 feet, the FCT is able to negotiate multiple 90-degree turns in an underground mine infrastructure.
High angle conveyors – The high angle conveyor provides a versatile method for elevating or lowering materials continuously from one level to another at extremely steep angles. One of the differentiating factors of our conveyor technology is the use of a

5

Table of Contents

proprietary fully equalized pressing mechanism which secures material toward the center of the belt, while gently, but effectively, sealing the belt edges together. The high angle conveyor has throughput rates ranging from 0.30 to 4,400 tons per hour.
Longwall shearers – A longwall shearer moves back and forth on an armored face conveyor parallel to the material face. Using carbide-tipped bits on cutting drums at each end, the shearer cuts 1.2 to 8.0 meters high on each pass and simultaneously loads the material onto the armored face conveyor for transport through the stageloader to the conveyor belt.
Powered roof supports – Roof supports use hydraulic cylinders to perform a jacking-like function that supports the mine roof during longwall mining. The supports self-advance with the longwall shearer and armored face conveyors, resulting in controlled caving behind the supports. A longwall face may range up to 400 meters in length.
Road headers – Crawler mounted road headers cut material using carbide-tipped bits on a boom mounted cutting head. Once cut, the material is gathered using a loading device, usually involving a conveyor.
Roof bolters – Roof bolters are drills used to bore holes in the mine roof and to insert long metal bolts into the holes to reinforce the mine roof. Roof bolters are available track mounted, wheel mounted, machine mounted or mounted to devices that operate on longwalls.
Shuttle cars – Shuttle cars, a type of rubber-tired haulage vehicle, are electric-powered using an umbilical cable. Their purpose is to transport material from continuous miners to the feeder breaker where chain conveyors in the shuttle cars unload the material. Some models of shuttle cars can carry up to 30 metric tons of coal.
Life cycle management We offer life cycle management programs that help our customers to optimize the productivity and cost effective use of our equipment over the life of the equipment. Each life cycle management program is specifically designed for a particular customer and that customer’s application of our equipment. Under each program, we provide aftermarket products and services to support the equipment during its operating life cycle. Our life cycle management arrangements include cost per ton, component exchange programs and parts contracts. Cost per ton programs allow our customers to pay fixed prices for each ton of material mined in order to match equipment costs with revenues, and our component exchange programs and parts contracts minimize production disruptions for repair or scheduled rebuilds. These programs reduce customer capital requirements and ensure quality aftermarket parts and services for the life of the contract.
In addition to life cycle management support, our Underground Mining Machinery segment provides equipment assemblies, service, repairs, rebuilds, parts, enhancement kits and training to customers globally.
Project management – Our project management services provide a single point of contact for our comprehensive set of services, from contract origination to operational completion.
Smart services – Smart services are a full service support offering that gathers relevant information real time and uses this information to deliver services that are preemptive and predictive, which enables our customers to maximize the productivity and value of their assets by providing better machine availability, utilization and reduced costs. The services include equipment monitoring, predictive diagnostics, service training support and parts management.
Our personnel and distribution centers are strategically located close to customers in major mining centers around the world. We sell our products and services directly to our customers through a global network of sales and marketing personnel. Our direct customer service and support infrastructure quickly and efficiently provide customers with high-quality parts, exchange components, repairs, rebuilds, whole machine exchanges and services.
Our business, in particular our original equipment manufacturing business, is affected by economic conditions affecting the global mining industry. The cyclicality of original equipment sales for our Underground Mining Machinery segment is driven primarily by volatility of commodity prices, mainly the price of coal, as well as product life cycles, competitive pressures and other economic factors affecting the mining industry, such as company consolidation and increased regulation and competition affecting demand for commodities. Falling commodity prices have in the past and may in the future lead to reduced capital expenditures by our customers, reductions in the production levels of existing mines, a contraction in the number of existing mines and the closure of less efficient mines. Reduced capital expenditures and decreased mining activity by our customers is likely to lead to a decrease in demand for new mining machinery, as well as a decrease in demand for aftermarket parts and services as customers are likely to reduce inventories, redistribute parts from closed mines and delay rebuilds. Conversely, rising commodity prices typically lead to the expansion of existing mines, opening of new mines or re-opening of less efficient mines. Increased mining activity typically leads to an increase in demand for new mining machinery.
Surface Mining Equipment

6

Table of Contents

We are the world’s largest producer of electric mining shovels and a leading producer of blasthole drills, walking draglines and wheel loaders for open-pit mining operations. We have facilities in Australia, Brazil, Canada, Chile, China, South Africa and the United States, as well as sales offices in India, Mexico, Peru, Russia, the United Kingdom and Venezuela. Our products are used in the mining and/or processing of coal, copper, iron ore, oil sands, gold and other minerals and ores. We also provide logistics and a full range of life cycle management service support for our customers through a global network of strategically located operations within major mining regions. In some markets, we also provide electric motor rebuilds and other selected products and services to the non-mining industrial segment and sell used electric mining shovels, drills and parts.
Products and Services:
Blasthole drills – Most surface mines require explosives to break or blast rock, overburden or ore. A blasthole drill creates a pattern of holes to contain the explosives. Our blasthole drills range in size from 7.875 to 17.5 inches in diameter and can exert a maximum pull down force of up to 150,000 pounds.
Conveyor systems – Conveyor systems are used in both underground and surface applications. The primary components of a conveyor system are the idlers, idler structure and the terminal, which itself consists of a drive, discharge, take-up and tail loading section.
Electric mining shovels – Mining shovels are used primarily to load coal, copper, iron ore, oil sands, gold and other mineral-bearing materials and overburden into trucks. Electric mining shovels feature large dippers, allowing them to load great volumes of material at a low operating cost. Dippers can range in size from 10 to 90 cubic yards.
Feeder breakers – Feeder breakers are used in both underground and surface applications. A feeder breaker is a form of crusher that uses a rotating drum with carbide-tipped bits to break down the size of the mined material for loading onto a conveyor system or feeding into processing facilities. Mined material is typically loaded into the feeder breaker by a shuttle car or battery hauler in underground applications and by haul trucks in surface applications.
Walking draglines – Draglines are primarily used to remove overburden, to uncover coal or mineral deposits and then to replace the overburden as part of the reclamation activities. Our draglines are equipped with bucket sizes ranging from 30 to 160 cubic yards.
Wheel loaders – Loaders are generally used in coal, copper and iron ore mines, and they utilize a proprietary diesel-electric drive system with digital controls. This proprietary system allows our equipment to stop, start and reverse direction without gear shifting and high-maintenance braking. We have five loaders with capacities up to 53 cubic yards, which are the largest in the industry, and can load rear-dump trucks in the 85 to 400 ton range.
Life cycle management – We offer life cycle management programs that help our customers to optimize the productivity and cost effective use of our equipment over the life of the equipment. Each life cycle management program is specifically designed for a particular customer and that customer’s application of our equipment. Under each program, we provide aftermarket products and services to support the equipment during its operating life cycle. Our life cycle management arrangements include cost per ton, cost per hour, component exchange programs and parts contracts. Cost per ton and cost per hour programs allow our customers to pay fixed prices for each ton of material mined or each hour of machine time utilized in order to match equipment costs with revenues, and our component exchange programs and parts contracts minimize production disruptions for repair or scheduled rebuilds. These programs reduce customer capital requirements and ensure quality aftermarket parts and services for the life of the contract.
In addition to life cycle management support, our Surface Mining Equipment segment provides equipment assemblies, relocations, inspections, service, repairs, rebuilds, upgrades, used equipment, parts, enhancement kits and training to customers globally.
Our personnel and distribution centers are strategically located close to customers in major mining centers around the world. We sell our products and services directly to customers through a global network of sales and marketing personnel. The Surface Mining Equipment segment distribution organization also represents other leading providers of equipment and services to the mining and associated industries, which we refer to as “Alliance Partners.” Some of the Alliance Partner relationships include the following companies:

7

Table of Contents

•      Berkley Forge and Tool Inc.
 
•      Phillippi-Hagenbach Inc.
 
 
 
•      Bridon American Corporation
 
•      Prodinsa Wire Rope
 
 
 
•      Towhaul Corporation
 
•      Wire Rope Industries Ltd.
 
 
 
•      Hensley Industries Inc.
 
•      Wire Rope Corporation of America, Inc.
 
 
 
•      Hitachi Mining Division
 
•      ESCO Corporation
For each Alliance Partner, we typically enter into an agreement that provides us with the right to distribute certain of the Alliance Partners’ products in specified geographic territories. Specific sales of new equipment are typically based on “buy and resell” arrangements or are a direct sale from the Alliance Partner to the ultimate customer with a commission paid to us. The type of sales arrangement is typically agreed at the time of the customer’s commitment to purchase. Our aftermarket sales of parts produced by Alliance Partners are generally made under “buy and resell” arrangements. To support Alliance Partners’ products in certain geographic regions, we typically hold parts and components in inventory.
Our business, in particular our original equipment manufacturing business, is materially affected by economic conditions affecting the global mining industry. The cyclicality of original equipment sales for our Surface Mining Equipment segment is driven primarily by volatility of commodity prices, including prices for coal, copper and iron ore, as well as product life cycles, competitive pressures and other economic factors affecting the mining industry such as company consolidation and increased regulation and competition affecting demand for commodities. Falling commodity prices have in the past and may in the future lead to reduced capital expenditures by customers, reductions in the production levels of existing mines, a contraction in the number of existing mines and the closure of less efficient mines. Reduced capital expenditures and decreased mining activity by our customers is likely to lead to a decrease in demand for new mining machinery, as well as a decrease in demand for aftermarket parts and services as customers are likely to reduce inventories, redistribute parts from closed mines and delay rebuilds. Conversely, rising commodity prices typically lead to the expansion of existing mines, opening of new mines or re-opening of less efficient mines. Increased mining activity typically leads to an increase in demand for new mining machinery.
Seasonality
All of our business segments are subject to moderate seasonality, with the first quarter of our fiscal year generally experiencing lower sales and profitability due to a decrease in working days caused by calendar year-end holidays.
Financial Information
Financial information about our business segments and geographic areas of operation is contained in Item 8, Financial Statements and Supplementary Data and Item 15, Exhibits and Financial Statement Schedules .
Employees
As of October 25, 2013 , we employed approximately 16,600 employees worldwide, with approximately 5,900 employed in the United States. Collective bargaining agreements or similar arrangements cover 29% of our U.S. workforce and 20% of our international employees. In 2014 , union agreements are set to expire for 10% of our employees, with the largest agreement covering the International Association of Machinists union at our Franklin, Pennsylvania facility.
Customers
We sell our products primarily to large global and regional mining companies. No customer or affiliated group of customers accounted for 10% or more of our 2013 consolidated net sales.
Competitive Conditions
The domestic and foreign manufacturing and service operations of our Underground Mining Machinery and Surface Mining Equipment segments are subject to significant competitive pressures. We compete globally on the basis of product performance, customer service and aftermarket support, availability, reliability, productivity and price. Most of our customers are large global mining companies that have substantial bargaining power, and some of our sales require us to participate in competitive bidding where we must compete on the basis of various factors, including performance guarantees and price. We compete directly and indirectly with other manufacturers of surface and underground mining equipment and with manufacturers of parts and components for such products.

8

Table of Contents

The Underground Mining Machinery segment's products compete with similar products made by a number of established and emerging worldwide manufacturers of such equipment. Our rebuild services compete with a large number of local repair shops and also compete with various regional suppliers in the sale of replacement parts for our equipment.
The Surface Mining Equipment segment’s shovels and draglines compete with similar products produced by one significant competitor and compete with hydraulic excavators, large rubber-tired front-end loaders and bucket wheel excavators made by several international manufacturers. Our blasthole drills compete with several worldwide drill manufacturers. As high productivity mining becomes more common internationally, especially in emerging markets, global manufacturing capability is becoming a competitive advantage. However, it is still important to have repair and rebuild capability near the customers' operations. In this regard, we compete with a large number of primarily regional suppliers in the sale of parts.
Both segments compete on the basis of providing superior productivity, reliability and service that lowers the overall cost of production for our customers. We compete with local and regional service providers in the provision of maintenance, rebuild and other services to mining equipment users.
Backlog
Backlog represents unfilled customer orders for our original equipment and aftermarket products and services, exclusive of long-term maintenance and repair arrangements and life cycle management arrangements. Such life cycle management programs extend for up to 17 years and totaled approximately $1.7 billion as of October 25, 2013 . The backlog amounts also exclude sales already recognized by fiscal year end under the percentage-of-completion method of accounting. Customer orders included in backlog represent contracts to purchase specific original equipment, products or services by customers who have satisfied our credit review procedures. The following table provides backlog by business segment as of each of our last three fiscal year ends:
In thousands
October 25,
2013
 
October 26,
2012
 
October 28,
2011
Underground Mining Machinery
$
951,227

 
$
1,341,097

 
$
1,739,932

Surface Mining Equipment
554,971

 
1,269,825

 
1,560,393

Eliminations
(29,367
)
 
(46,371
)
 
(46,991
)
Total Backlog
$
1,476,831

 
$
2,564,551

 
$
3,253,334

Of the $1.5 billion of backlog, approximately $346.6 million is expected to be recognized as revenue beyond fiscal 2014 .
The year over year decrease s in backlog for both Underground Mining Machinery and Surface Mining Equipment were driven by declining order rates and weak market conditions, resulting in book to bill ratios less than one.
Eliminations include the surface applications of crushing and conveying included in both operating segments.
Raw Materials
In the manufacture of our products, we use large amounts of raw materials and processed inputs including steel, copper and engine and electronic components. We obtain raw materials and certain manufactured components from third party suppliers. To reduce material costs and inventories, we rely on supplier arrangements with preferred vendors as a source for “just in time” delivery of many raw materials and manufactured components. We continuously monitor supplier arrangements to seek to identify and address risks of supply disruptions.
Patents and Trademarks
We own numerous patents and trademarks and we license technology from others that we utilize in our products and manufacturing methods. We continue to develop intellectual property and we file new patent applications to protect our ongoing research and development activities. We have also granted licenses to certain of our patents and trademarks to other manufacturers and receive royalties under most of these licenses. While we do not consider any particular patent or trademark or group of patents or trademarks to be material to our business segments, we believe that in the aggregate our patents and trademarks are significant in distinguishing many of our product lines from those of our competitors.
In the fourth quarter of fiscal 2013, we reviewed our brand portfolio and developed a strategy to increase the visibility of our core brands in furtherance of our One Joy Global initiative. During this review, we determined that the indefinite life assumption was no longer appropriate for most of our previously acquired trademarks.
In connection with the review of our brand portfolio, we worked with a third party appraisal firm to develop new estimates of fair value of our trademark portfolio using discounted cash flow models. In connection with obtaining an independent third

9

Table of Contents

party valuation, management provided certain information and assumptions that were utilized in the fair value calculation. Assumptions critical to the process included forecasted financial information, discount rates, royalty rates and growth rates. Estimates of the fair value of each trademark were based on the best information currently available. However, further adjustments may be necessary in the future if conditions differ substantially from the assumptions utilized.
The remaining value of the trademarks that are being replaced will be amortized over the new estimated useful life. For those trademarks that are not being replaced, our strategy is to co-brand these products, and we have revalued these trademarks based on that assumption. The co-branded trademarks will continue to have an indefinite life. As a result, a non-cash impairment charge of $155.2 million was recorded in the fourth quarter of fiscal 2013, of which $130.2 million was recorded by our Underground Mining Machinery segment and $25.0 million was recorded by our Surface Mining Equipment segment. This charge is recorded in the Consolidated Statement of Income under the heading Intangible asset impairment charges . Going forward, the amortization of the remaining carrying value associated with the trademarks that are being replaced will be recorded in the Consolidated Statements of Income under the heading Product development, selling and administrative expenses .
In thousands
Underground
Mining
Machinery
 
Surface
Mining
Equipment
 
Consolidated
Patents
 
 
 
 
 
Gross Carrying Value
$
21,176

 
$
69,900

 
$
91,076

Accumulated Amortization
(10,954
)
 
(8,155
)
 
(19,109
)
Net Carrying Value
$
10,222

 
$
61,745

 
$
71,967

 
 
 
 
 
 
Trademarks
$
17,700

 
$
12,200

 
$
29,900

Research and Development
We are strongly committed to pursuing technological development through the engineering of new products and systems, the improvement and enhancement of licensed technology and related acquisitions of technology. Research and development expenses totaled $49.0 million , $47.8 million , and $40.4 million for fiscal 2013 , 2012 and 2011 , respectively.
Environmental, Health and Safety Matters
Our domestic activities are regulated by federal, state, and local statutes, regulations, and ordinances relating to environmental protection and worker health and safety. These laws govern current operations, require remediation of environmental impacts associated with past or current operations and, under certain circumstances, provide for civil and criminal penalties and fines, as well as injunctive and remedial relief. Our foreign operations are subject to similar requirements as established by the jurisdictions in which they are located. We believe that we have substantially satisfied these diverse requirements.
Compliance with environmental laws and regulations did not have a material effect on capital expenditures, earnings or our competitive position in fiscal 2013 . Because these requirements are complex and subject to change, there can be no guarantee against the possibility of additional costs of compliance. However, we do not expect that our future compliance with environmental laws and regulations will have a material effect on our capital expenditures, earnings or competitive position, and we do not expect to make any material capital expenditures for environmental control facilities in fiscal 2014 .
Our operations or facilities have been and may become the subject of formal or informal enforcement actions or proceedings for alleged noncompliance with either environmental or worker health and safety laws or regulations. Such matters have typically been resolved through direct negotiations with the regulatory agency and have typically resulted in corrective actions or abatement programs. However, in some cases, fines or other penalties have been paid.
International Operations
For information on the risks faced by our international operations, see Item 1A, Risk Factors .
Available Information
Our internet address is www.joyglobal.com. We make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available free of charge through our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”).
 

10

Table of Contents

Item 1A. Risk Factors
Our international operations are subject to many uncertainties, and a significant reduction in international sales of our products could adversely affect us.
Our international operations are subject to various economic, political and other uncertainties that could adversely affect our business. In fiscal 2013 , 2012 and 2011 , approximately 61% , 59% and 54% , respectively, of our sales were derived from sales outside the United States, and economic conditions in the countries and regions in which we operate significantly affect our profitability and growth prospects. The following risks, associated with doing business internationally, could adversely affect our business, financial condition and results of operations:
regional or country specific economic downturns;
fluctuations in currency exchange rates, particularly the South African rand, Australian dollar, Chilean peso, Chinese renminbi, Canadian dollar, and British pound sterling;
complications in complying with a variety of foreign laws and regulations, including with respect to environmental matters, which may adversely affect our operations and ability to compete effectively in certain jurisdictions or regions;
international political and trade issues and tensions;
unexpected changes in regulatory requirements, up to and including the risk of nationalization or expropriation by foreign governments;
higher tax rates and potentially adverse tax consequences including restrictions on repatriating earnings, adverse tax withholding requirements and double taxation;
greater difficulties protecting our intellectual property;
increased risk of litigation and other disputes with customers;
fluctuations in our operating performance based on our geographic mix of sales;
longer payment cycles and difficulty in collecting accounts receivable;
costs and difficulties in integrating, staffing and managing international operations, especially in rapidly growing economies such as China;
transportation delays and interruptions;
natural disasters and the greater difficulty in recovering from them in some of the foreign countries in which we operate, especially in countries prone to earthquakes, such as Chile, China, India and Indonesia;
uncertainties arising from local business practices and cultural considerations;
customs matters and changes in trade policy, tariff regulations or other trade restrictions; and
national and international conflicts, including terrorist acts.
We expect that the percentage of our sales occurring outside the United States will increase over time largely due to increased activity in China, India and other emerging markets. The foregoing risks may be particularly acute in emerging markets, where our operations are subject to greater uncertainty due to increased volatility associated with the developing nature of the economic, legal and governmental systems of these countries. If we are unable to successfully manage the risks associated with expanding our global business or to adequately manage operational fluctuations, it could adversely affect our business, financial condition or results of operations.
Our original equipment manufacturing business is highly sensitive to economic conditions in the mining industry, which can cause significant fluctuations in our operating results.
Our business, in particular our original equipment manufacturing business, is materially affected by economic conditions affecting the global mining industry. The cyclicality of original equipment sales is driven primarily by volatility of commodity prices, including prices for coal, copper and iron ore, product life cycles, competitive pressures and other economic factors affecting the mining industry, such as company consolidation and increased regulation and competition affecting demand for commodities. Falling commodity prices have in the past and may in the future lead to reduced capital expenditures by our customers, reductions in the production levels of existing mines, a contraction in the number of existing mines and the closure of less efficient mines. Reduced capital expenditures and decreased mining activity by our customers are likely to lead to a decrease in demand for new mining machinery, as well as a decrease in demand for aftermarket parts and services as customers are likely to reduce inventories, redistribute parts from closed mines and delay rebuilds. As a result of this cyclicality, we have previously experienced fluctuation in our business, results of operations and financial condition. We expect that cyclicality in our equipment manufacturing business may cause us to experience further significant fluctuation in our business, financial condition or results of operations.
We are largely dependent on the continued demand for coal, which is subject to economic and climate related risks.
Approximately 62% of our revenues come from our thermal and metallurgical coal-mining customers. Many of these customers supply coal for the generation of electricity and/or steel production. Demand for steel is affected by the global level of economic activity and economic growth. The pursuit of the most cost effective form of electricity generation continues to take

11

Table of Contents

place throughout the world and coal-fired electricity generation faces intense price competition from other fuel sources, particularly natural gas. Coal combustion generates significant greenhouse gas emissions and governmental and private sector goals and mandates to reduce greenhouse gas emissions may increasingly affect the mix of electricity generation sources. Further developments in connection with legislation, regulations or other limits on greenhouse gas emissions and other environmental impacts or costs from coal combustion, both in the United States and in other countries, could diminish demand for coal as a fuel for electricity generation. If lower greenhouse gas emitting forms of electricity generation, such as nuclear, solar, natural gas or wind power, become more prevalent or cost effective, or diminished economic activity reduces demand for steel, demand for coal will decline. Reduced demand for coal would result in reduced demand for our mining equipment and adversely affect our business, financial condition and results of operations.
Our global operations are subject to extensive trade and anti-corruption laws and regulations.
Due to the international scope of our operations, we are subject to a complex system of import- and export-related laws and regulations, including U.S. regulations issued by Customs and Border Protection, the Bureau of Industry and Security, the Office of Antiboycott Compliance, the Directorate of Defense Trade Controls and the Office of Foreign Assets Control, as well as the counterparts of these agencies in other countries. Any alleged or actual violations may subject us to government scrutiny, investigation and civil and criminal penalties, and may limit our ability to import or export our products or to provide services outside the United States. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted.
In addition, the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence foreign government officials for the purpose of obtaining or retaining business or obtaining an unfair advantage. Recent years have seen a substantial increase in the global enforcement of anti-corruption laws. Our continued operation and expansion outside the United States, including in developing countries, could increase the risk of such violations. Violations of these laws may result in severe criminal or civil sanctions, could disrupt our business and may result in an adverse effect on our reputation, business and results of operations or financial condition.
We face risks from currency exchange rate fluctuations because our international operations are conducted in various local currencies, while our consolidated financial results are reported in U.S. dollars.
Our significant foreign subsidiaries use local currencies as their functional currency. Because our financial reporting currency is the U.S. dollar, preparation of our consolidated financial statements requires that we translate the assets, liabilities, expenses and revenues of these subsidiaries into U.S. dollars at applicable exchange rates. Accordingly, fluctuations in the exchange rates between the U.S. dollar and the currencies of the other countries in which we conduct business may affect our assets, earnings and cash flows. In addition, currency exchange rate fluctuations may affect the comparative prices between products we sell and products our foreign competitors sell in the same market, which may adversely affect demand for our equipment. Substantial exchange rate fluctuations, particularly due to strengthening of the U.S. dollar, may have a material adverse effect on our results of operations, financial condition and cash flows, as well as the comparability of our consolidated financial statements between reporting periods. While we attempt to reduce the risks from exchange rate fluctuations by entering into hedging arrangements, these arrangements may not be effective or may only delay or temporarily mitigate the adverse effect of fluctuations in exchange rates.
We operate in a highly competitive environment, which could adversely affect our sales and pricing.
Our domestic and foreign manufacturing and service operations are subject to significant competitive pressures. We compete globally on the basis of product performance, customer service and aftermarket support, availability, reliability, productivity and price. Most of our customers are large global mining companies that have substantial bargaining power, and some of our sales require us to participate in competitive bidding where we must compete on the basis of various factors, including performance guarantees and price. We compete directly and indirectly with other manufacturers of surface and underground mining equipment and with manufacturers of parts and components for such products. Some of our competitors are larger than us and, as a result, may have broader product offerings and greater access to financial resources. Certain of our competitors also may pursue aggressive pricing or product strategies that may cause us to reduce the prices we charge for our original equipment and aftermarket products and services or lose sales. These actions may lead to reduced revenues, lower margins and/or a decline in market share, any of which may adversely affect our business, financial condition and results of operations.
We may acquire businesses, dispose of businesses or engage in other transactions for which we may not realize anticipated benefits, or it may take longer than expected to realize such benefits, which may adversely affect our operating results, financial condition and existing business.

12

Table of Contents

From time to time, we may explore and pursue transaction opportunities that may complement our core businesses, and we may also consider divesting businesses or assets that we do not regard as part of our core businesses. These transaction opportunities may come in the form of acquisitions, joint ventures, start-ups or other structures. There are risks associated with acquisition and disposition of business transactions, including, without limitation, general business risk, integration risk, technology risk, market acceptance risk, litigation risk, environmental risk, regulatory approval risk and risks associated with the failure to close or consummate announced transactions. In the case of acquisitions, we may not be able to discover, during the due diligence process or otherwise, all known and unknown risks associated with the business we are acquiring. In the case of dispositions, we may agree to indemnify acquiring parties for known or unknown liabilities arising from our former businesses.
Undiscovered factors may result in our incurring financial or other liabilities, which could be material. In addition, completion of a transaction may require us to incur debt, issue equity, utilize other capital resources, make expenditures, provide guarantees or indemnification and/or agree to other terms and may also consume a substantial portion of our management’s time and attention. These transactions may not ultimately create value for us or our stockholders, and may adversely affect our business, financial condition or results of operations.
We are subject to environmental and health and safety laws and regulations that impose significant compliance costs and may expose us to substantial liability if we fail to comply.
We are subject to a variety of federal, state, local and foreign environmental laws and regulations, including those relating to employee health and safety, environmental permitting and licensing, air (including greenhouse gas) emissions, water discharges, remediation of soil and groundwater contamination and the generation, use, storage, treatment and disposal of hazardous materials. Some environmental laws impose strict, retroactive and joint and several liability for the remediation of the release of hazardous substances, even for conduct that was lawful at the time it occurred, or for the conduct of, or conditions caused by, prior operators, predecessors or other third parties. Failure to comply with environmental laws could expose us to penalties or clean-up costs, civil or criminal liability and sanctions on certain of our activities, as well as damage to property or natural resources. These liabilities, sanctions, damages and remediation efforts related to any non-compliance with such laws and regulations could negatively impact our ability to conduct our operations and our financial condition and results of operations. In addition, our various prior and future acquisitions and divestitures may have resulted or could result in environmental liabilities unknown to us at the time of acquisition or divestiture or other additional environmental liabilities.
Moreover, environmental laws and regulations, and the interpretation and enforcement thereof, change frequently and have tended to become more stringent over time. Future environmental laws and regulations, or their interpretation, could require us to acquire costly equipment or to incur other significant expenses in connection with our business. For example, increased regulation of greenhouse gas emissions could adversely affect our business, financial condition, results of operations or product demand.
Environmental regulations impacting the mining industry may adversely affect demand for our products.
We supply original equipment and aftermarket services to mining companies operating in major mining regions throughout the world. Our customers’ operations are subject to or affected by a wide array of regulations in the jurisdictions where they operate, including those directly impacting mining activities and those indirectly affecting their businesses, such as applicable environmental laws. In addition, new environmental legislation or administrative regulations relating to mining or affecting demand for mined materials, or more stringent interpretations of existing laws and regulations, may require our customers to significantly change or curtail their operations. The high cost of compliance with environmental regulations may discourage our customers from expanding existing mines or developing new mines and may also cause customers to limit or even discontinue their mining operations. As a result of these factors, demand for our mining equipment and the aftermarket services we provide could be adversely affected by environmental regulations directly or indirectly impacting the mining industry. Any reduction in demand as a result of environmental regulations is likely have an adverse effect on our business, financial condition or results of operations.
We require cash to service our indebtedness, which reduces the cash available to finance our business, and the terms of our debt agreements require us to comply with financial and other covenants.
Our ability to service our indebtedness depends on our financial performance, which is affected by prevailing economic conditions and financial, business, regulatory and other factors. Some of these factors are beyond our control. If we cannot generate sufficient cash flow from operations to service our indebtedness and to meet our other obligations and commitments, we might be required to refinance our debt or to dispose of assets to obtain funds for such purpose. There is no assurance that refinancings or asset dispositions could be effected on a timely basis or on satisfactory terms, if at all, particularly if credit market conditions deteriorate. Furthermore, there can be no assurance that refinancings or asset dispositions would be permitted by the terms of our credit agreements or debt instruments.
Our existing credit agreements contain, and any future debt agreements we may enter into may contain, certain financial tests and other covenants that limit our ability to incur indebtedness, acquire other businesses and impose various other restrictions.

13

Table of Contents

Our ability to comply with financial tests may be adversely affected by changes in economic or business conditions beyond our control, and these covenants may limit our ability to take advantage of potential business opportunities as they arise. We cannot be certain that we will be able to comply with the financial tests and other covenants, or, if we fail to do so, that we will be able to obtain waivers or amended terms from our lenders. An uncured default with respect to one or more of the covenants could result in the amounts outstanding under one or more of the agreements being declared immediately due and payable, which may also trigger an obligation to redeem our outstanding debt securities and repay all other outstanding indebtedness. Any such acceleration of our indebtedness would have a material adverse effect on our business, financial condition and results of operations.
A downgrade to our credit ratings would increase our cost of borrowing under our credit facility and adversely affect our ability to access the capital markets.
Our cost of borrowing under our unsecured revolving credit facility that matures on November 12, 2017 (the “Credit Agreement”) and our ability and the terms under which we may access the capital markets are affected by credit ratings assigned to our indebtedness by the major credit rating agencies. These ratings are premised on our performance under assorted financial metrics, such as leverage and interest coverage ratios and other measures of financial strength, business and financial risk, industry conditions, transparency with rating agencies and timeliness of financial reporting. Our current ratings have served to lower our borrowing costs and facilitate access to a variety of lenders. However, there can be no assurance that our credit ratings or outlook will not be lowered in the future in response to adverse changes in these metrics caused by our operating results or by actions that we take, such as incurring additional indebtedness or by returning excess cash to shareholders through dividends or under our share repurchase program. A downgrade of our credit ratings would increase our cost of borrowing under the Credit Agreement, negatively affect our ability to access the capital markets on advantageous terms, or at all, negatively affect the trading price of our securities and have a material adverse effect our business, financial condition and results of operations.
Significant changes in our actual investment return on pension assets, discount rates and other factors could affect our results of operations, equity and pension funding requirements in future periods.
Our results of operations may be affected by the amount of income or expense that we record for our defined benefit pension plans and certain other retirement benefits. We measure the valuation of our pension plans annually as of our fiscal year end in order to determine the funded status of and our funding obligation with respect to such plans. This annual valuation of our pension plans is highly dependent on certain assumptions used in actuarial valuations, which include actual and expected return on pension assets and discount rates. These assumptions take into account current and expected financial market data, other economic conditions, such as interest rates and inflation, and other factors such as plan asset allocation and future salary increases. If actual rates of return on pension assets materially differ from assumptions, our pension funding obligations may increase or decrease significantly. Our funding obligation is determined under governmental regulations and is measured based on the value of our assets and liabilities. An adverse change in our funded status due to the volatility of returns on pension assets and the discount rate could increase our required future contributions to our plans, which may adversely affect our results of operations and financial condition.
We may record future goodwill impairment charges or other asset impairment charges, which could have a material adverse impact on our financial results.
A significant portion of our assets consists of goodwill and other intangible assets, the carrying value of which may be reduced if we determine that those assets are impaired. As of October 25, 2013 , goodwill and other intangible assets totaled $1.8 billion and represented approximately 31% of our total assets. We evaluate our goodwill and other intangible assets for impairment annually in our fourth quarter, or more frequently if events or changes in circumstances suggest that impairment may exist. Because of the significance of our goodwill and other intangible assets, any future impairment of these assets could have a material adverse effect on our results of operations and financial condition.
In the fourth quarter of 2013, we completed an impairment analysis of intangible assets and recorded a pre-tax, non-cash impairment charge of $155.2 million for trade name intangibles related to our rebranding strategy. If changes occur in the future that diverge from the assumptions and estimates used to calculate the carrying value of our goodwill and other intangible assets, or if our future performance or stock price declines, we may be required to record additional impairment charges, which could negatively impact our results of operation and financial condition.
We may incur additional tax expense or become subject to additional tax exposure.
We are subject to income taxes in the United States and numerous foreign jurisdictions. Our domestic and international tax liabilities are dependent upon the location of earnings among these different jurisdictions. Our provision for income taxes and cash tax liability in the future could be adversely affected by numerous factors, including income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates,

14

Table of Contents

changes in the valuation of deferred tax assets and liabilities and changes in tax laws and regulations. We are also subject to the continuous examination of our income tax returns by the U.S. Internal Revenue Service and other tax authorities. The results of audit and examination of previously filed tax returns and continuing assessments of our tax exposures may have an adverse effect on the company’s provision for income taxes and cash tax liability.
Our continued success depends on our ability to protect our intellectual property, which cannot be assured.
Our future success depends in part upon our ability to protect our intellectual property. We rely principally on nondisclosure agreements and other contractual arrangements and trade secret law and, to a lesser extent, trademark and patent law, to protect our intellectual property. However, these measures may be inadequate to protect our intellectual property from infringement by others or prevent misappropriation of our proprietary rights. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do U.S. laws. Our inability to protect our proprietary information and enforce our intellectual property rights through infringement proceedings could adversely affect our business, financial condition or results of operations.
Demand for our products may be adversely impacted by regulations related to mine safety.
Our principal customers are surface and underground mining companies. The mining industry has encountered increased scrutiny as it relates to safety regulations primarily due to recent high profile mining accidents. Current or proposed legislation and regulations on safety standards and the increased cost of compliance may induce customers to discontinue or limit their mining operations and may discourage companies from developing new mines, which in turn could diminish demand for our products.
Our manufacturing operations are dependent upon third party suppliers, making us vulnerable to supply shortages and price increases, and we are also limited by our plant capacity constraints.
In the manufacture of our products, we use large amounts of raw materials and processed inputs including steel, copper and engine and electronic components. We obtain raw materials and certain manufactured components from third party suppliers. Our ability to grow revenues is constrained by the capacity of our plants, our ability to supplement that capacity with outside sources and our success in securing critical raw materials such as steel and copper. To reduce material costs and inventories, we rely on supplier arrangements with preferred vendors as a source for “just in time” delivery of many raw materials and manufactured components. Because we maintain limited raw material and component inventories, even brief unanticipated delays in delivery by suppliers, including those due to capacity constraints, labor disputes, impaired financial condition of suppliers, weather emergencies or other natural disasters, may adversely affect our ability to satisfy our customers on a timely basis and thereby affect our financial performance. If we are not able to pass raw material or component price increases on to our customers, our margins could be adversely affected. Any of these events could adversely affect our business, financial condition or results of operations.
Labor disputes and increasing labor costs could adversely affect us.
Many of our principal domestic and foreign operating subsidiaries are parties to collective bargaining agreements with their employees. As of October 25, 2013 , collective bargaining agreements or similar type arrangements cover 29% of our U.S. workforce and 20% of our international employees. We cannot provide assurance that disputes, work stoppages or strikes will not arise in the future. In addition, when existing collective bargaining agreements expire, we cannot be certain that we will be able to reach new agreements with our employees. In fiscal 2014 , union agreements are to expire for 10% of our employees, with the largest agreement covering the International Association of Machinists union at our Franklin, Pennsylvania facility. New collective bargaining agreements may be on substantially different terms and may result in increased direct and indirect labor costs. Future disputes with our employees could adversely affect our business, financial condition or results of operations.
A material disruption to one of our significant manufacturing plants could adversely affect our ability to generate revenue.
We produce most of our original equipment and aftermarket parts for each product type at a limited number of principal manufacturing facilities. If operations at one or more of these significant facilities were to be disrupted as a result of equipment failures, natural disasters, power outages or other reasons, our business, financial condition or results of operations could be adversely affected. Interruptions in production could increase costs and delay delivery of some units. Production capacity limits could cause us to reduce or delay sales efforts until capacity is available.
Our business could be adversely affected by our failure to develop new technologies.
The mining industry is a capital-intensive business, with extensive planning and development necessary to open a new mine. The success of our customers’ mining projects is largely dependent on the efficiency with which the mine operates. If we are unable to provide continued technological improvements in our equipment that meet the needs and expectations of our customers and the broader industry on mine productivity, safety and efficiency, the demand for our mining equipment would be adversely affected which would negatively impact our business, financial condition and results of operations.

15

Table of Contents

We may be adversely affected by litigation or contractual obligations entered into in the ordinary course of our business.
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 asbestos and silica related liability), employment and commercial matters. We and our subsidiaries also become involved from time to time in proceedings relating to environmental matters. While we maintain insurance coverage with respect to certain claims, our policies are subject to substantial deductibles. Furthermore, we cannot be certain that the coverage limits of our insurance policies will be adequate or that our policies will cover any particular loss. Insurance can be expensive, and we may not always be able to purchase insurance on commercially acceptable terms, if at all. Claims brought against us that are not covered by insurance (or for which our insurers refuse to provide coverage) or that result in recoveries in excess of insurance coverage could adversely affect our business, financial condition or results of operations.
Also, as a normal part of operations, our subsidiaries may undertake contractual obligations, warranties and guarantees in connection with the sale of products or services. Some of these claims and obligations involve significant potential liability, which may adversely affect our business, financial condition or results of operations.
If we are unable to hire and retain qualified employees, our growth may be hindered.
Our ability to provide high quality products and services depends in part on our ability to hire and retain skilled personnel in the areas of senior management, product engineering, manufacturing, servicing and sales. Competition for such personnel is intense and our competitors and others can be expected to attempt to hire our skilled employees from time to time. In particular, our results of operations could be adversely affected if we are unable to retain customer relationships and technical expertise provided by our management team and our professional personnel.
We rely on significant customers, the loss of one or more of which could adversely affect our operating results, financial condition and existing business.
We are dependent on maintaining significant customers by delivering reliable, high performance mining equipment and other products on a timely basis. We do not consider ourselves to be dependent upon any single customer; however, our top ten customers collectively accounted for approximately 43% of our sales for fiscal 2013 . Our sales have become more concentrated in recent years as consolidation has occurred in the mining industry. Consolidation and divestitures in the mining industry may result in different equipment preferences among current and former significant customers. The loss of one or more of our significant customers could, at least on a short-term basis, have an adverse effect on our business, financial condition or results of operations.
Increased IT security threats and more sophisticated computer crime pose a risk to our systems, networks, products and services.
We rely on information technology ("IT") systems and networks in connection with a variety of business activities, and we collect and store sensitive data. Increased IT security threats and more sophisticated computer crime, including advanced persistent threats, pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. A failure of or breach in security could expose us and our customers, dealers and suppliers to risks of misuse of information or systems, the compromising of confidential information, manipulation and destruction of data, defective products, production downtimes and operations disruptions, which in turn could adversely affect our reputation, competitive position, business and results of operations. In addition, such breaches in security could result in litigation, regulatory action and potential liability and the costs and operational consequences of implementing further data protection measures.
Regulations related to conflict-free minerals may force us to incur additional expenses.
In August 2012, the SEC adopted disclosure requirements related to certain minerals sourced from the Democratic Republic of Congo or adjoining countries, as required by Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The new rule, which went into effect for calendar year 2013 and requires a disclosure report to be filed with the SEC by May 31, 2014, requires us to perform due diligence, disclose and report whether or not “conflict minerals,” which are defined as tin, tantalum, tungsten and gold, necessary to the functionality of a product we manufacture originate from the Democratic Republic of Congo or an adjoining country. Our supply chain is complex and we may incur significant costs to determine the source and custody of any “conflict minerals” necessary to the functionality of our equipment. We may also face reputational challenges if we are unable to verify the origins for all conflict minerals used in our equipment, or if we are unable to certify that our products are “conflict free.” Implementation of this rulemaking may also affect the sourcing, price and availability of some minerals necessary to the manufacture of our products, and may affect the availability and price of conflict minerals capable of certification as “conflict-free.” In addition, in the future we may be required to comply with similar regulatory initiatives in other jurisdictions, which could present the same or additional challenges and result in additional compliance costs. Accordingly, we may incur significant costs as a consequence of regulations related to conflict-free minerals, which may adversely affect our business, financial condition or results of operations.
 
Item 1B. Unresolved Staff Comments
None.

Item 2. Properties
As of October 25, 2013 , the following principal properties of our operations were owned, except as indicated. Our worldwide corporate headquarters is currently housed in 13,000 square feet of leased space in Milwaukee, Wisconsin. All of these properties are generally suitable for the operations currently conducted at them.
Underground Mining Machinery Locations
Location
 
Floor Space
(Sq. Ft.)
 
 
 
Land Area
(Acres)
 
Principal Operations
United States
 
 
 
 
 
 
 
 
Warrendale, Pennsylvania
 
71,250

 
  
 
13

 
Administration, engineering
Eighty Four, Pennsylvania
 
118,000

 
(5)
 

 
Warehouse, distribution
Franklin, Pennsylvania
 
830,900

 
  
 
58

 
Manufacturing, administration, engineering, assembly
Homer City, Pennsylvania
 
91,124

 
  
 
10

 
Manufacturing, warehouse, administration, repairs, rebuilds, assembly
Meadowlands, Pennsylvania
 
117,900

 
  
 
12

 
Warehouse, administration, repairs, distributions, sales
Reno, Pennsylvania
 
121,400

 
  
 
22

 
Manufacturing
Winfield, Alabama
 
250,000

 
 
 
33

 
Manufacturing, administration, sales, engineering
Winfield, Alabama
 
960

 
(1)
 

 
Distribution
Mount Vernon, Illinois
 
1,700

 
(2)
 

 
Services
Lebanon, Kentucky
 
88,250

 
  
 
12

 
Manufacturing, repairs, rebuilds, assembly
Salyersville, Kentucky
 
125,842

 
  
 
14

 
Manufacturing
Brook Park, Ohio
 
85,000

 
  
 
4

 
Manufacturing
Solon, Ohio
 
101,200

 
  
 
11

 
Manufacturing
Belton, South Carolina
 
191,000

 
 
 
24

 
Manufacturing, administration, sales, engineering
Wellington, Utah
 
76,250

 
  
 
60

 
Warehouse, administration, repairs, rebuilds, sales, assembly
Bluefield, Virginia
 
102,160

 
  
 
15

 
Manufacturing, repairs, rebuilds, assembly
Duffield, Virginia
 
101,310

 
  
 
11

 
Repairs, rebuilds, sales
Australia
 
 
 
 
 
 
 
 
Minto
 
23,024

 
  
 
4

 
Manufacturing
Moss Vale
 
97,392

 
  
 
33

 
Manufacturing, repairs, rebuilds, engineering
Moss Vale
 
38,750

 
(1)
 
13

 
Warehouse, administration
Moss Vale
 
11,302

 
(1)
 

 
Warehouse
Mudgee
 
2,046

 
(3)
 

 
Administration, sales
Parkhurst
 
76,639

 
  
 
19

 
Repairs, rebuilds
Somersby
 
49,655

 
  
 
3

 
Manufacturing, administration, repairs, engineering
Wollongong
 
14,334

 
(5)
 

 
Administration, engineering

16

Table of Contents

Underground Mining Machinery Locations
China
 
 
 
 
 
 
 
 
Baotou
 
104,162

 
(6)
 
6

 
Repairs, rebuilds, engineering, services
Beijing
 
10,793

 
(2)
 

 
Administration, sales
Beijing
 
20,821

 
(4)
 

 
Administration, sales
Huainan
 
349,255

 
  
 
50

 
Manufacturing, warehouse, administration, sales, engineering, services, assembly
Jiamusi
 
1,222,228

 
  
 
28

 
Manufacturing, warehouse, administration, repairs, distribution, sales, services, assembly
Jixi
 
929,945

 
  
 
18

 
Manufacturing, warehouse, administration
Qingdao
 
117,692

 
  
 
1

 
Manufacturing, warehouse, administration, services, assembly
Tianjin
 
370,187

 
 
 
9

 
Manufacturing
Tianjin
 
205,645

 
(10)
 
8

 
Manufacturing
Wuxi
 
185,421

 
  
 
26

 
Manufacturing
England
 
 
 
 
 
 
 
 
Pinxton
 
76,000

 
  
 
10

 
Repairs, rebuilds, sales, services, assembly
Sunderland
 
100,850

 
(9)
 
5

 
Manufacturing, administration, sales, engineering
Wigan
 
60,000

 
(3)
 
3

 
Administration, services
Worcester
 
178,000

 
  
 
14

 
Manufacturing, administration, repairs, engineering
India
 
 
 
 
 
 
 
 
Nagpur
 
8,053

 
(6)
 

 
Administration, repairs, rebuilds, distribution, sales, services
Poland
 
 
 
 
 
 
 
 
Tychy
 
66,206

 
  
 
9

 
Manufacturing, warehouse, administration, repairs, rebuilds, distribution, sales, engineering, services, assembly
Russia
 
 
 
 
 
 
 
 
Novokuznetsk
 
15,750

 
(2)
 
3

 
Manufacturing, warehouse, repairs, rebuilds
South Africa
 
 
 
 
 
 
 
 
Pretoria
 
2,778

 
(2)
 
1

 
Administration
Rustenburg
 
538

 
(2)
 
1

 
Administration, services
Steeledale
 
250,381

 
  
 
13

 
Manufacturing, warehouse, repairs, rebuilds, assembly
Wadeville
 
333,393

 
  
 
29

 
Manufacturing, warehouse, administration, repairs, rebuilds, distribution, sales, engineering, services, assembly
Witbank
 
21,506

 
  
 
1

 
Administration, distribution, sales, services
Witbank
 
18,202

 
 
 
1

 
Warehouse, administration


Surface Mining Equipment Locations
Location
 
Floor Space
(Sq. Ft.)
 
 
 
Land Area
(Acres)
 
Principal Operations
United States
 
 
 
 
 
 
 
 
Milwaukee, Wisconsin
 
684,000

 
  
 
46

 
Manufacturing, warehouse, administration, distribution, sales, engineering, assembly
Milwaukee, Wisconsin
 
180,000

 
  
 
13

 
Manufacturing, administration, sales, assembly
Milwaukee, Wisconsin
 
91,207

 
(3)
 
8

 
Manufacturing, sales and assembly
Mesa, Arizona
 
73,000

 
  
 
5

 
Warehouse, administration, repairs, rebuilds

17

Table of Contents

Surface Mining Equipment Locations
Portland, Oregon
 
26,586

 
  
 
6

 
Warehouse, administration, repairs, rebuilds, distribution, sales, services, assembly
Virginia, Minnesota
 
82,000

 
 
 
20

 
Warehouse, administration, repairs, rebuilds, distribution, sales, services, assembly
Elko, Nevada
 
30,000

 
  
 
5

 
Repairs and rebuilds
Elko, Nevada
 
28,000

 
(5)
 
4

 
Repairs and services
Kilgore, Texas
 
12,400

 
  
 
4

 
Administration, sales, services
Longview, Texas
 
1,411,000

 
  
 
2,105

 
Manufacturing, warehouse, administration, repairs, distribution, sales, engineering, services, assembly
Evansville, Wyoming
 
25,000

 
  
 
6

 
Rebuilds
Gillette, Wyoming
 
60,000

 
  
 
6

 
Manufacturing, warehouse, administration, repairs, rebuilds, sales, services
Gillette, Wyoming
 
16,000

 
  
 
3

 
Administration, services, assembly
Australia
 
 
 
 
 
 
 
 
Bassendean
 
72,500

 
  
 
5

 
Warehouse, administration, sales, services, assembly
East Maitland
 
32,916

 
(1)
 
1

 
Warehouse and repairs
Hemmant
 
23,724

 
  
 
2

 
Warehouse, administration, repairs
Mackay
 
36,425

 
  
 
3

 
Warehouse, administration, repairs, sales, services
Murarrie
 
29,000

 
(4)
 
1

 
Warehouse, administration, repairs, rebuilds, sales
Murarrie
 
15,000

 
(6)
 
1

 
Administration, sales
Muswellbrook
 
60,837

 
  
 
2

 
Warehouse, administration
Perth
 
29,116

 
(8)
 
1

 
Warehouse
Rutherford
 
15,640

 
(3)
 
4

 
Warehouse, administration, repairs
Rutherford
 
150,000

 
 
 
11

 
Warehouse, administration, repairs, rebuilds, sales, services, assembly
Brazil
 
 
 
 
 
 
 
 
Belo Horizonte
 
40,365

 
(4)
 
1

 
Warehouse, administration, repairs, distributions, sales, engineering, services, assembly
Canada
 
 
 
 
 
 
 
 
Calgary
 
31,499

 
(2)
 
1

 
Manufacturing, administration
Edmonton
 
37,810

 
(2)
 
6

 
Warehouse, rebuilds
Fort McMurray
 
44,200

 
(14)
 
5

 
Warehouse, rebuilds
Labrador City
 
15,496

 
(6)
 

 
Warehouse, rebuilds
Prince George
 
4,725

 
(6)
 

 
Warehouse
Sparwood
 
67,923

 
(2)
 
2

 
Services
Chile
 
 
 
 
 
 
 
 
Antofagasta
 
303,844

 
  
 
7

 
Repairs, rebuilds, engineering, services, assembly
Antofagasta
 
161,459

 
(1)
 
4

 
Warehouse, distribution
Santiago
 
73,195

 
(1)
 
2

 
Warehouse
China
 
 
 
 
 
 
 
 
Tianjin
 
127,880

 
(10)
 
3

 
Manufacturing, warehouse, administration, distribution, engineering, assembly
India
 
 
 
 
 
 
 
 
Kolkata
 
10,176

 
(10)
 

 
Administration, sales, services
Mexico
 
 
 
 
 
 
 
 
Tlaquepaque, Jalisco
 
5,823

 
(4)
 

 
Administration
Cananea, Sonora
 
15,000

 
(2)
 

 
Warehouse, administration, repairs
Russia
 
 
 
 
 
 
 
 
Mezhdurechensk Kemerovo
 
11,840

 
(1)
 

 
Warehouse, administration


18

Table of Contents

(1)
Under a month-to-month lease
(2)
Under a lease expiring in 2014
(3)
Under a lease expiring in 2015
(4)
Under a lease expiring in 2016
(5)
Under a lease expiring in 2017
(6)
Under a lease expiring in 2018
(7)
Under a lease expiring in 2019
(8)
Under a lease expiring in 2020
(9)
Under a lease expiring in 2021
(10)
Under a lease expiring in 2022
(11)
Under a lease expiring in 2023
(12)
Under a lease expiring in 2024
(13)
Under a lease expiring in 2025
(14)
Under a lease expiring in 2026

Item 3. Legal Proceedings
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 approximately 2,900 asbestos and silica-related cases), employment and commercial matters. We and our subsidiaries also become involved from time to time in proceedings relating to environmental matters. In addition, 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.

Item 4. Mine Safety Disclosures
Not applicable.

Executive Officers of the Registrant
The following table shows certain information for each of our executive officers, including their position within the corporation and their business experience. Our executive officers are elected each year at the organizational meeting of our Board of Directors, which follows the annual meeting of shareholders, and at other meetings as needed.
Name
 
Age
 
Current Office and Principal Occupation
 
Years as
Officer
Michael W. Sutherlin
 
67
 
President and Chief Executive Officer and a director of Joy Global Inc. since 2006. Mr. Sutherlin will retire on February 1, 2014.
 
11
James M. Sullivan
 
53
 
Executive Vice President and Chief Financial Officer of Joy Global Inc. since December 2012. He previously served as Chief Financial Officer of Solutia, Inc. from 2004 to 2012. Mr. Sullivan also served as Solutia’s Executive Vice President from 2009 until his departure and previously served as Senior Vice President from 2004 through 2009 and Treasurer from 2004 through 2011.
 
1
Edward L. Doheny II
 
51
 
Executive Vice President of Joy Global Inc. and President and Chief Operating Officer of Joy Global Underground Mining since 2006. Mr. Doheny was elected to the Board of Directors on December 3, 2013. The Board of Directors expects to appoint Mr. Doheny as President and Chief Executive Officer prior to Mr. Sutherlin's retirement.
 
7
Randal W. Baker
 
50
 
Executive Vice President of Joy Global Inc. and President and Chief Operating Officer of Joy Global Surface Mining since 2009. From 2004 to 2009 he served as President and CEO of Case IH Agriculture Inc. The Board of Directors expects to appoint Mr. Baker as Executive Vice President and Chief Operating Officer coincident with the appointment of Mr. Doheny as President and Chief Executive Officer.
 
4
Sean D. Major
 
49
 
Executive Vice President, General Counsel and Secretary of Joy Global Inc. since 2007.
 
7
Johan S. Maritz
 
54
 
Executive Vice President, Human Resources, for Joy Global Inc. since 2012. From 2007 to 2012 he served as Vice President, Human Resources for Joy Global Underground Mining.
 
1

19

Table of Contents

PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock, par value $1.00 per share, began trading on the New York Stock Exchange on December 6, 2011 under the symbol “JOY.” Our common stock was previously traded on the NASDAQ Global Select Market under the symbol “JOYG.” The table below sets forth the high and low sales price and dividend payments for our common stock during the periods indicated. As of December 5, 2013 , there were approximately 108,679 shareholders of record.
 
Price per Share
 
Dividends
Per Share
 
High
 
Low
 
Fiscal 2013
 
 
 
 
 
Fourth Quarter
$
58.96

 
$
48.07

 
$
0.175

Third Quarter
$
61.75

 
$
47.83

 
$
0.175

Second Quarter
$
68.21

 
$
52.10

 
$
0.175

First Quarter
$
69.19

 
$
53.83

 
$
0.175

Fiscal 2012
 
 
 
 
 
Fourth Quarter
$
64.13

 
$
48.20

 
$
0.175

Third Quarter
$
71.49

 
$
47.69

 
$
0.175

Second Quarter
$
95.98

 
$
70.01

 
$
0.175

First Quarter
$
96.00

 
$
72.59

 
$
0.175


During the fourth quarter of fiscal 2013 , we made the following purchases of our common stock:
Period
 
Total Number of Shares Purchased
 
Average Price Paid Per Share
 
Total Number of Shares Purchased Under the Publicly Announced Program*
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program*
(in millions)
July 27, 2013 - August 23, 2013
 
N/A

 
N/A

 
N/A

 
N/A

August 24, 2013 - September 20, 2013
 
1,780,000

 
$
51.82

 
1,780,000

 
$
907.8

September 21, 2013 - October 25, 2013
 
2,325,000

 
$
52.42

 
2,325,000

 
$
785.9

* On August 28, 2013 , our Board of Directors authorized the Company to repurchase up to $1.0 billion in shares of common stock until August 19, 2016 . Under the program, the Company may repurchase shares in the open market in accordance with applicable SEC rules and regulations.

20

Table of Contents


The following graph sets forth the cumulative total shareholder return, including reinvestment of dividends on a quarterly basis, on common stock during the preceding five years, as compared to the cumulative total returns of the Standard and Poor’s (“S&P”) 500 Composite Stock Index and the Dow Jones United States Commercial Vehicle Truck Index (“DJUSHR”). This graph assumes $100 was invested on October 31, 2008 in Common Stock, the S&P 500 Composite Stock Index and the DJUSHR.
 
10/31/2008
 
10/30/2009
 
10/29/2010
 
10/28/2011
 
10/26/2012
 
10/25/2013
Joy Global Inc.
$
100.00

 
$
179.13

 
$
255.34

 
$
330.84

 
$
225.64

 
$
215.66

S&P 500
100.00

 
109.80

 
127.94

 
138.29

 
159.32

 
202.61

DJUSHR
100.00

 
139.03

 
211.22

 
228.31

 
227.66

 
264.03


Item 6. Selected Financial Data
The following table sets forth certain selected historical financial data on a consolidated basis. The selected consolidated financial data was derived from our Consolidated Financial Statements. Our fiscal year end is the last Friday in October, and each of our fiscal quarters consists of 13 weeks, except for any fiscal years consisting of 53 weeks which will have one additional week in the first quarter. The selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements appearing in Item 8, Financial Statements and Supplementary Data and Item 15, Exhibits and Financial Statement Schedules .
RESULTS OF OPERATIONS
 

21


In thousands except per share amounts
Year Ended October 25, 2013
 
Year Ended October 26, 2012 (1)
 
Year Ended October 28, 2011 (2)
 
Year Ended October 29, 2010
 
Year Ended October 30, 2009
Net sales
$
5,012,697

 
$
5,660,889

 
$
4,403,906

 
$
3,524,334

 
$
3,598,314

Operating income
821,661

 
1,172,559

 
920,179

 
697,103

 
702,312

Income from continuing operations attributable to Joy Global Inc.
$
533,938

 
$
767,081

 
$
631,002

 
$
461,499

 
$
454,650

Loss from discontinued operations
(225
)
 
(5,060
)
 
(21,346
)
 

 

Net income attributable to Joy Global Inc.
$
533,713

 
$
762,021

 
$
609,656

 
$
461,499

 
$
454,650

Basic Earnings Per Share
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
5.03

 
$
7.25

 
$
6.01

 
$
4.47

 
$
4.44

Loss from discontinued operations

 
(0.05
)
 
(0.20
)
 

 

Net income per common share
$
5.03

 
$
7.20

 
$
5.81

 
$
4.47

 
$
4.44

Diluted Earnings Per Share
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
4.99

 
$
7.18

 
$
5.92

 
$
4.40

 
$
4.41

Loss from discontinued operations

 
(0.05
)
 
(0.20
)
 

 

Net income per common share
$
4.99

 
$
7.13

 
$
5.72

 
$
4.40

 
$
4.41

Dividends Per Common Share
$
0.70

 
$
0.70

 
$
0.70

 
$
0.70

 
$
0.70

Working capital excluding cash held in escrow and discontinued operations
$
1,473,538

 
$
1,388,407

 
$
1,000,475

 
$
1,338,603

 
$
1,023,243

Total assets
$
5,789,582

 
$
6,142,503

 
$
5,426,354

 
$
3,271,013

 
$
2,995,251

Total long-term obligations
$
1,307,376

 
$
1,357,092

 
$
1,388,167

 
$
396,668

 
$
542,217

(1) – In December 2011, we acquired IMM, a leading designer and manufacturer of underground coal mining equipment in China.
(2) – In June 2011, we acquired LeTourneau, a worldwide leader in earthmoving equipment, and in October 2011 we completed the sale of its drilling products business. The drilling products business is accounted for as discontinued operations.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes. References made to years are for fiscal year periods. Dollar amounts are in thousands, except per-share data and as otherwise indicated.
The purpose of this discussion and analysis is to enhance the understanding and evaluation of the results of operations, financial position, cash flows, indebtedness and other key financial information of Joy Global Inc. and its subsidiaries for fiscal 2013 , 2012 and 2011 . For a more complete understanding of this discussion, please read the Notes to Consolidated Financial Statements included in this report.

Overview
We are a leading manufacturer and servicer of high productivity mining equipment for the extraction of coal and other minerals and ores. 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, gold and other minerals. We operate in two business segments: Underground Mining Machinery and Surface Mining Equipment. We are a major manufacturer of underground mining machinery for the extraction of coal and other bedded minerals and offer comprehensive service locations near major mining regions worldwide. We are also a major producer of surface mining equipment for the extraction of ores and minerals and we provide extensive operational support for many types of equipment used in surface mining. Our principal manufacturing facilities are located in the United States, including facilities in Pennsylvania, Wisconsin, Texas and Alabama, and internationally, including facilities in China, the United Kingdom, South Africa and Australia.
Acquisition of LeTourneau

22

Table of Contents

On June 22, 2011, we purchased LeTourneau for approximately $1.1 billion. LeTourneau designs, builds and supports equipment for the mining industry and has been a leader in the earthmoving equipment industry since the 1920s. LeTourneau historically operated in three business segments: mining equipment, steel products and drilling products.
On October 24, 2011, we completed the sale of LeTourneau's drilling products business to Cameron International Corporation for $375.0 million in cash, subject to a post-closing working capital adjustment of $56.3 million that we paid in fiscal 2012. We entered into a Transition Manufacturing and Supply Agreement to allow for the orderly transfer of drilling products production from Longview, Texas and a Steel Supply Agreement to allow the buyer time to develop other sources. In conjunction with our entrance into the Transition Manufacturing and Supply Agreement, we recognized an upfront loss and related liability of $23.3 million for unreimbursable manufacturing costs. The liability was utilized and adjusted during fiscal 2013 and 2012 to reflect actual results of performance under the agreement. The agreement expired in fiscal 2013.
The results of operations for LeTourneau are included in the accompanying consolidated financial statements, with the mining equipment and steel products businesses included in our Surface Mining Equipment segment and the drilling products business reflected as results of discontinued operations.
Acquisition of International Mining Machinery
On December 29, 2011, we acquired a controlling interest in IMM, a leading designer and manufacturer of underground coal mining equipment in China. In fiscal 2012, we acquired the remaining shares of IMM through a tender offer and subsequent compulsory acquisition of the untendered shares.
Prior to obtaining control on December 29, 2011, we accounted for our investment in IMM 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 Consolidated Statement of Income under the heading Other income for the year ended October 26, 2012. The results of operations for IMM have been included in the accompanying 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 Consolidated Statements of Income under the heading Other income and included in Corporate.
Operating Results
Net sales for fiscal 2013 were $5.0 billion , compared to $5.7 billion in fiscal 2012 . The 11.5% decrease in net sales in the current year included a $455.5 million decrease in original equipment sales and a $192.6 million decrease in aftermarket sales. The decrease in sales was driven by declining order rates and weak market conditions. Original equipment sales decreased in all regions except Africa and South America, which increased by $81.0 million and $31.0 million, respectively. Aftermarket sales decreased in all regions except South America, which increased by $29.3 million. Compared to the prior year, net sales in fiscal 2013 included an $88.0 million unfavorable effect of foreign currency translation.
Operating income in fiscal 2013 was $821.7 million or 16.4% of net sales, compared to $1.2 billion or 20.7% of net sales in fiscal 2012 . The 29.9% decrease in operating income in the current year is due to lower volumes of $263.0 million, unfavorable product mix of $28.0 million, less favorable manufacturing cost absorption of $39.2 million and a non-cash impairment of certain acquired trademarks of $155.2 million . These items were partially offset by favorable period costs of $76.3 million, which includes a $44.9 million decrease in excess purchase accounting costs and a $12.5 million decrease in costs from the prior year pension curtailment, and reduced product development, selling and administrative expenses of $56.8 million, which includes a $15.4 million decrease in acquisition costs and a $19.1 million increase in restructuring costs. In addition, there was a $1.4 million increase in other income, which includes a successful claim settlement in the fourth quarter of $15.0 million and a successful acquisition settlement in the fourth quarter of $13.5 million associated with IMM, partially offset by the prior year gain of $19.4 million on the re-measurement of our interest in IMM upon obtaining a controlling interest. Compared to the prior year, operating income in fiscal 2013 included a $21.4 million unfavorable effect of foreign currency translation.
Income from continuing operations attributable to Joy Global Inc. was $533.9 million , or $4.99 per diluted share, in fiscal 2013 compared to $767.1 million , or $7.18 per diluted share, in fiscal 2012 .
Bookings for fiscal 2013 were approximately $3.9 billion , compared to $5.1 billion in fiscal 2012 . The 22.6% decrease in bookings in the current year is made up of a $779.6 million decrease in original equipment bookings and a $366.9 million decrease in aftermarket bookings. The decrease in bookings was driven by weak market conditions. Original equipment bookings decreased in all regions except Eurasia, which increased by $82.7 million. Significant original equipment projects greater than $100.0 million included in orders in fiscal 2013 were $271.0 million, compared to $381.0 million in fiscal 2012. Aftermarket bookings decreased in all regions. Compared to the prior year, bookings in fiscal 2013 included a $162.2 million unfavorable effect of foreign currency translation, due primarily to the decline in the value of the Australian dollar and South African rand relative to the U.S. dollar.

23

Table of Contents


Results of Operations
Fiscal 2013 Compared With Fiscal 2012
Sales
The following table sets forth fiscal 2013 and 2012 net sales as derived from our Consolidated Statements of Income:
In thousands
2013
 
2012
 
 $ Change
 
% Change
Net Sales
 
 
 
 
 
 
 
Underground Mining Machinery
$
2,691,039

 
$
3,107,488

 
$
(416,449
)
 
(13.4
)%
Surface Mining Equipment
2,494,678

 
2,737,488

 
(242,810
)
 
(8.9
)%
Eliminations
(173,020
)
 
(184,087
)
 
11,067

 
 
Total
$
5,012,697

 
$
5,660,889

 
$
(648,192
)
 
(11.5
)%
Underground Mining Machinery net sales for fiscal 2013 were $2.7 billion , compared to $3.1 billion in fiscal 2012 . Original equipment sales decreased by $245.5 million , or 16.2% , during the year, and aftermarket sales decreased by $170.9 million , or 10.8% . The decrease in sales was driven by declining order rates and weak market conditions. Original equipment sales were stronger in Africa by $36.8 million, offset by declines in all other regions. Aftermarket sales declined in all regions except Australia, which increased by $6.2 million. Foreign currency translation unfavorably impacted sales by $71.4 million .
Surface Mining Equipment net sales for fiscal 2013 were $2.5 billion compared to $2.7 billion in fiscal 2012 . Original equipment sales decreased by $212.5 million , or 16.6% , during the year, and aftermarket sales decreased by $30.3 million , or 2.1% . The decrease in sales was driven by declining order rates and weak market conditions. Original equipment sales increases in South America and Africa of $31.0 million and $44.2 million, respectively, were more than offset by declines in all other regions. Aftermarket growth in South America and Eurasia of $29.3 million and $11.6 million, respectively, was more than offset by lower aftermarket sales in all other regions. Foreign currency translation unfavorably impacted sales by $16.6 million .
Operating Income
The following table sets forth fiscal 2013 and 2012 operating income as derived from our Consolidated Statements of Income:
 
2013
 
2012
In thousands
Operating Income (Loss)
 
 % of Net Sales
 
Operating Income (Loss)
 
% of Net Sales
Operating Income (Loss)
 
 
 
 
 
 
 
Underground Mining Machinery
$
367,233

 
13.6
%
 
$
671,797

 
21.6
%
Surface Mining Equipment
525,314

 
21.1
%
 
592,687

 
21.7
%
Corporate Expenses
(25,652
)
 
 
 
(51,079
)
 
 
Eliminations
(45,234
)
 
 
 
(40,846
)
 
 
Total
$
821,661

 
16.4
%
 
$
1,172,559

 
20.7
%
Underground Mining Machinery operating income for fiscal 2013 was $367.2 million , compared to $671.8 million in fiscal 2012 . Operating income was unfavorably impacted by $173.9 million due to lower volumes, $31.5 million due to unfavorable product mix, $15.3 million due to less favorable manufacturing cost absorption, $3.5 million due to reduced other income and $130.2 million due to a non-cash impairment of certain acquired trademarks. These items were partially offset by $30.5 million due to favorable period costs, which includes a $31.2 million decrease in excess purchase accounting costs and a $2.1 million decrease in costs from the prior year pension curtailment, and $19.3 million due to reduced product development, selling and administrative expenses, despite a $13.3 million increase in restructuring costs. Foreign currency translation unfavorably impacted operating income by $19.4 million .
Surface Mining Equipment operating income for fiscal 2013 was $525.3 million , compared to $592.7 million in fiscal 2012 . Operating income was unfavorably impacted by $92.3 million due to lower volumes, $23.9 million due to less favorable manufacturing cost absorption, $3.4 million due to reduced other income and $25.0 million due to a non-cash impairment of certain acquired trademarks. These items were partially offset by $11.1 million due to favorable product mix, $45.8 million due to favorable period costs, which includes a $13.7 million decrease in excess purchase accounting costs and a $10.4 million decrease in costs from the prior year pension curtailment, and $20.4 million due to reduced product development, selling and administrative expenses,

24

Table of Contents

which includes a $6.8 million increase in restructuring costs. Foreign currency translation unfavorably impacted operating income by $2.0 million .
Corporate expense for fiscal 2013 was $25.7 million , compared to $51.1 million in fiscal 2012 . The decrease in corporate expense is primarily due to a decrease in acquisition costs of $15.4 million, a decrease in restructuring costs of $1.0 million, a successful claim settlement in the fourth quarter of $15.0 million and a successful acquisition settlement in the fourth quarter of $13.5 million associated with IMM. These items were partially offset by the prior year gain of $19.4 million on the re-measurement of our interest in IMM upon obtaining a controlling interest.
Product Development, Selling and Administrative Expense
Product development, selling and administrative expense for fiscal 2013 was $680.0 million , or 13.6% of sales, compared to $736.8 million , or 13.0% of sales, in fiscal 2012 . Product development expense decreased by $8.0 million , which was driven by reduced headcount and other cost reduction actions, as well as recoveries related to longwall deliveries and development activity. Selling expense decreased by $22.6 million due to lower pension expense, lower commissions from lower sales volumes, decreased amortization of intangibles and reduced headcount and other cost reduction actions. Administrative expense decreased by $26.1 million due primarily to lower acquisition costs, lower pension and bad debt expenses, lower performance based compensation and reduced headcount and other cost reduction actions. These administrative expenses were partially offset by increased restructuring charges.
In addition, in the fourth quarter of fiscal 2013, we reviewed our brand portfolio and developed a strategy to increase the visibility of our core brands in furtherance of our One Joy Global initiative. During this review, we determined that the indefinite life assumption was no longer appropriate for most of our previously acquired trademarks. As a result, a non-cash impairment charge of $155.2 million was recorded in the fourth quarter of fiscal 2013, of which $130.2 million was recorded by our Underground Mining Machinery segment and $25.0 million was recorded by our Surface Mining Equipment segment. This impairment charge is not expected to result in future cash outflows to the Company.
Net Interest Expense
Net interest expense for fiscal 2013 was $57.5 million , compared to $67.4 million in fiscal 2012 . The decrease in net interest expense is primarily due to higher borrowings in the prior year and generally lower short-term rates. In February 2012, we drew a term loan of $250.0 million in conjunction with the IMM tender offer. This loan was repaid in October 2012.
Provision for Income Taxes
Income tax expense for fiscal 2013 was $230.2 million , compared to $337.9 million in fiscal 2012 . The effective income tax rate from continuing operations was 30.1% for fiscal 2013 , compared to 30.6% in fiscal 2012 . The main drivers of the variance in tax rates when compared to the statutory rate of 35.0% were the geographic mix of earnings with the corresponding net favorable differences in foreign statutory tax rates and benefits related to the deduction received for U.S. manufacturing activities.
Net discrete tax benefits of $5.2 million were recorded in fiscal 2013 , compared to net discrete tax benefits of $7.6 million in 2012 .
Bookings
Bookings represent the cumulative amount of new customer orders for original equipment and aftermarket products and services, exclusive of long-term maintenance and repair arrangements and life cycle management arrangements awarded to us during the reporting period. Customer orders included in bookings represent arrangements to purchase specific original equipment, products or services by customers who have satisfied our credit review procedures. We record bookings when firm orders are received and add the bookings to our backlog. Bookings for fiscal 2013 and 2012 are as follows:
In thousands
2013
 
2012
 
$ Change
 
% Change
Bookings
 
 
 
 
 
 
 
Underground Mining Machinery
$
2,301,059

 
$
2,780,799

 
$
(479,740
)
 
(17.3
)%
Surface Mining Equipment
1,779,827

 
2,474,003

 
(694,176
)
 
(28.1
)%
Eliminations
(156,019
)
 
(183,463
)
 
27,444

 
 
Total Bookings
$
3,924,867

 
$
5,071,339

 
$
(1,146,472
)
 
(22.6
)%
Underground Mining Machinery bookings for fiscal 2013 were $2.3 billion , compared to $2.8 billion in fiscal 2012 . Original equipment bookings decreased by $210.2 million , or 17.3% , during the year, and aftermarket bookings decreased by $269.5 million , or 17.3% . The decrease in bookings was driven by weak market conditions. Original equipment orders decreased in all

25

Table of Contents

regions except Eurasia, which increased by $20.4 million, and aftermarket orders decreased in all regions. Foreign currency translation unfavorably impacted bookings by $123.8 million , due primarily to the decline in the value of the Australian dollar and South African rand relative to the U.S. dollar.
Surface Mining Equipment bookings for fiscal 2013 were $1.8 billion , compared to $2.5 billion in fiscal 2012 . Original equipment bookings decreased by $582.6 million , or 56.7% , during the year, and aftermarket bookings decreased by $111.6 million , or 7.7% . The decrease in bookings was driven by weak market conditions. Original equipment and aftermarket orders decreased in all regions except Eurasia, for which original equipment sales increased by $62.4 million and aftermarket sales increased by $12.7 million. Foreign currency translation unfavorably impacted bookings by $38.4 million , due primarily to the decline in the value of the Australian dollar and South African rand relative to the U.S. dollar.
Fiscal 2012 Compared With Fiscal 2011
Sales
The following table sets forth fiscal 2012 and 2011 net sales as derived from our Consolidated Statements of Income:
In thousands
2012
 
2011
 
$ Change
 
% Change
Net Sales
 
 
 
 
 
 
 
Underground Mining Machinery
$
3,107,488

 
$
2,576,625

 
$
530,863

 
20.6
%
Surface Mining Equipment
2,737,488

 
1,959,353

 
778,135

 
39.7
%
Eliminations
(184,087
)
 
(132,072
)
 
(52,015
)
 
 
Total
$
5,660,889

 
$
4,403,906

 
$
1,256,983

 
28.5
%
Underground Mining Machinery net sales for fiscal 2012 were $3.1 billion , compared to $2.6 billion in fiscal 2011 , and included a $136.2 million increase in aftermarket sales, a $175.7 million increase in original equipment sales and $219.0 million in sales from the acquisition of IMM. Aftermarket sales increased in China and Australia by $111.5 million and $46.6 million, respectively, primarily due to increased demand for parts. Original equipment sales increased in Australia and Eurasia by $214.8 million and $36.0 million, respectively, primarily due to increased roof support sales in both regions and increased bolter miner and conveyor system sales in Australia. The increase in original equipment sales from Australia and Eurasia was partially offset by decreases in sales from China and North America. Foreign currency translation unfavorably impacted sales by $39.7 million .
Surface Mining Equipment net sales for fiscal 2012 were $2.7 billion , compared to $2.0 billion in fiscal 2011, and included a $93.8 million increase in aftermarket sales, a $377.9 million increase in original equipment sales and a $306.4 million increase in sales from the acquisition of LeTourneau. Aftermarket sales increased in all regions except China primarily due to increased demand for parts. Original equipment sales increased in all regions except Africa, primarily due to last year’s strong order rate flowing to this year’s sales. Foreign currency translation unfavorably impacted sales by $11.7 million .
Operating Income
The following table sets forth fiscal 2012 and 2011 operating income as derived from our Consolidated Statements of Income:
 
2012
 
2011
In thousands
Operating Income (Loss)
 
 % of Net Sales
 
Operating Income (Loss)
 
% of Net Sales
Operating Income (Loss)
 
 
 
 
 
 
 
Underground Mining Machinery
$
671,797

 
21.6
%
 
$
595,262

 
23.1
%
Surface Mining Equipment
592,687

 
21.7
%
 
422,472

 
21.6
%
Corporate Expense
(51,079
)
 
 
 
(65,693
)
 
 
Eliminations
(40,846
)
 
 
 
(31,862
)
 
 
Total
$
1,172,559

 
20.7
%
 
$
920,179

 
20.9
%
Underground Mining Machinery operating income for fiscal 2012 was $671.8 million , compared to $595.3 million in fiscal 2011 . Underground Mining Machinery return on sales was reduced by 1.3 points from fiscal 2011 due to IMM, including the non-recurring purchase accounting charges of $27.4 million from the acquisition. In addition to the $9.4 million attributable to IMM, operating income was favorably impacted by $127.1 million due to higher sales volumes, which was partially offset by $23.2 million of increased period costs, $6.5 million of restructuring costs and $2.1 million due to pension curtailment and special termination benefit charges. Foreign currency translation unfavorably impacted operating income by $11.5 million .

26

Table of Contents

Surface Mining Equipment operating income for fiscal 2012 was $592.7 million , compared to $422.5 million in fiscal 2011 . Operating income increased $50.6 million from the acquisition of LeTourneau. LeTourneau’s 2012 and 2011 operating income was reduced by $13.7 million and $8.8 million, respectively, for non-recurring purchase accounting charges. In addition to the $50.6 million increase from LeTourneau, operating income was favorably impacted by $148.3 million due to higher sales volumes, which was partially offset by $37.2 million of increased period costs, $10.3 million due to pension curtailment and special termination benefit charges and $2.4 million of restructuring charges.
Corporate expense for fiscal 2012 was $51.1 million , compared to $65.7 million in fiscal 2011 . The decrease in corporate expense is primarily due to the IMM remeasurement gain of $19.4 million upon obtaining a controlling interest in IMM in December 2011.
Product Development, Selling and Administrative Expense
Product development, selling and administrative expense for fiscal 2012 was $736.8 million , or 13.0% of sales, compared to $602.0 million , or 13.7% of sales, in fiscal 2011 . The increase in product development, selling and administrative expense is due in part to the expenses associated with LeTourneau and IMM. The inclusion of LeTourneau and IMM increased product development, selling and administrative expenses by $74.6 million. In addition to the $74.6 million attributable to the acquisitions’ operations, product development costs increased by an additional $9.6 million, driven by research and development activities on new or existing products and increased personnel for smart services activities. Selling costs increased by $13.3 million to support increased sales volumes and aftermarket infrastructure. The increase in administrative expenses of $37.1 million relates to restructuring charges of $9.9 million and increased performance based compensation of $8.0 million.
Net Interest Expense
Net interest expense for fiscal 2012 was $67.4 million , compared to $24.3 million in fiscal 2011 . The increase in net interest expense is primarily due to borrowings used to fund the acquisitions. We entered into a $500.0 million term loan dated June 16, 2011 for the acquisition of LeTourneau, issued $500.0 million of Senior Notes on October 12, 2011 in anticipation of completing the IMM transaction and we drew on an additional term loan of $250.0 million for the acquisition of IMM on February 10, 2012.
Provision for Income Taxes
Income tax expense for fiscal 2012 was $337.9 million , compared to $264.8 million in fiscal 2011 . The effective income tax rate from continuing operations was 30.6% for fiscal 2012 , compared to 29.6% in fiscal 2011 . The main drivers of the variance in tax rates when compared to the statutory rate of 35% were the geographic mix of earnings with the corresponding net favorable differences in foreign statutory tax rates.
Net discrete tax benefits of $7.6 million were recorded for fiscal 2012 , compared to net discrete tax benefits of $5.4 million in fiscal 2011 .
Bookings
Bookings represent the cumulative amount of new customer orders for original equipment and aftermarket products and services, exclusive of long-term maintenance and repair arrangements and life cycle management arrangements awarded to us during the reporting period. Customer orders included in bookings represent arrangements to purchase specific original equipment, products or services by customers who have satisfied our credit review procedures. We record bookings when firm orders are received and add the bookings to our backlog. Bookings for fiscal 2012 and fiscal 2011 are as follows:
In thousands
2012
 
2011
 
$ Change
 
% Change
Bookings
 
 
 
 
 
 
 
Underground Mining Machinery
$
2,780,799

 
$
3,102,288

 
$
(321,489
)
 
(10.4
)%
Surface Mining Equipment
2,474,003

 
2,635,992

 
(161,989
)
 
(6.1
)%
Eliminations
(183,463
)
 
(146,841
)
 
(36,622
)
 
 
Total Bookings
$
5,071,339

 
$
5,591,439

 
$
(520,100
)
 
(9.3
)%
Underground Mining Machinery bookings for fiscal 2012 were $2.8 billion , compared to $3.1 billion in 2011 . Original equipment bookings decreased by $316.6 million , or 20.6% , during the year, and aftermarket bookings decreased by $4.9 million , or 0.3% . When excluding the $217.6 million impact of the IMM acquisition, original equipment bookings decreased in all regions except for Africa due to the weakening coal market in the U.S. and China, as well as significant orders from customers in Australia and Russia in the prior year that did not repeat in 2012. Aftermarket bookings were substantially flat compared to the prior year.

27

Table of Contents

Increases in aftermarket bookings in China, Africa and Australia were partially offset by declining orders in the U.S. and Eurasia. Foreign currency translation unfavorably impacted bookings by $79.4 million .
Surface Mining Equipment bookings for fiscal 2012 were $2.5 billion , compared to $2.6 billion in 2011 . Original equipment bookings decreased by $278.1 million , or 21.3% , during the year, and aftermarket bookings increased by $116.2 million , or 8.7% . Original equipment orders included an incremental $236.3 million from the acquisition of LeTourneau. These bookings were down in all regions except Africa and Australia due to weaker markets. Aftermarket bookings increased in South America, Australia and Eurasia due to increased demand for parts and services. All other regions experienced declining aftermarket orders. Foreign currency translation unfavorably impacted bookings by $17.7 million .

Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. We continually evaluate our estimates and judgments, including those related to bad debts, excess inventory, warranty, intangible assets, income taxes 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 the accounting policies described below are the policies that most frequently require us to make estimates and judgments, and therefore are critical to the understanding of our results of operations.
Revenue Recognition
We recognize revenue on aftermarket products and services when the following criteria are satisfied: persuasive evidence of a sales arrangement exists, product delivery and transfer of title and risk and rewards has occurred or services have been rendered, the price is fixed and determinable, and collectability is reasonably assured. We recognize revenue on long-term contracts, such as contracts to manufacture mining shovels, draglines, roof support systems and conveyor systems, using the percentage-of-completion method. When using the percentage-of-completion method, sales and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion. Sales and gross profit are adjusted prospectively for revisions in estimated total contract costs and contract values. Estimated losses are recognized in full when identified. Approximately 84% of our sales in fiscal 2013 were recorded at the time of shipment of the product or delivery of the service, with the remaining 16% of sales recorded using percentage-of-completion accounting.
We have life cycle management arrangements with customers to supply parts and service for terms of 1 to 17 years . These arrangements are established based on the conditions in which the equipment will be operating, the time horizon that the arrangements will cover, and the expected operating cycle that will be required for the equipment. Based on this information, a model is created representing the projected costs and revenues of servicing the respective machines over the specified arrangement terms. Accounting for these arrangements requires us to make various estimates, including estimates of the relevant machine’s long-term maintenance requirements. Under these arrangements, customers are generally billed monthly based on hours of operation or units of production achieved by the equipment, with the respective deferred revenues recorded when billed. Revenue is recognized in the period in which parts are supplied or services provided. These arrangements are reviewed quarterly by comparison of actual results to original estimates or most recent analysis, with revenue recognition adjusted appropriately for future estimated costs. If a loss is expected at any time, the full amount of the loss is recognized immediately.

We have certain customer agreements that are considered multiple element arrangements. The agreements are assessed for multiple elements based on whether the delivered item has value to the customer on a standalone basis and whether delivery or performance of the undelivered item is considered probable and substantially in our control. If those criteria are met, revenue is allocated to each identified unit of accounting based on our estimate of their relative fair values.
Revenue recognition involves judgments, including assessments of expected returns, the likelihood of nonpayment and estimates of expected costs and profits on long-term contracts. In determining when to recognize revenue, we analyze various factors, including the specifics of the transaction, historical experience, creditworthiness of the customer and current market and economic conditions. Changes in judgments on these factors could impact the timing and amount of revenue recognized with a resulting impact on the timing and amount of associated income.
Inventories

28

Table of Contents

Inventories are carried at the lower of cost or net realizable value using the first-in, first-out method for all inventories. Cost includes direct materials, direct labor and manufacturing overhead. We evaluate the need to record valuation adjustments for inventory on a regular basis. Our policy is to evaluate all inventories, including raw material, work-in-process and finished goods. Inventory in excess of our estimated usage requirements is written down to its estimated net realizable value. Inherent in the estimates of net realizable value are estimates related to our future manufacturing schedules, customer demand, possible alternative uses and ultimate realization of potentially excess inventory.
Goodwill and Other Intangible Assets
Intangible assets include engineering drawings, customer relationships, backlog, non-compete agreements, patents, unpatented technology and trademarks. Indefinite-lived intangible assets are not amortized but are evaluated for impairment annually or more frequently if events or changes occur that suggest an impairment in carrying value, such as a significant adverse change in the business climate. Indefinite-lived intangible assets are evaluated for impairment by comparing each assets' fair value to its book value. We first determine qualitatively whether it is more likely than not that an indefinite-lived asset is impaired. If we conclude that it is more likely than not that an indefinite-lived asset is impaired, then we determine the fair value by using the discounted cash flow model based on royalties estimated to be derived in the future use of the asset were we to license the use of the indefinite-lived asset. See Note 7, Goodwill and Intangible Assets, for details regarding the results of our indefinite-lived intangible asset impairment testing performed in fiscal 2013 .
Finite-lived intangible assets are amortized to reflect the pattern of economic benefits consumed, which is principally the straight-line method. Intangible assets that are subject to amortization are evaluated for potential impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. No impairment was identified related to our finite-lived intangible assets in fiscal 2013 .
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill is assigned to specific reporting units, which we have identified as our operating segments, and is tested for impairment at least annually, during the fourth quarter of our fiscal year, or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount is greater than its fair value. Goodwill is evaluated for impairment by comparing the fair value of each of our reporting units to their book value. We first determine, based on a qualitative assessment, whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we then determine the fair value of the reporting unit based on a discounted cash flow model. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired. If the carrying value of the reporting unit exceeds its fair value, the impairment test continues by comparing the carrying value of the reporting unit’s goodwill to the implied fair value of goodwill. The implied fair value of goodwill is determined by deducting the fair value of a reporting unit’s identifiable assets and liabilities from the fair value of the reporting unit as a whole, as if that reporting unit had just been acquired and the fair value of the individual assets acquired and liabilities assumed were being determined initially. If goodwill is impaired, we recognize a non-cash impairment loss based on the amount by which the book value of goodwill exceeds its implied fair value.
The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment at many points during the analysis. Qualitative assessments regarding goodwill involve a high degree of judgment and can entail subjective considerations. The discounted cash flow model involves many assumptions, including operating results forecasts and discount rates. Inherent in the operating results forecasts are certain assumptions regarding revenue growth rates, projected cost saving initiatives and projected long-term growth rates in the determination of terminal values. We performed our goodwill impairment testing in the fourth quarter of fiscal 2013 and no impairment was identified.
Accrued Warranties
We provide for the estimated costs that may be incurred under product warranties to remedy deficiencies of quality or performance of our products. Warranty costs are accrued at the time revenue is recognized. These product warranties extend over either a specified period of time, units of production or machine hours depending on the product subject to the warranty. We accrue a provision for estimated future warranty costs based on the historical relationship of warranty costs to sales. We periodically review the adequacy of the accrual for product warranties and adjust the warranty percentage and accrued warranty reserve for actual experience as necessary.
Pension and Postretirement Benefits and Costs
Pension and other postretirement benefit costs and liabilities are dependent on assumptions used in calculating such amounts. The primary assumptions include discount rates, expected returns on plan assets, mortality rates and rates of compensation increases, as discussed below:

29

Table of Contents

Discount rates: We generally estimate the discount rate for pension and other postretirement benefit obligations using a process based on a hypothetical investment in a portfolio of high-quality bonds that approximates the estimated cash flows of the pension and other postretirement benefit obligations. We believe this approach permits a matching of future cash outflows related to benefit payments with future cash inflows associated with bond coupons and maturities.
Expected returns on plan assets: Our expected return on plan assets is derived from reviews of asset allocation strategies and anticipated future long-term performance of individual asset classes, weighted by the allocation of our plan assets. Our analysis gives appropriate consideration to recent plan performance and historical returns; however, the assumptions are primarily based on long-term, prospective rates of return.
Mortality rates: Mortality rates are based on the IRS prescribed annuitant and non-annuitant mortality for 2013 under the Pension Protection Act of 2006.
Rates of compensation increases: The rates of compensation increases reflect our long-term actual experience and its outlook, including consideration of expected rates of inflation.
Actual results that differ from the assumptions are accumulated and amortized over future periods, and therefore, generally affect recognized expense and the recorded obligation in future periods. While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect our pension and other postretirement plan obligations and future expense.
Future changes affecting the above assumptions will change the related pension benefit or expense. As such, a 0.25% change in the discount rate and the expected return on net assets would have the following effects on pension expense and the projected benefit obligation as of and for the fiscal year ended October 25, 2013 :
 
0.25% Increase
 
0.25% Decrease
In thousands
Discount rate
 
Expected return on net assets
 
Discount rate
 
Expected return on net assets
U.S. Pension Plans:
 
 
 
 
 
 
 
Net pension (benefit) expense
$
(161
)
 
$
(2,482
)
 
$
71

 
$
2,482

Projected (decrease) increase in benefit obligation
(32,362
)
 

 
33,314

 

Non U.S. Pension Plans:
 
 
 
 
 
 
 
Net pension (benefit) expense
(2,271
)
 
(1,383
)
 
2,196

 
1,383

Projected (decrease) increase in benefit obligation
(27,947
)
 

 
29,091

 

Other Postretirement Benefit Plans:
 
 
 
 
 
 
 
Net pension (benefit) expense
(25
)
 
(14
)
 
23

 
14

Projected (decrease) increase in benefit obligation
(564
)
 

 
576

 

Income Taxes
Deferred taxes are accounted for under the asset and liability method whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using current statutory tax rates. Deferred income tax provisions are based on changes in the deferred tax assets and liabilities from period to period. Additionally, we analyze our ability to recognize the net deferred tax assets created in each jurisdiction in which we operate to determine if valuation allowances are necessary based on the “more likely than not” criteria.
As required under the application of fresh start accounting, the release of pre-emergence tax valuation reserves was not recorded in the income statement but instead was treated first as a reduction of excess reorganization value until exhausted, then intangible assets until exhausted, and thereafter reported as additional paid in capital. Consequently, a net tax charge will be incurred in future years when these tax assets are utilized. We will continue to monitor the appropriateness of the existing valuation allowances and determine annually the amount of valuation allowances that are required to be maintained. As of October 25, 2013 , there were $63.3 million of valuation allowances against pre-emergence net operating loss carryforwards. All future reversals of pre-emergence valuation allowances will be recorded to additional paid in capital.
We estimate the effective tax rate expected to be applicable for the full year on an interim basis. The estimated effective tax rate contemplates the expected jurisdiction where income is earned (e.g., United States compared to non-United States), as well as tax planning strategies. If the actual results are different from these estimates, adjustments to the effective tax rate may be required in the period such determination is made. Additionally, discrete items are treated separately from the effective rate analysis

30

Table of Contents

and are recorded separately as an income tax provision or benefit at the time they are recognized. To the extent recognized, these items will impact the effective tax rate in the aggregate but will not adjust the amount used for future periods within the same year.

Liquidity and Capital Resources
The following table summarizes the major elements of our working capital as of October 25, 2013 and October 26, 2012 , respectively.
In thousands
October 25, 2013
 
October 26, 2012
Accounts receivable, net
$
1,083,663

 
$
1,229,083

Inventories
1,139,744

 
1,415,455

Trade accounts payable
(388,119
)
 
(452,236
)
Advance payments and progress billings
(399,768
)
 
(669,792
)
Trade Working Capital
$
1,435,520

 
$
1,522,510

Other current assets
193,328

 
247,666

Short-term notes payable, including current portion of long-term obligations
(58,669
)
 
(65,316
)
Employee compensation and benefits
(130,555
)
 
(156,867
)
Accrued warranties
(85,732
)
 
(100,646
)
Other accrued liabilities
(286,063
)
 
(322,813
)
Working Capital Excluding Cash and Cash Equivalents
$
1,067,829

 
$
1,124,534

Cash and cash equivalents
405,709

 
263,873

Working Capital
$
1,473,538

 
$
1,388,407

We currently use trade working capital and cash flow from 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 in order to maximize our customers’ machine availability. This information also provides management with a focus on our receivable terms and collectability efforts and our ability to obtain advance payments on original equipment orders. As part of our continuous improvement of our purchasing and manufacturing processes, we continue to strive for alignment of inventory levels with customer demand and current production schedules.
Cash provided by continuing operations for fiscal 2013 was $638.5 million , compared to $463.9 million provided by continuing operations in fiscal 2012 . The increase in cash provided by continuing operations was primarily due to the collection of accounts receivables and a reduction in inventories. These improvements were partially offset by lower earnings, a reduction in advance payments resulting from lower original equipment orders and a reduction in accrued liabilities resulting from the timing of income tax payments.
Cash used by investing activities for fiscal 2013 was $150.0 million , compared to $378.3 million used by investing activities in fiscal 2012 . The decrease in cash used by investing activities was primarily due to our acquisition of a controlling interest in IMM of $955.9 million in fiscal 2012, which was funded in part with a $866.0 million cash deposit that was placed into an escrow account in anticipation of completing the transaction.
Cash used by financing activities for fiscal 2013 was $336.5 million , compared to $81.6 million used by financing activities in fiscal 2012 . The increase in cash used by financing activities was primarily due to share repurchases of $214.1 million in the fourth quarter of fiscal 2013. Financing activities in fiscal 2012 primarily related to the borrowing and subsequent repayment of a $250.0 million term loan for the acquisition of IMM.
During each quarter of fiscal 2013 we paid a cash dividend of $0.175 per outstanding share of common stock resulting in $74.3 million in dividends paid during the fiscal year. In addition, on November 18, 2013 , our Board of Directors declared a cash dividend of $0.175 per outstanding share of common stock. This dividend will be paid on December 18, 2013 to all shareholders of record at the close of business on December 4, 2013 .
In fiscal 2014 , we expect capital spending to be between $100.0 million and $125.0 million . Capital projects will be focused on continuing investments for the build-out of our global service infrastructure.
Retiree Benefits

31

Table of Contents

We sponsor pension plans in the U.S. and in other countries. The significance of the funding requirements of these plans are largely dependent on the value of the plan assets, the investment returns on the plan assets, actuarial assumptions, including discount rates, and the impact of the Pension Protection Act of 2006. During fiscal 2013 , we contributed $165.7 million to our defined benefit employee pension plans, and we expect to contribute approximately $40.0 million to $50.0 million in fiscal 2014 . As of October 25, 2013 , we have a net unfunded pension and other postretirement liability of $176.2 million .
Credit Facilities and Senior Notes
On October 12, 2012, we entered into a $1.0 billion unsecured revolving credit facility that matures on November 12, 2017 (as amended, the “Credit Agreement”). Under the Credit Agreement, we also may request an increase of up to $250.0 million of additional aggregate revolving commitments, subject to terms and conditions contained in the Credit Agreement. The Credit Agreement simultaneously replaced the $700.0 million revolving credit agreement, dated October 27, 2010 (the “Prior Credit Agreement”), that had been set to expire on November 3, 2014. Under the terms of the Credit Agreement, we pay a commitment fee ranging from 0.1% to 0.325% on the unused portion of the revolving credit facility based on our credit rating. Letters of Credit issued under applicable provisions of the Credit Agreement represent an unfunded utilization of the Credit Agreement for purposes of calculating the periodic commitment fee due. Eurodollar rate loans bear interest for a period from the applicable borrowing date until a date one or two weeks or one, two, three or six months thereafter, as selected by the Company, at the corresponding Eurodollar rate plus a margin of 1.0% to 2.0% depending upon our credit rating. Base rate loans bear interest from the applicable borrowing date at a rate equal to (i) the highest of (a) the federal funds rate plus 0.5% , (b) the rate of interest in effect for such day as publicly announced by the administrative agent as its “prime rate,” or (c) a daily rate equal to the one-month Eurodollar rate plus 1.0% , plus (ii) a margin that varies according to the Company's credit rating. Swing line loans bear interest at either the base rate described above or the daily floating Eurodollar rate plus the applicable margin, as selected by the Company. 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 returns of capital to shareholders when the consolidated leverage ratio exceeds a stated amount. As of October 25, 2013 , 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.
In connection with our entry into the Credit Agreement, we terminated the Prior Credit Agreement and used a portion of the proceeds available under the Credit Agreement to repay our $250.0 million term loan credit agreement, dated October 31, 2011 (the “Further Term Loan”), which was to have matured in June 2016. The Further Term Loan was drawn in full on February 10, 2012 in conjunction with the settlement of the IMM tender offer. Concurrent with our entry into the Credit Agreement, all amounts outstanding under the Prior Credit Agreement and Further Term Loan were repaid in full.
As of October 25, 2013 , there were no direct borrowings under the Credit Agreement. Outstanding Standby Letters of Credit issued under the Credit Agreement, which count toward the $1.0 billion credit limit, totaled $195.0 million . As of October 25, 2013 , there was $805.0 million available for borrowings under the Credit Agreement.
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”), which was drawn in full to partially finance the fiscal 2011 acquisition of LeTourneau. The Term Loan requires quarterly principal payments and contains terms and conditions that are the same as the terms and conditions of the Credit Agreement. 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. As of October 25, 2013 , we were in compliance with all financial covenants of the Term Loan.
On October 12, 2011, we issued $500.0 million aggregate principal amount of 5.125% Senior Notes due in 2021 (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 is paid semi-annually in arrears on October 15 and April 15 of each year, 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% .
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 "2016 Notes" and “2036 Notes,” respectively). Interest on the 2016 Notes and 2036 Notes is paid semi-annually in arrears on May 15 and November 15 of each year, and the 2016 Notes and 2036 Notes are guaranteed by each of our current and future material domestic subsidiaries. The 2016 Notes and 2036 Notes were issued in a private placement under an exemption from registration provided by the Securities Act. In the second quarter of fiscal 2007, the 2016 Notes and 2036 Notes were exchanged for substantially identical notes in an exchange that was registered under the Securities Act. At our option, we may redeem some or all of the 2016 Notes and 2036 Notes at a redemption price of the greater of 100% of the principal amount of the 2016 Notes and 2036 Notes to be redeemed or the sum of the present values of the principal

32

Table of Contents

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.
Stock Repurchase Program
On August 28, 2013 , our Board of Directors authorized the Company to repurchase up to $1.0 billion in shares of common stock until August 19, 2016 . Under the program, the Company may repurchase shares in the open market in accordance with applicable SEC rules and regulations. During fiscal 2013 , we purchased 4,105,000 shares of common stock for approximately $214.1 million .
Advance Payments and Progress Billings
As part of the negotiation process associated with original equipment orders, contracts generally require advance payments and progress billings from our customers to support the procurement of inventory and other resources. As of October 25, 2013 , advance payments and progress billings were $399.8 million . As orders are shipped or costs are incurred, the advance payments and progress billings are recognized as revenue in the consolidated financial statements.
Financial Condition
We believe our liquidity and capital resources are adequate to meet our projected needs. We have $405.7 million of unrestricted cash and cash equivalents as of October 25, 2013 , of which $260.1 million is held by foreign entities. We expect to meet our U.S. funding needs without repatriating undistributed profits that are indefinitely reinvested outside the U.S. Requirements for working capital, dividends, pension contributions, capital spending, acquisitions, stock repurchases and principal and interest payments on our Term Loan and senior notes will be adequately funded by cash on hand and continuing operations, supplemented by short and long term borrowings, as required.
Off-Balance Sheet Arrangements
We lease various assets under operating leases. The aggregate payments under operating leases as of October 25, 2013 are disclosed in the table in the Disclosures about Contractual Obligations and Commercial Commitments section below. No significant changes to lease commitments have occurred during fiscal 2013 . We have no other off-balance sheet arrangements.
Disclosures about Contractual Obligations and Commercial Commitments
The following table sets forth our contractual obligations and commercial commitments as of October 25, 2013 :
In thousands
Total
 
Less Than
1 Year
 
1 - 3
Years
 
3 - 5
Years
 
More Than
5 Years
Long Term Debt*
$
1,804,744

 
$
101,012

 
$
464,388

 
$
328,625

 
$
910,719

Purchase Obligations
53,478

 
46,543

 
6,813

 
122

 

Operating Leases
124,500

 
34,938

 
46,749

 
24,778

 
18,035

Other Long Term Obligations**
26,995

 
12,096

 
4,154

 
3,730

 
7,015

 
$
2,009,717

 
$
194,589

 
$
522,104

 
$
357,255

 
$
935,769

*
Includes interest.
**
Includes minimum required contributions to our pension and other postretirement benefit plans and required contributions for our unfunded other postretirement benefit plans.

New Accounting Pronouncements
Our new accounting pronouncements are set forth under Item 15, Exhibits and Financial Statements Schedules , and are incorporated herein by reference.
 
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to fluctuations in earnings and cash flows due to volatility in interest rates, commodity prices and foreign currency exchange rates. We monitor our risks on a continuous basis and generally enter into derivative instruments to minimize our foreign currency exposures. We do not engage in speculation in our derivative strategy. We assess effectiveness of our hedging relationships on an ongoing basis to ensure the transactions are highly effective in offsetting changes in cash flows or fair values of the hedged item.
Interest Rate Risk
We are exposed to market risk from changes in interest rates on long-term debt obligations. We have a combination of fixed and variable rate debt (see Note 10, Borrowings and Credit Facilities ), and interest rate movements impact the value of fixed-rate debt and cash flows on variable-rate debt. As of October 25, 2013 , we were not party to any interest rate derivative contracts.
Commodity Price Risk
We purchase certain raw materials, including steel and copper, that are subject to price volatility caused by systematic risks. Although future movements in raw material prices are unpredictable, we manage this risk through periodic purchases of raw materials and passing some or all of our price increases to our customers. As of October 25, 2013 , we were not a party to any commodity forward contracts.
Foreign Currency Risk
We have a risk-averse foreign currency exchange risk management policy under which significant exposures that impact earnings and cash flows are hedged. Exposures that impact only equity or do not have a cash flow impact are generally not hedged with derivatives. We hedge two categories of foreign exchange exposures: accounts receivable and accounts payable denominated in a non-functional foreign currency, which include future committed receipts or payments, and certain entity net balance sheet accounts denominated in a non-functional currency. These exposures normally arise from the import and export of goods and from intercompany trade and lending activity.
Assets and liabilities of international operations that have a functional currency that is not the U.S. dollar are translated into U.S. dollars at year-end exchange rates and revenue and expense items are translated using weighted average exchange rates. Any adjustments arising on translation are included in shareholders’ equity as an element of accumulated other comprehensive income (loss) and are not hedged.
Assets and liabilities of operations which have the U.S. dollar as their functional currency, but which maintain their accounting records in local currency, have their values remeasured into U.S. dollars at year-end exchange rates, except for non-monetary items for which historical rates are used. Exchange gains or losses arising on remeasurement of the values into U.S. dollars are recognized in Cost of sales in our Consolidated Statements of Income.
Exchange gains or losses incurred on transactions conducted by one of our subsidiaries in a currency other than the subsidiary’s functional currency are normally reflected in Cost of sales in our Consolidated Statements of Income. An exception is made when the transaction is a long-term intercompany loan that is not expected to be repaid in the foreseeable future, in which case the exchange gains or losses are included in shareholders’ equity as an element of accumulated other comprehensive income (loss).
Pre-tax foreign exchange losses included in operating income were $4.4 million in 2013 . All foreign exchange derivatives as of October 25, 2013 were in the form of forward exchange contracts executed over the counter. The following table shows the fair value of our forward exchange contracts as of October 25, 2013 in dollar equivalent terms:

33

Table of Contents

 
Fair Value
In thousands
Buy
 
Sell
Australian Dollar
$
121

 
$

Brazilian Real
174

 
(518
)
British Pound Sterling
3,182

 
(967
)
Canadian Dollar
(44
)
 
247