Joy Global Inc.
JOY GLOBAL INC (Form: 10-Q, Received: 06/05/2015 17:35:15)
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 May 1, 2015
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
 
May 29, 2015
Common Stock, $1 par value
 
97,453,732
 
 
 
 
 



Table of Contents




JOY GLOBAL INC.
FORM 10-Q INDEX
May 1, 2015
 
PAGE NO.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





Table of Contents




Forward-Looking Statements
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 on 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 and industry conditions in the markets in which we operate, risks associated with conducting business in foreign countries, risks associated with acquisitions and the other risks discussed in Item 1A, Risk Factors , of our Annual Report on Form 10-K for our fiscal year ended October 31, 2014 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
 
Six Months Ended
 
May 1,
2015
 
May 2,
2014
 
May 1,
2015
 
May 2,
2014
Net sales
$
810,523

 
$
929,730

 
$
1,514,396

 
$
1,769,042

Cost of sales
579,403

 
651,592

 
1,100,149

 
1,255,770

Product development, selling and administrative expenses
161,722

 
154,534

 
299,356

 
307,563

Other income
(900
)
 
(2,138
)
 
(4,113
)
 
(5,278
)
Operating income
70,298

 
125,742

 
119,004

 
210,987

Interest income
2,980

 
2,293

 
5,920

 
4,876

Interest expense
(16,252
)
 
(16,141
)
 
(32,149
)
 
(32,544
)
Income before income taxes
57,026

 
111,894

 
92,775

 
183,319

Provision for income taxes
18,313

 
37,943

 
30,468

 
60,507

Net income
$
38,713

 
$
73,951

 
$
62,307

 
$
122,812

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.40

 
$
0.74

 
$
0.64

 
$
1.22

Diluted earnings per share
$
0.40

 
$
0.73

 
$
0.64

 
$
1.20

Dividends per share
$
0.20

 
$
0.175

 
$
0.40

 
$
0.35

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
97,416

 
100,346

 
97,482

 
101,071

Diluted
97,972

 
101,203

 
98,055

 
101,935

See Notes to Condensed Consolidated Financial Statements.

3

Table of Contents




JOY GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
 
 
Quarter Ended
 
May 1,
2015
 
May 2,
2014
Net income
$
38,713

 
$
73,951

Other comprehensive income (loss):
 
 
 
Change in unrecognized pension and other postretirement obligations, net of taxes of $2,630 and $1,605
7,461

 
3,731

Derivative instrument fair market value adjustment, net of tax benefits of $47 and $1,124
(89
)
 
(2,796
)
Foreign currency translation adjustment on long-term intercompany foreign loans
7,147

 
(8,527
)
Other foreign currency translation adjustment
11,094

 
36,827

Total other comprehensive income, net of taxes
25,613

 
29,235

Comprehensive income
$
64,326

 
$
103,186

 
Six Months Ended
 
May 1,
2015
 
May 2,
2014
Net income
$
62,307

 
$
122,812

Other comprehensive income (loss):
 
 
 
Change in unrecognized pension and other postretirement obligations, net of taxes of $4,535 and $3,229
11,693

 
7,535

Derivative instrument fair market value adjustment, net of taxes of $1,473 and tax benefits of $102
3,599

 
(286
)
Foreign currency translation adjustment on long-term intercompany foreign loans
(3,746
)
 
(7,930
)
Other foreign currency translation adjustment
(98,283
)
 
(16,542
)
Total other comprehensive loss, net of taxes
(86,737
)
 
(17,223
)
Comprehensive (loss) income
$
(24,430
)
 
$
105,589


See Notes to Condensed Consolidated Financial Statements.


4

Table of Contents




JOY GLOBAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
 
 
May 1,
2015
 
October 31,
2014
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
192,091

 
$
270,191

Accounts receivable, net
923,453

 
1,059,709

Inventories
1,192,093

 
1,108,308

Other current assets
174,997

 
180,151

Total current assets
2,482,634

 
2,618,359

Property, plant and equipment, net
872,363

 
892,440

Other assets:
 
 
 
Other intangible assets, net
304,758

 
319,269

Goodwill
1,500,603

 
1,516,693

Deferred income taxes
68,150

 
70,181

Other non-current assets
169,150

 
180,044

Total other assets
2,042,661

 
2,086,187

Total assets
$
5,397,658

 
$
5,596,986

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term borrowings, including current portion of long-term obligations
$
21,793

 
$
11,739

Trade accounts payable
352,743

 
395,945

Employee compensation and benefits
85,568

 
136,911

Advance payments and progress billings
329,871

 
285,939

Accrued warranties
58,194

 
67,272

Other accrued liabilities
223,791

 
265,600

Current liabilities of discontinued operations
11,582

 
11,582

Total current liabilities
1,083,542

 
1,174,988

Long-term obligations
1,260,499

 
1,269,541

Other liabilities:
 
 
 
Liabilities for postretirement benefits
19,021

 
19,609

Accrued pension costs
140,070

 
144,379

Other non-current liabilities
152,645

 
147,472

Total other liabilities
311,736

 
311,460

Shareholders’ equity
2,741,881

 
2,840,997

Total liabilities and shareholders’ equity
$
5,397,658

 
$
5,596,986

See Notes to Condensed Consolidated Financial Statements.

5

Table of Contents




JOY GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Six Months Ended
 
May 1,
2015
 
May 2,
2014
Operating Activities:
 
 
 
Net income
$
62,307

 
$
122,812

Adjustments to continuing operations:
 
 
 
Depreciation and amortization
66,176

 
64,837

Changes in deferred income taxes
9,369

 
(6,697
)
Contributions to defined benefit employee pension plans
(11,158
)
 
(4,353
)
Defined benefit employee pension plan expense
13,204

 
3,089

Share-based compensation expense
15,965

 
13,164

Changes in long-term receivables
10,882

 
6,622

Other adjustments to continuing operations, net
1,507

 
917

Changes in working capital items attributed to continuing operations:
 
 
 
Accounts receivable, net
105,010

 
166,177

Inventories
(133,066
)
 
(15,577
)
Other current assets
(17,603
)
 
(10,150
)
Trade accounts payable
(36,574
)
 
(45,992
)
Employee compensation and benefits
(47,831
)
 
(17,433
)
Advance payments and progress billings
57,926

 
9,182

Accrued warranties
(7,313
)
 
(12,543
)
Other accrued liabilities
(36,040
)
 
(67,380
)
Net cash provided by operating activities of continuing operations
52,761

 
206,675

Net cash used by operating activities of discontinued operations

 
(115
)
Net cash provided by operating activities
52,761

 
206,560

Investing Activities:
 
 
 
Property, plant and equipment acquired
(39,795
)
 
(44,304
)
Proceeds from sale of property, plant and equipment
3,958

 
4,205

Other investing activities, net
373

 
(66
)
Net cash used by investing activities
(35,464
)
 
(40,165
)
Financing Activities:
 
 
 
Common stock issued
2,560

 
6,581

Dividends paid
(38,964
)
 
(35,374
)
Repayments of term loan

 
(25,000
)
Treasury stock purchased
(50,000
)
 
(129,504
)
Other financing activities, net
865

 
(1,694
)
Net cash used by financing activities
(85,539
)
 
(184,991
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(9,858
)
 
(1,323
)
Decrease in Cash and Cash Equivalents
(78,100
)
 
(19,919
)
Cash and Cash Equivalents at Beginning of Period
270,191

 
405,709

Cash and Cash Equivalents at End of Period
$
192,091

 
$
385,790


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," "we" and "us") is a leading manufacturer and servicer of high productivity mining equipment for the extraction of metals and minerals. 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. We are also a major producer of surface mining equipment for the extraction of copper, coal and other minerals and ores. We offer comprehensive direct service, which includes our smart service offerings, near major mining regions worldwide and provide extensive operational support for many types of equipment used in 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 are presented 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 of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate realization of assets and settlement of liabilities in the future could differ from those 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 31, 2014 . 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 $ 44.4 million dollars. 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 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 recorded goodwill of approximately $0.3 million and intangible assets of approximately $9.9 million . The intangible assets are primarily comprised of customer relationships and designs and drawings, which are being amortized over their respective estimated useful lives.

4.
Inventories
Consolidated inventories consist of the following:
 
In thousands
May 1,
2015
 
October 31,
2014
Finished goods
911,533

 
$
835,227

Work in process
201,451

 
203,805

Raw materials
79,109

 
69,276

Total inventories
$
1,192,093

 
$
1,108,308

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



7





5. 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.
The following table reconciles the changes in the product warranty reserve:
 
Quarter Ended
 
Six Months Ended
In thousands
May 1,
2015
 
May 2,
2014
 
May 1,
2015
 
May 2,
2014
Balance, beginning of period
$
58,528

 
$
77,804

 
$
67,272

 
$
85,732

Accrual for warranty expensed during the period
12,673

 
9,297

 
18,853

 
16,663

Settlements made during the period
(15,012
)
 
(14,235
)
 
(26,387
)
 
(29,176
)
Effect of foreign currency translation
2,005

 
736

 
(1,544
)
 
383

Balance, end of period
$
58,194

 
$
73,602

 
$
58,194

 
$
73,602


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 if we are not in compliance with the financial covenants in the agreement. As of May 1, 2015 , 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 May 1, 2015 , there were no direct borrowings under the Credit Agreement. Total interest expense recognized for direct borrowings under the Credit Agreement for the quarters May 1, 2015 and May 2, 2014 is $0.2 million and less than $0.1 million , respectively. For the six months ended May 1, 2015 and May 2, 2014 , total interest expense recognized for direct borrowings under the Credit Agreement was $ 0.4 million and less than $ 0.1 million , respectively. Outstanding standby letters of credit issued under the Credit Agreement, which count toward the $1.0 billion credit limit, totaled $155.6 million . As of May 1, 2015 , there was $844.4 million available for borrowings under the Credit Agreement.
On July 29, 2014, we also 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 replaced 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 that we entered into the Term Loan. 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 May 1, 2015 , we were in compliance with all financial covenants of the Term Loan.

8





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 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
May 1,
2015
 
October 31,
2014
Domestic:
 
 
 
Term Loan due 2019
375,000

 
375,000

6.0% Senior Notes due 2016
249,339

 
249,131

5.125% Senior Notes due 2021
496,998

 
496,806

6.625% Senior Notes due 2036
148,537

 
148,522

Other borrowings
12,412

 
11,634

Foreign:
 
 
 
Capital leases
6

 
187

Total obligations
1,282,292

 
1,281,280

Less: Amounts due within one year
(21,793
)
 
(11,739
)
Long-term obligations
$
1,260,499

 
$
1,269,541

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

9





 
Quarter ended May 1, 2015
 
Quarter ended May 2, 2014
 
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
$
(525,084
)
 
$
8,424

 
$
(130,972
)
 
$
(647,632
)
 
$
(536,318
)
 
$
7,538

 
$
(25,312
)
 
$
(554,092
)
Other comprehensive (loss) income before reclassifications, net of taxes
(7,129
)
 
(407
)
 
18,241

 
10,705

 

 
(1,437
)
 
28,300

 
26,863

Amounts reclassified from accumulated other comprehensive income (loss), net of taxes
14,590

 
318

 

 
14,908

 
3,731

 
(1,359
)
 

 
2,372

Total other comprehensive income (loss), net of taxes
7,461

 
(89
)
 
18,241

 
25,613

 
3,731

 
(2,796
)
 
28,300

 
29,235

Ending balance
$
(517,623
)
 
$
8,335

 
$
(112,731
)
 
$
(622,019
)
 
$
(532,587
)
 
$
4,742

 
$
2,988

 
$
(524,857
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended May 1, 2015
 
Six months ended May 2, 2014
 
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
$
(529,316
)
 
$
4,736

 
$
(10,702
)
 
$
(535,282
)
 
$
(540,122
)
 
$
5,028

 
$
27,460

 
$
(507,634
)
Other comprehensive (loss) income before reclassifications, net of taxes
(7,129
)
 
2,213

 
(102,029
)
 
(106,945
)
 

 
3,293

 
(24,472
)
 
(21,179
)
Amounts reclassified from accumulated other comprehensive income (loss), net of taxes
18,822

 
1,386

 

 
20,208

 
7,535

 
(3,579
)
 

 
3,956

Total other comprehensive income (loss), net of taxes
11,693

 
3,599

 
(102,029
)
 
(86,737
)
 
7,535

 
(286
)
 
(24,472
)
 
(17,223
)
Ending balance
$
(517,623
)
 
$
8,335

 
$
(112,731
)
 
$
(622,019
)
 
$
(532,587
)
 
$
4,742

 
$
2,988

 
$
(524,857
)
Details of the reclassifications from accumulated other comprehensive (loss) income are disclosed below:

10





 
 
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
 
 
 
 
Quarter Ended
 
Six Months Ended
 
Affected Line Items in the Statements of Income
 
 
May 1,
2015
 
May 2,
2014
 
May 1,
2015
 
May 2,
2014
 
Change in unrecognized pension and other postretirement obligations:
 
 
 
 
 
 
 
 
 
 
Amortization of prior service cost
 
$
51

 
$
192

 
$
102

 
$
358

 
Cost of sales/Product development, selling and administrative expense*
Amortization of net actuarial gain
 
6,053

 
5,144

 
12,139

 
10,406

 
Cost of sales/Product development, selling and administrative expense*
Settlement loss related to UK plan
 
12,906

 

 
12,906

 

 
Administrative expense
Deferred tax
 
(4,420
)
 
(1,605
)
 
(6,325
)
 
(3,229
)
 
Provision for income taxes
Amounts reclassified from accumulated other comprehensive income, net of taxes
 
$
14,590

 
$
3,731

 
$
18,822

 
$
7,535

 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instrument fair market value adjustment:
 
 
 
 
 
 
 
 
 
 
Foreign exchange cash flow hedges
 
$
455

 
$
(1,905
)
 
$
1,964

 
$
(5,032
)
 
Net sales/Cost of sales**
Deferred tax
 
(137
)
 
546

 
(578
)
 
1,453

 
Provision for income taxes
Amounts reclassified from accumulated other comprehensive income (loss), net of taxes
 
$
318

 
$
(1,359
)
 
$
1,386

 
$
(3,579
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
14,908

 
$
2,372

 
$
20,208

 
$
3,956

 
 

* 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 11, Retiree Benefits, for additional information.

** Amounts are included in either net sales or cost of sales as appropriate. Refer to Footnote 12, 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 May 1, 2015 , we did not repurchase any shares of common stock. During the quarter ended May 2, 2014 , we purchased 137,812 shares of common stock for approximately $7.5 million . During the six months ended May 1, 2015 , we purchased 954,580 shares of common stock for approximately $50.0 million . During the six months ended May 2, 2014 , we purchased 2,396,710 shares of common stock for approximately $129.5 million . Since its inception, the Company has repurchased 9,771,605 shares of common stock under the program for approximately $533.4 million , leaving $466.6 million available under the program.

9.
Share-Based Compensation
Total share-based compensation expense recognized for the quarters ended May 1, 2015 and May 2, 2014 is $ 8.4 million and $ 7.1 million , respectively. Total share-based compensation expense recognized for the six months ended May 1, 2015 and May 2, 2014 was $16.0 million and $13.2 million , respectively. 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 tax asset recognized related to the share-based compensation is $2.2 million and $1.6 million for the quarters ended May 1, 2015 and May 2, 2014 , respectively. The corresponding deferred tax asset recognized related to the share-based compensation expense was $4.1 million and $3.1 million for the six months ended May 1, 2015 and May 2, 2014 , respectively.

10.
Restructuring Charges
During fiscal 2015, in response to the adverse market conditions, the Company has made decisions to reduce operations and administrative costs. This included entering into severance and termination agreements in the second quarter of fiscal 2015 in order to better align the Company's overall cost structure with anticipated levels of future demand. These activities are expected to be completed by the end of fiscal 2015. Additional restructuring charges are expected in fiscal 2015 as the Company continues to optimize its manufacturing footprint.
The Company incurred some immaterial restructuring costs in fiscal 2014. These costs related to decisions that preceded the fiscal 2015 restructuring plan and are therefore not considered to be part of such plan.
Restructuring charges in fiscal 2015 consisted of employee severance and termination costs. The following table summarizes the total expected costs and the amounts incurred by segment:
In thousands
Underground
 
Surface
 
Corporate
 
Consolidated
Employee Severance and Termination Costs
 
 
 
 
 
 
 
Total expected costs
$
5,833

 
$
6,771

 
$
252

 
$
12,856

 
 
 
 
 
 
 
 
Amount incurred for the quarter ended May 1, 2015
$
4,970

 
$
5,888

 
$
252

 
$
11,110

Amount incurred for the six months ended May 1, 2015
$
5,416

 
$
6,107

 
$
252

 
$
11,775

All restructuring costs are recorded in the income statement under the heading Product development, selling and administrative expense .
Activities impacting the Company's reserve for restructuring charges are as follows:
In thousands
Quarter Ended May 1, 2015
 
Six Months Ended May 1, 2015
 
 
Employee Severance and Termination Costs
 
Employee Severance and Termination Costs
 
Beginning accrual
$
470

 
$

 
Costs incurred
11,110

 
11,775

 
Costs paid/settled
(2,287
)
 
(2,565
)
 
Effect of foreign currency translation
35

 
118

 
Ending accrual
$
9,328

 
$
9,328

 

11.
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
May 1,
2015
 
May 2,
2014
 
May 1,
2015
 
May 2,
2014
Service cost
$
977

 
$
317

 
$
156

 
$
260

Interest cost
19,688

 
20,638

 
281

 
323

Expected return on assets
(26,804
)
 
(26,013
)
 
(153
)
 
(148
)
Amortization of:
 
 
 
 
 
 
 
Prior service cost
18

 
159

 
33

 
33

Actuarial loss (gain)
6,263

 
5,370

 
(210
)
 
(226
)
Settlement charge
12,906

 

 

 

Net periodic benefit cost
$
13,048

 
$
471

 
$
107

 
$
242

 
 
 
 
 
 
 
 
 
Pension Benefits
 
Postretirement Benefits
 
Six Months Ended
 
Six Months Ended
In thousands
May 1,
2015
 
May 2,
2014
 
May 1,
2015
 
May 2,
2014
Service cost
$
1,953

 
$
3,038

 
$
409

 
$
520

Interest cost
39,346

 
41,299

 
581

 
645

Expected return on assets
(53,589
)
 
(52,398
)
 
(312
)
 
(295
)
Amortization of:
 
 
 
 
 
 
 
Prior service cost
36

 
292

 
66

 
66

Actuarial loss (gain)
12,552

 
10,858

 
(413
)
 
(452
)
Settlement charge
12,906

 

 

 

Net periodic benefit cost
$
13,204

 
$
3,089

 
$
331

 
$
484

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 six months ended May 1, 2015 , we contributed $11.2 million to our defined benefit employee pension plans, and we expect contributions to be less than $15.0 million for the full fiscal year.
In conjunction with a UK law change, we recorded a non-cash pension settlement charge in the current quarter of $12.9 million as a result of the decision of certain individuals to transfer their benefit out of the Company's defined benefit pension plan to a defined contribution plan.

12.
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 2017 . Ineffectiveness related to these derivative contracts was recorded in the Condensed Consolidated Statements of Income as a loss of less than $0.1 million and a gain of less than $0.1 million for the quarters ended May 1, 2015 and May 2, 2014 , respectively.

12





Ineffectiveness related to these derivative contracts was also recorded in the Condensed Consolidated Statements of Income as a loss of less than $0.1 million and a gain of less than $0.1 million for the six months ended May 1, 2015 and May 2, 2014 , 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 May 1, 2015 and May 2, 2014 , we recorded a gain of $0.2 million and and a loss of $0.5 million , respectively, related to fair value hedges, which were offset by foreign exchange fluctuations of the underlying hedged item. For the six months ended May 1, 2015 and May 2, 2014 , we recorded a loss of $0.6 million and a loss of $0.7 million , respectively, related to fair value hedges, which were offset by foreign exchange fluctuations of the underlying hedged item.
For derivative contracts entered into in order 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 May 1, 2015 and May 2, 2014 , we recorded a gain of $1.2 million and a loss of $0.4 million , respectively, related to undesignated hedges, which were offset by foreign exchange fluctuations. For the six months ended May 1, 2015 and May 2, 2014 , we recorded gain s of $8.0 million and $2.6 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 (Loss) Gain Recognized in Other Comprehensive Income
 
(Loss) Gain Reclassified from Accumulated Other Comprehensive Income into Earnings
Derivative Hedging Relationship
 
 
Location
 
Amount
Foreign currency forward contracts
 
 
 
 
 
 
Quarter ended May 1, 2015
 
$
(595
)
 
Cost of sales
 
$
(455
)
 
 
 
 
Sales
 

Six months ended May 1, 2015
 
$
3,104

 
Cost of sales
 
$
(1,964
)
 
 
 
 
Sales
 

Quarter ended May 2, 2014
 
$
(2,015
)
 
Cost of sales
 
$
1,776

 
 
 
 
Sales
 
129

Six months ended May 2, 2014
 
$
4,644

 
Cost of sales
 
$
4,853

 
 
 
 
Sales
 
179

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 amount and timing of amounts to be exchanged, and the contract is generally subject to credit risk only when it has a positive fair value.

13.
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:
 
Quarter Ended
 
Six Months Ended
In thousands, except per share amounts
May 1,
2015
 
May 2,
2014
 
May 1,
2015
 
May 2,
2014
Numerator:
 
 
 
 
 
 
 
Net income
$
38,713

 
$
73,951

 
$
62,307

 
$
122,812

Denominator:
 
 
 
 
 
 
 
Weighted average shares outstanding
97,416

 
100,346

 
97,482

 
101,071

Dilutive effect of stock options, performance shares and restricted stock units
556

 
857

 
573

 
864

Weighted average shares outstanding assuming dilution
97,972

 
101,203

 
98,055

 
101,935

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.40

 
$
0.74

 
$
0.64

 
$
1.22

Diluted earnings per share
$
0.40

 
$
0.73

 
$
0.64

 
$
1.20

Options to purchase a weighted average of 2.7 million and 2.1 million shares were excluded from the calculations of diluted earnings per share for the quarters ended May 1, 2015 and May 2, 2014 , respectively, as the effect would have been antidilutive. Options to purchase a weighted average of 2.5 million and 1.8 million shares were excluded from the calculations of diluted earnings per share for the six months ended May 1, 2015 and May 2, 2014 , respectively, as the effect would have been antidilutive.

14.
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.

13





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 May 1, 2015 and October 31, 2014 . As of May 1, 2015 and October 31, 2014 , we did not have any Level 3 assets or liabilities.

Fair Value Measurements as of May 1, 2015
 
 
 
 
 
 
 
In thousands
Carrying
Value
 
Total Fair
Value
 
Level 1
 
Level 2
Current Assets
 
 
 
 
 
 
 
Cash equivalents
$
10,724

 
$
10,724

 
$
10,724

 
$

Other Current Assets
 
 
 
 
 
 
 
Derivatives
$
4,725

 
$
4,725

 
$

 
$
4,725

Other Accrued Liabilities
 
 
 
 
 
 
 
Derivatives
$
11,333

 
$
11,333

 
$

 
$
11,333

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

 
$
376,476

 
$

 
$
376,476

6.0% Senior Notes due 2016
$
249,339

 
$
267,860

 
$

 
$
267,860

5.125% Senior Notes due 2021
$
496,998

 
$
557,270

 
$

 
$
557,270

6.625% Senior Notes due 2036
$
148,537

 
$
180,180

 
$

 
$
180,180


Fair Value Measurements as of October 31, 2014
 
 
 
 
 
 
 
In thousands
Carrying
Value
 
Total Fair
Value
 
Level 1
 
Level 2
Current Assets
 
 
 
 
 
 
 
Cash equivalents
$
20,776

 
$
20,776

 
$
20,776

 
$

Other Current Assets
 
 
 
 
 
 
 
Derivatives
$
2,820

 
$
2,820

 
$

 
$
2,820

Other Accrued Liabilities
 
 
 
 
 
 
 
Derivatives
$
7,294

 
$
7,294

 
$

 
$
7,294

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

 
$
379,108

 
$

 
$
379,108

6.0% Senior Notes due 2016
$
249,131

 
$
272,025

 
$

 
$
272,025

5.125% Senior Notes due 2021
$
496,806

 
$
547,000

 
$

 
$
547,000

6.625% Senior Notes due 2036
$
148,522

 
$
181,095

 
$

 
$
181,095

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.

15.
Contingent Liabilities
We establish reserves based on our assessment of contingencies related to legal claims asserted against us, as required by GAAP. Developments during the course of legal proceedings may affect our assessments and estimates of our contingencies,

14





which in turn may require us to record or change the amount of a reserve, or make a payment that is different than the amount that we have reserved. 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 future consolidated financial position, results of operations or liquidity.
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 3,400 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 and litigation arising outside the ordinary course of business.
As of May 1, 2015 , we were contingently liable to banks, financial institutions and others for approximately $188.0 million for outstanding standby letters of credit, surety bonds and bank guarantees to secure the performance of sales contracts and other third party provided guarantees in the ordinary course of business. Of the $188.0 million , approximately $27.7 million relates to surety bonds and $4.7 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.
In addition, the SEC’s Division of Enforcement is conducting an investigation concerning our 2012 acquisition of International Mining Machinery Holdings Limited and related accounting matters. We are cooperating with the SEC regarding this investigation, which is ongoing. While it is not possible to predict the timing or outcome of the SEC inquiry, we currently believe that this matter will not have a material adverse effect on the Company's future consolidated results of operations, financial position or liquidity.

16.
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 May 1, 2015
 
 
 
 
 
 
 
 
 
Net sales
$
423,939

 
$
423,386

 
$

 
$
(36,802
)
 
$
810,523

Operating income (loss)
$
34,527

 
$
56,552

 
$
(12,067
)
 
$
(8,714
)
 
$
70,298

Interest income

 

 
2,980

 

 
2,980

Interest expense

 

 
(16,252
)
 

 
(16,252
)
Income (loss) before income taxes
$
34,527

 
$
56,552

 
$
(25,339
)
 
$
(8,714
)
 
$
57,026

Depreciation and amortization
$
18,524

 
$
13,157

 
$
816

 
$

 
$
32,497

Capital expenditures
$
5,160

 
$
12,329

 
$
48

 
$

 
$
17,537

 
 
 
 
 
 
 
 
 
 
Quarter ended May 2, 2014
 
 
 
 
 
 
 
 
 
Net sales
$
517,878

 
$
443,625

 
$

 
$
(31,773
)
 
$
929,730

Operating income (loss)
$
67,532

 
$
82,613

 
$
(14,203
)
 
$
(10,200
)
 
$
125,742

Interest income

 

 
2,293

 

 
2,293

Interest expense

 

 
(16,141
)
 

 
(16,141
)
Income (loss) before income taxes
$
67,532

 
$
82,613

 
$
(28,051
)
 
$
(10,200
)
 
$
111,894

Depreciation and amortization
$
17,478

 
$
13,917

 
$
676

 
$

 
$
32,071

Capital expenditures
$
9,122

 
$
8,527

 
$

 
$

 
$
17,649


15





 
 
 
 
 
 
 
 
 
 
In thousands
Underground
 
Surface
 
Corporate
 
Eliminations
 
Total
Six months ended May 1, 2015
 
 
 
 
 
 
 
 
 
Net sales
$
808,602

 
$
770,422

 
$

 
$
(64,628
)
 
$
1,514,396

Operating income (loss)
$
72,724

 
$
85,612

 
$
(24,162
)
 
$
(15,170
)
 
$
119,004

Interest income

 

 
5,920

 

 
5,920

Interest expense

 

 
(32,149
)
 

 
(32,149
)
Income (loss) before income taxes
$
72,724

 
$
85,612

 
$
(50,391
)
 
$
(15,170
)
 
$
92,775

Depreciation and amortization
$
37,712

 
$
26,946

 
$
1,518

 
$

 
$
66,176

Capital expenditures
$
14,221

 
$
25,433

 
$
141

 
$

 
$
39,795

 
 
 
 
 
 
 
 
 

Six months ended May 2, 2014
 
 
 
 
 
 
 
 

Net sales
$
995,341

 
$
844,321

 
$

 
$
(70,620
)
 
$
1,769,042

Operating income (loss)
$
130,138

 
$
128,765

 
$
(28,425
)
 
$
(19,491
)
 
$
210,987

Interest income

 

 
4,876

 

 
4,876

Interest expense

 

 
(32,544
)
 

 
(32,544
)
Income (loss) before income taxes
$
130,138

 
$
128,765

 
$
(56,093
)
 
$
(19,491
)
 
$
183,319

Depreciation and amortization
$
36,212

 
$
27,209

 
$
1,416

 
$

 
$
64,837

Capital expenditures
$
18,978

 
$
23,368

 
$
1,958

 
$

 
$
44,304


17.
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. In April 2015, the FASB tentatively agreed to delay the effective date of ASU 2014-09 for one year and to permit early adoption by entities as of the original effective dates. Considering the one year deferral, ASU 2014-09 will be effective for the Company beginning on October 27, 2018 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 April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. T he guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is allowed for all entities for financial statements that have not been previously issued and entities would apply the new guidance retrospectively to all prior periods. ASU 2015-03 will be effective for the Company beginning on October 29, 2016. This guidance is not expected to have a significant impact on our financial condition, results of operations or presentation of our financial statements.
In April 2015, the FASB also issued ASU 2015-04, Practical Expedient for the Measurement Date of an Employer's Defined Benefit Obligation and Plan Assets, which permits an employer whose fiscal year-end does not coincide with a calendar month end the ability to elect to measure its defined benefit retirement obligations and related plan assets as of the month end that is closest to its fiscal year-end. If elected, this accounting policy is applied consistently on a prospective basis for all plans, with related disclosure of the alternative measurement date used. The ASU is effective for the Company beginning on October 29, 2016, with early adoption permitted. This guidance is not expected to have a significant impact on our financial condition, results of operations or presentation of our financial statements.

18.
Subsidiary Guarantors for 2016 Notes and 2036 Notes
The following tables present condensed consolidated financial information as of May 1, 2015 and October 31, 2014 and for the quarters and six months ended May 1, 2015 and May 2, 2014 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

16





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 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 May 1, 2015
In thousands
Parent
Company
 
Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
531,706

 
$
528,984

 
$
(250,167
)
 
$
810,523

Cost of sales

 
388,885

 
376,835

 
(186,317
)
 
579,403

Product development, selling and administrative expenses
10,120

 
71,285

 
80,317

 

 
161,722

Other (income) expense
68

 
4,457

 
(5,425
)
 

 
(900
)
Operating income (loss)
(10,188
)
 
67,079

 
77,257

 
(63,850
)
 
70,298

Intercompany items
16,586

 
(21,509
)
 
(22,401
)
 
27,324

 

Interest (expense) income, net
(15,783
)
 
1,502

 
1,009

 

 
(13,272
)
Income (loss) before income taxes and equity in income of subsidiaries
(9,385
)
 
47,072

 
55,865

 
(36,526
)
 
57,026

Provision (benefit) for income taxes
(11,577
)
 
21,495

 
8,395

 

 
18,313

Equity in income (loss) of subsidiaries
36,521

 
(45,938
)
 

 
9,417

 

Net income (loss)
$
38,713

 
$
(20,361
)
 
$
47,470

 
$
(27,109
)
 
$
38,713

 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
64,326

 
$
(22,085
)
 
$
77,783

 
$
(55,698
)
 
$
64,326


Condensed Consolidating Statement of Income
Quarter ended May 2, 2014  
In thousands
Parent
Company
 
Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
500,309

 
$
630,602

 
$
(201,181
)
 
$
929,730

Cost of sales

 
370,922

 
443,475

 
(162,805
)
 
651,592

Product development, selling and administrative expenses
14,154

 
66,670

 
73,710

 

 
154,534

Other (income) expense

 
4,203

 
(6,341
)
 

 
(2,138
)
Operating income (loss)
(14,154
)
 
58,514

 
119,758

 
(38,376
)
 
125,742

Intercompany items
15,503

 
(25,742
)
 
(2,934
)
 
13,173

 

Interest (expense) income, net
(15,836
)
 
1,711

 
277

 

 
(13,848
)
Income (loss) before income taxes and equity in income of subsidiaries
(14,487
)
 
34,483

 
117,101

 
(25,203
)
 
111,894

Provision (benefit) for income taxes
(4,878
)
 
29,852

 
12,948

 
21

 
37,943

Equity in income of subsidiaries
83,560

 
47,954

 

 
(131,514
)
 

Net income
$
73,951

 
$
52,585

 
$
104,153

 
$
(156,738
)
 
$
73,951

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
103,186

 
$
52,820

 
$
128,297

 
$
(181,117
)
 
$
103,186




17





Condensed Consolidating Statement of Income
Six Months ended May 1, 2015
 
 
 
 
 
 
 
 
 
 
In thousands
Parent
Company
 
Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
972,781

 
$
1,002,073

 
$
(460,458
)
 
$
1,514,396

Cost of sales

 
710,090

 
739,774