Joy Global Inc.
JOY GLOBAL INC (Form: 10-Q, Received: 09/05/2014 12:47:44)
Table of Contents

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________ 
FORM 10-Q
____________________________________________ 
(MARK ONE)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED August 1, 2014
OR  
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD from                      to                      
Commission File number 001-09299
____________________________________________  
JOY GLOBAL INC.
(Exact Name of Registrant as Specified in Its Charter)
 ____________________________________________
Delaware
39-1566457
(State of Incorporation)
(I.R.S. Employer Identification No.)
100 East Wisconsin Ave, Suite 2780
Milwaukee, Wisconsin 53202
(Address of Principal Executive Offices) (Zip Code)
(414) 319-8500
(Registrant’s Telephone Number, Including Area Code)
____________________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.    Yes   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 whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer or a smaller reporting company. See definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
LARGE ACCELERATED FILER
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 Exchange Act).    Yes   ¨     No   ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
Class
 
August 29, 2014
Common Stock, $1 par value
 
98,175,511
 
 
 
 
 



Table of Contents

JOY GLOBAL INC.
FORM 10-Q INDEX
August 1, 2014
 
PAGE NO.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





Table of Contents

Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results and the assumptions on which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements are identified by forward-looking terms such as "anticipate," "believe," "could," "estimate," "expect," "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 and industry conditions in the markets in which we operate, risks associated with conducting business in foreign countries, risks associated with acquisitions and the risks discussed in Item 1A, Risk Factors , of our Annual Report on Form 10-K for our fiscal year ended October 25, 2013 and in other filings that we make with the U.S. Securities and Exchange Commission (the "SEC"). 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.



Table of Contents

PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
JOY GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
 
 
Quarter Ended
 
Nine Months Ended
 
August 1,
2014
 
July 26,
2013
 
August 1,
2014
 
July 26,
2013
Net sales
$
875,661

 
$
1,320,611

 
$
2,644,703

 
$
3,830,923

Cost of sales
623,729

 
880,209

 
1,879,499

 
2,562,537

Product development, selling and administrative expenses
137,259

 
167,155

 
444,822

 
497,389

Other income
(4,618
)
 
(1,092
)
 
(9,896
)
 
(3,127
)
Operating income
119,291

 
274,339

 
330,278

 
774,124

Interest income
1,707

 
2,536

 
6,583

 
6,180

Interest expense
(16,604
)
 
(16,138
)
 
(49,148
)
 
(50,120
)
Income from continuing operations before income taxes
104,394

 
260,737

 
287,713

 
730,184

Provision for income taxes
33,105

 
77,550

 
93,612

 
223,079

Income from continuing operations
71,289

 
183,187

 
194,101

 
507,105

Loss from discontinued operations, net of income taxes

 

 

 
(225
)
Net income
$
71,289

 
$
183,187

 
$
194,101

 
$
506,880

Basic earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.71

 
$
1.72

 
$
1.93

 
$
4.77

Loss from discontinued operations

 

 

 

Net income
$
0.71

 
$
1.72

 
$
1.93

 
$
4.77

Diluted earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.71

 
$
1.71

 
$
1.91

 
$
4.73

Loss from discontinued operations

 

 

 

Net income
$
0.71

 
$
1.71

 
$
1.91

 
$
4.73

Dividends per share
$
0.20

 
$
0.175

 
$
0.55

 
$
0.525

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
99,856

 
106,465

 
100,666

 
106,378

Diluted
100,738

 
107,312

 
101,536

 
107,321

See Notes to Condensed Consolidated Financial Statements.

3

Table of Contents

JOY GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
 
 
Quarter Ended
 
August 1,
2014
 
July 26,
2013
Net income
$
71,289

 
$
183,187

Other comprehensive income (loss):
 
 
 
Change in unrecognized pension and other postretirement obligations, net of (benefits) taxes of ($6,516) and $2,338
(10,176
)
 
4,888

Derivative instrument fair market value adjustment, net of taxes of $165 and $2,817
425

 
6,371

Foreign currency translation adjustment
20,145

 
(54,642
)
Total other comprehensive income (loss), net of taxes
10,394

 
(43,383
)
Comprehensive income
$
81,683

 
$
139,804


 
Nine Months Ended
 
August 1,
2014
 
July 26,
2013
Net income
$
194,101

 
$
506,880

Other comprehensive income (loss):
 
 
 
Change in unrecognized pension and other postretirement obligations, net of (benefits) taxes ($3,286) and $7,013
(2,641
)
 
14,665

Derivative instrument fair market value adjustment, net of taxes of $63 and $24
139

 
1,165

Foreign currency translation adjustment
(4,327
)
 
(67,570
)
Total other comprehensive loss, net of taxes
(6,829
)
 
(51,740
)
Comprehensive income
$
187,272

 
$
455,140


See Notes to Condensed Consolidated Financial Statements.


4

Table of Contents

JOY GLOBAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
 
 
August 1,
2014
 
October 25,
2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
308,042

 
$
405,709

Accounts receivable, net
890,838

 
1,083,663

Inventories
1,211,735

 
1,139,744

Other current assets
187,315

 
193,328

Total current assets
2,597,930

 
2,822,444

Property, plant and equipment, net
910,738

 
912,642

Other assets:
 
 
 
Other intangible assets, net
324,544

 
331,812

Goodwill
1,516,970

 
1,480,519

Deferred income taxes
44,890

 
41,532

Other non-current assets
195,637

 
200,633

Total other assets
2,082,041

 
2,054,496

Total assets
$
5,590,709

 
$
5,789,582

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term notes payable, including current portion of long-term obligations
$
168

 
$
58,669

Trade accounts payable
356,871

 
388,119

Employee compensation and benefits
114,351

 
130,555

Advance payments and progress billings
397,483

 
399,768

Accrued warranties
63,685

 
85,732

Other accrued liabilities
229,118

 
286,063

Current liabilities of discontinued operations
11,581

 
11,684

Total current liabilities
1,173,257

 
1,360,590

Long-term obligations
1,269,327

 
1,256,927

Other liabilities:
 
 
 
Liabilities for postretirement benefits
19,687

 
20,723

Accrued pension costs
164,449

 
149,805

Other non-current liabilities
154,003

 
143,168

Total other liabilities
338,139

 
313,696

Shareholders’ equity
2,809,986

 
2,858,369

Total liabilities and shareholders’ equity
$
5,590,709

 
$
5,789,582

See Notes to Condensed Consolidated Financial Statements.

5

Table of Contents

JOY GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Nine Months Ended
 
August 1,
2014
 
July 26,
2013
Operating Activities:
 
 
 
Net income
$
194,101

 
$
506,880

Loss from discontinued operations

 
225

Adjustments to continuing operations:
 
 
 
Depreciation and amortization
98,725

 
79,864

Changes in deferred income taxes
(5,864
)
 
12,767

Contributions to defined benefit employee pension plans
(5,760
)
 
(115,412
)
Defined benefit employee pension plan expense
13,575

 
12,553

Share-based compensation expense
11,204

 
23,312

Excess tax benefit from share-based compensation awards
(1,727
)
 
(1,672
)
Changes in long-term receivables
(2,650
)
 
(65,795
)
Other adjustments to continuing operations, net
(3,829
)
 
816

Changes in working capital items attributed to continuing operations, net of acquisition:
 
 
 
Accounts receivable, net
214,448

 
161,529

Inventories
(84,439
)
 
69,621

Other current assets
12,324

 
(18,047
)
Trade accounts payable
(29,442
)
 
(36,178
)
Employee compensation and benefits
(15,291
)
 
(29,379
)
Advance payments and progress billings
(3,352
)
 
(152,918
)
Accrued warranties
(21,579
)
 
(13,856
)
Other accrued liabilities
(72,123
)
 
8,830

Net cash provided by operating activities of continuing operations
298,321

 
443,140

Net cash used by operating activities of discontinued operations
(103
)
 
(1,567
)
Net cash provided by operating activities
298,218

 
441,573

Investing Activities:
 
 
 
Acquisition of Mining Technologies International Inc.
(47,058
)
 

Property, plant and equipment acquired
(69,068
)
 
(117,909
)
Proceeds from sale of property, plant and equipment
8,882

 
2,939

Other investing activities, net
(89
)
 
(98
)
Net cash used by investing activities
(107,333
)
 
(115,068
)
Financing Activities:
 
 
 
Common stock issued
10,189

 
5,461

Excess tax benefit from share-based compensation awards
1,727

 
1,672

Dividends paid
(55,334
)
 
(55,726
)
Repayments of term loan
(37,500
)
 
(37,500
)
Changes in short and other long-term obligations, net
(9,220
)
 
(5,659
)
Treasury stock purchased
(194,336
)
 

Financing fees
(2,826
)
 

Net cash used by financing activities
(287,300
)
 
(91,752
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(1,252
)
 
(12,576
)
(Decrease) Increase in Cash and Cash Equivalents
(97,667
)
 
222,177

Cash and Cash Equivalents at Beginning of Period
405,709

 
263,873

Cash and Cash Equivalents at End of Period
$
308,042

 
$
486,050


See Notes to Condensed Consolidated Financial Statements.

6

Table of Contents

JOY GLOBAL INC.
CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.
Description of Business
Joy Global Inc. (the "Company") 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 parts and perform services for both underground and surface mining, as well as 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 ("Underground") and Surface Mining Equipment ("Surface"). 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 coal and other minerals and ores and 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 Alabama, Pennsylvania, Texas and Wisconsin, and internationally, including facilities in Australia, Canada, China, South Africa and the United Kingdom.

2.
Basis of Presentation
The Condensed Consolidated Financial Statements presented in this Quarterly Report on Form 10-Q are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to SEC rules and regulations. In our opinion, all adjustments necessary for the fair presentation on a going concern basis of the results of operations, cash flows and financial position for all periods presented have been made. All such adjustments made are of a normal recurring nature. The preparation of the financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts could differ from the estimates.
These financial statements should be read in conjunction with the financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended October 25, 2013 . The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

3.
Acquisitions
Acquisition of Mining Technologies International Inc.
On May 30, 2014 , we closed on the purchase of certain assets of Mining Technologies International Inc. ("MTI") for $ 47.1 million dollars, subject to a working capital adjustment. MTI is a Canadian manufacturer of underground hard rock mining equipment serving the North American markets and a world leading supplier of raise bore drilling consumables. We have acquired substantially all of the assets associated with MTI’s hard rock drilling, loaders, dump trucks, shaft sinking and raise bore product lines. MTI's results of operations have been included in the accompanying financial statements as part of the Underground segment from the acquisition date forward.
In connection with the acquisition, we have preliminarily recorded goodwill of approximately $9.5 million and intangible assets of approximately $6.2 million . The intangible assets are primarily comprised of customer relationships and designs and drawings, which are being amortized over their respective estimated useful lives. The accounting for the purchase price is preliminary and subject to change, as we are in the process of obtaining third party valuations of assets acquired.

4.
Inventories
Consolidated inventories consist of the following:
 
In thousands
August 1,
2014
 
October 25,
2013
Finished goods
$
877,519

 
$
838,052

Work in process
258,421

 
233,303

Raw materials
75,795

 
68,389

Total inventories
$
1,211,735

 
$
1,139,744

Finished goods include finished components and parts in addition to any finished equipment.

5.
Warranties

7


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.
The following table reconciles the changes in the product warranty reserve:
 
Quarter Ended
 
Nine Months Ended
In thousands
August 1,
2014
 
July 26,
2013
 
August 1,
2014
 
July 26,
2013
Balance, beginning of period
$
73,602

 
$
83,691

 
$
85,732

 
$
100,646

Accrual for warranty expensed during the period
7,138

 
11,577

 
23,801

 
36,498

Settlements made during the period
(17,357
)
 
(8,651
)
 
(46,533
)
 
(49,359
)
Effect of foreign currency translation
56

 
(1,676
)
 
439

 
(2,844
)
Acquired warranty accrual
246

 

 
246

 

Balance, end of period
$
63,685

 
$
84,941

 
$
63,685

 
$
84,941


6.
Borrowings and Credit Facilities
On July 29, 2014, we entered into a $1.0 billion unsecured revolving credit facility that matures on July 29, 2019 (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 the terms and conditions contained in the Credit Agreement. The Credit Agreement simultaneously replaced the $1.0 billion revolving credit agreement dated as of October 12, 2012 (the "Prior Credit Agreement"), that was scheduled to expire on November 12, 2017. Under the terms of the Credit Agreement, we pay a commitment fee ranging from 0.09% to 0.30% 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 week 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 on the Company's 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 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. The Credit Agreement also restricts payment of dividends or other returns of capital to shareholders when the consolidated leverage ratio exceeds a stated level amount. As of August 1, 2014 , we were in compliance with all financial covenants of the Credit Agreement and had no restrictions on the payment of dividends or other returns of capital to shareholders.
As of August 1, 2014 , 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 $176.3 million . As of August 1, 2014 , there was $823.7 million available for borrowings under the Credit Agreement.
On July 29, 2014, we entered into a term loan agreement which matures July 29, 2019 and provides for a commitment of up to $375.0 million (as amended, the "Term Loan"). The Term Loan amended our prior term loan, dated as of June 16, 2011 (the "Prior Term Loan"). The Prior Term Loan had been scheduled to mature on July 16, 2016 and provided an initial commitment of $500.0 million , which had been drawn in full in conjunction with our fiscal 2011 acquisition of LeTourneau Technologies, Inc. and had been amortized to $375.0 million at the date of amendment. We utilized the $375.0 million commitment under the Term Loan to repay the balance outstanding under the Prior Term Loan. The Term Loan requires quarterly principal payments beginning in fiscal 2016 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 August 1, 2014 , 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

8


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 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.
Direct borrowings and capital lease obligations consist of the following:
In thousands
August 1,
2014
 
October 25,
2013
Domestic:
 
 
 
Term Loan due 2016
$

 
$
412,500

Term Loan due 2019
375,000

 

6.0% Senior Notes due 2016
249,030

 
248,733

5.125% Senior Notes due 2021
496,713

 
496,438

6.625% Senior Notes due 2036
148,515

 
148,493

Other secured borrowings

 
1,212

Foreign:
 
 
 
Capital leases
237

 

Short-term borrowings

 
8,220

Total obligations
1,269,495

 
1,315,596

Less: Amounts due within one year
(168
)
 
(58,669
)
Long-term obligations
$
1,269,327

 
$
1,256,927

     
7.
Accumulated Other Comprehensive (Loss) Income
Comprehensive income and its components are presented in the Condensed Consolidated Statements of Comprehensive Income. Changes in accumulated other comprehensive (loss) income, net of taxes, consist of the following:

9


 
Quarter ended August 1, 2014
 
Quarter ended July 26, 2013
 
Change in Unrecognized Pension and Other Postretirement Obligations
 
Derivative Instrument Fair Market Value Adjustment
 
Foreign Currency Translation Adjustment
 
Total
 
Change in Unrecognized Pension and Other Postretirement Obligations
 
Derivative Instrument Fair Market Value Adjustment
 
Foreign Currency Translation Adjustment
 
Total
Beginning balance
$
(532,587
)
 
$
4,742

 
$
2,988

 
$
(524,857
)
 
$
(549,681
)
 
$
(327
)
 
$
33,002

 
$
(517,006
)
Other comprehensive income (loss) before reclassifications, net of taxes
(15,202
)
 
262

 
20,145

 
5,205

 

 
6,842

 
(54,642
)
 
(47,800
)
Amounts reclassified from accumulated other comprehensive (loss) income, net of taxes
5,026

 
163

 

 
5,189

 
4,888

 
(471
)
 

 
4,417

Total other comprehensive income (loss), net of taxes
(10,176
)
 
425

 
20,145

 
10,394

 
4,888

 
6,371

 
(54,642
)
 
(43,383
)
Ending balance
$
(542,763
)
 
$
5,167

 
$
23,133

 
$
(514,463
)
 
$
(544,793
)
 
$
6,044

 
$
(21,640
)
 
$
(560,389
)

 
Nine months ended August 1, 2014
 
Nine months ended July 26, 2013
 
Change in Unrecognized Pension and Other Postretirement Obligations
 
Derivative Instrument Fair Market Value Adjustment
 
Foreign Currency Translation Adjustment
 
Total
 
Change in Unrecognized Pension and Other Postretirement Obligations
 
Derivative Instrument Fair Market Value Adjustment
 
Foreign Currency Translation Adjustment
 
Total
Beginning balance
$
(540,122
)
 
$
5,028

 
$
27,460

 
$
(507,634
)
 
$
(559,458
)
 
$
4,879

 
$
45,930

 
$
(508,649
)
Other comprehensive (loss) income before reclassifications, net of taxes
(15,202
)
 
3,555

 
(4,327
)
 
(15,974
)
 

 
3,879

 
(67,570
)
 
(63,691
)
Amounts reclassified from accumulated other comprehensive (loss) income, net of taxes
12,561

 
(3,416
)
 

 
9,145

 
14,665

 
(2,714
)
 

 
11,951

Total other comprehensive (loss) income, net of taxes
(2,641
)
 
139

 
(4,327
)
 
(6,829
)
 
14,665

 
1,165

 
(67,570
)
 
(51,740
)
Ending balance
$
(542,763
)
 
$
5,167

 
$
23,133

 
$
(514,463
)
 
$
(544,793
)
 
$
6,044

 
$
(21,640
)
 
$
(560,389
)


Details of the reclassifications from accumulated other comprehensive (loss) income are disclosed below:

10


 
 
Amounts Reclassified from Accumulated Other Comprehensive (Loss) Income
 
 
 
 
Quarter Ended
 
Nine Months Ended
 
Affected Line Items in the Statements of Income
 
 
August 1,
2014
 
July 26,
2013
 
May 2,
2014
 
April 26,
2013
 
Change in unrecognized pension and other postretirement obligations:
 
 
 
 
 
 
 
 
 
 
Amortization of prior service cost
 
$
181

 
$
170

 
$
539

 
$
510

 
Cost of sales/Product development, selling and administrative expense*
Amortization of net actuarial gain
 
5,544

 
7,056

 
15,951

 
21,168

 
Cost of sales/Product development, selling and administrative expense*
Curtailment loss attributable to unrecognized prior negotiated enhancements
 
1,582

 

 
1,582

 

 
Cost of sales/Product development, selling and administrative expense*
Deferred tax
 
(2,281
)
 
(2,338
)
 
(5,511
)
 
(7,013
)
 
Provision for income taxes
Amounts reclassified from accumulated other comprehensive (loss) income, net of taxes
 
$
5,026

 
$
4,888

 
$
12,561

 
$
14,665

 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instrument fair market value adjustment:
 
 
 
 
 
 
 
 
 
 
Foreign exchange cash flow hedges
 
$
227

 
$
(680
)
 
$
(4,805
)
 
$
(4,120
)
 
Net sales/Cost of sales**
Deferred tax
 
(64
)
 
209

 
1,389

 
1,406

 
Provision for income taxes
Amounts reclassified from accumulated other comprehensive (loss) income, net of taxes
 
$
163

 
$
(471
)
 
$
(3,416
)
 
$
(2,714
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
5,189

 
$
4,417

 
$
9,145

 
$
11,951

 
 

* Amounts are included in the computation of net periodic benefits costs as either cost of sales or product development, selling and administrative expense as appropriate. Refer to Footnote 10, Retiree Benefits, for additional information.

** Amounts are included in either net sales or cost of sales as appropriate. Refer to Footnote 11, Derivatives, for additional information.

8.
Shareholders' Equity
In August 2013, our Board of Directors authorized the Company to repurchase up to $1.0 billion in shares of our common stock until August 2016. Under the program, the Company may repurchase shares in the open market in accordance with applicable SEC rules and regulations. During the quarter ended August 1, 2014 , we purchased 1,091,602 shares of common stock for approximately $64.8 million . During the nine months ended August 1, 2014 , we purchased 3,488,312 shares of common stock for approximately $194.3 million . Since its inception, the Company has repurchased 7,593,312 shares of common stock under the program for approximately $408.4 million , leaving $591.6 million available under the program.

9.
Share-Based Compensation
Total share-based compensation (income) expense recognized for the quarters ended August 1, 2014 and July 26, 2013 is $(2.0) million and $5.0 million , respectively. Total share-based compensation expense recognized for the nine months ended August 1, 2014 and July 26, 2013 is $11.2 million and $23.3 million , respectively. The fluctuation in share-based compensation is the result of the adjustment of forfeiture rates and the reassessment of performance related measures in the third quarter of fiscal 2014. The total share-based compensation expense is reflected in our Condensed Consolidated Statements of Cash Flows in operating activities as an add back to net income .
The corresponding deferred taxes recognized related to the share-based compensation is a liability of $0.1 million and an asset of $1.6 million for the quarters ended August 1, 2014 and July 26, 2013 , respectively. The corresponding deferred tax asset recognized related to the share-based compensation expense is $3.0 million and $6.8 million for the nine months ended August 1, 2014 and July 26, 2013 , respectively.

10.
Retiree Benefits
The components of the net periodic benefit cost associated with our pension and other postretirement plans are as follows:

11


 
Pension Benefits
 
Postretirement Benefits
 
Quarter Ended
 
Quarter Ended
In thousands
August 1,
2014
 
July 26,
2013
 
August 1,
2014
 
July 26,
2013
Service cost
$
1,634

 
$
2,848

 
$
195

 
$
270

Interest cost
22,511

 
19,524

 
315

 
292

Expected return on assets
(27,348
)
 
(25,604
)
 
(121
)
 
(106
)
Amortization of:
 
 
 
 
 
 
 
Prior service cost
148

 
153

 
33

 
17

Actuarial loss (gain)
5,703

 
7,264

 
(159
)
 
(208
)
Curtailment loss
7,838

 

 

 

Net periodic benefit cost
$
10,486

 
$
4,185

 
$
263

 
$
265

 
 
 
 
 
 
 
 
 
Pension Benefits
 
Postretirement Benefits
 
Nine Months Ended
 
Nine Months Ended
In thousands
August 1,
2014
 
July 26,
2013
 
August 1,
2014
 
July 26,
2013
Service cost
$
4,672

 
$
8,543

 
$
714

 
$
812

Interest cost
63,810

 
58,571

 
959

 
876

Expected return on assets
(79,747
)
 
(76,812
)
 
(415
)
 
(320
)
Amortization of:
 
 
 
 
 
 
 
Prior service cost
440

 
458

 
99

 
52

Actuarial loss (gain)
16,562

 
21,793

 
(611
)
 
(625
)
Curtailment loss
7,838

 

 

 

Net periodic benefit cost
$
13,575

 
$
12,553

 
$
746

 
$
795


The actuarial loss (gain) arises from differences in estimates and actual experiences for certain assumptions, including changes in the discount rate and expected return on assets. For the nine months ended August 1, 2014 , we contributed $5.8 million to our defined benefit employee pension plans, and we do not expect contributions to exceed $50.0 million for the full fiscal year.
During the current quarter, we substantially completed negotiations with certain of our U.S. bargaining units to freeze their respective defined benefit plans at the end of the calendar year. These actions resulted in a $7.8 million non-cash pension curtailment charge in the current quarter.

11.
Derivatives
We are exposed to certain foreign currency risks in the normal course of our global business operations. We enter into derivative contracts that are foreign currency forward contracts to hedge the risks of certain identified and anticipated transactions in currencies other than the functional currency of the respective operating unit. The types of risks hedged are those arising from the variability of future earnings and cash flows caused by fluctuations in foreign currency exchange rates. These contracts are for forecasted transactions and committed receivables and payables denominated in foreign currencies and are not entered into for speculative purposes. Consequently, any market-related losses on the forward contract would be offset by changes in the value of the hedged item, and, as a result, we are generally not exposed to net market risk associated with these instruments.
Each derivative is classified as either a cash flow hedge, a fair value hedge or an undesignated instrument. All derivatives are recorded at fair value on the Condensed Consolidated Balance Sheets under the heading Other current assets or under the heading Other accrued liabilities, as appropriate. Cash flows from fair value and cash flow hedges are classified within the same category as the item being hedged on the Condensed Consolidated Statements of Cash Flows. Cash flows from undesignated derivative instruments are included in operating activities on the Condensed Consolidated Statements of Cash Flows.
For derivative contracts that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss of the derivative contract is recorded as a component of other comprehensive income, net of tax. This amount is reclassified into the income statement on the line associated with the underlying transaction for the periods in which the hedged transaction affects earnings. The amounts recorded in accumulated other comprehensive income for existing cash flow hedges are generally expected to be reclassified into earnings within one year and all of the existing hedges will be reclassified into earnings by October 2015 . There was no ineffectiveness related to these derivative contracts for the quarter ended August 1, 2014 , and there was a gain of

12


$0.2 million recorded in the Condensed Consolidated Statements of Income related to the ineffectiveness of these derivative contracts for the quarter ended July 26, 2013 . There was a gain of less than $0.1 million and a gain of $0.8 million recorded in the Condensed Consolidated Statements of Income related to the ineffectiveness of these derivative contracts for the nine months ended August 1, 2014 and July 26, 2013 , respectively.
For derivative contracts that are designated and qualify as a fair value hedge, the gain or loss is recorded in the Condensed Consolidated Statements of Income under the heading Cost of sales . For the quarters ended August 1, 2014 and July 26, 2013 , we recorded gain s of $0.1 million and $1.0 million , respectively, related to fair value hedges, which were offset by foreign exchange fluctuations of the underlying hedged item. For the nine months ended August 1, 2014 and July 26, 2013 , we recorded loss es of $0.7 million and $0.2 million , respectively, related to fair value hedges, which were offset by foreign exchange fluctuations of the underlying hedged item.
For derivative contracts entered into to hedge revaluation of net balance sheet exposures in non-functional currency that are not designated as a fair value hedge or a cash flow hedge, the gain or loss is recorded in the Condensed Consolidated Statements of Income under the heading Cost of sales . For the quarters ended August 1, 2014 and July 26, 2013 , we recorded gain s of $0.1 million and $5.5 million , respectively, related to undesignated hedges, which were offset by foreign exchange fluctuations. For the nine months ended August 1, 2014 and July 26, 2013 , we recorded gain s of $2.7 million and $2.3 million , respectively, related to undesignated hedges, which were offset by foreign exchange fluctuations.
The following table summarizes the effect of cash flow hedges on the Condensed Consolidated Financial Statements:
In thousands
 
Effective Portion
 
 
Amount of Gain Recognized in Other Comprehensive Income
 
Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings
Derivative Hedging Relationship
 
 
Location
 
Amount
Foreign currency forward contracts
 
 
 
 
 
 
Quarter ended August 1, 2014
 
$
363

 
Cost of sales
 
$
(267
)
 
 
 
 
Sales
 
40

Nine months ended August 1, 2014
 
$
5,007

 
Cost of sales
 
$
4,586

 
 
 
 
Sales
 
219

Quarter ended July 26, 2013
 
$
9,868

 
Cost of sales
 
$
1,262

 
 
 
 
Sales
 
(582
)
Nine months ended July 26, 2013
 
$
5,309

 
Cost of sales
 
$
4,884

 
 
 
 
Sales
 
(764
)
We are exposed to credit risk in the event of nonperformance by counterparties to the forward contracts. The terms of the forward contract determine the timing and amounts to be exchanged, and the contract is generally subject to credit risk only when it has a positive fair value.

12.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of shares outstanding during each period. Diluted earnings per share is computed similar to basic earnings per share, except that the weighted average number of shares outstanding is increased to include additional shares from the assumed exercise of stock options, performance shares and restricted stock units, if dilutive.
The following table sets forth the computation of basic and diluted earnings per share:

13


 
Quarter Ended
 
Nine Months Ended
In thousands, except per share amounts
August 1,
2014
 
July 26,
2013
 
August 1,
2014
 
July 26,
2013
Numerator:
 
 
 
 
 
 
 
Income from continuing operations
$
71,289

 
$
183,187

 
$
194,101

 
$
507,105

Loss from discontinued operations, net of income taxes

 

 

 
(225
)
Net income
$
71,289

 
$
183,187

 
$
194,101

 
$
506,880

Denominator:
 
 
 
 
 
 
 
Weighted average shares outstanding
99,856

 
106,465

 
100,666

 
106,378

Dilutive effect of stock options, performance shares and restricted stock units
882

 
847

 
870

 
943

Weighted average shares outstanding assuming dilution
100,738

 
107,312

 
101,536

 
107,321

Basic earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.71

 
$
1.72

 
$
1.93

 
$
4.77

Loss from discontinued operations

 

 

 

Net income
$
0.71

 
$
1.72

 
$
1.93

 
$
4.77

Diluted earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.71

 
$
1.71

 
$
1.91

 
$
4.73

Loss from discontinued operations

 

 

 

Net income
$
0.71

 
$
1.71

 
$
1.91

 
$
4.73

Options to purchase a weighted average of 1.7 million and 1.6 million shares were excluded from the calculations of diluted earnings per share for the quarters ended August 1, 2014 and July 26, 2013 , respectively, as the effect would have been antidilutive. Options to purchase a weighted average of 1.8 million and 1.3 million shares were excluded from the calculations of diluted earnings per share for the nine months ended August 1, 2014 and July 26, 2013 , respectively, as the effect would have been antidilutive.

13.
Fair Value Measurements
GAAP establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:
Level 1: Quoted prices in active markets for identical instruments;
Level 2: Inputs, other than quoted prices in active markets, that are observable for the instrument either directly or indirectly or quoted prices for similar instruments in active markets; and
Level 3: Unobservable inputs for the instrument where there is little or no market data, which requires the reporting entity to develop its own assumptions.
GAAP requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
The following tables present the fair value hierarchy for those assets and liabilities measured at fair value and disclose the fair value of long-term obligations recorded at cost as of August 1, 2014 and October 25, 2013 . As of August 1, 2014 and October 25, 2013 , we did not have any Level 3 assets or liabilities.


14


Fair Value Measurements as of August 1, 2014
 
 
 
 
 
 
 
In thousands
Carrying
Value
 
Total Fair
Value
 
Level 1
 
Level 2
Current Assets
 
 
 
 
 
 
 
Cash equivalents
$
20,221

 
$
20,221

 
$
20,221

 
$

Other Current Assets
 
 
 
 
 
 
 
Derivatives
$
7,297

 
$
7,297

 
$

 
$
7,297

Other Accrued Liabilities
 
 
 
 
 
 
 
Derivatives
$
3,726

 
$
3,726

 
$

 
$
3,726

Long-term Obligations Including Amounts due within One Year
 
 
 
 
 
 
 
Term Loan due 2019
$
375,000

 
$
381,441

 
$

 
$
381,441

6.0% Senior Notes due 2016
$
249,030

 
$
275,375

 
$

 
$
275,375

5.125% Senior Notes due 2021
$
496,713

 
$
543,250

 
$

 
$
543,250

6.625% Senior Notes due 2036
$
148,515

 
$
176,220

 
$

 
$
176,220


Fair Value Measurements as of October 25, 2013
 
 
 
 
 
 
 
In thousands
Carrying
Value
 
Total Fair
Value
 
Level 1
 
Level 2
Current Assets
 
 
 
 
 
 
 
Cash equivalents
$
29,221

 
$
29,221

 
$
29,221

 
$

Other Current Assets
 
 
 
 
 
 
 
Derivatives
$
9,593

 
$
9,593

 
$

 
$
9,593

Other Accrued Liabilities
 
 
 
 
 
 
 
Derivatives
$
6,608

 
$
6,608

 
$

 
$
6,608

Long-term Obligations Including Amounts due within One Year
 
 
 
 
 
 
 
Term Loan due 2016
$
412,500

 
$
432,952

 
$

 
$
432,952

6.0% Senior Notes due 2016
$
248,733

 
$
280,425

 
$

 
$
280,425

5.125% Senior Notes due 2021
$
496,438

 
$
531,400

 
$

 
$
531,400

6.625% Senior Notes due 2036
$
148,493

 
$
165,600

 
$

 
$
165,600

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Cash equivalents : The carrying value of cash equivalents approximates fair value based on the short-term nature of these instruments.
Derivatives : The fair value of forward foreign exchange contracts is based on a valuation model that discounts cash flows resulting from the differential between the contract price and the market-based forward rate.
Term Loan : The fair value of the Term Loan is estimated using discounted cash flows and market conditions.
Senior Notes : The fair market value of the senior notes is estimated based on market quotations of similar instruments at the respective period end.

14.
Contingent Liabilities
We and our subsidiaries are involved in various unresolved legal matters that arise in the normal course of operations, the most prevalent of which relate to product liability (including approximately 3,050 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 our 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.
As of August 1, 2014 , we were contingently liable to financial institutions and others for approximately $206.9 million for outstanding standby letters of credit, surety bonds and bank guarantees to secure the performance of sales contracts and other

15


guarantees in the ordinary course of business. Of the $206.9 million , approximately $27.7 million relates to surety bonds and $2.7 million relates to outstanding letters of credit or other guarantees issued by non-U.S. banks for non-U.S. subsidiaries under locally provided credit facilities.

15.
Segment Information
We operate in two reportable segments: Underground and Surface. Crushing and conveying operating results related to surface applications are reported as part of the Surface segment, while total crushing and conveying operating results are included in the Underground segment. Eliminations primarily consist of the surface applications of crushing and conveying included in both operating segments. The results of operations for MTI have been included in the Underground segment from the acquisition date forward.
Operating income (loss) of segments does not include interest income and expense, corporate administration expenses and the provision for income taxes.
In thousands
Underground
 
Surface
 
Corporate
 
Eliminations
 
Total
Quarter ended August 1, 2014
 
 
 
 
 
 
 
 
 
Net sales
$
470,747

 
$
435,186

 
$

 
$
(30,272
)
 
$
875,661

Operating income (loss)
$
47,635

 
$
87,269

 
$
(7,039
)
 
$
(8,574
)
 
$
119,291

Interest income

 

 
1,707

 

 
1,707

Interest expense

 

 
(16,604
)
 

 
(16,604
)
Income (loss) from continuing operations before income taxes
$
47,635

 
$
87,269

 
$
(21,936
)
 
$
(8,574
)
 
$
104,394

Depreciation and amortization
$
18,568

 
$
14,625

 
$
695

 
$

 
$
33,888

Capital expenditures
$
12,675

 
$
10,078

 
$
2,011

 
$

 
$
24,764

 
 
 
 
 
 
 
 
 
 
Quarter ended July 26, 2013
 
 
 
 
 
 
 
 
 
Net sales
$
722,748

 
$
640,919

 
$

 
$
(43,056
)
 
$
1,320,611

Operating income (loss)
$
138,225

 
$
157,353

 
$
(10,601
)
 
$
(10,638
)
 
$
274,339

Interest income

 

 
2,536

 

 
2,536

Interest expense

 

 
(16,138
)
 

 
(16,138
)
Income (loss) from continuing operations before income taxes
$
138,225

 
$
157,353

 
$
(24,203
)
 
$
(10,638
)
 
$
260,737

Depreciation and amortization
$
17,419

 
$
12,825

 
$
747

 
$

 
$
30,991

Capital expenditures
$
9,877

 
$
18,029

 
$
3,002

 
$

 
$
30,908



16


In thousands
Underground
 
Surface
 
Corporate
 
Eliminations
 
Total
Nine months ended August 1, 2014
 
 
 
 
 
 
 
 
 
Net sales
$
1,466,088

 
$
1,279,507

 
$

 
$
(100,892
)
 
$
2,644,703

Operating income (loss)
$
177,773

 
$
216,034

 
$
(35,464
)
 
$
(28,065
)
 
$
330,278

Interest income

 

 
6,583

 

 
6,583

Interest expense

 

 
(49,148
)
 

 
(49,148
)
Income (loss) from continuing operations before income taxes
$
177,773

 
$
216,034

 
$
(78,029
)
 
$
(28,065
)
 
$
287,713

Depreciation and amortization
$
54,780

 
$
41,834

 
$
2,111

 
$

 
$
98,725

Capital expenditures
$
31,653

 
$
33,446

 
$
3,969

 
$

 
$
69,068

 
 
 
 
 
 
 
 
 

Nine months ended July 26, 2013
 
 
 
 
 
 
 
 

Net sales
$
1,994,772

 
$
1,959,198

 
$

 
$
(123,047
)
 
$
3,830,923

Operating income (loss)
$
387,330

 
$
458,676

 
$
(40,080
)
 
$
(31,802
)
 
$
774,124

Interest income

 

 
6,180

 

 
6,180

Interest expense

 

 
(50,120
)
 

 
(50,120
)
Income (loss) from continuing operations before income taxes
$
387,330

 
$
458,676

 
$
(84,020
)
 
$
(31,802
)
 
$
730,184

Depreciation and amortization
$
40,182

 
$
37,504

 
$
2,178

 
$

 
$
79,864

Capital expenditures
$
61,682

 
$
50,417

 
$
5,810

 
$

 
$
117,909


16.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 Revenue from Contracts with Customers. ASU 2014-09 provides a single principles-based, five-step model to be applied to all contracts with customers. The five steps are to (i) identify the contracts with the customer, (ii) identify the performance obligations in the contact, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when each performance obligation is satisfied. Revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. ASU 2014-09 will be effective for the Company beginning on October 28, 2017 and the standard allows for either full retrospective adoption or modified retrospective adoption. The Company is continuing to evaluate the impact that the adoption of this guidance will have on our financial condition, results of operations and the presentation of our financial statements.
In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU No. 2013-02 requires presentation, either in a single note or parenthetically on the face of the financial statements, of the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. If a component is not required to be reclassified to net income in its entirety, cross references to the related footnote for additional information would be appropriate. ASU 2013-02 was effective for the Company beginning on October 26, 2013. The adoption of this guidance had no impact on our financial condition or results of operations but impacted the presentation of other comprehensive income in the footnotes of the financial statements.

17.
Subsidiary Guarantors
The following tables present condensed consolidated financial information as of August 1, 2014 and October 25, 2013 and for the quarters and nine months ended August 1, 2014 and July 26, 2013 for: (a) the Company; (b) on a combined basis, the guarantors of the 2016 Notes and 2036 Notes issued in November 2006, which include the significant domestic operations of Joy Global Underground Mining LLC, Joy Global Surface Mining Inc., N.E.S. Investment Co., Joy Global Conveyors Inc., Joy Global Longview Operations LLC and certain immaterial wholly owned subsidiaries of Joy Global Longview Operations LLC (the "Subsidiary Guarantors"); and (c) on a combined basis, the non-guarantors, which include all of our foreign subsidiaries and a number of small domestic subsidiaries (the "Non-Guarantor Subsidiaries").
The borrowings are fully and unconditionally guaranteed on a joint and several unsecured basis by the Subsidiary Guarantors, which are direct and indirect 100% owned subsidiaries of the Company. We conduct all of our business and derive essentially all of our income from our subsidiaries. Therefore, our ability to make payments on the obligations is dependent on the earnings and distribution of funds from our subsidiaries. There are no restrictions on the ability of any of our domestic subsidiaries to transfer

17


funds to the parent company. Separate financial statements of the Subsidiary Guarantors are not presented because we believe such separate statements or disclosures would not be useful to investors.

Condensed Consolidating Statement of Income
Quarter ended August 1, 2014
In thousands
Parent
Company
 
Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
523,862

 
$
560,533

 
$
(208,734
)
 
$
875,661

Cost of sales

 
381,527

 
411,714

 
(169,512
)
 
623,729

Product development, selling and administrative expenses
7,017

 
49,531

 
80,711

 

 
137,259

Other (income) expense

 
2,344

 
(6,962
)
 

 
(4,618
)
Operating income (loss)
(7,017
)
 
90,460

 
75,070

 
(39,222
)
 
119,291

Intercompany items
15,641

 
(14,897
)
 
(7,048
)
 
6,304

 

Interest (expense) income, net
(15,614
)
 
1,083

 
(366
)
 

 
(14,897
)
Income (loss) from continuing operations before income taxes and equity in income of subsidiaries
(6,990
)
 
76,646

 
67,656

 
(32,918
)
 
104,394

Provision (benefit) for income taxes
(5,923
)
 
32,719

 
6,330

 
(21
)
 
33,105

Equity in income of subsidiaries
72,356

 
25,017

 

 
(97,373
)
 

Income from continuing operations
$
71,289

 
$
68,944

 
$
61,326

 
$
(130,270
)
 
$
71,289

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
81,683

 
$
69,038

 
$
80,787

 
$
(149,825
)
 
$
81,683


Condensed Consolidating Statement of Income
Quarter ended July 26, 2013  
In thousands
Parent
Company
 
Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
707,663

 
$
1,007,889

 
$
(394,941
)
 
$
1,320,611

Cost of sales

 
488,431

 
717,550

 
(325,772
)
 
880,209

Product development, selling and administrative expenses
10,564

 
77,590

 
79,001

 

 
167,155

Other (income) expense

 
8,675

 
(9,767
)
 

 
(1,092
)
Operating income (loss)
(10,564
)
 
132,967

 
221,105

 
(69,169
)
 
274,339

Intercompany items
28,719

 
(23,009
)
 
(41,956
)
 
36,246

 

Interest (expense) income, net
(16,097
)
 
1,102

 
1,393

 

 
(13,602
)
Income from continuing operations before income taxes and equity in income of subsidiaries
2,058

 
111,060

 
180,542

 
(32,923
)
 
260,737

Provision (benefit) for income taxes
(16,484
)
 
66,875

 
27,159

 

 
77,550

Equity in income of subsidiaries
164,645

 
48,563

 

 
(213,208
)
 

Income from continuing operations
$
183,187

 
$
92,748

 
$
153,383

 
$
(246,131
)
 
$
183,187

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
139,804

 
$
93,607

 
$
107,071

 
$
(200,678
)
 
$
139,804


18


Condensed Consolidating Statement of Income
Nine months ended August 1, 2014
 
 
 
 
 
 
 
 
 
 
In thousands
Parent
Company
 
Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
1,504,843

 
$
1,793,900

 
$
(654,040
)
 
$
2,644,703

Cost of sales

 
1,115,516

 
1,301,028

 
(537,045
)
 
1,879,499

Product development, selling and administrative expenses
35,840

 
184,036