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EX-31.1 - EXHIBIT 31.1 - JOY GLOBAL INCjoy-07292016xex311x10q.htm
EX-32.1 - EXHIBIT 32.1 - JOY GLOBAL INCjoy-07292016xex321x10q.htm
EX-31.2 - EXHIBIT 31.2 - JOY GLOBAL INCjoy-07292016xex312x10q.htm

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________ 
FORM 10-Q
____________________________________________ 
(MARK ONE)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED July 29, 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)
____________________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files.)    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer or a smaller reporting company. See definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
LARGE ACCELERATED FILER
ý
 
ACCELERATED FILER
¨
 
 
 
 
 
NON-ACCELERATED FILER
¨
 
SMALLER REPORTING COMPANY
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
Class
 
August 26, 2016
Common Stock, $1 par value
 
98,162,806
 
 
 
 
 




JOY GLOBAL INC.
FORM 10-Q INDEX
July 29, 2016
 
PAGE NO.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






Forward-Looking Statements

This document contains forward-looking statements, including estimates, projections, statements relating to our business plans, objectives, pending acquisitions, expected operating results and other non-historical information, and the assumptions on which those statements are based. These statements constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are identified by forward-looking terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “indicate,” “intend,” “may be,” “objective,” “plan,” “potential,” “predict,” “should,” “will be” and similar expressions. Forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from any forward-looking statement. In addition, certain market outlook information and other market statistical data contained herein is based on third party sources that we cannot independently verify, but that we believe to be reliable. Important factors that could cause our actual results to differ materially from the results anticipated by the forward-looking statements include:

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:
our failure to obtain shareholder approval of the Merger;
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 global 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 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 3, Quantitative and Qualitative Disclosures about Market Risk, as well as the risks disclosed in Item 1A, Risk Factors, of our annual Report on Form 10-K for our fiscal year ended October 30, 2015 and in other filings that we make with the U.S. Securities and Exchange Commission (the "SEC"). Any or all of these factors could cause our results of operations, financial condition or liquidity for future periods to differ materially from those expressed in or implied by any forward-looking statement. Furthermore, there may be other factors that could cause our actual results to differ materially from the results referred to in any forward-looking statement. 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.




PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
JOY GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
 

Quarter Ended
 
Nine Months Ended

July 29,
2016
 
July 31,
2015
 
July 29,
2016
 
July 31,
2015
Net sales
$
586,552

 
$
792,183

 
$
1,714,837

 
$
2,306,579

Cost of sales
454,594

 
574,838

 
1,351,329

 
1,668,633

Product development, selling and administrative expenses
114,377

 
128,553

 
341,433

 
390,089

Restructuring expenses
24,431

 
7,775

 
84,484

 
19,550

Other income
(1,681
)
 
(1,234
)
 
(7,828
)
 
(5,347
)
Operating (loss) income
(5,169
)
 
82,251

 
(54,581
)
 
233,654

Interest income
1,184

 
2,543

 
2,849

 
8,463

Interest expense
(12,291
)
 
(16,219
)
 
(37,651
)
 
(48,368
)
(Loss) income before income taxes
(16,276
)
 
68,575

 
(89,383
)
 
193,749

(Benefit) provision for income taxes
(16,404
)
 
17,239

 
(33,985
)
 
55,930

Net income (loss) from continuing operations
128

 
51,336

 
(55,398
)
 
137,819

Income from discontinued operations, net of income taxes

 

 
5,466

 

Net income (loss)
$
128

 
$
51,336

 
$
(49,932
)
 
$
137,819

 
 
 
 
 
 
 
 
Basic earnings (loss) per share:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.00

 
$
0.53

 
$
(0.57
)
 
$
1.41

Income from discontinued operations

 

 
0.06

 

Net income (loss)
$
0.00

 
$
0.53

 
$
(0.51
)
 
$
1.41

 
 
 
 
 
 
 
 
Diluted earnings (loss) per share:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.00

 
$
0.52

 
$
(0.57
)
 
$
1.41

Income from discontinued operations

 

 
0.06

 

Net income (loss)
$
0.00

 
$
0.52

 
$
(0.51
)
 
$
1.41

 
 
 
 
 
 
 
 
Dividends per share
$
0.01

 
$
0.20

 
$
0.03

 
$
0.60

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
98,160

 
97,480

 
97,977

 
97,481

Diluted
99,224

 
98,033

 
97,977

 
98,052

See Notes to Condensed Consolidated Financial Statements.

3


JOY GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(In thousands)
 
 
Quarter Ended
 
July 29,
2016
 
July 31,
2015
Net income
$
128

 
$
51,336

Other comprehensive (loss) income:
 
 
 
Change in unrecognized prior service costs on pension and other postretirement obligations, net of taxes of $40 and $16
93

 
34

Derivative instrument fair market value adjustment, net of (benefits) taxes of ($4,485) and $1,312
(4,138
)
 
3,137

Foreign currency translation adjustment on long-term intercompany foreign loans
4,746

 
2,332

Other foreign currency translation adjustment
(13,861
)
 
(42,977
)
Total other comprehensive loss, net of taxes
(13,160
)
 
(37,474
)
Comprehensive (loss) income
$
(13,032
)
 
$
13,862

 
 
 
 
 
Nine Months Ended
 
July 29,
2016
 
July 31,
2015
Net (loss) income
$
(49,932
)
 
$
137,819

Other comprehensive (loss) income:
 
 
 
Change in unrecognized prior service costs on pension and other postretirement obligations, net of (benefits) taxes of ($59) and $48
(42
)
 
103

Derivative instrument fair market value adjustment, net of (benefits) taxes of ($4,850) and $2,791
(4,993
)
 
6,736

Foreign currency translation adjustment on long-term intercompany foreign loans
10,963

 
(1,414
)
Other foreign currency translation adjustment
(13,688
)
 
(151,797
)
Total other comprehensive loss, net of taxes
(7,760
)
 
(146,372
)
Comprehensive loss
$
(57,692
)
 
$
(8,553
)

See Notes to Condensed Consolidated Financial Statements.


4


JOY GLOBAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 
July 29,
2016
 
October 30,
2015
 
(unaudited)
 
(audited)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
182,825

 
$
102,885

Accounts receivable, net
647,017

 
812,073

Inventories
896,257

 
1,007,925

Other current assets
91,400

 
145,559

Assets held for sale
33,724

 

Total current assets
1,851,223

 
2,068,442

Property, plant and equipment, net
673,943

 
792,032

Other assets:
 
 
 
Other intangible assets, net
229,703

 
255,710

Goodwill
350,740

 
354,621

Deferred income taxes
202,463

 
118,913

Other non-current assets
125,345

 
122,728

Total other assets
908,251

 
851,972

Total assets
$
3,433,417

 
$
3,712,446

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term borrowings, including current portion of long-term obligations
$
32,545

 
$
26,321

Trade accounts payable
231,713

 
275,789

Employee compensation and benefits
76,340

 
90,335

Advance payments and progress billings
197,437

 
229,470

Accrued warranties
41,288

 
52,146

Other accrued liabilities
209,869

 
225,277

Current liabilities of discontinued operations

 
11,582

Total current liabilities
789,192

 
910,920

Long-term obligations
974,247

 
1,060,643

Other liabilities:
 
 
 
Liabilities for postretirement benefits
17,546

 
19,540

Accrued pension costs
160,894

 
175,699

Other non-current liabilities
118,692

 
125,635

Total other liabilities
297,132

 
320,874

Shareholders’ equity
1,372,846

 
1,420,009

Total liabilities and shareholders’ equity
$
3,433,417

 
$
3,712,446

See Notes to Condensed Consolidated Financial Statements.

5


JOY GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Nine Months Ended
 
July 29,
2016
 
July 31,
2015
Operating Activities:
 
 
 
Net (loss) income
$
(49,932
)
 
$
137,819

Income from discontinued operations
(5,466
)
 

Adjustments to continuing operations:
 
 
 
Depreciation and amortization
117,902

 
102,914

Impairment charges
18,962

 

Changes in deferred income taxes
(735
)
 
18,123

Contributions to defined benefit employee pension and postretirement plans
(12,293
)
 
(14,786
)
Defined benefit employee pension and postretirement plan income
(1,745
)
 
(18,649
)
Share-based compensation expense
18,167

 
23,846

Changes in long-term receivables
(11,485
)
 
11,335

Other adjustments to continuing operations, net
14,497

 
2,878

Changes in working capital items attributed to continuing operations:
 
 
 
Accounts receivable, net
156,759

 
198,081

Inventories
84,469

 
(126,730
)
Other current assets
1,719

 
(17,265
)
Trade accounts payable
(39,081
)
 
(60,936
)
Employee compensation and benefits
(12,377
)
 
(55,106
)
Advance payments and progress billings
(30,991
)
 
35,462

Accrued warranties
(8,153
)
 
(9,800
)
Other accrued liabilities
(61,434
)
 
(58,472
)
Net cash provided by operating activities
178,783

 
168,714

Investing Activities:
 
 
 
Acquisition of business, net of cash acquired

 
(114,353
)
Property, plant and equipment acquired
(31,984
)
 
(57,821
)
Proceeds from sale of property, plant and equipment
20,078

 
4,071

Other investing activities, net
184

 
625

Net cash used by investing activities
(11,722
)
 
(167,478
)
Financing Activities:
 
 
 
Common stock issued

 
2,853

Dividends paid
(2,972
)
 
(58,456
)
Repayments of term loan
(18,750
)
 

Payments on credit agreement
(58,600
)
 

Repayments of short-term debt
(3,214
)
 
(11,545
)
Financing fees
(1,011
)
 

Treasury stock purchased

 
(50,000
)
Other financing activities, net

 
261

Net cash used by financing activities
(84,547
)
 
(116,887
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(2,574
)
 
(13,640
)
Increase (Decrease) in Cash and Cash Equivalents
79,940

 
(129,291
)
Cash and Cash Equivalents at Beginning of Period
102,885

 
270,191

Cash and Cash Equivalents at End of Period
$
182,825

 
$
140,900


See Notes to Condensed Consolidated Financial Statements.

6


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

1.
Description of Business
Joy Global Inc. (the "Company," "we" and "us") is a leading manufacturer and servicer of high productivity mining equipment for the extraction of metals and minerals. We manufacture and market original equipment and parts and perform services for both underground and surface mining, as well as certain industrial applications. Our equipment is used in major mining regions throughout the world to mine coal, copper, iron ore, oil sands, gold and other minerals. We operate in two business segments: Underground Mining Machinery ("Underground") and Surface Mining Equipment ("Surface"). We are a major manufacturer of underground mining machinery for the extraction 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 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 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this report, as well as our Current Report on Form 8-K filed on July 21, 2016, our preliminary proxy statement filed on August 15, 2016 and the Merger Agreement, which is attached as Annex A thereto. 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.

2.
Basis of Presentation
The Condensed Consolidated Financial Statements presented in this Quarterly Report on Form 10-Q are unaudited and are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to SEC rules and regulations. In our opinion, all adjustments necessary for the fair presentation on a going concern basis of the results of operations, cash flows and financial position for all periods presented have been made. All such adjustments made are of a normal recurring nature. The preparation of the financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate realization of assets and settlement of liabilities in the future could differ from those estimates.
These financial statements should be read in conjunction with the financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended October 30, 2015. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. Further, 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 return on plan assets for all of our pension and other post-retirement benefit plans as discussed further in our Form 10-K for the fiscal year ended October 30, 2015.

3.
Acquisitions
Acquisition of Montabert S.A.S.
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. 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 our 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.

7


In connection with the acquisition, we recorded goodwill of approximately $55.5 million and intangible assets of approximately $35.1 million. The intangible assets are comprised primarily of customer relationships, trade names and patents, which are being amortized over their respective estimated useful lives. Other assets acquired consisted of working capital related items and property, plant and equipment, with values that were not individually significant.

4.
Inventories
Consolidated inventories consist of the following:
 
In thousands
July 29,
2016
 
October 30,
2015
Finished goods
697,055

 
$
814,306

Work in process
151,788

 
135,310

Raw materials
47,414

 
58,309

Total inventories
$
896,257

 
$
1,007,925

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

5.
Held for Sale Assets
As of July 29, 2016, our steel mill business and certain assets associated with several of our U.S. facilities met the held for sale criteria in both the Surface and Underground segments. We are disposing of these non-core assets in response to adverse market conditions. The disposal groups have been recognized at the lower of cost or fair value less costs to sell. No gain or loss was recognized in the quarter ended July 29, 2016. On August 5, 2016, we completed the sale of our steel mill business. Refer to Note 23, Subsequent Events, for additional information.
The value of the assets consist of the following:
In thousands
July 29,
2016
Inventories
3,789

Property, plant and equipment, net
23,254

Other intangible assets, net
2,336

Goodwill
4,345

Total
$
33,724

We have recorded these assets as current in the Assets held for sale line of the Condensed Consolidated Balance Sheet, as we expect these assets to be sold within the next year.

6.
Goodwill and Other Intangible Assets
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 July 29, 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 as of April 29, 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 nine months ended July 29, 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 17, Fair Value Measurements, for the definition of Level 3 inputs. This charge is recorded in the Condensed Consolidated Statement of Operations under the heading Restructuring expenses.
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

8


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. The most recent goodwill impairment test was performed as of January 29, 2016, as our total shareholders’ equity exceeded our market capitalization based on our stock price of $9.97 per share at that point in time, and therefore indicated the possibility of an impairment to goodwill. This interim goodwill impairment test focused on our Surface reporting unit, as all Underground goodwill was fully impaired in the fourth quarter of 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 15%. We determined that there were no indicators of impairment for the quarter ended July 29, 2016 that would warrant an additional interim impairment test at that point in time. Although we have concluded that there is no impairment on the goodwill of $350.7 million associated with our Surface reporting unit as of July 29, 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. We will be performing our annual goodwill impairment test in the fourth quarter of fiscal 2016.

7.
Warranties
We provide for the estimated costs that may be incurred under product warranties to remedy deficiencies of quality or performance of our products. Warranty costs are accrued at the time revenue is recognized. These product warranties extend over either a specified period of time, units of production or machine hours depending on the product subject to the warranty. We accrue a provision for estimated future warranty costs based on the historical relationship of warranty costs to sales. We periodically review the adequacy of the accrual for product warranties and adjust the warranty percentage and accrued warranty reserve for actual experience as necessary.
The following table reconciles the changes in the product warranty reserve:
 
Quarter Ended
 
Nine Months Ended
In thousands
July 29,
2016
 
July 31,
2015
 
July 29,
2016
 
July 31,
2015
Balance, beginning of period
46,981

 
$
58,194

 
$
52,146

 
$
67,272

Accrual for warranty expensed during the period
6,109

 
7,701

 
18,074

 
26,554

Settlements made during the period
(9,989
)
 
(9,933
)
 
(26,251
)
 
(36,320
)
Effect of foreign currency translation
(1,813
)
 
(359
)
 
(2,681
)
 
(1,903
)
Balance, end of period
$
41,288

 
$
55,603

 
$
41,288

 
$
55,603


8.
Borrowings and Credit Facilities
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 in the second quarter of fiscal 2016 and to 4.25x in the third quarter of fiscal 2016, and will further increase the permitted ratio to 4.5x in the fourth quarter of fiscal 2016. The ratio will 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

9


other returns of capital to shareholders if the consolidated leverage ratio exceeds the maximum amount set forth therein. As of July 29, 2016, we were in compliance with all financial covenants of the Credit Agreement.
As of July 29, 2016, there were no direct borrowings under the Credit Agreement. Total interest expense recognized for direct borrowings under the Credit Agreement for the quarters ended July 29, 2016 and July 31, 2015 was less than $0.1 million and $0.4 million, respectively. For the nine months ended July 29, 2016 and July 31, 2015, total interest expense recognized for direct borrowings under the Credit Agreement was $0.5 million and $0.9 million, respectively. As of July 29, 2016, outstanding standby letters of credit issued under the Credit Agreement, which count toward the $850.0 million credit limit, totaled $110.9 million, and our available borrowing capacity under the Credit Agreement was $739.1 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. 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 beginning in fiscal 2016. No payments were made during the quarter ended July 29, 2016, as we prepaid $9.4 million in the second quarter of fiscal 2016 for the payments due in the third and fourth quarter of fiscal 2016. Payments of $18.8 million were made on the Term Loan during the nine months ended July 29, 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 July 29, 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 in 2036 (the "2036 Notes"). 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 2036 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%.
Our borrowings also include amounts related to transfers of certain receivables under factoring arrangements with recourse related to our French operations.
Direct borrowings and capital lease obligations consist of the following:
In thousands
July 29,
2016
 
October 30,
2015
Domestic:
 
 
 
Term Loan due 2019
356,250

 
375,000

5.125% Senior Notes due 2021
497,500

 
497,195

6.625% Senior Notes due 2036
148,577

 
148,553

Credit Agreement

 
58,600

Foreign:
 
 
 
Capital leases
116

 
159

Factoring arrangement
4,349

 
7,457

Total obligations
1,006,792

 
1,086,964

Less: Amounts due within one year
(32,545
)
 
(26,321
)
Long-term obligations
$
974,247

 
$
1,060,643


10


     

9.
Accumulated Other Comprehensive Loss
Comprehensive (loss) income and its components are presented in the Condensed Consolidated Statements of Comprehensive (Loss) Income. Changes in accumulated other comprehensive (loss) income, net of taxes, consist of the following:
 
Quarter ended July 29, 2016
 
Quarter ended July 31, 2015
 
Change in Unrecognized Prior Service Costs on Pension and Other Postretirement Obligations
 
Derivative Instrument Fair Market Value Adjustment
 
Foreign Currency Translation Adjustment
 
Total
 
Change in Unrecognized Prior Service Costs on Pension and Other Postretirement Obligations
 
Derivative Instrument Fair Market Value Adjustment
 
Foreign Currency Translation Adjustment
 
Total
Beginning balance
$
(1,417
)
 
$
9,439

 
$
(149,693
)
 
$
(141,671
)
 
$
(1,417
)
 
$
8,335

 
$
(122,096
)
 
$
(115,178
)
Other comprehensive (loss) income before reclassifications, net of taxes

 
(4,458
)
 
(9,115
)
 
(13,573
)
 

 
1,979

 
(40,645
)
 
(38,666
)
Amounts reclassified from accumulated other comprehensive (loss) income, net of taxes
93

 
320

 

 
413

 
34

 
1,158

 

 
1,192

Total other comprehensive (loss) income, net of taxes
93

 
(4,138
)
 
(9,115
)
 
(13,160
)
 
34

 
3,137

 
(40,645
)
 
(37,474
)
Ending balance
$
(1,324
)
 
$
5,301

 
$
(158,808
)
 
$
(154,831
)
 
$
(1,383
)
 
$
11,472

 
$
(162,741
)
 
$
(152,652
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended July 29, 2016
 
Nine months ended July 31, 2015
 
Change in Unrecognized Prior Service Costs on Pension and Other Postretirement Obligations
 
Derivative Instrument Fair Market Value Adjustment
 
Foreign Currency Translation Adjustment
 
Total
 
Change in Unrecognized Prior Service Costs on Pension and Other Postretirement Obligations
 
Derivative Instrument Fair Market Value Adjustment
 
Foreign Currency Translation Adjustment
 
Total
Beginning balance
$
(1,282
)
 
$
10,294

 
$
(156,083
)
 
$
(147,071
)
 
$
(1,486
)
 
$
4,736

 
$
(9,530
)
 
$
(6,280
)
Other comprehensive (loss) income before reclassifications, net of taxes

 
(7,203
)
 
(2,725
)
 
(9,928
)
 

 
4,192

 
(153,211
)
 
(149,019
)
Amounts reclassified from accumulated other comprehensive loss (income), net of taxes
(42
)
 
2,210

 

 
2,168

 
103

 
2,544

 

 
2,647

Total other comprehensive (loss) income, net of taxes
(42
)
 
(4,993
)
 
(2,725
)
 
(7,760
)
 
103

 
6,736

 
(153,211
)
 
(146,372
)
Ending balance
$
(1,324
)
 
$
5,301

 
$
(158,808
)
 
$
(154,831
)
 
$
(1,383
)
 
$
11,472

 
$
(162,741
)
 
$
(152,652
)
Details of the reclassifications from accumulated other comprehensive (loss) income are disclosed below:

11


 
 
Amounts Reclassified from Accumulated Other Comprehensive (Loss) Income
 
 
 
 
Quarter Ended
 
Nine Months Ended
 
Affected Line Items in the Statements of Operations
 
 
July 29,
2016
 
July 31,
2015
 
July 29,
2016
 
July 31,
2015
 
Change in unrecognized prior service costs on pension and other postretirement obligations:
 
 
 
 
 
 
 
 
 
 
Amortization of prior service cost
 
$
46

 
$
50

 
$
157

 
$
151

 
Cost of sales/Product development, selling and administrative expense*
Curtailment loss (gain)
 
87

 

 
(258
)
 

 
Cost of sales/Product development, selling and administrative expense*
Deferred tax
 
(40
)
 
(16
)
 
59

 
(48
)
 
Provision for income taxes
Amounts reclassified from accumulated other comprehensive loss, net of taxes
 
$
93

 
$
34

 
$
(42
)
 
$
103

 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instrument fair market value adjustment:
 
 
 
 
 
 
 
 
 
 
Foreign exchange cash flow hedges
 
$
666

 
$
1,642

 
$
3,369

 
$
3,606

 
Net sales/Cost of sales**
Deferred tax
 
(346
)
 
(484
)
 
(1,159
)
 
(1,062
)
 
Provision for income taxes
Amounts reclassified from accumulated other comprehensive income, net of taxes
 
$
320

 
$
1,158

 
$
2,210

 
$
2,544

 
 
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
413

 
$
1,192

 
$
2,168

 
$
2,647

 
 

* Amounts are included in the computation of net periodic benefits costs as either cost of sales or product development, selling and administrative expense as appropriate. Refer to Note 13, Retiree Benefits, for additional information.

** Amounts are included in either net sales or cost of sales as appropriate. Refer to Note 14, Derivatives, for additional information.

10.
Shareholders' Equity
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 quarter and nine months ended July 29, 2016, we did not repurchase any shares of common stock. During the quarter ended July 31, 2015, we did not repurchase any shares of common stock. During the nine months ended July 31, 2015, we repurchased 954,580 shares of common stock for approximately $50.0 million. Cumulatively, we repurchased 9,771,605 shares of common stock under the program for approximately $533.4 million. The repurchase program expired in August 2016.

11.
Share-Based Compensation
Total share-based compensation expense recognized for the quarters ended July 29, 2016 and July 31, 2015 was $6.9 million and $7.9 million, respectively. Total share-based compensation expense recognized for the nine months ended July 29, 2016 and July 31, 2015 was $18.2 million and $23.8 million, respectively. The total share-based compensation expense is reflected in our Condensed Consolidated Statements of Cash Flows in operating activities as an add back to net (loss) income.
The corresponding deferred tax assets recognized related to the share-based compensation were $1.7 million and $2.1 million for the quarters ended July 29, 2016 and July 31, 2015, respectively. The corresponding deferred tax assets recognized related to the share-based compensation expense were $5.0 million and $6.2 million for the nine months ended July 29, 2016 and July 31, 2015, respectively.

12.
Restructuring Charges
During fiscal 2015, in response to the adverse market conditions, management implemented further cost reduction initiatives, which we refer to as the Restructuring Program. Expected and actual costs related to the Restructuring Program have continued into 2016 as more activities have been planned and initiated. These costs include entering into severance and termination agreements and full or partial closures and idling of certain facilities in order to better align the Company's overall cost structure with anticipated levels of future demand. We currently expect to complete the Restructuring Program by the end of fiscal 2017.

12


Restructuring charges incurred to date related to the Restructuring Program have consisted primarily of employee severance and termination costs, asset impairment charges and accelerated depreciation. Other costs consist primarily of equipment and inventory relocation costs, site clean-up costs, production readiness testing costs, and transition costs, as well as inventory and other asset write-downs. The following tables summarize restructuring costs by line item:
In thousands
Quarter ended July 29, 2016
 
Quarter ended July 31, 2015
 
Restructuring Expenses
 
Cost of Sales
 
Total
 
Restructuring Expenses
 
Cost of Sales
 
Total
Employee severance and termination costs
$
10,908

 
$

 
$
10,908

 
$
7,775

 
$

 
$
7,775

Asset impairment charges
1,817

 

 
1,817

 

 

 

Accelerated depreciation
10,189

 

 
10,189

 

 

 

Other costs
1,517

 
300

 
1,817

 

 

 

Total restructuring and related charges
$
24,431

 
$
300

 
$
24,731

 
$
7,775

 
$

 
$
7,775

In thousands
Nine months ended July 29, 2016
 
Nine months ended July 31, 2015
 
Restructuring Expenses
 
Cost of Sales
 
Total
 
Restructuring Expenses
 
Cost of Sales
 
Total
Employee severance and termination costs
$
41,973

 
$

 
$
41,973

 
$
19,550

 
$

 
$
19,550

Asset impairment charges
18,962

 

 
18,962

 

 

 

Accelerated depreciation
20,057

 

 
20,057

 

 

 

Other costs
3,492

 
1,606

 
5,098

 

 

 

Total restructuring and related charges
$
84,484

 
$
1,606

 
$
86,090

 
$
19,550

 
$

 
$
19,550

The following tables summarize the amounts incurred for the period by segment:
In thousands
Quarter ended July 29, 2016
 
Underground
 
Surface
 
Corporate
 
Total
Employee severance and termination costs
$
8,393

 
$
2,515

 
$

 
$
10,908

Asset impairment charges
1,817

 

 

 
1,817

Accelerated depreciation
3,455

 
6,734

 

 
10,189

Other costs
936

 
881

 

 
1,817

Total restructuring and related charges
$
14,601

 
$
10,130

 
$

 
$
24,731

In thousands
Quarter ended July 31, 2015
 
Underground
 
Surface
 
Corporate
 
Total
Employee severance and termination costs
$
6,896

 
$
879

 
$

 
$
7,775

Total restructuring and related charges
$
6,896

 
$
879

 
$

 
$
7,775

In thousands
Nine months ended July 29, 2016
 
Underground
 
Surface
 
Corporate
 
Total
Employee severance and termination costs*
$
37,415

 
$
4,163

 
$
395

 
$
41,973

Asset impairment charges
18,962

 

 

 
18,962

Accelerated depreciation
13,323

 
6,734

 

 
20,057

Other costs
4,217

 
881

 

 
5,098

Total restructuring and related charges
$
73,917

 
$
11,778

 
$
395

 
$
86,090

In thousands
Nine months ended July 31, 2015
 
Underground
 
Surface
 
Corporate
 
Total
Employee severance and termination costs
$
12,312

 
$
6,986

 
$
252

 
$
19,550

Total restructuring and related charges
$
12,312

 
$
6,986

 
$
252

 
$
19,550


13


* The amount incurred during the nine months ended July 29, 2016 includes $9.4 million of expense for contractual termination benefits under the Joy Global qualified pension plan as part of continued restructuring activities in our Underground division. As noted below, amounts accrued for contractual termination benefits are included in our retiree benefit liabilities.
The impairment charges above relate to both property, plant and equipment and indefinite-lived trademarks. During the second and third quarters of 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 in both the second and third quarters of fiscal 2016 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 $1.8 million and $12.4 million for the quarter and nine months ended July 29, 2016, respectively, for our Underground segment related to such property, plant, and equipment. These fair value determinations are categorized as Level 3 in the fair value hierarchy. Refer to Note 17, Fair Value Measurements, for the definition of Level 3 inputs.
As discussed in Note 6, Goodwill and Other Intangible Assets, we also assessed our indefinite-lived trademarks using the relief-from-royalty methodology during the second quarter of 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 nine months ended July 29, 2016 by our Underground segment.
The following table summarizes the cumulative amounts incurred from inception to date by segment:
In thousands
July 29, 2016
 
Underground
 
Surface
 
Corporate
 
Total
Employee severance and termination costs
$
53,755

 
$
16,614

 
$
2,980

 
$
73,349

Asset impairment charges
18,962

 

 

 
18,962

Accelerated depreciation
15,402

 
6,734

 

 
22,136

Other costs
4,944

 
881

 

 
5,825

Total restructuring and related charges
$
93,063

 
$
24,229

 
$
2,980

 
$
120,272

The following table summarizes the total expected costs from inception of the Restructuring Program through fiscal 2017 by segment:
In thousands
July 29, 2016
 
Underground
 
Surface
 
Corporate
 
Total
Employee severance and termination costs
$
56,000

 
$
17,000

 
$
3,000

 
$
76,000

Asset impairment charges
19,000

 

 

 
19,000

Accelerated depreciation
15,000

 
7,000

 

 
22,000

Other costs
8,000

 
1,000

 

 
9,000

Total restructuring and related charges
$
98,000

 
$
25,000

 
$
3,000

 
$
126,000

Amounts impacting the Company's reserves for restructuring charges for its Restructuring Program relate to employee severance and termination and other costs as follows:
 
Quarter Ended
In thousands
July 29, 2016
 
July 31, 2015
 
Employee Severance and Termination Costs
 
Other Costs
 
Total
 
Employee Severance and Termination Costs
 
Other Costs
 
Total
Beginning accrual
$
15,279

 
$
138

 
$
15,417

 
$
9,328

 
$

 
$
9,328

Costs incurred
10,908

 
1,986

 
12,894

 
7,775

 

 
7,775

Costs paid/settled
(16,138
)
 
(2,124
)
 
(18,262
)
 
(7,963
)
 

 
(7,963
)
Other adjustments
7

 

 
7

 

 

 

Effect of foreign currency translation
(172
)
 

 
(172
)
 
(118
)
 

 
(118
)
Ending accrual
$
9,884

 
$

 
$
9,884

 
$
9,022

 
$

 
$
9,022


14


 
Nine Months Ended
In thousands
July 29, 2016
 
July 31, 2015
 
Employee Severance and Termination Costs
 
Other Costs
 
Total
 
Employee Severance and Termination Costs
 
Other Costs
 
Total
Beginning accrual
$
13,614

 
$

 
$
13,614

 
$

 
$

 
$

Costs incurred
32,565

 
3,781

 
36,346

 
19,550

 

 
19,550

Costs paid/settled
(33,238
)
 
(3,781
)
 
(37,019
)
 
(10,528
)
 

 
(10,528
)
Other adjustments
(2,908
)
 

 
(2,908
)
 

 

 

Effect of foreign currency translation
(149
)
 

 
(149
)
 

 

 

Ending accrual
$
9,884

 
$

 
$
9,884

 
$
9,022

 
$

 
$
9,022

Included in other adjustments for the nine months ended July 29, 2016 is $2.6 million of contractual termination benefits recognized in fiscal 2015 under the Joy Global qualified pension plan for benefits to be provided to certain employees as part of restructuring activities in our Underground division. Those amounts are recorded in our retiree benefit liabilities and are therefore excluded from the restructuring accrual roll-forward above.
For the Restructuring Program, total restructuring charges are currently anticipated to be approximately $126 million through fiscal 2017, with total expected cash costs related to the Restructuring Program estimated to be approximately $83 million.

13.
Retiree Benefits
The components of the net periodic benefit (income) cost associated with our pension and other postretirement plans are as follows:
 
Pension Benefits
 
Postretirement Benefits
 
Quarter Ended
 
Quarter Ended
In thousands
July 29,
2016
 
July 31,
2015
 
July 29,
2016
 
July 31,
2015
Service cost
$
1,227

 
$
1,028

 
$
153

 
$
204

Interest cost
18,742

 
18,344

 
279

 
290

Expected return on assets
(23,803
)
 
(25,897
)
 
(143
)
 
(155
)
Amortization of prior service cost
16

 
17

 
30

 
33

Curtailment loss

 

 
178

 

Mark to market adjustment on curtailed plans

 

 
(123
)
 

Special termination benefits

 

 
40

 

Net periodic benefit (income) cost
$
(3,818
)
 
$
(6,508
)
 
$
414

 
$
372

 
 
 
 
 
 
 
 
 
Pension Benefits
 
Postretirement Benefits
 
Nine Months Ended
 
Nine Months Ended
In thousands
July 29,
2016
 
July 31,
2015
 
July 29,
2016
 
July 31,
2015
Service cost
$
3,679

 
$
2,978

 
$
466

 
$
613

Interest cost
56,224

 
57,690

 
839

 
872

Expected return on assets
(71,478
)
 
(80,487
)
 
(437
)
 
(466
)
Amortization of prior service cost
50

 
52

 
107

 
99

Curtailment gain

 

 
(484
)
 

Mark to market adjustment on curtailed plans

 

 
(159
)
 

Special termination benefits

 

 
40

 

Contractual termination benefits
9,408

 

 

 

Net periodic benefit (income) cost
$
(2,117
)
 
$
(19,767
)
 
$
372

 
$
1,118

For the nine months ended July 29, 2016, we contributed $12.3 million to our defined benefit employee pension and other postretirement benefit plans, and we expect contributions to be approximately $15.0 million for the full fiscal year.

15


During the quarter ended July 29, 2016, we recognized $0.2 million of curtailment losses and $0.1 million of mark to market gains under the Joy Global other postretirement plans as part of continued restructuring activities in our Surface division.
During the nine months ended July 29, 2016, we recognized $9.4 million of estimated contractual termination benefits under the Joy Global qualified pension plan for benefits to be provided to certain employees as part of restructuring activities in our Underground division.

14.
Derivatives
We are exposed to certain foreign currency risks in the normal course of our global business operations. We enter into derivative contracts that are foreign currency forward contracts to hedge the risks of certain identified and anticipated transactions in currencies other than the functional currency of the respective operating unit. The types of risks hedged are those arising from the variability of future earnings and cash flows caused by fluctuations in foreign currency exchange rates. These contracts are for forecasted transactions and committed receivables and payables denominated in foreign currencies and are not entered into for speculative purposes. Consequently, any market-related losses on the forward contract would be offset by changes in the value of the hedged item, and, as a result, we are generally not exposed to net market risk associated with these instruments.
Each derivative is classified as either a cash flow hedge, a fair value hedge or an undesignated instrument. All derivatives are recorded at fair value on the Condensed Consolidated Balance Sheets under the heading Other current assets or under the heading Other accrued liabilities, as appropriate. Cash flows from fair value and cash flow hedges are classified within the same category as the item being hedged on the Condensed Consolidated Statements of Cash Flows. Cash flows from undesignated derivative instruments are included in operating activities on the Condensed Consolidated Statements of Cash Flows.
The total notional amount of our derivatives as of July 29, 2016 is $772.9 million.
For derivative contracts that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss of the derivative contract is recorded as a component of other comprehensive (loss) income, net of tax. This amount is reclassified into the statement of operations on the line associated with the underlying transaction for the periods in which the hedged transaction affects earnings. The amounts recorded in accumulated other comprehensive loss 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 November 2017. Ineffectiveness related to these derivative contracts was not material to the Condensed Consolidated Statements of Operations for the quarters and nine months ended July 29, 2016 and July 31, 2015.
For derivative contracts that are designated and qualify as a fair value hedge, the gain or loss is recorded in the Condensed Consolidated Statements of Operations under the heading Cost of sales. For the quarters ended July 29, 2016 and July 31, 2015, we recorded a gain of $0.7 million and a gain of $1.4 million, respectively, related to fair value hedges, which were offset by foreign exchange fluctuations of the underlying hedged item. For the nine months ended July 29, 2016 and July 31, 2015, we recorded a loss of $5.7 million and a gain of $0.8 million, respectively, related to fair value hedges, which were offset by foreign exchange fluctuations of the underlying hedged item.
For derivative contracts entered into in order to hedge revaluation of net balance sheet exposures in non-functional currency that are not designated as a fair value hedge or a cash flow hedge, the gain or loss is recorded in the Condensed Consolidated Statements of Operations under the heading Cost of sales. For the quarters ended July 29, 2016 and July 31, 2015, we recorded a loss of $0.3 million and a gain of $9.8 million, respectively, related to undesignated hedges, which were offset by foreign exchange fluctuations. For the nine months ended July 29, 2016 and July 31, 2015, we recorded a loss of $2.5 million and a gain of $17.8 million, respectively, related to undesignated hedges, which were offset by foreign exchange fluctuations.
The following table summarizes the effect of cash flow hedges on the Condensed Consolidated Financial Statements:

16


In thousands
 
Effective Portion
 
 
Amount of (Loss) Gain Recognized in Other Comprehensive (Loss) Income
 
Loss Reclassified from Accumulated Other Comprehensive Loss into Earnings
Derivative Hedging Relationship
 
 
Location
 
Amount
Foreign currency forward contracts
 
 
 
 
 
 
Quarter ended July 29, 2016
 
$
(9,291
)
 
Cost of sales
 
$
(232
)
 
 
 
 
Sales
 
(434
)
Nine months ended July 29, 2016
 
$
(13,214
)
 
Cost of sales
 
$
(2,817
)
 
 
 
 
Sales
 
(552
)
Quarter ended July 31, 2015
 
$
2,807

 
Cost of sales
 
$
(1,642
)
 
 
 
 
Sales
 

Nine months ended July 31, 2015
 
$
5,911

 
Cost of sales
 
$
(3,606
)
 
 
 
 
Sales
 

We are exposed to credit risk in the event of nonperformance by counterparties to the forward contracts. The contract amount, along with the 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 it has a positive fair value.

15.
Income Taxes
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 quarter and nine months ended July 29, 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 the quarter and nine months ended July 29, 2016 based on the actual effective rate (i.e., the “cut-off” method). The effective tax rate for the quarter and nine months ended July 31, 2015 was calculated based on an estimated annual effective tax rate in addition to discrete items.
For the quarter ended July 29, 2016, the Company recorded a benefit for income taxes from continuing operations of $16.4 million that resulted in an effective tax rate of 100.8% on a GAAP basis. A net discrete tax benefit of $11.2 million was recorded in the third quarter of fiscal 2016 primarily related to the reversal of unrecognized tax benefit reserves upon the lapse of the statute of limitations. For the quarter ended July 31, 2015, the Company recorded a provision for income taxes from continuing operations of $17.2 million that resulted in an effective tax rate of 25.1%. A net discrete tax benefit of $0.8 million was recorded in the third quarter of fiscal 2015.
For the nine months ended July 29, 2016, the Company recorded a benefit for income taxes from continuing operations of $34.0 million that resulted in an effective tax rate of 38.0%. A net discrete tax benefit of $18.2 million was recorded in the nine months ended July 29, 2016, primarily related to the revision of prior year fourth quarter valuation allowance calculations on our domestic China business' deferred tax assets and the reversal of unrecognized tax benefit reserves upon the lapse of the statute of limitations. For the nine months ended July 31, 2015, the Company recorded a provision for income taxes from continuing operations of $55.9 million that resulted in an effective tax rate of 28.9%. A net discrete tax expense of $0.8 million was recorded in the nine months ended July 31, 2015.

16.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding during each period. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share, except that the weighted average number of shares outstanding is increased to include additional shares from the assumed exercise of stock options, performance shares and restricted stock units, if dilutive.
The following table sets forth the computation of basic and diluted earnings (loss) per share:

17


 
Quarter Ended
 
Nine Months Ended
In thousands, except per share amounts
July 29,
2016
 
July 31,
2015
 
July 29,
2016
 
July 31,
2015
Numerator:
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
128

 
$
51,336

 
$
(55,398
)
 
$
137,819

Income from discontinued operations, net of income taxes

 

 
5,466

 

Net income (loss)
$
128

 
$
51,336

 
$
(49,932
)
 
$
137,819

Denominator:
 
 
 
 
 
 
 
Weighted average shares outstanding
98,160

 
97,480

 
97,977

 
97,481

Dilutive effect of stock options, performance shares and restricted stock units
1,064

 
553

 

 
571

Weighted average shares outstanding assuming dilution
99,224

 
98,033

 
97,977

 
98,052

 
 
 
 
 
 
 
 
Basic earnings (loss) per share:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.00

 
$
0.53

 
$
(0.57
)
 
$
1.41

Income from discontinued operations

 

 
0.06

 

Net income (loss)
$
0.00

 
$
0.53

 
$
(0.51
)
 
$
1.41

 
 
 
 
 
 
 
 
Diluted earnings (loss) per share:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.00

 
$
0.52

 
$
(0.57
)
 
$
1.41

Income from discontinued operations

 

 
0.06

 

Net income (loss)
$
0.00

 
$
0.52

 
$
(0.51
)
 
$
1.41

In the nine months ended July 29, 2016, the computation of weighted average shares outstanding assuming dilution does not include the effect of stock options, performance shares and restricted stock units because a net loss existed from continuing operations and thus the result would have been antidilutive. Weighted average shares outstanding used for diluted earnings per share from both continuing operations and discontinued operations therefore excludes 4.5 million shares for these antidilutive items as of the nine months ended July 29, 2016.
Options to purchase a weighted average of 2.6 million and 2.7 million shares were excluded from the calculation of diluted earnings per share for continuing operations for the quarters ended July 29, 2016 and July 31, 2015, respectively, as the effect would have been antidilutive. Options to purchase a weighted average of 2.6 million shares were excluded from the calculation of diluted earnings per share for continuing operations for the nine months ended July 31, 2015, as the effect would have been antidilutive.

17.
Fair Value Measurements
GAAP establishes a three level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:
Level 1: Quoted prices in active markets for identical instruments;
Level 2: Inputs, other than quoted prices in active markets, that are observable for the instrument either directly or indirectly or quoted prices for similar instruments in active markets; and
Level 3: Unobservable inputs for the instrument where there is little or no market data, which requires the reporting entity to develop its own assumptions.
GAAP requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
The following tables present the fair value hierarchy for those assets and liabilities measured at fair value and disclose the fair value of long-term obligations recorded at cost as of July 29, 2016 and October 30, 2015. As of July 29, 2016 and October 30, 2015, we did not have any Level 3 assets or liabilities.


18


Fair Value Measurements as of July 29, 2016
 
 
 
 
 
 
 
In thousands
Carrying
Value
 
Total Fair
Value
 
Level 1
 
Level 2
Current Assets
 
 
 
 
 
 
 
Cash equivalents
$
301

 
$
301

 
$
301

 
$

Other Current Assets
 
 
 
 
 
 
 
Derivatives
$
13,191

 
$
13,191

 
$

 
$
13,191

Other Accrued Liabilities
 
 
 
 
 
 
 
Derivatives
$
25,489

 
$
25,489

 
$

 
$
25,489

Long-term Obligations Including Amounts due within One Year
 
 
 
 
 
 
 
Term Loan due 2019
$
356,250

 
$
348,535

 
$

 
$
348,535

5.125% Senior Notes due 2021
$
497,500

 
$
537,750

 
$

 
$
537,750

6.625% Senior Notes due 2036
$
148,577

 
$
174,077

 
$

 
$
174,077


Fair Value Measurements as of October 30, 2015
 
 
 
 
 
 
 
In thousands
Carrying
Value
 
Total Fair
Value
 
Level 1
 
Level 2
Current Assets
 
 
 
 
 
 
 
Cash equivalents
$
9,831

 
$
9,831

 
$
9,831

 
$

Other Current Assets
 
 
 
 
 
 
 
Derivatives
$
20,267

 
$
20,267

 
$

 
$
20,267

Other Accrued Liabilities
 
 
 
 
 
 
 
Derivatives
$
10,577

 
$
10,577

 
$

 
$
10,577

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

 
$
373,668

 
$

 
$
373,668

5.125% Senior Notes due 2021
$
497,195

 
$
446,680

 
$

 
$
446,680

6.625% Senior Notes due 2036
$
148,553

 
$
119,310

 
$

 
$
119,310

Credit Agreement
$
58,600

 
$
58,600

 

 
$
58,600

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

18.
Contingent Liabilities
We establish reserves based on our assessment of contingencies related to legal claims asserted against us, as required by GAAP. Developments during the course of legal proceedings may affect our assessments and estimates of our contingencies, which in turn may require us to record or change the amount of a reserve, or make a payment that is different than the amount that we have reserved. In addition, as a normal part of operations, our subsidiaries undertake contractual obligations, warranties and guarantees in connection with the sale of products or services. Although the outcome of these matters cannot be predicted with certainty and favorable or unfavorable resolutions may affect the results of operations on a quarter-to-quarter basis, we believe that the outcome of such legal and other matters will not have a materially adverse effect on our future consolidated financial position, results of operations or liquidity.

19


During the nine months ended July 29, 2016, we recognized net income from discontinued operations of $5.5 million, primarily due to losses on contingencies resulting from our former drilling products business that were no longer considered probable, as well as associated inventory that would no longer be utilized.
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 3,665 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 of the ordinary course of business.
As of July 29, 2016, we were contingently liable to banks, financial institutions and others for approximately $132.6 million for outstanding standby letters of credit, surety bonds and bank guarantees to secure the performance of sales contracts and other third party provided guarantees in the ordinary course of business. Of this amount, approximately $12.4 million relates to surety bonds and $9.3 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.
As a result of the steps the Company has taken to reorganize the business in China, which includes idling manufacturing facilities in Jixi, Jiamusi, Huainan and Wuxi, vendors have placed liens on certain assets of the Company, covering obligations of $8.0 million.
In addition, in the fourth quarter of 2014, we received a subpoena from the SEC's Division of Enforcement concerning our 2012 acquisition of International Mining Machinery Holdings, Limited ("IMM") and related accounting matters. On June 28, 2016, the Staff notified the Company that it had concluded its investigation and, based on the information received through such date, that it did not intend to recommend any enforcement action by the Commission.

19.
Segment Information
We operate in two reportable segments: Underground and Surface. Crushing and conveying operating results related to surface applications are reported as part of the Surface segment, while total crushing and conveying operating results are included in the Underground segment. Eliminations primarily consist of the surface applications of crushing and conveying included in both operating segments. The results of operations for Montabert have been included in the Underground segment from its acquisition date forward.
Operating (loss) income of segments does not include interest income and expense, corporate administration expenses, the provision for income taxes, or any impact in the quarter related to the amortization of the inventory impact of the previous year's fourth quarter mark to market adjustment for our pension and other postretirement benefit plans.
In thousands
Underground
 
Surface
 
Corporate
 
Eliminations
 
Total
Quarter ended July 29, 2016
 
 
 
 
 
 
 
 
 
Net sales
$
318,106

 
$
288,273

 
$

 
$
(19,827
)
 
$
586,552

Operating (loss) income
$
(6,686
)
 
$
17,388

 
$
(12,274
)
 
$
(3,597
)
 
$
(5,169
)
Interest income

 

 
1,184

 

 
1,184

Interest expense

 

 
(12,291
)
 

 
(12,291
)
(Loss) income before income taxes
$
(6,686
)
 
$
17,388

 
$
(23,381
)
 
$
(3,597
)
 
$
(16,276
)
Depreciation and amortization
$
17,419

 
$
22,253

 
$
837

 
$

 
$
40,509

Capital expenditures
$
8,068

 
$
2,736

 
$
86

 
$

 
$
10,890

 
 
 
 
 
 
 
 
 
 
Quarter ended July 31, 2015
 
 
 
 
 
 
 
 
 
Net sales
$
453,302

 
$
362,559

 
$

 
$
(23,678
)
 
$
792,183

Operating income (loss)
$
40,334

 
$
59,604

 
$
(12,307
)
 
$
(5,380
)
 
$
82,251

Interest income

 

 
2,543

 

 
2,543

Interest expense

 

 
(16,219
)
 

 
(16,219
)
Income (loss) before income taxes
$
40,334

 
$
59,604

 
$
(25,983
)
 
$
(5,380
)
 
$
68,575

Depreciation and amortization
$
22,826

 
$
13,726

 
$
186

 
$

 
$
36,738

Capital expenditures
$
10,628

 
$
7,398

 
$

 
$

 
$
18,026


20


 
 
 
 
 
 
 
 
 
 
In thousands
Underground
 
Surface
 
Corporate
 
Eliminations
 
Total
Nine months ended July 29, 2016
 
 
 
 
 
 
 
 
 
Net sales
$
935,203

 
$
849,949

 
$

 
$
(70,315
)
 
$
1,714,837

Operating (loss) income
$
(65,953
)
 
$
60,823

 
$
(31,531
)
 
$
(17,920
)
 
$
(54,581
)
Interest income

 

 
2,849

 

 
2,849

Interest expense

 

 
(37,651
)
 

 
(37,651
)
(Loss) income before income taxes
$
(65,953
)
 
$
60,823

 
$
(66,333
)
 
$
(17,920
)
 
$
(89,383
)
Depreciation and amortization
$
62,342

 
$
52,876

 
$
2,684

 
$

 
$
117,902

Capital expenditures
$
22,956

 
$
8,469

 
$
559

 
$

 
$
31,984

 
 
 
 
 
 
 
 
 

Nine months ended July 31, 2015
 
 
 
 
 
 
 
 

Net sales
$
1,261,904

 
$
1,132,981

 
$

 
$
(88,306
)
 
$
2,306,579

Operating income (loss)
$
134,060

 
$
149,786

 
$
(29,642
)
 
$
(20,550
)
 
$
233,654

Interest income

 

 
8,463

 

 
8,463

Interest expense

 

 
(48,368
)
 

 
(48,368
)
Income (loss) before income taxes
$
134,060

 
$
149,786

 
$
(69,547
)
 
$
(20,550
)
 
$
193,749

Depreciation and amortization
$
60,538

 
$
40,672

 
$
1,704

 
$

 
$
102,914

Capital expenditures
$
24,849

 
$
32,831

 
$
141

 
$

 
$
57,821


20.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Measurement of Credit Losses on Financial Instruments, which changes how companies will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The standard replaces the "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost (which generally will result in the earlier recognition of allowances for losses) and requires companies to record allowances for available-for-sale debt securities rather than reduce the carrying amount. In addition, companies will have to disclose significantly more information, including information used to track credit quality by year of origination for most financing receivables. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein. The ASU is effective for the Company beginning on October 31, 2020. This guidance is not expected to have a significant impact on our financial condition, results of operations or presentation of our financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which changes how companies account for certain aspects of share-based payments to employees. Companies will be required to recognize the income tax effects of awards in the income statement when the awards vest or are settled (should be applied prospectively). In addition, the guidance eliminates the requirement that excess tax benefits be realized before companies can recognize them (should use a modified retrospective transition method, with a cumulative-effect adjustment to retained earnings). Excess tax benefits will be presented as an operating activity on the statement of cash flows rather than as a financing activity (can be applied either retrospectively or prospectively). The guidance also allows companies to repurchase more of an employee's shares for tax withholding purposes without triggering liability accounting (should use a modified retrospective transition method, with a cumulative-effect adjustment to retained earnings). Companies will classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (should be applied retrospectively). Furthermore, the guidance allows companies to make a policy election to account for forfeitures as they occur (should use a modified retrospective transition method, with a cumulative-effect adjustment to retained earnings). The ASU is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. Early adoption is permitted, but all of the guidance must be adopted in the same period. The ASU is effective for the Company beginning on October 28, 2017. We are beginning to evaluate the impact that the adoption of this guidance will have on our financial condition, results of operations and the presentation of our financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to record most leases on their balance sheets. Lessees initially recognize a lease liability (measured at the present value of the lease payments over the lease term) and a right-of-use ("ROU") asset (measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs). Lessees can make an accounting policy election to not recognize ROU assets and lease liabilities for leases with a lease term of 12 months or less as long as the leases do not include options to purchase the

21


underlying assets that the lessee is reasonably certain to exercise. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The ASU is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Early adoption is permitted for all entities. The ASU is effective for the Company beginning on October 26, 2019 and the standard requires the use of a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited. We are continuing to evaluate the impact that the adoption of this guidance will have on our financial condition, results of operations and the presentation of our financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Liabilities, which amends the guidance on the classification and measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises an entity's accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The most notable disclosure revisions for public companies include: (1) removing the requirement to disclose the methods for and any changes to significant assumptions used to estimate fair value, (2) requiring an "exit" price to be used when disclosing fair values of financial assets and liabilities measured at amortized cost, and (3) requiring entities to disclose either on the balance sheet or in the notes to the financial statements all financial assets and liabilities grouped by measurement category (i.e., amortized cost or fair value through net income or other comprehensive (loss) income) and form (i.e., securities, loans, receivables, etc.). The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted for public entities only as it relates to certain provisions for changes in fair value due to instrument specific credit risk for liabilities measured under the fair value option. The ASU is effective for the Company beginning on October 27, 2018. This guidance is not expected to have a significant impact on our financial condition, results of operations or presentation of our financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. The ASU simplifies the current guidance, which requires entities to separately present deferred tax assets and deferred tax liabilities as current and noncurrent in a classified balance sheet. The ASU may be applied either prospectively or retrospectively. The ASU is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. In order to reduce complexities in financial reporting, the Company early adopted the guidance on a prospective basis in the first quarter of fiscal 2016. Prior balance sheets were not retrospectively adjusted. This guidance did not have a significant impact on our financial condition, results of operations or presentation of our financial statements.
In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which they determined the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The ASU is applied prospectively to adjustments to provisional amounts that occur after the effective date. The ASU is effective for the Company on October 29, 2016, with early adoption permitted. This guidance is not expected to have a significant impact on our financial condition, results of operations or presentation of our financial statements.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which requires entities to measure inventories at the lower of cost or net realizable value ("NRV"). This simplifies the evaluation from the current method of lower of cost or market, where market is based on one of three measures (i.e., replacement cost, net realizable value, or net realizable value less a normal profit margin). The ASU does not apply to inventories measured under the last-in, first-out method or the retail inventory method, and defines NRV as the "estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation." The ASU is effective on a prospective basis for the Company beginning on October 28, 2017, with early adoption permitted. This guidance is not expected to have a significant impact on our financial condition, results of operations or presentation of our financial statements.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in the financial statements. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. Further, in June 2015, the FASB agreed to clarify guidance from the SEC on the presentation of debt issuance costs on revolving debt arrangements, permitting entities to elect that such costs be classified as an asset. The guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is allowed for all entities for financial statements that have not been previously issued and entities would apply the new guidance retrospectively to all prior periods. ASU 2015-03 will be effective for the Company beginning on October 29, 2016. This guidance is not expected to have a significant impact on our financial condition, results of operations or presentation of our financial statements.
In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with Customers. ASU 2014-09 provides a single principles-based, five-step model to be applied to all contracts with customers. The five steps are to (i) identify the contracts with the customer, (ii) identify the performance obligations in the contact, (iii) determine the transaction price, (iv) allocate the transaction

22


price to the performance obligations in the contract and (v) recognize revenue when each performance obligation is satisfied. Revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. In July 2015, the FASB agreed to delay the effective date of ASU 2014-09 for one year and to permit early adoption by entities as of the original effective dates. Considering the one year deferral, ASU 2014-09 will be effective for the Company beginning on October 27, 2018 and the standard allows for either full retrospective adoption or modified retrospective adoption. We are continuing to evaluate the impact that the adoption of this guidance will have on our financial condition, results of operations and the presentation of our financial statements.

21.
Subsidiary Guarantors for Credit Agreement, Term Loan and 2021 Notes
The following tables present condensed consolidated financial information as of July 29, 2016 and October 30, 2015 and for the quarters and nine months ended July 29, 2016 and July 31, 2015 for: (a) the Company; (b) on a combined basis, the guarantors of the Credit Agreement, the Term Loan and the 2021 Notes issued in October 2011, which include Joy Global Underground Mining LLC, Joy Global Surface Mining Inc, N.E.S. Investment Co., Joy Global Conveyors Inc. and Joy Global Longview Operations LLC (the "Subsidiary Guarantors"); and (c) on a combined basis, the non-guarantors, which include all of the Company's foreign subsidiaries and a number of small domestic subsidiaries ("Non-Guarantor Subsidiaries").
The borrowings are fully and unconditionally guaranteed on a joint and several unsecured basis by the Subsidiary Guarantors, which are direct and indirect 100% owned subsidiaries of the Company. We conduct all of our business and derive essentially all of our income from our subsidiaries. Therefore, our ability to make payments on the obligations is dependent on the earnings and distribution of funds from our subsidiaries. There are no restrictions on the ability of any of our domestic subsidiaries to transfer funds to the parent company. Separate financial statements of the Subsidiary Guarantors are not presented because we believe such separate statements or disclosures would not be useful to investors.

Condensed Consolidating Statement of Operations
Quarter ended July 29, 2016
In thousands
Parent
Company
 

Subsidiary
Guarantors
 

Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
294,676

 
$
471,037

 
$
(179,161
)
 
$
586,552

Cost of sales

 
250,211

 
347,943

 
(143,560
)
 
454,594

Product development, selling and administrative expenses
12,195

 
47,189

 
55,678

 
(685
)
 
114,377

Restructuring expenses

 
12,562

 
11,869

 

 
24,431

Other (income) expense

 
3,423

 
(5,104
)
 

 
(1,681
)
Operating (loss) income
(12,195
)
 
(18,709
)
 
60,651

 
(34,916
)
 
(5,169
)
Intercompany items
13,466

 
(14,172
)
 
(18,072
)
 
18,778

 

Interest (expense) income, net
(12,252
)
 
579

 
566

 

 
(11,107
)
(Loss) income before income taxes and equity in income of subsidiaries
(10,981
)
 
(32,302
)
 
43,145

 
(16,138
)
 
(16,276
)
(Benefit) provision for income taxes
(8,012
)
 
(11,690
)
 
3,298

 

 
(16,404
)
Equity in income (loss) of subsidiaries
3,097

 
12,454

 

 
(15,551
)
 

Net income (loss) from continuing operations
$
128

 
$
(8,158
)
 
$
39,847

 
$
(31,689
)
 
$
128

 
 
 
 
 
 
 
 
 
 
Comprehensive (loss) income
$
(13,032
)
 
$
(7,959
)
 
$
39,160

 
$
(31,201
)
 
$
(13,032
)


23


Condensed Consolidating Statement of Operations
Quarter ended July 31, 2015
In thousands
Parent
Company
 
Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
430,840

 
$
611,006

 
$
(249,663
)
 
$
792,183

Cost of sales

 
320,352

 
448,222

 
(193,736
)
 
574,838

Product development, selling and administrative expenses
12,294

 
51,788

 
64,471

 

 
128,553

Restructuring expenses

 
7,294

 
481

 

 
7,775

Other (income) expense

 
3,771

 
(5,005
)
 

 
(1,234
)
Operating income (loss)
(12,294
)
 
47,635

 
102,837

 
(55,927
)
 
82,251

Intercompany items
16,750

 
(30,145
)
 
(6,865
)
 
20,260

 

Interest (expense) income, net
(16,068
)
 
1,907

 
485

 

 
(13,676
)
Income (loss) before income taxes and equity in income of subsidiaries
(11,612
)
 
19,397

 
96,457

 
(35,667
)
 
68,575

Provision (benefit) for income taxes
(6,218
)
 
997

 
22,460

 

 
17,239

Equity in income of subsidiaries
56,730

 
3,449

 

 
(60,179
)
 

Net income from continuing operations
$
51,336

 
$
21,849

 
$
73,997

 
$
(95,846
)
 
$
51,336

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
13,862

 
$
23,040

 
$
36,608

 
$
(59,648
)
 
$
13,862


Condensed Consolidating Statement of Operations
Nine months ended July 29, 2016
 
 
 
 
 
 
 
 
 
 
In thousands
Parent
Company
 
Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
851,801

 
$
1,361,773

 
$
(498,737
)
 
$
1,714,837

Cost of sales

 
718,846

 
1,026,154

 
(393,671
)
 
1,351,329

Product development, selling and administrative expenses
31,642

 
134,314

 
176,161

 
(684
)
 
341,433

Restructuring expenses
395

 
39,760

 
44,329

 

 
84,484

Other (income) expense

 
4,580

 
(12,408
)
 

 
(7,828
)
Operating (loss) income
(32,037
)
 
(45,699
)
 
127,537

 
(104,382
)
 
(54,581
)
Intercompany items
43,729

 
(206,525
)
 
117,833

 
44,963

 

Interest (expense) income, net
(37,552
)
 
1,033

 
1,717

 

 
(34,802
)
(Loss) income before income taxes and equity in income of subsidiaries
(25,860
)
 
(251,191
)
 
247,087

 
(59,419
)
 
(89,383
)
(Benefit) provision for income taxes
(24,165
)
 
(20,765
)
 
10,945

 

 
(33,985
)
Equity in (loss) income of subsidiaries
(48,237
)
 
145,774

 

 
(97,537
)
 

Net (loss) income from continuing operations
$
(49,932
)
 
$
(84,652
)
 
$
236,142

 
$
(156,956
)
 
$
(55,398
)
 
 
 
 
 
 
 
 
 
 
Comprehensive (loss) income
$
(57,692
)
 
$
(84,137
)
 
$
248,213

 
$
(164,076
)
 
$
(57,692
)


24


Condensed Consolidating Statement of Operations
Nine months ended July 31, 2015
 
 
 
 
 
 
 
 
 
 
In thousands
Parent
Company
 
Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
1,400,258

 
$
1,616,442

 
$
(710,121
)
 
$
2,306,579

Cost of sales
(6,354
)
 
1,026,939

 
1,191,499

 
(543,451
)
 
1,668,633

Product development, selling and administrative expenses
35,544

 
161,298

 
193,247

 

 
390,089

Restructuring expenses
252

 
13,134

 
6,164

 

 
19,550

Other (income) expense
68

 
12,872

 
(18,287
)
 

 
(5,347
)
Operating income (loss)
(29,510
)
 
186,015

 
243,819

 
(166,670
)
 
233,654

Intercompany items
50,106

 
(75,362
)
 
(35,306
)
 
60,562

 

Interest (expense) income, net
(47,449
)
 
5,242

 
2,302

 

 
(39,905
)
Income (loss) before income taxes and equity in income of subsidiaries
(26,853
)
 
115,895

 
210,815

 
(106,108
)
 
193,749

Provision for income taxes
7,920

 
25,502

 
22,508

 

 
55,930

Equity in income of subsidiaries
172,592

 
18,818

 

 
(191,410
)
 

Net income from continuing operations
$
137,819

 
$
109,211

 
$
188,307

 
$
(297,518
)
 
$
137,819

 
 
 
 
 
 
 
 
 
 
Comprehensive (loss) income
$
(8,553
)
 
$
110,087

 
$
43,757

 
$
(153,844
)
 
$
(8,553
)


25


Condensed Consolidating Balance Sheet
As of July 29, 2016
In thousands
Parent
Company
 

Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
20,584

 
$
4,257

 
$
157,984

 
$

 
$
182,825

Accounts receivable, net

 
139,901

 
517,705

 
(10,589
)
 
647,017

Inventories

 
404,768

 
579,967

 
(88,478
)
 
896,257

Other current assets
7,129

 
10,966

 
73,305

 

 
91,400

Assets held for sale

 
33,547

 
177

 

 
33,724

Total current assets
27,713

 
593,439

 
1,329,138

 
(99,067
)
 
1,851,223

Property, plant and equipment, net
19,193

 
222,504

 
437,261

 
(5,015
)
 
673,943

Other assets:
 
 
 
 
 
 
 
 
 
Other intangible assets, net

 
190,987

 
38,716

 

 
229,703

Goodwill

 
342,643

 
8,097

 

 
350,740

Deferred income taxes
153,869

 

 
48,594

 

 
202,463

Other non-current assets
2,437,379

 
1,862,532

 
3,178,408

 
(7,352,974
)
 
125,345

Total other assets
2,591,248

 
2,396,162

 
3,273,815

 
(7,352,974
)
 
908,251

Total assets
$
2,638,154

 
$
3,212,105

 
$
5,040,214

 
$
(7,457,056
)
 
$
3,433,417

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Short-term borrowings, including current portion of long-term obligations
$
28,125

 
$

 
$
4,420

 
$

 
$
32,545

Trade accounts payable
2,238

 
80,060

 
149,415

 

 
231,713

Employee compensation and benefits
6,445

 
26,227

 
43,668

 

 
76,340

Advance payments and progress billings

 
71,188

 
136,281

 
(10,032
)
 
197,437

Accrued warranties

 
13,322

 
27,966

 

 
41,288

Other accrued liabilities
90,009

 
55,425

 
71,591

 
(7,156
)
 
209,869

Current liabilities of discontinued operations

 

 

 

 

Total current liabilities
126,817

 
246,222

 
433,341

 
(17,188
)
 
789,192

Long-term obligations
974,202

 

 
45

 

 
974,247

Other liabilities:
 
 
 
 
 
 
 
 


Liabilities for postretirement benefits
17,546

 

 

 

 
17,546

Accrued pension costs
160,894

 

 

 

 
160,894

Other non-current liabilities
(14,151
)
 
10,439

 
122,404

 

 
118,692

Total other liabilities
164,289

 
10,439

 
122,404

 

 
297,132

Shareholders’ equity
1,372,846

 
2,955,444

 
4,484,424

 
(7,439,868
)
 
1,372,846

Total liabilities and shareholders’ equity
$
2,638,154

 
$
3,212,105

 
$
5,040,214

 
$
(7,457,056
)
 
$
3,433,417



26


Condensed Consolidating Balance Sheet
As of October 30, 2015
In thousands
Parent
Company
 
Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 


Cash and cash equivalents
$
581

 
$
2,008

 
$
100,296

 
$

 
$
102,885

Accounts receivable, net

 
214,381

 
597,826

 
(134
)
 
812,073

Inventories

 
508,774

 
607,461

 
(108,310
)
 
1,007,925

Other current assets
58,441

 
15,610

 
71,508

 

 
145,559

Total current assets
59,022

 
740,773

 
1,377,091

 
(108,444
)
 
2,068,442

Property, plant and equipment, net
21,318

 
297,476

 
478,253

 
(5,015
)
 
792,032

Other assets:
 
 
 
 
 
 
 
 


Other intangible assets, net

 
207,891

 
47,819

 

 
255,710

Goodwill

 
346,348

 
8,273

 

 
354,621

Deferred income taxes
49,660

 

 
69,253

 

 
118,913

Other non-current assets
2,740,518

 
2,078,294

 
2,517,110

 
(7,213,194
)
 
122,728

Total other assets
2,790,178

 
2,632,533

 
2,642,455

 
(7,213,194
)
 
851,972

Total assets
$
2,870,518

 
$
3,670,782

 
$
4,497,799

 
$
(7,326,653
)
 
$
3,712,446

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Short-term borrowings, including current portion of long-term obligations
$
18,750

 
$

 
$
7,571

 
$

 
$
26,321

Trade accounts payable
3,342

 
96,891

 
175,556

 

 
275,789

Employee compensation and benefits
5,843

 
36,527

 
47,965

 

 
90,335

Advance payments and progress billings

 
100,312

 
149,795

 
(20,637
)
 
229,470

Accrued warranties

 
19,027

 
33,119

 

 
52,146

Other accrued liabilities
76,650

 
60,228

 
100,660

 
(12,261
)
 
225,277

Current liabilities of discontinued operations

 
11,582

 

 

 
11,582

Total current liabilities
104,585

 
324,567

 
514,666

 
(32,898
)
 
910,920

Long-term obligations
1,060,598

 

 
45

 

 
1,060,643

Other liabilities:
 
 
 
 
 
 
 
 
 
Liabilities for postretirement benefits
18,662

 
878

 

 

 
19,540

Accrued pension costs
159,594

 
8,406

 
7,699

 

 
175,699

Other non-current liabilities
81,595

 
8,325

 
35,715

 

 
125,635

Total other liabilities
259,851

 
17,609

 
43,414

 

 
320,874

Shareholders’ equity
1,445,484

 
3,328,606

 
3,939,674

 
(7,293,755
)
 
1,420,009

Total liabilities and shareholders’ equity
$
2,870,518

 
$
3,670,782

 
$
4,497,799

 
$
(7,326,653
)
 
$
3,712,446

 

27


Condensed Consolidating Statement of Cash Flows
Nine months ended July 29, 2016
In thousands
Parent
Company
 

Subsidiary
Guarantors
 
Non-Guarantor
Subsidiaries
 
Consolidated
Operating Activities:
 
 
 
 
 
 
 
Net cash provided (used) by operating activities
$
101,711

 
$
(3,527
)
 
$
80,599

 
$
178,783

Investing Activities:
 
 
 
 
 
 


Property, plant and equipment acquired
(559
)
 
(7,538
)
 
(23,887
)
 
(31,984
)
Proceeds from sale of property, plant and equipment

 
13,314

 
6,764

 
20,078

Other investing activities, net
184

 

 

 
184

Net cash (used) provided by investing activities
(375
)
 
5,776

 
(17,123
)
 
(11,722
)
Financing Activities:


 


 


 


Dividends paid
(2,972
)
 

 

 
(2,972
)
Repayments of term loan
(18,750
)
 

 

 
(18,750
)
Payments on credit agreement
(58,600
)
 

 

 
(58,600
)
Repayments of short-term debt

 

 
(3,214
)
 
(3,214
)
Financing fees
(1,011
)
 

 

 
(1,011
)
Net cash used by financing activities
(81,333
)
 

 
(3,214
)
 
(84,547
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 
(2,574
)
 
(2,574
)
Increase in Cash and Cash Equivalents
20,003


2,249


57,688


79,940

Cash and Cash Equivalents at Beginning of Period
581

 
2,008

 
100,296

 
102,885

Cash and Cash Equivalents at End of Period
$
20,584

 
$
4,257

 
$
157,984

 
$
182,825


Condensed Consolidating Statement of Cash Flows
Nine months ended July 31, 2015
In thousands
Parent
Company
 
Subsidiary
Guarantors
 

Non-Guarantor
Subsidiaries
 
Consolidated
Operating Activities:
 
 
 
 
 
 
 
Net cash provided by operating activities
76,032

 
14,392

 
78,290

 
168,714

Investing Activities:
 
 
 
 
 
 
 
Acquisition of business, net of cash acquired

 

 
(114,353
)
 
(114,353
)
Property, plant and equipment acquired
(141
)
 
(17,429
)
 
(40,251
)
 
(57,821
)
Proceeds from sale of property, plant and equipment
942

 
214

 
2,915

 
4,071

Other investing activities, net
(1,227
)
 

 
1,852

 
625

Net cash used by investing activities
(426
)
 
(17,215
)
 
(149,837
)
 
(167,478
)
Financing Activities:


 


 


 


Common stock issued
2,853

 

 

 
2,853

Dividends paid
(58,456
)
 

 

 
(58,456
)
Repayments of short-term debt

 
(11,634
)
 
89

 
(11,545
)
Treasury stock purchased
(50,000
)
 

 

 
(50,000
)
Other financing activities, net
261

 

 

 
261

Net cash (used) provided by financing activities
(105,342
)
 
(11,634
)
 
89

 
(116,887
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 
(13,640
)
 
(13,640
)
Decrease in Cash and Cash Equivalents
(29,736
)
 
(14,457
)
 
(85,098
)
 
(129,291
)
Cash and Cash Equivalents at Beginning of Period
54,874

 
16,429

 
198,888

 
270,191

Cash and Cash Equivalents at End of Period
$
25,138

 
$
1,972

 
$
113,790

 
$
140,900


28



22.
Subsidiary Guarantors for 2036 Notes
The following tables present condensed consolidated financial information as of July 29, 2016 and October 30, 2015 and for the quarters and nine months ended July 29, 2016 and July 31, 2015 for: (a) the Company; (b) on a combined basis, the guarantors of the 2036 Notes issued in November 2006, which include Joy Global Underground Mining LLC, Joy Global Surface Mining Inc, N.E.S. Investment Co., Joy Global Conveyors Inc., Joy Global Longview Operations LLC and certain immaterial wholly owned subsidiaries of Joy Global Longview Operations LLC (the "Supplemental Subsidiary Guarantors"); and (c) on a combined basis, the non-guarantors, which include all of the Company's foreign subsidiaries and a number of small domestic subsidiaries (the "Supplemental Non-Guarantor Subsidiaries").
The borrowings are fully and unconditionally guaranteed on a joint and several unsecured basis by the Supplemental Subsidiary Guarantors, which are direct and indirect 100% owned subsidiaries of the Company. We conduct all of our business and derive essentially all of our income from our subsidiaries. Therefore, our ability to make payments on the obligations is dependent on the earnings and distribution of funds from our subsidiaries. There are no restrictions on the ability of any of our domestic subsidiaries to transfer funds to the parent company. Separate financial statements of the Supplemental Subsidiary Guarantors are not presented because we believe such separate statements or disclosures would not be useful to investors.

Condensed Consolidating Statement of Operations
Quarter ended July 29, 2016
In thousands
Parent
Company
 
Supplemental Subsidiary
Guarantors
 
Supplemental Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
296,926

 
$
468,787

 
$
(179,161
)
 
$
586,552

Cost of sales

 
251,950

 
346,204

 
(143,560
)
 
454,594

Product development, selling and administrative expenses
12,195

 
47,345

 
55,521

 
(684
)
 
114,377

Restructuring expenses

 
12,563

 
11,868

 

 
24,431

Other (income) expense

 
3,421

 
(5,102
)
 

 
(1,681
)
Operating (loss) income
(12,195
)
 
(18,353
)
 
60,296

 
(34,917
)
 
(5,169
)
Intercompany items
13,466

 
(14,173
)
 
(18,071
)
 
18,778

 

Interest (expense) income, net
(12,252
)
 
581

 
564

 

 
(11,107
)
(Loss) income before income taxes and equity in income of subsidiaries
(10,981
)
 
(31,945
)
 
42,789

 
(16,139
)
 
(16,276
)
(Benefit) provision for income taxes
(8,012
)
 
(11,660
)
 
3,268

 

 
(16,404
)
Equity in income (loss) of subsidiaries
3,097

 
12,128

 

 
(15,225
)
 

Net income (loss) from continuing operations
$
128

 
$
(8,157
)
 
$
39,521

 
$
(31,364
)
 
$
128

 
 
 
 
 
 
 
 
 
 
Comprehensive (loss) income
$
(13,032
)
 
$
(7,958
)
 
$
38,834

 
$
(30,876
)
 
$
(13,032
)


29


Condensed Consolidating Statement of Operations
Quarter ended July 31, 2015
In thousands
Parent
Company
 
Supplemental Subsidiary
Guarantors
 
Supplemental Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
432,882

 
$
608,964

 
$
(249,663
)
 
$
792,183

Cost of sales

 
322,255

 
446,319

 
(193,736
)
 
574,838

Product development, selling and administrative expenses
12,294

 
51,788

 
64,471

 

 
128,553

Restructuring expenses

 
7,294

 
481

 

 
7,775

Other (income) expense

 
3,769

 
(5,003
)
 

 
(1,234
)
Operating income (loss)
(12,294
)
 
47,776

 
102,696

 
(55,927
)
 
82,251

Intercompany items
16,750

 
(30,145
)
 
(6,865
)
 
20,260

 

Interest (expense) income, net
(16,068
)
 
1,863

 
529

 

 
(13,676
)
Income (loss) before income taxes and equity in income of subsidiaries
(11,612
)
 
19,494

 
96,360

 
(35,667
)
 
68,575

Provision (benefit) for income taxes
(6,218
)
 
997

 
22,460

 

 
17,239

Equity in income of subsidiaries
56,730

 
26,378

 

 
(83,108
)
 

Net income from continuing operations
$
51,336

 
$
44,875

 
$
73,900

 
$
(118,775
)
 
$
51,336

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
13,862

 
$
46,066

 
$
36,511

 
$
(82,577
)
 
$
13,862


Condensed Consolidating Statement of Operations
Nine months ended July 29, 2016
 
 
 
 
 
 
 
 
 
 
In thousands
Parent
Company
 
Supplemental Subsidiary
Guarantors
 
Supplemental Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
857,961

 
$
1,355,613

 
$
(498,737
)
 
$
1,714,837

Cost of sales

 
723,843

 
1,021,157

 
(393,671
)
 
1,351,329

Product development, selling and administrative expenses
31,642

 
134,775

 
175,700

 
(684
)
 
341,433

Restructuring expenses
395

 
39,760

 
44,329

 

 
84,484

Other (income) expense

 
4,567

 
(12,395
)
 

 
(7,828
)
Operating (loss) income
(32,037
)
 
(44,984
)
 
126,822

 
(104,382
)
 
(54,581
)
Intercompany items
43,729

 
(206,525
)
 
117,833

 
44,963

 

Interest (expense) income, net
(37,552
)
 
1,056

 
1,694

 

 
(34,802
)
(Loss) income before income taxes and equity in income of subsidiaries
(25,860
)
 
(250,453
)
 
246,349

 
(59,419
)
 
(89,383
)
(Benefit) provision for income taxes
(24,165
)
 
(20,989
)
 
11,169

 

 
(33,985
)
Equity in (loss) income of subsidiaries
(48,237
)
 
144,812

 

 
(96,575
)
 

Net (loss) income from continuing operations
$
(49,932
)
 
$
(84,652
)
 
$
235,180

 
$
(155,994
)
 
$
(55,398
)
 
 
 
 
 
 
 
 
 
 
Comprehensive (loss) income
$
(57,692
)
 
$
(84,137
)
 
$
247,251

 
$
(163,114
)
 
$
(57,692
)

30


Condensed Consolidating Statement of Operations
Nine months ended July 31, 2015
 
 
 
 
 
 
 
 
 
 
In thousands
Parent
Company
 
Supplemental Subsidiary
Guarantors
 
Supplemental Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
1,405,663

 
$
1,611,037

 
$
(710,121
)
 
$
2,306,579

Cost of sales
(6,354
)
 
1,032,345

 
1,186,093

 
(543,451
)
 
1,668,633

Product development, selling and administrative expenses
35,544

 
161,298

 
193,247

 

 
390,089

Restructuring expenses
252

 
13,134

 
6,164

 

 
19,550

Other (income) expense
68

 
12,863

 
(18,278
)
 

 
(5,347
)
Operating income (loss)
(29,510
)
 
186,023

 
243,811

 
(166,670
)
 
233,654

Intercompany items
50,106

 
(75,362
)
 
(35,306
)
 
60,562

 

Interest (expense) income, net
(47,449
)
 
4,999

 
2,545

 

 
(39,905
)
Income (loss) before income taxes and equity in income of subsidiaries
(26,853
)
 
115,660

 
211,050

 
(106,108
)
 
193,749

Provision for income taxes
7,920

 
25,488

 
22,522

 

 
55,930

Equity in income of subsidiaries
172,592

 
41,747

 

 
(214,339
)
 

Net income from continuing operations
$
137,819

 
$
131,919

 
$
188,528

 
$
(320,447
)
 
$
137,819

 
 
 
 
 
 
 
 
 
 
Comprehensive (loss) income
$
(8,553
)
 
$
132,795

 
$
43,978

 
$
(176,773
)
 
$
(8,553
)

31


Condensed Consolidating Balance Sheet
As of July 29, 2016
In thousands
Parent
Company
 
Supplemental Subsidiary
Guarantors
 
Supplemental Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
20,584

 
$
4,384

 
$
157,857

 
$

 
$
182,825

Accounts receivable, net

 
140,809

 
516,797

 
(10,589
)
 
647,017

Inventories

 
410,176

 
574,559

 
(88,478
)
 
896,257

Other current assets
7,129

 
11,615

 
72,656

 

 
91,400

Assets held for sale

 
33,547

 
177

 

 
33,724

Total current assets
27,713

 
600,531

 
1,322,046

 
(99,067
)
 
1,851,223

Property, plant and equipment, net
19,193

 
223,938

 
435,827

 
(5,015
)
 
673,943

Other assets:
 
 
 
 
 
 
 
 


Other intangible assets, net

 
190,987

 
38,716

 

 
229,703

Goodwill

 
342,643

 
8,097

 

 
350,740

Deferred income taxes
153,869

 

 
48,594

 

 
202,463

Other non-current assets
2,437,379

 
1,891,233

 
3,149,707

 
(7,352,974
)
 
125,345

Total other assets
2,591,248

 
2,424,863

 
3,245,114

 
(7,352,974
)
 
908,251

Total assets
$
2,638,154

 
$
3,249,332

 
$
5,002,987

 
$
(7,457,056
)
 
$
3,433,417

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Short-term borrowings, including current portion of long-term obligations
$
28,125

 
$

 
$
4,420

 
$

 
$
32,545

Trade accounts payable
2,238

 
80,289

 
149,186

 

 
231,713

Employee compensation and benefits
6,445

 
26,308

 
43,587

 

 
76,340

Advance payments and progress billings

 
71,227

 
136,242

 
(10,032
)
 
197,437

Accrued warranties

 
13,322

 
27,966

 

 
41,288

Other accrued liabilities
90,009

 
55,465

 
71,551

 
(7,156
)
 
209,869

Current liabilities of discontinued operations

 

 

 

 

Total current liabilities
126,817

 
246,611

 
432,952

 
(17,188
)
 
789,192

Long-term obligations
974,202

 

 
45

 

 
974,247

Other liabilities:
 
 
 
 
 
 
 
 
 
Liabilities for postretirement benefits
17,546

 

 

 

 
17,546

Accrued pension costs
160,894

 

 

 

 
160,894

Other non-current liabilities
(14,151
)
 
10,439

 
122,404

 

 
118,692

Total other liabilities
164,289

 
10,439

 
122,404

 

 
297,132

Shareholders’ equity
1,372,846

 
2,992,283

 
4,447,585

 
(7,439,868
)
 
1,372,846

Total liabilities and shareholders’ equity
$
2,638,154

 
$
3,249,333

 
$
5,002,986

 
$
(7,457,056
)
 
$
3,433,417



32


Condensed Consolidating Balance Sheet
As of October 30, 2015
In thousands
Parent
Company
 
Supplemental Subsidiary
Guarantors
 
Supplemental Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 


Cash and cash equivalents
$
581

 
$
2,008

 
$
100,296

 
$

 
$
102,885

Accounts receivable, net

 
214,381

 
597,826

 
(134
)
 
812,073

Inventories

 
508,774

 
607,461

 
(108,310
)
 
1,007,925

Other current assets
58,441

 
15,610

 
71,508

 

 
145,559

Total current assets
59,022

 
740,773

 
1,377,091

 
(108,444
)
 
2,068,442

Property, plant and equipment, net
21,318

 
297,476

 
478,253

 
(5,015
)
 
792,032

Other assets:
 
 
 
 
 
 
 
 


Other intangible assets, net

 
207,891

 
47,819

 

 
255,710

Goodwill

 
346,348

 
8,273

 

 
354,621

Deferred income taxes
49,660

 

 
69,253

 

 
118,913

Other non-current assets
2,740,518

 
2,078,294

 
2,517,110

 
(7,213,194
)
 
122,728

Total other assets
2,790,178

 
2,632,533

 
2,642,455

 
(7,213,194
)
 
851,972

Total assets
$
2,870,518

 
$
3,670,782

 
$
4,497,799

 
$
(7,326,653
)
 
$
3,712,446

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Short-term borrowings, including current portion of long-term obligations
$
18,750

 
$

 
$
7,571

 
$

 
$
26,321

Trade accounts payable
3,342

 
96,891

 
175,556

 

 
275,789

Employee compensation and benefits
5,843

 
36,527

 
47,965

 

 
90,335

Advance payments and progress billings

 
100,312

 
149,795

 
(20,637
)
 
229,470

Accrued warranties

 
19,027

 
33,119

 

 
52,146

Other accrued liabilities
76,650

 
60,228

 
100,660

 
(12,261
)
 
225,277

Current liabilities of discontinued operations

 
11,582

 

 

 
11,582

Total current liabilities
104,585

 
324,567

 
514,666

 
(32,898
)
 
910,920

Long-term obligations
1,060,598

 

 
45

 

 
1,060,643

Other liabilities:
 
 
 
 
 
 
 
 


Liabilities for postretirement benefits
18,662

 
878

 

 

 
19,540

Accrued pension costs
159,594

 
8,406

 
7,699

 

 
175,699

Other non-current liabilities
81,595

 
8,325

 
35,715

 

 
125,635

Total other liabilities
259,851

 
17,609

 
43,414

 

 
320,874

Shareholders’ equity
1,445,484

 
3,328,606

 
3,939,674

 
(7,293,755
)
 
1,420,009

Total liabilities and shareholders’ equity
$
2,870,518

 
$
3,670,782

 
$
4,497,799

 
$
(7,326,653
)
 
$
3,712,446



33


Condensed Consolidating Statement of Cash Flows
Nine months ended July 29, 2016
In thousands
Parent
Company
 
Supplemental Subsidiary
Guarantors
 
Supplemental Non-Guarantor
Subsidiaries
 
Consolidated
Operating Activities:
 
 
 
 
 
 
 
Net cash provided (used) by operating activities
$
101,711

 
$
(3,400
)
 
$
80,472

 
$
178,783

Investing Activities:
 
 
 
 
 
 
 
Property, plant and equipment acquired
(559
)
 
(7,538
)
 
(23,887
)
 
(31,984
)
Proceeds from sale of property, plant and equipment

 
13,314

 
6,764

 
20,078

Other investing activities, net
184

 

 

 
184

Net cash (used) provided by investing activities
(375
)
 
5,776

 
(17,123
)
 
(11,722
)
Financing Activities:
 
 
 
 
 
 
 
Dividends paid
(2,972
)
 

 

 
(2,972
)
Repayments of term loan
(18,750
)
 

 

 
(18,750
)
Payments on credit agreement
(58,600
)
 

 

 
(58,600
)
Repayments of short-term debt

 

 
(3,214
)
 
(3,214
)
Financing fees
(1,011
)
 

 

 
(1,011
)
Net cash used by financing activities
(81,333
)
 

 
(3,214
)
 
(84,547
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 
(2,574
)
 
(2,574
)
Increase in Cash and Cash Equivalents
20,003


2,376


57,561


79,940

Cash and Cash Equivalents at Beginning of Period
581

 
2,008

 
100,296

 
102,885

Cash and Cash Equivalents at End of Period
$
20,584

 
$
4,384

 
$
157,857

 
$
182,825


Condensed Consolidating Statement of Cash Flow
Nine months ended July 31, 2015
In thousands
Parent
Company
 
Supplemental Subsidiary
Guarantors
 
Supplemental Non-Guarantor
Subsidiaries
 
Consolidated
Operating Activities:
 
 
 
 
 
 
 
Net cash provided by operating activities
76,032

 
14,882

 
77,800

 
168,714

Investing Activities:
 
 
 
 
 
 
 
Acquisition of business, net of cash acquired

 

 
(114,353
)
 
(114,353
)
Property, plant and equipment acquired
(141
)
 
(17,429
)
 
(40,251
)
 
(57,821
)
Proceeds from sale of property, plant and equipment
942

 
214

 
2,915

 
4,071

Other investing activities, net
(1,227
)
 

 
1,852

 
625

Net cash used by investing activities
(426
)
 
(17,215
)
 
(149,837
)
 
(167,478
)
Financing Activities:
 
 
 
 
 
 
 
Common stock issued
2,853

 

 

 
2,853

Dividends paid
(58,456
)
 

 

 
(58,456
)
Repayments of short-term debt

 
(11,634
)
 
89

 
(11,545
)
Treasury stock purchased
(50,000
)
 

 

 
(50,000
)
Other financing activities, net
261

 

 

 
261

Net cash (used) provided by financing activities
(105,342
)
 
(11,634
)
 
89

 
(116,887
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 
(13,640
)
 
(13,640
)
Decrease in Cash and Cash Equivalents
(29,736
)
 
(13,967
)
 
(85,588
)
 
(129,291
)
Cash and Cash Equivalents at Beginning of Period
54,874

 
16,429

 
198,888

 
270,191

Cash and Cash Equivalents at End of Period
$
25,138

 
$
2,462

 
$
113,300

 
$
140,900


34








23.
Subsequent Events
On September 1, 2016, our Board of Directors declared a cash dividend of $0.01 per outstanding share of common stock. The dividend will be paid on October 3, 2016 to all shareholders of record at the close of business on September 19, 2016.
Additionally, on August 5, 2016 we completed the sale our steel mill business to Nucor Corporation. The steel mill business was sold for $28.8 million, subject to a working capital adjustment.


35


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes to the Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.

Overview
Joy Global Inc. 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 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 any of 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, (ii) the receipt of specified required regulatory approvals in agreed jurisdictions, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), (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 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 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.
For further information regarding the Merger and the Merger Agreement, please refer to our Current Report on Form 8-K filed on July 21, 2016, our preliminary proxy statement filed on August 15, 2016 and the Merger Agreement, which is attached as Annex A thereto. 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.
Operating Results

36


Quarter Ended July 29, 2016 Compared With Quarter Ended July 31, 2015
Net sales in the third quarter of fiscal 2016 were $586.6 million, compared to $792.2 million in the third quarter of fiscal 2015. The decrease in net sales of $205.6 million, or 26%, in the current year third quarter reflected a decrease in original equipment sales of $81.8 million, or 41%, and a decrease in service sales of $123.8 million, or 21%. Original equipment sales decreased in all regions except Eurasia. The decline in original equipment sales was led by Australia which decreased by $38.6 million. Service sales decreased in all regions except Eurasia, as well. The decline in service sales was led by North America, which decreased by $76.9 million. Compared to the prior year third quarter, net sales in the third quarter of fiscal 2016 included a $22.6 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 the third quarter of fiscal 2016 was $5.2 million, or 1% of net sales, compared to operating income of $82.3 million, or 10% of net sales, in the third quarter of fiscal 2015. The decrease in operating income of $87.4 million compared to the third quarter of fiscal 2015 was primarily due to lower sales volumes of $83.4 million, higher restructuring charges of $16.7 million and lower net manufacturing cost absorption of $12.2 million. These items were partially offset by favorable period costs (defined as any costs of sales other than those costs associated with selling inventory at standard costs) of $14.6 million and lower product development, selling, and administrative expenses of $13.9 million.
Net income from continuing operations was $0.1 million, or $0.00 per diluted share, in the third quarter of fiscal 2016, compared to $51.3 million, or $0.52 per diluted share, in the third quarter of fiscal 2015.
Bookings in the third quarter of fiscal 2016 were $526.6 million, compared to $635.1 million in the third quarter of fiscal 2015. The decrease in bookings of $108.4 million, or 17%, in the third quarter of fiscal 2016 reflected a decrease in original equipment bookings of $45.3 million, or 46%, and a decrease in service bookings of $63.1 million, or 12%. Original equipment bookings decreased in North America, China and Eurasia by $30.1 million, $20.1 million and $12.0 million, respectively, with increases in the other regions. Service bookings decreased in all regions. The decline in service bookings was led by North America, Africa and Latin America, which decreased by $19.5 million, $16.8 million and $16.5 million, respectively. Compared to the prior year third quarter, bookings in the third quarter of fiscal 2016 included a $39.7 million unfavorable effect of foreign currency translation, due primarily to the decline in the value of the British pound sterling and the South African rand relative to the U.S. dollar.
Nine Months Ended July 29, 2016 Compared With Nine Months Ended July 31, 2015
Net sales in the first nine months of fiscal 2016 were $1.7 billion, compared to $2.3 billion in the first nine months of fiscal 2015. The decrease in net sales of $591.7 million, or 26%, in the first nine months of the current year reflected a decrease in original equipment sales of $231.1 million, or 38%, and a decrease in service sales of $360.7 million, or 21%. Original equipment sales decreased in all regions except North America and Eurasia. The decline in original equipment sales was led by Latin America and China, which decreased by $104.2 million and $75.4 million, respectively. Service sales decreased in all regions except Eurasia. The decline in service sales was led by North America, which decreased by $299.6 million. Compared to the first nine months of the prior year, net sales in the first nine months of fiscal 2016 included a $77.9 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 the first nine months of fiscal 2016 was $54.6 million, or 3% of net sales, compared to operating income of $233.7 million, or 10% of net sales, in the first nine months of fiscal 2015. The decrease in operating income of $288.2 million compared to the first nine months of fiscal 2015 was primarily due to lower sales volumes of $232.3 million, higher restructuring charges of $64.9 million, lower net manufacturing cost absorption of $42.5 million and less favorable product mix of $21.7 million. These items were partially offset by lower product development, selling, and administrative expenses of $40.7 million (despite the $6.4 million release of a portion of the fiscal 2015 mark to market pension adjustments that was initially capitalized to inventory) and favorable period costs of $30.1 million.
Net loss from continuing operations was $55.4 million, or $0.57 per diluted share, in the first nine months of fiscal 2016, compared to net income of $137.8 million, or $1.41 per diluted share, in the first nine months of fiscal 2015.
Bookings in the first nine months of fiscal 2016 were $1.8 billion, compared to $2.1 billion in the first nine months of fiscal 2015. The decrease in bookings of $322.9 million, or 16%, in the first nine months of the current year reflected a decrease in original equipment bookings of $85.8 million, or 20%, and a decrease in service bookings of $237.1 million, or 14%. Original equipment bookings decreased in all regions except Eurasia and Australia. The decline in original equipment bookings was led by North America and China, which decreased by $82.4 million and $64.2 million, respectively. Service bookings decreased in all regions except Eurasia. The decline in service bookings was led by North America which decreased by $211.8 million. Compared to the first nine months of the prior year, bookings in the first nine months of fiscal 2016 included a $96.3 million unfavorable

37


effect of foreign currency translation, due primarily to the decline in the value of the South African rand, the British pound sterling and the Australian dollar relative to the U.S. dollar.
Market Outlook
Although global economic growth showed signs of marginal improvement at the start of the third quarter, activity for most of the year has remained sluggish with global growth tracking below expectations. Continued challenges across most emerging economies, along with marginal growth in developed economies, has resulted in a growth profile tracking at a slight decline from 2015.   
Copper markets have proven to be resilient in recent months. Strong supply growth has kept a ceiling on prices despite Chinese imports increasing through July. While global copper markets are expected to return to a deficit in 2018, the next two years are expected to be in surplus and will likely keep prices range bound.
U.S. coal markets have remained under immense pressure for over four years. The increase in natural gas prices has contributed to June having the highest monthly total tons of coal being used for electricity generation since last September. Further helping domestic coal markets has been the recent rise in U.S. temperatures with year-over-year increases in cooling degree days observed in seven of the last eight weeks. Although regulatory pressures on U.S. coal markets persist, these current dynamics are slowly helping to reduce inventories and rebalance markets.
Global steel production during the second quarter was flat versus the year ago period but up modestly sequentially driven by normal seasonal construction patterns as well as global stimulus programs. The sequential rebound had been expected and provided support to global metallurgical coal and iron ore markets during the quarter. 
Metallurgical coal spot prices have increased in recent weeks driven by tighter supply and sequentially improving demand. However, the market remains delicately balanced and given that Chinese imports are unlikely to continue to grow at the annual pace they have to date, a pullback in metallurgical coal spot prices over the next three to six months is expected. 
Conditions in iron ore markets have improved in the past two months, largely driven by the sequential improvement in steel production. Year-to-date Chinese iron ore imports have increased over 2015, which has supported spot price averages since July. While modestly improved demand has contributed to the recent price increase, iron ore prices are expected to be lower in the second half of the calendar year as new seaborne supply reaches the market. 
Despite the headwinds to global growth during the first half of the year, certain commodity prices have recently improved. However, this development has been driven more by supply rationalization as opposed to strengthening demand and should be viewed in that context. As commodity markets continue to rebalance, some volatility in pricing will likely remain as conditions in individual markets vary. Notwithstanding recent modest commodity price increases, the mining industry continues to face many challenges, and market conditions are expected to remain weak through 2017. Over the past quarter, the global mining equipment capital spending outlook has worsened with the current projection for 2017 reflecting a year-over-year decline in spending.
Company Outlook
Safety performance in the mining industry continues to be a critically important metric that our customers monitor, and it is at the heart of what we do, as well. Over the last twelve months, we’ve had fifteen manufacturing and service facilities that have achieved zero recordable incidents over that period. It’s a great achievement for our company and a core focus for us as we continue to see our facility footprint change around the world.
Our teams remain focused on driving our strategic objectives and we realized several successes during the quarter. In hard rock, we saw strong order rates in the quarter on our Montabert drifter (rock drill) product line, and our underground twenty-two tonne LHD (load-haul dump) continued to perform well in trials. Additionally we delivered our heavy continuous miner systems into salt and gypsum mines during the quarter. The growth we are driving in underground hard rock and a variety of industrial mineral applications is helping to partially mitigate significant pressures in our coal markets around the world.
While the recent increase in certain commodity prices is positive, the outlook remains tepid and the financial condition of our customers is challenged, which will continue to impact both the timing and level of our incoming orders through 2017.
In light of persistent difficult market conditions, we remain focused on reducing our cost base, accelerating the implementation of our footprint optimization plans and actively monetizing non-core assets.




38


Results of Operations
Quarter Ended July 29, 2016 Compared With Quarter Ended July 31, 2015
Net Sales
The following table sets forth the net sales included in our Condensed Consolidated Statements of Operations:
 
Quarter Ended
 
 
 
 
In thousands
July 29, 2016
 
July 31, 2015
 
$ Change
 
% Change
Net Sales
 
 
 
 
 
 
 
Underground
$
318,106

 
$
453,302

 
$
(135,196
)
 
(30
)
Surface
288,273

 
362,559

 
(74,286
)
 
(20
)
Eliminations
(19,827
)
 
(23,678
)
 
3,851

 
 
Total Sales
$
586,552

 
$
792,183

 
$
(205,631
)
 
(26
)
Underground net sales in the third quarter of fiscal 2016 were $318.1 million, compared to $453.3 million in the third quarter of fiscal 2015. The decrease in Underground net sales of $135.2 million, or 30%, in the third quarter of fiscal 2016 reflected a decrease in original equipment sales of $60.4 million, or 40%, and a decrease in service sales of $74.8 million, or 25%. Original equipment sales increased in North America and Eurasia, with decreases in all other regions except Latin America, which was flat. The decline in original equipment sales was led by Australia and China which decreased by $41.8 million and $25.3 million, respectively. Service sales decreased in all regions except Latin America and Eurasia. The decline in service sales was led by North America and China, which decreased by $47.3 million and $27.2 million, respectively. Compared to the third quarter of fiscal 2015, Underground net sales in the third quarter of fiscal 2016 included a $17.8 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 the third quarter of fiscal 2016 were $288.3 million, compared to $362.6 million in the third quarter of fiscal 2015. The decrease in Surface net sales of $74.3 million, or 20%, in the third quarter of fiscal 2016 reflected a decrease in original equipment sales of $17.6 million, or 31%, and a decrease in service sales of $56.7 million, or 19%. Original equipment sales decreased in all regions except Australia. The decline in original equipment sales was led by Latin America, which decreased by $16.5 million. Service sales decreased in all regions except Eurasia. The decline in service sales was led by North America, which decreased by $35.0 million. Compared to the third quarter of fiscal 2015, Surface net sales in the third quarter of fiscal 2016 included a $4.8 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) Income
The following table sets forth the operating (loss) income included in our Condensed Consolidated Statements of Operations:
 
Quarter Ended
 
July 29, 2016
 
July 31, 2015
 
Operating
 
 
 
Operating
 
 
In thousands
(Loss) Income
 
% of Net Sales
 
Income (Loss)
 
% of Net Sales
Operating (Loss) Income
 
 
 
 
 
 
 
Underground
$
(6,686
)
 
(2
)
 
$
40,334

 
9
Surface
17,388

 
6

 
59,604

 
16
Corporate Expense
(12,274
)
 
 
 
(12,307
)
 
 
Eliminations
(3,597
)
 
 
 
(5,380
)
 
 
Total Operating (Loss) Income
$
(5,169
)
 
(1
)
 
$
82,251

 
10
Underground operating loss in the third quarter of fiscal 2016 was $6.7 million, or 2% of net sales, compared to operating income of $40.3 million, or 9% of net sales, in the third quarter of fiscal 2015. The decrease in Underground operating income of $47.0 million compared to the third quarter of fiscal 2015 was primarily due to lower sales volumes of $51.7 million, higher restructuring charges of $7.4 million and lower net manufacturing cost absorption of $7.8 million. These items were partially offset by lower product development, selling and administrative expenses of $14.5 million and favorable period costs of $6.3 million.
Surface operating income in the third quarter of fiscal 2016 was $17.4 million, or 6% of net sales, compared to $59.6 million, or 16% of net sales, in the third quarter of fiscal 2015. The decrease in Surface operating income of $42.2 million compared to

39


the third quarter of fiscal 2015 was primarily due to lower sales volumes of $33.3 million and higher restructuring charges of $9.3 million, partially offset by favorable period costs of $8.3 million.
Corporate expense in the third quarter of fiscal 2016 was $12.3 million, compared to $12.3 million in the third quarter of fiscal 2015.
Product Development, Selling and Administrative Expenses
Product development, selling and administrative expenses in the third quarter of fiscal 2016 was $114.4 million, or 19% of net sales, compared to $128.6 million, or 16% of net sales, in the third quarter of fiscal 2015. The decrease in product development, selling and administrative expenses of $14.2 million, or 11%, was primarily due to headcount reductions, as well as other savings from the Company's cost reduction programs. In addition, the Company incurred lower commissions on lower sales volumes, as well as reduced bad debt expense and litigation charges during the current year. These cost decreases were partially offset by higher overall incentive based compensation.
Restructuring Expenses
Restructuring expenses in the third quarter of fiscal 2016 were $24.4 million, compared to $7.8 million in the third quarter of fiscal 2015. The increase in restructuring expenses of $16.7 million was due to the Company's continued implementation of cost reduction initiatives in response to the adverse market conditions. These costs included entering into severance and termination agreements and full or partial closures or idling of certain facilities, primarily in China and North America, in order to better align the Company's overall cost structure with anticipated levels of future demand.
The restructuring expenses include impairment charges for property, plant and equipment. During the quarter ended July 29, 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 in the third quarter of fiscal 2016 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 value. A valuation was 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 $1.8 million for the quarter ended July 29, 2016 for our Underground segment related to such property, plant, and equipment.
Net Interest Expense
Net interest expense in the third quarter of fiscal 2016 was $11.1 million, compared to $13.7 million in the third quarter of fiscal 2015. The decrease in net interest expense of $2.6 million, or 19%, was primarily due to fourth quarter fiscal 2015 redemption of the $250.0 million aggregate principal amount of our 6% Senior Notes due 2016 (the "2016 Senior Notes"). The reduction was partially offset by an increase in interest expense on our term loan and revolving credit facility due to our lower credit rating and a decrease in interest bearing assets as a result of the fourth quarter fiscal 2015 customer payment of a long-term receivable.
Provision for Income Taxes
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 may be the best annual effective tax rate estimate. For the quarter ended July 29, 2016, the Company determined that the estimated annual effective rate method would not provide for 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 the quarter ended July 29, 2016 based on the actual effective rate (i.e., the “cut-off” method). The effective tax rate for the quarter ended July 31, 2015 was calculated based on an estimated annual effective tax rate in addition to discrete items.
The benefit for income taxes in the third quarter of fiscal 2016 was $16.4 million, compared to a provision of $17.2 million in the third quarter of fiscal 2015. On a GAAP basis, the effective income tax rate was 100.8% in the third quarter of fiscal 2016, compared to 25.1% in the third quarter of fiscal 2015. The change in the effective tax rate for the quarter, excluding discrete items, was primarily attributable to a change in geographical mix of projected earnings and a change in the net operating losses of certain foreign subsidiaries without a currently recognizable tax benefit. A net discrete tax benefit of $11.2 million was recorded in the

40


third quarter of fiscal 2016, compared to a benefit of $0.8 million in the third quarter of fiscal 2015. The fiscal 2016 net discrete tax benefit primarily related to the reversal of unrecognized tax benefit reserves upon the lapse of the statute of limitations.
Bookings
Bookings represent new customer orders for original equipment and services. Services 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 the quarters ended July 29, 2016 and July 31, 2015 were as follows:
 
Quarter Ended
 
 
 
 
In thousands
July 29, 2016
 
July 31, 2015
 
$ Change
 
% Change
Bookings
 
 
 
 
 
 
 
Underground
$
290,471

 
$
365,705

 
$
(75,234
)
 
(21
)
Surface
247,289

 
325,617

 
(78,328
)
 
(24
)
Eliminations
(11,138
)
 
(56,269
)
 
45,131

 
 
Total Bookings
$
526,622

 
$
635,053

 
$
(108,431
)
 
(17
)
Underground bookings in the third quarter of fiscal 2016 were $290.5 million, compared to $365.7 million in the third quarter of fiscal 2015. The decrease in Underground bookings of $75.2 million, or 21%, in the third quarter of fiscal 2016 reflected a decrease in original equipment bookings of $42.9 million, or 47%, and a decrease in service bookings of $32.3 million, or 12%. Original equipment bookings decreased in North America, China and Eurasia by $29.5 million, $19.8 million and $11.0 million, respectively, with increases in the other regions. Service bookings decreased in all regions except Latin America and Australia. The decline in service bookings was led by North America, which decreased by $23.1 million. Compared to the third quarter of fiscal 2015, Underground bookings in the third quarter of fiscal 2016 included a $36.5 million unfavorable impact of foreign currency translation, due primarily to the decline in the value of the British pound sterling and the South African rand relative to the U.S. dollar.
Surface bookings in the third quarter of fiscal 2016 were $247.3 million, compared to $325.6 million in the third quarter of fiscal 2015. The decrease in Surface bookings of $78.3 million, or 24%, in the third quarter of fiscal 2016 reflected a decrease in original equipment bookings of $38.8 million, or 88%, and a decrease in service bookings of $39.5 million, or 14%. Original equipment bookings decreased in all regions except Latin America. The decline in original equipment bookings was led by North America, which decreased by $31.8 million. Service bookings decreased in all regions. The decline in service bookings was led by Latin America, which decreased by $18.8 million. Compared to the third quarter of fiscal 2015, Surface bookings in the third quarter of fiscal 2016 included a $3.2 million unfavorable impact of foreign currency translation, due primarily to the decline in the value of the South African rand and the Australian dollar relative to the U.S. dollar.

Nine Months Ended July 29, 2016 Compared With Nine Months Ended July 31, 2015
Net Sales
The following table sets forth the net sales included in our Condensed Consolidated Statements of Operations:
 
Nine Months Ended
 
 
 
 
In thousands
July 29, 2016
 
July 31, 2015
 
$ Change
 
% Change
Net Sales
 
 
 
 
 
 
 
Underground
$
935,203

 
$
1,261,904

 
$
(326,701
)
 
(26
)
Surface
849,949

 
1,132,981

 
(283,032
)
 
(25
)
Eliminations
(70,315
)
 
(88,306
)
 
17,991

 
 
Total Sales
$
1,714,837

 
$
2,306,579

 
$
(591,742
)
 
(26
)
Underground net sales in the first nine months of fiscal 2016 were $935.2 million, compared to $1.3 billion in the first nine months of fiscal 2015. The decrease in Underground net sales of $326.7 million, or 26%, in the first nine months of fiscal 2016 reflected a decrease in original equipment sales of $115.7 million, or 31%, and a decrease in service sales of $211.0 million, or 24%. Original equipment sales decreased in all regions except Latin America, which was flat, and Eurasia. The decline in original equipment sales was led by China, which decreased by $60.6 million. Service sales decreased in North America, China and Africa by $179.4 million, $54.6 million and $32.3 million, respectively, with increases in the other regions. Compared to the firs

41


t nine months of fiscal 2015, Underground net sales in the first nine months of fiscal 2016 included a $56.8 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 the first nine months of fiscal 2016 were $849.9 million, compared to $1.1 billion in the first nine months of fiscal 2015. The decrease in Surface net sales of $283.0 million, or 25%, in the first nine months of fiscal 2016 reflected a decrease in original equipment sales of $121.8 million, or 47%, and a decrease in service sales of $161.2 million, or 18%. Original equipment sales decreased in all regions except North America. The decline in original equipment sales was led by Latin America, which decreased by $104.3 million. Service sales decreased in all regions except Eurasia. The decline in service sales was led by North America, which decreased by $126.3 million. Compared to the first nine months of fiscal 2015, Surface net sales in the first nine months of fiscal 2016 included a $21.1 million unfavorable effect of foreign currency translation, due primarily to the decline in the value of the Chilean peso, the Australian dollar and the South African rand relative to the U.S. dollar.
Operating (Loss) Income
The following table sets forth the operating (loss) income included in our Condensed Consolidated Statements of Operations:
 
Nine Months Ended
 
July 29, 2016
 
July 31, 2015
 
Operating
 
 
 
Operating
 
 
In thousands
(Loss) Income
 
% of Net Sales
 
Income (Loss)
 
% of Net Sales
Operating (Loss) Income
 
 
 
 
 
 
 
Underground
$
(65,953
)
 
(7
)
 
$
134,060

 
11
Surface
60,823

 
7

 
149,786

 
13
Corporate Expense
(31,531
)
 
 
 
(29,642
)
 
 
Eliminations
(17,920
)
 
 
 
(20,550
)
 
 
Total Operating (Loss) Income
$
(54,581
)
 
(3
)
 
$
233,654

 
10
Underground operating loss in the first nine months of fiscal 2016 was $66.0 million, or 7% of net sales, compared to operating income of $134.1 million, or 11% of net sales, in the first nine months of fiscal 2015. The decrease in Underground operating income of $200.0 million compared to the first nine months of fiscal 2015 was primarily due to lower sales volumes of $126.2 million, higher restructuring charges of $60.0 million, lower net manufacturing cost absorption of $25.6 million and less favorable product mix of $23.0 million. These items were partially offset by lower product development, selling, and administrative expenses of $27.9 million.
Surface operating income in the first nine months of fiscal 2016 was $60.8 million, or 7% of net sales, compared to $149.8 million, or 13% of net sales, in the first nine months of fiscal 2015. The decrease in Surface operating income of $89.0 million compared to the first nine months of fiscal 2015 was primarily due to lower sales volumes of $109.1 million and lower net manufacturing cost absorption of $16.9 million. These items were partially offset by favorable period costs of $27.9 million and lower product development, selling, and administrative expenses of $14.6 million.
Corporate expense in the first nine months of fiscal 2016 was $31.5 million, compared to $29.6 million in the first nine months of fiscal 2015. The increase in corporate expense of $1.9 million, or 6%, is primarily due to higher product development, selling, and administrative expenses of $1.8 million. The increase in SG&A includes the $6.4 million release of a portion of the fiscal 2015 mark to market pension adjustments that was initially capitalized to inventory.
Product Development, Selling and Administrative Expenses
Product development, selling and administrative expenses in the first nine months of fiscal 2016 was $341.4 million, or 20% of net sales, compared to $390.1 million, or 17% of net sales, in the first nine months of fiscal 2015. The decrease in product development, selling and administrative expenses of $48.7 million, or 12%, was primarily due to headcount reductions, as well as other savings from the Company's cost reduction programs. In addition, the Company incurred lower commissions on lower sales volumes, as well as reduced bad debt expense and litigation charges during the current year.
Restructuring Expenses
Restructuring expenses in the first nine months of fiscal 2016 were $84.5 million, compared to $19.6 million in the first nine months of fiscal 2015. The increase in restructuring expenses of $64.9 million was due to the Company's continued implementation of cost reduction initiatives in response to the adverse market conditions. These costs included entering into severance and termination agreements and accelerated depreciation and asset impairment charges due to full or partial closures

42


of certain facilities, primarily in China and North America, in order to better align the Company's overall cost structure with anticipated levels of future demand.
The restructuring expenses include impairment charges for both property, plant and equipment and indefinite-lived trademarks. During the second and third quarters of 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 in both the second and third quarters of fiscal 2016 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 nine months ended July 29, 2016 for our Underground segment related to such property, plant, and equipment.
As mentioned above, we also assessed our indefinite-lived trademarks during the second quarter of 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 in the nine months ended July 29, 2016 by our Underground segment.
Net Interest Expense
Net interest expense in the first nine months of fiscal 2016 was $34.8 million, compared to $39.9 million in the first nine months of fiscal 2015. The decrease in net interest expense of $5.1 million, or 13%, 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 partially offset by an increase in interest expense on the term loan and revolving credit facility due to our lower credit rating and a decrease in interest bearing assets as a result of the fourth quarter fiscal 2015 customer payment of a long-term receivable.
Provision for Income Taxes
As noted above, for the nine months ended July 29, 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 to modest changes in forecasted annual pre-tax results. Therefore, the Company recorded a tax benefit for the nine months ended July 29, 2016 based on the actual effective rate (i.e., the “cut-off” method). The effective tax rate for the nine months ended July 31, 2015 was calculated based on an estimated annual effective tax rate in addition to discrete items.
The benefit for income taxes in the first nine months of fiscal 2016 was $34.0 million, compared to a provision of $55.9 million in the first nine months of fiscal 2015. The effective income tax rate was 38.0% in the first nine months of fiscal 2016, compared to 28.9% in the first nine months of fiscal 2015. The change in the effective tax rate for the quarter, excluding discrete items, was primarily attributable to a change in geographical mix of projected earnings and a change in the net operating losses of certain foreign subsidiaries without a currently recognizable tax benefit. A net discrete tax benefit of $18.2 million was recorded in the first nine months of fiscal 2016, compared to expense of $0.8 million in the first nine months of fiscal 2015. The fiscal 2016 net discrete tax benefit primarily related to the revision of prior year fourth quarter valuation allowance calculations on our domestic China business' deferred tax assets and the reversal of unrecognized tax benefit reserves upon the lapse of the statute of limitations.
Bookings and Backlog
Bookings for the nine months ended July 29, 2016 and July 31, 2015 were as follows:
 
Nine Months Ended
 
 
 
 
In thousands
July 29, 2016
 
July 31, 2015
 
$ Change
 
% Change
Bookings
 
 
 
 
 
 
 
Underground
$
933,219

 
$
1,210,096

 
$
(276,877
)
 
(23
)
Surface
872,921

 
980,675

 
(107,754
)
 
(11
)
Eliminations
(49,062
)
 
(110,812
)
 
61,750

 
 
Total Bookings
$
1,757,078

 
$
2,079,959

 
$
(322,881
)
 
(16
)
Underground bookings in the first nine months of fiscal 2016 were $933.2 million, compared to $1.2 billion in the first nine months of fiscal 2015. The decrease in Underground bookings of $276.9 million, or 23%, in the first nine months of fiscal 2016 reflected a decrease in original equipment bookings of $111.3 million, or 32%, and a decrease in service bookings of $165.5 million, or 19%. Original equipment bookings decreased in North America, China and Africa by $116.5 million, $64.0 million and

43


$5.6 million, respectively, with increases in the other regions. The increase in Eurasia was due to a longwall system and room and pillar bookings in India in fiscal 2016, as well as longwall system product bookings in Russia. Service bookings also decreased in North America, China and Africa by $167.2 million, $43.4 million and $16.6 million, respectively, with increases in the other regions. Compared to the first nine months of fiscal 2015, Underground bookings in the first nine months of fiscal 2016 included an $80.8 million unfavorable impact of foreign currency translation, due primarily to the decline in the value of the South African rand and the British pound sterling relative to the U.S. dollar.
Surface bookings in the first nine months of fiscal 2016 were $872.9 million, compared to $980.7 million in the first nine months of fiscal 2015. The decrease in Surface bookings of $107.8 million, or 11%, in the first nine months of fiscal 2016 reflected a decrease in original equipment bookings of $21.1 million, or 16%, and a decrease in service bookings of $86.6 million, or 10%. Original equipment bookings decreased in all regions except Australia. The decline in original equipment bookings was led by Eurasia and Latin America, which decreased by $17.5 million and $13.4 million, respectively. Service bookings decreased in all regions except Eurasia. The decline in service bookings was led by North America, which decreased by $53.9 million. Compared to the first nine months of fiscal 2015, Surface bookings in the first nine months of fiscal 2016 included a $15.5 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.
Backlog represents unfilled customer orders for our original equipment and service, exclusive of long-term maintenance and repair arrangements and life cycle management arrangements. Customer orders included in backlog represent arrangements to purchase specific original equipment or services. The backlog amounts reported exclude sales already recognized by period end under the percentage-of-completion method of accounting. The following table provides backlog as of July 29, 2016 and October 30, 2015:
In thousands
July 29,
2016
 
October 30,
2015
Backlog
 
 
 
Underground
$
539,893

 
$
541,877

Surface
416,982

 
394,010

Eliminations
(41,155
)
 
(62,407
)
Total Backlog
$
915,720

 
$
873,480




Liquidity and Capital Resources
The following table summarizes the major elements of our working capital as of July 29, 2016 and October 30, 2015:
In thousands
July 29, 2016
 
October 30, 2015
Accounts receivable, net
$
647,017

 
$
812,073

Inventories
896,257

 
1,007,925

Trade accounts payable
(231,713
)
 
(275,789
)
Advance payments and progress billings
(197,437
)
 
(229,470
)
Trade Working Capital
$
1,114,124

 
$
1,314,739

Other current assets
91,400

 
145,559

Short-term borrowings, including current portion of long-term obligations
(32,545
)
 
(26,321
)
Employee compensation and benefits
(76,340
)
 
(90,335
)
Accrued warranties
(41,288
)
 
(52,146
)
Other accrued liabilities
(209,869
)
 
(225,277
)
Working Capital Excluding Cash and Cash Equivalents
$
845,482

 
$
1,066,219

Cash and cash equivalents
182,825

 
102,885

Working Capital
$
1,028,307

 
$
1,169,104

We currently use trade working capital and cash flows 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

44


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 operating activities during the first nine months of fiscal 2016 was $178.8 million, compared to $168.7 million provided during the first nine months of fiscal 2015. The increase in cash provided by continuing operations was primarily due to decreased inventory purchases matching customer demand for original equipment and service, partially offset by the accounts receivable and advance payment impacts, acting with the lower earnings, due to decreased volumes.
Cash used by investing activities during the first nine months of fiscal 2016 was $11.7 million, compared to $167.5 million used during the first nine months of fiscal 2015. The decrease in cash used by investing activities was primarily due to the payments made in the prior year for the acquisition of Montabert, as well as monetization of non-core assets in the current year.
Cash used by financing activities during the first nine months of fiscal 2016 was $84.5 million, compared to $116.9 million used during the first nine months of fiscal 2015. The decrease in cash used by financing activities was primarily due to no share repurchases in the current year and lower dividends. These items were partially offset by our first quarter payoff of amounts previously outstanding under our Credit Agreement resulting from the redemption of our 2016 Senior Notes in the fourth quarter of fiscal 2015 and our increased required repayments and prepayments on the Term Loan.
On June 2, 2016, our Board of Directors declared a cash dividend of $0.01 per outstanding share of common stock. The dividend was paid on July 6, 2016 to all shareholders of record at the close of business on June 22, 2016. In addition, on September 1, 2016, our Board of Directors declared a cash dividend of $0.01 per outstanding share of common stock. The dividend will be paid on October 3, 2016 to all shareholders of record at the close of business on September 19, 2016.
Restructuring Programs
Restructuring activities continued in the first nine months of fiscal 2016 to better align the Company's workforce and overall cost structure with current and expected future demand. For the 2016 fiscal year, total restructuring charges are anticipated to be up to $90 million, with estimated cash costs of up to $50 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. For the nine months ended July 29, 2016, we contributed $12.3 million to our defined benefit employee pension and postretirement plans. We expect contributions to our defined benefit pension and postretirement plans to be approximately $15.0 million for the 2016 fiscal year.
During the quarter ended July 29, 2016, we recognized $0.2 million of curtailment losses and $0.1 million of mark to market gains under the Joy Global other postretirement plans as part of continued restructuring activities in our Surface division.
During the nine months ended July 29, 2016, we recognized $9.4 million of estimated contractual termination benefits under the Joy Global qualified pension plan for benefits to be provided to certain employees as part of restructuring activities in our Underground division.
Credit Agreement and Senior Notes
We entered into our Credit Agreement on July 29, 2014. 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 and to 4.25x in the third quarter of fiscal 2016, and will further increase the permitted ratio to 4.5x in the fourth quarter of fiscal 2016. The ratio will 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

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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 leverage ratio exceeds the maximum amount set forth therein. As of July 29, 2016, we were in compliance with all financial covenants of the Credit Agreement.
As of July 29, 2016, there were no direct borrowings under the Credit Agreement. Total interest expense recognized for direct borrowings under the Credit Agreement for the quarters ended July 29, 2016 and July 31, 2015 was less than $0.1 million and $0.4 million, respectively. For the nine months ended July 29, 2016 and July 31, 2015, total interest expense recognized for direct borrowings under the Credit Agreement was $0.5 million and $0.9 million, respectively. As of July 29, 2016, outstanding standby letters of credit issued under the Credit Agreement, which count toward the $850.0 million credit limit, totaled $110.9 million, and our available borrowing capacity under the Credit Agreement was $739.1 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. 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 beginning in fiscal 2016. No payments were made during the quarter ended July 29, 2016, as we prepaid $9.4 million in the second quarter of fiscal 2016 for the payments due in the third and fourth quarter of fiscal 2016. Payments of $18.8 million were made on the Term Loan during the nine months ended July 29, 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 July 29, 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 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 in 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 2036 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%.
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 quarter and nine months ended July 29, 2016, we did not repurchase any shares of common stock. During the quarter ended July 31, 2015, we did not repurchase any shares of common stock. During the nine months ended July 31, 2015, we repurchased 954,580 shares of common stock for approximately $50.0 million. Cumulatively, we repurchased 9,771,605 shares of common stock under the program for approximately $533.4 million. The repurchase program expired in August 2016.
Advance Payments and Progress Billings

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As part of the negotiation process associated with original equipment orders and some service contracts, 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 July 29, 2016, advance payments and progress billings were $197.4 million. As orders are shipped or costs are incurred, the advance payments and progress billings are recognized as revenue in the Condensed Consolidated Statements of Operations.

Goodwill and Other Intangible Assets
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 July 29, 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 as of April 29, 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 nine months ended July 29, 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 17, Fair Value Measurements, for the definition of Level 3 inputs. This charge is recorded in the Condensed Consolidated Statement of Operations under the heading Restructuring expenses.
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. The most recent goodwill impairment test was performed as of January 29, 2016, as our total shareholders’ equity exceeded our market capitalization based on our stock price of $9.97 per share at that point in time, and therefore indicated the possibility of an impairment to goodwill. This interim goodwill impairment test focused on our Surface reporting unit, as all Underground goodwill was fully impaired in the fourth quarter of 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 15%. We determined that there were no indicators of impairment for the quarter ended July 29, 2016 that would warrant an additional interim impairment test at that point in time. Although we have concluded that there is no impairment on the goodwill of $350.7 million associated with our Surface reporting unit as of July 29, 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 upon 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 12 months, without taking into consideration the pending Merger with Komatsu America. In this regard, we had $182.8 million in cash and cash equivalents as of July 29, 2016 and $739.1 million available for borrowings under the Credit Agreement. Further, we continue to effectively manage our cash flow 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 the first nine months of 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 and to 4.25x in the third quarter of fiscal 2016, and will further increase the permitted ratio to 4.5x in the fourth quarter of fiscal 2016. The ratio will 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 the first nine months of fiscal 2016 we reduced dividends from $0.20 per share to $0.01 per share. This action will reduce 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 Agreement and Notes section above, the Credit Agreement

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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 Agreement 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 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. No significant changes to lease commitments have occurred since our year ended October 30, 2015. We have no other off-balance sheet arrangements.
Subsequent Event
Additionally, on August 5, 2016 we completed the sale our steel mill business to Nucor Corporation. The steel mill business was sold for $28.8 million, subject to a working capital adjustment.

Critical Accounting Estimates, Assumptions and Policies
Our discussion and analysis of financial condition and results of operations is based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these Condensed 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 revenue recognition, 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 our accounting policies for revenue recognition, inventories, goodwill and other intangible assets, accrued warranties, pension and postretirement benefits and costs and income taxes 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. Please refer to Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended October 30, 2015 for a discussion of these policies.
Other than the impact of the adoption of ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, as discussed in Note 20, Recent Accounting Pronouncements, in this Form 10-Q, there were no material changes to these policies since our year ended October 30, 2015.

New Accounting Pronouncements
Our new accounting pronouncements are set forth under Part I, Item 1 of this Quarterly Report on Form 10-Q and are incorporated herein by reference.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
As more fully described in our Annual Report on Form 10-K for the year ended October 30, 2015, we are exposed to various types of market risks, such as interest rate risk, commodity price risk and foreign currency risk. We monitor our risks on a continuous basis and generally enter into forward foreign currency contracts to minimize our foreign currency exposures. We do not engage in speculation in our derivative strategies. Gains and losses from foreign currency contract activities are offset by changes in the underlying costs of the transactions being hedged. There have been no material changes to our primary market risk exposures or how such risks are managed since our year ended October 30, 2015. However, there has been, and may continue to be, volatility in currency exchange rates as a result of the United Kingdom's June 23, 2016 referendum in which voters approved the United Kingdom's exit from the European Union, commonly referred to as “Brexit.” We will continue to monitor developments related to Brexit and their potential impact on our market risk exposures.

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Item 4. Controls and Procedures
We have established disclosure controls and procedures to ensure that material information relating to us, including our consolidated subsidiaries, is made known on a timely basis to the officers who certify our financial reports and to other members of senior management and the Board of Directors.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures are effective (1) in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed in the reports we file or submit under the Exchange Act and (2) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There have not been any changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during our quarter ended July 29, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. 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 3,665 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.
SEC Investigation. In the fourth quarter of 2014, we received a subpoena from the SEC's Division of Enforcement concerning our 2012 acquisition of IMM and related accounting matters. On June 28, 2016, the Staff notified the Company that it had concluded its investigation and, based on the information received through such date, that it did not intend to recommend any enforcement action by the Commission.

Item 1A. Risk Factors
During the quarter ended July 29, 2016, there were no material changes from the risk factors disclosed in Item 1A of our Annual Report on Form 10-K for our fiscal year ended October 30, 2015, except as set forth below.

Risks Relating to Our Pending Acquisition by Komatsu America

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 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 is subject to a number of conditions, including obtaining shareholder approval, receipt of required regulatory approvals, including the expiration or termination of the applicable waiting period under the HSR Act and the absence of any law, judgment or injunction prohibiting the consummation of the Merger. 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 or Komatsu America terminate the agreement because our shareholders do not approve the Merger Agreement or we enter into an agreement with respect to a Superior Company Proposal.

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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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.

Item 3. Defaults upon Senior Securities
Not applicable.

Item 4. Mine Safety Disclosures
Not applicable.

Item 5. Other Information
The Company previously disclosed that in 2015 it commenced cost reduction initiatives in order to better align the Company’s overall cost structure with anticipated levels of future demand. Costs related to these initiatives include entering into severance and termination agreements and full or partial closures of certain facilities. On September 1, 2016, the Company announced that additional restructuring charges of up to $5.0 million are expected in the remainder of fiscal 2016 as the Company continues to reduce staffing levels and optimize its global manufacturing and service footprint. We incurred approximately $86.1 million of charges under these programs in the first nine months of fiscal 2016, which consisted primarily of employee severance and termination costs, accelerated depreciation and asset impairment charges. Refer to Note 12, Restructuring Charges, for additional information related to our restructuring programs.



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Item 6. Exhibits
 
2.1
Agreement and Plan of Merger, dated as of July 21, 2016, by and among Joy Global Inc., Komatsu America Corp., Pine Solutions Inc. and (solely for the purposes set forth therein) Komatsu Ltd. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on July 21, 2016, File No. 001-09299).
 
 
31.1
Chief Executive Officer Rule 13a-14(a)/15d-14(a) Certifications
 
 
31.2
Chief Financial Officer Rule 13a-14(a)/15d-14(a) Certifications
 
 
32.1
Section 1350 Certifications
 
 
101.INS
XBRL Instance Document
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.DEF
XBRL Taxonomy Extension Definition Document
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document


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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Milwaukee, Wisconsin, on September 2, 2016.
 
 
JOY GLOBAL INC.
 
(Registrant)
 
 
Date: September 2, 2016
/s/ James M. Sullivan
 
James M. Sullivan
 
Executive Vice President and Chief Financial Officer
 
(Principal Financial Officer)
 
 
Date: September 2, 2016
/s/ Matthew S. Kulasa
 
Matthew S. Kulasa
 
Vice President, Controller and Chief Accounting Officer
 
(Principal Accounting Officer)


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