Joy Global Inc.
JOY GLOBAL INC (Form: 10-K, Received: 12/16/2016 16:30:32)
Table of Contents

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED October 28, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD from              to                      
Commission File number 001-09299
 
JOY GLOBAL INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
39-1566457
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
100 East Wisconsin Ave, Suite 2780
Milwaukee, Wisconsin 53202
(Address of Principal Executive Offices) (Zip Code)
(414) 319-8500
(Registrant’s Telephone Number, Including Area Code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of each exchange on which registered
Common Stock, par value $1 per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ý     No   ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨     No   ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).    Yes   ý     No   ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filed or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
LARGE ACCELERATED FILER
ý
 
ACCELERATED FILER
¨
 
 
 
 
 
NON-ACCELERATED FILER
¨
 
SMALLER REPORTING COMPANY
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ¨     No   ý
The aggregate market value of the voting and non-voting common stock held by non-affiliates as of April 29, 2016 , the last business day of our most recently completed second fiscal quarter, was approximately $2.1 billion , based on a closing price of $21.30 per share.
The number of shares outstanding of registrant’s common stock as of December 9, 2016 was 98,748,107 .
 
 
Documents Incorporated by Reference
The information required by Part III of Form 10-K, is incorporated herein by reference to the definitive proxy statement for the registrant’s 2017 annual meeting of stockholders, or alternatively included in an amendment to this Form 10-K, which will be filed within 120 days of the registrant’s fiscal year ended October 28, 2016 .


Table of Contents

Joy Global Inc.
INDEX TO
ANNUAL REPORT ON FORM 10-K
For The Year Ended October 28, 2016
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

PART I
This document contains forward-looking statements, including estimates, projections, statements relating to our business plans, objectives, pending acquisitions, expected operating results and other non-historical information, and the assumptions 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:

risks and uncertainties associated with our proposed Merger (as defined below) with a wholly owned subsidiary of Komatsu America Corp. (“Komatsu America”), including, without limitation:
the possibility that the closing conditions to the Merger may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant a necessary regulatory approval;
delay in closing the Merger or the possibility of non-consummation of the Merger;
the potential for regulatory authorities to require divestitures in connection with the proposed Merger;
the merger agreement's restrictions on the conduct of our business prior to the closing of the Merger;
the occurrence of any event that could give rise to termination of the merger agreement;
the possible adverse effect on our business and the trading price of our common stock if the Merger is not completed in a timely matter or at all;
the risk that shareholder litigation in connection with the Merger may affect the timing or occurrence of the Merger or result in significant costs of defense, indemnification and liability;
risks inherent in the achievement of cost synergies and the timing thereof;
risks related to the disruption of the Merger to us and our management; and
the effect of announcement of the Merger on our ability to retain and hire key personnel and maintain relationships with customers, suppliers and other third parties;
risks associated with international operations, including regional or country specific conditions and fluctuations in currency exchange rates;
cyclical economic conditions affecting the global mining industry and competitive pressures and changes affecting our industry, including demand for coal, copper, iron ore, oil and other commodities, as well as their substitutes;
general economic conditions, including those affecting the global mining industry;
our ability to develop products to meet the needs of our customers and the mining industry generally;
changes affecting our customers, including access to capital and regulations pertaining to mine safety, the environment or greenhouse gas emissions;
changes in laws and regulations or their interpretation and enforcement, including with respect to environmental matters;
changes in tax rates;
availability and cost of raw materials and manufactured components from third party suppliers;
our ability to protect our intellectual property;
our ability to hire and retain qualified employees and to avoid labor disputes and work stoppages;
our ability to generate cash from operations, obtain external funding on favorable terms and manage liquidity needs;
changes in credit markets, credit conditions and interest rates;
changes in accounting standards or practices;
interruption, failure or compromise of our information systems; and
challenges arising from acquisitions, including our ability to integrate businesses that we acquire.
In addition to the foregoing factors, the forward-looking statements contained herein are qualified with respect to the risks disclosed elsewhere in this document, including in Item 1A, Risk Factors , Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 7A, Quantitative and Qualitative Disclosures about Market Risk . Any or all of these factors could cause our results of operations, financial condition or liquidity for future periods to differ materially from those expressed in or implied by any forward-looking statement. Furthermore, there may be other factors that could cause our actual results to differ materially from the results referred to in the forward-looking statements. We undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of unanticipated events, except as required by law.
 

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Item 1. Business
General
Joy Global Inc. (the "Company," "we" and "us") is a leading manufacturer and servicer of high productivity mining equipment for the extraction of 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 and haulage of coal and other bedded minerals. We are also a major producer of surface mining equipment for the extraction and haulage 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, Texas and Wisconsin, and internationally, including facilities in Australia, Canada, China, France, South Africa and the United Kingdom.
Service sales, which include revenues from maintenance and repair services, diagnostic analysis, fabrication, mining equipment and electric motor rebuilds, equipment erection services, training and sales of replacement parts, accounted for 78% , 74% and 69% of our consolidated net sales for fiscal 2016 , 2015 and 2014 , respectively. Sales of original equipment for the mining industry, as a class of products, accounted for 22% , 26% and 31% of our consolidated net sales for each of those years. The increased percentage of service sales is due to our customers' limited new investment in equipment as a result of the deterioration of mining industry conditions during the past four years.
On July 21, 2016, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Komatsu America, Pine Solutions Inc. (“Merger Sub”) and (solely for the purposes specified in the Merger Agreement) Komatsu Ltd., providing for the merger of Merger Sub with and into Joy Global (the “Merger”), with Joy Global surviving the Merger as a wholly owned subsidiary of Komatsu America. At the effective time of the Merger, each outstanding share of Joy Global common stock (other than dissenting shares and shares owned by Joy Global, Komatsu America or any of their respective subsidiaries) will be cancelled and converted into the right to receive $28.30 per share in cash, without interest.
For further information regarding the Merger and the Merger Agreement, please refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations , of this report, as well as our definitive proxy statement filed on September 2, 2016, as amended and supplemented on September 29, 2016 and October 3, 2016, the Merger Agreement, which is attached as Annex A to the definitive proxy statement filed on September 2, 2016, and our Current Reports on Form 8-K filed on July 21, 2016, October 13, 2016 and October 19, 2016. The foregoing description of the Merger does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Merger Agreement.
On June 1, 2015, we completed the acquisition of 100% of the equity of Montabert S.A.S. ("Montabert") for approximately $121.5 million, gross of cash acquired of $7.1 million dollars. Montabert specializes in the design, production and distribution of high quality hydraulic rock breakers, pneumatic equipment, drilling attachments, drifters and related parts and tools. The acquisition of Montabert expands the Company's product and service capabilities for hard rock mining, tunneling and rock excavation, further diversifying our commodity and end market exposures. Montabert's results of operations have been included as part of the Underground segment from the date of the acquisition forward.
On May 30, 2014, we closed on the purchase of certain assets of Mining Technologies International Inc. ("MTI") for $44.4 million. MTI is a Canadian manufacturer of underground hard rock mining equipment primarily 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 as part of the Underground segment from the acquisition date forward.
Underground
We are the world’s largest producer of high productivity underground mining machinery for the extraction of coal, potash, salt, platinum and other bedded materials. We have manufacturing facilities in Australia, Canada, China, France, South Africa, the United Kingdom and the United States, as well as sales offices and service facilities in Botswana, India, Poland and Russia. We also maintain an extensive network of service and distribution centers to rebuild and service equipment and to sell replacement parts and consumables in support of our installed base. This network includes service centers both in the United States and outside the United States, all of which are strategically located in major underground mining regions.
Products and Services:
Armored face conveyors – Armored face conveyors are used in longwall mining to transport material cut by the shearer away from the longwall face.

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Battery haulers – Battery haulers transport material from continuous miners to the feeder breaker and are powered by portable rechargeable batteries. Battery haulers feature a flexible center joint allowing them to maneuver in tight conditions and do not use a trailing cable, which allows for maximum flexibility in the mining process.
Continuous chain haulage systems – Continuous chain haulage systems transport material from continuous miners to main mine belts on a continuous basis. The continuous chain haulage system is made up of a series of connected bridge structures that utilize chain conveyors that transport the coal from one bridge structure to the next bridge structure and ultimately to the main mine belts.
Continuous miners – Electric crawler mounted continuous miners cut material using carbide-tipped bits on a horizontal rotating cutterhead. The continuous miner is also configured in some applications with roof bolters to place roof bolts when advancing the cut. Once cut, the material is gathered onto an internal conveyor and loaded into a haulage vehicle or continuous haulage system for transportation to the feeder breaker.
Conveyor systems – Conveyor systems are used in both underground and surface applications. The primary components of a conveyor system are the idlers, idler structure and the terminal, which itself consists of a drive, discharge, take-up and tail loading section.
Feeder breakers – Feeder breakers are used in both underground and surface applications. A feeder breaker is a form of crusher that uses a rotating drum with carbide-tipped bits to break down the size of the mined material for loading onto a conveyor system or feeding into processing facilities. Mined material is typically loaded into the feeder breaker by a shuttle car or battery hauler in underground applications and by haul trucks in surface applications.
Flexible conveyor trains ("FCT") – An FCT is an electric-powered, single operator, self-propelled conveyor system that provides continuous haulage of material from a continuous miner to the main mine belt. The FCT uses a flexible rubber belt similar to a standard fixed conveyor. The FCT operates independently from the track crawler system, allowing the FCT to move and convey material simultaneously. Available in lengths of up to 570 feet, the FCT is able to negotiate multiple 90-degree turns in an underground mine infrastructure.
Hard rock mining products – We provide a complete range of hard rock mining products including breakers, drifters, raised boring products, blast hole drilling products, buckets and lip systems, hydraulic jumbo drills, production drills, loaders, trucks, shaft sinking and blasthole products.
High angle conveyors – High angle conveyors are used in both underground and surface applications. They provide a versatile method for elevating or lowering materials continuously from one level to another at extremely steep angles. The high angle conveyors use a proprietary fully equalized pressing mechanism which secures material toward the center of the belt, while sealing the belt edges together. The high angle conveyor has throughput rates ranging from 0.30 to 4,400 tons per hour.
Longwall shearers – A longwall shearer moves back and forth on an armored face conveyor parallel to the material face. Using carbide-tipped bits on cutting drums at each end, the shearer cuts 1.2 to 8.0 meters high on each pass and simultaneously loads the material onto the armored face conveyor for transport through the stageloader to the conveyor belt.
Powered roof supports – Roof supports use hydraulic cylinders to perform a jacking-like function that supports the mine roof during longwall mining. The supports self-advance with the longwall shearer and armored face conveyors, resulting in controlled caving behind the supports. A longwall face may range up to 400 meters in length.
Road headers – Crawler mounted road headers cut material using carbide-tipped bits on a boom mounted cutting head. Once cut, the material is gathered using a loading device, usually involving a conveyor.
Roof bolters – Roof bolters are drills used to bore holes in the mine roof and to insert long metal bolts into the holes to reinforce the mine roof. Roof bolters are available track mounted, wheel mounted, machine mounted or mounted to devices that operate on longwalls.
Shuttle cars – Shuttle cars, a type of rubber-tired haulage vehicle, are electric-powered using an umbilical cable. Their purpose is to transport material from continuous miners to the feeder breaker where chain conveyors in the shuttle cars unload the material. Some models of shuttle cars can carry up to 30 metric tons of mined material.
Life cycle management We offer life cycle management programs for both underground and surface applications. These programs help our customers to optimize the productivity and cost effective use of our equipment over the life of the equipment. Each life cycle management program is specifically designed for a particular customer’s application of our equipment. Under each program, we provide products and services to support the equipment during its operating life cycle. Our life cycle management arrangements include cost per ton, component exchange programs and parts contracts. Cost per ton programs allow our customers

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to pay fixed prices for each ton of material mined in order to match equipment costs with revenues, and our component exchange programs and parts contracts minimize production disruptions for repair or scheduled rebuilds. Customer commitments for underground life cycle management programs totaled approximately $378.3 million as of October 28, 2016 .
In addition to life cycle management support, our Underground segment provides equipment assemblies, service, repairs, rebuilds, parts, enhancement kits and training to customers globally.
Service products and consumables – We sell a variety of Joy Global brand-name, performance differentiated service products and consumables that by their nature, routinely require replacement on mining equipment.
Project management – Our project management services provide a single point of contact for our comprehensive set of services, from contract origination to operational completion.
JoySmart Services – Our Smart Services support offering gathers relevant information real time and uses this information to deliver services that are preemptive and predictive, which enables our customers to maximize the productivity and value of their assets by providing better machine availability, utilization and reduced costs. The services include equipment monitoring, predictive diagnostics, service training support and parts management.
Distribution arrangements - Our personnel and distribution centers are strategically located close to customers in major mining centers around the world. We sell our products and services directly to our customers through a global network of sales and marketing personnel. Our direct customer service and support infrastructure quickly and efficiently provide customers with high-quality parts, exchange components, repairs, rebuilds, whole machine exchanges and services.
We have an exclusive distribution and authorized service provider agreement with J.H. Fletcher & Co. that gives us the right to market, sell and service all Fletcher products to coal mines, as well as hard rock and industrial mineral mines that use our cutting products. This agreement covers all locations worldwide with the exception of North America, Australia and Norway, where Fletcher directly markets, sells and services its products, and coal mines in Poland where our rights are not exclusive.
We also have an OEM Supply Agreement and a Distribution Agreement with Doosan Holdings Europe Limited. Under the OEM Supply Agreement, there are purchasing and supply obligations for Montabert products with Doosan entities in the United States, the United Kingdom, India, Benelux, Europe, China, Korea and France. Under the Distribution Agreement, certain distribution rights for Montabert products were provided to Doosan entities in the United States, South Africa, the United Kingdom, India, Germany and Australia. Both agreements have a term expiring in 2020.
Surface
We are the world’s largest producer of electric mining shovels and a leading producer of blasthole drills, walking draglines and wheel loaders for open-pit mining operations. We have facilities in Australia, Brazil, Canada, Chile, China, India, Peru, Russia, South Africa and the United States, as well as sales offices in Mexico and the United Kingdom. Our products are used in the mining and processing of copper, coal, iron ore, oil sands, gold, diamonds and other minerals. We also provide logistics and a full range of life cycle management service support for our customers through a global network of strategically located service centers within major mining regions. In some markets, we also provide electric motor rebuilds and other selected products and services to the non-mining industrial segment and sell used electric mining shovels, drills, loaders and parts.
Products and Services:
Blasthole drills – Most surface mines require explosives to break or blast rock, overburden or ore. A blasthole drill creates a pattern of holes to contain the explosives. Our blasthole drills range in size from 7.875 to 17.5 inches in diameter and can exert a maximum bit load force of up to 150,000 pounds.
Conveyor systems – Conveyor systems are used in both underground and surface applications. The primary components of a conveyor system are the idlers, idler structure and the terminal, which itself consists of a drive, discharge, take-up and tail loading section.
Electric mining shovels – Mining shovels are used primarily to load copper, coal, iron ore, oil sands, gold and other mineral-bearing materials and overburden into trucks. Electric mining shovels feature large dippers, allowing them to load great volumes of material at a low operating cost. Dippers can range in size from 10 to 90 cubic yards.
Hybrid shovels - Hybrid shovels function similar to electric mining shovels, extracting material to load into trucks or a means for haulage. This Surface product is a diesel/electric powered machine with a clamshell bucket that articulates through hydraulics. The hybrid shovels are used to provide increased mobility and selectivity, which are highly sought after from a mine planning

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perspective. This product will also leverage the wheel loaders proprietary drive system and controls, allowing the machine to capture regenerative power and lower operating costs.
Feeder breakers – Feeder breakers are used in both underground and surface applications. A feeder breaker is a form of crusher that uses a rotating drum with carbide-tipped bits to break down the size of the mined material for loading onto a conveyor system or feeding into processing facilities. Mined material is typically loaded into the feeder breaker by a shuttle car or battery hauler in underground applications and by haul trucks in surface applications.
High angle conveyors – High angle conveyors are used in both underground and surface applications. They provide a versatile method for elevating or lowering materials continuously from one level to another at extremely steep angles. One of the differentiating factors of our conveyor technology is the use of a proprietary fully equalized pressing mechanism which secures material toward the center of the belt, while sealing the belt edges together. The high angle conveyor has throughput rates ranging from 5 to 4,000 tons per hour.
Walking draglines – Draglines are primarily used to remove overburden in order to uncover coal or mineral deposits and then to replace the overburden as part of the reclamation activities. Our draglines are equipped with bucket sizes ranging from 30 to 160 cubic yards.
Wheel loaders – Loaders are generally used in coal, copper, gold and iron ore mines, and they utilize a proprietary diesel-electric drive system with digital controls. This proprietary system allows our equipment to stop, start and reverse direction without gear shifting or high-maintenance braking. We have five loaders with capacities up to 53 cubic yards, which are the largest in the industry, and can load rear-dump trucks in the 85 to 400 ton range.
Life cycle management – We offer life cycle management programs for both underground and surface applications. These programs help our customers to optimize the productivity and cost effective use of our equipment over the life of the equipment. Each life cycle management program is specifically designed for a particular customer’s application of our equipment. Under each program, we provide products and services to support the equipment during its operating life cycle. Our life cycle management arrangements include cost per hour, component exchange programs and parts contracts. Cost per ton and cost per hour programs allow our customers to pay fixed prices for each ton of material mined or each hour of machine time utilized in order to match equipment costs with revenues, and our component exchange programs and parts contracts minimize production disruptions for repair or scheduled rebuilds. Customer commitments under surface life cycle management programs totaled approximately $756.7 million as of October 28, 2016 .
In addition to life cycle management support, our Surface segment provides equipment assemblies, relocations, inspections, service, repairs, rebuilds, upgrades, used equipment, parts, enhancement kits and training to customers globally.
Service products and consumables – We sell a variety of Joy Global brand-name, performance differentiated service products and consumables that by their nature, routinely require replacement on mining equipment.
Project management – Our project management services provide a single point of contact for our comprehensive set of services, from contract origination to operational completion.
JoySmart Services – Our Smart Services support offering gathers relevant information real time and uses this information to deliver services that are preemptive and predictive, which enables our customers to maximize the productivity and value of their assets by providing better machine availability, utilization and reduced costs. The services include equipment monitoring, predictive diagnostics, service training support and parts management.
Distribution arrangements – Our personnel and distribution centers are strategically located close to customers in major mining centers around the world. We sell our products and services directly to customers through a global network of sales and marketing personnel. The Surface segment distribution organization also represents other leading providers of equipment and services to the mining and associated industries, which we refer to as “Alliance Partners."
For each Alliance Partner, we typically enter into an agreement that provides us with the right to distribute certain products from the Alliance Partner in specified geographic territories. Specific sales of new equipment are typically based on “buy and resell” arrangements or are a direct sale from the Alliance Partner to the ultimate customer with a commission paid to us. The type of sales arrangement is typically agreed at the time of the customer’s commitment to purchase. Our sales of parts produced by Alliance Partners are generally made under “buy and resell” arrangements. To support Alliance Partners’ products in certain geographic regions, we typically hold parts and components in inventory.
Cyclicality

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Changes in economic conditions affecting the global mining industry can occur abruptly and unpredictably, which may have significant effects on our sales of original equipment and services. Cyclicality for original equipment sales is driven primarily by price volatility of the commodities that our equipment is used to mine, including copper, coal, iron ore and oil, or their substitutes, as well as product life cycles, competitive pressures and other economic factors affecting the mining industry, such as company consolidation and increased regulation and competition affecting demand for commodities, and the broader economy, including changes in government monetary or fiscal policies and from market expectations with respect to such policies. Falling commodity prices have in the past and may in the future lead to reduced capital expenditures by our customers, reductions in the production levels of existing mines, a contraction in the number of existing mines and the closure of less efficient mines. Reduced capital expenditures and decreased mining activity by our customers are likely to lead to a decrease in demand for new mining machinery, and may result in a decrease in demand for parts and services as our customers are likely to reduce utilization of equipment, reduce inventories, redistribute parts from closed mines and delay rebuilds during industry downturns. Conversely, rising commodity prices typically lead to the expansion of existing mines, opening of new mines or re-opening of less efficient mines. Increased mining activity typically leads to an increase in demand for new mining machinery and for parts and service.
Seasonality
All of our business segments are subject to moderate seasonality, with the first quarter of our fiscal year generally experiencing lower sales and profitability due to a decrease in working days caused by calendar year-end holidays. This seasonality is reflected in our quarterly financial results for fiscal 2016, as disclosed in Item 8, Financial Statements and Supplementary Data - Unaudited Quarterly Financial Data .
Financial Information
Financial information about our business segments and geographic areas of operation is contained in Item 8, Financial Statements and Supplementary Data and Item 15, Exhibits and Financial Statement Schedules .
Employees
As of October 28, 2016 , we employed approximately 10,000 employees worldwide, with approximately 3,100 employed in the United States. Collective bargaining agreements or similar arrangements cover 27% of our U.S. workforce and 42% of our international employees. In 2017 , union agreements are set to expire for 14% of our employees, with the largest agreement covering our Montabert union at our Lyon, France facility.
Customers
We sell our products primarily to large global and regional mining companies. No customer or affiliated group of customers accounted for 10% or more of our 2016 net sales.
Competitive Conditions
The domestic and foreign manufacturing and service operations of our Underground and Surface segments are subject to significant competitive pressures. We compete globally on the basis of product performance, customer service, support, availability, reliability, productivity, total cost of ownership and price. Most of our customers are large global mining companies that have substantial bargaining power, and most of our sales require us to participate in competitive bidding due in part to the current pressure on our customers to cut costs. We compete directly and indirectly with other manufacturers of surface and underground mining equipment and with manufacturers of parts and components for such products.
The Underground segment's products compete with similar products made by a number of established and emerging worldwide manufacturers of such equipment. Our rebuild services compete with a large number of local repair shops and also compete with various regional suppliers in the sale of replacement parts for our equipment.
The Surface segment’s shovels and draglines compete with similar products produced by two significant competitors, and the Surface segment’s mobile loading equipment competes with hydraulic excavators, large rubber-tired front-end loaders and bucket wheel excavators made by several global manufacturers. Our blasthole drills compete with several worldwide drill manufacturers. As high productivity mining becomes more common internationally, especially in emerging markets, global manufacturing capability is becoming a competitive advantage. However, it is still important to have repair and rebuild capability near the customers' operations. In this regard, we compete with a large number of primarily regional suppliers in the sale of parts and repair services.

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Both segments compete on the basis of providing superior productivity, reliability and service that lowers the overall cost of production for our customers. We compete with local and regional service providers in the provision of maintenance, rebuild and other services to mining equipment users.
Backlog
Backlog represents unfilled customer orders for our original equipment and services, exclusive of long-term maintenance and repair arrangements and life cycle management arrangements. Such life cycle management programs extend for up to 17 years and totaled approximately $1.1 billion as of October 28, 2016 . Customer orders included in backlog represent contracts to purchase specific original equipment or services. The backlog amounts reported exclude sales already recognized by fiscal year end under the percentage-of-completion method of accounting. The following table provides backlog by business segment as of each of our last three fiscal year ends:
In thousands
October 28,
2016
 
October 30,
2015
 
October 31,
2014
Underground
$
468,308

 
$
541,877

 
$
729,791

Surface
378,671

 
394,010

 
629,861

Eliminations
(28,400
)
 
(62,407
)
 
(26,269
)
Total Backlog
$
818,579

 
$
873,480

 
$
1,333,383

Of the $818.6 million of backlog, we expect to recognize approximately $104.8 million as revenue beyond fiscal 2017 .
The decrease in backlog for Underground and Surface was driven by continued softness in the commodity markets, resulting in an orders booked to net sales ratio of less than one.
Eliminations primarily consist of the surface applications of crushing and conveying included in both operating segments.
Raw Materials
In the manufacture of our products, we use large amounts of raw materials and processed inputs, including steel, copper and engine and electronic components. We obtain raw materials and certain manufactured components from third party suppliers. To reduce material costs and inventories, we rely on supplier arrangements with preferred vendors as a source for “just in time” delivery of many raw materials and manufactured components. We continuously monitor supplier arrangements to seek to identify and address risks of supply disruptions.
Patents and Trademarks
We own numerous patents and trademarks and we license technology from others that we utilize in our products and manufacturing methods. We continue to develop intellectual property, and we file new patent applications to protect our ongoing research and development activities. We have also granted licenses to certain of our patents and trademarks to other manufacturers and receive royalties under most of these licenses. While we do not consider any particular patent or trademark or group of patents or trademarks to be material to our business segments, we believe that in the aggregate our patents and trademarks are significant in distinguishing many of our product lines from those of our competitors.
In the second quarter of fiscal 2016, as a result of the Company's decision to idle certain facilities in China and the continued market challenges in that region, we performed an interim impairment test over our indefinite-lived trademarks and recorded a non-cash pre-tax impairment charge of $6.6 million by our Underground segment.
In addition, in the fourth quarter of fiscal 2015, in connection with our annual impairment test over our indefinite-lived trademarks, we recorded a non-cash pre-tax impairment charge of $10.8 million in our Underground segment. 
These charges are recorded in the Consolidated Statement of Operations under the heading Restructuring and other impairment charges, and resulted in the full impairment of our indefinite-lived intangible assets. 

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In thousands
Underground
 
Surface
 
Consolidated
Patents
 
 
 
 
 
Gross Carrying Value at October 28, 2016
$
23,660

 
$
69,900

 
$
93,560

Accumulated Amortization
(14,308
)
 
(18,640
)
 
(32,948
)
Net Carrying Value
$
9,352

 
$
51,260

 
$
60,612

 
 
 
 
 
 
Trademarks
 
 
 
 
 
Gross Carrying Value at October 28, 2016
$
2,824

 
$
12,200

 
$
15,024

Accumulated Amortization
(758
)
 
(7,320
)
 
(8,078
)
Net Carrying Value
$
2,066

 
$
4,880

 
$
6,946

Research and Development
We are strongly committed to pursuing technological development through the engineering of new products and systems, the improvement and enhancement of licensed technology and related acquisitions of technology. Research and development expenses totaled $32.6 million , $36.2 million and $40.6 million for fiscal 2016 , 2015 and 2014 , respectively.
Environmental, Health and Safety Matters
Our domestic activities are regulated by federal, state and local statutes, regulations and ordinances relating to environmental protection and worker health and safety. These laws govern current operations, require remediation of environmental impacts associated with past or current operations and, under certain circumstances, provide for civil and criminal penalties and fines, as well as injunctive and remedial relief. Our foreign operations are subject to similar requirements as established by the jurisdictions in which they are located. We believe that we have substantially satisfied these diverse requirements.
Compliance with environmental laws and regulations did not have a material effect on capital expenditures, earnings or our competitive position in fiscal 2016 . Because these requirements are complex and subject to change, there can be no guarantee against the possibility of additional costs of compliance. However, we do not expect that our future compliance with environmental laws and regulations will have a material effect on our capital expenditures, earnings or competitive position, and we do not expect to make any material capital expenditures for environmental control facilities in fiscal 2017 .
Occasionally, certain of our operations or facilities have been and may become the subject of formal or informal enforcement actions or proceedings for alleged noncompliance with either environmental or worker health and safety laws or regulations. Such matters have typically been resolved through direct negotiations with the regulatory agency and have typically resulted in corrective actions or abatement programs. However, in some cases, immaterial fines or other penalties have been paid.
International Operations
For information on the risks faced by our international operations, see Item 1A, Risk Factors . For a discussion of net sales by geographic location, see Note 22, Segment Information , to the audited consolidated financial statements included herein.
Available Information
Our internet address is www.joyglobal.com. We make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, proxy statements, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available free of charge through our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”).
 
Item 1A. Risk Factors
We will be subject to business uncertainties while the Merger is pending.
Uncertainty about the effect of the Merger may impair our ability to attract, retain and motivate key personnel until the Merger is completed, and could cause suppliers, customers and other third parties to seek to modify their business relationships with us. Although we intend to take steps designed to reduce any adverse effects from the pending Merger, these steps may be ineffective in addressing uncertainties arising from the Merger. If we are unable to retain or recruit employees, or if suppliers or customers terminate or otherwise seek to modify their relationships with us, it could adversely affect our business, financial

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condition and results of operations. In addition, integration planning could place a significant burden on management, employees and other internal resources, which could otherwise have been devoted to pursuing other business opportunities.
Failure to complete the Merger could negatively impact our business, financial condition, results of operations or our stock price.
The completion of the Merger remains subject to a number of conditions, including receipt of required regulatory approvals and the absence of any law, judgment or injunction prohibiting the consummation of the Merger. While we believe we will receive the requisite approvals, there can be no assurance that these and other conditions to closing will be satisfied on the proposed terms and schedules as contemplated by the parties or at all. These and other conditions to the completion of the Merger may delay or preclude our ability to consummate the Merger. If the Merger is not completed, whether due to the failure to satisfy the required closing conditions or otherwise, we will be subject to several risks, including:
a decline in the trading price of our common stock, which may currently reflect the market’s expectation that the Merger will be consummated;
certain of our executive officers, employees and/or directors may seek other opportunities;
the incurrence of substantial transaction costs, potentially including a $75.0 million termination fee, without realizing the potential benefits of the merger; and
failure to realize certain business strategies or opportunities due to compliance with certain restrictions in the Merger Agreement with respect to the conduct of our business prior to the completion of the Merger.
If the Merger is not completed, these risks may materialize and materially and adversely affect our stock price, as well as our business, financial condition and results of operations.
The Merger Agreement contains provisions that could discourage or make it difficult for a third party to acquire us prior to the completion of the Merger.
The Merger Agreement contains provisions that may discourage or make it difficult for us to entertain a proposal from another party for the acquisition of our company. These provisions include restrictions prohibiting us, our affiliates and our and our affiliates’ representatives from soliciting alternative acquisition proposals from third parties or providing information to or participating in discussions or negotiations with third parties regarding alternative acquisition proposals, subject to an exception for proposals that would reasonably be expected to lead to a Superior Company Proposal (as defined in the Merger Agreement). In addition, we would be required to pay a termination fee of $75.0 million to Komatsu America if the Merger Agreement is terminated under specified circumstances, including if we enter into an agreement with respect to a Superior Company Proposal.
These provisions might discourage an otherwise interested third party from considering or proposing an acquisition of our company, even one that may be deemed to be of greater value than the Merger to our shareholders and other stakeholders. Furthermore, even if a third party elects to propose an acquisition, the concept of a termination fee may result in that third party’s offering of a lower value to our shareholders than such third party might otherwise have offered. In addition, our business, financial condition or results of operations could be significantly impaired if we are required to pay a termination fee to Komatsu America in connection with a termination of the Merger Agreement.
Shareholder litigation challenging the proposed Merger may prevent the Merger from being completed within the anticipated timeframe.
Shareholder litigation challenging the proposed Merger may delay completion of the Merger in the expected timeframe or altogether. If the plaintiffs in any such litigation are successful in obtaining an injunction prohibiting the parties from consummating the Merger on the terms contemplated by the Merger Agreement, the injunction may prevent the completion of the Merger in the expected timeframe or altogether. In addition, litigation challenging the Merger may result in significant defense costs and serve as a distraction to management and directors.
Our international operations are subject to many uncertainties, and a significant reduction in international sales of our products could adversely affect us.
Our international operations are subject to various economic, political and other uncertainties that could adversely affect our business. In fiscal 2016 , 2015 and 2014 , approximately 75% , 68% and 69% of our sales respectively were derived from sales outside the United States. Political and/or economic conditions in the countries and regions in which we operate may significantly affect our profitability and growth prospects. The following risks are associated with doing business internationally and could adversely affect our business, financial condition and results of operations:
regional or country specific economic downturns;

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fluctuations in currency exchange rates for the U.S. dollar, particularly with the Australian dollar, British pound sterling, Canadian dollar, Chilean peso, Chinese renminbi, Euro, and South African rand;
complications in complying with a variety of foreign laws and regulations, including with respect to environmental and anti-corruption matters, which may adversely affect our operations and ability to compete effectively in certain jurisdictions or regions;
customs matters and changes in trade policy, tariff regulations or other trade restrictions;
economic or political instability or tensions, trade disputes and the introduction of economic sanctions;
terrorist attacks and international or civil conflicts that affect international trade or the mining industry;
unexpected changes in regulatory requirements, up to and including nationalization or expropriation by foreign governments;
higher tax rates and potentially adverse tax changes, including restrictions on repatriating offshore earnings, adverse tax withholding requirements and double taxation;
greater difficulties protecting our intellectual property;
increased risk of litigation and other disputes with customers;
fluctuations in our operating performance based on our geographic mix of sales;
longer payment cycles and greater difficulty in collecting accounts receivable;
costs and difficulties in integrating, staffing and managing international operations, especially in emerging markets such as China;
transportation delays and interruptions;
natural disasters and the greater difficulty in recovering from them in some of the foreign countries in which we operate, especially in countries prone to earthquakes, such as Chile, China, India and Indonesia; and
uncertainties arising from local business practices and cultural considerations.

The foregoing risks may be particularly acute in emerging markets, where our operations are subject to greater uncertainty due to increased volatility associated with the developing nature of the economic, legal and governmental systems of these countries. If we are unable to successfully manage the risks associated with expanding our global business or to adequately manage operational fluctuations, it could adversely affect our business, financial condition or results of operations.
Our business is materially impacted by cyclical economic conditions affecting the global mining industry.
Changes in economic conditions affecting the global mining industry can occur abruptly and unpredictably, which may have significant effects on our sales of original equipment and services. Cyclicality for original equipment sales is driven primarily by price volatility of the commodities that our equipment is used to mine, including coal, copper, iron ore and oil, or their substitutes, as well as product life cycles, competitive pressures and other economic factors affecting the mining industry, such as company consolidation and increased regulation and competition affecting demand for commodities, and the broader economy, including changes in government monetary or fiscal policies and from market expectations with respect to such policies. Falling commodity prices have in the past and may in the future lead to reduced capital expenditures by our customers, reductions in the production levels of existing mines, a contraction in the number of existing mines and the closure of less efficient mines. Reduced capital expenditures and decreased mining activity by our customers are likely to lead to a decrease in demand for new mining machinery, and may result in a decrease in demand for parts and services as our customers are likely to reduce utilization of equipment, reduce inventories, redistribute parts from closed mines and delay rebuilds and other maintenance during industry downturns. In addition to declining orders for our products and services, adverse economic conditions for our customers may make it more difficult for us to collect accounts receivable in a timely manner, or at all, which may adversely affect our working capital. As a result of this cyclicality in the global mining industry, we have experienced significant fluctuations in our business, results of operations and financial condition, and we expect our business to continue to be subject to these fluctuations in the future.
A large portion of our business is dependent on there being continued demand for coal, which is subject to economic and climate related risks.
Approximately 50% of our revenues come from our thermal and metallurgical coal-mining customers. Many of these customers supply coal for the generation of electricity and/or steel production. Demand for steel is affected by the global level of economic activity and economic growth. The pursuit of the most cost effective form of electricity generation continues to take place throughout the world and coal-fired electricity generation faces intense price competition from other fuel sources, particularly natural gas. In addition, coal combustion typically generates significant greenhouse gas emissions and governmental and private sector goals and mandates to reduce greenhouse gas emissions may increasingly affect the mix of electricity generation sources. Further developments in connection with legislation, regulations, international agreements or other limits on greenhouse gas emissions and other environmental impacts or costs from coal combustion, both in the United States and in other countries, could diminish demand for coal as a fuel for electricity generation. If lower greenhouse gas emitting forms of electricity generation, such as nuclear, solar, natural gas or wind power, become more prevalent or cost effective, or diminished economic activity reduces demand for steel, demand for coal will decline. Reduced demand for coal would result in reduced demand for our mining equipment and services and adversely affect our business, financial condition and results of operations.

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Environmental regulations impacting the mining industry may adversely affect demand for our products.
We supply original equipment and services to mining companies operating in major mining regions throughout the world. Our customers’ operations are subject to or affected by a wide array of regulations in the jurisdictions where they operate, including those directly impacting mining activities and those indirectly affecting their businesses, such as applicable environmental laws. In addition, new environmental legislation or administrative regulations relating to mining or affecting demand for mined materials, such as the U.S. Environmental Protection Agency’s 2015 regulations imposing new carbon pollution standards for new, modified, and reconstructed power plants, or more stringent interpretations of existing laws and regulations, may require our customers to significantly change or curtail their operations. The high cost of compliance with environmental regulations may discourage our customers from expanding existing mines or developing new mines and may also cause customers to limit or even discontinue their mining operations. As a result of these factors, demand for our mining equipment and the services we provide could be adversely affected by environmental regulations directly or indirectly impacting the mining industry. Any reduction in demand for our products and services as a result of environmental regulations is likely have a material adverse effect on our business, financial condition or results of operations.
Demand for our products may be adversely impacted by regulations related to mine safety.
Our principal customers are surface and underground mining companies. The mining industry has encountered increased scrutiny as it relates to safety regulations, primarily due to high profile mining accidents. New legislation or regulations relating to mine safety standards and the increased cost of compliance with such standards may induce customers to discontinue or limit their mining operations and may discourage companies from developing new mines or maintaining existing mines, which in turn could diminish demand for our products and services.
We face risks from changes in government monetary policies that affect interest rates.
Most countries have established central banks to regulate monetary systems and influence economic activities, generally by adjusting interest rates. Interest rate changes affect overall economic growth, which affects demand for mined products, which in turn affects sales of our mining equipment and services. Interest rate changes also affect our customers’ ability to finance machine purchases, can change the optimal time to keep machines in a fleet and can impact the ability of our suppliers to finance the production of parts and components necessary to manufacture and support our products. 
Central banks and other policy arms of many countries take actions to vary the amount of liquidity and credit available in an economy.  Liquidity and credit policies different from those assumed in our outlooks could impact the customers and markets we serve or our suppliers, which could adversely impact our business, results of operations and financial condition.
We face risks from currency exchange rate fluctuations because our international operations are conducted in various local currencies, while our consolidated financial results are reported in U.S. dollars.
Most of our significant foreign subsidiaries use local currencies as their functional currency. Because our financial reporting currency is the U.S. dollar, preparation of our consolidated financial statements requires that we translate the assets, liabilities, expenses and revenues of these subsidiaries into U.S. dollars at applicable exchange rates. Accordingly, fluctuations in the exchange rates between the U.S. dollar and the currencies of the other countries in which we conduct business, notably including the Australian dollar, British pound sterling, Canadian dollar, Chilean peso, Chinese renminbi and South African rand, may affect the value of our assets, earnings and cash flows. In addition, currency exchange rate fluctuations may affect the comparative prices between products we sell and products our foreign competitors sell in the same market, which may adversely affect demand for our equipment. Substantial exchange rate fluctuations, particularly due to strengthening of the U.S. dollar, may have a material adverse effect on our results of operations, financial condition and cash flows, as well as the comparability of our consolidated financial statements between reporting periods. While we attempt to reduce the risks from exchange rate fluctuations by entering into hedging arrangements, these arrangements may not be effective or may only delay or temporarily mitigate the adverse effect of fluctuations in exchange rates.
Our global operations are subject to extensive trade and anti-corruption laws and regulations.
Due to the international scope of our operations, we are subject to a complex system of import- and export-related laws and regulations, including U.S. regulations issued by Customs and Border Protection, the Bureau of Industry and Security, the Office of Antiboycott Compliance, the Directorate of Defense Trade Controls and the Office of Foreign Assets Control, as well as the counterparts of these agencies in other countries. Any alleged or actual violations of applicable laws or regulations may subject us to government scrutiny, investigation, litigation and civil and criminal penalties, and may limit our ability to import or export our products or to provide services outside the United States. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted.

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In addition, the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws generally prohibit companies and their intermediaries from making payments or providing anything of value to improperly influence foreign government officials for the purpose of obtaining or retaining business or obtaining an unfair advantage. Recent years have seen a substantial increase in the global enforcement of anti-corruption laws. Our continued operation and expansion outside the United States, including in developing countries, could increase the risk of such violations. Violations of these laws could disrupt our business and result in severe criminal or civil sanctions, which would have a material adverse effect on our reputation, business, results of operations and financial condition.
We operate in a highly competitive environment, which could adversely affect our sales and pricing.
Our domestic and foreign manufacturing and service operations are subject to significant competitive pressures. We compete globally on the basis of product performance, customer service and support, availability, reliability, productivity and price. Most of our customers are large global mining companies that have substantial bargaining power, and some of our sales require us to participate in competitive bidding. We compete directly and indirectly with other manufacturers of surface and underground mining equipment and with manufacturers of parts and components for such products. Some of our competitors are larger than us and, as a result, may have broader product offerings and greater access to financial resources. Certain of our competitors also may pursue aggressive pricing or product strategies that may cause us to reduce the prices we charge for our original equipment, products and services or lose sales. These actions may lead to reduced revenues, lower margins and/or a decline in market share, any of which may adversely affect our business, financial condition and results of operations.
We may record future goodwill impairment charges or other asset impairment charges, which could have a material adverse impact on our financial results.
Our assets include goodwill and other long-lived assets, the carrying value of which may be reduced if we determine that those assets are impaired. We evaluate our finite-lived assets for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. We evaluate our goodwill and indefinite-lived assets for impairment annually as of the first day of our fourth quarter, or more frequently if events or changes in circumstances suggest that impairment may exist. Our evaluation of impairment requires us to make certain estimates and assumptions including projections of future results. After performing our evaluation for impairment, we will record an impairment loss when the carrying value of the reporting unit or underlying asset exceeds its fair value. In fiscal 2016, we recorded Underground impairment charges of $12.4 million for property, plant and equipment and $6.6 million for trademarks, while in fiscal 2015, we recorded impairment charges of $1.3 billion and $21.3 million for our Underground and Surface segments, respectively. Because of the continued significance of our goodwill and other long-lived assets, any future impairment of these assets could have a material adverse effect on our results of operations and financial condition. With the continued deterioration of the global commodities markets, the Company remains at risk for further goodwill impairments. Although we have concluded there is no impairment on the goodwill of $350.8 million associated with our Surface segment as of our fiscal year end, we will continue to closely monitor this in the future considering the volatility and uncertainty in the global commodity markets that our surface mining equipment services. Should there be further market declines, particularly in Latin American copper or North American coal and iron ore, which are the most significant markets serviced by our Surface reporting unit, there would be an increased risk that we would be required to recognize impairment to the Surface reporting unit's goodwill. We will continue to update our evaluation as market conditions and the follow on impacts to our expected future performance and share price warrant.
We may acquire businesses, dispose of businesses or engage in other transactions for which we may not realize anticipated benefits, or it may take longer than expected to realize such benefits, which may adversely affect our operating results, financial condition and existing business.
From time to time, we may explore and pursue transaction opportunities that may complement our core businesses, and we also may consider divesting businesses or assets that we do not regard as part of our core businesses. These transaction opportunities may come in the form of acquisitions, joint ventures, investments, start-ups, divestitures or other structures. There are risks associated with acquisition and disposition of business transactions, including, without limitation, general business risk, integration risk, technology risk, market acceptance risk, litigation risk, environmental risk, regulatory approval risk and risks associated with the failure to complete announced transactions. In the case of acquisitions, we may not be able to discover, during the due diligence process or otherwise, all known and unknown risks associated with the business we are acquiring. In the case of divestitures, we may agree to indemnify acquiring parties for known or unknown liabilities arising from the businesses we are divesting.
Undiscovered factors may result in our incurring financial or other liabilities, which could be material. In addition, completion of a transaction may require us to incur debt, issue equity, utilize other capital resources, make expenditures, provide guarantees or indemnification and/or agree to other terms and may also consume a substantial portion of our management’s time and attention. These transactions may not ultimately create value for us or our stockholders, and may harm our reputation and adversely affect our business, financial condition or results of operations.

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We may acquire companies or make investments or otherwise enter into new markets in which we have little or no experience, which may lead us to fail to realize the anticipated benefits of such entry and which may adversely affect our financial condition and results of operations .
From time to time we may acquire or make investments in companies or businesses to gain access to, or otherwise seek to enter, new product or geographic markets in which we have no, or only limited, familiarity and experience. In addition, we may acquire companies engaged in the manufacture of mining equipment that have substantial operations in other lines of business in which we have no prior experience, that we may be unwilling, or unable on commercially reasonable terms, to divest, or for which we may incur significant costs to divest. Our recent acquisition activity has included transactions of both types, including our fiscal 2014 and fiscal 2015 purchases of MTI and Montabert, respectively, through which we expanded our product lines to begin to compete in the market for underground hard rock mining equipment. While our entry into new markets may in many cases involve operations that appear complementary to our own, we may lack familiarity with the design, manufacture, sale or maintenance of equipment produced for these markets, with the needs or expectations of customers operating in these markets, or with regulatory requirements affecting these markets. In addition, our competitors in new markets will have greater experience and may have greater resources than we do. As a result of these factors, we may fail to achieve the business objectives that we intended to achieve at the time we acquired or invested in a company or entered into a new market, which may have a material adverse effect on our reputation, business, financial condition or results of operations.
We are subject to environmental and health and safety laws and regulations that impose significant compliance costs and may expose us to substantial liability if we fail to comply.
We are subject to a variety of federal, state, local and foreign environmental laws and regulations, including those relating to employee health and safety, environmental permitting and licensing, air (including greenhouse gas) emissions, water discharges, remediation of soil and groundwater contamination and the generation, use, storage, treatment and disposal of hazardous materials. Some environmental laws impose strict, retroactive and joint and several liability for the remediation of the release of hazardous substances, even for conduct that was lawful at the time it occurred, or for the conduct of, or conditions caused by, prior operators, predecessors or other third parties. Failure to comply with environmental laws could expose us to penalties or clean-up costs, civil or criminal liability and sanctions on certain of our activities, as well as damage to property or natural resources. These liabilities, sanctions, damages and remediation efforts related to any non-compliance with such laws and regulations could negatively impact our ability to conduct our operations and our financial condition and results of operations. In addition, our various prior and future acquisitions and divestitures may have resulted or could result in environmental liabilities unknown to us at the time of acquisition or divestiture or other additional environmental liabilities.
Moreover, environmental laws and regulations, and the interpretation and enforcement thereof, change frequently and have tended to become more stringent over time. Future environmental laws and regulations, or their interpretation, could require us to acquire costly equipment or to incur other significant expenses in connection with our business. For example, increased regulation of greenhouse gas emissions could adversely affect our business, financial condition, results of operations or product demand.
We require cash to service our indebtedness, which reduces the cash available to finance our business, and the terms of our debt agreements require us to comply with financial and other covenants.
Our ability to service our indebtedness depends on our financial performance, which is affected by prevailing economic conditions and financial, business, regulatory and other factors. Some of these factors are beyond our control. If we cannot generate sufficient cash flow from operations to service our indebtedness and to meet our other obligations and commitments, we might be required to refinance our debt or to dispose of assets to obtain funds for such purpose. There is no assurance that refinancings or asset dispositions could be effected on a timely basis or on satisfactory terms, if at all, particularly if credit market conditions deteriorate. Furthermore, there can be no assurance that refinancings or asset dispositions would be permitted by the terms of our credit agreements or debt instruments.
Our existing credit agreements contain, and any future debt agreements we may enter into may contain, certain financial tests and other covenants that limit our ability to incur indebtedness, acquire other businesses and impose various other restrictions. Our ability to comply with financial tests may be adversely affected by changes in economic or business conditions beyond our control, and these covenants may limit our ability to take advantage of potential business opportunities as they arise. We cannot be certain that we will be able to comply with the financial tests and other covenants, or, if we fail to do so, that we will be able to obtain waivers or amended terms from our lenders. An uncured default with respect to one or more of the covenants could result in the amounts outstanding under one or more of the agreements being declared immediately due and payable, which may also trigger an obligation to redeem our outstanding debt securities and repay all other outstanding indebtedness. Any such acceleration of our indebtedness would have a material adverse effect on our business, financial condition and results of operations.
Significant changes in our actual investment return on pension assets, discount rates and other factors could affect our results of operations, equity and pension funding requirements in future periods.

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Our results of operations may be affected by the amount of income or expense that we record for our defined benefit pension plans and certain other retirement benefits. We measure the valuation of our pension plans annually as of our fiscal year end in order to determine the funded status of and our funding obligation with respect to such plans. This annual valuation of our pension plans is highly dependent on certain assumptions used in actuarial valuations, which include actual and expected return on pension assets, mortality, and discount rates. These assumptions take into account current and expected financial market data, other economic conditions, such as interest rates and inflation, and other factors such as plan asset allocation, mortality tables, and future salary increases. If actual rates of return of return on pension assets materially differ from assumptions, our pension funding obligations may increase or decrease significantly. The Company’s accounting policy for defined benefit plans may subject earnings to volatility due to the immediate recognition of actuarial gains and losses, particularly those due to the change in the fair value of pension and post-retirement plan assets and interest rates. Our funding obligation is determined under governmental regulations and is measured based on the value of our assets and liabilities. An adverse change in our funded status due to the volatility of returns on pension assets and the discount rate applied could increase our required future contributions to our plans, which may adversely affect our results of operations and financial condition.
We may incur additional tax expense or become subject to additional tax exposure.
We are subject to income taxes in the United States and numerous foreign jurisdictions. Our domestic and international tax liabilities are dependent on the location of earnings among these different jurisdictions. Our provision for income taxes and cash tax liability in the future could be adversely affected by numerous factors, including income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes in tax laws and regulations. In addition, as of October 28, 2016 , our foreign subsidiaries held $122.1 million of cash and cash equivalents that would be subject to U.S. taxation if repatriated to the United States. We are also subject to the continuous examination of our income tax returns by the U.S. Internal Revenue Service and other tax authorities. The results of audit and examination of previously filed tax returns and continuing assessments of our tax exposures may have a material adverse effect on the company’s provision for income taxes and cash tax liability.
A downgrade to our credit ratings would increase our cost of borrowing under our credit facility and adversely affect our ability to access the capital markets.
Our cost of borrowing under our unsecured revolving credit facility that matures on July 29, 2019 (as amended, the “Credit Agreement”) and our ability and the terms under which we may access the capital markets are affected by credit ratings assigned to our indebtedness by the major credit rating agencies. These ratings are premised on our performance under assorted financial metrics, such as leverage and interest coverage ratios and other measures of financial strength, business and financial risk, industry conditions, transparency with rating agencies and timeliness of financial reporting. Our current ratings have served to lower our borrowing costs and facilitate access to a variety of lenders. However, there can be no assurance that our credit ratings or outlook will not be lowered in the future in response to adverse changes in these metrics caused by our operating results, by our market outlook or by actions that we take, such as incurring additional indebtedness or by returning excess cash to shareholders through dividends or under our share repurchase program. A downgrade of our credit ratings would increase our cost of borrowing under the Credit Agreement as well as our cost of operations, negatively affect our ability to access the capital markets on advantageous terms, or at all, negatively affect the trading price of our securities and have a material adverse effect our business, financial condition and results of operations.
Our continued success depends on our ability to protect our intellectual property, which cannot be assured.
Our future success depends in part on our ability to protect our intellectual property. We rely principally on nondisclosure agreements and other contractual arrangements and trade secret law and, to a lesser extent, trademark and patent law, to protect our intellectual property. However, these measures may be inadequate to protect our intellectual property from infringement by others or prevent misappropriation of our proprietary rights. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do U.S. laws. Our inability to protect our proprietary information and enforce our intellectual property rights through infringement proceedings could adversely affect our business, financial condition or results of operations.
Our manufacturing operations are dependent on third party suppliers, making us vulnerable to supply shortages and price increases.
In the manufacture of our products we use large amounts of raw materials and processed inputs including steel, copper and engine and electronic components. We obtain raw materials and certain manufactured components from third party suppliers. Our financial performance is constrained by our ability to secure critical raw materials such as steel and copper at prices that support our cost structure, or that can be passed along to our customers through increases in the price of the equipment that we manufacture. To reduce material costs and inventories, we rely on supplier arrangements with preferred vendors as a source for “just in time” delivery of many raw materials and manufactured components. Because we maintain limited raw material and component

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inventories, even brief unanticipated delays in delivery by suppliers, including those due to capacity constraints, labor disputes, impaired financial condition of suppliers, weather emergencies or other natural disasters, may adversely affect our ability to satisfy our customers on a timely basis and thereby affect our financial performance. If we are not able to pass raw material or component price increases on to our customers, our margins could be adversely affected. Any of these events could adversely affect our business, financial condition or results of operations.
Labor disputes and increasing labor costs could adversely affect us.
Many of our principal domestic and foreign operating subsidiaries are parties to collective bargaining agreements with their employees. As of October 28, 2016 , collective bargaining agreements or similar type arrangements cover 27% of our U.S. workforce and 42% of our international employees. We cannot provide assurance that disputes, work stoppages or strikes will not arise in the future. In addition, when existing collective bargaining agreements expire, we cannot be certain that we will be able to reach new agreements with our employees. In fiscal 2017 , union agreements are to expire for 14% of our employees, with the largest agreement covering our Montabert union at our Lyon, France facility. New collective bargaining agreements may be on substantially different terms and may result in increased direct and indirect labor costs. Future disputes with our employees could adversely affect our business, financial condition or results of operations.
Increased IT security threats and sophisticated computer crime pose a risk to our systems, networks, products and services.
We rely on information technology ("IT") systems and networks in connection with a variety of our business activities, and we collect and store sensitive data. IT security threats and sophisticated computer crime, including advanced persistent threats such as attempts to gain unauthorized access to our systems, are increasing in sophistication and frequency. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. We have experienced, and expect to continue to confront, attempts from hackers and other third parties to gain unauthorized access to our IT systems and networks. Although these attacks to date have not had a material impact on us, we could in the future experience attacks that could have a material adverse effect on our financial condition, results of operations or liquidity. While we actively manage IT risks within our control, we can provide no assurance that our actions will be successful in eliminating or mitigating risks to our systems, networks and data. A failure of or breach in IT security could expose us and our customers, dealers and suppliers to risks of misuse of information or systems, the compromise of confidential information, manipulation and destruction of data, defective products, production downtimes and operations disruptions. Any of these events in turn could adversely affect our reputation, competitive position, business and results of operations. In addition, such breaches in security could result in litigation, regulatory action and potential liability, as well as the costs and operational consequences of implementing further data protection measures.
A material disruption to one of our significant manufacturing plants could adversely affect our ability to generate revenue.
We produce most of our original equipment and parts for each product type at a limited number of principal manufacturing facilities. If operations at one or more of these significant facilities were to be disrupted as a result of equipment failures, natural disasters, power outages or other reasons, our business, financial condition or results of operations could be adversely affected. Interruptions in production could increase costs and delay delivery of some units.
Our business could be adversely affected by our failure to develop new technologies.
The mining industry is a capital-intensive business, with extensive planning and development necessary to open a new mine. The success of our customers’ mining projects is largely dependent on the efficiency with which the mine operates. If we are unable to provide continued technological improvements in our equipment that meet the needs and expectations of our customers and the broader industry on mine productivity, safety and efficiency, the demand for our mining equipment would be adversely affected, which would negatively impact our business, financial condition and results of operations.
If we are unable to hire and retain qualified employees, our growth may be hindered.
Our ability to provide high quality products and services depends in part on our ability to hire and retain skilled personnel in the areas of senior management, product engineering, manufacturing, servicing and sales. Competition for such personnel is intense and our competitors and others can be expected to attempt to hire our skilled employees from time to time. In particular, our results of operations could be adversely affected if we are unable to retain customer relationships and technical expertise provided by our management team and our professional personnel.
We rely on significant customers, the loss of one or more of which could adversely affect our operating results, financial condition and existing business.
We are dependent on maintaining significant customers by delivering reliable, high performance mining equipment and other products on a timely basis. We do not consider ourselves to be dependent on any single customer; however, our top 10 customers collectively accounted for approximately 36% of our net sales for fiscal 2016 . Consolidation and divestitures in the

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mining industry may result in different equipment preferences among current and former significant customers. The loss of one or more of our significant customers could, at least on a short-term basis, have a material adverse effect on our business, financial condition or results of operations.
Regulations related to conflict minerals may force us to incur additional expenses.
In August 2012, the SEC adopted disclosure requirements related to certain minerals sourced from the Democratic Republic of Congo or adjoining countries, as required by Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule requires us to perform due diligence, and report whether “conflict minerals,” which are defined as tin, tantalum, tungsten and gold, necessary to the functionality of a product we manufacture originated from the Democratic Republic of Congo or an adjoining country. Since 2014 we have been required to file with the SEC on an annual basis a specialized disclosure report on Form SD regarding such matters. We also may become subject to similar regulatory initiatives in other jurisdictions. As our supply chain is complex, we may incur significant costs to determine the source and custody of conflict minerals that we use in order to comply with these regulatory requirements. We may also face reputational challenges if we are unable to verify the origins for all conflict minerals used in our equipment, or if we are unable to conclude that our products are “conflict free.” Over time, conflict minerals reporting requirements may affect the sourcing, price and availability of some minerals which are necessary to the manufacture of our products, and may affect the availability and price of conflict minerals that are certified as conflict free. Accordingly, we may incur significant costs as a consequence of regulations related to conflict-free minerals, which may adversely affect our business, financial condition or results of operations.
We may be adversely affected by litigation or contractual obligations that give rise to liability.
We and our subsidiaries are involved in various unresolved legal matters that arise in the normal course of operations, the most prevalent of which relate to product liability (including asbestos and silica related liability), employment and commercial matters. We and our subsidiaries also become involved from time to time in proceedings relating to environmental matters and litigation arising outside of the ordinary course of business. While we maintain insurance coverage with respect to certain risks, our policies are subject to substantial deductibles. Furthermore, we cannot be certain that the coverage limits of our insurance policies will be adequate or that our policies will cover any particular loss. Insurance can be expensive, and we may not always be able to purchase insurance on commercially acceptable terms, if at all. Claims brought against us that are not covered by insurance (or for which our insurers refuse to provide coverage) or that result in recoveries in excess of insurance coverage could adversely affect our business, financial condition or results of operations.
We establish reserves based on our assessment of contingencies related to legal claims asserted against us, as required by accounting principles generally accepted in the United States (“GAAP”). Developments during the course of legal proceedings may affect our assessments and estimates of our contingencies, 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. Changes to reserves and payments that are greater than reserved amounts may have a material adverse effect on our financial condition and results of operations.
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. Some of these claims and obligations involve significant potential liability, which may adversely affect our business, financial condition or results of operations.
 
Item 1B. Unresolved Staff Comments
None.

Item 2. Properties
As of October 28, 2016 , the following principal properties of our operations were owned, except as indicated. Our worldwide corporate headquarters is currently jointly housed in 30,000 square feet and 20,000 square feet of leased space in Milwaukee, Wisconsin. All of these properties are generally suitable for the operations currently conducted at them.
Underground Locations
Location
 
Floor Space
(Sq. Ft.)
 
 
 
Principal Operations
United States
 
 
 
 
 
 
Warrendale, Pennsylvania
 
34,731

 
(1)
 
Administration, engineering
Billings, Montana
 
30,000

 
(1)
 
Manufacturing, warehouse, administration, repairs, rebuilds, distribution, sales, services, assembly

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Underground Locations
Location
 
Floor Space
(Sq. Ft.)
 
 
 
Principal Operations
Bluefield, Virginia
 
102,160

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

 
 
 
Repairs, rebuilds, sales
Franklin, Pennsylvania
 
267,459

 
 
 
Administration, engineering
Homer City, Pennsylvania
 
70,000

 
 
 
Manufacturing, warehouse, administration, repairs, rebuilds, assembly
Lebanon, Kentucky
 
94,000

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

 
 
 
Warehouse, administration, repairs, distribution, sales
Mt. Vernon, Illinois
 
6,407

 
 (1)
 
Sales
Mt. Vernon, Illinois
 
1,700

 
 (1)
 
Services
Reno, Pennsylvania
 
122,350

 
 
 
Manufacturing
Solon, Ohio
 
101,600

 
 
 
Manufacturing
Wellington, Utah
 
76,250

 
 
 
Warehouse, administration, repairs, rebuilds, sales, assembly
Winfield, Alabama
 
284,880

 
 
 
Manufacturing, administration, sales, engineering
Australia
 
 
 
 
 
 
Minto
 
131,857

 
(1)
 
Warehouse, distribution
Moss Vale
 
97,392

 
 
 
Manufacturing, administration, repairs, rebuilds, engineering
Mudgee
 
2,046

 
(1)
 
Administration, sales
Parkhurst
 
76,639

 
 
 
Administration, repairs, rebuilds
Rutherford
 
149,800

 
 
 
Warehouse, administration, repair, rebuilds, sales, services, assembly
Somersby
 
49,655

 
 
 
Manufacturing, administration, engineering
Wollongong
 
14,334

 
(1)
 
Administration, sales, engineering
Canada
 
 
 
 
 
 
Lively
 
56,000

 
 
 
Manufacturing, warehouse, administration, repairs, rebuilds, distribution, engineering, services, assembly
Lively
 
44,680

 
 
 
Manufacturing, warehouse, administration, repairs, rebuilds, distribution, engineering
Thompson
 
4,000

 
(1)
 
Warehouse, administration, distribution, sales
China
 
 
 
 
 
 
Baotou
 
119,688

 
(1)
 
Repairs, rebuilds, engineering, services
Beijing
 
10,793

 
(1)
 
Administration, sales
Qingdao
 
115,890

 
 
 
Manufacturing, warehouse, administration, services, assembly
Tianjin
 
372,362

 
 
 
Manufacturing, warehouse, administration, distribution, engineering, assembly
Tianjin
 
336,000

 
(1)
 
Manufacturing, warehouse, administration
England
 
 
 
 
 
 
Manchester
 
84,442

 
 
 
Administration, engineering
Sunderland
 
200,000

 
(1)
 
Manufacturing, administration, sales, engineering
Worcester
 
247,570

 
 
 
Manufacturing, warehouse, administration, repairs, rebuilds, engineering
France
 
 
 
 
 
 
Saint-Priest
 
217,215

 
 
 
Manufacturing, warehouse, administration, repairs, rebuilds, distribution, sales, engineering, services, assembly
India
 
 
 
 
 
 
Kolkata
 
10,176

 
 
 
Administration
Nagpur
 
8,053

 
(1)
 
Administration, repairs, rebuilds, distribution, sales, services, assembly
Poland
 
 
 
 
 
 

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Underground Locations
Location
 
Floor Space
(Sq. Ft.)
 
 
 
Principal Operations
Tychy
 
66,206

 
 
 
Manufacturing, warehouse, administration, repairs, rebuilds, distribution, sales, engineering, services, assembly
Russia
 
 
 
 
 
 
Novokuznetsk
 
119,000

 
 
 
Manufacturing, warehouse, administration, repairs, rebuilds, assembly
South Africa
 
 
 
 
 
 
Wadeville
 
503,326

 
 
 
Manufacturing, warehouse, administration, repairs, rebuilds, distribution, sales, engineering, services, assembly
Witbank
 
79,525

 
 
 
Administration, warehouse, distribution, sales, services



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Surface Locations
Location
 
Floor Space
(Sq. Ft.)
 
 
 
Principal Operations
United States
 
 
 
 
 
 
Milwaukee, Wisconsin
 
945,100

 
 
 
Manufacturing, warehouse, administration, distribution, sales, engineering, assembly
Elko, Nevada
 
43,000

 
 
 
Repair, rebuilds
Evansville, Wyoming
 
25,000

 
 
 
Rebuilds
Gillette, Wyoming
 
60,000

 
 
 
Manufacturing, warehouse, administration, repair, rebuilds, sales, services, assembly
Kilgore, Texas
 
12,400

 
 
 
Administration, sales, services
Longview, Texas
 
1,100,000

 
 
 
Manufacturing, warehouse, administration, repair, distribution, sales, engineering, services, assembly
Mesa, Arizona
 
40,000

 
 
 
Manufacturing, warehouse, administration, repair, rebuilds, sales
Oak Creek, Wisconsin
 
300,000

 
(1)
 
Warehouse, administration, distribution
Virginia, Minnesota
 
82,000

 
 
 
Manufacturing, warehouse, administration, repair, rebuilds, distribution, sales, services, assembly
Australia
 
 
 
 
 
 
Bassendean
 
72,500

 
 
 
Warehouse, administration, sales, services, assembly
Hemmant
 
23,724

 
 
 
Warehouse, administration, repair
Mackay
 
36,425

 
 
 
Warehouse, administration, repair, sales, services
Murarrie
 
18,912

 
(1)
 
Administration, sales
Brazil
 
 
 
 
 
 
Belo Horizonte
 
40,365

 
(1)
 
Administration, repair, distribution, sales, engineering, services, assembly
Carajas
 
38,000

 
 
 
Warehouse, administration, repair, rebuilds, sales, services
Botswana
 
 
 
 
 
 
Gaberone
 
7,535

 
(1)
 
Warehouse, administration, sales
Canada
 
 
 
 
 
 
Calgary
 
33,000

 
(1)
 
Administration
Edmonton
 
47,100

 
(1)
 
Warehouse, rebuilds
Fort McMurray
 
63,380

 
(1)
 
Warehouse, rebuilds
Sparwood
 
30,700

 
(1)
 
Services
Chile
 
 
 
 
 
 
Antofagasta
 
101,158

 
 
 
Repair, rebuilds, engineering, services
Antofagasta
 
37,450

 
(1)
 
Warehouse
Mexico
 
 
 
 
 
 
Cananea
 
15,000

 
(1)
 
Warehouse, administration, repair, sales
Tlaquepaque, Jalisco
 
5,823

 
(1)
 
Administration, sales
Peru
 
 
 
 
 
 
Arequipa
 
110,000

 
 
 
Warehouse, administration, repair, rebuilds, distribution, sales, services

(1)
These facilities are under a lease agreement.

Item 3. Legal Proceedings
We and our subsidiaries are involved in various unresolved legal matters that arise in the normal course of operations, the most prevalent of which relate to product liability (including 3,652 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.



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Item 4. Mine Safety Disclosures
Not applicable.



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Executive Officers of the Registrant
The following table shows certain information for each of our executive officers, including their position within the corporation and their business experience. Our executive officers are designated as such each year at the organizational meeting of our Board of Directors, which follows the annual meeting of shareholders, and at other meetings as needed.
Name
 
Age
 
Current Office and Principal Occupation
 
Years as
Officer
Edward L. Doheny II
 
54
 
President and Chief Executive Officer and a director of Joy Global Inc. since 2013. From 2006 to 2013 he served as Executive Vice President of Joy Global Inc. and President and Chief Operating Officer of Joy Global Underground Mining LLC.
 
10
James M. Sullivan
 
56
 
Executive Vice President and Chief Financial Officer since 2012. He previously served as Chief Financial Officer of Solutia, Inc. from 2004 to 2012. Mr. Sullivan also served as Solutia’s Executive Vice President from 2009 until his departure, and previously served as Senior Vice President from 2004 through 2009 and Treasurer from 2004 through 2011.
 
4
Sean D. Major
 
52
 
Executive Vice President, General Counsel and Secretary since 2007.
 
10
Johannes S. Maritz
 
57
 
Executive Vice President, Human Resources since 2012. From 2007 to 2012 he served as Vice President, Human Resources for Joy Global Underground Mining LLC.
 
4
Peter B. Salditt
 
52
 
President, Underground and Hard Rock Mining since 2014. He previously served as President of Atlas Copco Drilling Solutions and had 20 years’ experience with Atlas Copco in a wide variety of leadership responsibilities for their mining and construction product lines.
 
1
John M. Koetz
 
52
 
President, Surface Mining since 2014. He previously served as a Vice President for the Surface business from 2010 to 2014. Prior to joining Joy Global, Mr. Koetz was Senior Director of Marketing for Case IH.
 
1
Douglas E. Blom
 
62
 
Vice President and Chief Marketing Officer since 2013. He previously served as Vice President Eurasia from 2012 to 2013 and Vice President of the Company’s Latin America region from 2008 to 2012. Mr. Blom has held a series of leadership roles with Joy Global since 1997.
 
1

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PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock, par value of $1.00 per share, is traded on the New York Stock Exchange under the symbol “JOY.” The table below sets forth the high and low sales price and dividend payments for our common stock during the periods indicated. As of December 8, 2016 , there were approximately 29,644 shareholders of record.
 
Price per Share
 
Dividends
Per Share
 
High
 
Low
 
Fiscal 2016
 
 
 
 
 
Fourth Quarter
$
28.00

 
$
27.15

 
$
0.01

Third Quarter
$
28.55

 
$
15.10

 
$
0.01

Second Quarter
$
21.99

 
$
9.40

 
$
0.01

First Quarter
$
18.55

 
$
8.35

 
$
0.01

Fiscal 2015
 
 
 
 
 
Fourth Quarter
$
27.00

 
$
14.02

 
$
0.20

Third Quarter
$
44.75

 
$
25.71

 
$
0.20

Second Quarter
$
45.29

 
$
37.77

 
$
0.20

First Quarter
$
55.40

 
$
40.66

 
$
0.20


On December 14, 2015 we entered into an amendment to our credit facilities, which, among other things, limited aggregate cash dividends to $25.0 million per year. On December 16, 2015, we announced a reduction in the quarterly dividend to $0.01 per share.

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The following graph sets forth the cumulative total shareholder return, including reinvestment of dividends on a quarterly basis, on common stock during the preceding five years, as compared to the cumulative total returns of the Standard and Poor’s (“S&P”) 500 Composite Stock Index and the Dow Jones United States Commercial Vehicles and Trucks Index (“DJUSHR”). This graph assumes $100 was invested on October 28, 2011 in our common stock, the S&P 500 Composite Stock Index and the DJUSHR.
JOY-10282_CHARTX52800.JPG
 
10/28/2011
 
10/26/2012
 
10/25/2013
 
10/31/2014
 
10/30/2015
 
10/28/2016
Joy Global Inc.
$
100.00

 
$
68.20

 
$
65.19

 
$
59.83

 
$
19.98

 
$
32.48

S&P 500
100.00

 
115.21

 
146.52

 
171.82

 
180.75

 
188.90

DJUSHR
100.00

 
99.72

 
115.65

 
136.06

 
108.15

 
125.03


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

25


In thousands, except per share amounts
Year Ended October 30, 2016 (1)
 
Year Ended October 30, 2015 (1)(2)(3)
 
Year Ended October 31, 2014 (1)
 
Year Ended October 25, 2013 (1)(4)
 
Year Ended October 26, 2012 (1)(5)
Net sales
$
2,371,400

 
$
3,172,147

 
$
3,778,310

 
$
5,012,697

 
$
5,660,889

Operating (loss) income
(41,412
)
 
(1,109,389
)
 
527,526

 
835,430

 
1,036,888

(Loss) income from continuing operations attributable to Joy Global Inc.
$
(63,845
)
 
$
(1,178,004
)
 
$
338,118

 
$
536,759

 
$
670,384

Income (loss) from discontinued operations
5,466

 

 

 
(225
)
 
(5,060
)
Net (loss) income attributable to Joy Global Inc.
$
(58,379
)
 
$
(1,178,004
)
 
$
338,118

 
$
536,534

 
$
665,324

Basic (loss) earnings per share:
 
 
 
 
 
 
 
 
 
(Loss) income from continuing operations
$
(0.65
)
 
$
(12.08
)
 
$
3.38

 
$
5.06

 
$
6.34

Income (loss) from discontinued operations
0.06

 

 

 

 
(0.05
)
Net (loss) income
$
(0.59
)
 
$
(12.08
)
 
$
3.38

 
$
5.06

 
$
6.29

Diluted (loss) earnings per share:
 
 
 
 
 
 
 
 
 
(Loss) income from continuing operations
$
(0.65
)
 
$
(12.08
)
 
$
3.35

 
$
5.02

 
$
6.28

Income (loss) from discontinued operations
0.06

 

 

 

 
(0.05
)
Net (loss) income
$
(0.59
)
 
$
(12.08
)
 
$
3.35

 
$
5.02

 
$
6.23

Dividends per share
$
0.04

 
$
0.80

 
$
0.75

 
$
0.70

 
$
0.70

Working capital excluding discontinued operations
$
1,116,801

 
$
1,169,104

 
$
1,448,600

 
$
1,467,614

 
$
1,408,258

Total assets
$
3,426,431

 
$
3,712,446

 
$
5,592,349

 
$
5,786,525

 
$
6,155,908

Total long-term obligations
$
1,002,548

 
$
1,079,507

 
$
1,269,646

 
$
1,307,376

 
$
1,357,092



(1) - In fiscal 2015, we adopted mark to market accounting for our pension and post-retirement benefit plans. The results of operations for fiscal 2012 through fiscal 2014 have been re-cast to include the impact of adopting this accounting principle. The year-end actuarial adjustments under the new accounting principle resulted in mark to market losses of $15.9 million in fiscal 2016, losses of $63.3 million in fiscal 2015, losses of $9.8 million in fiscal 2014, gains of $1.7 million in fiscal 2013 and losses of $183.8 million in fiscal 2012.

(2) - In fiscal 2015, we completed the redemption of our $250 million senior notes due in 2016 using a mixture of available cash on hand and debt.

(3) – In fiscal 2015, we incurred a $1.3 billion impairment charge, primarily covering goodwill, other intangible assets and certain property, plant and equipment.

(4) – In fiscal 2013, we incurred a $155.2 million intangible impairment charge.

(5) – In December 2011, we acquired IMM, a leading designer and manufacturer of underground coal mining equipment in China.




26



Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes. References made to years are for fiscal year periods.
The purpose of this discussion and analysis is to enhance the understanding and evaluation of the results of operations, financial position, cash flows, indebtedness and other key financial information of Joy Global Inc. and its subsidiaries for fiscal 2016 , 2015 and 2014 . For a more complete understanding of this discussion, please read the Notes to Consolidated Financial Statements included in this report.

Overview
We are a leading manufacturer and servicer of high productivity mining equipment for the extraction of 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 and Surface. We are a major manufacturer of underground mining machinery for the extraction and haulage of coal and other bedded minerals. We are also a major producer of surface mining equipment for the extraction and haulage 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, Texas and Wisconsin, and internationally, including facilities in Australia, Canada, China, France, South Africa and the United Kingdom.
Pending Merger with Komatsu America

On July 21, 2016, we entered into the Merger Agreement with Komatsu America, Merger Sub and (solely for the purposes specified in the Merger Agreement) Komatsu Ltd., providing for the merger of Merger Sub with and into Joy Global, with Joy Global surviving the Merger as a wholly owned subsidiary of Komatsu America. At the effective time of the Merger, each outstanding share of Joy Global common stock (other than dissenting shares and shares owned by Joy Global, Komatsu America or their respective subsidiaries) will be cancelled and converted into the right to receive $28.30 per share in cash, without interest.
The closing of the Merger is subject to the satisfaction or waiver of various closing conditions, including (i) the approval of the Merger Agreement by the holders of a majority of our outstanding shares of common stock, which was obtained on October 19, 2016, (ii) the receipt of specified required regulatory approvals in agreed jurisdictions, (iii) the absence of any law, judgment or injunction prohibiting the consummation of the Merger, (iv) the accuracy of each party’s representations and warranties, (v) each party’s performance in all material respects of its obligations under the Merger Agreement and (vi) no "Company Material Adverse Effect," as defined in the Merger Agreement, having occurred with respect to Joy Global. The Merger is not subject to any financing condition.
We and Komatsu America are required to use reasonable best efforts to take all actions necessary to complete the Merger. We are also subject to customary representations, warranties and covenants under the Merger Agreement, including covenants (i) to conduct our business in the ordinary course prior to the completion of the Merger, (ii) not to engage in certain types of transactions during this period without the prior written consent of Komatsu America, (iii) to convene and hold a meeting of our shareholders for the purpose of obtaining shareholder approval of the Merger, which was held on October 19, 2016, and (iv) to refrain from soliciting alternative acquisition proposals or providing information to or participating in discussions or negotiations with third parties regarding alternative acquisition proposals, subject to customary exceptions that would be reasonably expected to lead to a Superior Company Proposal, as defined in the Merger Agreement.
The Merger Agreement contains customary termination rights, including that we or Komatsu America may terminate the Merger Agreement (i) if the Merger is not completed on or prior to July 21, 2017, subject to extension by either party for up to two sequential three-month periods for the purpose of obtaining regulatory approvals, (ii) a governmental entity has issued a final and non-appealable order permanently enjoining or prohibiting the Merger (subject to certain limitations set forth in the Merger Agreement), or (iii) the Merger Agreement is not approved by our shareholders. The Merger Agreement also provides that, upon termination of the Merger Agreement under specified circumstances, including termination by either party because our shareholders do not approve the Merger Agreement or because we enter into another agreement with respect to a Superior Company Proposal, we would be required to pay Komatsu America a termination fee of $75.0 million. If the Merger Agreement is terminated under other specified circumstances, including because the required regulatory approvals have not been obtained or because the transaction has been enjoined, Komatsu America would be required to pay us a termination fee of $150.0 million.

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For further information regarding the Merger and the Merger Agreement, please refer to our definitive proxy statement filed on September 2, 2016, as amended and supplemented on September 29, 2016 and October 3, 2016, the Merger Agreement, which is attached as Annex A to the definitive proxy statement filed on September 2, 2016, and our Current Reports on Form 8-K filed on July 21, 2016, October 13, 2016 and October 19, 2016. The foregoing description of the Merger does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Merger Agreement.
The transaction is on track to close in mid-2017, or may occur in early 2017 depending on the progress of the remaining regulatory clearance procedures.
Disposition of Longview, Texas Steel Mill Business
On August 5, 2016, we completed the sale our steel mill business to Nucor Corporation. The steel mill business was sold for $28.3 million. The steel mill's results of operations were included as part of the Surface segment until the date of the sale.
Acquisition of Montabert S.A.S.
On June 1, 2015, we completed the acquisition of 100% of the equity of Montabert for approximately $121.5 million, gross of cash acquired of $7.1 million dollars. Montabert specializes in the design, production and distribution of high quality hydraulic rock breakers, pneumatic equipment, drilling attachments, drifters and related parts and tools. This acquisition expanded the Company's product and service capabilities for hard rock mining, tunneling and rock excavation, which further diversified our commodity and end market exposures. Montabert's results of operations have been included as part of the Underground segment from the date of the acquisition forward.
Acquisition of Mining Technologies International Inc.
On May 30, 2014, we closed on the purchase of certain assets of MTI for $44.4 million. 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 as part of the Underground segment from the acquisition date forward.
Operating Results
Net sales in fiscal 2016 were $2.4 billion , compared to $3.2 billion in fiscal 2015 . The decrease in net sales of $800.7 million , or 25% , in the current year reflected a decrease in original equipment sales of $300.3 million , or 37% , and a decrease in service sales of $500.4 million , or 21% . Original equipment sales decreased in all regions except Eurasia and North America. The decrease in original equipment sales was led by Latin America, Australia and China, which decreased by $101.0 million, $95.2 million and $89.4 million, respectively. Service sales decreased in all regions except Eurasia. The decrease in service sales was led by North America, which decreased by $376.6 million. Compared to the prior year, net sales in fiscal 2016 included a $87.4 million unfavorable effect of foreign currency translation, due primarily to the decline in the value of the South African rand relative to the U.S. dollar.
Operating loss in fiscal 2016 was $41.4 million , or 1.7% of net sales, compared to a loss of $1.1 billion , or 35.0% of net sales, in fiscal 2015 . The decrease in operating loss of $1.068 billion , or 96% , in the current year was due to a decrease in impairment charges of $1.3 billion, lower product development, selling and administrative expenses of $106.5 million, which included a $39.7 million decrease in mark to market pension adjustments, and reduced period costs (defined as any costs of sales other than those costs associated with selling inventory at standard costs) of $46.2 million. These items were partially offset by lower sales volumes of $308.0 million, lower manufacturing cost absorption of $40.4 million, higher restructuring costs of $56.4 million and a less favorable product mix of $21.0 million. Compared to the prior year, operating loss in fiscal 2016 included a $4.3 million unfavorable effect of foreign currency translation.
Loss from continuing operations in fiscal 2016 was $63.8 million , or $0.65 per diluted share, compared to a loss of $1.2 billion , or $12.08 per diluted share, in fiscal 2015 .
Bookings in fiscal 2016 were $2.3 billion , compared to $2.7 billion in fiscal 2015 . The decrease in bookings of $380.3 million , or 14% , in the current year reflected a decrease in original equipment bookings of $107.5 million , or 21% , and a decrease in service bookings of $272.8 million , or 13% . Original equipment bookings decreased in all regions except Latin America and Eurasia. The decrease in original equipment bookings was led by North America and China, which decreased by $85.7 million and $67.0 million, respectively. Service bookings decreased in all regions except Eurasia and Latin America. The decrease in service bookings was led by North America, which decreased by $255.3 million. Compared to the prior year, bookings in fiscal

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2016 included a $109.7 million unfavorable effect of foreign currency translation, due primarily to the decline in the value of the British pound sterling and South African rand relative to the U.S. dollar.
Results for all periods presented reflect the voluntary change in our method of accounting for actuarial gains and losses and the calculation of our expected returns on plan assets for all of our pension and other postretirement benefit plans. Refer to our Form 10-K for the fiscal year ended October 30, 2015 for additional information.
Impairment Charges
During fiscal 2016, we assessed for impairment the long-lived assets of an asset group in China. This assessment was performed as a result of our decision to idle certain facilities in China due to the continued market challenges in that region. As a result of such assessment, it was determined that the cash flows associated with this asset group would be insufficient to support their carrying values. Valuations were performed over property, plant and equipment using the market approach for real property. Personal property was valued primarily using the cost approach. As a result of this analysis, we recorded non-cash, pre-tax impairment charges of $12.4 million for the year ended October 28, 2016 for our Underground segment related to such property, plant, and equipment.
We also assessed our indefinite-lived trademarks using the relief-from-royalty methodology during fiscal 2016 due to our decision to idle certain facilities in China and the continued market challenges in that region. As a result, a valuation was performed over trademarks using the relief-from-royalty methodology and a non-cash, pre-tax impairment charge of $6.6 million was recorded for the year ended October 28, 2016 by our Underground segment.
Total fiscal 2016 impairment charges of $19.0 million were recorded as a result of each of these analyses. These charges are recorded in the Consolidated Statement of Operations under the heading Restructuring and other impairment charges .
Market Outlook
Although most prices of commodities served by the company improved in the second half of 2016, prices remain substantially below cycle peaks. As a result, prices in many cases have not yet reached a level that stimulates new investment, as industry efforts remain focused on production efficiency and balance sheet improvement. While global economic growth has shown signs of improvement over the past several months, mining industry sentiment remains muted and growth in equipment spending is not expected to recover in 2017.
While copper traded in a tight range for most of the year, fundamentals have recently turned positive. The improving sentiment has largely been led from the supply side as evidence of increasing supply disruptions surfaced during the third quarter. Optimistic outlooks for improving demand, particularly from infrastructure and electric grid investments helped push copper prices up during November 2016, the strongest month since June 2015. The expected slowdown in supply growth in 2017, along with an improving demand outlook, should result in a relatively tight copper market next year.
2016 has once again been a difficult year for U.S. coal markets as the dual challenge of regulatory pressures and low natural gas prices influence a reduction in coal burn. The decline in U.S. coal burn along with reduced export opportunities has U.S. coal production down for 2016. The demand associated with power plant retirements over the past several years is not expected to return. Although U.S. coal inventories are expected to normalize over the course of 2017, sustained lower natural gas prices will challenge the coal production outlook next year.
While seaborne metallurgical coal and thermal coal markets have rallied strongly over the course of 2016, their fate remains largely tied to Chinese domestic production policy. Seaborne coal prices began to increase appreciably in July as the Chinese government mandated a reduction in the number of production days in an effort to combat significantly oversupplied domestic markets. At the same time, a number of weather-related production disruptions in recent months resulted in a seaborne market that became significantly undersupplied during the second half of the year. The combination of these events resulted in seaborne prices at four-year highs during November. While it remains unclear how long the supply tightness will last in seaborne markets, it is expected that prices will retreat from current levels over the course of 2017.
Part of the rally in seaborne metallurgical coal and iron ore markets has been stronger than expected steel production during 2016. Encouraging housing and industrial production data in China have been the primary drivers behind iron ore prices rising from January. Looking into 2017, global steel demand is only expected to be marginally better than 2016, but still relatively weak by historical terms. As such, it is expected that iron ore prices will retreat in 2017 after following metallurgical coal prices higher in recent weeks. Given the expected supply growth of iron ore in 2017, prices are projected to trend lower over the course of 2017.
Other metals markets including nickel, platinum and palladium continue to rebalance and have seen pricing improvements since the beginning of the year. While these markets all have different dynamics, they all appear set to improve in 2017, as supply reductions are balanced against an improving demand outlook.
As markets continue to rebalance in 2017 with some selective pricing improvement, the industry as a whole remains cautious on the sustainability of the current recovery. Although global economic activity is expected to improve in 2017 and could provide

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a catalyst to the industry, a sustained improvement in underlying sentiment remains elusive. In light of this backdrop, capital spending in the mining industry is expected to decline in 2017, the smallest decline in the past four years.
Company Review and Outlook
Despite the continued market headwinds, we were able to achieve a number of important operational and strategic objectives over the course of 2016.
Driving a company with world-class safety performance remains one of our core values. During the year, we had an increase in facilities around the world that achieved zero-incidence rates for the entire year. Additionally, we achieved the lowest level company-wide recordable incident rate in company history.
Early fiscal 2016, we experienced another significant step-down in the U.S. and China coal markets, which necessitated further strategic and proactive cost reduction actions to structurally position the business for profitable future growth and positive cash generation. We accomplished these objectives over the course of the year, achieving year-over-year cost reduction, a decremental margin ahead of our target, and significant cash generation. At the same time, in the China market, we re-focused the business on customers who value our differentiated equipment and service offerings and are best positioned for success in this market over the coming years.
We are committed to strategic growth and market penetration into the industrial minerals and tunneling markets. We are now realizing approximately 50% of our business coming from non-coal market. By demonstrating our product differentiation and lowest total cost of ownership, we were able to gain market share by converting several mine operations from traditional drill and blast to our high-productivity continuous mining methods. This strategic focus led to multiple orders of heavy continuous miners and flexible conveyor trains.
We remained focused on our new product development growth strategies in our service business including consumables and continued market penetration in hard rock. During 2016, we made significant advances with our hybrid shovel, underground hard rock Joy SR Hybrid Drive LHDs and prototype DynaCut™ hard rock continuous mining system. These products have all been in the field for well over a year proving their capabilities. The hybrid shovel and LHDs are now commercially available and the DynaCut system is set to go to market in the next few years. Additionally, despite the market step-down and reduction of our active fleet of equipment, we achieved growth in our consumables offerings and expect to see stronger growth rates as new equipment bookings increase when the industry recovers over the next 12 to 18 months.
Although some commodity prices have recovered in recent months, our customers remain cautious and are very selective with capital deployment, which will continue to impact the timing and level of incoming orders, and lead to the expected fifth consecutive year of decreased capital expenditures for the industry. We will continue to manage operational and working capital efficiencies and advance our growth strategies in fiscal 2017.

Results of Operations
Fiscal 2016 Compared With Fiscal 2015
Net Sales
The following table sets forth fiscal 2016 and 2015 net sales included in our Consolidated Statements of Operations:
In thousands
2016
 
2015
 
 $ Change
 
% Change
Net Sales
 
 
 
 
 
 
 
Underground
$
1,293,699

 
$
1,777,865

 
$
(484,166
)
 
(27
)%
Surface
1,177,722

 
1,510,271

 
(332,549
)
 
(22
)%
Eliminations
(100,021
)
 
(115,989
)
 
15,968

 
 
Total
$
2,371,400

 
$
3,172,147

 
$
(800,747
)
 
(25
)%
Underground net sales in fiscal 2016 were $1.3 billion , compared to $1.8 billion in fiscal 2015 . The decrease in Underground net sales of $484.2 million , or 27% , in the current year reflected a decrease in original equipment sales of $194.2 million , or 35% , and a decrease in service sales of $290.0 million , or 24% . Original equipment sales decreased in all regions except Eurasia and Latin America. The decrease in original equipment sales was led by Australia and China, which decreased by $102.0 million and $74.2 million, respectively. Service sales also decreased in all regions except Eurasia and Latin America. The decrease in service sales was led by North America, which decreased by $223.8 million. Compared to the prior year, Underground net sales in fiscal

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2016 included a $67.1 million unfavorable effect of foreign currency translation, due primarily to the decline in the value of the South African rand relative to the U.S. dollar.
Surface net sales in fiscal 2016 were $1.2 billion compared to $1.5 billion in fiscal 2015 . The decrease in Surface net sales of $332.5 million , or 22% , in the current year reflected a decrease in original equipment sales of $107.0 million , or 36% , and a decrease in service sales of $225.6 million , or 19% . Original equipment sales decreased in all regions except North America. The decrease in original equipment sales was led by Latin America, which decreased by $103.8 million. Service sales decreased in all regions except Eurasia. The decrease in service sales was led by North America, which decreased by $160.6 million. Compared to the prior year, Surface net sales in fiscal 2016 included a $20.3 million unfavorable effect of foreign currency translation, due primarily to the decline in the value of the South African rand, the Chilean peso and the Australian dollar relative to the U.S. dollar.
Operating Loss
The following table sets forth fiscal 2016 and 2015 operating (loss) income included in our Consolidated Statements of Operations:
 
2016
 
2015
In thousands
Operating (Loss)Income
 
 % of Net Sales
 
Operating Income (Loss)
 
% of Net Sales
Operating (Loss) Income
 
 
 
 
 
 
 
Underground
$
(47,606
)
 
(4
)%
 
$
(1,151,659
)
 
(65
)%
Surface
90,523

 
8
 %
 
173,739

 
12
 %
Corporate Expenses
(59,851
)
 
 
 
(102,746
)
 
 
Eliminations
(24,478
)
 
 
 
(28,723
)
 
 
Total
$
(41,412
)
 
(2
)%
 
$
(1,109,389
)
 
(35
)%
Underground operating loss in fiscal 2016 was $47.6 million , or 4% of net sales, compared to a loss of $1,151.7 million , or 65% of net sales, in fiscal 2015 . The decrease in Underground operating loss of $1.1 billion , or 96% , was due to a decrease in impairment charges of $1.3 billion, lower product development, selling and administrative expenses of $54.0 million and reduced period costs of $14.8 million. These items were partially offset by lower sales volumes of $177.1 million, higher restructuring costs of $58.4 million, lower manufacturing cost absorption of $29.4 million and a less favorable product mix of $20.9 million. Compared to the prior year, Underground operating loss in fiscal 2016 included a $3.9 million unfavorable effect of foreign currency translation.
Surface operating income in fiscal 2016 was $90.5 million , or 8% of net sales, compared to $173.7 million , or 12% of net sales, in fiscal 2015 . The decrease in Surface operating income of $83.2 million , or 48% , was due to lower sales volumes of $134.0 million and lower manufacturing cost absorption of $10.9 million. These items were partially offset by reduced period costs of $30.2 million, a decrease in impairment charges of $21.3 million and lower product development, selling and administrative expenses of $13.2 million. Compared to the prior year, Surface operating loss in fiscal 2016 included a $0.4 million unfavorable effect of foreign currency translation.
Corporate expense in fiscal 2016 was $59.9 million , compared to $102.7 million in fiscal 2015 . The decrease in corporate expense of $42.9 million , or 42% , was primarily due to the $41.0 million Corporate decrease in mark to market pension adjustments.
Product Development, Selling and Administrative Expense
Product development, selling and administrative expense in fiscal 2016 was $476.7 million , or 20% of net sales, compared to $583.2 million , or 18% of net sales, in fiscal 2015 . The decrease in product development, selling and administrative expense of $106.5 million , or 18% , was primarily due to headcount reductions, as well as other savings from the Company's cost reduction programs. In addition, the Company incurred lower warranty and bad debt expenses on lower sales volumes, fewer litigation charges, less defined benefit employee pension and postretirement plan expense primarily due to a lower mark to market adjustment, reduced amortization due to the prior year intangible asset impairments and favorable foreign currency impacts during the current year. These items were partially offset by higher overall incentive based compensation and the incremental expenses associated with the Company's recent acquisition of Montabert in fiscal 2015. In addition, we incurred $5.4 million of merger related costs in fiscal 2016.
Goodwill Impairment Charges
The Company incurred a $1.2 billion goodwill impairment charge in fiscal 2015 . This charge was recorded by the Underground segment. See the notes to the accompanying financial statements for further information.

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Restructuring and Other Impairment Charges
Restructuring and other impairment charges in fiscal 2016 were $89.9 million , compared to $172.4 million in fiscal 2015 . The decrease in restructuring and other impairment charges is due to the fiscal 2015 impairment charge of $139.0 million, covering other intangible assets, certain items of property, plant, and equipment, as well as other items. The decrease in these impairment charges in fiscal 2016 was partially offset by an increase in restructuring charges as a result of the Company's continued efforts to better align the company's overall cost structure with anticipated levels of future demand. The fiscal 2016 restructuring charges include approximately $19.0 million of impairment charges that are directly related to our restructuring activities.
Net Interest Expense
Net interest expense in fiscal 2016 was $45.7 million , compared to $53.4 million in fiscal 2015 . The decrease in net interest expense of $7.7 million , or 14% , was primarily due to the fourth quarter fiscal 2015 redemption of the $250.0 million aggregate principal amount of our 2016 senior notes. The cost of redemption, including the payment of the make whole premium, was funded with a combination of cash on hand and borrowings under the Company's credit agreement, which were drawn at a lower interest rate than the rate on the 2016 senior notes and were repaid in the first quarter of fiscal 2016. The reduction was also attributed to lower short-term borrowings. The overall reduction was partially offset by an increase in interest expense on the term loan and revolving credit facility due to our lower credit rating and a reduction in interest bearing assets as a result of the fourth quarter fiscal 2015 customer payment of a long-term receivable.
Loss on Early Debt Retirement
During fiscal 2015, the Company elected to redeem the entire $250.0 million aggregate principal amount of its 6.0% Senior Notes due 2016 (the "2016 Notes") to reduce interest expense and improve bank and credit rating leveraging metrics. The cost of redemption, including the payment of the make whole premium, was funded with a combination of cash on hand and borrowings under the Company's unsecured revolving credit facility. These borrowings were repaid in the first quarter of fiscal 2016.
Provision for Income Taxes
The benefit for income taxes in fiscal 2016 was $23.3 million , compared to a provision of $0.9 million in fiscal 2015 . The effective rate was 26.8% in fiscal 2016 , compared to (0.1)% in the prior year. A net discrete tax benefit of $12.2 million was recorded in fiscal 2016 , compared to an expense of $0.2 million in fiscal 2015 . The decrease in the effective tax rate for the year, excluding discrete items, was primarily attributable to a beneficial geographic mix of earnings, offset by net operating losses of certain foreign subsidiaries without a currently recognizable tax benefit. The discrete tax benefit in fiscal 2016 was primarily attributable to the recognition of previously uncertain tax benefits.
Bookings
Bookings represent new customer orders for original equipment and services. Service bookings include orders for parts, components and rebuilds, but are exclusive of long-term maintenance and repair arrangements and life cycle management arrangements awarded to us during the period. We record bookings when firm orders are received and add the bookings to our backlog. Bookings for fiscal 2016 and 2015 are as follows:
In thousands
2016
 
2015
 
$ Change
 
% Change
Bookings
 
 
 
 
 
 
 
Underground
$
1,220,130

 
$
1,574,461

 
$
(354,331
)
 
(23
)%
Surface
1,162,383

 
1,274,418

 
(112,035
)
 
(9
)%
Eliminations
(66,013
)
 
(152,127
)
 
86,114

 
 
Total Bookings
$
2,316,500

 
$
2,696,752

 
$
(380,252
)
 
(14
)%
Underground bookings in fiscal 2016 were $1.2 billion , compared to $1.6 billion in fiscal 2015 . The decrease in Underground bookings of $354.3 million , or 23% , in the current year reflected a decrease in original equipment bookings of $164.0 million , or 37% , and a decrease in service bookings of $190.3 million , or 17% . Original equipment bookings decreased in all regions except Eurasia and Latin America. The decrease in original equipment bookings was led by North America and China, which decreased by $115.3 million and $68.0 million, respectively. Service bookings decreased in all regions except Eurasia and Latin America. The decrease in service bookings was led by North America, which decreased by $197.8 million. Compared to prior year, Underground bookings in fiscal 2016 included a $95.7 million unfavorable impact of foreign currency translation, due primarily to the decline in the value of the British pound sterling and South African rand relative to the U.S. dollar.
Surface bookings in fiscal 2016 were $1.2 billion , compared to $1.3 billion in fiscal 2015 . The decrease in Surface bookings of $112.0 million , or 9% , in the current year reflected a decrease in original equipment bookings of $7.2 million , or 5% , and a

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decrease in service bookings of $104.9 million , or 9% . Original equipment bookings increased in all regions except Eurasia and North America, which decreased by $33.0 million and $6.2 million, respectively. Service bookings decreased in all regions except Eurasia. The decrease in service bookings was led by North America, which decreased by $72.2 million. Compared to prior year, Surface bookings in fiscal 2016 included a $14.0 million unfavorable impact of foreign currency translation, due primarily to the decline in the value of the South African rand, Canadian dollar and Australian dollar relative to the U.S. dollar.
Fiscal 2015 Compared With Fiscal 2014
Net Sales
The following table sets forth fiscal 2015 and 2014 net sales included in our Consolidated Statements of Operations:
In thousands
2015
 
2014
 
$ Change
 
% Change
Net Sales
 
 
 
 
 
 
 
Underground
$
1,777,865

 
$
2,078,894

 
$
(301,029
)
 
(14
)%
Surface
1,510,271

 
1,843,104

 
(332,833
)
 
(18
)%
Eliminations
(115,989
)
 
(143,688
)
 
27,699

 
 
Total
$
3,172,147

 
$
3,778,310

 
$
(606,163
)
 
(16
)%
Underground net sales in fiscal 2015 were $1.8 billion , compared to $2.1 billion in fiscal 2014 . The decrease in Underground net sales of $301.0 million , or 14% , in the current year reflected a decrease in original equipment sales of $178.0 million , or 24% , and a decrease in service sales of $123.0 million , or 9% . Original equipment sales decreased in all regions except Africa. The decrease in original equipment sales was led by China and Eurasia, which decreased by $84.7 million and $74.1 million, respectively. Service sales decreased in all regions except Eurasia and China. The decrease in service sales was led by North America and Africa, which decreased by $74.2 million and $51.8 million, respectively. Compared to the prior year, Underground net sales in fiscal 2015 included a $131.7 million unfavorable effect of foreign currency translation, due primarily to the decline in the value of the Australian dollar and South African rand relative to the U.S. dollar.
Surface net sales in fiscal 2015 were $1.5 billion , compared to $1.8 billion in fiscal 2014 . The decrease in Surface net sales of $332.8 million , or 18% , reflected a decrease in original equipment of $210.2 million , or 42% , and a decrease in service sales of $122.6 million , or 9% . Original equipment sales decreased in all regions except North America, which was flat, and China. The decrease in original equipment sales was led by Latin America, which decreased by $138.8 million. Service sales decreased in all regions except China, which was flat. The decline in service sales was led by North America, which decreased by $65.5 million. Compared to the prior year, Surface net sales in fiscal 2015 included a $42.1 million unfavorable effect of foreign currency translation, due primarily to the decline in the value of the Australian dollar relative to the U.S. dollar.
Operating (Loss) Income
The following table sets forth fiscal 2015 and 2014 operating (loss) income included in our Consolidated Statements of Operations:
 
2015
 
2014
In thousands
Operating Income (Loss)
 
 % of Net Sales
 
Operating Income (Loss)
 
% of Net Sales
Operating (Loss) Income
 
 
 
 
 
 
 
Underground
$
(1,151,659
)
 
(65
)%
 
$
285,316

 
14
%
Surface
173,739

 
12
 %
 
342,819

 
19
%
Corporate Expense
(102,746
)
 
 
 
(57,078
)
 
 
Eliminations
(28,723
)
 
 
 
(43,531
)
 
 
Total
$
(1,109,389
)
 
(35
)%
 
$
527,526

 
14
%
Underground operating loss in fiscal 2015 was $1.2 billion , or 65% of net sales, compared to operating income of $285.3 million , or 14% of net sales, in fiscal 2014 . The decrease in Underground operating income of $1.4 billion was due to impairment charges of $1.3 billion, lower sales volumes of $106.6 million, a less favorable product mix of $42.1 million and lower manufacturing cost absorption of $5.7 million. These items were partially offset by lower period costs of $29.3 million, which includes increased excess purchase accounting charges of $4.3 million, and decreased product development, selling and administrative expenses of $6.1 million, which included a $1.5 million increase in restructuring costs. Compared to the prior year, Underground operating loss in fiscal 2015 included an $18.4 million unfavorable effect of foreign currency translation, due primarily to the decline in the value of the Australian dollar and South African rand relative to the U.S. dollar.

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Surface operating income in fiscal 2015 was $173.7 million , or 12% of net sales, compared to $342.8 million , or 19% of net sales, in fiscal 2014 . The decrease in Surface operating income of $169.1 million , or 49% , was due to impairment charges of $21.3 million, lower sales volumes of $116.1 million, a less favorable product mix of $22.5 million, lower manufacturing cost absorption of $21.7 million, and higher period costs of $6.5 million. These items were partially offset by reduced product development, selling and administrative expenses of $23.3 million, which included an $8.8 million increase in restructuring costs.
Corporate expense in fiscal 2015 was $102.7 million , compared to $57.1 million in fiscal 2014 . The increase in corporate expense of $45.7 million , or 80% , was primarily due to the $46.7 million increase in mark to market pension adjustments and the $1.6 million increase in restructuring costs, partially offset by lower performance based compensation.
Product Development, Selling and Administrative Expense
Product development, selling and administrative expense in fiscal 2015 was $583.2 million , or 18% of net sales, compared to $587.3 million , or 16% of net sales, in fiscal 2014 . The decrease in product development, selling and administrative expense of $4.1 million , or 1% , was primarily driven by lower performance based compensation, favorable foreign currency impacts and cost savings from headcount reductions and other restructuring activities. These items were partially offset by the incremental expenses associated with the Company's recent acquisitions of Montabert and MTI in fiscal 2015 and fiscal 2015, respectively, an increase in bad debt expense, higher pension expense as a result of the magnitude of the fiscal 2015 mark to market adjustment, an increase in legal and professional fees and higher share-based compensation.
Goodwill Impairment Charges
The Company incurred a $1.2 billion goodwill impairment charge in fiscal 2015 . This charge was recorded by the Underground segment. See the notes to the accompanying financial statements for further information.
Restructuring and Other Impairment Charges
Restructuring and other impairment charges in fiscal 2015 were $172.4 million , compared to $21.6 million in fiscal 2014 . The increase in restructuring and other impairment charges is primarily due to the fiscal 2015 impairment charge of $139.0 million, covering other intangible assets, certain items of property, plant, and equipment and other items. In addition, there was an increase in restructuring charges as a result of the Company's continued efforts to better align the company's overall cost structure with anticipated levels of future demand.
Net Interest Expense
Net interest expense in fiscal 2015 was $53.4 million , compared to $55.3 million in fiscal 2014 . The decrease in net interest expense of $1.9 million , or 3% , was primarily due to the reduction in the borrowing spreads and commitment fees as a result of the third quarter fiscal 2014 refinancing, as well as an increased interest earned on interest bearing assets.
Loss on Early Debt Retirement
During fiscal 2015, the Company elected to redeem the entire $250.0 million aggregate principal amount of its 6.0% Senior Notes due 2016 to reduce interest expense and improve bank and credit rating leveraging metrics. The cost of redemption, including the payment of the make whole premium, was funded with a combination of cash on hand and borrowings under the Company's unsecured revolving credit facility. These borrowings were repaid in the first quarter of fiscal 2016.
Provision for Income Taxes
The provision for income taxes in fiscal 2015 was $0.9 million , compared to $134.1 million in fiscal 2014 . The effective rate was (0.1)% in fiscal 2015 , compared to 28.4% in the prior year. A net discrete tax expense of $0.2 million was recorded in fiscal 2015 , compared to a benefit of $21.4 million in fiscal 2014 . The decrease in the effective tax rate for the year, excluding discrete items, was primarily attributable to impairment charges on certain assets of the Company's Underground business segment. The discrete tax expense in fiscal 2015 was primarily attributable to the establishment of valuation allowances against the deferred tax assets of various foreign subsidiaries for which a benefit is not currently available, offset by U.S. foreign tax credits in connection with dividends received from non-U.S. subsidiaries.
Bookings
Bookings for fiscal 2015 and fiscal 2014 are as follows:

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In thousands
2015
 
2014
 
$ Change
 
% Change
Bookings
 
 
 
 
 
 
 
Underground
$
1,574,461

 
$
1,836,610

 
$
(262,149
)
 
(14
)%
Surface
1,274,418

 
1,917,994

 
(643,576
)
 
(34
)%
Eliminations
(152,127
)
 
(140,590
)
 
(11,537
)
 
 
Total Bookings
$
2,696,752

 
$
3,614,014

 
$
(917,262
)
 
(25
)%
Underground bookings in fiscal 2015 were $1.6 billion , compared to $1.8 billion in fiscal 2014 . The decrease in Underground bookings of $262.1 million , or 14% , in the current year reflected a decrease in original equipment bookings of $114.7 million , or 21% , and a decrease in service bookings of $147.4 million , or 11% . Original equipment bookings decreased in all regions except North America and Australia. The decrease in original equipment bookings was led by China, which decreased by $109.2 million. Service bookings decreased in all regions except Eurasia, which increased in part due to the acquisition of Montabert. The decrease in service bookings was led by North America, which decreased by $85.4 million. Compared to prior year, Underground bookings in fiscal 2015 included a $141.1 million unfavorable impact of foreign currency translation, due primarily to the decline in the value of the Australian dollar and South African rand relative to the U.S. dollar.
Surface bookings in fiscal 2015 were $1.3 billion , compared to $1.9 billion in fiscal 2014 . The decrease in Surface bookings of $643.6 million , or 34% , in the current year reflected a decrease in original equipment bookings of $366.7 million , or 70% , and a decrease in service bookings of $276.9 million , or 20% . Original equipment bookings decreased in all regions except Eurasia. The decrease in original equipment bookings was led by Latin America and North America, which decreased by $162.0 million and $128.9 million, respectively. Service bookings decreased in all regions except China, which was flat. The decrease in service bookings was led by North America, which decreased by $183.3 million. Compared to prior year, Surface bookings in fiscal 2015 included a $47.5 million unfavorable impact of foreign currency translation, due primarily to the decline in the value of the Australian dollar relative to the U.S. dollar.

Liquidity and Capital Resources
The following table summarizes the major elements of our working capital as of October 28, 2016 and October 30, 2015 :
In thousands
October 28, 2016
 
October 30, 2015
Accounts receivable, net
$
683,958

 
$
812,073

Inventories
814,821

 
1,007,925

Trade accounts payable
(236,787
)
 
(275,789
)
Advance payments and progress billings
(173,121
)
 
(229,470
)
Trade Working Capital
$
1,088,871

 
$
1,314,739

Other current assets
113,877

 
145,559

Short-term borrowings, including current portion of long-term obligations
(42,054
)
 
(26,321
)
Employee compensation and benefits
(91,224
)
 
(90,335
)
Accrued warranties
(40,787
)
 
(52,146
)
Other accrued liabilities
(188,591
)
 
(225,277
)
Working Capital Excluding Cash and Cash Equivalents
$
840,092

 
$
1,066,219

Cash and cash equivalents
276,709

 
102,885

Working Capital
$
1,116,801

 
$
1,169,104

We currently use trade working capital and cash flow from continuing operations as two financial measurements to evaluate the performance of our operations and our ability to meet our financial obligations. We require trade working capital investment because our direct service model requires us to maintain certain inventory levels in order to maximize our customers’ machine availability. This information also provides management with a focus on our receivable terms and collectability efforts and our ability to obtain advance payments on original equipment orders. As part of operational excellence initiatives in our purchasing and manufacturing processes, we continue to align inventory levels with customer demand and current production schedules.
Cash provided by continuing operations for fiscal 2016 was $253.6 million , compared to $355.3 million provided by continuing operations in fiscal 2015 . The decrease in cash provided by continuing operations during the year was primarily due

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to lower earnings excluding non-cash impairment charges and the collection of long-term receivables in the prior year, partially offset by increased cash from trade working capital levels.
Cash provided by investing activities for fiscal 2016 was $9.7 million , compared to $181.5 million used by investing activities in fiscal 2015 . The increase in cash from investing activities was primarily due to the payments made in the prior year for the acquisition of Montabert, the proceeds received in the current year for the sale of the steel mill business, lower capital expenditures year over year and the monetization of non-core assets in the current year.
Cash used by financing activities for fiscal 2016 was $84.7 million , compared to $325.0 million used by financing activities in fiscal 2015 . The decrease in cash used by financing activities was primarily due to the early redemption of our 2016 Notes in the fourth quarter of fiscal 2015, lower dividends and no share repurchases in the current year. These items were partially offset by our first quarter payoff of amounts previously outstanding under our Credit Agreement resulting from the previously mentioned redemption of our 2016 Notes.
During each quarter of fiscal 2016 we paid cash dividends of $0.01 per outstanding share of common stock resulting in $4.0 million in dividends paid during the fiscal year. In addition, on December 14, 2016 , our Board of Directors declared a cash dividend of $0.01 per outstanding share of common stock. This dividend will be paid on January 13, 2017 to all shareholders of record at the close of business on December 30, 2016 .
In fiscal 2017 , we expect capital spending to be between $50 million and $70 million . Capital projects will be focused on continuing investments in our global service infrastructure and operational excellence initiatives.
Restructuring Programs
Restructuring activities continued in fiscal 2016 to better align the Company's workforce and overall cost structure with current and expected future demand. For the 2017 fiscal year, total restructuring charges are anticipated to be approximately $9 million , with estimated cash costs of up to $5 million . These amounts include expected costs for activities not yet implemented.
Retiree Benefits
We sponsor pension plans in the U.S. and in other countries. The significance of the funding requirements of these plans is largely dependent on the value of the plan assets, the investment returns on the plan assets, actuarial assumptions, including discount rates and the impact of the Pension Protection Act of 2006. During fiscal 2016 , we contributed $13.7 million to our defined benefit employee pension and postretirement plans. We expect contributions to our defined benefit pension and postretirement plans to be approximately $15 million in fiscal 2017 . As of October 28, 2016 , we have a net unfunded pension and other postretirement liability of $187.6 million .
Credit Facilities and Senior Notes
On July 29, 2014 we entered into a revolving credit agreement that matures on July 29, 2019 (the "Credit Agreement"). On December 14, 2015, we entered into an amendment to our Credit Agreement that increased the maximum consolidated leverage ratio for the period beginning in the second quarter of fiscal 2016 through the first quarter of fiscal 2018. The amendment increased the permitted ratio from 3.0x to 3.5x for the second quarter of fiscal 2016, to 4.25x in the third quarter of fiscal 2016, and to 4.5x in the fourth quarter of fiscal 2016. The ratio will then begin to decline on a quarterly basis beginning in the third quarter of fiscal 2017 and return to 3.0x in the second quarter of fiscal 2018. The amendment also reduced the aggregate amount of revolving commitments of the lenders from $1.0 billion to $850.0 million and added a letter of credit sublimit of $500.0 million . In addition, we also agreed to limit priority debt (secured indebtedness and the unsecured indebtedness of our foreign subsidiaries) to 10% of consolidated net worth and to limit cash dividends to $25.0 million per year in the aggregate. We may continue to 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. 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 the consolidated

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leverage ratio exceeds the maximum amount set forth therein. As of October 28, 2016 , we were in compliance with all financial covenants of the Credit Agreement.
As of October 28, 2016 , there were no direct borrowings under the Credit Agreement. Total interest expense recognized for direct borrowings under the Credit Agreement for the years ended October 28, 2016 and October 30, 2015 was $0.5 million and $1.2 million , respectively. As of October 28, 2016 , outstanding standby letters of credit issued under the Credit Agreement, which count toward the $850.0 million credit limit, totaled $98.9 million , and our available borrowing capacity under the Credit Agreement was $751.1 million .
On July 29, 2014, we also entered into a term loan agreement that 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 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. On December 14, 2015, the Term Loan was amended to be consistent with the revolving Credit Agreement with respect to the maximum leverage ratio, restrictions on priority debt and dividends and other restricted payments. The Term Loan requires quarterly principal payments that began in fiscal 2016. Payments of $18.8 million were made on the Term Loan during the year ended October 28, 2016 . The Term Loan contains terms and conditions that are the same as the terms and conditions of the Credit Agreement. The Term Loan is guaranteed by each of our current and future material domestic subsidiaries and requires the maintenance of certain financial covenants, including leverage and interest coverage ratios. As of October 28, 2016 , 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") 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 $150.0 million aggregate principal amount of 6.625% Senior Notes due 2036. Interest on the 2036 Notes is paid semi-annually in arrears on May 15 and November 15 of each year, and the 2036 Notes are guaranteed by each of our current and future material domestic subsidiaries, as well as certain current immaterial domestic subsidiaries. The 2036 Notes were originally issued in a private placement under an exemption from registration under the Securities Act. In the second quarter of fiscal 2007, the 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 2036 Notes at a redemption price of the greater of 100% of the principal amount of the 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 0.375% .
In November 2006, we also issued $250.0 million aggregate principal amount of 6.0% Senior Notes due 2016. In October of fiscal 2015 we redeemed the entire $250.0 million aggregate principal amount of our 2016 Notes at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest up to, but excluding, the redemption date, plus a “make whole” premium calculated in accordance with the indenture. This resulted in a $14.3 million loss on early debt retirement, which was recorded in the fourth quarter of fiscal 2015.
Stock Repurchase Program
In August 2013, our Board of Directors authorized the repurchase of up to $1.0 billion in shares of our common stock until August 2016. Under the program, we were permitted to repurchase shares in the open market in accordance with applicable SEC rules and regulations. During the year ended October 28, 2016 , we did not repurchase any shares of common stock. During the year ended October 30, 2015 , we repurchased 954,580 shares of common stock for $50.0 million . Cumulatively, we repurchased 9,771,605 shares of common stock for $533.4 million . The repurchase program expired in August 2016.
Advance Payments and Progress Billings
As part of the negotiation process associated with original equipment orders and some service contacts, advance payments and progress billings are generally required from our customers to support the procurement of inventory and other resources. In addition, we have life cycle management arrangements in which our billings have exceeded our service performance. As of October 28, 2016 , advance payments and progress billings were $173.1 million . As orders are shipped or costs are incurred, the advance payments and progress billings are recognized as revenue in the consolidated financial statements.
Goodwill and Other Intangible Assets

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Finite-lived intangible assets are amortized to reflect the pattern of economic benefits consumed, which is principally the straight-line method. Intangible assets that are subject to amortization are evaluated for potential impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. No impairment was identified related to our finite-lived intangible assets as of October 28, 2016 .
Indefinite-lived intangible assets are not amortized but are evaluated for impairment annually or more frequently if events or changes occur that suggest an impairment in carrying value, such as a significant adverse change in the business climate. Due to the Company's decision to idle certain facilities in China and the continued market challenges in that region, we conducted an assessment of our indefinite-lived trademarks during fiscal 2016 using the relief-from-royalty methodology, which evaluates the estimated licensing cost of an intangible asset as an alternative to ownership. This valuation concluded that the carrying value of the Company's indefinite-lived trademarks exceeded the estimated licensing cost. As a result, the Company recorded a $6.6 million non-cash, pre-tax impairment charge to its Underground segment during fiscal 2016 . This resulted in the full impairment of our indefinite-lived intangible assets. Assumptions critical to the process include forecasted information and discount rates. This fair value determination is categorized as Level 3 in the fair value hierarchy. Refer to Note 20, Fair Value Measurements , for the definition of Level 3 inputs. This charge is recorded in the Consolidated Statement of Operations under the heading Restructuring and other impairment charges .
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill is assigned to specific reporting units, and is tested for impairment at least annually during the fourth quarter of our fiscal year or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount is greater than its fair value. Our annual goodwill impairment test was performed as of July 30, 2016. This goodwill impairment test focused on our Surface reporting unit, as all Underground goodwill was fully impaired in fiscal 2015 . After completing our step one analysis, we concluded that the estimated fair value of our Surface reporting unit exceeded its carrying value by 54% . We determined that there were no indicators of impairment since our annual impairment test was performed that would warrant an interim impairment test. Although we have concluded that there is no impairment on the goodwill of $350.8 million associated with our Surface reporting unit as of October 28, 2016 , we will continue to closely monitor this in the future considering the volatility and uncertainty in the global commodity markets that our surface mining equipment services. Should there be further market declines, particularly in Latin American copper or North American coal and iron ore, which are the most significant markets serviced by our Surface reporting unit, there would be an increased risk that we would be required to recognize impairment to the Surface reporting unit's goodwill.  
Financial Condition
Based on our available cash and our available borrowings under our credit facility, we believe our liquidity and capital resources are adequate to meet our projected needs for the next twelve months, without taking into consideration the pending Merger with Komatsu America. In this regard, we had $276.7 million in cash and cash equivalents as of October 28, 2016 , of which $122.1 million is held by foreign entities, and $751.1 million is available for borrowings under the Credit Agreement. Further, we continue to effectively manage our cash flows from operations, which includes continuing to drive working capital improvements, continuing to track the results of our cost savings measures, and continuing to institute additional measures as needed.
During fiscal 2016, the Company amended its Credit Agreement which, among other aspects, reduced the aggregate amount of revolving commitments of the lenders from $1.0 billion to $850.0 million and increased the consolidated leverage ratio from a permitted limit of 3.0x to 3.5x for the second quarter of fiscal 2016, to 4.25x in the third quarter of fiscal 2016, and to 4.5x in the fourth quarter of fiscal 2016. The ratio will then begin to decline on a quarterly basis beginning in the third quarter of fiscal 2017 and return to 3.0x in the second quarter of fiscal 2018. Even considering the commitment reduction, we expect to meet our U.S. funding needs without repatriating undistributed offshore profits that are indefinitely reinvested outside the U.S., which would result in the incurrence of additional U.S. corporate income taxes on such repatriated undistributed profits. In addition, during fiscal 2016 we reduced dividends from $0.20 per share to $0.01 per share. This action reduced fiscal 2016 annual cash outlays by approximately $75.0 million from fiscal 2015 levels. Under the Merger Agreement, we are restricted from paying dividends, other than our regular quarterly dividend in an amount of $0.01 per share. In addition, as discussed in the Credit Facilities and Senior Notes section above, the Credit Agreement constrains the extent to which we may increase our dividend rate in future quarters until the expiration of the Covenant Relief Period in our fiscal second quarter of 2018.
We expect our requirements for working capital, dividends, pension contributions, capital expenditures and principal and interest payments on our Term Loan and Senior Notes will still be adequately funded by cash on hand and continuing operations (including our monetization of non-core assets) and supplemented by short and long term borrowings, as required.
However, as discussed in the Credit Facilities and Senior Notes section above, the Credit Agreement contains certain financial tests and other covenants that limit our ability to incur additional indebtedness. Our ability to comply with financial tests may be adversely affected by changes in economic or business conditions beyond our control, especially in the current volatile market

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environment. Borrowing limitations can have material adverse effects on our liquidity and we will continue to monitor the impact of any changes in business and economic conditions on our ability to obtain financing.
Off-Balance Sheet Arrangements
We lease various assets under operating leases. The aggregate payments under operating leases as of October 28, 2016 are disclosed in the table in the Disclosures about Contractual Obligations and Commercial Commitments section below. No significant changes to lease commitments have occurred during fiscal 2016 . We have no other off-balance sheet arrangements.
Disclosures about Contractual Obligations and Commercial Commitments
The following table sets forth our contractual obligations and commercial commitments as of October 28, 2016 :
In thousands
Total
 
Fiscal 2017
 
Fiscal 2018 - 2019
 
Fiscal 2020 - 2021
 
Fiscal 2022 And Beyond
Long Term Debt*
$
1,338,096

 
$
73,063

 
$
389,876

 
$
571,126

 
$
304,031

Purchase Obligations
46,900

 
39,080

 
7,078

 
742

 

Capital Leases*
114

 
72

 
42

 

 

Operating Leases
104,496

 
31,237

 
39,421

 
18,693

 
15,145

Other Long Term Obligations**
131,915

 
11,603

 
22,096

 
21,643

 
76,573

 
$
1,621,521

 
$
155,055

 
$
458,513

 
$
612,204

 
$
395,749

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

Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is based on our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. We continually evaluate our estimates and judgments, including those related to bad debts, inventory, goodwill and intangible assets, warranty, pension and postretirement benefits and costs, income taxes and contingencies. We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
We believe the accounting policies described below are the policies that most frequently require us to make estimates and judgments, and therefore are critical to the understanding of our results of operations.
Revenue Recognition
We recognize revenue on products and services when the following criteria are satisfied: persuasive evidence of a sales arrangement exists, product delivery and transfer of title and risk and rewards has occurred or services have been rendered, the price is fixed and determinable and collectability is reasonably assured. We recognize revenue on long-term contracts, such as contracts to manufacture mining shovels, draglines, roof support systems and conveyor systems, using the percentage-of-completion method. When using the percentage-of-completion method, sales and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion. Sales and gross profit are adjusted prospectively for revisions in estimated total contract costs and contract values. Estimated losses are recognized in full when identified. Approximately 94% of our sales in fiscal 2016 were recorded at the time of shipment or delivery of the product (depending on the terms of the agreement) or performance of the service, with the remaining 6% of sales recorded using percentage-of-completion accounting.
We have life cycle management arrangements with customers to supply parts and service for terms of 1 to 17 years . These arrangements are established based on the conditions in which the equipment will be operating, the time horizon that the arrangements will cover and the expected operating cycle that will be required for the equipment. Based on this information, a model is created representing the projected costs and revenues of servicing the respective machines over the specified arrangement terms. Accounting for these arrangements requires us to make various estimates, including estimates of the relevant machine’s long-term maintenance requirements. Under these arrangements, customers are generally billed monthly based on hours of operation or units of production achieved by the equipment, with the respective deferred revenues recorded when billed. Revenue

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is recognized in the period in which parts are supplied or services provided. These arrangements are reviewed quarterly by comparison of actual results to original estimates or most recent analysis, with revenue recognition adjusted appropriately for future estimated costs. If a loss is expected at any time, the full amount of the loss is recognized immediately.
We have certain customer agreements that are considered multiple element arrangements. These agreements primarily consist of the sale of multiple pieces of equipment or equipment with subsequent installation services. These agreements are assessed for the purpose of identifying deliverables and determining whether the delivered item has value to the customer on a standalone basis and whether delivery or performance of the undelivered item is considered probable and substantially in our control. If those criteria are met, revenue is allocated to each identified unit of accounting based on our estimate of the relative selling prices of the deliverables and is recognized as the revenue recognition criteria are met for each element. The relative selling price is estimated by using recent sales transactions for similar items. The difference between the total of the separate selling prices and the total contract consideration is allocated pro-rata across each of the units of accounting included in the arrangement.
Revenue recognition involves judgments, including assessments of expected returns, the likelihood of nonpayment and estimates of expected costs and profits on long-term contracts. In determining when to recognize revenue, we analyze various factors, including the specifics of the transaction, historical experience, creditworthiness of the customer and current market and economic conditions. Changes in judgments on these factors could impact the timing and amount of revenue recognized with a resulting impact on the timing and amount of associated income.
Inventories
Inventories are carried at the lower of cost or market. The first-in, first-out method is used for all inventories, except for inventories in those jurisdictions for which the weighted average method is required by law. Cost includes direct materials, direct labor and manufacturing overhead. We evaluate the need to record valuation adjustments for inventory on a regular basis. Inventory in excess of our estimated usage requirements is written down to its estimated net realizable value. Inherent in the estimates of net realizable value are estimates related to our future manufacturing schedules, customer demand, possible alternative uses and ultimate realization of potentially excess inventory.
Goodwill and Other Intangible Assets
Finite-lived intangible assets include customer relationships, engineering drawings, patents, trademarks and unpatented technology. Finite-lived intangible assets are amortized to reflect the pattern of economic benefits consumed, which is principally the straight-line method. Intangible assets that are subject to amortization are evaluated for potential impairment whenever events or circumstances indicate that the carrying amount may not be recoverable.
No impairments were identified related to our finite-lived intangible assets as of October 28, 2016 . However, during fiscal 2015, we assessed our tangible and intangible finite-lived assets for impairment due to the prolonged suppressed global commodity markets and their related effect on the global mining investment environment. Each asset group was considered and it was determined that the cash flows of an asset group in China and a steel mill would be insufficient to support their carrying value. In connection with the evaluation of these asset groups, we developed an estimate of fair value using a discounted cash flow model. As a result of this analysis, customer relationship non-cash pre-tax impairment charges of $57.9 million and $2.1 million were recorded in fiscal 2015 by our Underground and Surface segments, respectively. These charges are recorded in the Consolidated Statement of Operations under the heading Restructuring and other impairment charges . Assumptions critical to the process included forecasted financial information, discount rates and applicable customer retention rates. This fair value determination was categorized as Level 3 in the fair value hierarchy. See Note 20, Fair Value Measurements , for the definition of Level 3 inputs. No other impairments were identified related to our finite-lived intangible assets as of October 30, 2015. 
Indefinite-lived intangible assets are composed of certain trademarks and are not amortized but are evaluated for impairment annually or more frequently if events or changes occur that suggest an impairment in carrying value, such as a significant adverse change in the business climate. Indefinite-lived intangible assets are evaluated for impairment by comparing each asset's fair value to its book value. We first determine qualitatively whether it is more likely than not that an indefinite-lived asset is impaired. If we conclude that it is more likely than not that an indefinite-lived asset is impaired, then we determine the fair value by using the discounted cash flow model based on royalties estimated to be derived in the future use of the asset were we to license the use of the indefinite-lived assets.
Due to the Company's decision to idle certain facilities in China and the continued market challenges in that region, we conducted an assessment of our indefinite-lived trademarks in fiscal 2016 using the relief-from-royalty methodology, which evaluates the estimated licensing cost of an intangible asset as an alternative to ownership. This valuation concluded that the carrying value of the Company's indefinite-lived trademarks exceeded the estimated licensing cost. As a result, the Company recorded a $6.6 million non-cash, pre-tax impairment charge to its Underground segment in the year ended October 28, 2016.

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This charge is recorded in the Consolidated Statement of Operations under the heading Restructuring and other impairment charges . It resulted in the full impairment of our indefinite-lived intangible assets. Assumptions critical to the process include forecasted information and discount rates. This fair value determination is categorized as Level 3 in the fair value hierarchy. Refer to Note 20, Fair Value Measurements , for the definition of Level 3 inputs.
In addition, we assessed our indefinite-lived trademarks in fiscal 2015 due to the prolonged suppressed global commodity markets and their related effect on the global mining investment environment. We developed an estimate of fair value using a similar process as the process described above. As a result, the Company recorded a $10.8 million non-cash, pre-tax impairment charge to its Underground segment in the year ended October 30, 2015. This charge is recorded in the Consolidated Statement of Operations under the heading Restructuring and other impairment charges
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill is assigned to specific reporting units, which we have identified as our operating segments, and is tested for impairment at least annually, during the fourth quarter of our fiscal year, or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount is greater than its fair value. Goodwill is evaluated for impairment by comparing the fair value of each of our reporting units to their book value. We generally first determine, based on a qualitative assessment, whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we then determine the fair value of the reporting unit based on a discounted cash flow model. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired. If the carrying value of the reporting unit exceeds its fair value, the impairment test continues by comparing the carrying value of the reporting unit’s goodwill to the implied fair value of goodwill. The implied fair value of goodwill is determined by deducting the fair value of a reporting unit’s identifiable assets and liabilities from the fair value of the reporting unit as a whole, as if that reporting unit had just been acquired and the fair value of the individual assets acquired and liabilities assumed were being determined initially. If goodwill is impaired, we recognize a non-cash impairment loss based on the amount by which the book value of goodwill exceeds its implied fair value.
Our fiscal 2016 annual goodwill impairment analysis focused on our Surface reporting unit, as all Underground goodwill was fully impaired in fiscal 2015. After completing our step one analysis using a discounted cash flow model, we concluded that the estimated fair value of our Surface reporting unit exceeded its carrying value by 54% . Although we have concluded that there is no impairment on the goodwill of $350.8 million associated with our Surface reporting unit as of October 28, 2016 , we will continue to closely monitor this in the future considering the volatility and uncertainty in the global commodity markets that our surface mining equipment services. Should there be further market declines, particularly in Latin American copper or North American coal and iron ore, which are the most significant markets serviced by our Surface reporting unit, there would be an increased risk that we would be required to recognize impairment to the Surface reporting unit's goodwill.
In addition, in fiscal 2015 we concluded that an indicator was present that suggested impairment may exist for our goodwill, as our total shareholders’ equity exceeded our market capitalization due to the prolonged suppressed global commodity markets, their related effect on the global mining investment environment and the resulting impact on our market capitalization. Based on this indicator of impairment, we worked with a third party appraisal firm to perform an analysis for impairment of goodwill using a discounted cash flow model. The result of our analysis for the Surface reporting unit was that the fair value of the reporting unit exceeded carrying value. However, we determined that the estimated fair value of our Underground reporting unit was lower than the carrying value of the reporting unit, and we recorded a non-cash, pre-tax goodwill impairment charge of $1.2 billion . This impairment charge represents a complete impairment of goodwill in the Underground reporting unit, and it is recorded in the Consolidated Statement of Operations under the heading Goodwill impairment charges . Assumptions critical to the process included forecasted financial information and discount rates. This fair value determination was categorized as Level 3 in the fair value hierarchy. See Note 20, Fair Value Measurements , for the definition of Level 3 inputs.
The process of evaluating the potential impairment of goodwill and other intangible assets is highly subjective and requires significant judgment at many points during the analysis. Qualitative assessments regarding goodwill and other intangible assets involve a high degree of judgment and can entail subjective considerations. The discounted cash flow model involves many assumptions, including operating results forecasts and discount rates. Inherent in the operating results forecasts are certain assumptions regarding revenue growth rates, projected cost saving initiatives and projected long-term growth rates in the determination of terminal values.
Accrued Warranties
We provide for the estimated costs that may be incurred under product warranties to remedy deficiencies of quality or performance of our products. Warranty costs are accrued at the time revenue is recognized. These product warranties extend over either a specified period of time, units of production or machine hours depending on the product subject to the warranty. We accrue a provision for estimated future warranty costs based on the historical relationship of warranty costs to sales. We periodically

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review the adequacy of the accrual for product warranties and adjust the warranty percentage and accrued warranty reserve for actual experience as necessary.
Pension and Postretirement Benefits and Costs
We recognize actuarial gains and losses in the statement of operations immediately. With the immediate recognition of actuarial gains and losses, the gains and losses from these plans are recognized in our results of operations through an annual adjustment that is recorded in the fourth quarter of each year, or more frequently should a re-measurement event occur. The remaining components of net periodic benefit costs, primarily service and interest costs and the expected return on plan assets, are recorded on a quarterly basis. For purposes of calculating the expected return on plan assets, we use the actual fair value of plan assets to adjust for changes in actual versus expected rates of return. The impact of these changes is recorded annually as part of the adjustment described above. Collectively, the immediate recognition of actuarial gains and losses and the immediate recognition of actual versus expected rates of return on plan assets are referred to herein as the "mark to market pension and postretirement plan adjustment."
Pension and other postretirement benefit costs and liabilities are dependent on assumptions used in calculating such amounts. The primary assumptions include discount rates, expected returns on plan assets, mortality rates and rates of compensation increases, as discussed below:
Discount rates: We generally estimate the discount rate for pension and other postretirement benefit obligations using a process based on a hypothetical investment in a portfolio of high-quality bonds that approximates the estimated cash flows of the pension and other postretirement benefit obligations. We believe this approach permits a matching of future cash outflows related to benefit payments with future cash inflows associated with bond coupons and maturities.
Expected returns on plan assets: Our expected return on plan assets is derived from reviews of asset allocation strategies and anticipated future long-term performance of individual asset classes, weighted by the allocation of our plan assets. Our analysis gives appropriate consideration to recent plan performance and historical returns; however, the assumptions are primarily based on long-term, prospective rates of return.
Mortality rates: Mortality rates used for fiscal 2015 balance sheet and fiscal 2016 benefit cost in the US are based on the RP-2014 mortality table, adjusted for bottom-quartile benefits, in conjunction with an adjusted version of mortality improvement scale MP-2014. Fiscal 2016 balance sheet mortality rates are based on the same RP-2014 table, in conjunction with the updated mortality improvement scale MP-2016 (with certain adjustments). Adoption of the modified MP-2016 mortality improvement scale had an $11.0 million income impact to our pension and postretirement plans. Various factors such as the Company’s historical plan experience levels and the development of new tables by the Society of Actuaries are considered when evaluating the mortality assumption.
Rates of compensation increases: The rates of compensation increases reflect our long-term actual experience and its outlook, including consideration of expected rates of inflation.
As mentioned above, actual results that differ from these assumptions are immediately recognized in our results of operations in an annual adjustment that is recorded in the fourth quarter of each year, or more frequently should a re-measurement event occur. While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect our pension and other postretirement plan obligations and future expense. As such, a 0.25% change in the discount rate and the expected return on net assets would have the following effects on pension expense and the projected benefit obligation as of and for the fiscal year ended October 28, 2016 :

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0.25% Increase
 
0.25% Decrease
In thousands
Discount rate
 
Expected return on net assets
 
Discount rate
 
Expected return on net assets
U.S. Pension Plans:
 
 
 
 
 
 
 
Net pension expense (benefit)
$
2,665

 
$
(2,508
)
 
$
(2,997
)
 
$
2,508

Projected (decrease) increase in benefit obligation
(37,287
)
 

 
24,503

 

Non U.S. Pension Plans:
 
 
 
 
 
 
 
Net pension expense (benefit)
1,391

 
(1,384
)
 
(1,572
)
 
1,384

Projected (decrease) increase in benefit obligation
(25,571
)
 

 
27,275

 

Other Postretirement Benefit Plans:
 
 
 
 
 
 
 
Net pension expense (benefit)
75

 
(21
)
 
(81
)
 
21

Projected (decrease) increase in benefit obligation
(503
)
 

 
524

 

Income Taxes
Deferred taxes are accounted for under the asset and liability method whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using current statutory tax rates. Deferred income tax provisions are based on changes in the deferred tax assets and liabilities from period to period. Additionally, we analyze our ability to recognize the net deferred tax assets created in each jurisdiction in which we operate to determine if valuation allowances are necessary based on the “more likely than not” criteria.
As required under the application of fresh start accounting, the release of pre-emergence tax valuation reserves was not recorded in the statement of operations but instead was treated first as a reduction of excess reorganization value until exhausted, then intangible assets until exhausted, and thereafter reported as additional paid in capital. Consequently, a net tax charge will be incurred in future years when these tax assets are utilized. We will continue to monitor the appropriateness of the existing valuation allowances and determine annually the amount of valuation allowances that are required to be maintained. As of October 28, 2016 , there were $62.4 million of valuation allowances against pre-emergence net operating loss carryforwards. All future reversals of pre-emergence valuation allowances will be recorded to additional paid in capital.
In accordance with FASB Accounting Standards Codification 740, Income Taxes , each interim period is considered integral to the annual period and tax expense is measured using an estimated annual effective tax rate. An entity is required to record income tax expense each quarter based on its best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis, as adjusted for discrete taxable events that occur during the interim period. If, however, the entity is unable to reliably estimate its annual effective tax rate due to the Company’s inability to forecast income by jurisdiction or as a result of rate volatility caused by minor changes in income when projecting near break-even earnings, then the actual effective tax rate for the year-to-date period may be the best annual effective tax rate estimate. For the interim periods in fiscal 2016, the Company determined that the estimated annual effective rate method would not provide a reliable estimate due to the volatility of income tax (benefit) expense resulting from modest changes in forecasted annual pre-tax results. Therefore, the Company recorded a tax benefit for these interim periods based on the actual effective rate ( i.e., the “cut-off” method). The effective tax rate for the interim periods in fiscal 2015 was calculated based on an estimated annual effective tax rate in addition to discrete items.

New Accounting Pronouncements
Our new accounting pronouncements are set forth under Item 15, Exhibits and Financial Statements Schedules , and are incorporated herein by reference.
 
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to fluctuations in earnings and cash flows due to volatility in interest rates, commodity prices and foreign currency exchange rates. We monitor our risks on a continuous basis and generally enter into derivative instruments to minimize our foreign currency exposures. We do not engage in speculation in our derivative strategy. We assess effectiveness of our hedging relationships on an ongoing basis to ensure the transactions are highly effective in offsetting changes in cash flows or fair values of the hedged item.

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Interest Rate Risk
We are exposed to market risk from changes in interest rates on long-term debt obligations. We have a combination of fixed and variable rate debt (see Note 11, Borrowings and Credit Facilities ), and interest rate movements impact the value of fixed rate debt and cash flows on variable-rate debt. As of October 28, 2016 , we were not party to any interest rate derivative contracts.
Commodity Price Risk
We purchase certain raw materials, including steel and copper, that are subject to price volatility caused by systematic risks. Although future movements in raw material prices are unpredictable, we manage this risk through periodic purchases of raw materials and passing some or all of our price increases to our customers. As of October 28, 2016 , we were not a party to any material commodity forward contracts.
Foreign Currency Risk
We have a risk-averse foreign currency exchange risk management policy under which significant exposures that impact earnings and cash flows are hedged. Exposures that impact only equity or do not have a cash flow impact are generally not hedged with derivatives. We hedge two categories of foreign exchange exposures: accounts receivable and accounts payable denominated in a non-functional foreign currency, which include future committed receipts or payments, and certain entity net balance sheet accounts denominated in a non-functional currency. These exposures normally arise from the import and export of goods and from intercompany trade and lending activity.
Assets and liabilities of international operations that have a functional currency that is not the U.S. dollar are translated into U.S. dollars at year-end exchange rates and revenue and expense items are translated using weighted average exchange rates. Any adjustments arising on translation are included in shareholders’ equity as an element of accumulated other comprehensive loss and are not hedged.
Assets and liabilities of operations which have the U.S. dollar as their functional currency, but which maintain their accounting records in local currency, have their values remeasured into U.S. dollars at year-end exchange rates, except for non-monetary items for which historical rates are used. Exchange gains or losses arising on remeasurement of the values into U.S. dollars are recognized in Cost of sales in our Consolidated Statements of Operations.
Exchange gains or losses incurred on transactions conducted by one of our subsidiaries in a currency other than the subsidiary’s functional currency are normally reflected in Cost of sales in our Consolidated Statements of Operations. An exception is made when the transaction is a long-term intercompany loan that is not expected to be repaid in the foreseeable future, in which case the exchange gains or losses are included in shareholders’ equity as an element of accumulated other comprehensive loss.
Pre-tax foreign exchange losses included in operating income were $15.1 million in 2016 . All foreign exchange derivatives as of October 28, 2016 were in the form of forward exchange contracts executed over the counter. The following table shows the fair value of our forward exchange contracts as of October 28, 2016 in dollar equivalent terms:
 
Fair Value
In thousands
Buy
 
Sell
Australian Dollar
$
(56
)
 
$
(41
)
Brazilian Real
1,075

 
(1,905
)
British Pound Sterling
(1,368
)
 
738

Canadian Dollar
(922
)
 
1,695

Chilean Peso
2,193

 
(4,989
)
Euro
862

 
(442
)
Peruvian Sol
(35
)
 
(157
)
Polish Zloty
25

 

South African Rand
2

 

U.S. Dollar
3,073

 
(13,808
)
Total
$
4,849

 
$
(18,909
)

Item 8. Financial Statements and Supplementary Data

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Table of Contents

Our Consolidated Financial Statements are included within Item 15, Exhibits and Financial Statement Schedules, beginning on page F-1.
Unaudited Quarterly Financial Data
The following table sets forth certain unaudited quarterly financial data for our fiscal years ended October 28, 2016 and October 30, 2015 .
 
2016 Fiscal Quarter Ended
In thousands, except per share amounts
January 29
 
April 29
 
July 29
 
October 28 (1)
Net sales
$
526,300

 
$
601,985

 
$
586,552

 
$
656,563

Gross profit
88,044

 
143,506

 
131,958

 
152,318

Operating (loss) income
(45,087
)
 
(4,325
)
 
(5,169
)
 
13,169

Net (loss) income
(40,221
)
 
(9,839
)
 
128

 
(8,447
)
Basic (loss) earnings per share:
 
 
 
 
 
 
 
(Loss) income from continuing operations
$
(0.41
)
 
$
(0.16
)
 
$
0.00

 
$
(0.09
)
Income from discontinued operations

 
0.06

 

 

Net (loss) income
$
(0.41
)
 
$
(0.10
)
 
$
0.00

 
$
(0.09
)