(Exact Name of Registrant as Specified in Its Charter)
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 January 31, 2004
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 checkmark 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 an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ X ] No [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING
FIVE YEARS.
Indicate by checkmark 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 February 20, 2004 50,842,597 shares |
JOY GLOBAL INC.
FORM 10-Q -- INDEX
January 31, 2004
PART I. - FINANCIAL INFORMATION
| Three Months Ended |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| January 31, 2004 |
February 1, 2003 | ||||||||||
| Net sales | $ | 283,686 | $ | 239,161 | |||||||
| Costs and expenses: | |||||||||||
| Cost of sales | 213,891 | 186,036 | |||||||||
| Product development, selling | |||||||||||
| and administrative expenses | 62,743 | 55,596 | |||||||||
| Restructuring charges | 433 | 1,177 | |||||||||
| Other income | (1,108 | ) | (366 | ) | |||||||
| Operating income (loss) | 7,727 | (3,282 | ) | ||||||||
Interest expense, net | (5,674 | ) | (5,945 | ) | |||||||
| Income (loss) before reorganization items | 2,053 | (9,227 | ) | ||||||||
Reorganization items - income (expense) | (615 | ) | -- | ||||||||
| Income (loss) before (provision) benefit | |||||||||||
| for income taxes | 1,438 | (9,227 | ) | ||||||||
(Provision) benefit for income taxes | (500 | ) | 3,700 | ||||||||
Net income (loss) | $ | 938 | $ | (5,527 | ) | ||||||
| Net income (loss) per share: | |||||||||||
| Basic | $ | 0.02 | $ | (0.11 | ) | ||||||
| Diluted | $ | 0.02 | $ | (0.11 | ) | ||||||
| Dividends per share | $ | 0.05 | $ | -- | |||||||
| Weighted average shares outstanding: | |||||||||||
| Basic | 50,954 | 50,228 | |||||||||
| Diluted | 52,286 | 50,228 | |||||||||
See accompanying notes to condensed consolidated financial statements
JOY GLOBAL INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In
thousands)
| January 31, 2004 |
November 1, 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 161,801 | $ | 148,505 | ||||
| Accounts receivable, net | 191,898 | 193,882 | ||||||
| Inventories | 399,361 | 382,929 | ||||||
| Other current assets | 53,995 | 51,251 | ||||||
| Total current assets | 807,055 | 776,567 | ||||||
Property, plant and equipment, net | 219,888 | 226,101 | ||||||
| Intangible assets, net | 76,729 | 77,709 | ||||||
| Deferred income taxes | 137,775 | 136,192 | ||||||
| Other assets | 70,028 | 70,160 | ||||||
| Total assets | $ | 1,311,475 | $ | 1,286,729 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Short-term notes payable, including current portion | ||||||||
| of long-term debt | $ | 4,930 | $ | 4,767 | ||||
| Trade accounts payable | 83,897 | 89,136 | ||||||
| Income taxes payable | 24,149 | 26,097 | ||||||
| Other accrued liabilities | 195,747 | 205,706 | ||||||
| Total current liabilities | 308,723 | 325,706 | ||||||
Long-term debt | 202,661 | 202,912 | ||||||
| Accrued pension costs | 318,852 | 313,214 | ||||||
| Other | 75,054 | 74,624 | ||||||
| Total liabilities | 905,290 | 916,456 | ||||||
| Shareholders' equity | 406,185 | 370,273 | ||||||
| Total liabilities and shareholders' equity | $ | 1,311,475 | $ | 1,286,729 | ||||
See accompanying notes to condensed consolidated financial statements
JOY GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In
thousands)
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| January 31, 2004 |
February 1, 2003 | |||||||
| Net cash provided (used) by operating activities | $ | (8,277 | ) | $ | 22,432 | |||
Investing activities: | ||||||||
| Property, plant and equipment acquired | (2,626 | ) | (2,708 | ) | ||||
| Proceeds from sale of property, plant and equipment | 2,283 | 947 | ||||||
| Other, net | 599 | 3,565 | ||||||
| Net cash provided by investing activities | 256 | 1,804 | ||||||
| Financing activities: | ||||||||
| Exercise of stock options | 24,790 | -- | ||||||
| Dividends paid | (2,491 | ) | -- | |||||
| Financing fees | (1,000 | ) | (250 | ) | ||||
| Net (payments) issuance of long-term obligations | (353 | ) | 74 | |||||
| Increase (decrease) in short-term notes payable, net | 338 | (13 | ) | |||||
| Net cash provided (used) by financing activities | 21,284 | (189 | ) | |||||
| Effect of Exchange Rate Changes on Cash and | ||||||||
| Cash Equivalents | 33 | 3,532 | ||||||
| Increase in Cash and Cash Equivalents | 13,296 | 27,579 | ||||||
| Cash and Cash Equivalents at Beginning of Period | 148,505 | 70,906 | ||||||
| Cash and Cash Equivalents at End of Period | $ | 161,801 | $ | 98,485 | ||||
See accompanying notes to condensed consolidated financial statements
JOY GLOBAL INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2004
(Unaudited)
| Joy Global Inc. manufactures and markets products classified into 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. |
| 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 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 November 1, 2003. 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 generally accepted accounting principles 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. |
| On January 23, 2004, we entered into a second amended and restated credit agreement (“Credit Agreement”) which consists of a $200 million revolving credit facilty maturing on October 15, 2008. Substantially all of our assets and our domestic subsidiaries’assets, other than real estate, are pledged as collateral under the Credit Agreement. Outstanding borrowings bear interest equal to either LIBOR plus the applicable margin (3.25% to 2.00%) or the Base Rate (defined as the higher of the Prime Rate or the Federal Funds Effective Rate plus 0.50%) plus the applicable margin (2.25% to 1.00%) at our option depending on certain of our financial ratios. We pay a commitment fee ranging from 0.50% to 0.75% on the unused portion of the revolving credit facility. In fiscal 2002, we issued $200 million in 8.75% Senior Subordinated Notes due March 15, 2012. |
| Both the Credit Agreement and Senior Subordinated Note Indenture contain restrictions and financial covenants relating to, among other things, minimum financial performance and limitations on the incurrence of additional indebtedness, liens, asset sales, and capital expenditures. The covenants in the Senior Subordinated Note Indenture are generally less restrictive than the covenants in the Credit Agreement. Interest coverage, leverage and fixed charge coverage covenants in the Credit Agreement generally become more restrictive over the term of the agreement. At January 31, 2004, we were in compliance with financial covenants in the Credit Agreement and the Indenture. |
| At January 31, 2004, there were no outstanding borrowings under the Credit Agreement. Outstanding letters of credit issued under the Credit Agreement, which count toward the $200 million credit limit, totaled $69.4 million. The available balance is also limited by a borrowing base calculation. At January 31, 2004, there was $130.6 million available for borrowings under the Credit Agreement. |
| We have 150,000,000 shares of authorized common stock, par value $1.00 per share, 50,000,000 of which will ultimately be distributed in connection with our July 12, 2001 (“Effective Date”) emergence from bankruptcy and are deemed outstanding for accounting purposes at the Effective Date. Under our Plan of Reorganization (“POR”), the 50,000,000 shares are being distributed to holders of allowed claims in the bankruptcy case. As of January 31, 2004, total distributions under the POR were 48,766,577 shares. The remaining 1,233,423 shares are held in a disputed claims equity reserve and will be distributed in accordance with the POR as the two remaining bankruptcy related claims are finally resolved. |
| Our stock incentive plan authorizes the grant of up to 8,056,000 stock options, performance units, restricted stock units and other stock-based awards to officers, employees and directors. As of January 31, 2004, stock option grants aggregating approximately 5.1 million shares of common stock had been made to approximately 250 individuals. Options to purchase 15,000 shares have also been granted to each of our six outside directors. On February 25, 2003, and February 24, 2004, restricted stock unit grants of 5,582 and 2,159, respectively, were made to each of our six outside directors. These restricted stock units vest one year after the grant date and provide that a number of shares of common stock equal to the number of vested units will be delivered one year after the director’s service on the board terminates. On January 21, 2004, grants of 47,465 restricted stock units were made to certain executive officers and key employees. These restricted stock units 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. |
| The 2001, 2003 and 2004 Performance Unit Award Programs under our stock incentive plan provide long-term incentive compensation opportunities to certain senior executives. Up to approximately 818,000 shares of common stock may be earned by the senior executives under the 2001, 2003 and 2004 Performance Unit Award Programs if, at the end of a three and one quarter year award cycle, for the 2001 Performance Unit Awards, or at the end of a three year award cycle, for the 2003 and 2004 Performance Unit Awards, cumulative net cash flow, as defined in the performance award agreements, exceeds certain threshold amounts. Each performance unit represents the right to earn one share of common stock. Awards can range from 0% to 150% of the target award opportunities. In the event of a change in control, the performance units are paid out in cash based on the greater of actual performance or target award. As of January 31, 2004, the cumulative compensation expense charge for these awards was $6.9 million, of which $2.5 million was recognized in the first quarter of fiscal 2004. |
| As of January 31, 2004, 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 (loss) 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. |
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| In thousands except per share data |
January 31, 2004 |
February 1, 2003 | ||||||
| Net income (loss), as reported | $ | 938 | $ | (5,527 | ) | |||
| Add: | ||||||||
| Compensation expense included | ||||||||
| in reported net income, net of | ||||||||
| related tax effect | 1,550 | -- | ||||||
| Deduct: | ||||||||
| Compensation expense determined | ||||||||
| under SFAS No. 123, net of related taxes | (2,279 | ) | (2,191 | ) | ||||
| Pro forma net income (loss) | $ | 209 | (7,718 | ) | ||||
| Net income (loss) per share | ||||||||
| As reported | ||||||||
| Basic | $ | 0.02 | (0.11 | ) | ||||
| Diluted | $ | 0.02 | $ | (0.11 | ) | |||
| Pro forma | ||||||||
| Basic | $ | 0.00 | $ | (0.11 | ) | |||
| Diluted | $ | 0.00 | $ | (0.15 | ) | |||
| Separate Statements of Shareholders’ Equity are not required to be presented for interim periods. However, comprehensive income consisted of the following: |
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| In thousands |
January 31, 2004 |
February 1, 2003 | ||||||
| Net income (loss) | $ | 938 | $ | (5,527 | ) | |||
| Comprehensive income: | ||||||||
| Translation adjustment | 7,426 | 7,959 | ||||||
| Derivative fair value adjustment | (234 | ) | 1,271 | |||||
| Total comprehensive income | $ | 8,130 | $ | 3,703 | ||||
| Basic net income (loss) per share is computed based on the weighted-average number of ordinary shares outstanding during each period. Diluted net income (loss) per share is computed based on the weighted average number of ordinary shares outstanding during each period, plus dilutive potential ordinary 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 (loss) per share: |
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| In thousands except per share data |
January 31, 2004 |
February 1, 2003 | ||||||
| Numerator: | ||||||||
| Net income (loss) | $ | 938 | $ | (5,527 | ) | |||
| Denominator: | ||||||||
| Denominator for basic net income per share - | ||||||||
| Weighted average shares | 50,954 | 50,228 | ||||||
| Effect of dilutive securities: | ||||||||
| Stock options, restricted stock and | ||||||||
| performance units | 1,332 | 65 | ||||||
| Denominator for diluted net income per share - | ||||||||
| Adjusted weighted average shares and | ||||||||
| Assumed conversions | 52,286 | 50,293 | ||||||
| Basic net income (loss) per share | $ | 0.02 | $ | (0.11 | ) | |||
| Diluted net income (loss) per share | $ | 0.02 | $ | (0.11 | ) | |||
| We and our subsidiaries are involved in various other unresolved legal matters that arise in the normal course of their operations, the most prevalent of which relate to product liability (including asbestos-related 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 results of the above noted litigation and other unresolved legal matters will not have a materially adverse effect on our consolidated financial position, results of operations or liquidity. |
| The Official Committee of Unsecured Creditors of Beloit Corporation, purportedly suing in its own right and in the name and on behalf of Beloit Corporation, filed suit in the Milwaukee County Circuit Court on June 5, 2001 against certain present and former officers of the Company and Beloit Corporation seeking both money damages in excess of $300 million and declaratory relief. Among other things, the plaintiff alleges that the defendants should be held liable for “waste and mismanagement of Beloit’s assets.” The plaintiff also alleges that settlement agreements reached with certain of our former officers constituted fraudulent transfers and should be deemed null and void. The plaintiff has agreed that any judgement will be limited to and satisfied out of our available insurance. The Milwaukee County Court dismissed this matter on May 24, 2002. Plaintiff appealed this decision to the Wisconsin Court of Appeals. On July 1, 2003, the appeals court reversed the decision. The Wisconsin Supreme Court has granted defendants’ petition for review of the Wisconsin Court of Appeals decision. |
| John G. Kling, purportedly on his own behalf and “in a representative capacity for the Harnischfeger Industries Employees’ Savings Plan,” filed suit in the United States District Court for the District of Massachusetts on November 9, 2001, against certain of our present and former employees, officers and directors. This action seeks damages in an unspecified amount based on, among other things, allegations that the members of our Pension Investment Committee, the Pension Committee of the Board of Directors, and Fidelity Management Trust Company failed to properly discharge their fiduciary obligations under ERISA with respect to the “Harnischfeger Common Stock Fund” in the Harnischfeger Industries Employees’ Savings Plan. The individual defendants’ March 29, 2002 motion to dismiss this matter was not granted by the District Court. The plaintiff recently amended the complaint to add as defendants the Company and certain Company plans and committees. A motion to dismiss our former directors, the Company and Company plans and committees from this action is pending. |
| On February 27, 2003, Joy Mining Machinery Limited (“Joy MM”), one of our subsidiaries located in the United Kingdom, commenced an arbitration in the International Centre for the Settlement of Investment Disputes against The General Organization for Industrial and Mining Projects (“IMC”), an agency of the government of Egypt, to resolve certain disputes arising under an agreement entered into in 1998 between Joy MM and IMC relating to underground mining equipment for the Abu Tartur project in Egypt. An arbitration panel has been appointed and proceedings before it have begun. Legal proceedings commenced in late 2002 by IMC against Joy MM in Egypt in this matter are also pending. IMC may seek wrongfully to draw on approximately $15 million in bank guarantees established for the benefit of IMC in connection with the agreement. |
| By notice dated May 16, 2003, Sokolovskaya Investment Company (“SIC”), a mining company in Russia, filed a request for arbitration with the ICC International Court of Arbitration against Joy MM to recover damages alleged to have arisen out of contracts entered into by Joy MM and SIC in 1995 and 1996 for the supply of underground mining equipment and related services. The request for arbitration seeks damages for loss of profit, delay, repairs, loss of use and other consequential damages of at least $67 million. An arbitration panel has been selected and proceedings before it have commenced. |
| At January 31, 2004, we were contingently liable to banks, financial institutions and others for approximately $92.7 million for outstanding letters of credit, bank guarantees and surety bonds securing performance of sales contracts and other guarantees in the ordinary course of business. Of the $92.7 million, approximately $6.2 million was issued at our request on behalf of Beloit Corporation. At January 31, 2004, there were $2.2 million of outstanding letters of credit or other guarantees issued by non-U.S. banks for non-U.S. subsidiaries. |
| 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. |
| 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 January 31, 2004, the nominal or face value of forward foreign exchange contracts to which we are a party, in absolute U.S. dollar equivalent terms, was $86.1 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. |
| Consolidated inventories consisted of the following: |
| In thousands |
January 31, 2004 |
November 1, 2003 | ||||||
|---|---|---|---|---|---|---|---|---|
| Finished goods | $ | 235,839 | $ | 226,758 | ||||
| Work in process and purchased parts | 136,572 | 131,512 | ||||||
| Raw materials | 26,950 | 24,659 | ||||||
| $ | 399,361 | $ | 382,929 | |||||
| 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. The warranty reserve is included in other accrued liabilities in the Condensed Consolidated Balance Sheet. 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 | ||||||||
|---|---|---|---|---|---|---|---|---|
| In thousands |
January 31, 2004 |
February 2, 2003 | ||||||
| Balance, beginning of period | $ | 30,443 | $ | 33,904 | ||||
| Accrual for warranty expensed during | ||||||||
| the three month period | 3,595 | 2,489 | ||||||
| Settlements made during the period | (4,056 | ) | (3,506 | ) | ||||
| Change in liability for pre-existing warranties | ||||||||
| during the period, including expirations | (215 | ) | -- | |||||
| Effect of foreign currency translation | 401 | 790 | ||||||
| Balance, end of period | $ | 30,168 | $ | 33,677 | ||||
| Costs associated with restructuring activities other than those activities covered by SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” or that involve an entity newly acquired in a business combination, are accounted for in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Costs associated with such activities are recorded as restructuring costs in the consolidated statements of operations when the liability is incurred. |
| During fiscal 2003, we began implementing a manufacturing capacity rationalization at our P&H Mining Equipment Milwaukee location that reduced factory space by 350,000 square feet and resulted in a facility that is more efficient. The rationalization should be completed in fiscal 2004 and is expected to result in savings greater than the cash costs to implement. The total expected costs for this rationalization are estimated at $2.8 million. |
| During fiscal 2003, Joy Mining Machinery began implementing a manufacturing capacity rationalization plan for North America. Total costs for the Joy North American manufacturing capacity rationalization are estimated at $3.9 million. Included in this amount is $2.3 million for one-time termination benefits for an estimated 132 employees, $0.7 million for abandoned assets, and $0.9 million for other associated costs. Also during fiscal 2003, Joy Mining Machinery began implementing a manufacturing capacity rationalization plan for the United Kingdom and Australia. The total costs for the United Kingdom manufacturing capacity rationalization are estimated at $1.6 million, almost entirely for one-time termination benefits for 26 employees. The total costs for the Australian manufacturing capacity rationalization are estimated at $0.2 million, almost entirely for one-time termination benefits for 27 employees. |
| Below is a summary of the activity related to restructuring costs recorded pursuant to SFAS No. 144 and SFAS No.146. |
| In thousands |
One-time Termination Benefits |
Abandoned Assets |
Other Associated Costs |
Total Charges | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months ended January 31, 2004 |
||||||||||||||
| P&H Mining Equipment | $ | -- | $ | -- | $ | 168 | $ | 168 | ||||||
| Joy Mining Machinery | 200 | -- | 65 | 265 | ||||||||||
| $ | 200 | $ | -- | $ | 233 | $ | 433 | |||||||
| Cummulative Total to date | ||||||||||||||
| P&H Mining Equipment | $ | -- | $ | 1,154 | $ | 780 | $ | 1,934 | ||||||
| Joy Mining Machinery | 3,584 | 715 | 1,115 | 5,414 | ||||||||||
| $ | 3,584 | $ | 1,869 | $ | 1,895 | $ | 7,348 | |||||||
| 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 three months ended January 31, 2004, approximately $0.6 million of reorganization charges were incurred for bankruptcy related professional fees. |
| The components of net periodic benefit costs recognized are as follows: |
| U.S. Pension Benefits |
Postretirement Benefits |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended | Three Months Ended | |||||||||||||
| In thousands |
January 31, 2004 |
February 1, 2003 |
January 31, 2004 |
February 1, 2003 | ||||||||||
| Service cost | $ | 3,068 | $ | 2,610 | $ | 42 | $ | 36 | ||||||
| Interest cost | 10,805 | 10,706 | 862 | 937 | ||||||||||
| Expected return on assets | (9,953 | ) | (9,619 | ) | -- | -- | ||||||||
| Amortization of: | ||||||||||||||
| Prior service cost | 91 | 90 | -- | -- | ||||||||||
| Actuarial (gain) loss | 1,632 | 105 | 100 | 65 | ||||||||||
| Net periodic benefit cost | $ | 5,643 | $ | 3,892 | $ | 1,004 | $ | 1,038 | ||||||
| No contributions are required to be made to our U.S. pension plans in fiscal 2004. |
| At January 31, 2004, 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 (benefit) for income taxes. There are no significant intersegment sales. Total operations assets are those used in our operations in each segment. Corporate assets consist primarily of deferred financing costs, cash and cash equivalents and deferred income taxes. |
| In thousands |
Net Sales |
Operating Income (Loss) |
Total Assets | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 First Quarter | |||||||||||
| Underground Mining Machinery | $ | 155,016 | $ | 7,568 | $ | 640,984 | |||||
| Surface Mining Equipment | 128,670 | 6,887 | 397,845 | ||||||||
| Total operations | 283,686 | 14,455 | 1,038,829 | ||||||||
| Corporate | -- | (6,728 | ) | 272,646 | |||||||
| Consolidated Total | $ | 283,686 | $ | 7,727 | $ | 1,311,475 | |||||
| 2003 First Quarter | |||||||||||
| Underground Mining Machinery | $ | 130,485 | $ | (35 | ) | $ | 634,968 | ||||
| Surface Mining Equipment | 108,676 | 1,065 | 490,365 | ||||||||
| Total operations | 239,161 | 1,030 | 1,125,333 | ||||||||
| Corporate | -- | (4,312 | ) | 149,901 | |||||||
| Consolidated Total | $ | 239,161 | $ | (3,282 | ) | $ | 1,275,234 | ||||
| In December 2003, Medicare benefits were expanded, primarily by adding a prescription drug benefit for Medicare-eligible retirees starting in 2006. We anticipate that the benefits we pay after 2006 will be lower as a result of the new Medicare provisions. The retiree medical obligations and costs do not reflect the impact of this legislation. Deferring the recognition of the new Medicare provisions’ impact is permitted by Financial Accounting Standards Board Staff Position 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” because of uncertainty about the effects of some of the new Medicare provisions and a lack of authoritative accounting guidance on the matters. The final accounting guidance could require changes to previously reported information. |
| The following tables present condensed consolidated financial information for the three months ended January 31, 2004 and February 1, 2003 for: (a) the Company; (b) on a combined basis, the guarantors of the Credit Agreement and Senior Subordinated Notes, which include substantially all of our domestic subsidiaries (“Subsidiary Guarantors”); and (c) on a combined basis, the non-guarantors, which include all of our foreign subsidiaries (“Non-Guarantor Subsidiaries”). Separate financial statements of the Subsidiary Guarantors are not presented because the guarantors are unconditionally, jointly, and severally liable under the guarantees, and we believe such separate statements or disclosures would not be useful to investors |
Parent Company |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations |
Consolidated | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | -- | $ | 163,143 | $167,468 | $ | (46,925 | ) | $ | 283,686 | |||||||
Cost of sales | -- | 127,310 | 126,674 | (40,093 | ) | 213,891 | |||||||||||
| Product development, selling | |||||||||||||||||
| and administrative expenses | 6,689 | 33,992 | 22,062 | -- | 62,743 | ||||||||||||
| Restructuring charges | -- | 227 | 206 | -- | 433 | ||||||||||||
| Other (income) expense | (70 | ) | (651 | ) | (387 | ) | -- | (1,108 | ) | ||||||||
Operating income (loss) | (6,619 | ) | 2,265 | 18,913 | (6,832 | ) | 7,727 | ||||||||||
Intercompany items | 2,383 | 1,669 | (10,297 | ) | 6,245 | -- | |||||||||||
| Interest income (expense), net | (7,013 | ) | (88 | ) | 1,427 | -- | (5,674 | ) | |||||||||
| Income (loss) before income taxes | |||||||||||||||||
| and reorganization items | (11,249 | ) | 3,846 | 10,043 | (587 | ) | 2,053 | ||||||||||
Reorganization items - income (expense) | (615 | ) | -- | -- | -- | (615 | ) | ||||||||||
| Income (loss) before income taxes | (11,864 | ) | 3,846 | 10,043 | (587 | ) | 1,438 | ||||||||||
(Provision) benefit for income taxes | 3,678 | (2,472 | ) | (1,706 | ) | -- | (500 | ) | |||||||||
| Equity in income (loss) of subsidiaries | 9,124 | 17,153 | 916 | (27,193 | ) | -- | |||||||||||
| Net income (loss) | $ | 938 | $ | 18,527 | $ | 9,253 | $ | (27,780 | ) | $ | 938 | ||||||
Parent Company |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations |
Consolidated | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | -- | $ | 143,737 | $139,811 | $ | (44,387 | ) | $ | 239,161 | |||||||
Cost of sales | -- | 113,989 | 110,374 | (38,327 | ) | 186,036 | |||||||||||
| Product development, selling | |||||||||||||||||
| and administrative expenses | 3,540 | 36,098 | 15,958 | -- | 55,596 | ||||||||||||
| Restructuring charges | -- | 1,177 | -- | -- | 1,177 | ||||||||||||
| Other (income) expense | (21 | ) | (391 | ) | 46 | -- | (366 | ) | |||||||||
| Operating income (loss) | (3,519 | ) | (7,136 | ) | 13,433 | (6,060 | ) | (3,282 | ) | ||||||||
Intercompany items | 6,439 | (3,899 | ) | (9,436 | ) | 6,896 | -- | ||||||||||
| Interest income (expense), net | (5,952 | ) | (306 | ) | 313 | -- | (5,945 | ) | |||||||||
| Income (loss) before income taxes | (3,032 | ) | (11,341 | ) | 4,310 | 836 | (9,227 | ) | |||||||||
(Provision) benefit for income taxes | 2,274 | 2,921 | (1,495 | ) | -- | 3,700 | |||||||||||
| Equity in income (loss) of subsidiaries | (4,769 | ) | 8,780 | 877 | (4,888 | ) | -- | ||||||||||
| Net income (loss) | $ | (5,527 | ) | $ | 360 | $ | 3,692 | $ | (4,052 | ) | $ | (5,527 | ) | ||||
Parent Company |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations |
Consolidated | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Cash and cash equivalents | $ | 86,857 | $ | (477 | ) | $ | 75,421 | $ | -- | $ | 161,801 | ||||||
| Accounts receivable, net | -- | 82,654 | 110,518 | (1,274 | ) | 191,898 | |||||||||||
| Inventories | -- | 235,440 | 196,219 | (32,298 | ) | 399,361 | |||||||||||
| Other current assets | 29,409 | 11,297 | 13,266 | 23 | 53,995 | ||||||||||||
| Total current assets | 116,266 | 328,914 | 395,424 | (33,549 | ) | 807,055 | |||||||||||
Property, plant and equipment, net | 418 | 143,651 | 75,819 | -- | 219,888 | ||||||||||||
| Intangible assets, net | -- | 76,729 | -- | -- | 76,729 | ||||||||||||
| Investment in affiliates | 1,075,537 | 599,255 | 22,774 | (1,697,566 | ) | -- | |||||||||||
| Intercompany accounts, net | (339,261 | ) | 468,160 | (139,966 | ) | 11,067 | -- | ||||||||||
| Deferred income taxes | 137,775 | -- | -- | -- | 137,775 | ||||||||||||
| Other assets | 10,664 | 8,170 | 51,194 | -- | 70,028 | ||||||||||||
| Total assets | $ | 1,001,399 | $ | 1,624,879 | $ | 405,245 | $ | (1,720,048 | ) | $ | 1,311,475 | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| Short-term notes payable, including current portion | |||||||||||||||||
| of long-term debt | $ | -- | $ | 458 | $ | 4,472 | $ | -- | $ | 4,930 | |||||||
| Trade accounts payable | 251 | 36,282 | 47,364 | -- | 83,897 | ||||||||||||
| Income taxes payable | (5,982 | ) | 2,412 | 27,719 | -- | 24,149 | |||||||||||
| Other accrued liabilities | 25,485 | 93,539 | 92,656 | (15,933 | ) | 195,747 | |||||||||||
| Total current liabilities | 19,754 | 132,691 | 172,211 | (15,933 | ) | 308,723 | |||||||||||
Long-term debt | 200,000 | 93 | 2,568 | -- | 202,661 | ||||||||||||
Other non-current liabilities | 375,460 | 14,379 | 4,067 | -- | 393,906 | ||||||||||||
Shareholders' equity | 406,185 | 1,477,716 | 226,399 | (1,704,115 | ) | 406,185 | |||||||||||
| Total liabilities and shareholders' equity | $ | 1,001,399 | $ | 1,624,879 | $ | 405,245 | $ | (1,720,048 | ) | $ | 1,311,475 | ||||||
Parent Company |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations |
Consolidated | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Cash and cash equivalents | $ | 57,840 | $ | 16,222 | $ | 74,443 | $ | -- | $ | 148,505 | |||||||
| Accounts receivable, net | -- | 85,849 | 109,312 | (1,279 | ) | 193,882 | |||||||||||
| Inventories | -- | 232,369 | 182,744 | (32,184 | ) | 382,929 | |||||||||||
| Other current assets | 29,942 | 8,558 | 13,232 | (481 | ) | 51,251 | |||||||||||
| Total current assets | 87,782 | 342,998 | 379,731 | (33,944 | ) | 776,567 | |||||||||||
Property, plant and equipment, net | 458 | 150,825 | 74,818 | -- | 226,101 | ||||||||||||
| Intangible assets, net | -- | 77,709 | -- | -- | 77,709 | ||||||||||||
| Investment in affiliates | 1,092,719 | 558,517 | 15,292 | (1,666,528 | ) | -- | |||||||||||
| Intercompany accounts, net | (415,274 | ) | 501,066 | (134,915 | ) | 49,123 | -- | ||||||||||
| Other assets | 147,745 | 8,367 | 50,240 | -- | 206,352 | ||||||||||||
| Total assets | $ | 913,430 | $ | 1,639,482 | $ | 385,166 | $ | (1,651,349 | ) | $ | 1,286,729 | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| Short-term notes payable, including current portion | |||||||||||||||||
| of long-term debt | $ | -- | $ | 554 | $ | 4,213 | $ | -- | $ | 4,767 | |||||||
| Trade accounts payable | 269 | 37,094 | 51,773 | -- | 89,136 | ||||||||||||
| Income taxes payable | 188 | 2,550 | 23,359 | -- | 26,097 | ||||||||||||
| Advance payments and progress billings | -- | 14,243 | 24,379 | (1,946 | ) | 36,676 | |||||||||||
| Other accrued liabilities | 17,889 | 89,309 | 77,888 | (16,056 | ) | 169,030 | |||||||||||
| Total current liabilities | 18,346 | 143,750 | 181,612 | (18,002 | ) | 325,706 | |||||||||||
Long-term obligations | 200,000 | 95 | 2,817 | -- | 202,912 | ||||||||||||
Other non-current liabilities | 324,811 | 59,320 | 3,707 | -- | 387,838 | ||||||||||||
Shareholders' equity | 370,273 | 1,436,317 | 197,030 | (1,633,347 | ) | 370,273 | |||||||||||
| Total liabilities and shareholders' equity | $ | 913,430 | $ | 1,639,482 | $ | 385,166 | $ | (1,651,349 | ) | $ | 1,286,729 | ||||||
Parent Company |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net cash provided (used) by operations | $ | 7,719 | $ | (15,364 | ) | $ | (632 | ) | $ | (8,277 | ) | |||
Investing activities: | ||||||||||||||
| Property, plant and equipment acquired | -- | (1,083 | ) | (1,543 | ) | (2,626 | ) | |||||||
| Proceeds from sale of property, plant and equipment | -- | 1,239 | 1,044 | 2,283 | ||||||||||
| Other, net | (1 | ) | (1,393 | ) | 1,993 | 599 | ||||||||
| Net cash provided (used) by investing activities | (1 | ) | (1,237 | ) | 1,494 | 256 | ||||||||
| Financing activities: | ||||||||||||||
| Exercise of stock options | 24,790 | -- | -- | 24,790 | ||||||||||
| Dividends paid | (2,491 | ) | -- | -- | (2,491 | ) | ||||||||
| Credit Agreement financing fees | (1,000 | ) | -- | -- | (1,000 | ) | ||||||||
| Net issuance (payments) of long-term obligations | -- | (98 | ) | (255 | ) | (353 | ) | |||||||
| Increase (decrease) in short-term notes payable, net | -- | -- | 338 | 338 | ||||||||||
| Net cash provided (used) by financing activities | 21,299 | (98 | ) | 83 | 21,284 | |||||||||
| Effect of Exchange Rate Changes on Cash and | ||||||||||||||
| Cash Equivalents | -- | -- | 33 | 33 | ||||||||||
| Increase (Decrease) in Cash and Cash Equivalents | 29,017 | (16,699 | ) | 978 | 13,296 | |||||||||
| Cash and Cash Equivalents at Beginning of Period | 57,840 | 16,222 | 74,443 | 148,505 | ||||||||||
| Cash and Cash Equivalents at End of Period | $ | 86,857 | $ | (477 | ) | $ | 75,421 | $ | 161,801 | |||||
Parent Company |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net cash provided (used) by operations | $ | 8,545 | $ | (2,335 | ) | $ | 16,222 | $ | 22,432 | |||||
Investing activities: | ||||||||||||||
| Property, plant and equipment acquired | -- | (1,218 | ) | (1,490 | ) | (2,708 | ) | |||||||
| Proceeds from sale of property, plant and equipment | -- | 602 | 345 | 947 | ||||||||||
| Other, net | 3,500 | 44 | 21 | 3,565 | ||||||||||
| Net cash provided (used) by investing activities | 3,500 | (572 | ) | (1,124 | ) | 1,804 | ||||||||
| Financing activities: | ||||||||||||||
| Credit Agreement financing fees | (250 | ) | -- | -- | (250 | ) | ||||||||
| Net issuance (payments) of long-term obligations | -- | 94 | (20 | ) | 74 | |||||||||
| Increase (decrease) in short-term notes payable, net | -- | 7 | (20 | ) | (13 | ) | ||||||||
| Net cash provided (used) by financing activities | (250 | ) | 101 | (40 | ) | (189 | ) | |||||||
| Effect of Exchange Rate Changes on Cash and | ||||||||||||||
| Cash Equivalents | -- | -- | 3,532 | 3,532 | ||||||||||
| Increase (Decrease) in Cash and Cash Equivalents | 11,795 | (2,806 | ) | 18,590 | 27,579 | |||||||||
| Cash and Cash Equivalents at Beginning of Period | 33,803 | 868 | 36,235 | 70,906 | ||||||||||
| Cash and Cash Equivalents at End of Period | $ | 45,598 | $ | (1,938 | ) | $ | 54,825 | $ | 98,485 | |||||
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 Part I of this report.
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 aboveground 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.
The long-awaited recovery in commodity markets is evident in our first quarter results. Copper prices have doubled and copper stockpiles have been cut in half during the past year. Demand for copper is being driven primarily by consumption in China, although demand is also increasing in the United States and other countries. Coal is also strong as prices in the United States rose as much as 40% in the past year. Supply constraints and high natural gas prices mean that coal prices are likely to stay strong. Globally, there is a shortage of metallurgical coal as China’s steel industry absorbs the available supply. International coal markets are more mixed. Though demand is strong, the rising value of currencies in Australia and South Africa constrains coal sales from those countries. Other commodities are also seeing strong growth in demand, especially iron ore which is also being driven by China’s steel industry.
Customer orders were very strong in the first quarter of fiscal 2004, with a substantial increase over the depressed levels of the first quarter of fiscal 2003. This increase was particularly strong in original equipment orders, due largely to domestic coal customers increasing their order rates. In addition, both segments experienced increases in aftermarket orders. The first quarter of our fiscal year is typically our weakest quarter; however, revenues increased 18.6% over the first quarter of fiscal 2003 and gross profit margins improved to 24.6% of sales compared to 22.2% in the first quarter of fiscal 2003. Operating income was $7.7 million in the first quarter of 2004 compared to an operating loss of $3.3 million in the first quarter of fiscal 2003.
Net Sales
The following table sets forth the combined net sales included in our Condensed Consolidated Statement of Operations:
| Three Months Ended |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Sales (In thousands) |
January 31, 2004 |
February 1, 2003 |
Change | ||||||||
| Underground Mining Machinery | $ | 155,016 | $ | 130,485 | $ | 24,531 | |||||
| Surface Mining Equipment | 128,670 | 108,676 | 19,994 | ||||||||
| $ | 283,686 | $ | 239,161 | $ | 44,525 | ||||||
The increase in net sales for underground mining machinery in the first quarter was the result of increased shipments of both original equipment and aftermarket products. The market for original equipment sales has begun to recover. We had increased shipments of continuous miners and longwall shearers in the United States and increased shipments of continuous miners and shuttle cars in South Africa. We also shipped a roof support project and two longwall shearers to Australia. The increase in original equipment sales reflects improvements we are seeing in coal-related markets, particularly in the United States. Aftermarket sales increased in the United States and remained substantially flat outside of the U.S. after eliminating currency translation benefits. Increased coal activity in the U.S. benefited aftermarket sales.
The increase in our original equipment sales for surface mining equipment was primarily due to the recording of a larger portion of a percentage-of-completion sale of a dragline in Australia. The demand for copper, iron ore, and oil sands impacted aftermarket parts and service sales. Our South American region had a significant increase in aftermarket product and service sales, principally due to the increase in demand for copper.
Operating Income
The following table sets forth the operating income (loss) included in our Condensed Consolidated Statement of Operations:
| Three Months Ended |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| In thousands |
January 31, 2004 |
February 1, 2003 |
Change | ||||||||
| Operating income (loss): | |||||||||||
| Underground Mining Machinery | $ | 7,568 | $ | (35 | ) | $ | 7,603 | ||||
| Surface Mining Equipment | 6,887 | 1,065 | 5,822 | ||||||||
| Corporate Expense | (6,728 | ) | (4,312 | ) | (2,416 | ) | |||||
| Total | $ | 7,727 | $ | (3,282 | ) | $ | 11,009 | ||||
The improvement in operating income for underground mining machinery resulted from higher sales volumes, a favorable impact of manufacturing overhead absorption, benefits from our strategic sourcing initiative and cost savings from our restructuring in the United States and United Kingdom. The items that adversely affected operating income were increases in pension expense and medical costs in the United States and United Kingdom.
The improvement in operating income for surface mining equipment was due to the increase in sales volume of new machines, primarily related to the dragline in Australia, and aftermarket products and services, continued cost controls, benefits from our strategic sourcing initiative and a decrease in restructuring charges.
The increase in corporate expenses reflects $2.5 million in compensation expenses related to the Performance Unit Award Program.
Product Development, Selling and Administrative Expense
Product development, selling and administrative expense totaled $62.7 million, or 22.1% of sales, in the first quarter of fiscal 2004, as compared to $55.6 million, or 23.2% of sales, in the first quarter of fiscal 2003. While a lower percentage of total sales, the increase in product development, selling and administrative expense was attributable to higher sales expenses related to increased business activity during the quarter and higher pension and performance based compensation costs quarter over quarter. Offsetting these increases was lower amortization expense associated with adjustments to deferred tax assets which reduced intangible assets at the end of fiscal 2003.
Provision for Income Taxes
Income tax expense for the first quarter of fiscal 2004 increased to $0.5 million as compared to a tax benefit of $3.7 million in the first quarter of fiscal 2003. On a consolidated basis, these income tax provisions (benefits) represented effective income tax rates for the first quarters of fiscal 2004 and 2003 of 35% and 40%, respectively. Aside from recognizing a pre-tax income in the first quarter of 2004 as opposed to a pre-tax loss in the first quarter of fiscal 2003, the main driver of the variance in tax rates was the global mix of earnings. Additionally, we were unable to benefit from the use of net operating losses from prior periods under fresh start accounting rules. The first quarter of fiscal 2003 was also unable to recognize certain Australian tax losses that can now be recognized due to the restructuring of our Australian subsidiaries in the latter part of fiscal 2003.
Cash taxes paid for the first quarter of fiscal 2004 were $1.9 million compared to $4.8 million in the first quarter of fiscal 2003. This decrease in cash taxes paid was primarily due to the restructuring of our Australian subsidiaries in the latter part of fiscal 2003 and reduced payments required by foreign affiliates related to prior year estimated taxes.
Bookings and Backlog
For the second quarter in a row new order bookings exceeded $350 million. During the first quarter of fiscal 2004, the Company received $374 million of new orders compared to new order bookings of $276 million for the same quarter a year ago. Orders in the first quarter of fiscal 2003 for original equipment were particularly low. Both the underground and surface mining businesses had increases in new orders compared to a year ago. In addition, both the original equipment and aftermarket portions of both businesses had more new order bookings during the current quarter than they did a year ago. Especially encouraging was the level of new orders received for continuous miners and shearing machines in the United States, China and South Africa.
As a result of the strong level of new orders, backlog increased from $252 million at the beginning of fiscal 2004 to $343 million at the end of the first quarter.
Discussion of Cash Flows
At the end of the first quarter of fiscal 2004, we had $161.8 million in cash and cash equivalents and working capital of $498.3 million, as compared to $148.5 million in cash and cash equivalents and working capital of $450.9 million at the beginning of the fiscal year. Our net debt, or total debt net of $161.8 million of cash, at the end of the first quarter was $45.8 million compared to net debt of $59.2 million at the beginning of the fiscal year.
Operating Activities
Cash used by operations during the first quarter of fiscal 2004 was $8.3 million compared to cash provided by operations of $22.4 million in the first quarter of fiscal 2003. The decrease in operating cash flow was primarily a result of the payment to employees for the bonuses earned in fiscal 2003, an increase in inventory and accounts receivable associated with the increase in the level of business activity, and a decrease in advance payments and progress billings. These items were partially offset by the improved profitability in the first quarter.
Investing Activities
First quarter investing activities in fiscal 2004 were comparable to those of the first quarter of fiscal 2003. We expect to fund capital expenditures in 2004 with operating cash flows and available cash.
Financing Activities
During the first quarter of fiscal 2004 cash provided by financing activities was $21.3 million compared to cash used by financing activities of $0.2 million in the first quarter of fiscal 2003. The increase was due to $24.8 million received from the exercise of employee stock options, offset by dividends paid and additional financing fees from the amendment of the Credit Agreement.
Credit Agreement
Earlier this month we announced the amendment and restatement of our revolving credit facility. The amendment extends the term of the facility by three years to October 15, 2008, provides flexibility in the financial covenants, improves the pricing “grid,” reduces the size of the facility from $250 million to $200 million, and lessens restrictions on cash dividends and restricted payments.
Based upon our current level of operations, we believe that cash flow from operations, together with available borrowings under the Credit Agreement, will be adequate to meet our anticipated future cash requirements.
Off-Balance Sheet Arrangements
We lease various assets under operating leases. The aggregate payments under operating leases as of the end of the first quarter are disclosed below in the table of Disclosures about Contractual Obligations and Commercial Commitments. No significant changes to lease commitments have occurred since the end of the first quarter. We have no other off-balance sheet arrangements.
Disclosures about Contractual Obligations and Commercial Commitments
The following table sets forth our contractual obligations and commercial commitments as of January 31, 2004:
| Contractual Obligations |
Total |
Less than 1 year |
1 - 3 years |
4 - 5 years |
After 5 years | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Long-Term Debt | $ | 200,296 | $ | -- | $ | -- | $ | -- | $ | 200,296 | |||||||
| Short-Term Notes Payable | 3,715 | 3,715 | -- | -- | -- | ||||||||||||
| Capital Lease Obligations | 3,580 | 1,215 | 1,383 | 582 | 400 | ||||||||||||
| Operating Leases | 24,789 | 10,646 | 10,731 | 1,705 | 1,707 | ||||||||||||
| Total | $ | 232,380 | $ | 15,576 | $ | 12,114 | $ | 2,287 | $ | 202,403 | |||||||
Conditions in the majority of our customers’ markets continue to strengthen. U.S. coal is enjoying stronger spot pricing, which should translate into higher selling prices and cash flow for our customers, as the effect of new supply contracts take hold over the next couple of years. Total domestic coal demand is forecasted to increase in 2004, both in consumption by utilities and for exports, particularly in metallurgical coal. International coal markets also continue to strengthen, particularly for metallurgical coal used in the production of steel. Management continues to believe that the emerging underground coal markets will contribute a larger portion of our overall revenues over the next few years. Supporting this belief is the recent announcement by China that it intends to create eight to ten large coal-mining firms, each capable of producing in excess of 50 million tons annually.
Customers producing copper are enjoying a market resurgence. Copper prices have risen by 50% in the past 12 months, driven by demand from China and production constraints by the major producers. Copper stockpiles have fallen dramatically during the past year and producers have recently begun either increasing production or announcing plans to increase production. While the impact of the strength in the copper market on our business to date has largely been an increase in aftermarket sales, historically this commodity market has comprised the largest component of our surface mining equipment operation.
Positive trends are being seen in several of the other commodity markets that our surface mining equipment operations serve. Iron ore fundamentals are equal to, or even stronger than, those of copper, with demand from China contributing to the current strength. Finally, further development of the oil sands of Canada continue to drive production, and therefore equipment utilization, higher.
We will continue to focus on cash flow in the upcoming 12 months. This focus will be necessary to insure that the ramp up of business activity uses the minimum amount of working capital possible. Capital spending should be in the range of $25 million for fiscal 2004. Although there are essentially no pension funding needs in fiscal 2004, we now estimate that our funding in fiscal 2005 will be in the range of $80 million.
Several factors temper our outlook. We believe that the current buying cycle for mining equipment and services will be sustained and that our customers will exercise discipline in increasing their production. As we increase our production to meet the increased demand for mining equipment, our challenge is to manage our working capital and the other aspects of our business so that we meet the needs of our customers while maximizing returns to shareholders. We will need to continue to control pension and health care costs. Our ability to grow revenues is constrained by the capacity of our plants, our ability to supplement that capacity with outside sources, and our success in securing critical supplies such as steel and copper. The positive effects we are seeing on our business as a result of higher customer production and capital spending levels could be offset by customer restraints on production and capital spending, increasing lead times at our facilities, and tightening steel supplies. Finally, our success in meeting our goals depends on our success in negotiating an acceptable labor agreement at our principle surface mining equipment manufacturing plant in Milwaukee, Wisconsin when the current contract expires this April.
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 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations of our annual report on Form 10-K for the year ended November 1, 2003 for a discussion of these policies. There were no material changes to these policies during the first quarter.
As more fully described in our Annual Report on Form 10-K for the year ended November 1, 2003, 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.
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 principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended ("the Act")) were effective as the end of the first quarter, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Act.
There were no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their most recent evaluation.
| See Item 3 – Legal Proceedings of Part I of our annual report on Form 10-K for the year ended November 1, 2003. |
| Not applicable. |
| Not applicable. |
Item 4. Submission of Matters to a Vote of Security Holders
| At the annual meeting of stockholders held on February 24, 2004, each of our directors was reelected to terms ending at the annual meeting in 2005. The votes cast are listed below: |
| For |
Against |
Withheld |
Abstained |
Broker Non-Votes | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Steven L. Gerard | 41,119,312 | 0 | 1,241,459 | 0 | 0 | ||||||||||||
| John Nils Hanson | 41,345,411 | 0 | 1,015,360 | 0 | 0 | ||||||||||||
| Ken C. Johnsen | 41,255,512 | 0 | 1,105,259 | 0 | 0 | ||||||||||||
| James R. Klauser | 41,477,041 | 0 | 883,730 | 0 | 0 | ||||||||||||
| Richard B. Loynd | 41,255,512 | 0 | 1,105,259 | 0 | 0 | ||||||||||||
| P. Eric Siegert | 41,477,041 | 0 | 883,730 | 0 | 0 | ||||||||||||
| James H. Tate | 40,382,874 | 0 | 1,977,897 | 0 | 0 | ||||||||||||
| 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 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 47% of our total sales occurred outside the United States. |
| Additional factors that could cause actual results to differ materially from those contemplated include: |
| |X| | Factors affecting customers’ purchases of new equipment, rebuilds, parts and services such as: production capacity, stockpiles, and production and consumption rates of coal, copper, iron, gold, oil and other ores and minerals; the cash flows of customers; the cost and availability of financing to customers and the ability of customers to obtain regulatory approval for investments in mining projects; consolidations among customers; the effects of rising energy costs on customer operations; work stoppages at customers or providers of transportation; and the timing, severity and duration of customer buying cycles. |
| |X| | Factors affecting our ability to capture available sales opportunities, including: customers’ perceptions of the quality and value of our products and services as compared to competitors’ products and services; customers’ perceptions of the financial health and stability as compared to our competitors; and the availability of manufacturing capacity at our factories. |
| |X| | Factors affecting our ability to successfully manage the sales we obtain, such as: the accuracy of our cost and time estimates; the adequacy of our cost and control systems; and our success in delivering products and completing service 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; increases in the costs and constraints on the supply of major purchased items such as steel can adversely affect profits and revenues; and whether acquisitions are assimilated and divestitures completed without notable surprises or unexpected difficulties. |
| |X| | Factors affecting general business levels, such as: political and economic turmoil in major markets such as the United States, Canada, Europe, Asia and the Pacific Rim, South Africa, Australia and Chile; environmental and trade regulations; and the stability and ease of exchange of currencies. |
| |X| | Factors affecting our general business, such as: unforeseen patent, tax, product, environmental, employee health and benefit, or contractual liabilities; 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 and intangible assets; and leverage and debt service. |
| |X| | Various other factors beyond our control. |
(a) Exhibits:
31(a) Chief Executive Officer Rule 13a-14(a)/15d-14(a) Certifications
31(b) Chief Financial Officer Rule 13a-14(a)/15d-14(a) Certifications
32 Section 1350 Certifications
(b) Reports on Form 8-K
Form 8-K Report dated as of February 10, 2004 Item 5 “Other Events”
Form 8-K Report dated as of February 24, 2004 Item 12 “Results of Operations and Financial Condition”
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 February 27, 2004 | JOY GLOBAL INC. (Registrant) /s/ Donald C. Roof Donald C. Roof Executive Vice President, Chief Financial Officer and Treasurer |
| Date February 27, 2004 | /s/ Michael S. Olsen Michael S. Olsen Vice President and Controller and Chief Accounting Officer |