Annual Reports

 
Quarterly Reports

  • 10-Q (Mar 7, 2014)
  • 10-Q (Aug 30, 2013)
  • 10-Q (May 31, 2013)
  • 10-Q (Feb 28, 2013)
  • 10-Q (Aug 30, 2012)
  • 10-Q (Jun 4, 2012)

 
8-K

 
Other

Joy Global 10-Q 2006

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

[  X  ]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED        April 29, 2006      

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 1-9299

JOY GLOBAL INC.
(Exact Name of Registrant as Specified in Its Charter)


     Delaware     
(State of Incorporation)
 

39-1566457
(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 [ X ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b -2 of the Exchange Act. LARGE ACCELERATED FILER [X] ACCELERATED FILER [ ] NON-ACCELERATED FILER [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]

        APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ X ] No [ ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date

                     Class                     
Common Stock, $1 par value
     Outstanding at May 22, 2006   
123,608,873 shares


JOY GLOBAL INC.
 
FORM 10-Q – INDEX
April 29, 2006

     
PART I. - FINANCIAL INFORMATION Page No.
     
Item 1 - Financial Statements (unaudited):  
     
  Condensed Consolidated Statement of Income -
Three and Six Months Ended April 29, 2006 and April 30, 2005
3
     
  Condensed Consolidated Balance Sheet -
April 29, 2006 and October 29, 2005
4
     
  Condensed Consolidated Statement of Cash Flows -
Six Months Ended April 29, 2006 and April 30, 2005
5
     
  Notes to Condensed Consolidated Financial Statements 6
     
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
     
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 29
     
Item 4 - Controls and Procedures 29
     
PART II. - OTHER INFORMATION  
     
Item 1 - Legal Proceedings 30
     
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 30
     
Item 3 - Defaults Upon Senior Securities 30
     
Item 4 - Submission of Matters to a Vote of Security Holders 30
     
Item 5 - Other Information 31
     
Item 6 - Exhibits 32
     
Signatures 33
     

-5-

PART I. — FINANCIAL INFORMATION

Item 1. Financial Statements

JOY GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

(In thousands except per share amounts)

Three Months Ended
Six Months Ended
April 29,
2006

April 30,
2005

April 29,
2006

April 30,
2005

Net sales   $ 560,348   $ 472,506   $ 1,113,689   $ 846,374  
Costs and expenses: 
    Cost of sales  375,758   335,455   763,357   598,122  
    Product development, selling and 
      administrative expenses  78,075   73,380   154,395   143,081  
    Other income  (3,977 ) (630 ) (4,961 ) (1,315 )




Operating income  110,492   64,301   200,898   106,486  
Interest income (expense), net  1,308   (3,533 ) 2,506   (7,951 )
Loss on early retirement of debt    (2,644 )   (5,037 )




Income from continuing operations 
    before reorganization items  111,800   58,124   203,404   93,498  
Reorganization items  5,077   2,439   4,952   2,323  




Income from continuing operations 
    before income taxes  116,877   60,563   208,356   95,821  
Provision for income taxes  (34,000 ) (22,133 ) (67,300 ) (35,269 )




Income from continuing operations  82,877   38,430   141,056   60,552  
Income from discontinued operations    393     455  




Income before cumulative effect of 
    changes in accounting principle  82,877   38,823   141,056   61,007  
Cumulative effect of changes in 
    accounting principle      1,565    




Net income  $   82,877   $   38,823   $    142,621   $   61,007  




Basic earnings per share*: 
    Continuing operations  $       0.67   $       0.32   $          1.15   $       0.50  
    Cumulative effect of accounting changes      0.01    




    Net income  $       0.67   $       0.32   $          1.16   $       0.50  




Diluted earnings per share*: 
    Continuing operations  $       0.66   $       0.31   $          1.13   $       0.49  
    Cumulative effect of accounting changes      0.01    




    Net income  $       0.66   $       0.31   $          1.14   $       0.49  




Dividends per share *  $     0.113   $     0.075   $        0.225   $     0.125  




Weighted average shares outstanding*: 
    Basic  123,710   120,916   123,032   120,505  




    Diluted  125,426   123,455   124,743   123,276  




     * Share data adjusted for effect of stock splits completed on January 21, 2005 and December 12, 2005

        See accompanying notes to consolidated financial statements


JOY GLOBAL INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands)
(Unaudited)

April 29,
2006

October 29,
2005

ASSETS      
Current assets: 
    Cash and cash equivalents  $   175,238   $   143,917  
    Accounts receivable, net  363,145   351,501  
    Inventories  610,992   548,195  
    Other current assets  48,486   73,070  


      Total current assets  1,197,861   1,116,683  
Property, plant and equipment, net  202,704   199,180  
Intangible assets, net  6,625   6,515  
Deferred income taxes  217,172   225,138  
Prepaid benefit cost  77,353   87,308  
Other assets  29,051   13,704  


      Total assets  $1,730,766   $1,648,528  


LIABILITIES AND SHAREHOLDERS' EQUITY 
Current liabilities: 
    Short-term notes payable, including current portion 
      of long-term debt  $          897   $          964  
    Trade accounts payable  155,555   160,627  
    Employee compensation and benefits  54,039   91,172  
    Advance payments and progress billings  163,712   187,710  
    Accrued warranties  38,722   34,183  
    Other accrued liabilities  110,084   124,857  


      Total current liabilities  523,009   599,513  
    Long-term obligations  2,130   1,703  
    Accrued pension costs  302,152   301,161  
    Other  75,888   78,525  


      Total liabilities  903,179   980,902  


Shareholders' equity  827,587   667,626  


      Total liabilities and shareholders' equity  $1,730,766   $1,648,528  


        See accompanying notes to consolidated financial statements


JOY GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(In thousands)

Six Months Ended
April 29,
2006

April 30,
2005

Cash flows from operating activities:      
Net income  $ 142,621   $   61,007  
Non-cash items: 
   Cumulative effect of an accounting change  (1,565 )  
   Depreciation and amortization  19,088   20,468  
   Amortization of financing fees  150   850  
   Loss on debt repurchase    5,037  
   Increase in deferred income taxes, net 
    of change in valuation allowance  11,839   24  
    Excess income tax benefits from exercise of stock options  (19,935 )  
   Change in long-term accrued pension costs  11,645   6,970  
   Other, net  (4,406 ) (375 )
Changes in working capital items: 
   Increase in accounts receivable, net  (8,046 ) (37,118 )
   Increase in inventories  (56,673 ) (95,714 )
   Decrease (increase) in other current assets  2,772   (1,527 )
   Decrease in trade accounts payable  (6,451 ) (297 )
   Decrease in employee compensation and benefits  (22,310 ) (12,008 )
   (Decrease) increase in advance payments and progress billings  (24,530 ) 59,798  
   Increase in other accrued liabilities  32,419   35,739  


Net cash provided by operating activities  76,618   42,854  


Cash flows from investing activities: 
   Property, plant and equipment acquired  (24,568 ) (17,238 )
   Proceeds from sale of property, plant and equipment  6,296   1,433  
   Intangibles acquired     
   Other, net  812   (789 )


Net cash used by investing activities  (17,460 ) (16,594 )


Cash flows from financing activities: 
   Exercise of stock options  13,366   3,334  
   Excess income tax benefits from exercise of stock options  19,935    
   Dividends paid  (27,550 ) (15,372 )
   Purchase of treasury stock  (37,106 )  
   Repurchase of 8.75% Senior Subordinated Notes    (37,010 )
   Repayment of long-term obligations  146   (454 )
   Decrease in short-term notes payable    (953 )


Net cash used by financing activities  (31,209 ) (50,455 )


Effect of exchange rate changes on cash and cash equivalents  3,372   803  


Increase (Decrease) in Cash and Cash Equivalents  31,321   (23,392 )
Cash and Cash Equivalents at Beginning of Period  143,917   231,706  


Cash and Cash Equivalents at End of Period  $ 175,238   $ 208,314  


        See accompanying notes to consolidated financial statements


JOY GLOBAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 29, 2006

(Unaudited)

1. Description of Business

  Joy Global Inc., a worldwide leading manufacturer and servicer of high productivity mining equipment for the extraction of coal and other minerals and ores, produces equipment used in major mining regions throughout the world to mine coal, copper, iron ore, oil sands and other minerals. We operate in two business segments: underground mining machinery (Joy Mining Machinery or “Joy”) and surface mining equipment (P&H Mining Equipment or “P&H”). Joy is a major manufacturer of underground mining equipment for the extraction of coal and other bedded minerals and offers comprehensive service locations near major mining regions worldwide. P&H is a major producer of surface mining equipment for the extraction of ores and minerals and provides extensive operational support for many types of equipment used in surface mining.

2. Basis of Presentation

  The Condensed Consolidated Financial Statements presented in this quarterly report on Form 10-Q are unaudited and have been prepared by us in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission.

  In our opinion, all adjustments necessary for the fair presentation on a going concern basis of the results of operations, cash flows and financial position for all periods presented have been made. All adjustments made are of a normal recurring nature.

  These financial statements should be read in conjunction with the financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended October 29, 2005. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

  The preparation of the financial statements in conformity with GAAP for interim financial information requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts could differ from the estimates.

3. Shareholders’ Equity

  On November 15, 2005 our Board of Directors declared a three-for-two split of our common shares, payable on December 12, 2005 to shareholders of record on November 28, 2005. On December 15, 2004, our Board of Directors authorized a three-for-two split of our common shares, payable on January 21, 2005 to shareholders of record on January 6, 2005. In connection with the respective stock splits, each holder of Joy Global common stock received one additional share of Joy Global common stock for each two shares of such stock owned. Cash was distributed in lieu of fractional shares. References in the Condensed Consolidated Financial Statements to the number of common shares and related per share amounts have been restated to reflect the respective stock splits.

  On February 23, 2006, our Board of Directors declared a cash dividend of $0.1125 per outstanding share of common stock. The dividend was paid on March 23, 2006 to all stockholders of record at the close of business on March 9, 2006.

  In November 2005, we commenced purchases under our share repurchase program. Under the program, management is authorized to repurchase up to $300.0 million in shares in the open market or through privately negotiated transactions. We have repurchased approximately $27.1 million of common stock, representing 418,500 shares, under the program for the three months ended April 29, 2006 and approximately $37.1 million of common stock, representing 745,950 shares, under the program for the six months ended April 29, 2006.

        Comprehensive income (loss) consisted of the following:

Three Months Ended
Six Months Ended
In thousands
April 29,
2006

April 30,
2005

April 29,
2006

April 30,
2005

Net income   $82,877   $ 38,823   $142,621   $61,007  
Other comprehensive income (loss): 
    Minimum pension liability adjustment      3,376    
    Translation adjustments  2,064   (797 ) 9,223   7,285  
    Derivative fair value adjustments  2,881   (531 ) 4,739   405  




Total other comprehensive income (loss)  4,945   (1,328 ) 17,338   7,690  




Total comprehensive income  $87,822   $ 37,495 $159,959   $68,697  




4. Stock Based Compensation

  Effective October 30, 2005, we adopted Statement of Financial Accounting Standards (“SFAS”) 123(R), Share Based Payments (“SFAS 123(R)”) using the modified prospective transition method. SFAS 123(R) requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. Compensation expense is recognized using the straight-line method over the vesting period of the award.

  Our stock incentive plan authorizes the grant of up to 18.1 million stock options, performance shares, restricted stock units and other stock-based awards to officers, employees and directors. As of April 29, 2006 share based payment grants aggregating approximately 15.7 million shares of common stock had been made to approximately 350 individuals. We have historically issued new common stock in order to satisfy share based payment awards and plan to do so to satisfy future awards.

  Prior to the adoption of SFAS 123(R), we accounted for share-based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). As a result of adopting SFAS 123(R), we recorded a cumulative effect of a change in accounting principle related to the performance share award program. The cumulative effect of a change in accounting principle added $1.6 million (net of taxes of $0.8 million) or $.01 a share to net income for the six months ended April 29, 2006. Under APB 25, we recorded share based payment expense related to performance share awards and restricted stock units. For performance share awards, we recorded compensation expense over the vesting period of the underlying common stock based on the market value of the underlying stock throughout the vesting period. For restricted stock unit awards, we recorded compensation expense based on the grant date market value of the underlying common stock.

  We had previously followed the disclosure requirements of SFAS 123, “Accounting for Stock-Based Compensation,” as amended by SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS 123 allowed for the recognition of forfeitures as incurred while SFAS 123(R) requires an estimate of forfeitures at the grant date with adjustments based on actual forfeitures on a quarterly basis. Historical forfeitures related to stock options, restricted stock units and performance shares have been insignificant.

  The total stock-based compensation expense we recognized for the three months and six months ended April 29, 2006 was approximately $1.9 million and $4.2 million, respectively. The corresponding income tax benefit recognized related to the stock-based compensation expense was approximately $0.6 million and $1.3 million, respectively. As of April 29, 2006, we have unrecognized expense related to share based payments of $14.7 million, which we expect to recognize over a weighted average period of approximately 2.2 years.

  As a result of adopting SFAS 123(R), our income from continuing operations, net income and basic and diluted earnings per share for the three months ended April 29, 2006, were $3.0 million, $1.8 million and $.01 higher, respectively, and for the six months ended April 29, 2006, were $5.6 million, $3.4 million and $.03 higher, respectively, than if we had continued to account for stock-based compensation under APB 25. The difference in the impact primarily relates to the difference in accounting for performance share awards under SFAS 123(R).

      Stock Options

  We have granted non-qualified stock options to purchase our common stock at prices equal to the fair market value of the stock on the grant dates. Stock options vest ratably on one-year anniversary dates over three years and expire ten years from the grant date.

  The fair value of the stock awards is the estimated fair value at grant date in the period using the Black Scholes valuation model with weighted average assumptions and the resulting estimated fair value as follows:

Six Months Ended
April 29,
2006

April 30,
2005

Risk free interest rate   4 .5% 3 .5%
Expected volatility  34 .1% 46 .6%
Expected life  3 .1 4 .0
Dividend yield  1 .50% 1 .17%
Weighted average estimated fair value at grant date  $   7 .94 $   6 .43

  The risk free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant for the respective expected life of the option. The expected volatility is based on the historical volatility of our common stock. The expected life is based on historical exercise behavior and the projected exercise of unexercised stock options. The expected dividend yield is based on the expected annual dividends divided by the grant date market value of our common stock.

  A summary of stock option activity under all plans is as follows:

(In thousands, except per share amounts) Number of
Options

Weighted-
Average
Exercise Price
per Share

Weighted-
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value

Outstanding at October 29, 2005   3,672,650   $     10.75    
    Options granted  671,125   30.52
    Options exercised  (1,643,900) 8.14
    Options forfeited or cancelled  (71,195) 16.19


Outstanding at April 29, 2006  2,628,680   $     17.28 8.1 $127,256  


Exercisable at April 29, 2006  915,807   $       9.29 6.9 $  51,650  


      Restricted Stock Units

  We grant restricted stock units to certain employees and members of our Board of Directors (“Directors”). Restricted stock units granted to employees vest over a five-year period with one-third vesting on the third, fourth and fifth anniversaries of the grant date and provide that a number of shares of common stock equal to the number of vested units will be delivered to the individual as the units vest. Restricted stock units granted to Directors vest one year from the grant date and provide that a number of common stock shares equivalent to the restricted stock units will be delivered to the individual director one year after his service on the Board of Directors terminates.

  A summary of restricted stock unit activity under all plans is as follows:
Number of
Units

Weighted-
Average
Grant Date
Fair Value

Outstanding at October 29, 2005   312,993   $     10.63
    Units granted  55,605   34.07
    Units earned from dividends  1,659   48.26
    Units forfeited  (11,925 ) 15.39


Units not yet vested at April 29, 2006  358,332   $     14.29


      Performance Shares

  The performance share award programs under our stock incentive plans provide long-term incentive compensation opportunities to certain senior executives and other managers. Up to approximately 425,000 shares of common stock may be earned by the participating executives under these performance share award programs if at the end of a three-year award cycle our financial performance over the course of the cycle exceeds certain threshold amounts. For our 2004 and 2005 performance share award programs, the performance measure is cumulative net cash flow as defined in the performance award agreements. For our 2006 performance share award program, the performance measure for senior executive officers is return on equity and the performance measure for all other participants is EBIT (earnings before income taxes) margin, each as defined in the respective performance award agreements. Each performance share represents the right to earn one share of common stock. Awards can range from 0% to 150% (or, in certain cases, 180%) of the target award opportunities and may be paid out in stock, cash or a combination of stock and cash as determined by the Human Resources and Nominating Committee of the Board of Directors.

  A summary of performance share activity under all plans is as follows:

Number of
Shares

Weighted-
Average
Grant Date
Fair Value

Aggregate
Intrinsic
Value

Outstanding at October 29, 2005   859,873   $       6 .94  
    Shares granted  69,825   30 .42
    Shares distributed  (214,253 ) 4 .71 $   9,251  
    Shares deferred  (372,153 ) 4 .71 $ 16,069  
    Shares forfeited  (6,261 ) 11 .69



Shares not yet awarded at April 29, 2006  337,031   $     15 .59



  As of April 30, 2005, awards under the stock incentive plan were accounted for under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The following table illustrates the effect on net income and net income per share if we had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.

In thousands except per share data
Three Months
Ended
April 30,
2005

Six Months
Ended
April 30,
2005

Net income, as reported   $ 38,823   $ 61,007  
Add: 
     Compensation expense included 
     in reported net income, net of 
     related tax effect  2,404  4,415  
Deduct: 
     Compensation expense determined 
     under SFAS No. 123, net of related taxes  (1,496)  (3,318)


Pro forma net income  $ 39,731  $ 62,104  


Net income per share * 
As reported 
     Basic  $     0.32  $     0.50


     Diluted  $     0.31  $     0.49


Pro forma * 
     Basic  $     0.33  $     0.52


     Diluted  $     0.32  $     0.50


     * Share data adjusted for effect of stock splits completed on January 21, 2005 and December 12, 2005

5. Basic and Diluted Net Income Per Share

  Basic net income per share is computed based on the weighted-average number of shares outstanding during each period. Diluted net income per share is computed based on the weighted average number of ordinary shares during each period, plus dilutive potential shares considered outstanding during the period in accordance with SFAS No. 128, “Earnings per Share.”

      The following table sets forth the computation of basic and diluted earnings per share:

Three Months Ended
Six Months Ended
In thousands except per share data
April 29,
2006

April 30,
2005

April 29,
2006

April 30,
2005

Numerator:          
       Income from continuing operations  $  82,877   $  38,430   $    141,056   $  60,552  
       Income from discontinued operations    393     455  
       Cumulative effect of accounting change, 
            net of income taxes      1,565    




       Net income  $  82,877   $  38,823 $    142,621   $  61,007  




Denominator: 
        Denominator for basic net income per share - 
            Weighted average shares  123,710   120,916   123,032   120,505  
       Effect of dilutive securities: 
            Stock options, restricted stock and 
               performance shares  1,716   2,539   1,711   2,771  




        Denominator for diluted net income per share - 
            Adjusted weighted average shares and 
              assumed conversions  125,426   123,455   124,743   123,276  




Basic earnings per share* 
    Continuing operations  $      0.67   $      0.32   $        1.15 $      0.50  
    Discontinued operations         
    Cumulative effect      0.01  




    Net income  $      0.67   $      0.32   $        1.16 $      0.50  




Diluted earnings per share* 
    Continuing operations  $      0.66   $      0.31   $        1.13 $      0.49  
    Discontinued operations         
    Cumulative effect      0.01  




    Net income  $      0.66   $      0.31   $        1.14 $      0.49  




     * Share data adjusted for effect of stock splits completed on January 21, 2005 and December 12, 2005

6. Credit Facility

  On October 28, 2005, we entered into a $400.0 million unsecured revolving credit facility expiring on November 15, 2010. Outstanding borrowings bear interest equal to LIBOR plus the applicable margin (0.5% to 1.25%) or the Base Rate (defined as the higher of the Prime Rate or the Federal Funds Effective Rate plus 0.50%) at our option. We pay a commitment fee ranging from 0.125% to 0.25% on the unused portion of the revolving credit facility. The Credit Agreement requires the maintenance of certain financial covenants including leverage, interest coverage and capital expenditures covenants. The agreement also requires a minimum net worth of approximately $396 million, increased by 25% of net income on a quarterly basis beginning with the fourth quarter of fiscal 2005. On April 29, 2006, we were in compliance with all financial covenants in the Credit Agreement.

  At April 29, 2006, there were no outstanding direct borrowings under the Credit Agreement. Outstanding letters of credit issued under the Credit Agreement, which count toward the $400 million credit limit, totaled $105.3 million. At April 29, 2006, there was $294.7 million available for borrowings under the Credit Agreement.

7. Contingent Liabilities

  We and our subsidiaries are involved in various unresolved legal matters that arise in the normal course of operations, the most prevalent of which relate to product liability (including asbestos-related and silicosis liability), employment and commercial matters. Also, as a normal part of their operations, our subsidiaries undertake contractual obligations, warranties and guarantees in connection with the sale of products or services. Although the outcome of these matters cannot be predicted with certainty and favorable or unfavorable resolutions may affect the results of operations on a quarter-to-quarter basis, we believe that the outcome of such legal and other matters will not have a materially adverse effect on our consolidated financial position, results of operations or liquidity.

  In March 2006 the United States District Court for the District of Massachusetts granted preliminary approval of a negotiated settlement of a lawsuit commenced in 2001 relating to the Harnischfeger Industries Employees’ Savings Plan. The settlement is subject to review by an independent fiduciary appointed by the Plan and subject to final approval by the court, which must hold a fairness hearing to consider any objections. Upon final approval of the settlement, our insurers will be responsible for all payments required under its terms.

  From time to time we and our subsidiaries become involved in proceedings relating to environmental matters. We believe that the resolution of such environmental matters will not have a materially adverse effect on our consolidated financial position, results of operations or liquidity.

  At April 29, 2006, we were contingently liable to banks, financial institutions and others for approximately $142.2 million for outstanding letters of credit, bank guarantees and surety bonds securing performance of sales contracts and other guarantees in the ordinary course of business. At April 29, 2006, there were $18.8 million of outstanding letters of credit or other guarantees issued by non-U.S. banks for non-U.S. subsidiaries.

  We have entered into various forward foreign exchange contracts with major international financial institutions for the purpose of hedging our risk of loss associated with changes in foreign exchange rates. These contracts involve off-balance-sheet market and credit risk. As of April 29, 2006, the nominal or face value of forward foreign exchange contracts to which we are a party, in absolute U.S. dollar equivalent terms, was $205.7 million.

  Forward exchange contracts are entered into to protect the value of committed future foreign currency receipts and disbursements and net investment hedges and consequently any market related loss on the forward contract would be offset by changes in the value of the hedged item. As a result, we are not exposed to net market risk associated with these instruments.

  We are exposed to credit-related losses in the event of non-performance by counterparties to our forward exchange contracts, but we do not expect any counterparties to fail to meet their obligations. A contract is generally subject to credit risk only when it has a positive fair value and the maximum exposure is the amount of the positive fair value.

  We are currently conducting union contract negotiations on the contract expiring on June 1, 2006 related to Joy Mining’s largest manufacturing facility in Franklin, PA. Although we hope for a timely resolution of the union contract, we have contingency plans covering a variety of outcomes. We don’t believe the union contract expiration will have a material adverse impact on our business, in spite of possible short-term disruptions.

8. Inventories

  Consolidated inventories consisted of the following:

In thousands
April 29,
2006

October 29,
2005

Finished goods   $    326,786   $    274,211  
Work in process and purchased parts  250,954   236,165  
Raw materials  33,252   37,819  


   $    610,992   $    548,195  


9. Warranties

  We provide a warranty reserve for the estimated costs that may be incurred under product warranties to remedy deficiencies of quality or performance in our products. These product warranties extend over either a specified period of time, units of production or machine hours depending upon the product subject to the warranty. We accrue a provision for estimated future warranty costs based upon 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 appropriate.

       The following table reconciles the changes in the Company’s product warranty reserve:

Three Months Ended
Six Months Ended
In thousands
April 29,
2006

April 30,
2005

April 29,
2006

April 30,
2005

Balance, beginning of period   $ 37,697   $ 32,515   $ 34,183   $ 31,259  
    Accrual for warranty expensed during 
       the period  5,786   6,469   11,384   11,856  
    Settlements made during the period  (4,909 ) (4,646 ) (7,084 ) (8,770 )
    Change in liability for pre-existing warranties 
       during the period, including expirations  (171 ) (259 ) (285 ) (554 )
    Effect of foreign currency translation  319   161   524   449  




Balance, end of period  $ 38,722   $ 34,240   $ 38,722   $ 34,240  




10. Reorganization Items

  Reorganization items include income, expense and loss that were realized or incurred as a result of our reorganization under Chapter 11 of the Bankruptcy Code. For the six months ended April 29, 2006, the $5.0 of reorganization income represented cash receipts from a fully reserved note receivable of $5.2 million offset by post emergence professional fees. For the six months ended April 30, 2005, the $2.3 million of reorganization income included $1.5 million from insurance settlements and approximately $1.1 million of cash receipts from a fully reserved note receivable offset by post emergence professional fees.

11. Income Taxes

  A review of income tax valuation reserves was performed as part of the analysis of the second quarter Fiscal 2006 income tax provision. Based on this analysis, valuation reserves of $15.3 million were reversed relating to pre-emergence and post-emergence net operating losses of $9.0 million and $6.3 million, respectively, related to our Australian Group. The reversal of valuation reserves related to pre-emergence net operating losses is being recorded as additional paid in capital in accordance with Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code.” The reversal of valuation reserves related to the post-emergence net operating losses is recorded as a discreet tax benefit of $6.3 million through our provision for income taxes.

12. Pension and Postretirement

        The components of net periodic benefit costs recognized are as follows:

Pension Benefits
Postretirement Benefits
Three Months Ended
Three Months Ended
In thousands
April 29,
2006

April 30,
2005

April 29,
2006

April 30,
2005

Service cost   $   5,249   $   4,709   $  48   $  43  
Interest cost  18,593   17,702   753   717  
Expected return on assets  (20,511 ) (20,257 )    
Amortization of: 
    Prior service cost  111   111      
    Actuarial (gain) loss  5,272   3,386   196   52  




Net periodic benefit cost  $   8,714   $   5,651   $997   $812  






Pension Benefits
Postretirement Benefits
Six Months Ended
Six Months Ended
In thousands
April 29,
2006

April 30,
2005

April 29,
2006

April 30,
2005

Service cost   $ 10,498   $   9,418   $       97   $       85  
Interest cost  37,186   35,404   1,505   1,434  
Expected return on assets  (41,023 ) (40,514 )    
Amortization of: 
    Prior service cost  222   222      
    Actuarial (gain) loss  10,544   6,772   391   104  




Net periodic benefit cost  $ 17,427   $ 11,302   $ 1,993   $ 1,623  




        No contributions are required to be made to our U.S. qualified pension plans in Fiscal 2006 and 2007.

13. Segment Information

  At April 29, 2006, we had two reportable segments: Underground Mining Machinery and Surface Mining Equipment. Operating income (loss) of the segments does not include interest income (expense) or provision for income taxes. There are no significant intersegment sales. There has not been a material change in segment total assets from October 29, 2005.

In thousands
Net
Sales

Operating
Income (Loss)

2006 Second Quarter
Underground Mining Machinery   $    335,188   $     77,693  
Surface Mining Equipment  225,160   39,503  


      Total operations  560,348   117,196  
Corporate    (6,704 )


      Consolidated Total  $    560,348   $    110,492  


2005 Second Quarter
Underground Mining Machinery   $    293,765   $     45,928  
Surface Mining Equipment  178,741   26,714  


      Total operations  472,506   72,642  
Corporate    (8,341 )


      Consolidated Total  $    472,506   $     64,301  


2006 Six Months
Underground Mining Machinery   $    676,583   $    141,734  
Surface Mining Equipment  437,106   73,858  


      Total operations  1,113,689   215,592  
Corporate    (14,694 )


      Consolidated Total  $  1,113,689   $    200,898  


2005 Six Months
Underground Mining Machinery   $    521,588   $     72,651  
Surface Mining Equipment  324,786   49,823  


      Total operations  846,374   122,474  
Corporate    (15,988 )


      Consolidated Total  $    846,374   $    106,486  


14. Recent Accounting Pronouncements

  In November 2004, FASB issued FAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4", to improve financial reporting and global comparability of inventory accounting. The amendment, which adopted language similar to that used in the IASB International Accounting Standard 2 (“IAS 2”), clarifies that inventory related expenses, such as abnormal amounts of idle facility expense, freight, handling costs, and wasted or spoiled materials should be recognized as current period charges. The statement also requires fixed production overhead allocations to inventory based on normal capacity of the production facilities. The guidance is effective for inventory costs incurred beginning in our fiscal year 2006. The adoption of FAS No. 151 did not have a significant impact on the consolidated financial statements.

  In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143” (“FIN 47”). FIN 47 provides clarifying guidance on the need to record a liability on the legal obligation to perform an asset retirement if the fair value of the liability can be reasonably estimated. If sufficient information is not available in order to reasonably estimate the liability, the interpretation requires certain disclosures of the obligation. We are required to adopt FIN 47 during the fourth quarter of 2006. We are currently assessing the impact the adoption of FIN 47 will have on the results of our operations.

15. Subsequent Events

  In April 2006, we announced entering into an agreement for the purchase of the net assets of the Stamler mining equipment business from the Oldenburg Group, Inc. Stamler produces products used primarily in underground coal mining applications, including feeder breakers, battery haulers, and continuous haulage systems. The Stamler business is in line with our stated objectives of adding “bolt on” products and services to our existing businesses. The Stamler business is anticipated to have revenues of approximately $150 million in calendar 2006. The purchase price will be approximately $118 million and is subject to customary regulatory approvals. We expect the acquisition to close during the third quarter of Fiscal 2006.

  On May 25, 2006, our Board of Directors declared a quarterly dividend in the amount of $0.1125 per share to be paid on June 23, 2006 to shareholders of record on June 9, 2006.

  In May 2006, we continued purchases under our share repurchase program. We repurchased approximately $50.0 million of common stock, representing 796,637 shares, under the program through May 25, 2006.

16. Discontinued Operations and Held for Sale Assets and Liabilities

  In November 2005, we concluded the sale of the stock of The Horsburgh & Scott Co. (“H&S”) to members of the management team for cash and a note receivable of approximately $10.9 million. The gain on the sale of $1.5 million will be deferred until realizability is reasonably assured and is presented as a contra account to the note receivable. Approximately $3.4 million was recorded in accumulated other comprehensive income at October 29, 2005 relating to the minimum pension liability associated with H&S, all of which has been derecognized upon conclusion of the sale in November 2005. H&S was classified as part of the Surface Mining Equipment segment.

  H&S is classified as a discontinued operation in accordance with SFAS No. 144 for all prior periods presented. The Condensed Consolidated Statement of Income for the three months ended and six months ended April 30, 2005 has been reclassified to reflect the discontinuance of operations. Basic and diluted earnings per share from discontinued operations for the three months and six months ended April 30, 2005 have not been presented as the effect is deemed immaterial.

  H&S has met the definition of a variable interest entity (“VIE”) in accordance with FASB Interpretation No. 46, Consolidation of Variable Interest Entities – an Interpretation on ARB No. 51 (“FIN 46”). We are not required to consolidate the VIE based on the requirements of the interpretation as we are not the primary beneficiary of the residual interests in the VIE.


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

        Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. Forward-looking statements are subject to risks, uncertainties and assumptions which could cause actual results to differ materially from those projected, including those described in Item 5 — Other Information – Forward-Looking Statements and Cautionary Factors in Part II of this report.

        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 report.

Overview

        Joy Global Inc., a worldwide leader in high-productivity mining solutions, manufactures and markets original equipment and aftermarket parts and services for both the underground and surface mining industries through two business segments, Joy Mining Machinery and P&H Mining Equipment. Our principal manufacturing facilities are located in the United States, including facilities in Pennsylvania and Wisconsin, and in the United Kingdom, South Africa, Chile and Australia.

      Market Conditions

        The US coal market’s strength continued to drive profitability for the quarter and six months ended April 29, 2006. Representing our single largest market, the US coal market continues to reflect strong demand and high prices. Both the underground and surface mining segments have prospered with the replacement of original equipment in current mines and providing aftermarket parts and support. Long-term demand for coal in the US remains encouraging with the construction of base load, coal-burning power plants and with increased installation of scrubbers at existing sites. Alternative coal technologies discussions, such as gasification and liquefacation are increasing, but we feel these technologies should have limited effect on coal demand over the next five years. Orders in the US coal market continue to be sporadic. After the significant number of orders over the past 2 years, we believe the “refleeting” in the US has been completed (or is on order) and expect moderate demand for original equipment until new mine openings increase in a more significant manner than is currently happening.

        The worldwide commodity markets for copper, iron ore and metallurgical coal remain very strong, mainly due to increased usage of these commodities in China. As long as demand increases in China, even if at a substantially slower rate then what has been the case over the last three years, most analysts anticipate that commodity prices will remain strong and supply/demand conditions for the commodities will remain in balance. We should continue to experience increased demand for original equipment as well as aftermarket parts and services related to each of these commodities.

        Long-term growth markets such as China, Russia and Canada continue to be a focus for us. China’s process of converting to high productivity mining does and will continue to provide significant growth opportunities in the region. We are currently in discussion with over 20 mining companies who, collectively, will provide the significant portion of coal production over the upcoming decade. We are planning on significant investments in China including, an armored face conveyor facility which we recently obtained a business license to commence construction and an expansion of our Baotou, Inner Mongolia service center, which will get underway in the third quarter of 2006. The oil sands in Canada represent a significant growth opportunity for the surface mining segment of our business. As more efficient methods of refining the oil sands develop and as the infrastructure is developed, the opportunities for market development will increase.

      2nd Quarter Update

        We concluded the implementation of a SAP R3 operating system at all North American locations of P&H Mining. The implementation did not result in significant lost revenues or unplanned expenditures during the second quarter. We did experience delayed shipments in the quarter, which we expect to be realized in the third quarter of Fiscal 2006.

        We have entered into an agreement to purchase the assets of the Stamler mining equipment business from Oldenburg Group for approximately $118 million and hope to close the transaction by the end of the third quarter of Fiscal 2006. This transaction will provide our underground mining segment with complementary offerings in coal mining applications, including feeder breakers, battery haulers, and continuous haulage systems.

        The expansion project for increasing mining shovel capacity at P&H by 40% continues to stay on schedule for completion in December 2006. Joy continues to increase production rates in several of their product lines. We are continuing to focus on supply chain issues as demand for original equipment and aftermarket parts and service remain at all time highs.

        We are currently conducting union contract negotiations on the contract expiring on June 1, 2006 related to Joy Mining’s largest manufacturing facility in Franklin, PA. Although we hope for a timely resolution of the union contract, we have contingency plans covering a variety of outcomes. We don’t believe the union contract expiration will have a material adverse impact on our business, in spite of possible short-term disruptions.


Results of Operations

Three Months Ended April 29, 2006 Compared to Three Months Ended April 30, 2005

      Net Sales

        The following table sets forth the combined net sales included in our Condensed Consolidated Statement of Income:

Three Months Ended
In thousands
April 29,
2006

April 30,
2005

$
Change

%
Change

Underground Mining Machinery   $  335,188   $  293,765   $   41,423   14 %
Surface Mining Equipment  225,160   178,741   46,419   26 %



   Total  $  560,348   $  472,506   $   87,842   19 %



        The increase in net sales for underground mining machinery in the second quarter of Fiscal 2006 compared to the second quarter of Fiscal 2005 was the result of a $44.6 million, or 27%, increase in aftermarket products and service offset by a $3.2 million, or 3%, decrease in shipments of original equipment. Increases in original equipment sales of 53% were reported in the United States and more than doubled in Australia. The United States and Australia both benefited from strong shipments of continuous miners and shuttle cars. The increases in the United States and Australia were reduced by a decrease in original equipment sales of 58% in the emerging markets served out of the United Kingdom due primarily to the timing of deliveries of roof support systems and continuous miners. Increases in aftermarket net sales were reported in the United States, South Africa, Australia and emerging markets served out of the United Kingdom, with each of these locations reporting greater than 20% increases in aftermarket sales in the second quarter of Fiscal 2006 compared to the second quarter of Fiscal 2005. Higher aftermarket sales in the United States accounted for more than 50% of the overall increase in aftermarket sales. Approximately 40% of the increase in aftermarket sales was due to the increase in repair parts sales, 45% due to complete machine rebuilds and the remaining increase due to component repairs. The strong level of aftermarket sales in the second quarter of Fiscal 2006 reflected the continued level of coal mining activity on a global basis.

        The increase in net sales for surface mining equipment in the second quarter of Fiscal 2006 compared to the second quarter of Fiscal 2005 was the result of a $20.2 million, or 37%, increase in original equipment combined with a $26.2 million, or 21%, increase in aftermarket parts and service. Original equipment sales more than doubled in the United States and Australia, primarily due to sales of electric mining shovels. These increases were partially offset by significantly reduced sales of original equipment in Canada due to timing. Increases in aftermarket sales were reported of 40%, 18% and 9% in Australia, Canada and the United States, respectively. The strong level of aftermarket sales in the second quarter of Fiscal 2006 reflected the continued strength of coal, copper, and iron ore on a global basis and the continued strength of the oil sands development in Canada.

      Operating Income

        The following table sets forth the operating income (loss) included in our Condensed Consolidated Statement of Income:

Three Months Ended
April 29, 2006
April 30, 2005
In thousands
Operating
Income (loss)

%
of Net Sales

Operating
Income (loss)

%
of Net Sales

Operating income (loss):          
     Underground Mining Machinery  $   77,693   23 .2% $45,928   15 .6%
     Surface Mining Equipment  39,503   17 .5% 26,714   14 .9%
     Corporate Expense  (6,704) (8,341)


        Total  $ 110,492   19 .7% $64,301   13 .6%


        Operating income as a percentage of net sales for underground mining machinery increased from 15.6% in the second quarter of Fiscal 2005 to 23.2% in the second quarter of Fiscal 2006. The improvement in profitability was primarily due to the increase in net sales and a more profitable mix of original equipment and aftermarket net sales in the United States, Australia and emerging markets served out of the United Kingdom. The second quarter of 2006 was also positively impacted by a reduction in legal expense with the conclusion in the fourth quarter of 2005 of two product disputes in the United Kingdom. The improvements in profitability were partially offset by increased steel and steel related manufacturing costs and increased pension related costs.

        Operating income as a percentage of net sales for surface mining equipment increased from 14.9% in the second quarter of Fiscal 2005 to 17.5% in the second quarter of Fiscal 2006. This improvement in profitability was due to the increase in net sales and increased margins on original equipment and aftermarket parts and service, partially offset by the mix of original equipment and aftermarket parts and service. The improvement in profitability was also impacted by a $2.3 million gain on the sale of a facility in Australia and reduced by increased research and development spending and costs associated with upgrading our SAP system and our previously announced capacity expansion.

      Product Development, Selling and Administrative Expense

        Product development, selling and administrative expense totaled $78.1 million, or 14% of sales, in the second quarter of Fiscal 2006, as compared to $73.4 million, or 16% of sales, in the second quarter of Fiscal 2005. While a lower percentage of total sales, the 6% increase in product development, selling and administrative expense was primarily attributable to a $2.8 million increase in pension expenses, $2.6 million increase in selling expenses related to increased business activity and general inflation. The increase in product development, selling and administrative expense was partially offset by decreased legal fees of $2.5 million and decreased share based compensation expense of $1.8 million.

      Provision for Income Taxes

        Income tax expense for the second quarter of Fiscal 2006 increased to $34.0 million as compared to $22.1 million in the second quarter of Fiscal 2005. On a consolidated basis, these income tax provisions represented effective income tax rates for the second quarters of Fiscal 2006 and 2005 of 29.1% and 36.5%, respectively. A review of income tax valuation reserves was performed as part of the analysis of the second quarter Fiscal 2006 income tax provision and a discreet tax benefit of $6.3 million was recorded relating to certain valuation reserves applicable to our Australian Group. On a recurring basis, the main drivers of the variance in tax rates were the increased global profitability year over year, changes in the geographic mix of earnings, and differences in local statutory tax rates.

        Cash taxes paid for the second quarter of Fiscal 2006 were $10.3 million compared to $10.1 million in the second quarter of Fiscal 2005.


Six Months Ended April 29, 2006 Compared to Six Months Ended April 30, 2005

      Net Sales

        The following table sets forth the combined net sales included in our Condensed Consolidated Statement of Income:

Six Months Ended
In thousands
April 29,
2006

April 30,
2005

$
Change

%
Change

Underground Mining Machinery   $     676,583   $   521,588   $   154,995   30 %
Surface Mining Equipment  437,106   324,786   112,320   35 %



   Total  $  1,113,689   $   846,374   $   267,315   32 %



        The increase in net sales for underground mining machinery in the Fiscal 2006 six months compared with the Fiscal 2005 six months was the result of a $103.7 million, or 51%, increase in shipments of original equipment combined with a $51.3 million, or 16%, increase in aftermarket products and service. Original equipment sales more than doubled in the United States and Australia during the Fiscal 2006 six months. The increase in the United States was associated with increased shipments of continuous miners and shuttle cars, and the shipment of a roof support system in the first six months of Fiscal 2006 not duplicated in the first six months of Fiscal 2005. The increase in original equipment sales in Australia was associated with increased shipments of continuous miners and face conveyors. The increase in aftermarket sales in the Fiscal 2006 six months compared to the Fiscal 2005 six months was the result of increased aftermarket sales in all of the underground business units ranging from approximately 9% in the United Kingdom to 20% in the United States. Approximately two-thirds of the increase in aftermarket sales were due to increases in the sales of repair parts, with the remaining one-third associated with increases in the sales of component repairs and complete machine rebuilds. The measured strength of the coal mining activity around the world is reflected in the increase in aftermarket sales in each of the business locations.

        The increase in net sales of surface mining machinery for the Fiscal 2006 six months compared to the Fiscal 2005 six months was due to a $58.9 million, or 67%, increase in the shipment of original equipment and a $53.4 million, or 23%, increase in aftermarket net sales. Increases in original equipment sales more than doubled in the United States and more than tripled in Australia. The increase in the United States and Australia primarily related to sales of electric mining shovels. The increase in original equipment sales in the Fiscal 2006 six months reflects the continued strong activity levels for both the replacement of existing equipment and the addition of new mining capacity for copper, coal, iron ore, oil sands and gold. The increase in aftermarket sales in the Fiscal 2006 six months compared to the Fiscal 2005 six months was primarily the result of increases of 14%, 39%, 28% and 33% for the United States, Australia, Chile and Canada, respectively. Approximately two-thirds of the increase in aftermarket sales is due to the increase in sales of repair parts, with the remaining increase due to aftermarket service.

      Operating Income

        The following table sets forth the operating income (loss) included in our Condensed Consolidated Statement of Income:

Six Months Ended
April 29, 2006
April 30, 2005
In thousands
Operating
Income (loss)

%
of Net Sales

Operating
Income (loss)

%
of Net Sales

Operating income (loss):          
     Underground Mining Machinery  $  141,734   20 .9% $     72,651   13 .9%
     Surface Mining Equipment  73,858   16 .9% 49,823   15 .3%
     Corporate Expense  (14,694 ) (15,988)


        Total  $  200,898   18 .0% $  106,486   12 .6%


        Operating income as a percentage of net sales for underground mining machinery increased from 13.9% in the Fiscal 2005 six months to 20.9% in the Fiscal 2006 six months. The improvement in profitability was primarily due to a more profitable mix of original equipment and aftermarket net sales in the United States, Australia and emerging markets served out of the United Kingdom. Operating income was also positively effected by approximately $5.5 million of legal expense incurred in Fiscal 2005 six months related to two product disputes which were concluded in the fourth quarter of Fiscal 2005. Operating income was reduced in Fiscal 2006 by $4.6 million of pension related expenses.

        Operating income as a percentage of net sales for surface mining equipment increased from 15.3% in the Fiscal 2005 six months to 16.9% in the Fiscal 2006 six months. This improvement in profitability was due to the increase in net sales and increased margins on original equipment and aftermarket parts and service, partially offset by the mix of original equipment and aftermarket parts and service. The improvement in profitability was also impacted by a $2.3 million gain on the sale of a facility in Australia, reduced by increased research and development spending and costs associated with the upgrading of our SAP system and costs associated with our previously announced capacity expansion.

      Product Development, Selling and Administrative Expense

        Product development, selling and administrative expense totaled $154.4 million, or 14% of sales, in the Fiscal 2006 six months, as compared to $143.1 million, or 17% of sales, in the Fiscal 2005 six months. While a lower percentage of total sales, the 8% increase in product development, selling and administrative expense was primarily attributable to a $4.9 million increase in pension expenses, a $4.8 million increase in selling expenses associated with increased sales levels, and inflation. The increased product development, selling and administrative expenses were partially offset by a reduction of $5.5 million of legal fees.

      Provision for Income Taxes

        Income tax expense for the Fiscal 2006 six months increased to $67.3 million as compared to $35.3 million for the Fiscal 2005 six months. On a consolidated basis, these income tax provisions represented effective income tax rates for the Fiscal 2006 six months and Fiscal 2005 six months of 32.3% and 36.8%, respectively. A review of income tax valuation reserves was performed as part of the analysis of the second quarter Fiscal 2006 income tax provision and a discreet tax benefit of $6.3 million was recorded relating to certain valuation reserves applicable to our Australian Group. On a recurring basis, the main drivers of the variance in tax rates were the increased global profitability year over year, changes in the geographic mix of earnings, and differences in local statutory tax rates.

        Cash taxes paid for the Fiscal 2006 six months were $19.3 million compared to $12.6 million paid for the Fiscal 2005 six months. This increase in cash taxes paid was primarily due to increased global profitability year over year.

      Bookings and Backlog

        The bookings trend was mixed for original equipment and aftermarket products and services. During the second quarter of Fiscal 2006 and year to date, we received $548 million and $1,146 million, respectively, of new orders compared to new order bookings of $574 million and $1,102 million for the Fiscal 2005 second quarter and first half, respectively. Aftermarket products and services orders continued to trend upward year over year for the quarter and six months periods by 18% and 20%, respectively and were reflective of continued higher production levels on the part of our customers. Original equipment orders were down year over year for the quarter and six month periods by 33% and 15%, respectively. Original equipment order decreases were the result of the second quarter impact of strong first quarter bookings for the surface mining segment and the lack of significant new mining activity in the United States for the underground mining segment.

        As a result of the strong level of aftermarket products and services new orders, backlog increased from $1,055 million at the beginning of Fiscal 2006 to $1,087 million at the end of the second quarter 2006.


Liquidity and Capital Resources

We currently use working capital and cash flow production as two financial measurements to judge the performance of our operations and our ability to meet our financial obligations.

The following table summarizes the major components of our working capital as of April 29, 2006 and October 29, 2005:

In millions
April 29,
2006

October 29,
2005

Cash and cash equivalents   $     175 .2 $     143 .9
Accounts receivable  363 .1 351 .5
Inventories  611 .0 548 .2
Other current assets  48 .5 73 .1
Short-term debt  (0 .9) (1 .0)
Accounts payable  (155 .6) (160 .6)
Employee compensation and benefits  (54 .0) (91 .1)
Advance payments and progress billings  (163 .7) (187 .7)
Accrued warranties  (38 .7) (34 .2)
Other current liabilities  (110 .1) (124 .9)


Working Capital  $     674 .8 $     517 .2


Our businesses continue to need working capital investment to maintain our position as the world’s leading manufacturer and servicer of high productivity mining equipment. Our increase in working capital over the six month period ended April 29, 2006 relates primarily to our increased sales and increased inventories. Inventory management continues to be a focus in today’s environment of significant lead times and full production schedules.

      Operating Activities

        During the Fiscal 2006 six months cash provided by operations was $76.6 million compared to $42.9 million in the Fiscal 2005 six months. The increase in cash was primarily a result of a $81.6 million increase in net income and a lower increase in inventory of $39.0 million as compared to the Fiscal 2005 six months. These improvements were offset by a decrease in advanced payments collected of $84.3 million related to the timing of orders and the change in presentation of excess income tax benefits from the exercise of stock options of $19.9 million. The adoption of FAS 123(R) caused the reclassification of the excess income tax benefits from the exercise of stock options from an operating activity inflow to a financing activity inflow.

      Investing Activities

        During the Fiscal 2006 six months cash used by investing activities was $17.5 million compared to $16.6 million during the Fiscal 2005 six months. The increase was due to property, plant and equipment additions of $7.3 million primarily due to costs associated with the upgrading of the SAP system and the plant expansion of the Milwaukee facility. These were offset by increased proceeds of $4.9 million from the sale of facilities in the United States and Australia.

      Financing Activities

        During the Fiscal 2006 six months cash used by financing activities was $31.2 million compared to $50.5 million used during the Fiscal 2005 six months. The decrease in cash used by financing activities was due to approximately $37.0 million used to repurchase our 8.75% Senior Subordinated Notes during the Fiscal 2005 six months, approximately $10.0 million more cash received from the exercise of employee stock options in Fiscal 2006, and the corresponding excess income tax benefit from the exercise of stock options of $19.9 million. These decreases in cash are partially offset by $12.2 million increase in dividends paid and $37.1 million of cash used to purchase treasury stock.

      Financial Condition

        As of April 29, 2006, we had $175.2 million in cash and cash equivalents and $294.7 million available for borrowings under the Credit Agreement. Our primary cash requirements include working capital, capital expenditures, dividends and share repurchases. Our projected capital expenditures for Fiscal 2006 are between $45-55 million. For the quarter and six months ended April 29, 2006, we paid dividends of $13.8 million and $27.6 million, respectively. Based upon our current level of operations, we believe that cash flows from operations, together with available borrowings under the Credit Agreement, will be adequate to meet our anticipated future cash requirements.

        In April 2006, we announced entering into an agreement for the purchase of the net assets of the Stamler mining equipment business from Oldenburg Group, Inc. Stamler produces products used primarily in underground coal mining applications, including feeder breakers, battery haulers, and continuous haulage systems. The Stamler business is in line with our stated objectives of adding “bolt on” products and services to our existing businesses. The Stamler business is anticipated to have revenues of approximately $150 million in calendar 2006. The purchase price will be approximately $118 million and is subject to customary regulatory approvals. We expect the acquisition to close during the third quarter of Fiscal 2006.

        In November 2005, we commenced purchases under our share repurchase program. Under the program, management is authorized to repurchase up to $300.0 million in shares in the open market or through privately negotiated transactions over the 24-month period ending May 31, 2007. We have repurchased approximately $27.1 million and $37.1 million of common stock, representing 418,500 and 745,950 shares, under the program for the quarter and six months ended April 29, 2006.

        In addition to cash flows from operations, we have the ability to access additional financing sources through our unsecured credit facility.

        In October 2005, we entered into a $400.0 million unsecured revolving credit facility (“Credit Agreement”). Outstanding borrowings bear interest based on certain short term borrowing rates, at our discretion. The Credit Agreement requires the maintenance of certain financial covenants, including leverage and minimum net worth requirements. On April 29, 2006, we were in compliance with all financial covenants in the Credit Agreement.

        During the second quarter ended April 29, 2006, our credit rating was upgraded by both Standard and Poor’s and Moody’s. Standard and Poor’s credit rating increased from BB+ to BBB- with an outlook of Stable. Moody’s credit rating increased from Ba to Baa3 with a continued outlook of Stable. These higher credit ratings provide us with greater flexibility to access financing on the open market as our business circumstances justify.

        During the Fiscal 2005 six months, we purchased approximately $32.8 million par value of our 8.75% Senior Subordinated Notes in several open market purchases. These transactions, which resulted in a $5.0 million loss on repurchase, consisted of approximately $37.0 million of cash and the writedown of unamortized finance costs of $0.8 million. Substantially all of these notes were purchased in Fiscal 2005 and subsequently cancelled.

        On May 25, 2006, our Board of Directors declared a quarterly dividend in the amount of $0.1125 per share to be paid on June 23, 2006 to shareholders of record on June 9, 2006.

      Off-Balance Sheet Arrangements

        We lease various assets under operating leases. No significant changes to lease commitments have occurred since our fiscal year ended October 29, 2005. We have no other off-balance sheet arrangements, other than those noted in Note 7 to the Condensed Consolidated Financial Statements.

      Recent Accounting Pronouncements

        See Note 13 in the Condensed Consolidated Financial Statements for discussion on recent accounting pronouncements.

Critical Accounting Estimates, Assumptions and Policies

        Our discussion and analysis of financial condition and results of operations is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. We evaluate, on an ongoing basis, our estimates and judgments, including those related to bad debts, excess inventory, warranty, intangible assets, 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, intangible assets, accrued warranties, pension and postretirement benefits and costs, and income taxes are the ones that most frequently require us to make estimates and judgments, and therefore are critical to the understanding of our results of operations. See 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 29, 2005 for a discussion of these policies. There were no material changes to these policies during the six months ended April 29, 2006 other than the adoption of SFAS 123(R).

        Effective October 30, 2005, we adopted SFAS 123(R) using the modified prospective transition method. Prior to the adoption of SFAS 123(R), we accounted for share based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. The fair value of certain share based payments is the estimated fair value at grant date using the Black Scholes valuation model.

        As a result of adopting SFAS 123(R), we recorded a cumulative effect of a change in accounting principle related to the performance share award program. The cumulative effect of a change in accounting principle added $1.6 million (net of taxes of $0.8 million), or $.01 a share, to net income for the six months ended April 29, 2006. Under APB 25, we recorded share based payment expense related to performance share awards and restricted stock units. For performance share awards, we recorded compensation expense for changes in the market value of the underlying common stock. For restricted stock unit awards, we recorded compensation expense based on the grant date market value of the underlying common stock. As a result of adopting SFAS 123(R), our income from continuing operations before income taxes was positively impacted by $3.0 million for the three months ended April 29, 2006 or $.01 and $.01, basic and diluted earnings per share, respectively and positively impacted by $5.6 million for the six months ended April 29, 2006 or $.03 and $.03, basic and diluted earnings per share, respectively.

        The total stock-based compensation expense we recognized for the three months and six months ended April 29, 2006 was approximately $1.9 million and $4.2 million, respectively. As of April 29, 2006, we have remaining unrecognized expense related to share based payments of $14.7 million, which we expect to recognize over a weighted average period of approximately 2.2 years. We estimate that our share based compensation expense for Fiscal 2006 will be $8.5 million and is dependent on the share based payment programs awarded thus far in Fiscal 2006, the assumptions used in calculating the fair value of the awards using the Black Scholes model and the actual amount of forfeitures as compared to expected forfeitures upon issuance.

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 29, 2005, we are exposed to various types of market risks, primarily foreign currency risks. We monitor our risks in this area on a continuous basis and generally enter into forward foreign currency contracts to minimize these exposures for periods of less than one year. 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.

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 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 Securities Exchange Act of 1934, as amended (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 by us in the reports that we file or submit under the Exchange Act and (2) to ensure that information required to be disclosed in the reports 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.

        On March 7, 2006 we upgraded and implemented an SAP enterprise resource planning system in our North American Surface Mining based units. The implementation included, among others, an upgrade to the order taking process, and new inquiry to cash, financial control and reporting, human resources and payroll processes. We followed a system development life cycle process that required significant pre-implementation planning, design and testing. We have also conducted extensive post-implementation monitoring and process modifications to ensure the effectiveness of internal control over financial reporting. There have been no other changes in our internal control over financial reporting during the second quarter of Fiscal 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II. OTHER INFORMATION

Item 1. Legal Proceedings

        See Item 3 – Legal Proceedings of Part I of our annual report on Form 10-K for the year ended October 29, 2005.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

      (a) Not applicable
      (b) Not applicable
      (c) We made the following purchases of our common stock, par value $1.00 per share, during the period covered by this report:

Period
Total Number of
Shares Purchased

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

Maximum Approximate
Dollar Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs
(in millions)

January 29, 2006 to       $    290 .0
February 28, 2006 
 
March 1, 2006 to      $    290 .0
March 31, 2006 
 
April 1, 2006 to  418,500   418,500   $    262 .9
April 29, 2006 

Item 3. Defaults upon Senior Securities

      Not applicable.

Item 4.Submission of Matters to a Vote of Security Holders

        At the annual meeting of stockholders held on February 23, 2006, each of our directors was reelected to terms ending at the annual meeting in 2007. The votes cast are listed below:

For
Against
Withheld
Abstained
Broker Non-Votes
Stephen Gerard   70,979,665   0   36,622,153   0   0  
John Nils Hanson  101,087,102   0   6,514,716   0   0  
Ken C. Johnsen  106,407,800   0   1,194,018   0   0  
James R. Klauser  100,620,734   0   6,981,084   0   0  
Richard B. Loynd  103,821,384   0   3,780,434   0   0  
P. Eric Siegert  100,673,463   0   6,928,355   0   0  
James H. Tate  97,703,921   0   9,897,897   0   0  

Item 5. Other Information

      Not applicable.

Forward-Looking Statements and Cautionary Factors

        This report and other documents or oral statements we make or made on our behalf contain both historical and forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are predictions and generally can be identified by use of statements that include phrases such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” or other words or phrases of similar import. Forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated. In addition to any factors that may accompany forward-looking statements, factors that could materially affect actual results include the following.

        Our principal businesses involve designing, manufacturing, marketing and servicing large, complex machines. Significant periods of time are necessary to design and build these machines. Large amounts of capital must be devoted by our customers to purchase these machines and to finance the mines that use them. Our success in obtaining and managing a relatively small number of sales opportunities, including our success in securing payment for such sales and meeting the requirements of warranties and guarantees associated with such sales, can affect our financial performance. In addition, many mines are located in undeveloped or developing economies where business conditions are less predictable. In recent years, up to 55% of our total sales were derived from sales outside the United States.

        Additional factors that could cause actual results to differ materially from those contemplated include:

        Factors affecting our customers’ purchases of new equipment, rebuilds, parts and services such as: production capacity, stockpiles and production and consumption rates of coal, copper, iron ore, gold, oil sands and other ores and minerals; the cash flows and capital expenditures of our customers; the cost and availability of financing to our customers and their ability to obtain regulatory approval for investments in mining projects; consolidations among customers; changes in environmental regulations; work stoppages at customers or providers of transportation; and the timing, severity and duration of customer buying cycles.

        Factors affecting our ability to capture available sales opportunities, including: our customers’ perceptions of the quality and value of our products and services as compared to our competitors’ products and services; our ability to commit to delivery schedules targeted by our customers; whether we have successful reference installations to display to customers; customers’ perceptions of our financial health and stability as compared to our competitors; our ability to assist customers with competitive financing programs; the availability of steel, castings, forgings, bearings and other materials; and the availability of manufacturing capacity at our factories.

        Factors affecting general business levels, such as: political and economic turmoil in major markets such as the United States, Australia, Botswana, Brazil, Canada, Chile, China, Colombia, Europe, India, Indonesia, Mexico, Peru, Poland, Russia, South Africa, Venezuela and Zambia; environmental and trade regulations; commodity prices; and the stability and ease of exchange of currencies.

        Factors affecting our ability to successfully manage and complete sales we obtain, such as: the successful transition to a new enterprise software system at our surface mining equipment business; the timely renegotiation of expiring collective bargaining agreements with our unionized workers; the accuracy of our cost and time estimates for major projects and long-term maintenance and repair contracts; the adequacy of our systems to manage major projects and our success in completing projects on time and within budget; our success in recruiting and retaining managers and key employees; wage stability and cooperative labor relations; plant capacity and utilization; and whether acquisitions are assimilated and divestitures completed without notable surprises or unexpected difficulties.

        Factors affecting our general business or financial position, such as: unforeseen patent, tax, product (including asbestos-related and silicosis liability), environmental, employee health and benefits, or contractual liabilities; changes in pension and post-retirement benefit costs; nonrecurring restructuring and other special charges; changes in accounting or tax rules or regulations; reassessments of asset valuations for such assets as receivables, inventories, fixed assets, intangible assets and deferred tax assets; and leverage and debt service.

Item 6. Exhibits

10(a)  

Asset Purchase Agreement dated as of April 18, 2006 and entered into by and among Joy Technologies Inc. as buyer and Oldenburg Group Incorporated, Oldenburg Australasia Pty. Ltd. and Oldenburg Mining Equipment (Proprietary) Limited, as sellers


10(b)  

Form of Stock Option Agreement entered into as of November 14, 2005 between Joy Global Inc. and each of John J. Fons, John Nils Hanson, Mark E. Readinger, Donald C. Roof, Michael W. Sutherlin and Dennis R. Winkleman


10(c)  

Form of Restricted Stock Unit Award Agreement entered into as of November 14, 2005 between Joy Global Inc. and each of John J. Fons, John Nils Hanson, Mark E. Readinger, Donald C. Roof, Michael W. Sutherlin and Dennis R. Winkleman


10(d)  

Form of Performance Share Agreement entered into as of November 14, 2005 between Joy Global Inc. and each of John J. Fons, John Nils Hanson, Mark E. Readinger, Donald C. Roof, Michael W. Sutherlin and Dennis R. Winkleman


10(e)  

Form of Restricted Stock Unit Award Agreement entered into as of February 23, 2006 between Joy Global Inc. and each of the registrant's non-employee directors


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  

Section 1350 Certifications


SIGNATURES

Table of Contents

Pursuant to the requirements 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.

Date May 26, 2006 JOY GLOBAL INC.
(Registrant)

/s/ Donald C. Roof
Donald C. Roof
Executive Vice President,
Chief Financial Officer,
and Treasurer
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki