PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
JOY GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands except per share amounts)
| | | Quarter Ended | | | Nine Months Ended | |
| | | July 29, | | | July 30, | | | July 29, | | | July 30, | |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| | | | | | | | | | | | | |
| Net sales | | $ | 1,136,352 | | | $ | 850,002 | | | $ | 3,068,613 | | | $ | 2,475,446 | |
| Costs and expenses: | | | | | | | | | | | | | | | | |
| Cost of sales | | | 739,626 | | | | 560,217 | | | | 2,013,615 | | | | 1,653,427 | |
| Product development, selling and administrative expenses | | | 165,325 | | | | 118,262 | | | | 438,985 | | | | 354,547 | |
| Other income | | | (4,591 | ) | | | (903 | ) | | | (7,839 | ) | | | (3,054 | ) |
| | | | | | | | | | | | | | | | | |
| Operating income | | | 235,992 | | | | 172,426 | | | | 623,852 | | | | 470,526 | |
| Interest income | | | 3,438 | | | | 3,508 | | | | 11,595 | | | | 9,272 | |
| Interest expense | | | (9,470 | ) | | | (7,447 | ) | | | (25,195 | ) | | | (22,137 | ) |
| Reorganization items | | | - | | | | (145 | ) | | | (35 | ) | | | (740 | ) |
| | | | | | | | | | | | | | | | | |
| Income from continuing operations before income taxes | | | 229,960 | | | | 168,342 | | | | 610,217 | | | | 456,921 | |
| Provision for income taxes | | | 58,155 | | | | 49,839 | | | | 174,208 | | | | 141,760 | |
| Income from continuing operations | | | 171,805 | | | | 118,503 | | | | 436,009 | | | | 315,161 | |
| Income from discontinued operations, net of income taxes | | | 1,300 | | | | - | | | | 1,300 | | | | - | |
| | | | | | | | | | | | | | | | | |
| Net income | | $ | 173,105 | | | $ | 118,503 | | | $ | 437,309 | | | $ | 315,161 | |
| | | | | | | | | | | | | | | | | |
| Basic earnings per share: | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | 1.63 | | | $ | 1.15 | | | $ | 4.16 | | | $ | 3.06 | |
| Discontinued operation | | | 0.01 | | | | - | | | | 0.01 | | | | - | |
| Net Income | | $ | 1.64 | | | $ | 1.15 | | | $ | 4.17 | | | $ | 3.06 | |
| | | | | | | | | | | | | | | | | |
| Diluted earnings per share: | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | 1.61 | | | $ | 1.13 | | | $ | 4.09 | | | $ | 3.01 | |
| Discontinued operation | | | 0.01 | | | | - | | | | 0.01 | | | | - | |
| Net Income | | $ | 1.62 | | | $ | 1.13 | | | $ | 4.10 | | | $ | 3.01 | |
| | | | | | | | | | | | | | | | | |
| Dividends per share | | $ | 0.175 | | | $ | 0.175 | | | $ | 0.525 | | | $ | 0.525 | |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | 105,204 | | | | 103,333 | | | | 104,803 | | | | 103,084 | |
| Diluted | | | 106,735 | | | | 104,964 | | | | 106,475 | | | | 104,732 | |
See Notes to Condensed Consolidated Financial Statements.
JOY GLOBAL INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
| | | July 29, | | | October 29, | |
| | | 2011 | | | 2010 | |
| | | (Unaudited) | | | (Restated) | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 443,092 | | | $ | 815,581 | |
| Accounts receivable, net | | | 852,376 | | | | 674,135 | |
| Inventories, net | | | 1,240,189 | | | | 764,945 | |
| Other current assets | | | 166,526 | | | | 107,266 | |
| Current assets of discontinued operations | | | 351,579 | | | | - | |
| Total current assets | | | 3,053,762 | | | | 2,361,927 | |
| | | | | | | | | |
| Property, plant and equipment, net | | | 504,384 | | | | 378,024 | |
| Investment, at fair value | | | 134,814 | | | | - | |
| Other intangible assets, net | | | 403,283 | | | | 178,831 | |
| Goodwill | | | 393,657 | | | | 125,686 | |
| Deferred income taxes (see footnote 2) | | | 141,551 | | | | 149,654 | |
| Other non-current assets | | | 65,827 | | | | 76,891 | |
| Non-current assets of discontinued operations | | | 233,080 | | | | - | |
| Total assets | | $ | 4,930,358 | | | $ | 3,271,013 | |
| | | | | | | | | |
| | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Short-term notes payable, including current portion of long-term obligations | | $ | 33,700 | | | $ | 1,550 | |
| Trade accounts payable | | | 357,620 | | | | 291,742 | |
| Employee compensation and benefits | | | 129,628 | | | | 128,132 | |
| Advance payments and progress billings | | | 790,570 | | | | 376,300 | |
| Accrued warranties | | | 79,223 | | | | 62,351 | |
| Other accrued liabilities | | | 178,611 | | | | 163,249 | |
| Current liabilities of discontinued operations | | | 200,740 | | | | - | |
| Total current liabilities | | | 1,770,092 | | | | 1,023,324 | |
| | | | | | | | | |
| Long-term obligations | | | 873,366 | | | | 396,326 | |
| Accrued pension costs | | | 325,964 | | | | 428,348 | |
| Other liabilities | | | 82,565 | | | | 80,649 | |
| | | | | | | | | |
| Total liabilities | | | 3,051,987 | | | | 1,928,647 | |
| | | | | | | | | |
| Shareholders’ equity (see footnote 2) | | | 1,878,371 | | | | 1,342,366 | |
| | | | | | | | | |
| Total liabilities and shareholders’ equity | | $ | 4,930,358 | | | $ | 3,271,013 | |
See Notes to Condensed Consolidated Financial Statements.
JOY GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
| | | Nine Months Ended | |
| | | July 29, | | | July 30, | |
| | | 2011 | | | 2010 | |
| Operating Activities: | | | | | | |
| Income from continuing operations | | $ | 436,009 | | | $ | 315,161 | |
| Income from discontinued operations | | | 1,300 | | | | - | |
| Adjustments to continuing operations: | | | | | | | | |
| Depreciation and amortization | | | 50,669 | | | | 44,870 | |
| Change in deferred income taxes | | | (11,883 | ) | | | 6,001 | |
| Excess income tax benefit from share-based payment awards | | | (17,837 | ) | | | (5,446 | ) |
| Contributions to retiree benefit plans | | | (134,352 | ) | | | (73,876 | ) |
| Retiree benefit plan expense | | | 38,429 | | | | 40,252 | |
| Other, net | | | 18,369 | | | | 7,192 | |
| Changes in Working Capital Items Attributed to Continuing Operations, net of acquisition: | | | | | | | | |
| Accounts receivable, net | | | (64,902 | ) | | | (7,231 | ) |
| Inventories, net | | | (259,180 | ) | | | (21,472 | ) |
| Other current assets | | | (41,574 | ) | | | 1,067 | |
| Trade accounts payable | | | 18,894 | | | | 50,712 | |
| Employee compensation and benefits | | | (12,169 | ) | | | (7,509 | ) |
| Advance payments and progress billings | | | 303,475 | | | | 30,309 | |
| Other accrued liabilities | | | 22,186 | | | | (7,101 | ) |
| Net cash provided by operating activities – continuing operations | | | 346,134 | | | | 372,929 | |
| Net cash used by operating activities – discontinued operations | | | (2,444 | ) | | | - | |
| Net cash provided by operating activities | | | 343,690 | | | | 372,929 | |
| Investing Activities: | | | | | | | | |
| Property, plant and equipment acquired | | | (75,189 | ) | | | (51,325 | ) |
| Investment in International Mining Machinery shares | | | (140,613 | ) | | | - | |
| Acquisition of LeTourneau net of cash acquired | | | (1,041,161 | ) | | | - | |
| Other, net | | | 2,514 | | | | (1,614 | ) |
| Net cash used by investing activities – continuing operations | | | (1,254,449 | ) | | | (52,939 | ) |
| Net cash used by investing activities – discontinued operations | | | (361 | ) | | | - | |
| Net cash used by investing activities | | | (1,254,810 | ) | | | (52,939 | ) |
| Financing Activities: | | | | | | | | |
| Share-based payment awards | | | 70,426 | | | | 24,187 | |
| Dividends paid | | | (54,870 | ) | | | (54,003 | ) |
| Change in short and long-term obligations, net | | | 508,861 | | | | (13,085 | ) |
| Financing fees | | | (9,435 | ) | | | - | |
| Net cash provided (used) by financing activities – continuing operations | | | 514,982 | | | | (42,901 | ) |
| Net cash provided (used) by financing activities – discontinued operations | | | - | | | | - | |
| Net cash provided (used) by financing activities | | | 514,982 | | | | (42,901 | ) |
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | | | 23,649 | | | | (132 | ) |
| (Decrease) Increase in Cash and Cash Equivalents | | | (372,489 | ) | | | 276,957 | |
| Cash and Cash Equivalents at Beginning of Period | | | 815,581 | | | | 471,685 | |
| Cash and Cash Equivalents at End of Period | | $ | 443,092 | | | $ | 748,642 | |
See Notes to Condensed Consolidated Financial Statements.
| 1. | Description of Business |
Joy Global Inc. (the “Company”) is a worldwide leader in high productivity mining solutions, and we manufacture and market original equipment and aftermarket parts and services for both underground and surface mining and certain industrial applications. Our equipment is used in major mining regions throughout the world to mine coal, copper, iron ore, oil sands and other minerals. We operate in two business segments: underground mining machinery (Joy Mining Machinery or “Joy”) and surface mining equipment (P&H Mining Equipment or “P&H”). Joy is a major manufacturer of underground mining equipment for the extraction of coal and other bedded minerals and offers comprehensive service locations near major mining regions worldwide. P&H is a major producer of surface mining equipment for the extraction of ores and minerals and provides extensive operational support for many types of equipment used in surface mining.
Acquisition of LeTourneau Technologies, Inc.
On June 22, 2011, we completed the acquisition of LeTourneau Technologies, Inc. (“LeTourneau”). LeTourneau operates in three businesses, mining equipment, steel products and drilling products. Subsequent to the acquisition we entered into a definitive agreement with Cameron International Corporation (“Cameron”) to sell the drilling products business of LeTourneau. The results of operations for LeTourneau have been included in the accompanying condensed consolidated financial statements from the acquisition date forward, with results of the drilling products business being included as results of discontinued operations while the mining equipment and steel products business results are included in continuing operations as part of the surface mining equipment segment.
We purchased all of the outstanding shares of LeTourneau. The preliminary purchase price for the acquisition was as follows:
| (in thousands) | | | |
| Cash consideration | | $ | 1,100,000 | |
| Working capital purchase price adjustments | | | (54,346 | ) |
| | | $ | 1,045,654 | |
The final purchase price is pending and is based upon the level of net working capital transferred at closing. The preliminary allocation of the purchase price to the assets acquired and liabilities assumed is based upon the estimated fair values at the date of acquisition. The fair values of the assets and liabilities included in the table below are preliminary and subject to change principally as we are currently in the process of obtaining third-party valuations of assets acquired and liabilities assumed.
The excess of the purchase price over the net tangible and identifiable intangible assets is reflected as goodwill. The amount allocated to intangible assets and goodwill for tax purposes is expected to be tax deductible as a result of our election under Section 338(h) (10) of the Internal Revenue Code. The following table summarizes the preliminary estimates of fair value of the assets acquired and the liabilities assumed as of the acquisition date:
| (in thousands) | | | |
| Assets Acquired: | | | |
| Cash and cash equivalents | | $ | 4,714 | |
| Accounts receivable | | | 57,237 | |
| Inventories | | | 199,214 | |
| Other current assets | | | 187 | |
| Current assets of discontinued operations | | | 330,268 | |
| Property, plant and equipment | | | 85,609 | |
| Other intangible assets and goodwill | | | 488,162 | |
| Other non-current assets | | | 535 | |
| Non-current assets of discontinued operations | | | 234,240 | |
| Total assets acquired | | | 1,400,166 | |
| | | | | |
| Liabilities Assumed: | | | | |
| Accounts payable | | | (37,161 | ) |
| Employee compensation and benefits | | | (10,576 | ) |
| Advance payments and progress billings | | | (97,228 | ) |
| Other accrued liabilities | | | (20,039 | ) |
| Current liabilities of discontinued operations | | | (189,508 | ) |
| Total liabilities assumed | | | (354,512 | ) |
| | | $ | 1,045,654 | |
The fair value for acquired assets was primarily determined based upon discounted expected cash flows. Of the $488.2 million of intangible assets and goodwill, $232.0 million has been preliminarily assigned to intangible assets which are being amortized. The determination of the useful life was based upon historical experience, economic factors, and future cash flows of the assets acquired.
The results of LeTourneau have been included in the condensed consolidated financial statements since the date of acquisition. For the six-week period, the mining equipment and steel products businesses of LeTourneau combined had net sales of $43.3 million and net income of $6.3 million. We incurred $8.6 million of acquisition costs related to LeTourneau.
The following unaudited pro forma financial information for the three and nine months ended July 29, 2011 and July 30, 2010 reflect the results of continuing operations as if the acquisition had been completed on October 30, 2010 and October 31, 2009, respectively. Pro forma adjustments have been made for changes in depreciation and amortization expenses related to the valuation of the acquired fixed and intangible assets at fair value, the elimination of non-recurring items, the addition of incremental costs related to debt used to finance the acquisition, and the tax benefits related to the increased costs.
| | | Quarter Ended | | | Nine Months Ended | |
| | | July 29, | | | July 30, | | | July 29, | | | July 30, | |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| Net sales | | $ | 1,203,786 | | | $ | 922,202 | | | $ | 3,284,766 | | | $ | 2,641,619 | |
| Income from continuing operations | | $ | 175,015 | | | $ | 124,192 | | | $ | 446,593 | | | $ | 318,915 | |
| Basic earnings per share from continuing operatons | | $ | 1.66 | | | $ | 1.20 | | | $ | 4.26 | | | $ | 3.09 | |
| Diluted earnings per share from continuing operatons | | $ | 1.64 | | | $ | 1.18 | | | $ | 4.19 | | | $ | 3.05 | |
The unaudited pro forma financial information is presented for information purposes only. It is not necessarily indicative of what our financial position or results of operations actually would have been had we completed the acquisition at the dates indicated, nor does it purport to project the future financial position or operating results of the combined company.
Discontinued operations of LeTourneau
On August 29, 2011 we entered into a definitive agreement with Cameron to sell the drilling products business purchased from LeTourneau for $375.0 million in cash, subject to a post-closing working capital adjustment. We expect to close the transaction following receipt of necessary regulatory approvals, and satisfaction of customary closing conditions, which is expected to occur within 60 days of the agreement date. The drilling products business has been reflected as a discontinued operation and all assets and liabilities of the segment have been reflected as such in the Condensed Consolidated Balance Sheet and all results of operations have been reflected as discontinued operations in the Condensed Consolidated Statement of Income.
The operating results of the discontinued operations included in the consolidated financial statements for the three months and nine months ended July 29, 2011 follow:
| (in thousands) | | | |
| Net sales | | $ | 19,536 | |
| Income before income taxes | | | 1,941 | |
| Provision for income taxes | | | 641 | |
| Income from discontinued operations, net of tax | | $ | 1,300 | |
The following are the assets and liabilities of the discontinued operations as of July 29, 2011:
| | | July 29, | |
| (in thousands) | | 2011 | |
| Accounts receivable, net | | $ | 49,399 | |
| Inventories | | | 274,674 | |
| Other current assets | | | 27,506 | |
| Total current assets of discontinued operations | | $ | 351,579 | |
| | | | | |
| Property, plant and equipment, net | | $ | 116,528 | |
| Other intangible assets and goodwill | | | 115,834 | |
| Other non-current assets | | | 718 | |
| Total non-current assets of discontinued operations | | $ | 233,080 | |
| | | | | |
| Accounts payable | | $ | 52,536 | |
| Employee compensation and benefits | | | 12,709 | |
| Advance payments and progress billings | | | 102,043 | |
| Other accrued liabilities | | | 33,452 | |
| Total current liabilities of discontinued operations | | $ | 200,740 | |
The Condensed Consolidated Financial Statements presented in this quarterly report on Form 10-Q are unaudited and have been prepared by us in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. In our opinion, all adjustments necessary for the fair presentation on a going concern basis of the results of operations, cash flows and financial position for all periods presented have been made. All adjustments made are of a normal recurring nature. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts could differ from the estimates.
These financial statements should be read in conjunction with the financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended October 29, 2010. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.
Total shareholders’ equity and deferred income taxes have been adjusted by $13.0 million for a change in the deferred tax asset valuation allowance originally recorded in 2006.
We enter into derivative contracts, primarily foreign currency forward contracts, to hedge the risks of certain identified and anticipated transactions in currencies other than the functional currency of the respective operating unit. The types of risks hedged are those arising from the variability of future earnings and cash flows caused by fluctuations in foreign currency exchange rates. We have designated substantially all of these contracts as cash flow hedges. These contracts are for forecasted transactions and committed receivables and payables denominated in foreign currencies and are not entered into for speculative purposes.
We are exposed to certain foreign currency risks in the normal course of our global business operations. For derivative contracts that are designated and qualify for a cash flow hedge, the effective portion of the gain or loss of the derivative contract is recorded as a component of other comprehensive income, net of tax. This amount is reclassified into the income statement on the line associated with the underlying transaction for the period(s) in which the hedged transaction affects earnings. The amounts recorded in accumulated other comprehensive income for existing cash flow hedges are generally expected to be reclassified into earnings within one year and all of the existing hedges will be reclassified into earnings by October 2012. Ineffectiveness related to these derivative contracts was recorded in the Consolidated Statement of Income as a gain of $0.3 million and $1.0 million for the quarters ended July 29, 2011 and July 30, 2010, respectively. Ineffectiveness related to these derivative contracts was recorded in the Consolidated Statement of Income as a gain of $0.6 million and a gain of $3.7 million for the nine months ended July 29, 2011 and July 30, 2010, respectively.
For derivative contracts that are designated and qualify as a fair value hedge, gain or loss is recorded in the Consolidated Statement of Income under the heading Cost of Sales. For the quarters ended July 29, 2011 and July 30, 2010 we recorded a $2.3 million loss and a $0.1 million gain, respectively, in the Consolidated Statement of Income related to fair value hedges which was offset by foreign exchange fluctuations of the underlying receivables. For the nine months ended July 29, 2011 and July 30, 2010 we recorded a loss of $0.7 million and $0.1 million, respectively, in the Consolidated Statement of Income related to fair value hedges which was offset by foreign exchange fluctuations of the underlying receivables.
The following table summarizes the effect of cash flow hedges on the Consolidated Statement of Income:
| In thousands | | Effective Portion | |
| | | | | | | | |
| | | | | Location of | | Amount of | |
| | | Amount of | | Gain/(Loss) | | Gain/(Loss) | |
| Derivative | | Gain/(Loss) | | Reclassified | | Reclassified | |
| Hedging | | Recognized | | from AOCI | | from AOCI | |
| Relationship | | in OCI | | into Earnings | | into Earnings | |
| | | | | | | | |
| | | | | | | | |
| Quarter ended July 29, 2011 | | | | | | | |
| | | | | | | | | | |
| Foreign currency | | | | | | | | | |
| forward contracts | | | $ | 2,945 | | Cost of sales | | | $ | 413 | |
| | | | | | | Sales | | | | 456 | |
| | | | | | | | | | | | |
| Nine months ended July 29, 2011 | | | | | | | |
| | | | | | | | | | | | |
| Foreign currency | | | | | | | | | | | |
| forward contracts | | | $ | 9,392 | | Cost of sales | | | $ | 3,357 | |
| | | | | | | Sales | | | | 4,039 | |
| Quarter ended July 30, 2010 | | | | | | | |
| | | | | | | | | | | | |
| Foreign currency | | | | | | | | | | | |
| forward contracts | | | $ | 11,529 | | Cost of sales | | | $ | (7,175 | ) |
| | | | | | | Sales | | | | 3,019 | |
| | | | | | | | | | | | |
| Nine months ended July 30, 2010 | | | | | | | |
| | | | | | | | | | | | |
| Foreign currency | | | | | | | | | | | |
| forward contracts | | | $ | 6,397 | | Cost of sales | | | $ | (7,333 | ) |
| | | | | | | Sales | | | | 3,876 | |
We are exposed to credit risk in the event of nonperformance by counterparties to the forward contracts. The contract amount, along with other terms of the forward, determines the amount and timing of amounts to be exchanged and the contract is generally subject to credit risk only when the contract has a positive fair value. We currently have a concentration of these contracts with Bank of America, N.A.
Forward exchange contracts are entered into to protect the value of forecasted transactions and committed future foreign currency receipts and disbursements and consequently any market-related loss on the forward contract would be offset by changes in the value of the hedged item. As a result, we are generally not exposed to net market risk associated with these instruments.
| 4. | Borrowings and Credit Facilities |
Direct borrowings and capital lease obligations consisted of the following:
| | | July 29, | | | October 29, | |
| In thousands | | 2011 | | | 2010 | |
| | |
| Term Loan due 2016 | | $ | 500,000 | | | $ | - | |
| 6.0% Senior Notes due 2016 | | | 247,924 | | | | 247,677 | |
| 6.625% Senior Notes due 2036 | | | 148,435 | | | | 148,417 | |
| Short-term notes payable and bank overdrafts | | | 8,500 | | | | 1,208 | |
| Capital leases and other | | | 2,207 | | | | 574 | |
| | | | 907,066 | | | | 397,876 | |
| Less: Amounts due within one year | | | (33,700 | ) | | | (1,550 | ) |
| | | | | | | | | |
| Long-term obligations | | $ | 873,366 | | | $ | 396,326 | |
As of June 21, 2011 we have exercised our option under the unsecured revolving credit facility (the “Credit Agreement”) to increase the aggregate revolving commitment available by an additional $200.0 million. As increased, the $700.0 million Credit Agreement is set to expire November 3, 2014. Outstanding borrowings bear interest equal to the London Interbank Offered Rate (“LIBOR”) (defined as applicable LIBOR rate for the equivalent interest period plus 1.75% to 2.75%) or the base rate (defined as the higher of the prime rate, Federal Funds Effective Rate plus 0.5%, or Eurodollar Rate plus 1.0%) at our option. We pay a commitment fee ranging from 0.25% to 0.5% on the unused portion of the revolving credit facility based on our credit rating. The Credit Agreement requires the maintenance of certain financial covenants, including leverage and interest coverage ratios. The Credit Agreement also restricts payments of dividends or other return of capital when the consolidated leverage ratio exceeds a stated amount. At July 29, 2011, we were in compliance with all financial covenants of the Credit Agreement and had no restrictions on the payment of dividends or return of capital.
At July 29, 2011, there was $441.8 million available for borrowings under the Credit Agreement. Outstanding letters of credit issued under the Credit Agreement, which count toward the $700.0 million credit limit, totaled $258.2 million. At July 29, 2011, and October 29, 2010, there were no outstanding direct borrowings under the Credit Agreement.
The LeTourneau acquisition was funded in part by utilizing the full $500.0 million commitment under the term loan commitment (the “Term Loan”) dated June 16, 2011. The Term Loan requires quarterly principal payments beginning September 20, 2011 and matures June 16, 2016. The Term Loan contains terms and conditions that are substantially similar to the terms and conditions of the Credit Agreement. Outstanding borrowings for the Term Loan bear interest equal to the Eurodollar rate plus a margin that varies with the Company’s credit rating and base rate loans (defined as the higher of the prime rate, Federal Funds Effective Rate plus 0.5% or one month Eurodollar Rate plus 1.0%) plus a margin that varies with the Company’s credit rating. The Term Loan requires the maintenance of certain financial covenants, including leverage and interest coverage ratios. At July 29, 2011, we were in compliance with all financial covenants of the Term Loan.
On July 11, 2011 we entered into a Share Purchase Agreement (“SPA”) to acquire approximately 41.1% of the outstanding common stock of International Mining Machinery Holdings Ltd., a Hong Kong listed designer and manufacturer of underground and coal mining equipment located in China. Pursuant to Rule 26.1 of the Hong Kong Takeovers Code, upon receipt of regulatory approval and closing of the purchase under the SPA, we will be required to make an offer for the remaining IMM shares. In conjunction with the SPA, we entered into a $1.5 billion senior unsecured bridge term loan facility (the “Bridge Loan Agreement”). Under the Bridge Loan Agreement we have the ability to draw up to a maximum of $650.0 million on the closing date of the SPA and subsequently in multiple draws of no less the $10.0 million at any time during the period beginning on the commencement of the mandatory tender offer and ending on the date on which all amounts payable with respect to the tender offer have been paid. Any unused commitments of the Bridge Loan Agreement shall expire on the earlier of (i) the date on which the SPA is terminated without the purchase having been consummated, (ii) March 11, 2012, unless the purchase is consummated on or prior to such date, (iii) the date that is 90 days following the 41.1% purchase date, as defined in the Bridge Loan Agreement, (iv) the date on which all amounts payable pursuant to the tender offer have been paid, (v) the date on which the commitments are terminated, reduced or prepaid, or (vi) May 11, 2012. Outstanding borrowings bear interest equal to Eurodollar rate plus a margin that varies with the credit rating and base rate loans (defined as the higher of the prime rate, Federal Funds Effective Rate plus 0.5% or one month Eurodollar Rate plus 1.0%) plus a margin that varies with the credit rating. We also pay a commitment fee ranging from 0.25% to 0.375% on the undrawn portion of the credit facility based on our credit rating. The Bridge Loan Agreement requires the maintenance of certain financial covenants, including leverage and interest coverage ratios that are substantially similar to those in the Credit Agreement. At July 29, 2011, no amounts were outstanding under the Bridge Loan Agreement and we were in compliance with all financial covenants of the Bridge Loan Agreement.
The following table reconciles the changes in the product warranty reserve:
| | | Quarter Ended | | | Nine Months Ended | |
| | | July 29, | | | July 30, | | | July 29, | | | July 30, | |
| In thousands | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| Balance, beginning of period | | $ | 66,776 | | | $ | 59,726 | | | $ | 62,351 | | | $ | 58,947 | |
| Accrual for warranty expensed during the period | | | 9,780 | | | | 6,415 | | | | 27,376 | | | | 24,359 | |
| Settlements made during the period | | | (9,408 | ) | | | (7,549 | ) | | | (25,076 | ) | | | (23,385 | ) |
| Change in liability for pre-existing warranties during the period, including expirations | | | 928 | | | | (117 | ) | | | 1,170 | | | | (778 | ) |
| Effect of foreign currency translation | | | (398 | ) | | | (505 | ) | | | 1,857 | | | | (1,173 | ) |
| Acquired warranty accrual – LeTourneau | | | 11,545 | | | | - | | | | 11,545 | | | | - | |
| Balance, end of period | | $ | 79,223 | | | $ | 57,970 | | | $ | 79,223 | | | $ | 57,970 | |
| 6. | Basic and Diluted Net Income Per Share |
Basic net income per share is computed based on the weighted-average number of shares outstanding during each period. Diluted net income per share is computed based on the weighted-average number of shares outstanding during each period, plus dilutive potential shares considered outstanding during the period.
The following table sets forth the computation of basic and diluted net income per share:
| | | Quarter Ended | | | Nine Months Ended | |
| July 29, | | July 30, | | | July 29, | | | July 30, | | | | |
| In thousands except per share data | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| Numerator: | | | | | | | | | | | | |
| Income from continuing operations | | $ | 171,805 | | | $ | 118,503 | | | $ | 436,009 | | | $ | 315,161 | |
| Income from discontinued operations | | | 1,300 | | | | - | | | | 1,300 | | | | - | |
| Net income | | $ | 173,105 | | | $ | 118,503 | | | $ | 437,309 | | | $ | 315,161 | |
| | | | | | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | | | | | |
| Denominator for basic net income per share - | | | | | | | | | | | | | | | | |
| Weighted average shares | | | 105,204 | | | | 103,333 | | | | 104,803 | | | | 103,084 | |
| Effect of dilutive securities: | | | | | | | | | | | | | | | | |
| Stock options, restricted stock units and performance shares | | | 1,531 | | | | 1,631 | | | | 1,672 | | | | 1,648 | |
| Denominator for diluted net income per share - | | | | | | | | | | | | | | | | |
| Adjusted weighted average shares and assumed conversions | | | 106,735 | | | | 104,964 | | | | 106,475 | | | | 104,732 | |
| | | | | | | | | | | | | | | | | |
| Basic earnings per share: | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | 1.63 | | | $ | 1.15 | | | $ | 4.16 | | | $ | 3.06 | |
| Discontinued operations | | | 0.01 | | | | - | | | | 0.01 | | | | - | |
| Net income | | $ | 1.64 | | | $ | 1.15 | | | $ | 4.17 | | | $ | 3.06 | |
| | | | | | | | | | | | | | | | | |
| Diluted earnings per share: | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | 1.61 | | | $ | 1.13 | | | $ | 4.09 | | | $ | 3.01 | |
| Discontinued operations | | | 0.01 | | | | - | | | | 0.01 | | | | - | |
| Net income | | $ | 1.62 | | | $ | 1.13 | | | $ | 4.10 | | | $ | 3.01 | |
We and our subsidiaries are involved in various unresolved legal matters that arise in the normal course of operations, the most prevalent of which relate to product liability (including over 1,000 asbestos and silica-related cases), employment, and commercial matters. Also, as a normal part of operations, our subsidiaries undertake contractual obligations, warranties, and guarantees in connection with the sale of products or services. Although the outcome of these matters cannot be predicted with certainty and favorable or unfavorable resolutions may affect the results of operations on a quarter-to-quarter basis, we believe that the outcome of such legal and other matters will not have a materially adverse effect on our consolidated financial position, results of operations, or liquidity.
During the Chapter 11 reorganization of Harnischfeger Industries, Inc. (our “Predecessor Company”), in 1999 through the filing of a voluntary petition under Chapter 11 of the United States Bankruptcy Code, the Wisconsin Department of Workforce Development (“DWD”) filed claims against Beloit Corporation (“Beloit”), a former majority owned subsidiary, and us in federal bankruptcy court seeking “at least” $10.0 million in severance benefits and penalties, plus interest, on behalf of former Beloit employees. DWD’s claim against Beloit included unpaid severance pay due under a severance policy Beloit established in 1996. DWD alleges that Beloit violated its alleged contractual obligations under the 1996 policy when it amended the policy in 1999. The Federal District Court for the District of Delaware removed DWD’s claims from the bankruptcy court and granted summary judgment in our favor on all of DWD’s claims in December 2001. DWD appealed the decision and the judgment was ultimately vacated in part and remanded. Following further proceedings, DWD’s only remaining claim against us is that our Predecessor Company tortiously interfered with Beloit's decision to amend its severance policy. We concluded a trial on DWD’s remaining claim during the week of March 1, 2010. On September 21, 2010, the court granted judgment in our favor. DWD then filed a post-judgment motion asking the court to change its decision. We await a ruling on DWD’s latest motion. If the court denies DWD’s motion, we expect that DWD will file an appeal with the United States Court of Appeals for the Third Circuit. We do not believe these proceedings will have a significant effect on our financial condition, results of operations, or liquidity.
Because DWD’s claims were still being litigated as of the effective date of our plan of reorganization, the plan of reorganization provided that the claim allowance process with respect to DWD’s claims would continue as long as necessary to liquidate and determine these claims.
On July 29, 2011, we were contingently liable to banks, financial institutions, and others for approximately $282.8 million for outstanding letters of credit, bank guarantees, and surety bonds securing performance of sales contracts and other guarantees in the ordinary course of business. Of the $282.8 million, approximately $15.7 million relates to surety bonds and $8.9 million relates to outstanding letters of credit or other guarantees issued by non-U.S. banks for non-U.S. subsidiaries under locally provided credit facilities.
From time to time we and our subsidiaries become involved in proceedings relating to environmental matters. We believe that the resolution of such environmental matters will not have a materially adverse effect on our consolidated financial position, results of operations or liquidity.
| 8. | Fair Value Measurements |
GAAP establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:
Level 1: Observable inputs such as quoted prices in active markets
Level 2: Inputs, other than quoted prices in active markets that are observable either directly or indirectly
Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions
GAAP requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
The following tables present the fair value hierarchy for those assets and liabilities measured at fair value and disclose the fair value of certain other liabilities. As of July 29, 2011 and October 29, 2010 we did not have any Level 3 assets or liabilities.
| Fair Value Measurements | | | | | | | | | | | | |
| at July 29, 2011 | | | | | | | | | | | | |
| | | Carrying | | | Total Fair | | | | | | | |
| In thousands | | Value | | | Value | | | Level 1 | | | Level 2 | |
| | | | | | | | | | | | | |
| Current Assets | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 443,092 | | | $ | 443,092 | | | $ | 443,092 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Other Current Assets | | | | | | | | | | | | | | | | |
| Derivatives | | $ | 14,388 | | | $ | 14,388 | | | $ | - | | | $ | 14,388 | |
| | | | | | | | | | | | | | | | | |
| Other Long-term Assets | | | | | | | | | | | | | | | | |
| Investment, at fair value | | $ | 134,814 | | | $ | 134,814 | | | $ | 134,814 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Short-term notes payable, | | | | | | | | | | | | | | | | |
| Including current portion of long-term obligations | | | | | | | | | | | | | | | | |
| Current portion of Term Loan | | $ | 25,000 | | | $ | 25,000 | | | $ | - | | | $ | 25,000 | |
| | | | | | | | | | | | | | | | | |
| Other Accrued Liabilities | | | | | | | | | | | | | | | | |
| Derivatives | | $ | 5,207 | | | $ | 5,207 | | | $ | - | | | $ | 5,207 | |
| | | | | | | | | | | | | | | | | |
| Long-term Obligations | | | | | | | | | | | | | | | | |
| 6.0 % Senior Notes | | $ | 247,924 | | | $ | 282,500 | | | $ | 282,500 | | | $ | - | |
| 6.625% Senior Notes | | $ | 148,435 | | | $ | 162,933 | | | $ | 162,933 | | | $ | - | |
| Term Loan | | $ | 475,000 | | | $ | 475,000 | | | $ | - | | | $ | 475,000 | |
| Fair Value Measurements | | | | | | | | | | | | |
| at October 29, 2010 | | | | | | | | | | | | |
| | | Carrying | | | Total Fair | | | | | | | |
| In thousands | | Value | | | Value | | | Level 1 | | | Level 2 | |
| | | | | | | | | | | | | |
| Current Assets | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 815,581 | | | $ | 815,581 | | | $ | 815,581 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Other Current Assets | | | | | | | | | | | | | | | | |
| Derivatives | | $ | 10,643 | | | $ | 10,643 | | | $ | - | | | $ | 10,643 | |
| | | | | | | | | | | | | | | | | |
| Other Accrued Liabilities | | | | | | | | | | | | | | | | |
| Derivatives | | $ | 4,212 | | | $ | 4,212 | | | $ | - | | | $ | 4,212 | |
| | | | | | | | | | | | | | | | | |
| Long-term Obligations | | | | | | | | | | | | | | | | |
| 6.0 % Senior Notes | | $ | 247,677 | | | $ | 273,125 | | | $ | 273,125 | | | $ | - | |
| 6.625% Senior Notes | | $ | 148,417 | | | $ | 152,438 | | | $ | 152,438 | | | $ | - | |
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and Cash Equivalents: The carrying value approximates fair value because of the short maturity of those instruments.
Derivatives: The fair value of forward foreign exchange contracts represents the estimated amounts receivable (payable) to terminate such contracts at the respective period end based on foreign exchange market prices at that date.
Investment, at fair value: The fair value of the investment is estimated based on an active quoted market price at the respective period end. See Note 13 for further information related to Investment, at fair value.
Senior Notes: The fair market value of the Senior Notes is estimated based on market quotations at the respective period end.
Term Loan: The fair value of the Term Loan is estimated using discounted cash flows and current market conditions.
Consolidated inventories consisted of the following:
| | | July 29, | | | October 29, | |
| In thousands | | 2011 | | | 2010 | |
| Finished goods | | $ | 749,532 | | | $ | 503,356 | |
| Work in process and purchased parts | | | 289,561 | | | | 183,658 | |
| Raw materials | | | 201,096 | | | | 77,931 | |
| | | $ | 1,240,189 | | | $ | 764,945 | |
| 10. | Share-Based Compensation |
We recognized total share-based compensation expense for the quarters ended July 29, 2011 and July 30, 2010 of approximately $6.7 million and $4.5 million, respectively. We recognized total share-based compensation expense for the nine months ended July 29, 2011 and July 30, 2010 of approximately $18.9 million and $18.8 million, respectively. For the quarters ended July 29, 2011 and July 30, 2010 we had 55,960 and 70,376 stock options exercised, respectively. For the nine months ended July 29, 2011 and July 30, 2010 we had 1,425,450 and 763,312 stock options exercised, respectively.
Comprehensive income consisted of the following net of taxes where applicable:
| | | Quarter Ended | | | Nine Months Ended | |
| | | July 29, | | | July 30, | | | July 29, | | | July 30, | |
| In thousands | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| | | | | | | | | | | | | |
| Net income | | $ | 173,105 | | | $ | 118,503 | | | $ | 437,309 | | | $ | 315,161 | |
| Other comprehensive income (loss): | | | | | | | | | | | | | | | | |
| Pension & postretirement adjustments | | | 11,438 | | | | 5,416 | | | | 23,210 | | | | 16,194 | |
| Translation adjustments | | | (1,777 | ) | | | (6,654 | ) | | | 50,055 | | | | (13,346 | ) |
| Investment fair value adjustments | | | (5,799 | ) | | | - | | | | (5,799 | ) | | | - | |
| Derivative fair value adjustments | | | 1,360 | | | | 4,793 | | | | 1,309 | | | | 1,911 | |
| Total other comprehensive income | | | 5,222 | | | | 3,555 | | | | 68,775 | | | | 4,759 | |
| Comprehensive income | | $ | 178,327 | | | $ | 122,058 | | | $ | 506,084 | | | $ | 319,920 | |
The components of the net periodic pension and other post-retirement benefits expense recognized are as follows:
| | | Pension Benefits | | | Postretirement Benefits | |
| | | Quarter Ended | | | Quarter Ended | |
| | | July 29, | | | July 30, | | | July 29, | | | July 30, | |
| In thousands | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| | | | | | | | | | | | | |
| Service cost | | $ | 5,223 | | | $ | 5,273 | | | $ | 166 | | | $ | 171 | |
| Interest cost | | | 21,800 | | | | 21,328 | | | | 343 | | | | 394 | |
| Expected return on assets | | | (23,833 | ) | | | (22,070 | ) | | | (71 | ) | | | (37 | ) |
| Amortization of: | | | | | | | | | | | | | | | | |
| Prior service cost | | | 343 | | | | 289 | | | | 12 | | | | - | |
| Actuarial loss (gain) | | | 8,999 | | | | 8,203 | | | | (214 | ) | | | (366 | ) |
| Net periodic benefit cost | | $ | 12,532 | | | $ | 13,023 | | | $ | 236 | | | $ | 162 | |
| | | Pension Benefits | | | Postretirement Benefits | |
| | | Nine Months Ended | | | Nine Months Ended | |
| | | July 29, | | | July 30, | | | July 29, | | | July 30, | |
| In thousands | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| | | | | | | | | | | | | |
| Service cost | | $ | 15,493 | | | $ | 15,819 | | | $ | 736 | | | $ | 687 | |
| Interest cost | | | 64,182 | | | | 63,960 | | | | 1,155 | | | | 1,214 | |
| Expected return on assets | | | (69,540 | ) | | | (65,537 | ) | | | (255 | ) | | | (169 | ) |
| Amortization of: | | | | | | | | | | | | | | | | |
| Prior service cost | | | 1,031 | | | | 869 | | | | 36 | | | | - | |
| Actuarial loss (gain) | | | 26,573 | | | | 24,495 | | | | (982 | ) | | | (1,070 | ) |
| Net periodic benefit cost | | $ | 37,739 | | | $ | 39,606 | | | $ | 690 | | | $ | 662 | |
The actuarial loss (gain) arises from differences in estimates and actual experiences for certain assumptions including changes in discount rate, expected return on assets and future salary rate increases. During 2011 we expect to contribute approximately $175.0 million to $185.0 million to our defined benefit employee pension plans.
| 13. | Investment, at Fair Value |
On July 28, 2011, we purchased approximately 136.5 million shares of International Mining Machinery Holdings Ltd. (“IMM”) for $140.6 million. These shares were purchased on the open market and represent 10.5% of the total outstanding shares. Unrealized gains and losses arising from the revaluation of the current investment, net of applicable deferred income taxes, is carried in accumulated other comprehensive income (loss).
On July 14, 2011 we announced that we entered into an agreement on July 11, 2011 to purchase approximately 41.1% of IMM’s outstanding shares for approximately $585 million (U.S.) or HK$8.50 per share. The July 11, 2011 purchase agreement is subject to approval from the Anti-monopoly Bureau of the Ministry of Commerce (“MOFCOM”) of the People’s Republic of China. Upon obtaining approval from MOFCOM, we will apply the acquisition method of accounting re-measuring the preexisting interest at fair value with the resulting gain or loss recorded into earnings and we will be required to make an unconditional cash tender offer to purchase the remaining outstanding shares.
We have historically operated in two reportable segments: Underground Mining Machinery and Surface Mining Equipment. Crushing and conveying operating results related to surface applications are reported as part of the Surface Mining Equipment segment, while total crushing and conveying operating results are included with the Underground Mining Machinery segment. Eliminations consist of the surface applications of crushing and conveying included in both operating segments. On June 22, 2011 we completed the acquisition of LeTourneau from Rowan Companies, Inc. LeTourneau historically operated in three business segments, mining equipment, steel products and drilling products. Results of mining equipment and steel products have been combined with our Surface Mining Equipment segment. The drilling products segment has been classified as a discontinued operation. See Note 1 for discussion on discontinued operations.
| | | Underground | | | Surface | | | | | | | | | | |
| | | Mining | | | Mining | | | | | | | | | | |
| In thousands | | Machinery | | | Equipment | | | Corporate | | | Eliminations | | | Total | |
| Quarter ended July 29, 2011 | | | | | | | | | | | | | | | |
| Net sales | | $ | 669,179 | | | $ | 507,552 | | | $ | - | | | $ | (40,379 | ) | | $ | 1,136,352 | |
| | | | | | | | | | | | | | | | | | | | | |
| Operating income (loss) | | | 156,437 | | | | 113,760 | | | | (24,392 | ) | | | (9,813 | ) | | | 235,992 | |
| Interest and reorganization items | | | - | | | | - | | | | (6,032 | ) | | | - | | | | (6,032 | ) |
| Income from continuing operations before income taxes | | $ | 156,437 | | | $ | 113,760 | | | $ | (30,424 | ) | | $ | (9,813 | ) | | $ | 229,960 | |
| | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | $ | 10,618 | | | $ | 8,344 | | | $ | 59 | | | $ | - | | | $ | 19,021 | |
| | | | | | | | | | | | | | | | | | | | | |
| Capital expenditures | | $ | 8,546 | | | $ | 12,745 | | | $ | 800 | | | $ | - | | | $ | 22,091 | |
| | | | | | | | | | | | | | | | | | | | | |
| Quarter ended July 30, 2010 | | | | | | | | | | | | | | | | | | | | |
| Net sales | | $ | 510,817 | | | $ | 372,942 | | | $ | - | | | $ | (33,757 | ) | | $ | 850,002 | |
| | | | | | | | | | | | | | | | | | | | | |
| Operating income (loss) | | | 107,084 | | | | 82,857 | | | | (9,541 | ) | | | (7,974 | ) | | | 172,426 | |
| Interest and reorganization items | | | - | | | | - | | | | (4,084 | ) | | | - | | | | (4,084 | ) |
| Income before income taxes | | $ | 107,084 | | | $ | 82,857 | | | $ | (13,625 | ) | | $ | (7,974 | ) | | $ | 168,342 | |
| | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | $ | 10,329 | | | $ | 5,179 | | | $ | 33 | | | $ | - | | | $ | 15,541 | |
| | | | | | | | | | | | | | | | | | | | | |
| Capital expenditures | | $ | 12,590 | | | $ | 6,598 | | | $ | 13 | | | $ | - | | | $ | 19,201 | |
| | | | | | | | | | | | | | | | | | | | | |
| Nine months ended July 29, 2011 | | | | | | | | | | | | | | | | | | | | |
| Net sales | | $ | 1,828,481 | | | $ | 1,333,372 | | | $ | - | | | $ | (93,240 | ) | | $ | 3,068,613 | |
| | | | | | | | | | | | | | | | | | | | | |
| Operating income (loss) | | | 406,807 | | | | 290,673 | | | | (50,548 | ) | | | (23,080 | ) | | | 623,852 | |
| Interest and reorganization items | | | - | | | | - | | | | (13,635 | ) | | | - | | | | (13,635 | ) |
| Income from continuing operations before income taxes | | $ | 406,807 | | | $ | 290,673 | | | $ | (64,183 | ) | | $ | (23,080 | ) | | $ | 610,217 | |
| | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | $ | 30,769 | | | $ | 19,725 | | | $ | 175 | | | $ | - | | | $ | 50,669 | |
| | | | | | | | | | | | | | | | | | | | | |
| Capital expenditures | | $ | 39,359 | | | $ | 35,030 | | | $ | 800 | | | $ | - | | | $ | 75,189 | |
| | | | | | | | | | | | | | | | | | | | | |
| Nine months ended July 30, 2010 | | | | | | | | | | | | | | | | | | | | |
| Net sales | | $ | 1,478,835 | | | $ | 1,084,555 | | | $ | - | | | $ | (87,944 | ) | | $ | 2,475,446 | |
| | | | | | | | | | | | | | | | | | | | | |
| Operating income (loss) | | | 284,571 | | | | 240,248 | | | | (32,677 | ) | | | (21,616 | ) | | | 470,526 | |
| Interest and reorganization items | | | - | | | | - | | | | (13,605 | ) | | | - | | | | (13,605 | ) |
| Income before income taxes | | $ | 284,571 | | | $ | 240,248 | | | $ | (46,282 | ) | | $ | (21,616 | ) | | $ | 456,921 | |
| | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | $ | 29,339 | | | $ | 15,439 | | | $ | 92 | | | $ | - | | | $ | 44,870 | |
| | | | | | | | | | | | | | | | | | | | | |
| Capital expenditures | | $ | 25,253 | | | $ | 25,953 | | | $ | 119 | | | $ | - | | | $ | 51,325 | |
On August 16, 2011 we purchased approximately 102 million, or 7.9%, of additional outstanding shares of IMM on the open market for approximately $105.1 million, bringing our total ownership stake to 18.3%.
On August 22, 2011, our Board of Directors declared a cash dividend of $0.175 per outstanding share of common stock. The dividend will be paid on September 19, 2011 to all shareholders of record at the close of business on September 5, 2011.
On August 29, 2011 we entered into a definitive agreement with Cameron to sell the drilling products business purchased from LeTourneau for $375.0 million in cash, subject to a post-closing working capital adjustment. We expect to close the transaction following receipt of necessary regulatory approvals, and satisfaction of customary closing conditions, which is expected to occur within 60 days of the agreement date. The drilling products business has been reflected as a discontinued operation and all assets and liabilities of the segment have been reflected as such in the Condensed Consolidated Balance Sheet and all results of operations have been reflected as discontinued operations in the Condensed Consolidated Statement of Income.
| 16. | Recent Accounting Pronouncements |
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU No. 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of shareholders’ equity. ASU 2011-05 will be effective for the quarter ending January 25, 2013. The adoption of this guidance will have no impact on our financial condition or results of operations but will impact the presentation of the financial statements. We are currently evaluating the presentation options.
In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This ASU clarifies and changes the application of various fair value measurement principles and disclosure requirements, and will be effective for the quarter ending April 27, 2012. The adoption is not expected to have a material impact on our consolidated financial statements.
In December 2009, the FASB issued ASU No. 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” ASU No. 2009-17 clarifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting should be consolidated. This ASU was effective for us beginning in the first quarter of fiscal 2011 (October 30, 2010). The adoption of ASU No. 2009-17 did not have a material impact on our consolidated financial statements.
In October 2009, FASB issued ASU No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force.” ASU No. 2009-13 establishes the accounting and reporting guidance for arrangements under which a vendor will perform multiple revenue-generating activities. Specifically, this ASU addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. This ASU was effective for us beginning in the first quarter of fiscal 2011 (October 30, 2010). The adoption ASU No. 2009-13 did not have a material impact on our consolidated financial statements.
The following tables present condensed consolidated financial information of continuing operations as of July 29, 2011 and October 29, 2010 and for the quarters and nine months ended July 29, 2011 and July 30, 2010 for: (a) the parent company; (b) on a combined basis, the guarantors of the Credit Agreement and Senior Notes issued in November 2006, which include the significant domestic operations of Joy Technologies Inc., P&H Mining Equipment Inc., N.E.S. Investment Co., LeTourneau Technologies, Inc., and Continental Crushing & Conveying Inc. (the “Subsidiary Guarantors”); and (c) on a combined basis, the non-guarantors, which include all of our foreign subsidiaries and a number of small domestic subsidiaries (the “Non-Guarantor Subsidiaries”). Separate financial statements of the Subsidiary Guarantors are not presented because the guarantors are unconditionally, jointly, and severally liable under the guarantees, and we believe such separate statements or disclosures would not be useful to investors.
Condensed Consolidating Statement of Income
Quarter Ended July 29, 2011
(In thousands)
| | | Parent | | | Subsidiary | | | Non-Guarantor | | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | | |
| Net sales | | $ | - | | | $ | 712,779 | | | $ | 718,079 | | | $ | (294,506 | ) | | $ | 1,136,352 | |
| | | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | - | | | | 476,603 | | | | 488,767 | | | | (225,744 | ) | | | 739,626 | |
| | | | | | | | | | | | | | | | | | | | | |
| Product development, selling and administrative expenses | | | 24,102 | | | | 80,652 | | | | 60,571 | | | | - | | | | 165,325 | |
| Other (income) expense | | | - | | | | 15,975 | | | | (20,566 | ) | | | - | | | | (4,591 | ) |
| Operating income (loss) | | | (24,102 | ) | | | 139,549 | | | | 189,307 | | | | (68,762 | ) | | | 235,992 | |
| | | | | | | | | | | | | | | | | | | | | |
| Intercompany items | | | 4,778 | | | | (7,054 | ) | | | (34,681 | ) | | | 36,957 | | | | - | |
| Interest income (expense) - net | | | (8,687 | ) | | | 382 | | | | 2,273 | | | | - | | | | (6,032 | ) |
| Reorganization items | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from continuing operations | | | | | | | | | | | | | | | | | | | | |
| before income taxes and equity | | | (28,011 | ) | | | 132,877 | | | | 156,899 | | | | (31,805 | ) | | | 229,960 | |
| | | | | | | | | | | | | | | | | | | | | |
| Provision (benefit) for income taxes | | | (29,103 | ) | | | 56,015 | | | | 31,243 | | | | - | | | | 58,155 | |
| Equity in income (loss) of subsidiaries | | | 170,713 | | | | 41,721 | | | | - | | | | (212,434 | ) | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 171,805 | | | $ | 118,583 | | | $ | 125,656 | | | $ | (244,239 | ) | | $ | 171,805 | |
Condensed Consolidating Statement of Income
Quarter Ended July 30, 2010
(In thousands)
| | | Parent | | | Subsidiary | | | Non-Guarantor | | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | | |
| Net sales | | $ | - | | | $ | 493,029 | | | $ | 521,045 | | | $ | (164,072 | ) | | $ | 850,002 | |
| | | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | - | | | | 329,182 | | | | 357,507 | | | | (126,472 | ) | | | 560,217 | |
| | | | | | | | | | | | | | | | | | | | | |
| Product development, selling and administrative expenses | | | 9,503 | | | | 60,506 | | | | 48,253 | | | | - | | | | 118,262 | |
| Other (income) expense | | | - | | | | 14,885 | | | | (15,788 | ) | | | - | | | | (903 | ) |
| Operating income (loss) | | | (9,503 | ) | | | 88,456 | | | | 131,073 | | | | (37,600 | ) | | | 172,426 | |
| | | | | | | | | | | | | | | | | | | | | |
| Intercompany items | | | 10,097 | | | | (5,797 | ) | | | (23,607 | ) | | | 19,307 | | | | - | |
| Interest income (expense) - net | | | (7,135 | ) | | | 799 | | | | 2,397 | | | | - | | | | (3,939 | ) |
| Reorganization items | | | (145 | ) | | | - | | | | - | | | | - | | | | (145 | ) |
| Income (loss) from continuing operations before income taxes and equity | | | (6,686 | ) | | | 83,458 | | | | 109,863 | | | | (18,293 | ) | | | 168,342 | |
| | | | | | | | | | | | | | | | | | | | | |
| Provision (benefit) for income taxes | | | (9,373 | ) | | | 36,942 | | | | 22,270 | | | | - | | | | 49,839 | |
| Equity in income (loss) of subsidiaries | | | 115,816 | | | | 25,906 | | | | - | | | | (141,722 | ) | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 118,503 | | | $ | 72,422 | | | $ | 87,593 | | | $ | (160,015 | ) | | $ | 118,503 | |
Condensed Consolidating Statement of Income
Nine Months Ended July 29, 2011
(In thousands)
| | | Parent | | | Subsidiary | | | Non-Guarantor | | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | | |
| Net sales | | $ | - | | | $ | 1,945,694 | | | $ | 1,880,908 | | | $ | (757,989 | ) | | $ | 3,068,613 | |
| | | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | - | | | | 1,305,519 | | | | 1,293,895 | | | | (585,799 | ) | | | 2,013,615 | |
| | | | | | | | | | | | | | | | | | | | | |
| Product development, selling and administrative expenses | | | 49,760 | | | | 215,577 | | | | 173,648 | | | | - | | | | 438,985 | |
| Other (income) expense | | | - | | | | 51,059 | | | | (58,898 | ) | | | - | | | | (7,839 | ) |
| Operating income (loss) | | | (49,760 | ) | | | 373,539 | | | | 472,263 | | | | (172,190 | ) | | | 623,852 | |
| | | | | | | | | | | | | | | | | | | | | |
| Intercompany items | | | 31,014 | | | | (33,920 | ) | | | (82,808 | ) | | | 85,714 | | | | - | |
| Interest income (expense) - net | | | (23,637 | ) | | | 2,141 | | | | 7,896 | | | | - | | | | (13,600 | ) |
| Reorganization items | | | (35 | ) | | | - | | | | - | | | | - | | | | (35 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from continuing operations before income taxes and equity | | | (42,418 | ) | | | 341,760 | | | | 397,351 | | | | (86,476 | ) | | | 610,217 | |
| | | | | | | | | | | | | | | | | | | | | |
| Provision (benefit) for income taxes | | | (51,481 | ) | | | 136,937 | | | | 88,752 | | | | - | | | | 174,208 | |
| Equity in income (loss) of subsidiaries | | | 426,946 | | | | 152,658 | | | | - | | | | (579,604 | ) | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 436,009 | | | $ | 357,481 | | | $ | 308,599 | | | $ | (666,080 | ) | | $ | 436,009 | |
Condensed Consolidating Statement of Income
Nine Months Ended July 30, 2010
(In thousands)
| | | Parent | | | Subsidiary | | | Non-Guarantor | | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | �� | | | | | | | |
| Net sales | | $ | - | | | $ | 1,487,064 | | | $ | 1,479,700 | | | $ | (491,318 | ) | | $ | 2,475,446 | |
| | | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | - | | | | 1,009,225 | | | | 1,039,718 | | | | (395,516 | ) | | | 1,653,427 | |
| | | | | | | | | | | | | | | | | | | | | |
| Product development, selling and administrative expenses | | | 32,586 | | | | 184,779 | | | | 137,182 | | | | - | | | | 354,547 | |
| Other (income) expense | | | - | | | | 46,095 | | | | (49,149 | ) | | | - | | | | (3,054 | ) |
| Operating income (loss) | | | (32,586 | ) | | | 246,965 | | | | 351,949 | | | | (95,802 | ) | | | 470,526 | |
| | | | | | | | | | | | | | | | | | | | | |
| Intercompany items | | | 30,959 | | | | (34,982 | ) | | | (53,048 | ) | | | 57,071 | | | | - | |
| Interest income (expense) - net | | | (20,727 | ) | | | 2,364 | | | | 5,498 | | | | - | | | | (12,865 | ) |
| Reorganization items | | | (740 | ) | | | - | | | | - | | | | - | | | | (740 | ) |
| Income (loss) from continuing operations before income taxes and equity | | | (23,094 | ) | | | 214,347 | | | | 304,399 | | | | (38,731 | ) | | | 456,921 | |
| | | | | | | | | | | | | | | | | | | | | |
| Provision (benefit) for income taxes | | | (24,743 | ) | | | 121,288 | | | | 45,215 | | | | - | | | | 141,760 | |
| Equity in income (loss) of subsidiaries | | | 313,512 | | | | 107,918 | | | | - | | | | (421,430 | ) | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 315,161 | | | $ | 200,977 | | | $ | 259,184 | | | $ | (460,161 | ) | | $ | 315,161 | |
Condensed Consolidating Balance Sheets:
As of July 29, 2011
(In thousands)
| | | Parent | | | Subsidiary | | | Non-Guarantor | | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| ASSETS | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Current assets | | $ | 109,300 | | | $ | 1,159,280 | | | $ | 1,607,300 | | | $ | (173,697 | ) | | $ | 2,702,183 | |
| Current assets of discontinued operations | | | - | | | | 351,579 | | | | - | | | | - | | | | 351,579 | |
| Property, plant and equipment-net | | | 1,589 | | | | 287,613 | | | | 215,182 | | | | - | | | | 504,384 | |
| Intangible assets-net | | | - | | | | 775,576 | | | | 21,364 | | | | - | | | | 796,940 | |
| Other assets | | | 3,011,794 | | | | 1,258,620 | | | | 1,090,203 | | | | (5,018,425 | ) | | | 342,192 | |
| Non-current assets of discontinued operation | | | - | | | | 233,080 | | | | - | | | | - | | | | 233,080 | |
| Total assets | | $ | 3,122,683 | | | $ | 4,065,748 | | | $ | 2,934,049 | | | $ | (5,192,122 | ) | | $ | 4,930,358 | |
| | | | | | | | | | | | | | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Current liabilities | | $ | 41,724 | | | $ | 800,855 | | | $ | 800,527 | | | $ | (73,754 | ) | | $ | 1,569,352 | |
| Current liabilities of discontinued operation | | | - | | | | 200,740 | | | | - | | | | - | | | | 200,740 | |
| Long-term debt | | | 871,359 | | | | 1,932 | | | | 75 | | | | - | | | | 873,366 | |
| Accrued pension costs | | | 310,782 | | | | 7,911 | | | | 7,271 | | | | - | | | | 325,964 | |
| Other non-current liabilities | | | 20,447 | | | | 9,837 | | | | 52,281 | | | | - | | | | 82,565 | |
| Shareholders’ equity | | | 1,878,371 | | | | 3,044,473 | | | | 2,073,895 | | | | (5,118,368 | ) | | | 1,878,371 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total liabilities and shareholders’ equity | | $ | 3,122,683 | | | $ | 4,065,748 | | | $ | 2,934,049 | | | $ | (5,192,122 | ) | | $ | 4,930,358 | |
As of October 29, 2010 (as restated)
(In thousands)
| | | Parent | | | Subsidiary | | | Non-Guarantor | | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| ASSETS | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Current assets | | $ | 488,248 | | | $ | 744,525 | | | $ | 1,236,264 | | | $ | (107,110 | ) | | $ | 2,361,927 | |
| Property, plant and equipment-net | | | 964 | | | | 185,073 | | | | 191,987 | | | | - | | | | 378,024 | |
| Intangible assets-net | | | - | | | | 284,993 | | | | 19,524 | | | | - | | | | 304,517 | |
| Other assets | | | 1,714,000 | | | | 501,526 | | | | 963,265 | | | | (2,952,246 | ) | | | 226,545 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total assets | | $ | 2,203,212 | | | $ | 1,716,117 | | | $ | 2,411,040 | | | $ | (3,059,356 | ) | | $ | 3,271,013 | |
| | | | | | | | | | | | | | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Current liabilities | | $ | 21,885 | | | $ | 477,105 | | | $ | 561,519 | | | $ | (37,185 | ) | | $ | 1,023,324 | |
| Long-term debt | | | 396,094 | | | | - | | | | 232 | | | | - | | | | 396,326 | |
| Accrued pension costs | | | 413,302 | | | | 7,926 | | | | 7,120 | | | | - | | | | 428,348 | |
| Other non-current liabilities | | | 29,565 | | | | 13,794 | | | | 37,290 | | | | - | | | | 80,649 | |
| Shareholders’ equity | | | 1,342,366 | | | | 1,217,292 | | | | 1,804,879 | | | | (3,022,171 | ) | | | 1,342,366 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total liabilities and shareholders’ equity | | $ | 2,203,212 | | | $ | 1,716,117 | | | $ | 2,411,040 | | | $ | (3,059,356 | ) | | $ | 3,271,013 | |
Condensed Consolidating Statement of Cash Flows:
Nine Months Ended July 29, 2011
(In thousands)
| | | Parent | | | Subsidiary | | | Non-Guarantor | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Consolidated | |
| Net cash provided by operating activities – continuing operations | | $ | 285,682 | | | $ | 35,685 | | | $ | 24,767 | | | $ | 346,134 | |
| Net cash used by operating activities – discontinued operations | | | - | �� | | | (2,444 | ) | | | - | | | | (2,444 | ) |
| Net cash provided by operating activities | | | 285,682 | | | | 33,241 | | | | 24,767 | | | | 343,690 | |
| | | | | | | | | | | | | | | | | |
| Investing Activities: | | | | | | | | | | | | | | | | |
| Investment in IMM | | | (140,613 | ) | | | - | | | | - | | | | (140,613 | ) |
| Acquisition of LeTourneau | | | (1,041,161 | ) | | | - | | | | - | | | | (1,041,161 | ) |
| Other | | | (1,029 | ) | | | (43,370 | ) | | | (28,276 | ) | | | (72,675 | ) |
| Net cash used by investing activities – continuing operations | | | (1,182,803 | ) | | | (43,370 | ) | | | (28,276 | ) | | | (1,254,449 | ) |
| Net cash used by investing activities – discontinued operations | | | - | | | | (361 | ) | | | - | | | | (361 | ) |
| Net cash used by investing activities | | | (1,182,803 | ) | | | (43,731 | ) | | | (28,276 | ) | | | (1,254,810 | ) |
| Share-based payment awards | | | 70,426 | | | | - | | | | - | | | | 70,426 | |
| Changes in short and long-term obligations, net | | | 500,000 | | | | 2,436 | | | | 6,425 | | | | 508,861 | |
| Other | | | (64,305 | ) | | | - | | | | - | | | | (64,305 | ) |
| Net cash provided by financing activities – continuing operations | | | 506,121 | | | | 2,436 | | | | 6,425 | | | | 514,982 | |
| Net cash provided by financing activities – discontinued operations | | | - | | | | - | | | | - | | | | - | |
| Net cash provided by financing activities | | | 506,121 | | | | 2,436 | | | | 6,425 | | | | 514,982 | |
| | | | | | | | | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | - | | | | - | | | | 23,649 | | | | 23,649 | |
| Increase (decrease) in cash and cash equivalents | | | (391,000 | ) | | | (8,054 | ) | | | 26,565 | | | | (372,489 | ) |
| Cash and cash equivalents at beginning of period | | | 439,295 | | | | 16,262 | | | | 360,024 | | | | 815,581 | |
| Cash and cash equivalents at end of period | | $ | 48,295 | | | $ | 8,208 | | | $ | 386,589 | | | $ | 443,092 | |
Nine Months Ended July 30, 2010
(In thousands)
| | | Parent | | | Subsidiary | | | Non-Guarantor | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Consolidated | |
| | | | | | | | | | | | | |
| Net cash provided by operating activities | | $ | 228,969 | | | $ | 16,584 | | | $ | 127,376 | | | $ | 372,929 | |
| Net cash used by investing activities | | | (353 | ) | | | (23,949 | ) | | | (28,637 | ) | | | (52,939 | ) |
| Net cash provided (used) by financing activities | | | (42,941 | ) | | | (135 | ) | | | 175 | | | | (42,901 | ) |
| | | | | | | | | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | - | | | | - | | | | (132 | ) | | | (132 | ) |
| Increase (decrease) in cash and cash equivalents | | | 185,675 | | | | (7,500 | ) | | | 98,782 | | | | 276,957 | |
| Cash and cash equivalents at beginning of period | | | 146,223 | | | | 19,030 | | | | 306,432 | | | | 471,685 | |
| Cash and cash equivalents at end of period | | $ | 331,898 | | | $ | 11,530 | | | $ | 405,214 | | | $ | 748,642 | |
| 18. | Supplemental Subsidiary Guarantors |
Note 17, “Subsidiary Guarantors,” to the Condensed Consolidated Financial Statements that appear in our Quarterly Report on Form 10-Q for the period ended July 29, 2011 contained condensed consolidating financial information for Joy Global Inc., on an unconsolidated basis, on a combined basis for the guarantors under our credit agreements and outstanding senior notes, and on a combined basis for non-guarantor subsidiaries, which included all of our foreign subsidiaries and a number of small domestic subsidiaries. The subsidiaries included in the guarantor information appearing in this Note included LeTourneau Technologies Drilling Systems, Inc. (“LDS”), which we expect to sell, and certain immaterial wholly owned subsidiaries of LeTourneau Technologies, Inc. (“LeTourneau”).
We are filing a Form S−3 with the United States Securities and Exchange Commission that lists five of our wholly owned subsidiaries, Joy Technologies Inc., P&H Mining Equipment Inc., N.E.S. Investment Co., Continental Crushing & Conveying Inc. and LeTourneau as guarantors of debt securities. This excludes LDS and other immaterial subsidiaries of LeTourneau that are guarantors under our credit agreements and outstanding senior notes. Accordingly, we are providing supplemental information to reflect condensed consolidated financial information for this revised set of guarantors pursuant to Rule 3-10 of Regulation S-X. This information includes Condensed Consolidating Statements of Income for the three and nine-month periods ended July 29, 2011, Condensed Consolidating Balance Sheets as of July 29, 2011 and a Condensed Consolidating Statement of Cash Flows for the nine months ended July 29, 2011.
Condensed Consolidating Statement of Income
Quarter Ended July 29, 2011
(In thousands)
| | | Parent | | | Subsidiary | | | Non-Guarantor | | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | | |
| Net sales | | $ | - | | | $ | 709,209 | | | $ | 721,649 | | | $ | (294,506 | ) | | $ | 1,136,352 | |
| | | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | - | | | | 474,322 | | | | 491,048 | | | | (225,744 | ) | | | 739,626 | |
| | | | | | | | | | | | | | | | | | | | | |
| Product development, selling and administrative expenses | | | 24,102 | | | | 80,189 | | | | 61,034 | | | | - | | | | 165,325 | |
| Other (income) expense | | | - | | | | 15,975 | | | | (20,566 | ) | | | - | | | | (4,591 | ) |
| Operating income (loss) | | | (24,102 | ) | | | 138,723 | | | | 190,133 | | | | (68,762 | ) | | | 235,992 | |
| | | | | | | | | | | | | | | | | | | | | |
| Intercompany items | | | 4,778 | | | | (7,054 | ) | | | (34,681 | ) | | | 36,957 | | | | - | |
| Interest income (expense) - net | | | (8,687 | ) | | | 382 | | | | 2,273 | | | | - | | | | (6,032 | ) |
| Reorganization items | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from continuing operations | | | | | | | | | | | | | | | | | | | | |
| before income taxes and equity | | | (28,011 | ) | | | 132,051 | | | | 157,725 | | | | (31,805 | ) | | | 229,960 | |
| | | | | | | | | | | | | | | | | | | | | |
| Provision (benefit) for income taxes | | | (29,103 | ) | | | 56,015 | | | | 31,243 | | | | - | | | | 58,155 | |
| Equity in income (loss) of subsidiaries | | | 170,713 | | | | 41,721 | | | | - | | | | (212,434 | ) | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 171,805 | | | $ | 117,757 | | | $ | 126,482 | | | $ | (244,239 | ) | | $ | 171,805 | |
Condensed Consolidating Statement of Income
Nine Months Ended July 29, 2011
(In thousands)
| | | Parent | | | Subsidiary | | | Non-Guarantor | | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | | |
| Net sales | | $ | - | | | $ | 1,942,124 | | | $ | 1,884,478 | | | $ | (757,989 | ) | | $ | 3,068,613 | |
| | | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | - | | | | 1,303,238 | | | | 1,296,176 | | | | (585,799 | ) | | | 2,013,615 | |
| | | | | | | | | | | | | | | | | | | | | |
| Product development, selling and administrative expenses | | | 49,760 | | | | 215,114 | | | | 174,111 | | | | - | | | | 438,985 | |
| Other (income) expense | | | - | | | | 51,059 | | | | (58,898 | ) | | | - | | | | (7,839 | ) |
| Operating income (loss) | | | (49,760 | ) | | | 372,713 | | | | 473,089 | | | | (172,190 | ) | | | 623,852 | |
| | | | | | | | | | | | | | | | | | | | | |
| Intercompany items | | | 31,014 | | | | (33,920 | ) | | | (82,808 | ) | | | 85,714 | | | | - | |
| Interest income (expense) - net | | | (23,637 | ) | | | 2,141 | | | | 7,896 | | | | - | | | | (13,600 | ) |
| Reorganization items | | | (35 | ) | | | - | | | | - | | | | - | | | | (35 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from continuing operations | | | | | | | | | | | | | | | | | | | | |
| before income taxes and equity | | | (42,418 | ) | | | 340,934 | | | | 398,177 | | | | (86,476 | ) | | | 610,217 | |
| | | | | | | | | | | | | | | | | | | | | |
| Provision (benefit) for income taxes | | | (51,481 | ) | | | 136,937 | | | | 88,752 | | | | - | | | | 174,208 | |
| Equity in income (loss) of subsidiaries | | | 426,946 | | | | 152,658 | | | | - | | | | (579,604 | ) | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 436,009 | | | $ | 356,655 | | | $ | 309,425 | | | $ | (666,080 | ) | | $ | 436,009 | |
Condensed Consolidating Balance Sheets:
As of July 29, 2011
(In thousands)
| | | Parent | | | Subsidiary | | | Non-Guarantor | | | | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| ASSETS | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Current assets | | $ | 109,300 | | | $ | 1,127,307 | | | $ | 1,639,273 | | | $ | (173,697 | ) | | $ | 2,702,183 | |
| Current assets of discontinued operations | | | - | | | | 103,829 | | | | 247,750 | | | | - | | | | 351,579 | |
| Property, plant and equipment-net | | | 1,589 | | | | 280,845 | | | | 221,950 | | | | - | | | | 504,384 | |
| Intangible assets-net | | | - | | | | 775,576 | | | | 21,364 | | | | - | | | | 796,940 | |
| Other assets | | | 3,011,794 | | | | 1,258,620 | | | | 1,090,203 | | | | (5,018,425 | ) | | | 342,192 | |
| Non-current assets of discontinued operation | | | - | | | | 192,550 | | | | 40,530 | | | | - | | | | 233,080 | |
| Total assets | | $ | 3,122,683 | | | $ | 3,738,727 | | | $ | 3,261,070 | | | $ | (5,192,122 | ) | | $ | 4,930,358 | |
| | | | | | | | | | | | | | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Current liabilities | | $ | 41,724 | | | $ | 795,054 | | | $ | 806,328 | | | $ | (73,754 | ) | | $ | 1,569,352 | |
| Current liabilities of discontinued operation | | | - | | | | 92,838 | | | | 107,902 | | | | - | | | | 200,740 | |
| Long-term debt | | | 871,359 | | | | 1,932 | | | | 75 | | | | - | | | | 873,366 | |
| Accrued pension costs | | | 310,782 | | | | 7,911 | | | | 7,271 | | | | - | | | | 325,964 | |
| Other non-current liabilities | | | 20,447 | | | | 9,837 | | | | 52,281 | | | | - | | | | 82,565 | |
| Shareholders’ equity | | | 1,878,371 | | | | 2,831,155 | | | | 2,287,213 | | | | (5,118,368 | ) | | | 1,878,371 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total liabilities and shareholders’ equity | | $ | 3,122,683 | | | $ | 3,738,727 | | | $ | 3,261,070 | | | $ | (5,192,122 | ) | | $ | 4,930,358 | |
Condensed Consolidating Statement of Cash Flows:
Nine Months Ended July 29, 2011
(In thousands)
| | | Parent | | | Subsidiary | | | Non-Guarantor | | | | |
| | | Company | | | Guarantors | | | Subsidiaries | | | Consolidated | |
| Net cash provided by operating activities – continuing operations | | $ | 285,682 | | | $ | 28,380 | | | $ | 32,072 | | | $ | 346,134 | |
| Net cash used by operating activities – discontinued operations | | | - | | | | (4,640 | ) | | | 2,196 | | | | (2,444 | ) |
| Net cash provided by operating activities | | | 285,682 | | | | 23,740 | | | | 34,268 | | | | 343,690 | |
| | | | | | | | | | | | | | | | | |
| Investing Activities: | | | | | | | | | | | | | | | | |
| Investment in IMM | | | (140,613 | ) | | | - | | | | - | | | | (140,613 | ) |
| Acquisition of LeTourneau | | | (1,041,161 | ) | | | - | | | | - | | | | (1,041,161 | ) |
| Other | | | (1,029 | ) | | | (43,370 | ) | | | (28,276 | ) | | | (72,675 | ) |
| Net cash used by investing activities – continuing operations | | | (1,182,803 | ) | | | (43,370 | ) | | | (28,276 | ) | | | (1,254,449 | ) |
| Net cash used by investing activities – discontinued operations | | | - | | | | (413 | ) | | | 52 | | | | (361 | ) |
| Net cash used by investing activities | | | (1,182,803 | ) | | | (43,783 | ) | | | (28,224 | ) | | | (1,254,810 | ) |
| Share-based payment awards | | | 70,426 | | | | - | | | | - | | | | 70,426 | |
| Changes in short and long-term obligations, net | | | 500,000 | | | | 2,436 | | | | 6,425 | | | | 508,861 | |
| Other | | | (64,305 | ) | | | - | | | | - | | | | (64,305 | ) |
| Net cash provided by financing activities – continuing operations | | | 506,121 | | | | 2,436 | | | | 6,425 | | | | 514,982 | �� |
| Net cash provided by financing activities – discontinued operations | | | - | | | | - | | | | - | | | | - | |
| Net cash provided by financing activities | | | 506,121 | | | | 2,436 | | | | 6,425 | | | | 514,982 | |
| | | | | | | | | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | - | | | | - | | | | 23,649 | | | | 23,649 | |
| Increase (decrease) in cash and cash equivalents | | | (391,000 | ) | | | (17,607 | ) | | | 36,118 | | | | (372,489 | ) |
| Cash and cash equivalents at beginning of period | | | 439,295 | | | | 16,262 | | | | 360,024 | | | | 815,581 | |
| Cash and cash equivalents at end of period | | $ | 48,295 | | | $ | (1,345 | ) | | $ | 396,1429 | | | $ | 443,092 | |
