NACCO INDUSTRIES INC
10-Ks and 10-Qs
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
or
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 1-9172
NACCO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
|
Delaware
(State or Other Jurisdiction of Incorporation or Organization) |
34-1505819
(I.R.S. Employer Identification No.) |
|
|
5875 Landerbrook Drive, Cleveland, Ohio
(Address of Principal Executive Offices) |
44124-4069
(Zip Code) |
Registrant’s telephone number, including area code:
(440) 449-9600
Securities registered pursuant to Section 12(b) of the Act:
| Name of Each Exchange | ||
| Title of Each Class | on Which Registered | |
| Class A Common Stock, Par Value $1.00 Per Share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock, Par Value $1.00 Per Share
(Title of Class)
Class B Common Stock, Par Value $1.00 Per Share
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
YES
o
NO
þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
YES
o
NO
þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES
þ
NO
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
YES
o
NO
o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated
filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o | Accelerated filer þ |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act)
YES
o
NO
þ
Aggregate market value of Class A Common Stock and Class B Common Stock held by non-affiliates as
of June 30, 2009 (the last business day of the registrant’s most recently completed second fiscal
quarter): $164,849,612
Number of
shares of Class A Common Stock outstanding at February 26,
2010: 6,730,656
Number of
shares of Class B Common Stock outstanding at February 26,
2010: 1,598,653
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s Proxy Statement for its 2010 annual meeting of stockholders are
incorporated herein by reference in Part III of this Form 10-K.
NACCO INDUSTRIES, INC.
TABLE OF CONTENTS
TABLE OF CONTENTS
| PAGE | ||||||||||
| PART I. | ||||||||||
| Item 1. | 1 | |||||||||
| Item 1A. | 19 | |||||||||
| Item 1B. | 27 | |||||||||
| Item 2. | 27 | |||||||||
| Item 3. | 29 | |||||||||
| Item 4. | 29 | |||||||||
| Item 4A. | 30 | |||||||||
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| PART II. | ||||||||||
| Item 5. | 34 | |||||||||
| Item 6. | 36 | |||||||||
| Item 7. | 38 | |||||||||
| Item 7A. | 80 | |||||||||
| Item 8. | 81 | |||||||||
| Item 9. | 81 | |||||||||
| Item 9A. | 81 | |||||||||
| Item 9B. | 81 | |||||||||
|
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||||||||||
| PART III. | ||||||||||
| Item 10. | 81 | |||||||||
| Item 11. | 82 | |||||||||
| Item 12. | 82 | |||||||||
| Item 13. | 82 | |||||||||
| Item 14. | 82 | |||||||||
|
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||||||||||
| PART IV. | ||||||||||
| Item 15. | 82 | |||||||||
|
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||||||||||
| SIGNATURES | 83 | |||||||||
| FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | F-1 | |||||||||
| EXHIBIT INDEX | X-1 | |||||||||
| EX-10.24 | ||||||||||
| EX-10.25 | ||||||||||
| EX-10.26 | ||||||||||
| EX-10.41 | ||||||||||
| EX-10.42 | ||||||||||
| EX-10.86 | ||||||||||
| EX-10.87 | ||||||||||
| EX-10.88 | ||||||||||
| EX-10.117 | ||||||||||
| EX-10.118 | ||||||||||
| EX-10.119 | ||||||||||
| EX-21 | ||||||||||
| EX-23.1 | ||||||||||
| EX-24.1 | ||||||||||
| EX-24.2 | ||||||||||
| EX-24.3 | ||||||||||
| EX-24.4 | ||||||||||
| EX-24.5 | ||||||||||
| EX-24.6 | ||||||||||
| EX-24.7 | ||||||||||
| EX-24.8 | ||||||||||
| EX-24.9 | ||||||||||
| EX-31.I.1 | ||||||||||
| EX-31.I.2 | ||||||||||
| EX-32 | ||||||||||
| EX-99 | ||||||||||
Table of Contents
General
NACCO Industries, Inc. (“NACCO” or the “Company”) is a holding company with the following principal
businesses: lift trucks, small appliances, specialty retail and mining.
(a)
NACCO Materials Handling Group.
NACCO Materials Handling Group consists of the Company’s
wholly owned subsidiary, NMHG Holding Co. (“NMHG”). NMHG designs, engineers, manufactures,
sells, services and leases a comprehensive line of lift trucks and aftermarket parts marketed
globally under the Hyster
®
and Yale
®
brand names. NMHG manages its
operations as two reportable segments: wholesale manufacturing (“NMHG Wholesale”) and retail
distribution (“NMHG Retail”).
(b)
Hamilton Beach Brands.
The Company’s wholly owned subsidiary, Hamilton Beach Brands, Inc.
(“HBB”), is a leading designer, marketer and distributor of small electric household
appliances, as well as commercial products for restaurants, bars and hotels.
(c)
Kitchen Collection.
The Company’s wholly owned subsidiary, the Kitchen Collection, Inc.
(“KC”), is a national specialty retailer of kitchenware and gourmet foods operating under the
Kitchen Collection
®
and Le Gourmet Chef
®
store names in outlet and
traditional malls throughout the United States.
(d)
North American Coal.
The Company’s wholly owned subsidiary, The North American Coal
Corporation and its affiliated coal companies (collectively, “NACoal”), mine and market coal
primarily as fuel for power generation and provide selected value-added mining services for
other natural resources companies.
Additional information relating to financial and operating data on a segment basis (including NACCO
and Other) and by geographic region is set forth under the heading “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” contained in Part II of this Form 10-K
and in Note 17 to the Consolidated Financial Statements contained in this Form 10-K.
NACCO was incorporated as a Delaware corporation in 1986 in connection with the formation of a
holding company structure for a predecessor corporation organized in 1913. As of January 31, 2010,
the Company and its subsidiaries had approximately 8,200 employees, including approximately 1,000
employees at the Company’s unconsolidated mines.
The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and any amendments to those reports available, free of charge, through its website,
http://www.nacco.com
, as soon as reasonably practicable after such material is electronically filed
with, or furnished to, the Securities and Exchange Commission (“SEC”).
Significant Events
During the fourth quarter of 2009, NACoal completed the sale of certain assets of the Red River
Mining Company (“Red River”). As a result of the sale, the Company recognized a gain of $35.8
million ($22.3 million after taxes of $13.5 million) in 2009. In addition, the Company received
$41.4 million of cash proceeds related to the sale.
During the third quarter of 2009, NACoal received bonus payments for the lease of certain oil and
gas mineral rights to a third party. The Company recorded a gain of $7.1 million in the third
quarter of 2009 related to these payments.
During 2009, NMHG took various actions worldwide including reducing its number of employees,
closing a facility and selling certain assets in response to the downturn in the economy. NMHG
incurred charges of $9.3 million in 2009 related to these actions. NMHG continues to evaluate the
appropriate size of its workforce worldwide to match market demand for lift trucks in response to
the decline in economic conditions.
1
Table of Contents
BUSINESS SEGMENT INFORMATION
A. NACCO Materials Handling Group
1. NMHG Wholesale
General
NMHG Wholesale designs, engineers, manufactures and sells a comprehensive line of lift trucks and
aftermarket parts marketed globally under the Hyster
®
and Yale
®
brand names.
Manufacturing and Assembly
NMHG Wholesale manufactures components, such as frames, masts and transmissions, and assembles
products in the market of sale whenever practical to minimize freight cost and balance currency
mix. In some instances, however, it utilizes one worldwide location to manufacture specific
components or assemble specific products. Additionally, components and assembled lift trucks are
exported to locations when it is advantageous to meet demand in certain markets. NMHG Wholesale
operates 14 manufacturing and assembly facilities worldwide with five plants in the Americas, three
in Europe and five in Asia-Pacific, including joint venture operations.
Sales of lift trucks represented approximately 73% of NMHG Wholesale’s annual revenues in 2009, 82%
in 2008 and 82% in 2007. Service, rental and other revenues were approximately 8% in 2009, 5% in
2008 and 4% in 2007.
Aftermarket Parts
NMHG Wholesale offers a line of aftermarket parts to service its large installed base of lift
trucks currently in use in the industry. NMHG Wholesale offers online technical reference
databases specifying the required aftermarket parts to service lift trucks and an aftermarket parts
ordering system. Aftermarket parts sales represented approximately 19% of NMHG Wholesale’s annual
revenues in 2009 and 13% in 2008 and 14% in 2007.
NMHG Wholesale sells Hyster
®
- and Yale
®
-branded aftermarket parts to dealers
for Hyster
®
and Yale
®
lift trucks. NMHG Wholesale also sells aftermarket
parts under the UNISOURCE™, MULTIQUIP™ and PREMIER™ brands to Hyster
®
and
Yale
®
dealers for the service of competitor lift trucks. NMHG has entered into a
contractual relationship with a third-party, multi-brand, aftermarket parts wholesaler in the
Americas, Europe and Asia-Pacific whereby orders from NMHG Wholesale dealers for parts for lift
trucks are fulfilled by the third party who then pays NMHG Wholesale a commission.
Marketing
NMHG Wholesale’s marketing organization is structured in three regional divisions: the Americas;
Europe, which includes the Middle East and Africa; and Asia-Pacific. In each region, certain
marketing support functions for the Hyster
®
and Yale
®
brands are combined
into a single shared services organization. These activities include sales and service training,
information systems support, product launch coordination, specialized sales material development,
help desks, order entry, marketing strategy and field service support. In addition, NMHG is
currently aligning other specific aspects of its sales and marketing activities that have
historically been brand specific, including dealer consulting and new lift truck unit and
aftermarkets parts transaction support.
Patents, Trademarks and Licenses
NMHG Wholesale relies on a combination of trade secret protection, trademarks, copyrights, and
patents to establish and protect its proprietary rights. These intellectual property rights may
not have commercial value or may not be sufficiently broad to protect the aspect of NMHG
Wholesale’s technology to which they relate or competitors may design around the patents. NMHG
Wholesale is not materially dependent upon patents or patent protection; however, as materials
handling equipment has become more technologically advanced, NMHG and its competitors have
increasingly sought patent protection for inventions incorporated into their products. NMHG is the
owner of the Hyster
®
and Yale
®
trademarks and believes these trademarks are
material to its business.
Distribution Network
NMHG Wholesale distributes lift trucks and aftermarket parts through two channels: dealers and a
National Accounts program.
Dealers
Independent Dealers
The majority of NMHG Wholesale’s dealers are independently owned and operated. In the Americas,
Hyster
®
had 57 independent dealers and Yale
®
had 68 independent dealers as of
December 31, 2009. In Europe, Hyster
®
had 63 independent
2
Table of Contents
dealers and Yale
®
had 109 independent dealers as of December 31, 2009. In Asia-Pacific,
Hyster
®
had 12 independent dealers and Yale
®
had 13 independent dealers as of
December 31, 2009. During 2009, NMHG adjusted its policy to permit common ownership of dealers for
its two brands in defined territories.
Owned Dealers
NMHG has acquired, at times on an interim basis, certain independent Hyster
®
,
Yale
®
and competitor dealers and rental companies to strengthen Hyster
®
’s and
Yale
®
’s presence in select territories. See “2. NMHG Retail” for a description of
NMHG’s owned dealers.
National Accounts
NMHG Wholesale operates a National Accounts program for both Hyster
®
and
Yale
®
. The National Accounts program focuses on large customers with centralized
purchasing and geographically dispersed operations in multiple dealer territories. The National
Accounts program accounted for 18%, 15% and 14% of new lift truck unit volume in 2009, 2008 and
2007, respectively. The dealer network described above supports the National Accounts program by
providing aftermarket parts and service on a local basis. Dealers receive a commission for the
support they provide in connection with National Accounts sales and for the preparation and
delivery of lift trucks to customer locations. In addition to selling new lift trucks, the
National Accounts program markets services, including full maintenance leases and total fleet
management.
Customers
NMHG Wholesale’s customer base is diverse and fragmented, including, among others, light and heavy
manufacturers, trucking and automotive companies, rental companies, building materials and paper
suppliers, lumber, metal products, warehouses, retailers, food distributors, container handling
companies and domestic and foreign governmental agencies.
Financing of Sales
NMHG Wholesale is engaged in a joint venture with General Electric Capital Corporation (“GECC”) to
provide dealer and customer financing of new lift trucks in the United States. NMHG owns 20% of
the joint venture entity, NMHG Financial Services, Inc. (“NFS”), and receives fees and remarketing
profits under a joint venture agreement. This agreement expires on December 31, 2013. NMHG
accounts for its ownership of NFS using the equity method of accounting.
In addition, NMHG Wholesale has entered into an operating agreement with GECC under which GECC
provides leasing and financing services to Hyster
®
and Yale
®
dealers and
their customers outside of the United States. GECC pays NMHG a referral fee once certain financial
thresholds are met. This agreement expires on December 31, 2013.
Under the joint venture agreement with NFS and the operating agreement with GECC, NMHG’s dealers
and certain customers are extended credit for the purchase of lift trucks to be placed in the
dealer’s floor plan inventory or the financing of lift trucks that are sold or leased to customers.
For some of these arrangements, NMHG provides recourse or repurchase obligations to NFS or to
GECC. In substantially all of these transactions, a perfected security interest is maintained in
the lift trucks financed, so that in the event of a default, NMHG has the ability to foreclose on
the leased property and sell it through the Hyster
®
or Yale
®
dealer network.
Furthermore, NMHG has established reserves for exposures under these agreements when required. In
addition, NMHG amended its agreement with GECC during 2008 to limit its exposure to losses at
certain eligible dealers. Under this amended agreement, losses related to guarantees for these
certain eligible dealers are limited to 7.5% of their original loan balance. See Notes 13 and 20
to the Consolidated Financial Statements in this Form 10-K for further discussion.
Backlog
As of December 31, 2009, NMHG Wholesale’s backlog of unfilled orders placed with its manufacturing
and assembly operations for new lift trucks was approximately 13,200 units, or approximately $307
million, of which substantially all is expected to be filled during fiscal 2010. This compares to
the backlog as of December 31, 2008 of approximately 14,900 units, or approximately $356 million.
Backlog represents unfilled lift truck orders placed with NMHG Wholesale’s manufacturing and
assembly facilities from dealers, National Accounts customers and contracts with the U.S.
government.
Key Suppliers and Raw Materials
At times, NMHG Wholesale has experienced significant increases in its material costs, primarily as
a result of global increases in industrial metals including steel, lead and copper and other
commodity products including rubber, due to increased demand and limited supply. While NMHG
Wholesale attempts to pass these increased costs along to its customers in the form of higher
prices for its products, it may not be able to fully offset the increased costs of industrial
metals and other commodities, due to overall market conditions and the lag time involved in
implementing price increases for its products. NMHG Wholesale believes there are comparable
alternatives available for all suppliers.
3
Table of Contents
Competition
NMHG is one of the leaders in the lift truck industry with respect to market share in the Americas
and worldwide. Competition in the lift truck industry is intense and is based primarily on
strength and quality of dealers, brand loyalty, customer service, new lift truck sales prices,
availability of products and aftermarket parts, comprehensive product line offering, product
performance, product quality and features and the cost of ownership over the life of the lift
truck. NMHG competes with several global full-line manufacturers that operate in all major
markets.
The lift truck industry also competes with alternative methods of materials handling, including
conveyor systems and automated guided vehicle systems.
NMHG’s aftermarket parts offerings compete with parts manufactured by other lift truck
manufacturers as well as companies that focus solely on the sale of generic parts.
2. NMHG Retail
General
From time to time, NMHG, through NMHG Retail, has acquired, at least on an interim basis, certain
independent Hyster
®
, Yale
®
and competitor dealers and rental companies to
strengthen Hyster
®
’s or Yale
®
’s presence in select territories. NMHG’s
long-term strategy is to identify strategic buyers for owned dealers that represent “best-in-class”
dealers to support the Hyster
®
and Yale
®
brands.
As of December 31, 2009, NMHG Retail owned one dealer operation in each of Europe, Australia and
Singapore.
Company Operations
An NMHG Retail dealership is authorized to sell and rent either Hyster
®
or
Yale
®
brand materials handling equipment. These dealerships will typically also sell
non-competing allied lines of equipment from other manufacturers pursuant to dealer agreements.
Allied equipment includes such items as sweepers, aerial work platforms, personnel carts, rough
terrain forklifts and other equipment as well as racking and shelving. The number and type of
products available will vary from dealership to dealership. In addition to the outright sale of
new and used equipment, dealerships provide equipment for lease and for short- or long-term rental.
Dealerships also derive revenue from the sale of parts and service related to equipment sold,
leased and/or serviced by them. Service is performed both in-shop and at the customer’s site.
NMHG Retail dealerships are granted a primary geographic territory in which they operate by NMHG
Wholesale. NMHG Retail operations are conducted at facilities located in major cities within NMHG
Retail’s assigned area of operations.
Competition
The materials handling equipment sales and rental industry is highly dispersed and competitive.
NMHG Retail’s competitors include dealers owned by original equipment manufacturers, original
equipment manufacturer direct sales efforts, independently owned competitive dealerships and lift
truck rental outlets, independent parts operations, independent service shops and, to a lesser
extent, independent Hyster
®
or Yale
®
dealers.
The lift truck industry also competes with alternative methods of materials handling, including
conveyor systems and automated guided vehicle systems.
Customers
NMHG Retail’s customer base is highly diversified and includes large and small businesses in a
substantial number of manufacturing and service industries. NMHG Retail’s customer base varies
widely by facility and is determined by several factors, including the equipment mix and marketing
focus of the particular facility and the business composition of the local economy.
Financing of Sales
NMHG Retail dealerships have a preferred relationship with GECC. NMHG Retail dealerships may
obtain wholesale and retail financing for the sale and leasing of equipment through GECC. This
affords these dealerships a wide variety of financial products at competitive rates. Financing
through GECC is further described in “1. NMHG Wholesale — Financing of Sales” above.
4
Table of Contents
3. NMHG — General
Cyclical Nature of Lift Truck Business
NMHG’s lift truck business historically has been cyclical. Fluctuations in the rate of orders for
lift trucks reflect the capital investment decisions of NMHG’s customers, which depend to a certain
extent on the general level of economic activity in the various industries that the lift truck
customers serve. During economic downturns, customers tend to delay new lift truck purchases.
Research and Development
NMHG’s research and development capability is organized around four major engineering centers, all
coordinated on a global basis by NMHG’s global executive administrative center. Comparable
products are designed for each brand concurrently and generally each center is focused on the
global requirements for a single product line. NMHG’s counterbalanced development center, which
has global design responsibility for several classes of lift trucks for a highly diverse customer
base such as industrial, warehouse, transportation and food processing applications, is located in
Fairview, Oregon. NMHG’s big truck development center is located in Nijmegen, The Netherlands,
adjacent to a dedicated global big truck assembly facility. Big trucks are primarily used in
handling shipping containers and in specialized heavy lifting applications. Warehouse trucks,
which are primarily used in distribution applications, are designed based on regional differences
in stacking and storage practices. NMHG designs warehouse equipment for sale in the Americas
market in Greenville, North Carolina, adjacent to the Americas assembly facility for warehouse
equipment. NMHG designs warehouse equipment for the European market in Masate, Italy adjacent to
its assembly facilities for warehouse equipment. In addition, NMHG has an engineering office in
India to support its global drafting and design activities for its four major engineering centers.
NMHG’s engineering centers utilize a three-dimensional CAD/CAM system and are connected with one
another, with all of NMHG’s manufacturing and assembly facilities and with some suppliers. This
allows for collaboration in technical engineering designs and collaboration with suppliers.
Additionally, NMHG solicits customer feedback throughout the design phase to improve product
development efforts. NMHG invested $43.6 million, $55.2 million and $55.5 million on product
design and development activities in 2009, 2008 and 2007, respectively.
Sumitomo-NACCO Joint Venture
NMHG has a 50% ownership interest in Sumitomo-NACCO Materials Handling Group, Ltd. (“SN”), a
limited liability company that was formed in 1970 to manufacture and distribute lift trucks in
Japan. Sumitomo Heavy Industries, Ltd. owns the remaining 50% interest in SN. Each shareholder of
SN is entitled to appoint directors representing 50% of the vote of SN’s board of directors. All
matters related to policies and programs of operation, manufacturing and sales activities require
mutual agreement between NMHG and Sumitomo Heavy Industries, Ltd. prior to a vote of SN’s board of
directors. As a result, NMHG accounts for its ownership in SN using the equity method of
accounting. NMHG purchases Hyster
®
- and Yale
®
-branded lift trucks and
related components and aftermarket parts from SN under normal trade terms for sale outside of
Japan. NMHG also contracts with SN for engineering design services on a cost plus basis and
charges SN for technology used by SN but developed by NMHG.
Employees
As of January 31, 2010, NMHG had approximately 4,500 employees, approximately 4,300 of whom were
employed by the wholesale operations and approximately 200 of whom were employed by the retail
operations. A majority of the employees in the Danville, Illinois parts depot operations
(approximately 90 employees) are unionized. NMHG’s contract with the Danville union expires in
June 2012. Employees at the facilities in Berea, Kentucky; Sulligent, Alabama; and Greenville,
North Carolina are not represented by unions. In Brazil, all employees are unionized. NMHG’s
contract with the Brazilian union expires annually in October, at which time salaries are
negotiated for the upcoming year. In Mexico, shop employees are unionized.
In Europe, some employees in the Craigavon, Northern Ireland and Masate, Italy facilities are
unionized. Employees in the Nijmegen, The Netherlands facility are not represented by unions, but
the employees have organized a works council, as required by Dutch law, which performs a
consultative role on employment matters. All of the European employees are part of works councils
that perform a consultative role on business and employment matters.
In Asia-Pacific, three locations have certified industrial agreements for hourly employees and
unions for their employees.
NMHG believes its current labor relations with both union and non-union employees are generally
satisfactory. However, there can be no assurances that NMHG will be able to successfully
renegotiate its union contracts without work stoppages or on acceptable terms. A prolonged work
stoppage at a unionized facility could have a material adverse effect on NMHG’s business and
results of operations.
5
Table of Contents
Environmental Matters
NMHG’s manufacturing operations are subject to laws and regulations relating to the protection of
the environment, including those governing the management and disposal of hazardous substances.
NMHG Retail’s operations are particularly affected by laws and regulations relating to the disposal
of cleaning solvents and wastewater and the use of and disposal of petroleum products from
underground and above-ground storage tanks. NMHG’s policies stress compliance, and NMHG believes
it is currently in substantial compliance with existing environmental laws. If NMHG fails to
comply with these laws or its environmental permits, then it could incur substantial costs,
including cleanup costs, fines and civil and criminal sanctions. In addition, future changes to
environmental laws could require NMHG to incur significant additional expense or restrict
operations. Based on current information, NMHG does not expect compliance with environmental
requirements to have a material adverse effect on NMHG’s financial condition or results of
operations.
In addition, NMHG’s products may be subject to laws and regulations relating to the protection of
the environment, including those governing vehicle exhaust. Regulatory agencies in the United
States and Europe have issued or proposed various regulations and directives designed to reduce
emissions from spark-ignited engines and diesel engines used in off-road vehicles, such as
industrial lift trucks. These regulations require NMHG and other lift truck manufacturers to incur
costs to modify designs and manufacturing processes and to perform additional testing and
reporting. While there can be no assurance, NMHG believes the impact of the additional
expenditures to comply with these requirements will not have a material adverse effect on its
business.
NMHG is investigating or remediating historical contamination at some current and former sites
caused by its operations or those of businesses it acquired. NMHG has also been named as a
potentially responsible party for cleanup costs under the so-called Superfund law at several
third-party sites where NMHG (or its predecessors) disposed of wastes in the past. Under the
Superfund law and often under similar state laws, the entire cost of cleanup can be imposed on any
one of the statutorily liable parties, without regard to fault. While NMHG is not currently aware
that any material outstanding claims or obligations exist with regard to these sites, the discovery
of additional contamination at these or other sites could result in significant cleanup costs that
could have a material adverse effect on NMHG’s financial conditions and results of operations.
In connection with any acquisition made by NMHG, NMHG could, under some circumstances, be held
financially liable for or suffer other adverse effects due to environmental violations or
contamination caused by prior owners of businesses NMHG has acquired. In addition, under some of
the agreements through which NMHG has sold businesses or assets, NMHG has retained responsibility
for certain contingent environmental liabilities arising from pre-closing operations. These
liabilities may not arise, if at all, until years later.
Government and Trade Regulations
In the past, NMHG’s business has been affected by trade disputes between the United States and
Europe. In the future, to the extent NMHG is affected by trade disputes and increased tariffs are
levied on its goods, its results of operations may be materially adversely affected.
B. Hamilton Beach Brands
General
HBB is a leading designer, marketer and distributor of small electric household appliances, as well
as commercial products for restaurants, bars and hotels. HBB’s products are marketed primarily to
retail merchants and wholesale distributors.
Sales and Marketing
HBB designs, markets and distributes a wide range of small electric household appliances, including
blenders, can openers, coffeemakers, food processors, indoor grills, irons, mixers, slow cookers,
toasters and toaster ovens. HBB also markets a line of air purifiers and odor eliminators. In
addition, HBB designs, markets and distributes commercial products for restaurants, bars and
hotels. HBB generally markets its “better” and “best” segments under the Hamilton
Beach
®
brand and uses the Proctor Silex
®
brand for the “good” segment and its
opening price point products. HBB markets premium products under the Hamilton Beach
®
eclectrics
®
brand. HBB also markets air purifiers, allergen reducers and home odor
elimination products under the TrueAir
®
brand.
Furthermore, HBB supplies Wal-Mart with certain GE-brand kitchen electric and garment-care
appliances under Wal-Mart’s license agreement with General Electric Company. HBB also supplies
Target with certain Michael Graves-brand kitchen appliances under Target’s store-wide Michael
Graves line. In addition, HBB supplies Kohl’s with certain Food Network-branded kitchen
appliances. HBB has licensed the Melitta
®
brand from Melitta, North America, Inc., for
a unique line of coffee and hot beverage appliances. In Canada, HBB supplies Canadian Tire with
small kitchen appliances under the Lancaster
®
brand.
HBB markets its retail products primarily in North America, but also sells products in Latin
America. HBB commercial products are sold worldwide. Retail sales are generated predominantly by
a network of inside sales employees to mass merchandisers, national department stores, variety
store chains, drug store chains, specialty home retailers and other retail outlets. Wal-Mart
accounted for approximately 38%, 40% and 37% of HBB’s revenues in 2009, 2008 and 2007,
respectively. HBB’s five largest customers accounted for approximately 61%, 60% and 58% of HBB’s
revenues for the years ended
6
Table of Contents
December 31, 2009, 2008 and 2007, respectively. A loss of any key customer could result in
significant decreases in HBB’s revenue and profitability.
Sales promotion activities are primarily focused on cooperative advertising. In 2009, HBB also
promoted certain of its innovative products through the use of television, web and print
advertising. In 2009, HBB licensed certain of its trademarks to various licensees for use with
cookware, kitchen tools and gadgets and electronic products for the kitchen.
Because of the seasonal nature of the markets for small electric appliances, HBB’s management
believes backlog is not a meaningful indicator of performance and is not a significant indicator of
annual sales. Backlog represents customer orders, which may be cancelled at any time prior to
shipment. Backlog for HBB was approximately $11.7 million at December 31, 2009 and 2008.
HBB’s warranty program to the consumer consists generally of a limited warranty lasting for varying
periods of up to three years for electric appliances, with the majority of products having a
warranty of one year or less. Under its warranty program, HBB may repair or replace, at its
option, those products found to contain manufacturing defects.
Revenues and operating profit for HBB are traditionally greater in the second half of the year as
sales of small electric appliances to retailers and consumers increase significantly with the fall
holiday selling season. Because of the seasonality of purchases of its products, HBB generally
uses a substantial amount of cash or short-term debt to finance inventories and accounts receivable
in anticipation of the fall holiday selling season.
Patents, Trademarks, Copyrights and Licenses
HBB holds patents and trademarks registered in the United States and foreign countries for various
products. HBB believes its business is not dependent upon any individual patent, trademark,
copyright or license, but that the Hamilton Beach
®
and Proctor Silex
®
trademarks are material to its business.
Product Design and Development
HBB spent $6.8 million in 2009, $7.3 million in 2008 and $7.1 million in 2007 on product design and
development activities.
Key Suppliers and Raw Material
The majority of HBB’s products are supplied to its specifications by third-party suppliers located
in China. HBB does not maintain long-term purchase contracts with suppliers and operates mainly on
a purchase order basis. HBB generally negotiates purchase orders with its foreign suppliers in
U.S. dollars. The weakening of the U.S. dollar against local currencies could result in certain
manufacturers increasing the U.S. dollar prices for future product purchases.
During 2009, HBB purchased approximately 98% of its finished products from suppliers in China. HBB
does not currently depend on any single supplier. HBB believes that the loss of any one supplier
would not have a long-term material adverse effect on its business as there are adequate
third-party supplier choices available that can meet HBB’s production and quality requirements.
However, the loss of a supplier could, in the short term, adversely affect HBB’s business until
alternative supply arrangements are secured.
The principal raw materials used by HBB’s third-party suppliers to manufacture its products are
plastic, glass, steel, copper, aluminum and packaging materials. HBB believes that adequate
quantities of raw materials are available from various suppliers.
Competition
The small electric household appliance industry does not have onerous entry barriers. As a result,
HBB competes with many small manufacturers and distributors of housewares products. Based on
publicly available information about the industry, HBB believes it is one of the largest full-line
distributors and marketers of small electric household appliances in North America based on key
product categories.
As retailers generally purchase a limited selection of small electric appliances, HBB competes with
other suppliers for retail shelf space. HBB conducts consumer advertising for the Hamilton
Beach
®
and Proctor Silex
®
brands. HBB believes the principal areas of
competition with respect to its products are product design and innovation, quality, price, product
features, merchandising, promotion and warranty.
Government Regulation
HBB is subject to numerous federal and state health, safety and environmental regulations. HBB’s
management believes the impact of expenditures to comply with such laws will not have a material
adverse effect on HBB.
As a marketer and distributor of consumer products, HBB is subject to the Consumer Products Safety
Act and the Federal Hazardous Substances Act, which empower the U.S. Consumer Product Safety
Commission (“CPSC”) to seek to exclude products that are found to be unsafe or hazardous from the
market. Under certain circumstances, the CPSC could require HBB to repair, replace or refund the
purchase price of one or more of HBB’s products, or HBB may voluntarily do so.
7
Table of Contents
Throughout the world, electrical appliances are subject to various mandatory and voluntary
standards, including requirements in some jurisdictions that products be listed by Underwriters’
Laboratories, Inc. (“UL”) or other similar recognized laboratories. HBB also uses the ETL SEMKO
division of Intertek for certification and testing of compliance with UL standards, as well as
other nation- and industry-specific standards. HBB endeavors to have its products designed to meet
the certification requirements of, and to be certified in, each of the jurisdictions in which they
are sold.
Employees
As of January 31, 2010, HBB’s work force consisted of approximately 500 employees, most of whom are
not represented by unions. In Canada, as of January 31, 2010, 16 hourly employees at HBB’s Picton,
Ontario distribution facility were unionized. These employees are represented by an employee
association which performs a consultative role on employment matters. None of HBB’s U.S. employees
are unionized. HBB believes their current labor relations with both union and non-union employees
are satisfactory.
C. Kitchen Collection
General
KC is a national specialty retailer of kitchenware and gourmet foods operating under the Kitchen
Collection
®
and Le Gourmet Chef
®
store names in outlet and traditional malls
throughout the United States.
Sales and Marketing
KC operated 296 retail stores as of December 31, 2009, including nine seasonal stores kept open in
2009 after the 2008 holiday selling season. KC stores are located primarily in factory outlet
malls and feature merchandise of highly recognizable name-brand manufacturers, including Hamilton
Beach
®
and Proctor Silex
®
. Le Gourmet Chef
®
stores are located
primarily in outlet and traditional malls throughout the United States and feature gourmet foods
and home entertainment products, as well as brand name electric and non-electric kitchen items.
Seasonality
Revenues and operating profit for KC are traditionally greater in the second half of the year as
sales to consumers increase significantly with the fall holiday selling season. Because of the
seasonality of purchases of its products, KC incurs substantial short-term debt to finance
inventories in anticipation of the fall holiday selling season.
Product Design and Development
KC, a retailer, has no expenditures for product design and development activities.
Product Sourcing and Distribution
KC purchases all inventory centrally, which allows KC to take advantage of volume purchase
discounts and monitor controls over inventory and product mix. KC purchases its inventory from
approximately 200 suppliers, one of which represented over 10% of purchases during the year ended
December 31, 2009. KC does not currently depend on any single supplier. KC believes that the loss
of any one supplier would not have a long-term material adverse effect on its business as there are
adequate third-party supplier choices available that can meet KC’s requirements. However, the loss
of a supplier could, in the short term, adversely affect KC’s business until alternative supply
arrangements are secured.
KC currently maintains its inventory for distribution to its stores at two distribution centers
located near its corporate headquarters in Chillicothe, Ohio.
Since the outlet mall channel of the retail industry is approaching maturity, KC continues to
explore alternate areas of growth and diversification. For the past several years, KC has been
testing alternative store formats both within the outlet mall industry and in the more traditional
retail environments, including the traditional mall store format. Because not all of these formats
have met KC’s rigorous financial performance standards, KC continues to explore alternate channels
of distribution, including distribution through the internet. In addition, KC is exploring
alternatives for Le Gourmet Chef
®
stores in outlet malls, traditional malls and
distribution through the internet.
Competition
KC competes against a diverse group of retailers ranging from specialty stores to department stores
and discounters. The retail environment continues to be extremely competitive. Widespread Chinese
sourcing of products allows many retailers to offer value-priced kitchen products.
KC believes there is growth potential in kitchenware retailing, but only through offering unique,
high quality products at prices affordable to most consumers. While a number of very low-end and
very high-end kitchenware retailers participate in the marketplace, there is still an opportunity
for stores offering mid-priced, high-quality kitchenware.
8
Table of Contents
Patents, Trademarks, Copyrights and Licenses
KC holds trademarks registered in the United States for the Kitchen Collection
®
and Le
Gourmet Chef
®
store names. KC believes that the Kitchen Collection
®
and Le
Gourmet Chef
®
store name trademarks are material to its business.
Employees
As of January 31, 2010, KC’s work force consisted of approximately 1,700 employees. None of KC’s
employees are unionized. KC believes their current labor relations with employees are
satisfactory.
D. North American Coal
General
NACoal mines and markets lignite and sub-bituminous coal primarily as fuel for power generation and
provides selected value-added mining services for other natural resources companies. Lignite and
sub-bituminous coal are or will be surface mined in Louisiana, Mississippi, North Dakota and Texas.
NACoal has two consolidated mining operations: San Miguel Lignite Mine (“San Miguel”) and
Mississippi Lignite Mining Company (“MLMC”). NACoal has six unconsolidated mining operations: The
Coteau Properties Company (“Coteau”), The Falkirk Mining Company (“Falkirk”), The Sabine Mining
Company (“Sabine”), (collectively, the “project mining subsidiaries”), Demery Resources Company,
LLC (“Demery”), Caddo Creek Resources Company, LLC (“Caddo Creek”) and Camino Real Fuels, LLC
(“Camino Real”). Demery, Caddo Creek and Camino Real are developing plans to build mines and
therefore do not currently mine or deliver coal. NACoal also provides dragline mining services for
independently owned limerock quarries in Florida. During 2009, NACoal completed the sale of
certain assets of Red River.
The contracts with the project mining subsidiaries’ utility customers allow each mine to sell
lignite coal at a price based on actual cost plus an agreed pre-tax profit per ton or cost plus a
management fee.
At December 31, 2009, NACoal’s operating mines consisted both of mines where the reserves were
acquired and developed by NACoal, as well as mines where reserves were owned by the customers of
the mines. It is currently contemplated that the reported reserves will be mined within the term
of the leases for each of the mines NACoal operates and controls the reserves. In the future, if
any of the leases are projected to expire before mining operations can commence, it is currently
expected that each such lease would be amended to extend the term or new leases would be
negotiated. Under these terms, NACoal expects coal mined pursuant to these leases will be
available to meet its production requirements.
Because each coal mining operation has a contract to provide coal to its customer, a significant
portion of NACoal’s revenue is derived from a single source, which exceeds 10% of NACoal’s
revenues. The loss of any of these customers would be material to NACoal.
Sales, Marketing and Operations
The principal coal customers of NACoal are electric utilities, an independent power provider and a
synfuels plant. The distribution of coal sales, including sales of the unconsolidated mines, in
the last five years has been as follows:
| Distribution | ||||||||
| Electric | ||||||||
| Utilities/ | ||||||||
| Independent | Synfuels | |||||||
| Power Provider | Plant | |||||||
|
2009
|
82 | % | 18 | % | ||||
|
2008
|
82 | % | 18 | % | ||||
|
2007
|
82 | % | 18 | % | ||||
|
2006
|
82 | % | 18 | % | ||||
|
2005
|
82 | % | 18 | % | ||||
9
Table of Contents
The total coal production by mine (in millions of tons) for the last three years and the weighted
average prices per ton delivered for the last three years are as follows:
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Unconsolidated Mines
|
||||||||||||
|
Freedom
|
15.0 | 14.6 | 15.0 | |||||||||
|
Falkirk
|
8.1 | 7.5 | 7.8 | |||||||||
|
Sabine
|
3.8 | 4.1 | 4.2 | |||||||||
|
|
||||||||||||
|
Consolidated Mining Operations
|
||||||||||||
|
San Miguel
|
3.2 | 3.1 | 2.9 | |||||||||
|
Red Hills
|
3.4 | 2.8 | 3.6 | |||||||||
|
|
||||||||||||
|
Total continuing tons produced
|
33.5 | 32.1 | 33.5 | |||||||||
|
|
||||||||||||
|
Oxbow (discontinued operations)
|
0.7 | 0.6 | 0.5 | |||||||||
|
|
||||||||||||
|
Price per ton delivered
|
$ | 16.42 | $ | 15.22 | $ | 13.21 | ||||||
|
|
||||||||||||
The contracts under which certain of the unconsolidated mines were organized provide that, under
certain conditions of default, the customer(s) involved may elect to acquire the assets (subject to
the liabilities) or the capital stock of the subsidiary for an amount effectively equal to book
value. NACoal does not know of any conditions of default that currently exist. In one case, the
customer may elect to acquire the stock of the subsidiary upon a specified period of notice without
reference to default, in exchange for certain payments on coal mined thereafter. NACoal does not
know of any current intention of any customer to acquire the stock of a subsidiary or terminate a
contract for convenience.
The location, mine type, reserve data, coal quality characteristics, customer, sales tonnage and
contract expiration date for the mines operated by NACoal in 2009 were as follows:
10
Table of Contents
LIGNITE
COAL MINING OPERATIONS ON AN “AS RECEIVED” BASIS
| 2009 | 2008 | |||||||||||||||||||||||||||||||||||||||
| Proven and Probable Reserves (a)(b) | ||||||||||||||||||||||||||||||||||||||||
| Committed Under | Tons | Owned | Leased | Total Committed | Tons | |||||||||||||||||||||||||||||||||||
| Contract | Uncommitted | Total | Delivered | Reserves | Reserves | and Uncommitted | Delivered | Contract | ||||||||||||||||||||||||||||||||
| Mine/Reserve | Type of Mine | (Millions of Tons) | (Millions) | (%) | (%) | (Millions of Tons) | (Millions) | Expires | ||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||
|
Unconsolidated Mining Operations
|
||||||||||||||||||||||||||||||||||||||||
|
Freedom Mine (c)
|
Surface Lignite | 573.6 | — | 573.6 | 15.1 | 2 | % | 98 | % | 579.9 | 14.7 | 2017 | (d) | |||||||||||||||||||||||||||
|
Falkirk Mine (c)
|
Surface Lignite | 469.9 | — | 469.9 | 8.1 | 1 | % | 99 | % | 473.8 | 7.5 | 2045 | ||||||||||||||||||||||||||||
|
Sabine Mine (c)
|
Surface Lignite | (e | ) | (e | ) | (e | ) | 3.3 | (e | ) | (e | ) | (e | ) | 4.1 | 2035 | ||||||||||||||||||||||||
|
Five Forks Mine (c)
|
Surface Lignite | (e | ) | (e | ) | (e | ) | (g | ) | (e | ) | (e | ) | (e | ) | (g | ) | 2030 | ||||||||||||||||||||||
|
Marshall Mine (c)
|
Surface Lignite | (e | ) | (e | ) | (e | ) | (g | ) | (e | ) | (e | ) | (e | ) | (g | ) | 2043 | ||||||||||||||||||||||
|
Eagle Pass Mine (c)
|
Surface Sub-bituminous | (e | ) | (e | ) | (e | ) | (g | ) | (e | ) | (e | ) | (e | ) | (g | ) | 2012 | (h) | |||||||||||||||||||||
|
Consolidated Mining Operations
|
||||||||||||||||||||||||||||||||||||||||
|
San Miguel Lignite Mine (c)
|
Surface Lignite | (e | ) | (e | ) | (e | ) | 3.2 | (e | ) | (e | ) | (e | ) | 3.1 | 2010 | ||||||||||||||||||||||||
|
Red Hills Mine
|
Surface Lignite | 132.3 | 99.4 | 231.7 | 3.7 | 28 | % | 72 | % | 249.9 | 3.0 | 2032 | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||
|
Total Developed
|
1,175.8 | 99.4 | 1,275.2 | 33.4 | 1,303.6 | 32.4 | ||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||
|
Undeveloped Mining Operations
|
||||||||||||||||||||||||||||||||||||||||
|
North Dakota
|
— | — | 595.7 | 595.7 | — | 0 | % | 100 | % | 578.9 | — | — | ||||||||||||||||||||||||||||
|
Texas
|
— | — | 165.1 | 165.1 | — | 52 | % | 48 | % | 176.9 | — | — | ||||||||||||||||||||||||||||
|
Eastern (f)
|
— | — | 28.6 | 28.6 | — | 100 | % | 0 | % | 28.3 | — | — | ||||||||||||||||||||||||||||
|
Mississippi
|
— | — | 142.2 | 142.2 | — | 0 | % | 100 | % | 142.2 | — | — | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||
|
Total Undeveloped
|
— | 931.6 | 931.6 | 926.3 | ||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||
|
Total Developed/Undeveloped
|
1,175.8 | 1,031.0 | 2,206.8 | 2,229.9 | ||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||
| Coal Formation or | Average Seam | Average | Average Coal Quality (As received) | |||||||||||||||||||||||||||||
| Mine/Reserve | Type of Mine | Coal Seam(s) | Thickness (feet) | Depth (feet) | BTUs/lb | Sulfur (%) | Ash (%) | Moisture (%) | ||||||||||||||||||||||||
|
Unconsolidated Mining Operations
|
||||||||||||||||||||||||||||||||
|
Freedom Mine (c)
|
Surface Lignite | Beulah-Zap Seams | 18 | 130 | 6,700 | 0.9 | % | 9 | % | 36 | % | |||||||||||||||||||||
|
Falkirk Mine (c)
|
Surface Lignite |
Hagel A&B, Tavis
Creek Seams |
8 | 60 | 6,200 | 0.6 | % | 11 | % | 38 | % | |||||||||||||||||||||
|
Sabine Mine (c)
|
Surface Lignite | (e | ) | (e | ) | (e | ) | (e | ) | (e | ) | (e | ) | (e | ) | |||||||||||||||||
|
Five Forks Mine (c)
|
Surface Lignite | (e | ) | (e | ) | (e | ) | (e | ) | (e | ) | (e | ) | (e | ) | |||||||||||||||||
|
Marshall Mine (c)
|
Surface Lignite | (e | ) | (e | ) | (e | ) | (e | ) | (e | ) | (e | ) | (e | ) | |||||||||||||||||
|
Eagle Pass Mine (c)
|
Surface Lignite | (e | ) | (e | ) | (e | ) | (e | ) | (e | ) | (e | ) | (e | ) | |||||||||||||||||
|
Consolidated Mining Operations
|
||||||||||||||||||||||||||||||||
|
San Miguel Lignite Mine (c)
|
Surface Lignite | (e | ) | (e | ) | (e | ) | (e | ) | (e | ) | (e | ) | (e | ) | |||||||||||||||||
|
Red Hills Mine
|
Surface Lignite | C, D, E, F, G, H Seams | 4 | 150 | 5,200 | 0.6 | % | 14 | % | 43 | % | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Undeveloped Mining Operations
|
||||||||||||||||||||||||||||||||
|
North Dakota
|
— | Fort Union Formation | 13 | 130 | 6,500 | 0.8 | % | 8 | % | 38 | % | |||||||||||||||||||||
|
Texas
|
— | Wilcox Formation | 8 | 120 | 6,800 | 1.0 | % | 16 | % | 30 | % | |||||||||||||||||||||
|
Eastern (f)
|
— | Freeport & Kittanning | 4 | 400 | 12,070 | 3.3 | % | 12 | % | 3 | % | |||||||||||||||||||||
|
Mississippi
|
— | Wilcox Formation | 12 | 130 | 5,200 | 0.6 | % | 13 | % | 44 | % | |||||||||||||||||||||
| (a) | Committed and uncommitted tons represent in-place estimates. The projected extraction loss is approximately 10% of the proven and probable reserves, except with respect to the Eastern Undeveloped Mining Operations, in which case the extraction loss is approximately 30% of the proven and probable reserves. | |
| (b) | NACoal’s reserve estimates are based on the entire drill hole database, which was used to develop a geologic computer model using a 200 foot grid and inverse distance to the second power as an interpolator. None of NACoal’s coal reserves have been reviewed by independent experts. As such, all reserves are considered proven (measured) within NACoal’s reserve estimate. | |
| (c) | The contracts for these mines require the customer to cover the cost of the ongoing replacement and upkeep of the plant and equipment of the mine. | |
| (d) | Although the term of the existing coal sales agreement terminates in 2017, the term may be extended for four additional periods of five years, or until 2037, at the option of The Coteau Properties Company. | |
| (e) | The reserves are owned and controlled by the customer and, therefore, have not been listed in the table. | |
| (f) | The proven and probable reserves included in the table do not include coal that is leased to others. NACoal had 80.7 million tons and 78.8 million tons in 2009 and 2008, respectively, of Eastern Undeveloped Mining Operations with leased coal committed under contract. | |
| (g) | The contracts for these mines were executed during 2009, and no coal was delivered during 2009 or 2008. | |
| (h) | Although the term of the existing contract mining agreement expires in 2012, it extends automatically if NACoal’s customer’s third-party coal supply agreement is extended, and can be terminated in certain circumstances by either party. |
11
Table of Contents
Unconsolidated Mines
Freedom Mine — The Coteau Properties Company
The Freedom Mine, operated by Coteau, is located approximately 90 miles northwest of Bismarck,
North Dakota. The main entrance to the Freedom Mine is accessed by means of a paved road and is
located on County Road 15. Coteau holds 388 leases granting the right to mine approximately 40,148
acres of coal interests and the right to utilize approximately 27,404 acres of surface interests.
In addition, Coteau owns in fee 29,933 acres of surface interests and 4,345 acres of coal
interests. Substantially all of the leases held by Coteau were acquired in the early 1970s with
terms totaling 40 years. Many of these leases were amended or replaced with new leases which
extend the lease terms for a period sufficient to meet Coteau’s contractual production
requirements.
The Freedom Mine generally produces approximately 15 million tons of lignite coal annually. The
mine started delivering coal in 1983. All production from the mine is sold to Dakota Coal Company,
a wholly owned subsidiary of Basin Electric Power Cooperative. Dakota Coal Company then sells the
coal to Great Plains Synfuels Plant, Antelope Valley Station and Leland Olds Station, all of which
are affiliates of Basin Electric Power Cooperative.
The reserves are located in Mercer County, North Dakota, starting approximately two miles north of
Beulah, North Dakota. The center of the basin is located near the city of Williston, North Dakota,
approximately 100 miles northwest of the Freedom Mine. The economically mineable coal in the
reserve occurs in the Sentinel Butte Formation, and is overlain by the Coleharbor Formation. The
Coleharbor Formation unconformably overlies the Sentinel Butte. It includes all of the
unconsolidated sediments resulting from deposition during glacial and interglacial periods.
Lithologic types include gravel, sand, silt, clay and till. The modified glacial channels are
in-filled with gravels, sands, silts and clays overlain by till. The coarser gravel and sand beds
are generally limited to near the bottom of the channel fill. The general stratigraphic sequence
in the upland portions of the reserve area consists of till, silty sands and clayey silts.
Falkirk Mine — The Falkirk Mining Company
The Falkirk Mine, operated by Falkirk, is located approximately 50 miles north of Bismarck, North
Dakota on a paved access road off U.S. Highway 83. Falkirk holds 334 leases granting the right to
mine approximately 52,780 acres of coal interests and the right to utilize approximately 34,640
acres of surface interests. In addition, Falkirk owns in fee 31,466 acres of surface interests and
897 acres of coal interests. Substantially all of the leases held by Falkirk were acquired in the
early 1970s with terms totaling 40 years, many of which can be or have been further extended by the
continuation of mining operations.
12
Table of Contents
The Falkirk Mine generally produces between 7 million to 9 million tons of lignite coal annually
for the Coal Creek Station, an electric power generating station owned by Great River Energy. All
production from the mine is used by Coal Creek Station. The mine started delivering coal in 1978.
The reserves are located in McLean County, North Dakota, from approximately nine miles northwest of
the town of Washburn, North Dakota to four miles north of the town of Underwood, North Dakota.
Structurally, the area is located on an intercratonic basin containing a thick sequence of
sedimentary rocks. The economically mineable coals in the reserve occur in the Sentinel Butte
Formation and the Bullion Creek Formation and are unconformably overlain by the Coleharbor
Formation. The Sentinel Butte Formation conformably overlies the Bullion Creek Formation. The
general stratigraphic sequence in the upland portions of the reserve area (Sentinel Butte
Formation) consists of till, silty sands and clayey silts, main hagel lignite bed, silty clay,
lower lignite of the hagel lignite interval and silty clays. Beneath the Tavis Creek, there is a
repeating sequence of silty to sand clays with generally thin lignite beds.
Sabine Mine — The Sabine Mining Company
The Sabine Mine, operated by Sabine, is located approximately 150 miles east of Dallas, Texas on FM
968. The entrance to the mine is by means of a paved road. Sabine has no title, claim, lease or
option to acquire any of the reserves at the Sabine Mine. Southwestern Electric Power Company
controls all of the reserves within the Sabine Mine.
The Sabine Mine has two active pits generally producing between 3 million and 5 million tons of
lignite coal annually based upon Southwestern Electric Power Company’s demand for its Henry W.
Pirkey Plant and other contractual requirements. The mine started delivering coal in 1985.
Five Forks Mine — Demery Resources Company, LLC
The Five Forks Mine, to be operated by Demery, is in the development stage and will be developed
near Creston, Natchitoches Parish, Louisiana. Access to the Five Forks Mine is by means of a
gravel road. Demery will have no title, claim, lease or option to acquire any of the reserves at
the Demery Mine. Five Forks Mining, LLC will control all of the reserves within the Demery Mine.
Marshall Mine — Caddo Creek Resources Company, LLC
The Marshall Mine, to be operated by Caddo Creek, is in the development stage and will be developed
near Marshall, Texas in the counties of Harrison and Panola. Access to the Marshall Mine is by
means of a paved road. Caddo Creek will have no title, claim, lease or option to acquire any of
the reserves at the Caddo Creek Mine. Marshall Mine, LLC will control all of the reserves within
the Caddo Creek Mine.
Eagle Pass Mine — Camino Real Fuels, LLC
The Eagle Pass Mine, to be operated by Camino Real, is in the development stage and will be
developed near Eagle Pass, Maverick County, Texas. Access to the Eagle Pass Mine is by means of a
gravel road. Camino Real will have no title, claim, lease or option to acquire any of the reserves
at the Eagle Pass Mine. Dos Republicas Coal Partnership will control all of the reserves within
the Eagle Pass Mine.
Consolidated Mines
San Miguel Lignite Mine — The North American Coal Corporation
San Miguel, operated by NACoal, is located approximately 60 miles south of San Antonio, Texas.
Access to the mine is by means of an unpaved road from FM 338. San Miguel has no title, claim,
lease or option to acquire any of the reserves at the San Miguel Lignite Mine.
NACoal has operated San Miguel since July 1, 1997 under a Contract Mining Agreement with San Miguel
Electric Power Cooperative, Inc. (“San Miguel Electric”). Prior to July 1, 1997, another company
operated the mine under a similar contract mining arrangement. Since the development of the
project in the late 1970s, San Miguel Electric has owned the reserves and mine facilities and held
all the permits and authorizations necessary to operate the power generating station and the
adjacent lignite mine. The mine started delivering coal in 1980.
San Miguel generally produces between 3 million and 4 million tons of lignite coal annually. Mine
staff and workforce utilize an office building and a maintenance facility that includes a parts
warehouse. Roads and drainage control facilities have been built to access the lignite deposit and
control runoff. Walking draglines owned by San Miguel Electric are used to uncover the lignite
seam in each pit. Front-end loaders and other mining equipment are used to load belly dump coal
haulers and end-dump trucks are used to deliver the lignite coal to the power plant. The same
complement of equipment is used to reclaim topsoil and subsoil materials. Dozers are used to grade
the land once the lignite coal has been removed.
Red Hills Mine — Mississippi Lignite Mining Company
The Red Hills Mine, operated by MLMC, is located approximately 120 miles north of Jackson,
Mississippi. The entrance to the mine is by means of a paved road located approximately one mile
west of Highway 9. MLMC holds 129 leases granting the right to mine approximately 7,710 acres of
coal interests and the right to utilize approximately 7,505 acres of surface interests.
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In addition, MLMC owns in fee 2,387 acres of surface interests and 1,906 acres of coal interests.
Substantially all of the leases held by MLMC were acquired during the mid-1970s to the early 1980s
with terms totaling 50 years.
The Red Hills Mine generally produces between 3 million and 4 million tons of lignite coal annually
for the Red Hills Power Plant. The mine started delivering coal in 2000.
The lignite deposits of the Gulf Coast are found primarily in a narrow band of strata that
outcrops/subcrops along the margin of the Mississippi embayment. The potentially exploitable
tertiary lignites in Mississippi are found in the Wilcox Group. The outcropping Wilcox is composed
predominately of non-marine sediments deposited on a broad flat plain.
Florida Dragline Operations — The North American Coal Corporation
NACoal’s Florida Dragline Operations operate draglines to mine limerock at the following quarries
in Florida pursuant to mining services agreements with the quarry owners:
| Year NACoal | ||||||
| Started Dragline | ||||||
| Quarry Name | Location | Quarry Owner | Operations | |||
|
White Rock Quarry — North
|
Miami | WRQ | 1995 | |||
|
White Rock Quarry — South
|
Miami | WRQ | 2005 | |||
|
Krome Quarry
|
Miami | Cemex | 2003 | |||
|
Alico Quarry
|
Ft. Myers | Cemex | 2004 | |||
|
FEC Quarry
|
Miami | Cemex | 2005 | |||
|
Pennsuco Quarry
|
Miami | Tarmac | 2005 | |||
|
SCL Quarry
|
Miami | Cemex | 2006 | |||
|
Card Sound Quarry
|
Miami | Cemex | 2009 |
Vecellio & Grogan, Inc., d/b/a White Rock Quarries (“WRQ”), Cemex S.A.B. de C.V. (“Cemex”) and
Tarmac America LLC (“Tarmac”) control all of the limerock reserves within their respective
quarries. WRQ and Cemex perform drilling programs occasionally for the purpose of redefining the
bottom of the limerock bed.
Access to the White Rock Quarry is by means of a paved road from 122nd Avenue, access to the Krome
Quarry is by means of a paved road from Krome Avenue and access to Pennsuco Quarry is by means of a
paved road from NW 121
st
Way. Access to the FEC Quarry is by means of a paved road from
NW 118
th
Avenue and access to the Alico Quarry is by means of a paved road from Alico
Road. Access to the SCL Quarry is by means of a paved road from NW 137
th
Avenue and
access to the Card Sound Quarry is by means of a paved road from SW 408
th
Street.
Florida Dragline Operations have no title, claim, lease or option to acquire any of the reserves at
the White Rock Quarry (North and South), the FEC Quarry, the Krome Quarry, the Pennsuco Quarry, the
SCL Quarry, the Alico Quarry or the Card Sound Quarry.
North American Coal Royalty Company
No operating mines currently exist on the undeveloped reserves in North Dakota, Texas and
Mississippi. NACoal Royalty Company does receive certain royalty payments from unrelated third
parties for production or advance royalty payments for oil and gas, as well as coal reserves
located in Ohio, Pennsylvania, North Dakota, Louisiana and Texas.
During the third quarter of 2009, NACoal received bonus payments for the lease of certain oil and
gas mineral rights to a third party. The Company recorded a gain of $7.1 million in the third
quarter of 2009 related to these payments.
General Information about the Mines
Leases
. The leases held by Coteau, Falkirk and MLMC have a variety of continuation provisions, but
generally they permit the leases to be continued beyond their fixed terms. Under the terms of the
leases held by these companies, each respective company expects that coal mined pursuant to its
leases will be available to meet its production requirements.
No Previous Operators
. There were no previous operators of the Freedom Mine, Falkirk Mine, Sabine
Mine or Red Hills Mine.
Exploration and Development
. The Freedom Mine, Falkirk Mine, Sabine Mine, San Miguel and Red Hills
Mine are well past the exploration stage and are in production. Additional pit development is
underway at each mine. Drilling programs are routinely conducted for the purpose of refining
guidance related to ongoing operations. For example, at the Red Hills Mine, the lignite coal
reserve has been defined by a drilling program that is designed to provide 500-foot spaced drill
holes for areas anticipated to be mined within six years of the current pit. Drilling beyond the
six-year horizon ranges from 1,000 to 2,000-foot centers. Drilling is conducted every other year
to stay current with the advance of mining operations. Demery, Caddo Creek and Camino Real are in
the mine planning and design phase. Demery and Caddo Creek are involved in initial mine
permitting.
Camino Real is involved in substantial revisions to an existing mine permit. Geological evaluation
is in process at all three locations.
Facilities and Equipment
. The facilities and equipment for each of the mines are maintained to
allow for safe and efficient operation. The equipment is well maintained, in good physical
condition and is either updated or replaced periodically with the latest models or upgrades
available to keep up with modern technology. As equipment wears out, the mines evaluate what
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replacement option will be the most cost efficient, including the evaluation of both new and used
equipment, and proceed with that replacement. The majority of electrical power for the draglines,
shovels, coal crushers, coal conveyors and facilities generally is provided by the utility customer
for the applicable mine. Electrical power for the Sabine facilities is provided by Upshur Rural
Electric Co-op. Electrical power for the Sabine draglines is provided by the Pirkey Power Plant.
The remainder of the equipment generally is powered by diesel or gasoline. The total cost of the
property, plant and equipment, net of applicable accumulated amortization and depreciation as of
December 31, 2009, for each of the mines is set forth in the chart below.
| Total Historical Cost of Mine | ||||
| Property, Plant and Equipment | ||||
| (excluding Coal Lands, Real Estate | ||||
| and Construction in Progress), Net of | ||||
| Applicable Accumulated | ||||
| Mine | Amortization and Depreciation | |||
| ( in millions) | ||||
|
Unconsolidated Mining Operations
|
||||
|
Freedom Mine — The Coteau Properties Company
|
$ | 96.6 | ||
|
Falkirk Mine — The Falkirk Mining Company
|
$ | 91.0 | ||
|
Sabine Mine — The Sabine Mining Company
|
$ | 155.9 | ||
|
Five Forks Mine — Demery Resources Company, LLC
|
$ | — | ||
|
Marshall Mine — Caddo Creek Resources Company, LLC
|
$ | — | ||
|
Eagle Pass Mine — Camino Real Fuels, LLC
|
$ | — | ||
|
Consolidated Mining Operations
|
||||
|
San Miguel Lignite Mine — The North American Coal Corporation
|
$ | 0.3 | ||
|
Red Hills Mine — Mississippi Lignite Mining Company
|
$ | 30.0 | ||
|
Florida Dragline Operations — The North American Coal Corporation
|
$ | 3.2 | ||
Predominantly all of San Miguel, Demery, Caddo Creek and Camino Real’s machinery and equipment is
owned by NACoal’s customers. A substantial portion of MLMC’s machinery, trucks and equipment is
rented under operating leases. Two Florida draglines are also rented under operating leases. All
other draglines were purchased used and have been or will be updated with the latest technology.
Government Regulation
NACoal’s coal mining operations and dragline mining services are subject to various federal, state
and local laws and regulations on matters such as employee health and safety, and certain
environmental laws relating to, among others, the reclamation and restoration of properties after
mining operations, air pollution, water pollution, the disposal of wastes and the effects on
groundwater. In addition, the electric utility industry is subject to extensive regulation
regarding the environmental impact of its power generation activities that could affect demand for
coal from NACoal’s coal mining operations.
Numerous governmental permits and approvals are required for coal mining operations. NACoal or one
of its subsidiaries holds the necessary permits at all of NACoal’s coal mining operations except
San Miguel, Demery and Camino Real, where NACoal’s customers hold or will hold the permits. The
Company believes, based upon present information provided to it by NACoal’s customers, that
NACoal’s customers have or will have all environmental permits necessary for NACoal to operate San
Miguel, Demery and Camino Real; however, the Company cannot be certain that NACoal’s customers will
be able to obtain and/or maintain all such permits in the future.
At the coal mining operations where NACoal holds the permits, NACoal is required to prepare and
present to federal, state or local governmental authorities data pertaining to the effect or impact
that any proposed exploration for or production of coal may have upon the environment and public
and employee health and safety.
The limerock quarries where NACoal provides dragline mining services are owned and operated by
NACoal’s customers. All environmental permits for the limerock quarries are held by NACoal’s
customers. During 2007, the U.S. District Court for the Southern District of Florida (“District
Court”) issued an unfavorable decision that affected NACoal’s customers’ limerock mining permits in
South Florida. The decision was appealed and upon appeal, the litigation was remanded back to the
District Court.
On January 30, 2009, the District Court issued an order that set aside certain existing mining
permits in the South Florida lake belt region where NACoal provides limerock mining services. By
setting aside the existing mining permits previously issued by the U.S. Army Corps of Engineers,
this order essentially prohibited mining in the lake belt region. An appeal of the District
Court’s ruling was filed by the limerock producers, some of whom are NACoal’s customers. The
appeal was unsuccessful.
In response to the District Court’s ruling, the U.S. Army Corps of Engineers issued a Final
Supplemental Environmental Impact Statement (“FSEIS”) in May 2009. The requisite Department of
Army Record of Decision (“ROD”) and statement of findings on the May 2009 FSEIS was released on
February 1, 2010. Project-specific mining permits for limerock mining in
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the lake belt area were issued for the FEC Quarry and White Rock Quarry — North during 2010.
Additional mining permits are expected to be issued to the Company’s other customers in the near
future.
Some laws, as discussed below, place many requirements on NACoal’s coal mining operations and the
limerock quarries where NACoal provides dragline mining services. Federal and state regulations
require regular monitoring of NACoal’s operations to ensure compliance.
Mine Health and Safety Laws
The Federal Mine Safety and Health Act of 1977 imposes safety and health standards on all coal
mining operations. Regulations are comprehensive and affect numerous aspects of mining operations,
including training of mine personnel, mining procedures, blasting, the equipment used in mining
operations and other matters. The Federal Mine Safety and Health Administration enforces
compliance with these federal laws and regulations.
Environmental Laws
NACoal’s coal mining operations are subject to various federal environmental laws, including:
| • | the Surface Mining Control and Reclamation Act of 1977 (“SMCRA”); | ||
| • | the Clean Air Act, including amendments to that act in 1990 (“CAA”); | ||
| • | the Clean Water Act of 1972 (the “Clean Water Act”); | ||
| • | the Resource Conservation and Recovery Act; and | ||
| • | the Comprehensive Environmental Response, Compensation and Liability Act. |
In addition to these federal environmental laws, various states have enacted environmental laws
that provide for higher levels of environmental compliance than similar federal laws. These
environmental laws require reporting, permitting and/or approval of many aspects of coal mining
operations. Both federal and state inspectors regularly visit mines to enforce compliance. NACoal
has ongoing training, compliance and permitting programs to ensure compliance with such
environmental laws.
Surface Mining Control and Reclamation Act
SMCRA establishes mining, environmental protection and reclamation standards for all aspects of
surface coal mining operations. Where state regulatory agencies have adopted federal mining
programs under the SMCRA, the state becomes the primary regulatory authority. All of the states
where NACoal has active coal mining operations have achieved primary control of enforcement through
federal authorization.
Coal mine operators must obtain SMCRA permits and permit renewals for coal mining operations from
the regulatory agency. These SMCRA permit provisions include requirements for coal prospecting,
mine plan development, topsoil removal, storage and replacement, selective handling of overburden
materials, mine pit backfilling and grading, protection of the hydrologic balance, surface drainage
control, mine drainage and mine discharge control and treatment, and revegetation.
Although NACoal’s permits have stated expiration dates, SMCRA provides for a right of successive
renewal. The cost of obtaining surface mining permits can vary widely depending on the quantity
and type of information that must be provided to obtain the permits; however, the cost of obtaining
a permit is usually between $1,000,000 and $5,000,000, and the cost of obtaining a permit renewal
is usually between $15,000 and $100,000.
The Abandoned Mine Land Fund, which is part of SMCRA, imposes a tax on all current lignite coal
mining operations. The proceeds are used principally to reclaim mine lands closed prior to 1977.
In addition, the Abandoned Mine Land Fund also makes transfers annually to the United Mine Workers
of America Combined Benefit Fund (the “Fund”), which provides health care benefits to retired coal
miners who are beneficiaries of the Fund. The fee is currently $0.09 per ton on lignite coal
produced.
SMCRA establishes operational, reclamation and closure standards for surface coal mines. The
Company accrues for the costs of current mine disturbance and final mine closure, including the
cost of treating mine water discharges, where necessary. These obligations are unfunded.
SMCRA stipulates compliance with many other major environmental programs. These programs include
the CAA, Clean Water Act, Resource Conservation and Recovery Act, Comprehensive Environmental
Response, Compensation and Liability Act, and Emergency Planning and Community Right-To-Know Act.
The U.S. Army Corps of Engineers regulates activities affecting navigable waters, and the U.S.
Bureau of Alcohol, Tobacco and Firearms regulates the use of explosives for blasting.
The Company does not believe there are any significant issues that pose a risk to NACoal’s ability
to maintain its existing mining permits or hinder its ability to acquire future mining permits.
Clean Air Act
The process of burning coal can cause many compounds and impurities in the coal to be released into
the air; including sulfur dioxide, nitrogen oxides, mercury, particulate matter and others. The
CAA and the corresponding state laws that extensively regulate the emissions of materials into the
air affect coal mining operations both directly and indirectly. Direct impacts on coal mining
operations occur through CAA permitting requirements and/or emission control requirements relating
to air
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contaminants, especially, particulate matter. Indirect impacts on coal mining operations occur
through regulation of the air emissions of sulfur dioxide, nitrogen oxides, mercury, particulate
matter and other compounds emitted by coal-fired power plants. The United States Environmental
Protection Agency (“EPA”) has imposed or attempted to impose tighter emission restrictions in a
number of areas, some of which are currently subject to litigation while others are pending. The
general effect of tighter restrictions could be to reduce demand for coal. Any reduction in coal’s
share of the capacity for power generation could have a material adverse effect on the Company’s
business, financial condition and results of operations.
States are required to submit to EPA revisions to their state implementation plans (“SIPs”) that
demonstrate the manner in which the states will attain national ambient air quality standards
(“NAAQS”) every time a NAAQS is issued or revised by the EPA. The EPA has adopted NAAQS for
several pollutants. In July 1997, the EPA adopted new, more stringent NAAQS for particulate matter
that required some states to change their existing SIPs. Coal mining operations and coal-fired
power plants that emit particulate matter are, therefore, affected by changes in the SIPs. In
2006, the EPA adopted a new NAAQS for particulate matter, which a number of states and
environmental advocacy groups challenged as not sufficiently stringent to satisfy CAA requirements.
In February 2009, the United States Court of Appeals for the District of Columbia Circuit agreed
that the EPA had inadequately explained its decision regarding several aspects of these 2006 NAAQS
and remanded those to the EPA for reconsideration. This process could lead to a more stringent
NAAQS for particulate matter. In addition, in March 2008, the EPA also adopted a more stringent
NAAQS for the ozone. NACoal’s coal mining operations and utility customers may be directly
affected when the revisions to the SIPs are made and incorporate the new NAAQS for ozone and
particulate matter. In addition to the SIP process, the CAA allows states to assert claims against
sources in “upwind” states that allege emission sources, including coal-fired power plants, in the
“upwind” states are preventing “downwind” states from attaining the applicable NAAQS. The new
NAAQS for ozone and particulate matter and claims by “downwind” states may restrict NACoal’s
ability to develop new mines or could require it to modify its existing operations. NACoal’s
utility customers may also be required to install additional emission control equipment to meet the
SIPs. The extent of the potential impact of the new NAAQS on the coal industry will depend on the
policies and emission control strategies associated with the SIPs under the CAA but could have a
material adverse effect on NACoal’s business, financial condition and the results of operations.
The CAA Acid Rain Control Provisions were promulgated as part of the CAA Amendments of 1990 in
Title IV of the CAA (“Acid Rain Program”). The Acid Rain Program required reductions of sulfur
dioxide emissions from coal-fired power plants. The Acid Rain Program is now a mature program and
the Company believes that any market impacts of the required controls have likely been factored
into the coal market.
The EPA promulgated a regional haze program designed to protect and to improve visibility at and
around Class I Areas, which are generally National Parks, National Wilderness Areas and
International Parks. This program may restrict the construction of new coal-fired power plants
whose operation may impair visibility at and around the Class I Areas. Additionally, the program
requires certain existing coal-fired power plants to install additional control measures designed
to limit haze-causing emissions, such as sulfur dioxide, nitrogen oxide and particulate matter.
States were required to submit Regional Haze SIPs to the EPA by December 2007; however, many states
did not meet that deadline.
Under the CAA, new and modified sources of air pollution must meet certain new source standards
(the “New Source Review Program”). In the late 1990s, the EPA filed lawsuits against many
coal-fired power plants in the eastern United States alleging that the owners performed non-routine
maintenance, causing increased emissions that should have triggered the application of these new
source standards. Some of these lawsuits have been settled with the owners agreeing to install
additional emission control devices in their coal-fired power plants. The remaining litigation and
the uncertainty around the New Source Review Program rules could adversely impact demand for coal.
In March 2005, the EPA issued two related rules designed to significantly reduce levels of sulfur
dioxide, nitrogen oxide and mercury: the Clean Air Interstate Rule (“CAIR”) and the Clean Air
Mercury Rule (“CAMR”). CAIR sets a “cap-and-trade” program in 28 states and the District of
Columbia to establish emissions limits for sulfur dioxide and nitrogen oxide, by allowing utilities
to buy and sell credits to assist in achieving compliance with the NAAQS for eight-hour ozone and
particulates. CAMR is designed to reduce mercury emissions by nearly 70% by 2018 through a
“cap-and-trade” program. Both rules have been challenged in numerous lawsuits. The United States
Court of Appeals for the District of Columbia vacated CAMR and remanded it to the EPA for
reconsideration in February 2008. In February 2009, the EPA announced its intention to develop a
technology-based standard to address mercury emissions rather than pursue the “cap-and-trade”
approach of CAMR. The United States Court of Appeals for the District of Columbia vacated CAIR in
July 2008, but subsequently remanded the matter to the EPA for reconsideration. The EPA is
preparing its response to the remand, but the court did not impose a response date. Regardless of
the outcome of litigation on either rule, stricter controls on emissions of sulfur dioxide,
nitrogen oxide and mercury are likely. Any such controls may have an adverse impact on the demand
for coal, which may have an adverse effect on the Company’s business, financial condition or
results of operations.
The cost of controlling mercury emissions from coal combustion will be significant. NACoal’s
utility customers may incur substantial costs in order to switch to other fuels which may require
expensive modifications to their existing plants. If NACoal cannot offset the cost of mercury
removal by lowering the costs of delivery of its coal on an energy equivalent basis, the Company’s
business, financial condition and results of operations could be materially adversely effected.
Global climate change continues to attract considerable public and scientific attention and a
considerable amount of legislative and regulatory attention in the United States. Congress is
considering climate change legislation that would reduce greenhouse gas (“GHG”) emissions,
particularly from coal combustion by power plants. The EPA is also developing regulations to
control GHG under the CAA without new legislation. Enactment of laws and passage of regulations
regarding GHG emissions by the United States or some of its states, or other actions to limit
carbon dioxide emissions, such as opposition by environmental
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groups to expansion or modification of coal-fired power plants, could result in electric generators
switching from coal to other fuel sources.
Congress continues to consider a variety of proposals to reduce GHG emissions from the combustion
of coal and other fuels. These proposals include emission taxes, emission reductions, including
“cap-and-trade” programs, and mandates or incentives to generate electricity by using renewable
resources, such as wind or solar power. Some states have established programs to reduce GHG
emissions.
The EPA has begun to establish a GHG regulation program under the CAA by issuing a finding that the
emission of six GHG, including carbon dioxide and methane, may reasonably be anticipated to
endanger public health and welfare. After issuing this finding, the EPA is proceeding to develop
other regulations under the CAA, which could impact coal-fired power plants and reduce the demand
for coal or increase our own energy costs.
The United States has not implemented the 1992 Framework Convention on Global Climate Change
(“Kyoto Protocol”), which became effective for many countries on February 16, 2005. The Kyoto
Protocol was intended to limit or reduce emissions of GHG, such as carbon dioxide. The United
States has not ratified the emission targets of the Kyoto Protocol or any other GHG agreement.
Because the Kyoto Protocol will expire in 2012, there have been efforts to reach an international
agreement, including a meeting in Copenhagen, Denmark in December 2009, to construct a successor to
the Kyoto Protocol. Even though the United States has not accepted these international GHG
limiting treaties nor has it enacted domestic legislation to control GHG, numerous lawsuits and
regulatory actions have been undertaken by states and environmental groups to try to force controls
on the emission of carbon dioxide; or to prevent the construction of new coal-fired power plants.
The implementation by the United States of an international agreement or the adoption of
legislation to control GHG emissions, could have a materially adverse effect on the Company’s
business, financial condition and results of operation.
NACoal has obtained all necessary permits under the CAA at all of its coal mining operations where
it is responsible for permitting.
Clean Water Act
The Clean Water Act affects coal mining operations by establishing in-stream water quality
standards and treatment standards for waste water discharge. Permits requiring regular monitoring,
reporting and performance standards govern the discharge of pollutants into water.
Federal and state regulations establish standards for water quality. These regulations prohibit
the diminution of water quality. Waters discharged from coal mines will be required to meet these
standards. These federal and state requirements could require more costly water treatment and
could materially adversely affect the Company’s business, financial condition and results of
operation.
The Company believes NACoal has obtained all permits required under the Clean Water Act and
corresponding state laws and is in compliance with such permits.
Bellaire Corporation, a wholly owned non-operating subsidiary of the Company (“Bellaire”), is
treating mine water drainage from coal refuse piles associated with two former underground coal
mines in Ohio and one former underground coal mine in Pennsylvania, and is treating mine water from
a former underground coal mine in Pennsylvania. Bellaire anticipates that it will need to continue
these activities indefinitely and has accrued a liability of $13.3 million as of December 31, 2009
related to these matters.
In connection with Bellaire’s normal permit renewal with the Pennsylvania Department of
Environmental Protection, it was notified during 2004 that in order to obtain renewal of the permit
it would be required to establish a mine water treatment trust. Bellaire is currently negotiating
the terms of the timing and amount of funds necessary to establish this trust. It is also expected
that once this trust is fully funded, the income from the trust would then be utilized to fund the
future cost of treatment of mine water drainage from the idled mining operations.
Resource Conservation and Recovery Act
The Resource Conservation and Recovery Act affects coal mining operations by establishing
requirements for the treatment, storage and disposal of wastes, including hazardous wastes. Coal
mine wastes, such as overburden and coal cleaning wastes, currently are exempted from hazardous
waste management.
Comprehensive Environmental Response, Compensation and Liability Act
The Comprehensive Environmental Response, Compensation and Liability Act and similar state laws
create liabilities for the investigation and remediation of releases of hazardous substances into
the environment and for damages to natural resources. The Company also must comply with reporting
requirements under the Emergency Planning and Community Right-to-Know Act and the Toxic Substances
Control Act.
From time to time, the Company has been the subject of administrative proceedings, litigation and
investigations relating to environmental matters.
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The Company’s subsidiary, Sabine, has been named as a potentially responsible party for
cleanup costs under the so-called Superfund law at a third-party site where Sabine disposed of
waste oil in the past. The Company believes Sabine’s liability will be de minimis.
The extent of the liability and the cost of complying with environmental laws cannot be predicted
with certainty due to the lack of specific information available with respect to many sites, the
potential for new or changed laws and regulations and for the development of new remediation
technologies and the uncertainty regarding the timing of work with respect to particular sites. As
a result, the Company may incur material liabilities or costs related to environmental matters in
the future, and such environmental liabilities or costs could adversely affect the Company’s
results of operations and financial condition. In addition, there can be no assurance that changes
in laws or regulations would not affect the manner in which NACoal is required to conduct its
operations.
Competition
The coal industry competes with other sources of energy, particularly oil, gas, hydro-electric
power and nuclear power. In addition, it competes with subsidized green energy projects, such as
wind and solar projects. Among the factors that affect competition are the price and availability
of oil and natural gas, environmental considerations, the time and expenditures required to develop
new energy sources, the cost of transportation, the cost of compliance with governmental regulation
of operations, the impact of federal and state energy policies and the current trend toward
deregulation of energy markets. The ability of NACoal to market and develop its reserves will
depend upon the interaction of these factors.
Based on industry information, NACoal believes it was one of the ten largest coal producers in the
United States in 2009 based on total coal tons produced.
Employees
As of January 31, 2010, NACoal had approximately 1,500 employees, including approximately 1,000
employees at the unconsolidated mines. NACoal believes its current labor relations with employees
are satisfactory.
NMHG
NMHG’s lift truck business is cyclical. Any downturn in the general economy could result in
significant decreases in the Company’s revenue and profitability and an inability to sustain or
grow the business.
NMHG’s lift truck business historically has been cyclical. Fluctuations in the rate of orders for
lift trucks reflect the capital investment decisions of NMHG’s customers, which depend to a certain
extent on the general level of economic activity in the various industries the lift truck customers
serve. During economic downturns, customers tend to delay new lift truck and parts purchases.
Consequently, as a result of the current economic environment, NMHG is currently experiencing, and
in the future may continue to experience, significant reductions in its revenues and net income.
If the current downturn continues or worsens, the Company’s revenue and profitability could
decrease significantly and the Company’s financial results will be adversely affected.
If the capital goods market worsens, the cost saving efforts implemented by NMHG may not be
sufficient to achieve the benefits NMHG expects.
If the current general economy or the capital goods market further declines, NMHG’s revenues will
decline. If revenues are lower than expected, the programs implemented at NMHG may not achieve the
benefits NMHG expects. Furthermore, NMHG may be forced to take additional cost savings steps that
could result in additional charges that materially adversely affect its ability to compete or
implement its current business strategies.
The pricing and costs of NMHG’s products have been and may continue to be impacted by foreign
currency fluctuations, which could materially increase the Company’s costs, result in material
exchange losses and materially reduce operating margins.
Because NMHG conducts transactions in various foreign currencies, including the euro, the British
pound, the Australian dollar, Brazilian real and the Japanese yen, its lift truck pricing is
subject to the effects of fluctuations in the value of these foreign currencies and fluctuations in
the related currency exchange rates. As a result, NMHG’s sales have historically been affected by,
and may continue to be affected by, these fluctuations. In addition, exchange rate movements
between currencies in which NMHG purchases materials and components and manufactures certain of its
products and the currencies in which NMHG sells those products have been affected by and may
continue to result in exchange losses that could materially reduce operating margins. Furthermore,
NMHG’s hedging contracts may not offset current risks from changes in currency exchange rates.
The cost of raw materials used by NMHG’s products has and may continue to fluctuate, which could
materially reduce the Company’s profitability.
At times, NMHG Wholesale has experienced significant increases in its materials costs, primarily as
a result of global increases in industrial metals including steel, lead and copper and other
commodity prices including rubber, as a result of
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increased demand and limited supply. NMHG manufactures products that include raw materials that
consist of steel, rubber, copper, lead, castings and counterweights. NMHG also purchases parts
provided by suppliers that are manufactured from castings and steel or contain lead. The cost of
these parts is impacted by the same economic conditions that impact the cost of the parts that NMHG
manufactures. The cost to manufacture lift trucks and related service parts has been and will
continue to be affected by fluctuations in prices for these raw materials. If costs of these raw
materials increase, the Company’s profitability could be reduced.
NMHG depends on a limited number of suppliers for specific critical components.
NMHG depends on a limited number of suppliers for some of its critical components, including diesel
and gasoline engines and cast-iron counterweights used to counterbalance some lift trucks. Some of
these critical components are imported and subject to regulation, such as inspection by the U.S.
Department of Commerce. The Company’s results of operations could be adversely affected if NMHG is
unable to obtain these critical components, or if the costs of these critical components were to
increase significantly, due to regulatory compliance or otherwise, and NMHG was unable to pass the
cost increases on to its customers.
If NMHG’s current cost reduction and efficiency programs, including the introduction of new
products, does not prove effective, the Company’s revenues, profitability and market share could be
significantly reduced.
Changes in the timing of implementation of its current cost reduction, efficiency and new product
programs may result in a delay in the expected recognition of future costs and realization of
future benefits. As such, because future industry demand levels are lower than historical industry
demand cycles as a result of the current economic environment, the actual annual cost savings could
be lower than expected. If NMHG is unable to successfully implement these programs, the Company’s
revenues, profitability and market share could be significantly reduced.
The failure of NMHG to compete effectively within its industry could result in a significant
decrease in the Company’s revenues and profitability.
NMHG experiences intense competition in the sale of lift trucks and aftermarket parts. Competition
in the lift truck industry is based primarily on strength and quality of dealers, brand loyalty,
customer service, new lift truck sales prices, availability of products and aftermarket parts,
comprehensive product line offerings, product performance, product quality and features and the
cost of ownership over the life of the lift truck. NMHG competes with several global full-line
manufacturers that operate in all major markets. These manufacturers may have greater financial
resources and less debt than NMHG, which may enable them to commit larger amounts of capital in
response to changing market conditions, and lower costs of manufacturing. If NMHG fails to compete
effectively, the Company’s revenues and profitability could be significantly reduced.
NMHG relies primarily on its network of independent dealers to sell its lift trucks and aftermarket
parts and has no direct control over sales by those dealers to customers. Ineffective or poor
performance by these independent dealers could result in a significant decrease in the Company’s
revenues and profitability and an inability by NMHG to sustain or grow the business.
NMHG relies primarily on independent dealers for sales of its lift trucks and aftermarket parts.
Sales of NMHG’s products are therefore subject to the quality and effectiveness of the dealers, who
are generally not subject to NMHG’s direct control. As a result, ineffective or poorly performing
dealers could result in a significant decrease in the Company’s revenues and profitability and NMHG
may not be able to sustain or grow its business.
NMHG
‘
s actual liabilities relating to pending lawsuits may exceed its expectations
.
NMHG is a defendant in pending lawsuits involving, among other things, product liability claims.
NMHG cannot be sure that it will succeed in defending these claims, that judgments will not be
rendered against NMHG with respect to any or all of these proceedings or that reserves set aside or
insurance policies will be adequate to cover any such judgments. The Company could incur a charge
to earnings if reserves prove to be inadequate or the average cost per claim or the number of
claims exceed estimates, which could have a material adverse effect on the Company’s results of
operations and liquidity for the period in which the charge is taken and any judgment or settlement
amount is paid.
NMHG is subject to repurchase or recourse obligations with respect to financing arrangements of
some of its customers.
Through arrangements with GECC and others, dealers and other customers are provided financing for
new lift trucks in the United States and in major countries of the world outside of the United
States. Through these arrangements, NMHG’s dealers and certain customers are extended credit for
the purchase of lift trucks to be placed in the dealer’s floor plan inventory or the financing of
lift trucks that are sold or leased to customers. For some of these arrangements, NMHG provides
recourse or repurchase obligations such that it would become obligated in the event of default by
the dealer or customer. Total amounts subject to these types of obligations at December 31, 2009
were $140.2 million. Generally, NMHG maintains a perfected security interest in the assets
financed such that, in the event that it becomes obligated under the terms of the recourse or
repurchase obligations, it may take title to the assets financed. NMHG cannot be certain, however,
that the security interest will equal or exceed the amount of the recourse or repurchase
obligations. In addition, NMHG cannot be certain that losses under the terms of the recourse or
repurchase obligations will not exceed the reserves that it has set aside in its consolidated
financial statements. The Company could incur a charge to earnings if its reserves prove to be
inadequate,
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which could have a material adverse effect on the Company’s results of operations and liquidity for
the period in which the charge is taken.
NMHG is subject to risks relating to its foreign operations.
Foreign operations represent a significant portion of NMHG’s business. NMHG expects revenue from
foreign markets to continue to represent a significant portion of NMHG’s total revenue. NMHG owns
or leases manufacturing facilities in Brazil, Italy, Mexico, The Netherlands and Northern Ireland,
and owns interests in joint ventures with facilities in China, Japan, the Philippines and Vietnam.
It also sells domestically produced products to foreign customers and sells foreign produced
products to domestic customers. NMHG’s foreign operations are subject to additional risks, which
include:
| • | potential political, economic and social instability in the foreign countries in which NMHG operates; | |
| • | currency risks, see the risk factor titled “The pricing and costs of NMHG’s products have been and may continue to be impacted by foreign currency fluctuations, which could materially increase the Company’s costs, result in material exchange losses and materially reduce operating margins;” | |
| • | imposition of or increases in currency exchange controls; | |
| • | potential inflation in the applicable foreign economies; | |
| • | imposition of or increases in import duties and other tariffs on NMHG’s products; | |
| • | imposition of or increases in foreign taxation of earnings and withholding on payments received by NMHG from its subsidiaries; | |
| • | regulatory changes affecting international operations; and | |
| • | stringent labor regulations. |
Part of the strategy to expand NMHG’s worldwide market share and decrease costs is strengthening
its international distribution network and sourcing basic components in lower-cost countries.
Implementation of this strategy may increase the impact of the risks described above and there can
be no assurance that such risks will not have an adverse effect on the Company’s revenues,
profitability or market share.
NMHG
‘
s actual liabilities relating to environmental matters may exceed its expectations
.
NMHG’s manufacturing operations are subject to laws and regulations relating to the protection of
the environment, including those governing the management and disposal of hazardous substances.
NMHG Retail’s operations are particularly affected by laws and regulations relating to the disposal
of cleaning solvents and wastewater and the use of and disposal of petroleum products from
underground and above-ground storage tanks. If NMHG fails to comply with these laws or its
environmental permits, then it could incur substantial costs, including cleanup costs, fines and
civil and criminal sanctions. In addition, future changes to environmental laws could require NMHG
to incur significant additional expense or restrict operations.
In addition, NMHG’s products may be subject to laws and regulations relating to the protection of
the environment, including those governing vehicle exhausts. Regulatory agencies in the United
States and Europe have issued or proposed various regulations and directives designed to reduce
emissions from spark ignited engines and diesel engines used in off-road vehicles, such as
industrial lift trucks. These regulations require NMHG and other lift truck manufacturers to incur
costs to modify designs and manufacturing processes and to perform additional testing and
reporting.
NMHG is investigating or remediating historical contamination at some current and former sites
caused by its operations or those of businesses it acquired. NMHG has also been named as a
potentially responsible party for cleanup costs under the so-called Superfund law at several
third-party sites where NMHG (or its predecessors) disposed of wastes in the past. Under the
Superfund law and often under similar state laws, the entire cost of cleanup can be imposed on any
one of the statutorily liable parties, without regard to fault. While NMHG is not currently aware
that any material outstanding claims or obligations exist with regard to these sites, the discovery
of additional contamination at these or other sites could result in significant cleanup costs that
could have a material adverse effect on NMHG’s financial conditions and results of operations.
In connection with any acquisition made by NMHG, NMHG could, under some circumstances, be held
financially liable for or suffer other adverse effects due to environmental violations or
contamination caused by prior owners of businesses NMHG has acquired. In addition, under some of
the agreements through which NMHG has sold businesses or assets, NMHG has retained responsibility
for certain contingent environmental liabilities arising from pre-closing operations. These
liabilities may not arise, if at all, until years later and could require NMHG to incur significant
additional expenses, which could materially adversely affect the Company’s results of operations
and financial condition.
Hamilton Beach Brands
HBB’s business is sensitive to the strength of the U.S. retail market and weakness in this market
could adversely affect its business.
The strength of the retail economy in the United States has a significant impact on HBB’s
performance. Weakness in consumer confidence and poor financial performance by mass merchandisers,
warehouse clubs, department stores or any of HBB’s other customers would result in lost revenues.
A general slowdown in the retail sector would result in additional pricing and marketing support
pressures on HBB.
The market for HBB’s products is highly seasonal and dependent on consumer spending, which could
result in significant variations in the Company’s revenues and profitability.
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Sales of HBB’s products are related to consumer spending. Any downturn in the general economy or a
shift in consumer spending away from small electric household appliances would adversely affect its
business. In addition, the market for small electric household appliances is highly seasonal in
nature. HBB often recognizes a substantial portion of its sales in the last half of the year.
Accordingly, quarter-to-quarter comparisons of past operating results of HBB are meaningful, if at
all, only when comparing equivalent time periods. The continued economic downturn and the decrease
in consumer spending or a shift in consumer spending away from small electric household appliances
may significantly reduce revenues and profitability.
HBB is dependent on key customers and the loss of, or significant decline in business from, one or
more of its key customers could materially reduce its revenues and profitability and its ability to
sustain or grow its business.
HBB relies on several key customers. Its five largest customers accounted for approximately 61%,
60% and 58% of revenues for the years ended December 31, 2009, 2008 and 2007, respectively.
Wal-Mart accounted for approximately 38%, 40% and 37% of HBB’s revenues in 2009, 2008 and 2007,
respectively. Although HBB has long-established relationships with many customers, it does not
have any long-term supply contracts with these customers, and purchases are generally made using
individual purchase orders. A loss of any key customer could result in significant decreases in
HBB’s revenues and profitability and an inability to sustain or grow its business.
HBB must receive a continuous flow of new orders from its large, high-volume retail customers;
however, it may be unable to continually meet the needs of those customers. In addition, failure
to obtain anticipated orders or delays or cancellations of orders or significant pressure to reduce
prices from key customers could impair its ability to sustain or grow its business.
As a result of dependence on its key customers, HBB could experience a material adverse effect on
its revenues and profitability if any of the following were to occur:
| • | the insolvency or bankruptcy of any key customer; | ||
| • | a declining market in which customers materially reduce orders or demand lower prices; or | ||
| • | a strike or work stoppage at a key customer facility, which could affect both its suppliers and customers. |
If HBB were to lose, or experience a significant decline in business from, any major retail
customer or if any major retail customers were to go bankrupt, HBB might be unable to find
alternate distribution sources.
HBB depends on third-party suppliers for the manufacturing of all of its products, which subjects
the Company to risks, including unanticipated increases in expenses, decreases in revenues and
disruptions in the supply chain.
HBB is dependent on third-party suppliers for the manufacturing of all of its products. HBB’s
ability to select reliable suppliers who provide timely deliveries of quality products will impact
its success in meeting customer demand. Any inability of HBB’s suppliers to timely deliver
products or any unanticipated changes in suppliers could be disruptive and costly to the Company.
Any significant failure by HBB to obtain products on a timely basis at an affordable cost or any
significant delays or interruptions of supply would have a material adverse effect on the Company’s
profitability.
Because HBB’s suppliers are primarily based in China, international operations subject the Company
to additional risks including, among others:
| • | currency fluctuations; | ||
| • | labor unrest; | ||
| • | potential political, economic and social instability; | ||
| • | lack of developed infrastructure; | ||
| • | restrictions on transfers of funds; | ||
| • | import and export duties and quotas; | ||
| • | changes in domestic and international customs and tariffs; | ||
| • | uncertainties involving the costs to transport products; | ||
| • | long distance shipping routes dependent upon a small group of shipping and rail carriers; | ||
| • | unexpected changes in regulatory environments; | ||
| • | regulatory issues involved in dealing with foreign suppliers and in exporting and importing products; | ||
| • | difficulty in complying with a variety of foreign laws; | ||
| • | difficulty in obtaining distribution and support; and | ||
| • | potentially adverse tax consequences. |
The foregoing factors could have a material adverse effect on HBB’s ability to maintain or increase
the supply of products, which may result in material increases in expenses and decreases in
revenues.
Increases in costs of products may materially reduce the Company’s profitability.
Factors that are largely beyond the Company’s control, such as movements in commodity prices for
the raw materials needed by suppliers of HBB’s products, may affect the cost of products, and HBB
may not be able to pass those costs on to its customers. As an example, HBB’s products require a
substantial amount of plastic. Because the primary resource used in plastic is petroleum, the cost
and availability of plastic varies to a great extent with the price of petroleum. In recent years,
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the prices of petroleum, as well as steel, aluminum and copper have increased significantly. These
price increases may materially reduce the Company’s profitability.
The increasing concentration of HBB’s small electric household appliance sales among a few
retailers and the trend toward private label brands could materially reduce revenues and
profitability.
With the growing trend towards the concentration of HBB’s small electric household appliance sales
among a few retailers, HBB is increasingly dependent upon fewer customers whose bargaining strength
is growing as a result of this concentration. HBB sells a substantial quantity of products to mass
merchandisers, national department stores, variety store chains, drug store chains, specialty home
retailers and other retail outlets. These retailers generally purchase a limited selection of
small electric household appliances. As a result, HBB competes for retail shelf space with its
competitors. In addition, certain of HBB’s larger customers use their own private label brands on
household appliances that compete directly with some of HBB’s products. As the retailers in the
small electric household appliance industry become more concentrated, competition for sales to
these retailers may increase, which could materially reduce the Company’s revenues and
profitability.
The small electric household and commercial appliance industry is consolidating, which could reduce
HBB’s ability to successfully secure product placements at key customers and limit its ability to
sustain a cost competitive position in the industry.
Over the past several years, the small electric household and commercial appliance industry has
undergone substantial consolidation, and further consolidation is likely. As a result of this
consolidation, the small electric household and commercial appliance industry primarily consists of
a limited number of large distributors. To the extent that HBB does not continue to be a major
participant in the small electric household and commercial appliance industry, its ability to
compete effectively with these larger distributors could be negatively impacted. As a result, this
condition could reduce HBB’s ability to successfully secure product placements at key customers and
limit the ability to sustain a cost competitive position in the industry.
HBB’s inability to compete effectively with competitors in its industry, including large
established companies with greater resources, could result in lost market share and decreased
revenues.
The small electric household and commercial appliance industry does not have onerous entry
barriers. As a result, HBB competes with many small manufacturers and distributors of housewares
products. Additional competitors may also enter this market and cause competition to intensify.
For example, some of HBB’s customers have expressed interest in sourcing, or expanding the extent
of sourcing, small electric household and commercial appliances directly from manufacturers in
Asia. The Company believes competition is based upon several factors, including product design and
innovation, quality, price, product features, merchandising, promotion and warranty. If HBB fails
to compete effectively with these manufacturers and distributors, it could lose market share and
experience a decrease in revenues, which would adversely affect the Company’s results of
operations.
HBB also competes with established companies, a number of which have substantially greater
facilities, personnel, financial and other resources. In addition, HBB competes with retail
customers, who use their own private label brands, and importers and foreign manufacturers of
unbranded products. Some competitors may be willing to reduce prices and accept lower profit
margins to compete with HBB. As a result of this competition, HBB could lose market share and
revenues.
Kitchen Collection
The market for KC’s products is highly seasonal and dependent on consumer spending, which could
result in significant variations in the Company’s revenues and profitability.
Sales of products sold at KC stores are subject to a number of factors related to consumer
spending, including general economic conditions affecting disposable consumer income such as
unemployment rates, business conditions, interest rates, levels of consumer confidence, energy
prices, mortgage rates, the level of consumer debt and taxation. The weak economic environment, a
worsening of the general economy or a shift in consumer spending will adversely affect KC’s
business. In addition, KC often recognizes a substantial portion of its sales in the last half of
the year. Accordingly, any economic downturn, decrease in consumer spending or a shift in consumer
spending away from KC’s products could significantly reduce revenues and profitability.
KC faces an extremely competitive specialty retail market, and such competition could result in a
reduction of KC’s prices and loss of market share.
The retail market is highly competitive. KC competes against a diverse group of retailers,
including specialty stores, department stores, discount stores and catalog retailers. Many of KC’s
competitors are larger and have significantly greater financial, marketing and other resources.
This competition could result in the reduction of KC product prices and/or a loss of market share.
KC may not be able to forecast customer preferences accurately in its merchandise selections.
KC’s success depends in part on its ability to anticipate the tastes of its customers and to
provide merchandise that appeals to their preferences. KC’s strategy requires merchandising staff
to introduce products that meet current customer preferences and that are affordable and
distinctive in quality and design. KC’s failure to anticipate, identify or react appropriately to
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changes in consumer trends could cause excess inventories and higher mark-downs or a shortage of
products and could harm KC’s business and operating results.
KC depends on third-party suppliers for all of its products, which subjects KC to risks, including
unanticipated increases in expenses, decreases in revenues and disruptions in the supply chain.
KC is dependent on third-party suppliers for all of its products. KC’s ability to select reliable
suppliers who provide timely deliveries of quality products will impact its success in meeting
customer demand. Any inability of KC’s suppliers to timely deliver products or any unanticipated
changes in suppliers could be disruptive and costly to KC. In addition, KC may not be able to
acquire desired merchandise in sufficient quantities on acceptable terms in the future. KC’s
business would also be adversely affected by any delays in product shipments due to freight
difficulties, strikes or other difficulties at its principal transport providers. Any significant
failure by KC to obtain products on a timely basis at an affordable cost or any significant delays
or interruptions of supply would have a material adverse effect on KC’s profitability.
North American Coal
Termination of long-term mining contracts could materially reduce the Company’s revenues and
profitability.
Substantially all of NACoal’s revenues and profits are derived from long-term mining contracts.
The contracts for certain of NACoal’s unconsolidated mines permit the customer under some
conditions of default to acquire the assets or stock of the subsidiary for an amount roughly equal
to book value. In one case, the customer may elect to acquire the stock of the subsidiary upon a
specified period of prior notice, for any reason, in exchange for payments to NACoal on coal mined
at that facility in the future. If any of NACoal’s long-term mining contracts were terminated,
revenues and profitability could be materially reduced to the extent that NACoal is unable to find
alternative customers at the same level of profitability.
NACoal’s unconsolidated mines are subject to risks created by changes in customer demand,
inflationary adjustments and tax rates.
The contracts with the unconsolidated mines’ utility customers allow each mine to sell coal at a
price based on actual cost plus an agreed pre-tax profit per ton or cost plus a management fee per
ton. Unconsolidated mine customers pay on a cost-plus basis only for the coal they consume and
use. As a result, reduced coal usage by customers, including, but not limited to, unanticipated
weather conditions and scheduled and unscheduled power plant outages, could have an adverse impact
on the Company’s results of operations. Because of the contractual price formulas for the sale of
coal and mining services by these unconsolidated mines, the profitability of these operations is
also subject to fluctuations in inflationary adjustments (or lack thereof) that can impact the per
ton profit or management fee paid for the coal and taxes applicable to NACoal’s income on that
coal. In addition, any changes in tax laws that eliminate benefits for percentage depletion would
have a material adverse effect on the Company.
NACoal’s other mining operations, including its consolidated mining operations, are subject to
risks created by its capital investment in the mines, the costs of mining the coal and the dragline
mining equipment, in addition to risks created by changes in customer demand, inflationary
adjustments and tax rates.
The consolidated mining operations are comprised of MLMC and San Miguel, dragline mining services,
royalties from mineral leases to other mining companies and other activities. The profitability of
these consolidated mining operations is subject to the risk of loss of its investment in these
mining operations, as well as increases in the cost of mining the coal. At MLMC, the costs of
mining operations are not passed on to its customer. As such, increased costs at MLMC could
materially reduce NACoal’s profitability. NACoal’s operations are also subject to customer demand,
including but not limited to fluctuations in demand due to unanticipated weather conditions, the
emergence of unidentified adverse mining conditions, power plant outages, inflationary adjustments
and tax risks described above with respect to its unconsolidated mines. In addition, any changes
in tax laws that eliminate benefits for percentage depletion or eliminate the expensing of
exploration and development costs would have a material adverse effect on the Company. These
factors could materially reduce NACoal’s profitability.
Mining operations are vulnerable to weather and other conditions that are beyond NACoal’s control.
Many conditions beyond NACoal’s control can decrease the delivery, and therefore the use, of coal
to NACoal’s customers. These conditions include weather, the emergence of unidentified adverse
mining conditions, unexpected maintenance problems and increased costs of replacement parts which
could significantly reduce the Company’s revenues and profitability.
Government regulations could impose costly requirements on NACoal.
The coal mining industry is subject to regulation by federal, state and local authorities on
matters concerning the health and safety of employees, land use, permit and licensing requirements,
air quality standards, water pollution, plant and wildlife protection, reclamation and restoration
of mining properties after mining, the discharge of materials into the environment, surface
subsidence from underground mining and the effects that mining has on groundwater quality and
availability. Legislation mandating certain benefits for current and retired coal miners also
affects the industry. Mining operations require numerous governmental permits and approvals.
NACoal is required to prepare and present to federal, state or local authorities data pertaining to
the impact that production of coal may have upon the environment. Compliance with these
requirements may be costly and time-consuming.
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New legislation and/or regulations and orders may materially adversely affect NACoal’s mining
operations or its cost structure. New legislation, including proposals related to environmental
protection that would further regulate and tax the coal industry, may also require NACoal or its
customers to change operations significantly or incur increased costs. Possible limitations on
carbon emissions and requirements for a specific mix of fuel sources for energy generation methods
may reduce potential coal demand. All of these factors could significantly reduce the Company’s
revenues and profitability.
NACoal is subject to federal and state mining regulations, which place a burden on it.
Federal and state statutes require NACoal to restore mine property in accordance with specified
standards and an approved reclamation plan, and require that NACoal obtain and periodically renew
permits for mining operations. Regulations require NACoal to incur the cost of reclaiming current
mine disturbance. Although the Company believes that appropriate accruals have been recorded for
all expected reclamation and other costs associated with closed mines, future profitability would
be adversely affected if accruals for these costs are later determined to be insufficient or if
changed conditions, including adverse judicial proceedings or revised assumptions, require a change
in these reserves.
NACoal’s operations are impacted by the Clean Air Act Amendments on coal consumption.
The process of burning coal can cause many compounds and impurities in the coal to be released into
the air; including sulfur dioxide, nitrogen oxides, mercury, particulate matter and others. The
CAA and the corresponding state laws that extensively regulate the emissions of materials into the
air affect coal mining operations both directly and indirectly. Direct impacts on coal mining
operations occur through CAA permitting requirements and/or emission control requirements relating
to air contaminants, especially, particulate matter. Indirect impacts on coal mining operations
occur through regulation of the air emissions of sulfur dioxide, nitrogen oxides, mercury,
particulate matter and other compounds emitted by coal-fired power plants. The EPA has imposed or
attempted to impose tighter emission restrictions in a number of areas, some of which are currently
subject to litigation while others are pending. The general effect of tighter restrictions could
be to reduce demand for coal. Any reduction in coal’s share of the capacity for power generation
could have a material adverse effect on the Company’s business, financial condition and results of
operations.
States are required to submit to EPA revisions to their SIPs that demonstrate the manner in which
the states will attain NAAQS every time a NAAQS is issued or revised by the EPA. The EPA has
adopted NAAQS for several pollutants. In July 1997, the EPA adopted new, more stringent NAAQS for
particulate matter that required some states to change their existing SIPs. Coal mining operations
and coal-fired power plants that emit particulate matter are, therefore, affected by changes in the
SIPs. In 2006, the EPA adopted a new NAAQS for particulate matter, which a number of states and
environmental advocacy groups challenged as not sufficiently stringent to satisfy CAA requirements.
In February 2009, the United States Court of Appeals for the District of Columbia Circuit agreed
that the EPA had inadequately explained its decision regarding several aspects of these 2006 NAAQS
and remanded those to the EPA for reconsideration. This process could lead to a more stringent
NAAQS for particulate matter. In addition, in March 2008, the EPA also adopted a more stringent
NAAQS for the ozone. NACoal’s coal mining operations and utility customers may be directly
affected when the revisions to the SIPs are made and incorporate the new NAAQS for ozone and
particulate matter. In addition to the SIP process, the CAA allows states to assert claims against
sources in “upwind” states that allege emission sources, including coal-fired power plants, in the
“upwind” states are preventing “downwind” states from attaining the applicable NAAQS. The new
NAAQS for ozone and particulate matter and claims by “downwind” states may restrict NACoal’s
ability to develop new mines or could require it to modify its existing operations. NACoal’s
utility customers may also be required to install additional emission control equipment to meet the
SIPs. The extent of the potential impact of the new NAAQS on the coal industry will depend on the
policies and emission control strategies associated with the SIPs under the CAA but could have a
material adverse effect on NACoal’s business, financial condition and the results of operations.
The Acid Rain Program required reductions of sulfur dioxide emissions from coal-fired power plants.
The Acid Rain Program is now a mature program and the Company believes that any market impacts of
the required controls have likely been factored into the coal market.
The EPA promulgated a regional haze program designed to protect and to improve visibility at and
around Class I Areas, which are generally National Parks, National Wilderness Areas and
International Parks. This program may restrict the construction of new coal-fired power plants
whose operation may impair visibility at and around the Class I Areas. Additionally, the program
requires certain existing coal-fired power plants to install additional control measures designed
to limit haze-causing emissions, such as sulfur dioxide, nitrogen oxide and particulate matter.
States were required to submit Regional Haze SIPs to the EPA by December 2007; however, many states
did not meet that deadline.
In the late 1990s, the EPA filed lawsuits against many coal-fired power plants in the eastern
United States alleging that the owners performed non-routine maintenance, causing increased
emissions that should have triggered the application of these new source standards. Some of these
lawsuits have been settled with the owners agreeing to install additional emission control devices
in their coal-fired power plants. The remaining litigation and the uncertainty around the New
Source Review Program rules could adversely impact demand for coal.
In March 2005, the EPA issued two related rules designed to significantly reduce levels of sulfur
dioxide, nitrogen oxide and mercury: CAIR and CAMR. CAIR sets a “cap-and-trade” program in 28
states and the District of Columbia to establish emissions limits for sulfur dioxide and nitrogen
oxide, by allowing utilities to buy and sell credits to assist in achieving compliance with the
NAAQS for eight-hour ozone and particulates. CAMR is designed to reduce mercury emissions by
nearly 70% by 2018 through a “cap-and-trade” program. Both rules have been challenged in numerous
lawsuits. The United States
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Court of Appeals for the District of Columbia vacated CAMR and remanded it to the EPA for
reconsideration in February 2008. In February 2009, the EPA announced its intention to develop a
technology-based standard to address mercury emissions rather than pursue the “cap-and-trade”
approach of CAMR. The United States Court of Appeals for the District of Columbia vacated CAIR in
July 2008, but subsequently remanded the matter to the EPA for reconsideration. The EPA is
preparing its response to the remand, but the court did not impose a response date. Regardless of
the outcome of litigation on either rule, stricter controls on emissions of sulfur dioxide,
nitrogen oxide and mercury are likely. Any such controls may have an adverse impact on the demand
for coal, which may have an adverse effect on the Company’s business, financial condition or
results of operations.
The cost of controlling mercury emissions from coal combustion will be significant. NACoal’s
utility customers may incur substantial costs in order to switch to other fuels which may require
expensive modifications to their existing plants. If NACoal cannot offset the cost of mercury
removal by lowering the costs of delivery of its coal on an energy equivalent basis, the Company’s
business, financial condition and results of operations could be materially adversely effected.
Global climate change continues to attract considerable public and scientific attention and a
considerable amount of legislative and regulatory attention in the United States. Congress is
considering climate change legislation that would reduce GHG emissions, particularly from coal
combustion by power plants. The EPA is also developing regulations to control GHG under the CAA
without new legislation. Enactment of laws and passage of regulations regarding GHG emissions by
the United States or some of its states, or other actions to limit carbon dioxide emissions, such
as opposition by environmental groups to expansion or modification of coal-fired power plants,
could result in electric generators switching from coal to other fuel sources.
Congress continues to consider a variety of proposals to reduce GHG emissions from the combustion
of coal and other fuels. These proposals include emission taxes, emission reductions, including
“cap-and-trade” programs, and mandates or incentives to generate electricity by using renewable
resources, such as wind or solar power. Some states have established programs to reduce GHG
emissions.
The EPA has begun to establish a GHG regulation program under the CAA by issuing a finding that the
emission of six GHG, including carbon dioxide and methane, may reasonably be anticipated to
endanger public health and welfare. After issuing this finding, the EPA is proceeding to develop
other regulations under the CAA, which could impact coal-fired power plants and reduce the demand
for coal or increase our own energy costs.
The United States has not implemented the Kyoto Protocol, which became effective for many countries
on February 16, 2005. The Kyoto Protocol was intended to limit or reduce emissions of GHG, such as
carbon dioxide. The United States has not ratified the emission targets of the Kyoto Protocol or
any other GHG agreement. Because the Kyoto Protocol will expire in 2012, there have been efforts
to reach an international agreement, including a meeting in Copenhagen, Denmark in December 2009,
to construct a successor to the Kyoto Protocol. Even though the United States has not accepted
these international GHG limiting treaties nor has it enacted domestic legislation to control GHG,
numerous lawsuits and regulatory actions have been undertaken by states and environmental groups to
try to force controls on the emission of carbon dioxide; or to prevent the construction of new
coal-fired power plants. The implementation by the United States of an international agreement or
the adoption of legislation to control GHG emissions, could have a materially adverse effect on the
Company’s business, financial condition and results of operation.
Global climate change continues to attract considerable public and scientific attention and a
considerable amount of legislative and regulatory attention in the United States. Congress is
considering climate change legislation that would reduce GHG emissions, particularly from coal
combustion by power plants. EPA is also developing regulations to control GHG under the CAA
without new legislation; however, these draft regulations are not yet finalized. Enactment of laws
and passage of regulations regarding greenhouse gas emissions by the United States or some of its
states, or other actions to limit carbon dioxide emissions, could result in electric generators
switching from coal to other fuel sources.
NACoal is subject to the high costs and risks involved in the development of new coal and dragline
mining projects.
From time to time, NACoal seeks to develop new coal and dragline mining projects. The costs and
risks associated with such projects can be substantial. In addition, any changes in tax laws that
eliminate the expensing of exploration and development costs will increase the cost of building a
mine and make the cost of coal less competitive with other power generation fuels.
General
The current economic environment may adversely affect the availability and cost of credit and
business and consumer spending patterns.
The ability of the Company’s subsidiaries to make scheduled payments or to refinance their
obligations with respect to indebtedness will depend on their operating and financial performance
and credit availability, which in turn are subject to the weak economic conditions. The economic
recession, subprime mortgage crisis, decline in housing markets and disruptions in the financial
markets, including the bankruptcy, restructuring, sale or acquisition of major financial
institutions, may adversely affect the availability of credit already arranged, and the
availability and cost of credit in the future. In the event that the Company’s subsidiaries seek
to refinance or modify existing financial arrangements with their lenders, there is no assurance
that such creditors will agree to refinance or to modify existing arrangements on acceptable terms
or at all. The disruptions in the financial markets has had an adverse effect on the United States
and world economies, which has and may continue to negatively affect business and consumer spending
patterns. These disruptions could result in continued reductions in sales of the Company’s
subsidiaries’ products and services, reductions in asset values, longer sales cycles, and
26
Table of Contents
increased price competition, as well as reductions in the borrowing base under the credit
facilities of the Company’s subsidiaries. There can be no assurances that U.S. and non-U.S.
governmental responses to the economic recession and disruptions in the financial markets will
restore business or consumer confidence, stabilize the markets or increase liquidity and the
availability of credit.
The Company may become subject to claims under foreign laws and regulations, which may be
expensive, time consuming and distracting.
Because the Company has employees, property and business operations outside of the United States,
the Company is subject to the laws and the court systems of many jurisdictions. The Company may
become subject to claims outside the United States based in foreign jurisdictions for violations of
their laws with respect to the foreign operations of NMHG and HBB. In addition, these laws may be
changed or new laws may be enacted in the future. International litigation is often expensive,
time consuming and distracting. As a result, any of these risks could significantly reduce the
Company’s profitability and its ability to operate its businesses effectively.
The Company is dependent on key personnel and the loss of these key personnel could significantly
reduce its profitability.
The Company is highly dependent on the skills, experience and services of its respective key
personnel and the loss of key personnel could have a material adverse effect on its business,
operating results and financial condition. Employment and retention of qualified personnel is
important to the successful conduct of the Company’s business. Therefore, the Company’s success
also depends upon its ability to recruit, hire, train and retain additional skilled and experienced
management personnel. The Company’s inability to hire and retain personnel with the requisite
skills could impair its ability to manage and operate its business effectively and could
significantly reduce its profitability.
The amount and frequency of dividend payments made on NACCO’s common stock could change.
The Board of Directors has the power to determine the amount and frequency of the payment of
dividends. Decisions regarding whether or not to pay dividends and the amount of any dividends are
based on earnings, capital and future expense requirements, financial conditions, contractual
limitations and other factors the Board of Directors may consider. Accordingly, holders of NACCO’s
common stock should not rely on past payments of dividends in a particular amount as an indication
of the amount of dividends that will be paid in the future.
None.
| Item 2. | PROPERTIES |
A. NACCO
NACCO currently leases office space in Mayfield Heights, Ohio, a suburb of Cleveland, Ohio, that
serves as its and NMHG’s corporate headquarters.
B. NMHG
1. NMHG Wholesale
The following table presents the principal assembly, manufacturing, distribution and office
facilities that NMHG owns or leases for use in the wholesale operations:
| Owned/ | ||||||
| Region | Facility Location | Leased | Function(s) | |||
|
Americas
|
Berea, Kentucky | Owned | Assembly of lift trucks and manufacture of component parts | |||
|
|
||||||
|
|
Danville, Illinois | Owned | Americas parts distribution center | |||
|
|
||||||
|
|
Greenville,
North Carolina |
Owned | Divisional headquarters and marketing and sales operations for Hyster ® and Yale ® in Americas; Americas warehouse development center; assembly of lift trucks and manufacture of component parts | |||
|
|
||||||
|
|
Fairview, Oregon | Owned | Counterbalanced development center for design and testing of lift trucks, prototype equipment and component parts | |||
|
|
||||||
|
|
Portland, Oregon | Leased | Global executive administrative center | |||
|
|
||||||
|
|
Ramos Arizpe,
Mexico |
Owned | Manufacture of component parts for lift trucks | |||
|
|
||||||
|
|
Sao Paulo, Brazil | Owned | Assembly of lift trucks and marketing operations for Brazil | |||
|
|
||||||
|
|
Sulligent, Alabama | Owned | Manufacture of component parts for lift trucks | |||
27
Table of Contents
| Owned/ | ||||||
| Region | Facility Location | Leased | Function(s) | |||
|
Europe
|
Craigavon,
Northern Ireland |
Owned | Manufacture of lift trucks; cylinder and transmission assembly; mast fabrication and assembly for Europe | |||
|
|
||||||
|
|
Fleet, England | Leased | European executive center; marketing and sales operations for Hyster ® and Yale ® in Europe | |||
|
|
||||||
|
|
Irvine, Scotland | Leased | European administrative center | |||
|
|
||||||
|
|
Masate, Italy | Leased | Assembly of lift trucks; European warehouse development center | |||
|
|
||||||
|
|
Nijmegen,
The Netherlands |
Owned | Big trucks development center; manufacture and assembly of big trucks and component parts; European parts distribution center | |||
|
|
||||||
|
Asia-Pacific
|
Shanghai, China | Owned (1) | Assembly of lift trucks by Shanghai Hyster joint venture | |||
|
|
||||||
|
|
Sydney, Australia | Leased | Divisional headquarters and sales and marketing for Asia-Pacific; Asia-Pacific parts distribution center | |||
|
|
||||||
|
India
|
Pune, India | Leased | Engineering design services | |||
| (1) | This facility is owned by Shanghai Hyster Forklift Ltd., NMHG’s Chinese joint venture company. |
SN’s operations are supported by five facilities. SN’s headquarters are located in Obu, Japan at a
facility owned by SN. The Obu facility also has assembly and distribution capabilities. In
Cavite, the Philippines and Hanoi, Vietnam, SN owns facilities for the manufacture of components
for SN products. SN also has one wholly-owned and seven partially-owned dealerships in Japan.
2. NMHG Retail
As of January 31, 2010, NMHG Retail’s three dealer operations were in six locations. Of these
locations, three were in Europe and three were in Asia-Pacific, as shown below:
| Europe | Asia-Pacific | |
|
United Kingdom (3)
|
Australia (2) | |
|
|
Singapore (1) |
Dealer locations generally include facilities for displaying equipment, storing rental equipment,
servicing equipment, aftermarket parts storage and sales and administrative offices. NMHG leases
all six locations. Some of the leases were entered into or assumed in connection with acquisitions
and many of the lessors under these leases are former owners of businesses that NMHG acquired.
C. Hamilton Beach Brands
The following table presents the principal distribution and office facilities owned or leased by
HBB:
| Owned/ | ||||||
| Facility Location | Leased | Function(s) | ||||
|
Glen Allen, Virginia
|
Leased | Corporate headquarters | ||||
|
|
||||||
|
Geel, Belgium
|
(1 | ) | Distribution center | |||
|
|
||||||
|
Memphis, Tennessee
|
Leased | Distribution center | ||||
|
|
||||||
|
Mexico City, Mexico
|
(1 | ) | Distribution center | |||
|
|
||||||
|
Picton, Ontario, Canada
|
Leased | Distribution center | ||||
|
|
||||||
|
Southern Pines, North Carolina
|
Owned | Service center for customer returns; catalog distribution center; parts distribution center | ||||
|
|
||||||
|
Shenzhen, China
|
Leased | Representative office | ||||
|
|
||||||
|
Toronto, Ontario, Canada
|
Leased | Hamilton Beach Brands Canada sales and administration headquarters | ||||
|
|
||||||
|
Washington, North Carolina
|
Leased | Customer service center | ||||
| (1) | This facility is managed by a third-party distribution provider. |
Sales offices are also leased in several cities in the United States, Canada and Mexico.
D. The Kitchen Collection
KC currently leases its corporate headquarters building, the KC warehouse/distribution facility and
two retail stores in Chillicothe, Ohio. KC also currently leases the LGC distribution center in
Circleville, Ohio. KC leases the remainder of its
28
Table of Contents
retail stores. A typical Kitchen Collection
®
store is approximately 3,000 square feet
and a typical Le Gourmet Chef
®
store is approximately 4,300 square feet
.
E. NACoal
NACoal currently leases its corporate headquarters office space in Dallas, Texas. NACoal’s proven
and probable coal reserves and deposits (owned in fee or held under leases, which generally remain
in effect until exhaustion of the reserves if mining is in progress) are estimated at approximately
2.2 billion tons (including the unconsolidated project mining subsidiaries), all of which are
lignite coal deposits, except for approximately 28.6 million tons of bituminous coal. Reserves are
estimates of quantities of coal, made by NACoal’s geological and engineering staff, which are
considered mineable in the future using existing operating methods. Developed reserves are those
which have been allocated to mines which are in operation; all other reserves are classified as
undeveloped. Information concerning mine type, reserve data and coal quality characteristics for
NACoal’s properties are set forth on the table on page 11 under “Item 1. Business — C. North
American Coal — Sales, Marketing and Operations.”
Neither the Company nor any of its subsidiaries is a party to any material legal proceeding other
than ordinary routine litigation incidental to its respective business.
29
Table of Contents
The information under this Item is furnished pursuant to Instruction 3 to Item 401(b) of Regulation
S-K.
There exists no arrangement or understanding between any executive officer and any other person
pursuant to which such executive officer was elected. Each executive officer serves until his or
her successor is elected and qualified.
The following tables set forth the name, age, current position and principal occupation and
employment during the past five years of the Company’s executive officers.
EXECUTIVE OFFICERS OF THE COMPANY
| Name | Age | Current Position | Other Positions | |||||
|
|
||||||||
|
Alfred M. Rankin, Jr.
|
68 | Chairman, President and Chief Executive Officer of NACCO (from prior to 2005), Chairman of NMHG (from October 2008), Chairman of HBB (from January 2010), Chairman of KC (from January 2010), Chairman of NACoal (from February 2010) | ||||||
|
|
||||||||
|
Charles A. Bittenbender
|
60 | Vice President, General Counsel and Secretary of NACCO (from prior to 2005), Vice President, General Counsel and Secretary of NMHG (from October 2008) | ||||||
|
|
||||||||
|
J.C. Butler, Jr.
|
49 | Vice President — Corporate Development and Treasurer of NACCO (from prior to 2005), Senior Vice President — Project Development and Administration of NACoal (from January 2010) | From May 2008 to January 2010, Senior Vice President — Project Development of NACoal. | |||||
|
|
||||||||
|
Mary D. Maloney
|
48 | Assistant General Counsel (from October 2005) and Assistant Secretary of NACCO (from May 2007) | From prior to 2005 to October 2005, Partner, Jones Day (law firm). | |||||
|
|
||||||||
|
Lauren E. Miller
|
55 | Vice President — Consulting Services of NACCO (from prior to 2005), Senior Vice-President, Marketing and Consulting of NMHG (from October 2008) | ||||||
|
|
||||||||
|
Kenneth C. Schilling
|
50 | Vice President and Controller of NACCO (from prior to 2005), Vice President and Chief Financial Officer of NMHG (from October 2008) | ||||||
|
|
||||||||
|
Suzanne S. Taylor
|
47 | Associate General Counsel and Assistant Secretary of NACCO (from December 2008) | From April 2007 to December 2008, Vice President, General Counsel and Chief Compliance Officer, Keithley Instruments, Inc. (developer, manufacturer and marketer of electronic instruments). From January 2006 to April 2007, Assistant General Counsel, Platinum Equity, LLC (a private equity firm). From prior to 2005 to November 2005, Senior Vice President, General Counsel, SourceOne Healthcare Technologies Inc., a Platinum Equity Company (distributor of imaging equipment). | |||||
30
Table of Contents
PRINCIPAL OFFICERS OF THE COMPANY’S SUBSIDIARIES
A. NMHG
| Name | Age | Current Position | Other Positions | |||||
|
|
||||||||
|
Michael P. Brogan
|
59 | President and Chief Executive Officer of NMHG (from June 2006) | From October 2005 to June 2006, Executive Vice President of NMHG. From prior to 2005 to October 2005, Senior Vice President, International Operations and Development of NMHG. | |||||
|
|
||||||||
|
Daniel P. Gerrone
|
60 | Controller of NMHG (from prior to 2005) | ||||||
|
|
||||||||
|
Jeffrey C. Mattern
|
57 | Treasurer of NMHG (from prior to 2005) | ||||||
|
|
||||||||
|
Ralf A. Mock
|
54 | Managing Director, Europe, Africa and Middle East of NMHG (from February 2006) | From January 2005 to February 2006, Independent Business Consultant. From prior to 2005 to January 2005, President, Villeroy & Boch AG (an international industrial enterprise). | |||||
|
|
||||||||
|
James M. Phillips
|
61 | Vice President, Human Resources of NMHG (from prior to 2005) | ||||||
|
|
||||||||
|
Rajiv K. Prasad
|
46 | Vice President, Global Product Development of NMHG (from July 2007) | From November 2005 to July 2007, Vice President, Global Product Development, International Truck and Engine Corporation (an industrial company). From prior to 2005 to November 2005, Director, Engineering, International Truck and Engine Corporation (an industrial company). | |||||
|
|
||||||||
|
Victoria L. Rickey
|
57 | Vice President, Asia-Pacific of NMHG (from October 2008) | From February 2006 to October 2008, Vice President, Chief Marketing Officer of NMHG. From October 2005 to February 2006, Vice President, Marketing of NMHG. From prior to 2005 to October 2005, Vice President, Marketing and Retail Operations, EAME of NMHG. | |||||
|
|
||||||||
|
Michael E. Rosberg
|
60 | Vice President, Global Supply Chain of NMHG (from November 2006) | From May 2005 to February 2006, Vice President of Supply Chain Management, Brunswick Boat Group (an industrial company). From prior to 2005 to May 2005, Vice President of International Procurement, Maytag Corporation (an international industrial enterprise). | |||||
|
|
||||||||
|
Michael K. Smith
|
65 | Vice President, Finance and Information Systems of NMHG (from October 2008) | From prior to 2005 to October 2008, Vice President, Finance and Information Systems and Chief Financial Officer of NMHG. | |||||
|
|
||||||||
|
Colin Wilson
|
55 | Vice President and Chief Operating Officer of NMHG (from October 2005) | From prior to 2005 to October 2005, Vice President of NMHG; President, Americas of NMHG. | |||||
31
Table of Contents
PRINCIPAL OFFICERS OF THE COMPANY’S SUBSIDIARIES
B. HBB
| Name | Age | Current Position | Other Positions | |||||
|
|
||||||||
|
Gregory H. Trepp
|
48 | President and Chief Executive Officer of HBB (from January 2010), Chief Executive Officer of KC (from January 2010) | From June 2008 to January 2010, Vice President, Global Marketing of HBB. From prior to 2005 to June 2008, Vice President, Marketing of HBB. From April 2009 to January 2010, Interim President and Chief Executive Officer of KC. | |||||
|
|
||||||||
|
Keith B. Burns
|
53 | Vice President — Engineering and Information Technology of HBB (from June 2008) | From prior to 2005 to June 2008, Vice President — Engineering and New Product Development of HBB. | |||||
|
|
||||||||
|
Kathleen L. Diller
|
58 | Vice President, General Counsel and Secretary of HBB (from May 2007) | From June 2006 to May 2007, Vice President, General Counsel and Human Resources, and Secretary of HBB. From February 2005 to June 2006, Vice President, General Counsel and Human Resources of HBB. From prior to 2005 to February 2005, Vice President, General Counsel and Secretary of HBB. | |||||
|
|
||||||||
|
Gregory E. Salyers
|
49 | Senior Vice President, Global Operations of HBB (from January 2010) | From May 2007 to January 2010, Vice President, Global Operations of HBB. From February 2005 to May 2007, Vice President — Operations and Information Systems of HBB. From prior to 2005 to February 2005, Vice President — Operations of HBB. | |||||
|
|
||||||||
|
James H. Taylor
|
52 | Vice President, Chief Financial Officer and Treasurer of HBB (from January 2007) | From February 2005 to January 2007, Vice President — Finance and Treasurer of HBB. From prior to 2005 to February 2005, Vice President — Treasurer of HBB. | |||||
|
|
||||||||
|
R. Scott Tidey
|
45 | Senior Vice President, North American Sales and Marketing of HBB (from January 2010) | From July 2008 to January 2010, Vice President, North America Sales of HBB. From March 2007 to July 2008, Vice President, U.S. Consumer Sales of HBB. From January 2005 to March 2007, Vice President, International and National Account Sales of HBB. From prior to 2005 to January 2005, Vice President, National Account Sales of HBB. | |||||
C. KC
| Name | Age | Current Position | Other Positions | |||||
|
|
||||||||
|
Robert A. LeBrun, Jr.
|
53 | President of KC (from January 2010) | From February 2009 to January 2010, Senior Vice President, General Merchandise Manager of KC. From prior to 2005 to January 2009, Vice President, Divisional Merchandise Manager, Linens ‘n Things, Inc. (an international retailer). | |||||
32
Table of Contents
PRINCIPAL OFFICERS OF THE COMPANY’S SUBSIDIARIES
D. NACOAL
| Name | Age | Current Position | Other Positions | |||||
|
|
||||||||
|
Robert L. Benson
|
62 | President and Chief Executive Officer of NACoal (from March 2006) | From September 2005 to March 2006, Executive Vice President and Chief Operating Officer of NACoal. From prior to 2005 to September 2005, Vice President — Eastern and Southern Operations of NACoal; General Manager of MLMC. | |||||
|
|
||||||||
|
Bob D. Carlton
|
52 | Vice President and Chief Financial Officer of NACoal (from May 2008) | From March 2005 to May 2008, Vice President — Financial Services of NACoal. From prior to 2005 to June 2006, Controller of NACoal. From prior to 2005 to March 2005, Director of Tax of NACoal. | |||||
|
|
||||||||
|
Douglas L. Darby
|
58 | Vice President — Southern Operations of NACoal (from May 2008) | From June 2006 to May 2008, Vice President — Engineering and Eastern Operations of NACoal. From prior to 2005 to June 2006, President of Sabine. | |||||
|
|
||||||||
|
Michael J. Gregory
|
62 | Vice President — Engineering, Human Resources and International Operations of NACoal (from May 2008) | From June 2006 to May 2008, Vice President — Southern Operations and Human Resources of NACoal. From prior to 2005 to June 2006, General Manager of San Miguel. | |||||
|
|
||||||||
|
K. Donald Grischow
|
62 | Treasurer of NACoal (from prior to 2005) | ||||||
|
|
||||||||
|
Thomas A. Koza
|
63 | Vice President — Law and Administration, and Secretary of NACoal (from prior to 2005) | ||||||
|
|
||||||||
|
John R. Pokorny
|
54 | Controller of NACoal (from October 2009) | From June 2006 to October 2009, Director of Accounting and Financial Planning of NACoal. From prior to 2005 to June 2006, Accounting Manager of NACoal. | |||||
33
Table of Contents
| Item 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
NACCO’s Class A common stock is traded on the New York Stock Exchange under the ticker symbol “NC.”
Because of transfer restrictions, no trading market has developed, or is expected to develop, for
the Company’s Class B common stock. The Class B common stock is convertible into Class A common
stock on a one-for-one basis. The high and low market prices for the Class A common stock and
dividends per share for both classes of common stock for each quarter during the past two years are
presented in the table below:
| 2009 | ||||||||||||
| Sales Price | Cash | |||||||||||
| High | Low | Dividend | ||||||||||
|
First quarter
|
$ | 41.71 | $ | 13.66 | 51.50¢ | |||||||
|
Second quarter
|
$ | 44.80 | $ | 25.59 | 51.75¢ | |||||||
|
Third quarter
|
$ | 63.09 | $ | 27.09 | 51.75¢ | |||||||
|
Fourth quarter
|
$ | 73.54 | $ | 47.91 | 51.75¢ | |||||||
| 2008 | ||||||||||||
| Sales Price | Cash | |||||||||||
| High | Low | Dividend | ||||||||||
|
First quarter
|
$ | 107.00 | $ | 68.84 | 50.00¢ | |||||||
|
Second quarter
|
$ | 95.46 | $ | 74.35 | 51.50¢ | |||||||
|
Third quarter
|
$ | 125.50 | $ | 70.43 | 51.50¢ | |||||||
|
Fourth quarter
|
$ | 95.22 | $ | 25.88 | 51.50¢ | |||||||
At December 31, 2009, there were approximately 850 Class A common stockholders of record and
approximately 200 Class B common stockholders of record. See Note 19 to Consolidated Financial
Statements contained elsewhere in this Form 10-K for a discussion of the amount of NACCO’s
investment in subsidiaries that was restricted at December 31, 2009.
Sales of Unregistered Company Stock
Pursuant to the Non-Employee Directors’ Equity Compensation Plan, the Company issued an aggregate
of 6,399 shares of its Class A common stock on January 1, 2009, April 1, 2009, July 1, 2009 and
October 1, 2009 for payment of a portion of the directors’ annual retainer fee. In addition,
pursuant to the terms of such plan, directors may elect to receive shares of Class A common stock
in lieu of cash for up to 100% of the balance of their annual retainer, meeting attendance fees and
any committee chairman’s fees. An aggregate of 1,891 shares of Class A common stock were issued
under voluntary elections on January 1, 2009, April 1, 2009, July 1, 2009 and October 1, 2009. The
issuance of these unregistered shares qualifies as an exempt transaction pursuant to Section 4(2)
of the Securities Act of 1933.
Pursuant to the Non-Employee Directors’ Equity Compensation Plan, the Company issued an aggregate
of 2,907 shares of its Class A common stock on January 1, 2008, April 1, 2008, July 1, 2008 and
October 1, 2008 for payment of a portion of the directors’ annual retainer fee. In addition,
pursuant to the terms of such plan, directors may elect to receive shares of Class A common stock
in lieu of cash for up to 100% of the balance of their annual retainer, meeting attendance fees and
any committee chairman’s fees. An aggregate of 856 shares of Class A common stock were issued
under voluntary elections on January 1, 2008, April 1, 2008, July 1, 2008 and October 1, 2008. The
issuance of these unregistered shares qualifies as an exempt transaction pursuant to Section 4(2)
of the Securities Act of 1933.
Pursuant to the Non-Employee Directors’ Equity Compensation Plan, the Company issued an aggregate
of 1,899 shares of its Class A common stock on January 1, 2007, April 1, 2007, July 1, 2007 and
October 1, 2007 for payment of a portion of the directors’ annual retainer fee. In addition,
pursuant to the terms of such plan, directors may elect to receive shares of Class A common stock
in lieu of cash for up to 100% of the balance of their annual retainer, meeting attendance fees and
any committee chairman’s fees. An aggregate of 560 shares of Class A common stock were issued
under voluntary elections on January 1, 2007, April 1, 2007, July 1, 2007 and October 1, 2007. The
issuance of these unregistered shares qualifies as an exempt transaction pursuant to Section 4(2)
of the Securities Act of 1933.
Pursuant to the Supplemental Executive Long-Term Incentive Bonus Plan, the Company issued an
aggregate of 567 shares of its Class A common stock on December 5, 2008 to certain employees who
were participants in the annual compensation plans of NACCO’s subsidiaries as of October 15, 2008.
The issuance of these shares was not registered because such issuance of shares was a “no sale”
pursuant to the federal securities laws.
34
Table of Contents
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Issuer Purchases of Equity Securities
| (d) | ||||||||||||||||
| Maximum | ||||||||||||||||
| Number of Shares | ||||||||||||||||
| (c) | (or Approximate | |||||||||||||||
| (a) | Total Number of | Dollar Value) that | ||||||||||||||
| Total Number | (b) | Shares Purchased as | May Yet Be | |||||||||||||
| of Shares | Average Price | Part of the Publicly | Purchased Under | |||||||||||||
| Period | Purchased | Paid per Share | Announced Program | the Program (1) | ||||||||||||
|
Month #1
(October 1 to 31, 2009)
|
0 | 0 | 0 | $ | 100,000,000 | |||||||||||
|
Month #2
(November 1 to 30, 2009)
|
0 | 0 | 0 | $ | 100,000,000 | |||||||||||
|
Month #3
(December 1 to 31, 2009)
|
0 | 0 | 0 | $ | 100,000,000 | |||||||||||
|
Total
|
0 | 0 | 0 | $ | 100,000,000 | |||||||||||
| (1) | On November 15, 2007, the Company announced that its Board of Directors had authorized a stock repurchase program (the “Program”). Under the terms of the Program, the Company may repurchase up to a total of $100.0 million of shares of the Company’s Class A Common Stock. The Company may repurchase shares on the open market or in privately negotiated transactions, including block trades. During the fourth quarter of 2009, the Company did not make any purchases under the terms of the Program. The Program terminated on December 31, 2009. |
35
Table of Contents
| Item 6. | SELECTED FINANCIAL DATA |
| Year Ended December 31 | ||||||||||||||||||||
| 2009 | 2008 (1) | 2007 | 2006 | 2005 | ||||||||||||||||
| (In millions, except per share data) | ||||||||||||||||||||
|
Operating Statement Data:
|
||||||||||||||||||||
|
Revenues
|
$ | 2,310.6 | $ | 3,665.1 | $ | 3,590.0 | $ | 3,327.6 | $ | 3,144.2 | ||||||||||
|
Operating profit (loss)
|
$ | 59.1 | $ | (389.5 | ) | $ | 139.2 | $ | 171.1 | $ | 107.9 | |||||||||
|
Income (loss) from continuing operations
|
$ | 8.4 | $ | (439.7 | ) | $ | 89.7 | $ | 90.5 | $ | 56.9 | |||||||||
|
Discontinued
operations,
net-of-tax
(2)
|
22.6 | 2.3 | 0.6 | 2.8 | 1.4 | |||||||||||||||
|
Extraordinary gain, net-of-tax
(3)
|
— | — | — | 12.8 | 4.7 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net income (loss)
|
$ | 31.0 | $ | (437.4 | ) | $ | 90.3 | $ | 106.1 | $ | 63.0 | |||||||||
|
Net (income) loss attributable to noncontrolling
interest
|
0.1 | (0.2 | ) | 0.1 | 0.7 | 0.1 | ||||||||||||||
|
|
||||||||||||||||||||
|
Net income (loss) attributable to stockholders
|
$ | 31.1 | $ | (437.6 | ) | $ | 90.4 | $ | 106.8 | $ | 63.1 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Amounts Attributable to Stockholders
|
||||||||||||||||||||
|
Income (loss) from continuing operations, net of tax
|
$ | 8.5 | $ | (439.9 | ) | $ | 89.8 | $ | 91.2 | $ | 57.0 | |||||||||
|
Discontinued
operations, net of tax
(2)
|
22.6 | 2.3 | 0.6 | 2.8 | 1.4 | |||||||||||||||
|
Extraordinary
gain, net of tax
(3)
|
— | — | — | 12.8 | 4.7 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net income (loss) attributable to stockholders
|
$ | 31.1 | $ | (437.6 | ) | $ | 90.4 | $ | 106.8 | $ | 63.1 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Basic earnings (loss) per share attributable to
stockholders:
|
||||||||||||||||||||
|
Continuing operations
|
$ | 1.03 | $ | (53.12 | ) | $ | 10.87 | $ | 11.07 | $ | 6.93 | |||||||||
|
Discontinued operations
(2)
|
2.72 | 0.28 | 0.07 | 0.34 | 0.17 | |||||||||||||||
|
Extraordinary gain
(3)
|
— | — | — | 1.56 | 0.57 | |||||||||||||||
|
|
||||||||||||||||||||
|
Basic earnings (loss) per share
|
$ | 3.75 | $ | (52.84 | ) | $ | 10.94 | $ | 12.97 | $ | 7.67 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Diluted earnings (loss) per share attributable to
stockholders:
|
||||||||||||||||||||
|
Continuing operations
|
$ | 1.03 | $ | (53.12 | ) | $ | 10.86 | $ | 11.06 | $ | 6.93 | |||||||||
|
Discontinued operations
(2)
|
2.72 | 0.28 | 0.07 | 0.34 | 0.17 | |||||||||||||||
|
Extraordinary gain
(3)
|
— | — | — | 1.56 | 0.57 | |||||||||||||||
|
|
||||||||||||||||||||
|
Diluted earnings (loss) per share
|
$ | 3.75 | $ | (52.84 | ) | $ | 10.93 | $ | 12.96 | $ | 7.67 | |||||||||
|
|
||||||||||||||||||||
36
Table of Contents
| Year Ended December 31 | ||||||||||||||||||||
| 2009 | 2008 (1) | 2007 | 2006 | 2005 | ||||||||||||||||
| (In millions, except per share and employee data) | ||||||||||||||||||||
|
Balance Sheet Data at December 31:
|
||||||||||||||||||||
|
Total assets
|
$ | 1,488.7 | $ | 1,687.9 | $ | 2,427.3 | $ | 2,154.5 | $ | 2,091.6 | ||||||||||
|
Long-term debt
|
$ | 377.6 | $ | 400.3 | $ | 439.3 | $ | 359.9 | $ | 406.2 | ||||||||||
|
Stockholders’ equity
|
$ | 396.6 | $ | 356.7 | $ | 891.4 | $ | 791.3 | $ | 700.9 | ||||||||||
|
|
||||||||||||||||||||
|
Cash Flow Data:
|
||||||||||||||||||||
|
Provided by operating activities
|
$ | 157.0 | $ | 4.9 | $ | 81.4 | $ | 173.5 | $ | 75.2 | ||||||||||
|
Provided by (used for) investing
activities
|
$ | 23.1 | $ | (71.4 | ) | $ | (59.9 | ) | $ | (35.3 | ) | $ | (56.3 | ) | ||||||
|
Provided by (used for) financing activities
|
$ | (64.1 | ) | $ | (83.2 | ) | $ | 64.4 | $ | (105.8 | ) | $ | (1.8 | ) | ||||||
|
|
||||||||||||||||||||
|
Other Data:
|
||||||||||||||||||||
|
Per share data:
|
||||||||||||||||||||
|
Cash dividends
|
$ | 2.068 | $ | 2.045 | $ | 1.980 | $ | 1.905 | $ | 1.848 | ||||||||||
|
Market value at December 31
|
$ | 49.80 | $ | 37.41 | $ | 99.69 | $ | 136.60 | $ | 117.15 | ||||||||||
|
Stockholders’ equity at December 31
|
$ | 47.82 | $ | 43.05 | $ | 107.80 | $ | 96.05 | $ | 85.21 | ||||||||||
|
|
||||||||||||||||||||
|
Actual shares outstanding at
December 31
|
8.294 | 8.286 | 8.269 | 8.238 | 8.226 | |||||||||||||||
|
Basic weighted average shares outstanding
|
8.290 | 8.281 | 8.263 | 8.234 | 8.223 | |||||||||||||||
|
Diluted weighted average shares
outstanding
|
8.296 | 8.281 | 8.272 | 8.242 | 8.226 | |||||||||||||||
|
Total employees at December 31
(4)
|
8,600 | 9,500 | 10,600 | 11,300 | 11,100 | |||||||||||||||
| (1) | During the fourth quarter of 2008, the Company’s stock price significantly declined compared with previous periods and the Company’s market value of equity was below its book value of tangible assets and the book value of equity. The Company performed an interim impairment test, which indicated that goodwill and certain other intangibles were impaired at December 31, 2008. Therefore, the Company recorded a non-cash impairment charge of $435.7 million during the fourth quarter of 2008. | |
| (2) | During 2009, NACoal completed the sale of certain assets of the Red River Mining Company (“Red River”). The results of operations of Red River are reflected as discontinued operations in the table above. | |
| (3) | An extraordinary gain was recognized in 2006 and 2005 as a result of a reduction to Bellaire Corporation’s estimated closed mine obligations relating to amounts owed to the United Mine Workers of America Combined Benefit Fund arising as a result of the Coal Industry Retiree Health Benefit Act of 2006. | |
| (4) | Includes employees of the unconsolidated mines and excludes employees of Red River. |
37
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
OVERVIEW
NACCO Industries, Inc. (the parent company or “NACCO”) and its wholly owned subsidiaries
(collectively, the “Company”) operate in the following principal industries: lift trucks, small
appliances, specialty retail and mining. Results of operations and financial condition are
discussed separately by segment, which corresponds with the industry groupings. The Company
manages its lift truck operations as two reportable segments: wholesale manufacturing (“NMHG
Wholesale”) and retail distribution (“NMHG Retail”). Results by segment are also summarized in
Note 17 to the Consolidated Financial Statements contained elsewhere in this Form 10-K.
NMHG Holding Co. (“NMHG”) designs, engineers, manufactures, sells, services and leases a
comprehensive line of lift trucks and aftermarket parts marketed globally under the
Hyster
®
and Yale
®
brand names, primarily to independent and wholly owned
Hyster
®
and Yale
®
retail dealerships. Lift trucks and component parts are
manufactured in the United States, Northern Ireland, The Netherlands, China, Italy, Japan, Mexico,
the Philippines, Vietnam and Brazil. Hamilton Beach Brands, Inc. (“HBB”) is a leading designer,
marketer and distributor of small electric household appliances primarily in the United States,
Canada and Mexico, as well as commercial products for restaurants, bars and hotels. The Kitchen
Collection, Inc. (“KC”) is a national specialty retailer of kitchenware and gourmet foods operating
under the Kitchen Collection
®
and Le Gourmet Chef
®
store names in outlet and
traditional malls throughout the United States. The North American Coal Corporation and its
affiliated coal companies (collectively, “NACoal”) mine and market coal primarily as fuel for power
generation and provide selected value-added mining services for other natural resources companies
in the United States. Coal is delivered from NACoal’s mines in Louisiana, Mississippi, North
Dakota and Texas to adjacent or nearby power plants. Dragline mining services are provided for
independently owned limerock quarries in Florida.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company’s discussion and analysis of its financial condition and results of operations are
based upon the Company’s consolidated financial statements, which have been prepared in accordance
with U.S. generally accepted accounting principles. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities (if
any). On an ongoing basis, the Company evaluates its estimates based on historical experience,
actuarial valuations and various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from those estimates.
Due to the continuing challenging economic conditions of the global economy that have adversely
affected all industries, the Company has placed increased emphasis on monitoring the risks
associated with the current economic environment, particularly the collectability of receivables,
the fair value of assets and the Company’s liquidity. The Company will continue to monitor the
risks associated with the current economic environment and any effect on the Company’s results.
The Company believes the following critical accounting policies affect its more significant
judgments and estimates used in the preparation of its consolidated financial statements.
Revenue recognition:
Revenues are generally recognized when title transfers and risk of loss
passes as customer orders are completed and shipped. For NMHG’s National Account customers,
revenue is recognized upon customer acceptance. National Account customers are large customers
with centralized purchasing and geographically dispersed operations in multiple dealer territories.
Under its mining contracts, the Company recognizes revenue as the coal or limerock is delivered.
Reserves for discounts and returns are maintained for anticipated future claims. The accounting
policies used to develop these product discounts and returns include:
Product discounts:
The Company records estimated reductions to revenues for customer
programs and incentive offerings, including special pricing agreements, price competition,
promotions and other volume-based incentives. At NMHG, lift truck sales revenue is recorded
net of projected discounts. The estimated discount amount is based upon historical trends
for each truck model. In addition to standard discounts, dealers can also request
additional discounts that allow them to offer price concessions to customers. From time to
time, NMHG offers special incentives to increase retail share or dealer stock and offers
certain customers volume rebates if a specified cumulative level of purchases is obtained.
At HBB, net sales represent gross sales less cooperative advertising, negotiated price
allowances based primarily on volume purchasing levels, estimated returns and allowances for
defective products. At KC, retail markdowns are incorporated into KC’s retail method of
accounting for cost of sales. If market conditions were to decline or if competition was to
increase, the Company may take actions to increase customer incentive offerings, possibly
resulting in an incremental reduction of revenues at the time the incentive is offered. If
the Company’s
estimates of customer programs and incentives were one percent higher than the levels
offered during 2009, the reserves for product discounts would increase and revenue would be
reduced by $0.1 million. The Company’s past results of operations have not been materially
affected by a change in the estimate of product discounts and although
38
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
there can be no assurances, the Company is not aware of any circumstances that would be
reasonably likely to materially change its estimates in the future.
Product returns:
Products generally are not sold with the right of return. However, based
on the Company’s historical experience, a portion of products sold are estimated to be
returned due to reasons such as buyer remorse, duplicate gifts received, product failure and
excess inventory stocked by the customer which, subject to certain terms and conditions, the
Company will agree to accept. The Company records estimated reductions to revenues at the
time of sale based on this historical experience and the limited right of return provided to
certain customers. If future trends were to change significantly from those experienced in
the past, incremental reductions to revenues may result based on this new experience. If
the Company’s estimate of average return rates for each type of product sold were to
increase by one percent over historical levels, the reserves for product returns would
increase and revenues would be reduced by $0.1 million. The Company’s past results of
operations have not been materially affected by a change in the estimate of product returns
and although there can be no assurances, the Company is not aware of any circumstances that
would be reasonably likely to materially change its estimates in the future.
Retirement benefit plans:
The Company maintains various defined benefit pension plans that provide
benefits based on years of service and average compensation during certain periods. Pension
benefits for all parent company, HBB and NACoal employees in the United States, excluding certain
project mining subsidiary employees, have been frozen since at least 2004. Pension benefits were
frozen for employees covered under NMHG’s U.S. plans, except for those NMHG employees in the United
States participating in collective bargaining agreements, in 1996. Pension benefits for the
remaining NMHG collectively-bargained employees were frozen effective December 31, 2009. As a
result, no employees in the United States, other than certain project mining subsidiary employees,
will earn retirement benefits under defined benefit pension plans after December 31, 2009.
Effective January 1, 2009, pension benefits for HBB employees in Canada were frozen. Only certain
grandfathered NMHG employees in the United Kingdom and the Netherlands still earn retirement
benefits under defined benefit pension plans. All other eligible employees of the Company,
including employees whose pension benefits are frozen, receive retirement benefits under defined
contribution retirement plans. The Company’s policy is to periodically make contributions to fund
the defined benefit pension plans within the range allowed by applicable regulations. The defined
benefit pension plan assets consist primarily of publicly traded stocks and government and
corporate bonds. There is no guarantee the actual return on the plans’ assets will equal the
expected long-term rate of return on plan assets or that the plans will not incur investment
losses.
The expected long-term rate of return on defined benefit plan assets reflects management’s
expectations of long-term rates of return on funds invested to provide for benefits included in the
projected benefit obligations. The Company has established the expected long-term rate of return
assumption for plan assets by considering historical rates of return over a period of time that is
consistent with the long-term nature of the underlying obligations of these plans. The historical
rates of return for each of the asset classes used by the Company to determine its estimated rate
of return assumption were based upon the rates of return earned by investments in the equivalent
benchmark market indices for each of the asset classes.
Changes to the estimate of any of these factors could result in a material change to the Company’s
pension obligation causing a related increase or decrease in reported net operating results in the
period of change in the estimate. Because the 2009 assumptions are used to calculate 2010 pension
expense amounts, a one percentage-point change in the expected long-term rate of return on plan
assets would result in a change in pension expense for 2010 of approximately $2.0 million for the
plans. A one percentage-point increase or decrease in the discount rate would have lowered by
approximately $2.7 million or raised by approximately $2.4 million, respectively, the plans’ 2010
expense and would have lowered by approximately $30.6 million or raised by approximately $36.7
million the plans’ projected benefit obligation as of the end of 2009.
The Company also maintains health care and life insurance plans which provide benefits to eligible
retired employees. All health care and life insurance plans of the Company have a cap on the
Company’s share of the costs. These plans have no assets. Under the Company’s current policy,
plan benefits are funded at the time they are due to participants.
The basis for the selection of the discount rate for each plan is determined by matching the timing
of the payment of the expected obligations under the defined benefit and health care and life
insurance plans against the corresponding yield of high-quality corporate bonds of equivalent
maturities.
See Note 16 to the Consolidated Financial Statements in this Form 10-K for further discussion of
the Company’s retirement benefit plans.
Product liabilities:
The Company provides for the estimated cost of personal and property damage
relating to the Company’s products based on a review of the Company’s historical experience and
consideration of any known trends. Reserves are recorded for estimates of the costs for known
claims and estimates of the costs of incidents that have occurred but for which a claim has not yet
been reported to the Company, in excess of available insurance coverage. While the Company engages
in extensive product quality reviews and customer education programs, the Company’s product
liability provision is affected by the number and magnitude of claims of alleged product-related
damage and the cost to defend those claims. In addition, the
39
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
Company’s estimates regarding the magnitude of claims are affected by changes in assumptions
regarding medical costs, inflation rates and trends in damages awarded by juries. Changes in the
Company’s assumptions regarding any one of these factors could result in a change in the estimate
of the magnitude of claims. A one percent increase in the estimate of the number of claims or the
magnitude of claims would increase the Company’s product liability reserve and reduce operating
profit by approximately $0.2 million. During 2007, as part of its periodic review of product
liability estimates, the Company reduced its product liability accrual by $6.7 million. This
change in estimate was based upon historical trends identified within recent favorable claim
settlement experience that indicated both the frequency and severity of claim estimates should be
reduced. The reduction in the product liability accrual was primarily the result of a reduction in
the estimate of the number of claims that had been incurred but not reported and the average cost
per claim. This adjustment was not necessarily indicative of trends or adjustments that may be
required in the future to adjust the product liability accrual and although there can be no
assurances, the Company is not aware of any circumstances that would be reasonably likely to
materially change our estimates in the future.
Self-insurance liabilities:
The Company is generally self-insured for product liability,
environmental liability, medical claims, certain workers’ compensation claims and certain closed
mine liabilities. For product liability, catastrophic insurance coverage is retained for
potentially significant individual claims. An estimated provision for claims reported and for
claims incurred but not yet reported under the self-insurance programs is recorded and revised
periodically based on industry trends, historical experience and management judgment. In addition,
industry trends are considered within management’s judgment for valuing claims. Changes in
assumptions for such matters as legal judgments and settlements, inflation rates, medical costs and
actual experience could cause estimates to change in the near term. Changes in any of these
factors could materially change the Company’s estimates for these self-insurance obligations
causing a related increase or decrease in reported net operating results in the period of change in
the estimate.
Product warranties:
The Company provides for the estimated cost of product warranties at the time
revenues are recognized. While the Company engages in extensive product quality programs and
processes, including actively monitoring and evaluating the quality of its component suppliers, the
Company’s warranty obligation is affected by product failure rates, labor costs and replacement
component costs incurred in correcting a product failure. If actual product failure rates, labor
costs or replacement component costs differ from the Company’s estimates, which are based on
historical failure rates and consideration of known trends, revisions to the estimate of the cost
to correct product failures would be required. If the Company’s estimate of the cost to correct
product failures were to increase by one percent over 2009 levels, the reserves for product
warranties would increase and additional expense of $0.4 million would be incurred. The Company’s
past results of operations have not been materially affected by a change in the estimate of product
warranties and although there can be no assurances, the Company is not aware of any circumstances
that would be reasonably likely to materially change its estimates in the future.
Deferred tax valuation allowances:
The Company records a valuation allowance to reduce its deferred
tax assets to the amount that is more likely than not to be realized. A valuation allowance has
been provided against certain deferred tax assets related to non-U.S. and U.S. state jurisdictions
including net operating and capital loss carryforwards. Management believes the valuation
allowances are adequate after considering future taxable income, allowable carryforward periods and
ongoing prudent and feasible tax planning strategies. In the event the Company were to determine
that it would be able to realize its deferred tax assets in the future in excess of its net
recorded amount (including the valuation allowance), an adjustment to the valuation allowance would
increase income in the period such determination was made. Conversely, should the Company
determine that it would not be able to realize all or part of its net deferred tax asset in the
future, an adjustment to the valuation allowance would be expensed in the period such determination
was made.
See Note 15 to the Consolidated Financial Statements in this Form 10-K for further discussion of
the Company’s income taxes.
Inventory reserves:
The Company writes down its inventory to the lower of cost or market, which
includes an estimate for obsolescence or excess inventory based upon assumptions about future
demand and market conditions. If actual market
conditions are less favorable than those projected by management, additional inventory write-downs
may be required. Upon a subsequent sale or disposal of the impaired inventory, the corresponding
reserve for impaired value is relieved to ensure that the cost basis of the inventory reflects any
write-downs. An impairment in value of one percent of net inventories would result in additional
expense of approximately $3.4 million.
Allowances for doubtful accounts:
The Company maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers to make required payments. These
allowances are based on both recent trends of certain customers estimated to be a greater credit
risk as well as general trends of the entire customer pool. If the financial condition of the
Company’s customers were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. An impairment in value of one percent of net
accounts receivable would require an increase in the allowance for doubtful accounts and would
result in additional expense of approximately $3.2 million.
40
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
CONSOLIDATED FINANCIAL SUMMARY
Selected consolidated results of the Company were as follows:
| 2009 | 2008 (2) | 2007 | ||||||||||
|
Consolidated results:
|
||||||||||||
|
Income (loss) from continuing operations
attributable to stockholders
|
$ | 8.5 | $ | (439.9 | ) | $ | 89.8 | |||||
|
Discontinued operations, net-of-tax
(1)
|
22.6 | 2.3 | 0.6 | |||||||||
|
|
||||||||||||
|
Net income (loss) attributable to stockholders
|
$ | 31.1 | $ | (437.6 | ) | $ | 90.4 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Basic earnings (loss) per share
|
||||||||||||
|
Income (loss) from continuing operations
attributable to stockholders
|
$ | 1.03 | $ | (53.12 | ) | $ | 10.87 | |||||
|
Discontinued operations, net-of-tax
(1)
|
2.72 | 0.28 | 0.07 | |||||||||
|
|
||||||||||||
|
Basic earnings (loss) per share
|
$ | 3.75 | $ | (52.84 | ) | $ | 10.94 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Diluted earnings (loss) per share
|
||||||||||||
|
Income (loss) from continuing operations
attributable to stockholders
|
$ | 1.03 | $ | (53.12 | ) | $ | 10.86 | |||||
|
Discontinued operations, net-of-tax
(1)
|
2.72 | 0.28 | 0.07 | |||||||||
|
|
||||||||||||
|
Diluted earnings (loss) per share
|
$ | 3.75 | $ | (52.84 | ) | $ | 10.93 | |||||
|
|
||||||||||||
| (1) | During 2009, NACoal completed the sale of certain assets of the Red River Mining Company (“Red River”). The results of operations of Red River are reflected as discontinued operations. | |
| (2) | During the fourth quarter of 2008, the Company’s stock price significantly declined compared with previous periods and the Company’s market value of equity was below the book value of tangible assets and the book value of equity. The Company performed an interim impairment test, which indicated that goodwill and certain other intangibles were impaired at December 31, 2008. Therefore, the Company recorded a non-cash impairment charge of $435.7 million during the fourth quarter of 2008. |
The following table identifies, by operating segment, the components of change for 2009 compared
with 2008:
| Income (Loss) | Net Income | |||||||||||||||
| Operating | from Continuing | (Loss) Attributable | ||||||||||||||
| Revenues | Profit (Loss) | Operations | to Stockholders | |||||||||||||
|
2008
|
$ | 3,665.1 | $ | (389.5 | ) | $ | (439.7 | ) | $ | (437.6 | ) | |||||
|
|
||||||||||||||||
|
Increase (decrease) in 2009
|
||||||||||||||||
|
NMHG
|
(1,349.1 | ) | 312.8 | 332.6 | 332.9 | |||||||||||
|
HBB
|
(31.7 | ) | 111.2 | 99.4 | 99.4 | |||||||||||
|
KC (net of eliminations)
|
12.1 | 18.9 | 13.9 | 13.9 | ||||||||||||
|
NACoal
|
14.2 | 12.8 | 10.8 | 31.1 | ||||||||||||
|
NACCO and Other
|
— | (7.1 | ) | (8.6 | ) | (8.6 | ) | |||||||||
|
|
||||||||||||||||
|
2009
|
$ | 2,310.6 | $ | 59.1 | $ | 8.4 | $ | 31.1 | ||||||||
|
|
||||||||||||||||
41
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
CONSOLIDATED INCOME TAXES
The Company’s income tax provision includes U.S. federal, state and local, and foreign income
taxes. In determining the effective income tax rate, the Company analyzes various factors,
including the Company’s annual earnings, taxing jurisdictions in which the earnings will be
generated, the impact of state and local income taxes, the Company’s ability to use tax credits,
net operating loss carryforwards and capital loss carryforwards, and available tax planning
alternatives. Discrete items, including the effect of changes in tax laws, tax rates, certain
circumstances with respect to valuation allowances or other unusual or non-recurring tax
adjustments are reflected in the period in which they occur as an addition to, or reduction from,
the income tax provision, rather than included in the effective income tax rate.
The Company continually evaluates its deferred tax assets to determine if a valuation allowance is
required. A valuation allowance is required where realization is determined to no longer meet the
“more likely than not” standard. During 2008 and continuing into 2009, significant downturns were
experienced in NMHG’s major markets. The significant decrease in the operations, and certain
actions taken by management to reduce NMHG’s manufacturing capacity to more appropriate levels,
resulted in a three-year cumulative loss for each of NMHG’s Australian, European and U.S.
operations. Although NMHG projects earnings over the longer term for the operations, such
longer-term forecasts cannot be utilized to support the future utilization of deferred tax assets
when a three-year cumulative loss is present. Accordingly, in 2009, NMHG recorded, as a discrete
adjustment, additional valuation allowances against the accumulated deferred tax assets with
respect to its European operations of $1.1 million. In addition, during 2008, NMHG recorded, as a
discrete adjustment, a valuation allowance against the accumulated deferred tax assets for its
Australian, other European operations and certain U.S. state taxing jurisdictions of $10.7 million,
$15.3 million and $3.8 million, respectively.
The establishment of a valuation allowance does not have an impact on cash, nor does such an
allowance preclude the Company from using its loss carryforwards or other deferred tax assets in
future periods. Generally, the tax net operating losses that comprise the Australian and the
substantial portion of the European deferred tax assets do not expire under local law and the U.S.
state taxing jurisdictions provide for a carryforward period of up to 20 years.
42
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
A reconciliation of the Company’s consolidated federal statutory and effective income tax is as
follows for the years ended December 31:
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Income (loss) before income taxes
|
$ | 28.9 | $ | (421.0 | ) | $ | 114.0 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Statutory taxes at 35%
|
$ | 10.1 | $ | (147.4 | ) | $ | 39.9 | |||||
|
|
||||||||||||
|
Discrete items:
|
||||||||||||
|
NMHG basis difference in foreign stock
|
(11.9 | ) | — | — | ||||||||
|
NMHG unremitted foreign earnings
|
10.1 | — | — | |||||||||
|
NMHG valuation allowance
|
1.1 | 29.8 | 2.2 | |||||||||
|
NMHG settlements
|
0.1 | (1.3 | ) | (1.6 | ) | |||||||
|
HBB settlements
|
(0.4 | ) | (1.2 | ) | — | |||||||
|
NMHG recognition of previously generated
capital losses
|
— | — | (2.5 | ) | ||||||||
|
NACCO and Other recognition of
previously
generated capital losses
|
— | — | 1.6 | |||||||||
|
Other
|
(1.6 | ) | (1.8 | ) | (1.9 | ) | ||||||
|
|
||||||||||||
|
|
(2.6 | ) | 25.5 | (2.2 | ) | |||||||
|
|
||||||||||||
|
Other permanent items:
|
||||||||||||
|
Valuation allowance
|
16.4 | 2.8 | (6.9 | ) | ||||||||
|
NACoal percentage depletion
|
(6.5 | ) | (5.7 | ) | (7.3 | ) | ||||||
|
Foreign tax rate differential
|
(3.1 | ) | (5.9 | ) | (2.4 | ) | ||||||
|
Goodwill impairment
|
— | 148.8 | — | |||||||||
|
NMHG equity interest earnings
|
1.2 | (0.8 | ) | (1.5 | ) | |||||||
|
Other
|
5.0 | 1.4 | 3.8 | |||||||||
|
|
||||||||||||
|
|
13.0 | 140.6 | (14.3 | ) | ||||||||
|
|
||||||||||||
|
Income tax provision
|
$ | 20.5 | $ | 18.7 | $ | 23.4 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Effective income tax rate
|
70.9 | % | (a | ) | 20.5 | % | ||||||
|
|
||||||||||||
| (a) | The effective income tax rate is not meaningful. |
The effect of discrete items on the subsidiaries is as follows:
NMHG:
During 2009, NMHG recognized an $11.9 million tax benefit for the decline in value of its
investment in foreign subsidiary stock.
During 2009, NMHG determined that up to $75 million in foreign earnings of its European business
group may be repatriated within the foreseeable future. As a result of this determination, NMHG
provided a deferred tax liability of $10.1 million with respect to these earnings. The Company has
continued to conclude that predominately all remaining foreign earnings in excess of this amount
will be indefinitely reinvested in its foreign operations and, therefore, the recording of deferred
tax liabilities for such unremitted earnings is not required.
During 2008 and 2009, NMHG’s effective income tax rate was significantly affected by the
determination that deferred tax assets related to its Australian and European operations and
certain U.S. state income taxing jurisdictions no longer met the threshold for recognition and
valuation allowances were recorded as discrete items as described above.
During 2007, NMHG recognized a benefit of $2.5 million from additional deferred tax assets for
previously recorded capital losses, which was partially offset by additional valuation allowances
of $2.2 million provided against certain state capital losses and net operating losses for which
realization was determined to be uncertain.
43
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
NACCO and Other:
During 2007, consolidated capital losses previously recognized at NACCO and Other
were reversed and recognized at NMHG as described above.
In addition to the effect of discrete items, the income tax provision is affected by permanent
items, which are included in the effective income tax rate. In 2009 and 2008, the effective income
tax rate included amounts for additional valuation allowances related to incremental deferred tax
assets generated for which the realization is uncertain. In 2007, the effective income tax rate
included a benefit related to valuation allowances for a reduction in deferred tax assets. These
changes occurred primarily at NMHG. The effective income tax rate is also affected by the benefit
of percentage depletion at NACoal, the foreign tax rate differential primarily at NMHG and NMHG’s
equity interest earnings. During 2008, the majority of the charge for the goodwill impairment at
NMHG, HBB and KC did not provide a tax benefit.
See Note 15 to the Consolidated Financial Statements in this Form 10-K for further
discussion of the Company’s income taxes.
44
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
NACCO MATERIALS HANDLING GROUP
FINANCIAL REVIEW
NMHG Retail includes the elimination of intercompany revenues and profits resulting from sales by
NMHG Wholesale to NMHG Retail.
The segment and geographic results of operations for NMHG were as follows for the year ended
December 31:
| 2009 | 2008 | 2007 | ||||||||||
|
Revenues
|
||||||||||||
|
Wholesale
|
||||||||||||
|
Americas
|
$ | 854.5 | $ | 1,592.6 | $ | 1,552.0 | ||||||
|
Europe
|
390.1 | 895.3 | 836.1 | |||||||||
|
Asia-Pacific
|
165.4 | 252.2 | 193.8 | |||||||||
|
|
||||||||||||
|
|
1,410.0 | 2,740.1 | 2,581.9 | |||||||||
|
|
||||||||||||
|
Retail (net of eliminations)
|
||||||||||||
|
Europe
|
16.0 | 22.0 | 46.3 | |||||||||
|
Asia-Pacific
|
49.2 | 62.2 | 91.5 | |||||||||
|
|
||||||||||||
|
|
65.2 | 84.2 | 137.8 | |||||||||
|
|
||||||||||||
|
NMHG Consolidated
|
$ | 1,475.2 | $ | 2,824.3 | $ | 2,719.7 | ||||||
|
|
||||||||||||
|
Operating profit (loss)
|
||||||||||||
|
Wholesale
|
||||||||||||
|
Americas
|
$ | 27.3 | $ | (194.6 | ) | $ | 26.6 | |||||
|
Europe
|
(46.2 | ) | (103.6 | ) | 39.5 | |||||||
|
Asia-Pacific
|
(10.2 | ) | (44.5 | ) | 0.2 | |||||||
|
|
||||||||||||
|
|
(29.1 | ) | (342.7 | ) | 66.3 | |||||||
|
|
||||||||||||
|
Retail (net of eliminations)
|
||||||||||||
|
Europe
|
(0.9 | ) | (1.0 | ) | 1.8 | |||||||
|
Asia-Pacific
|
(1.2 | ) | (0.3 | ) | (10.8 | ) | ||||||
|
|
||||||||||||
|
|
(2.1 | ) | (1.3 | ) | (9.0 | ) | ||||||
|
|
||||||||||||
|
NMHG Consolidated
|
$ | (31.2 | ) | $ | (344.0 | ) | $ | 57.3 | ||||
|
|
||||||||||||
|
Interest expense
|
||||||||||||
|
Wholesale
|
$ | (18.4 | ) | $ | (24.2 | ) | $ | (21.7 | ) | |||
|
Retail (net of eliminations)
|
(0.6 | ) | (1.7 | ) | (3.7 | ) | ||||||
|
|
||||||||||||
|
NMHG Consolidated
|
$ | (19.0 | ) | $ | (25.9 | ) | $ | (25.4 | ) | |||
|
|
||||||||||||
|
Other income (expense)
|
||||||||||||
|
Wholesale
|
$ | 3.3 | $ | 9.7 | $ | 12.5 | ||||||
|
Retail (net of eliminations)
|
0.1 | (0.1 | ) | (0.2 | ) | |||||||
|
|
||||||||||||
|
NMHG Consolidated
|
$ | 3.4 | $ | 9.6 | $ | 12.3 | ||||||
|
|
||||||||||||
|
Net income
(loss) attributable to stockholders
|
||||||||||||
|
Wholesale
|
$ | (40.0 | ) | $ | (365.6 | ) | $ | 48.2 | ||||
|
Retail (net of eliminations)
|
(3.1 | ) | (10.4 | ) | (8.9 | ) | ||||||
|
|
||||||||||||
|
NMHG Consolidated
|
$ | (43.1 | ) | $ | (376.0 | ) | $ | 39.3 | ||||
|
|
||||||||||||
|
Effective income tax rate
|
||||||||||||
|
Wholesale
|
9.3 | % | (a | ) | 15.8 | % | ||||||
|
Retail (net of eliminations)
|
(19.2 | %) | (a | ) | 31.0 | % | ||||||
|
NMHG Consolidated
|
7.7 | % | (a | ) | 11.3 | % | ||||||
| (a) | The effective income tax rate is not meaningful. |
See the discussion of the consolidated effective income tax rate in the Consolidated Income
Taxes section of Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
45
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
2009 Compared with 2008
The following table identifies the components of change in revenues for 2009 compared with 2008:
| Revenues | ||||
|
|
||||
|
2008
|
$ | 2,824.3 | ||
|
|
||||
|
Increase (decrease) in 2009 from:
|
||||
|
Unit volume
|
(1,160.8 | ) | ||
|
Parts
|
(100.3 | ) | ||
|
Foreign currency
|
(81.9 | ) | ||
|
Fleet services
|
(33.5 | ) | ||
|
Unit product mix and other
|
(11.1 | ) | ||
|
Retail operations and eliminations
|
(8.0 | ) | ||
|
Unit price
|
46.5 | |||
|
|
||||
|
|
||||
|
2009
|
$ | 1,475.2 | ||
|
|
||||
Revenues decreased 47.8% to $1,475.2 million in 2009, primarily as a result of a decrease in unit
and parts volume in all geographic regions due to the economic downturn in each of these markets.
Worldwide new unit shipments decreased in 2009 to 41,597 from shipments of 87,067 in 2008.
Unfavorable foreign currency movements as the U.S. dollar strengthened against the British pound
and Australian dollar, lower revenues from fleet services and an unfavorable shift in mix to
lower-priced lift trucks in the Americas and Europe also contributed to the decrease in revenues
during 2009. The effect of unit and parts price increases implemented in prior years in the
Americas and Europe slightly offset the decrease in revenues.
The following table identifies the components of change in operating loss for 2009 compared with
2008:
| Operating | ||||
| Loss | ||||
|
|
||||
|
2008
|
$ | (344.0 | ) | |
|
|
||||
|
Increase (decrease) in 2009 from:
|
||||
|
|
||||
|
Restructuring programs
|
9.1 | |||
|
Non-cash impairment charge
|
351.1 | |||
|
|
||||
|
|
16.2 | |||
|
|
||||
|
Gross profit
|
(159.6 | ) | ||
|
Other selling, general and administrative expenses
|
63.0 | |||
|
Foreign currency
|
57.5 | |||
|
Retail operations and eliminations
|
(0.4 | ) | ||
|
|
||||
|
|
(23.3 | ) | ||
|
|
||||
|
Restructuring programs
|
(9.3 | ) | ||
|
Gain on sale of assets
|
1.4 | |||
|
|
||||
|
|
||||
|
2009
|
$ | (31.2 | ) | |
|
|
||||
NMHG recognized an operating loss of $31.2 million in 2009 compared with $344.0 million in 2008,
which includes a non-cash impairment charge for goodwill and other intangibles totaling $351.1
million due to the decline in the Company’s stock price and uncertain market conditions during the
fourth quarter of 2008. Excluding the impairment charges in 2008, the decrease in operating
results was primarily due to a decrease in gross profit during 2009 compared with 2008, partially
offset by lower selling, general and administrative expenses, favorable foreign currency movements
and a gain on the sale of assets
46
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
in 2009. The decrease in gross profit was mainly attributable to the significant decline in unit
and parts volume, a shift in sales to lower-margin units and an increase in manufacturing costs as
less fixed costs were absorbed due to lower production volumes. The negative impact on gross
profit was partially offset by the effect of price increases implemented in prior periods of $46.5
million, decreases in material costs totaling $41.1 million, reduced warranty costs from better
claims experience and lower sales volumes. The decrease in selling, general and administrative
expenses was primarily due to on-going cost containment actions, including reductions in the global
workforce and other employee-related expenses and lower bad debt expense, partially offset by
higher product liability expense.
NMHG recognized a net loss attributable to stockholders of $43.1 million in 2009 compared with
$376.0 million in 2008, primarily as a result of the decrease in operating loss and lower income
tax expense, primarily due to a $29.8 million valuation allowance established in 2008 against the
accumulated deferred tax assets of NMHG’s Australian and European operations and for certain U.S.
state tax jurisdictions.
Backlog
NMHG’s worldwide backlog level was approximately 13,200 units at each of December 31, 2009 and
September 30, 2009 and approximately 14,900 units at December 31, 2008.
2008 Compared with 2007
The following table identifies the components of change in revenues for 2008 compared with 2007:
| Revenues | ||||
|
|
||||
|
2007
|
$ | 2,719.7 | ||
|
|
||||
|
Increase (decrease) in 2008 from:
|
||||
|
Unit product mix
|
83.3 | |||
|
Foreign currency
|
63.9 | |||
|
Unit price
|
48.3 | |||
|
Fleet services
|
9.9 | |||
|
Parts
|
8.9 | |||
|
Unit volume
|
(84.5 | ) | ||
|
Retail operations and eliminations
|
(25.2 | ) | ||
|
|
||||
|
|
||||
|
2008
|
$ | 2,824.3 | ||
|
|
||||
Revenues increased $104.6 million, or 3.8%, due primarily to a favorable shift in unit product mix
to higher-priced lift trucks in Europe, favorable foreign currency movements in Europe due to the
strength of the British pound and euro compared with the U.S. dollar and unit price increases
implemented during late 2007 and early 2008 in the Americas and Europe. In addition, higher fleet
services revenue and an increase in parts volume improved revenues during 2008 compared to 2007.
The increase in revenues was partially offset by a decrease in unit volume in all locations due to
the downturn in the market and an overall decline of 4.1% of worldwide new unit shipments to 87,067
in 2008 from 90,789 in 2007. In addition, revenues were unfavorably affected by the sale of a
retail dealership in Europe during 2007.
47
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
The following table identifies the components of change in operating profit (loss) for 2008
compared with 2007:
| Operating | ||||
| Profit (Loss) | ||||
|
|
||||
|
2007
|
$ | 57.3 | ||
|
|
||||
|
Increase (decrease) in 2008 from:
|
||||
|
Restructuring program
|
8.0 | |||
|
|
||||
|
|
65.3 | |||
|
Foreign currency
|
(39.0 | ) | ||
|
Gross profit
|
(27.0 | ) | ||
|
Other selling, general and administrative expenses
|
13.1 | |||
|
Retail operations and eliminations
|
3.8 | |||
|
|
||||
|
|
16.2 | |||
|
Non-cash impairment charge
|
(351.1 | ) | ||
|
Restructuring programs
|
(9.1 | ) | ||
|
|
||||
|
|
||||
|
2008
|
$ | (344.0 | ) | |
|
|
||||
NMHG recorded an operating loss of $344.0 million in 2008 compared with operating profit of $57.3
million in 2007. The significant decrease in operating profit (loss) was primarily due to a
non-cash impairment charge for goodwill and other intangible assets totaling $351.1 million due to
the decline in the Company’s stock price and uncertain market conditions during the fourth quarter
of 2008, unfavorable foreign currency movements and a decrease in gross profit in 2008 compared
with 2007. Unfavorable foreign currency movements increased the cost of lift trucks and components
sold in the U.S. market and sourced from countries with appreciated currencies. The decrease in
gross profit was primarily due to higher material costs of $65.0 million, mainly from higher
commodity costs as well as higher freight and fuel costs, reduced volume in all locations and
higher warranty costs in the Americas and Europe, partially offset by price increases of $48.3
million and sales of higher-margin parts in the Americas and Europe. Selling, general and
administrative expenses decreased primarily due to lower employee-related expenses and lower
product liability expense as a result of favorable claim settlement experience. The decrease in
selling, general and administrative expenses was partially offset by higher marketing expenses and
increased bad debt expense, primarily in Europe.
NMHG recognized a net loss attributable to stockholders of $376.0 million in 2008 compared with net
income attributable to stockholders of $39.3 million in 2007, primarily as a result of the decrease
in operating profit and the recognition of a valuation allowance of $29.8 million taken primarily
against the accumulated deferred tax assets for NMHG’s Australian and European operations and for
certain U.S. state tax jurisdictions in 2008. In addition, interest expense increased in 2008
compared with 2007 from higher average outstanding borrowings.
Restructuring and Related Programs:
During 2009, NMHG’s management approved a plan to close its facility in Modena, Italy and
consolidate its activities into NMHG’s facility in Masate, Italy. These actions are being taken to
further reduce NMHG’s manufacturing capacity to more appropriate levels. As a result, NMHG
recognized a charge of approximately $5.6 million during 2009, which is classified in
the Consolidated Statement of Operations on the line “Restructuring charges.” Of this amount, $5.3
million related to severance and $0.3 million related to lease impairment. Severance payments of
$0.3 million were made during 2009. Payments related to this restructuring program are expected to
continue through 2013. No further charges related to this plan are expected.
Estimated benefits from this restructuring program are expected to be approximately $3.1 million in
2010, approximately $3.5 million in 2011 and approximately $3.1 million in 2012 and annually
thereafter.
During 2008 and 2009, based on the decline in economic conditions, NMHG’s management reduced its
number of employees worldwide. As a result, NMHG recognized a charge of approximately $6.3 million
in 2008 and $3.4 million in 2009 related to severance, which is classified in the Consolidated
Statement of Operations on the line “Restructuring charges.” In addition, $1.1 million of the
accrual was reversed during 2009 as a result of a reduction in the expected amount paid to
employees. Severance
48
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
payments of $1.3 million and $4.4 million were made during 2008 and 2009,
respectively. Payments are expected to continue through 2010. NMHG continues to evaluate the
appropriate size of its workforce worldwide to match market demand for lift trucks in response to
the decline in economic conditions.
Estimated benefits at the current reduced workforce levels are expected to be approximately $50
million on a current annualized basis, with approximately 75% of the benefits related to
manufacturing operations.
During 2009, NMHG’s management approved a plan for a reduction in the number of employees in
Asia-Pacific due to the sale of certain assets of NMHG’s fleet services business and wholly owned
Hyster
®
retail dealerships in Australia. As a result, NMHG recognized a charge of
approximately $2.7 million during 2009, which is classified in the Consolidated Statement of
Operations on the line “Restructuring charges.” Of this amount, $2.1 million related to severance,
$0.5 million related to lease termination costs and $0.1 million related to other costs of the
restructuring. In addition, $0.8 million of the severance accrual was reversed during 2009 as a
result of a reduction in the expected number of employees receiving severance payments. Payments
of $1.4 million were made for severance during 2009. Payments related to this restructuring are
expected to continue through 2010. No further charges related to this plan are expected.
During 2007, NMHG’s Board of Directors approved a plan to phase out production of current products
at its facility in Irvine, Scotland by early 2009, change the product mix at its Craigavon,
Northern Ireland facility and increase production at its Berea, Kentucky and Sulligent, Alabama
plants in the United States and at its Ramos Arizpe facility in Mexico. As a result, NMHG
recognized a charge of approximately $5.5 million in 2007, which is classified in the Consolidated
Statement of Operations on the line “Restructuring charges.” Of this amount, $5.2 million related
to severance and $0.3 million related to other costs of the restructuring. During 2008, NMHG
recognized an additional charge of $3.2 million, which is classified in the Consolidated Statement
of Operations on the line “Restructuring charges.” Of this amount, $2.2 million related to
severance and $1.0 million related to other costs of the restructuring. In addition, $0.4 million
of the amount previously accrued was reversed in 2008, as a result of a reduction in the estimate
of employees eligible to receive severance payments. During 2009, $0.5 million of the amount
previously accrued was reversed as a result of lower than estimated severance benefits paid to
fewer than estimated employees. Payments of $4.5 million were made for severance during 2009.
Payments of $1.0 million were made for other costs related to the restructuring and $0.1 million
for severance during 2008. Payments of $0.3 million were made for other costs related to the
restructuring during 2007. No further charges or payments related to this plan are expected.
As a result of this restructuring program, NMHG expects estimated cost savings of $15.0 million in
2010, $14.6 million in 2011 and $14.7 million in 2012 and annually thereafter.
In addition to the restructuring charges, NMHG incurred additional costs related to this
restructuring program, primarily for accelerated depreciation of manufacturing equipment that will
no longer be used and for manufacturing inefficiencies during the phase out of production and the
rearrangement of equipment in its manufacturing plants. During 2008 and 2007, NMHG incurred $5.1
million and $2.1 million, respectively, of additional costs, primarily for accelerated
depreciation.
Also during 2007, NMHG’s management approved a plan for The Netherlands manufacturing facility to
outsource its welding and painting operations to a lower cost country. As a result, NMHG
recognized a charge of approximately $2.5 million in 2007, which is classified in the Consolidated
Statement of Operations on the line “Restructuring charges.” This amount included a cash charge of
$1.1 million related to severance and $1.4 million related to a non-cash asset impairment charge
for equipment, which was determined based on current estimated market values for similar assets
compared with the net book value of these assets. Severance payments of $0.1 million and $1.0
million were made during 2008 and 2007, respectively. No further charges or payments related to
this restructuring plan are expected.
As a result of this restructuring program, NMHG Wholesale expects estimated cost savings of $1.7
million annually.
See Note 3 to the Consolidated Financial Statements in this Form 10-K for further
discussion of the Company’s restructuring and related programs.
49
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following tables detail the change in cash flow for NMHG for the years ended December 31:
| 2009 | 2008 | Change | ||||||||||
|
|
||||||||||||
|
Operating activities:
|
||||||||||||
|
|
||||||||||||
|
Net loss
|
$ | (43.2 | ) | $ | (375.8 | ) | $ | 332.6 | ||||
|
Depreciation and amortization
|
36.2 | 42.0 | (5.8 | ) | ||||||||
|
Non-cash impairment charge
|
— | 351.1 | (351.1 | ) | ||||||||
|
Restructuring charges
|
9.3 | 9.1 | 0.2 | |||||||||
|
Other
|
(0.1 | ) | 32.1 | (32.2 | ) | |||||||
|
Working capital changes
|
||||||||||||
|
Accounts receivable
|
133.8 | (3.9 | ) | 137.7 | ||||||||
|
Inventories
|
160.3 | 26.7 | 133.6 | |||||||||
|
Accounts payable and other liabilities
|
(160.4 | ) | (104.7 | ) | (55.7 | ) | ||||||
|
Other
|
(20.0 | ) | (3.9 | ) | (16.1 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash provided by (used for) operating activities
|
115.9 | (27.3 | ) | 143.2 | ||||||||
|
|
||||||||||||
|
Investing activities:
|
||||||||||||
|
|
||||||||||||
|
Expenditures for property, plant and equipment
|
(5.8 | ) | (41.2 | ) | 35.4 | |||||||
|
Proceeds from the sale of assets
|
11.3 | 3.7 | 7.6 | |||||||||
|
Other
|
0.3 | — | 0.3 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash provided by (used for) investing activities
|
5.8 | (37.5 | ) | 43.3 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash flow before financing activities
|
$ | 121.7 | $ | (64.8 | ) | $ | 186.5 | |||||
|
|
||||||||||||
Net cash provided by (used for) operating activities increased $143.2 million primarily as a result
of the change in working capital, partially offset by the increase in net loss net of a non-cash
impairment charge for goodwill and certain intangible assets due to the decline in the Company’s
stock price and uncertain market conditions during the fourth quarter of 2008 and the decrease in
other non-cash items. The change in working capital was mainly due to a reduction in accounts
receivable as a result of the decline in revenues and a decline in inventory due to a reduction in
production volume as a result of lower demand. These changes were partially offset by a decrease
in accounts payable and other liabilities as a result of the decline in inventory. The reduction
in other non-cash items was due primarily to changes in foreign currency exchange gains and losses
recognized in the Consolidated Statement of Operations.
Net cash provided by (used for) investing activities increased primarily due to lower capital
expenditures as a result of cost containment actions implemented in late 2008 and early 2009 and
the funding of a portion of NMHG’s capital expenditures by NACCO during 2009. In addition, NMHG
had an increase in proceeds from the sale of assets primarily due to the sale of certain assets of
the Hyster
®
retail dealerships and fleet service business in Australia, the
manufacturing facility in Irvine, Scotland and the intercompany sale of an airplane to NACCO during
2009.
50
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
| 2009 | 2008 | Change | ||||||||||
|
|
||||||||||||
|
Financing Activities:
|
||||||||||||
|
|
||||||||||||
|
Net reductions of long-term debt and revolving credit
agreements
|
$ | (18.3 | ) | $ | (13.0 | ) | $ | (5.3 | ) | |||
|
Capital contribution from NACCO
|
35.0 | 25.0 | 10.0 | |||||||||
|
Intercompany loans
|
(35.0 | ) | 36.0 | (71.0 | ) | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash provided by (used for) financing activities
|
$ | (18.3 | ) | $ | 48.0 | $ | (66.3 | ) | ||||
|
|
||||||||||||
The change in net cash provided by (used for) financing activities was primarily due to the
repayment of intercompany loans and other debt in 2009 compared with borrowings in 2008, partially
offset by a higher capital contribution from NACCO during 2009.
Financing Activities
NMHG’s primary financing is provided by a $175.0 million secured floating-rate revolving credit
facility (the “NMHG Facility”) and a term loan facility (the “NMHG Term Loan”). The obligations
under the NMHG Facility are secured by a first lien on the cash and cash equivalents, accounts
receivable and inventory of NMHG. The approximate book value of NMHG’s assets held as collateral
under the NMHG Facility was $235 million as of December 31, 2009.
The maximum availability under the NMHG Facility is governed by a borrowing base derived from
advance rates against the inventory and accounts receivable of the borrowers, as defined in the
NMHG Facility. Adjustments to reserves booked against these assets, including inventory reserves,
will change the eligible borrowing base and thereby impact the liquidity provided by the NMHG
Facility. A portion of the availability can be denominated in British pounds or euros. Borrowings
bear interest at a floating rate, which can be a base rate or LIBOR, as defined in the NMHG
Facility, plus an applicable margin. The current applicable margins, effective December 31, 2009,
for domestic base rate loans and LIBOR loans were 0.50% and 1.50%, respectively. The applicable
margin, effective December 31, 2009, for fixed foreign LIBOR loans was 1.50% and for foreign
overdraft loans was 1.75%. The NMHG Facility also requires the payment of a fee of 0.375% per
annum on the unused commitment. The margins and unused commitment fee are subject to quarterly
adjustment based on a leverage ratio.
At December 31, 2009, the excess availability under the NMHG Facility was $81.0 million, which
reflects underlying collateral availability of $131.1 million reduced by a $10.0 million excess
availability requirement, $22.7 million for a foreign credit facility commitment in Australia, $9.2
million in Europe for a reserve for preferential claims related to supplier-based inventory and
$8.2 million for letters of credit. If commitments or availability under these facilities are
increased, availability under the NMHG Facility will be reduced.
There were no borrowings outstanding under the NMHG Facility at December 31, 2009. The domestic
and foreign floating rates of interest applicable to the NMHG Facility on December 31, 2009 were
3.75% and a range of 2.75% to 3.63%, respectively, including the applicable floating rate margin.
The NMHG Facility expires in December 2010.
During 2006, NACCO Materials Handling Group, Inc. (“NMHG Inc.”), a wholly owned subsidiary of NMHG,
entered into the NMHG Term Loan that provided for term loans up to an aggregate principal amount of
$225.0 million, which mature in 2013. The term loans require quarterly payments in an amount equal
to 1% of the original principal per year for the first six years, with the remaining balance to be
paid in four equal installments in the seventh year. At December 31, 2009, there was $217.1
million outstanding under the NMHG Term Loan.
Borrowings under the NMHG Term Loan are guaranteed by NMHG and substantially all of NMHG’s domestic
subsidiaries. The obligations of the guarantors under the NMHG Term Loan are secured by a first
lien on all of the domestic machinery, equipment and real property owned by NMHG Inc. and each
guarantor and a second lien on all of the collateral securing the obligations of NMHG under the
NMHG Facility. The approximate book value of NMHG’s assets held as collateral under the
NMHG Term Loan was $350 million as of December 31, 2009, which includes the book value of the
assets securing the NMHG Facility.
Outstanding borrowings under the NMHG Term Loan bear interest at a variable rate that, at NMHG
Inc.’s option, will be either LIBOR or a floating rate, as defined in the NMHG Term Loan, plus an
applicable margin. The applicable margin is subject to adjustment based on a leverage ratio. The
weighted average interest rate on the amount outstanding under the NMHG Term Loan at December 31,
2009 was 2.36%.
51
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
In addition to the amount outstanding under the NMHG Term Loan and the NMHG Facility, NMHG had
borrowings of approximately $23.5 million at December 31, 2009 under various working capital
facilities.
Both the NMHG Facility and NMHG Term Loan include restrictive covenants, which, among other things,
limit the payment of dividends to NACCO. Subject to achieving availability thresholds, dividends
to NACCO are limited to the larger of $5.0 million or 50% of the preceding year’s net income for
NMHG. The NMHG Facility and the NMHG Term Loan also require NMHG to meet certain financial tests,
including, but not limited to, minimum excess availability, maximum capital expenditures, maximum
leverage ratio and minimum fixed charge coverage ratio tests. At December 31, 2009, NMHG was in
compliance with the covenants in the NMHG Facility and the NMHG Term Loan.
In light of the current economic and market conditions, the Company and NMHG are continually
monitoring NMHG’s covenant compliance. NMHG has implemented certain actions and future actions are
being evaluated in connection with covenant compliance. However, given the current economic
environment or a worsening of this environment, there is no assurance that such actions will be
sufficient or in the event NMHG is required to refinance the NMHG Facility, if such refinancing of
the NMHG Facility could be obtained on acceptable terms or at all.
NMHG believes funds available from cash on hand at NMHG and the Company, the NMHG Facility, other
available lines of credit and operating cash flows will provide sufficient liquidity to meet its
operating needs and commitments until the expiration of the NMHG Facility in December 2010.
Contractual Obligations, Contingent Liabilities and Commitments
Following is a table summarizing the contractual obligations of NMHG as of December 31, 2009:
| Payments Due by Period | ||||||||||||||||||||||||||||
| Contractual Obligations | Total | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | |||||||||||||||||||||
|
NMHG Term Loan
|
$ | 217.1 | $ | 2.2 | $ | 1.7 | $ | 160.2 | $ | 53.0 | $ | — | $ | — | ||||||||||||||
|
Variable interest payments
on Term Loan
|
14.5 | 5.1 | 5.0 | 4.2 | 0.2 | — | — | |||||||||||||||||||||
|
Other debt
|
23.5 | 13.2 | 4.0 | 3.0 | 2.4 | 0.9 | — | |||||||||||||||||||||
|
Variable interest payments
on other debt
|
1.5 | 0.8 | 0.4 | 0.2 | 0.1 | — | ||||||||||||||||||||||
|
Capital lease obligations including
principal and interest
|
6.5 | 2.6 | 1.7 | 1.3 | 0.7 | 0.2 | — | |||||||||||||||||||||
|
Operating leases
|
113.9 | 51.2 | 31.8 | 18.7 | 9.0 | 2.8 | 0.4 | |||||||||||||||||||||
|
Purchase and other
obligations
|
273.3 | 266.2 | 4.7 | — | — | — | 2.4 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total contractual cash obligations
|
$ | 650.3 | $ | 341.3 | $ | 49.3 | $ | 187.6 | $ | 65.4 | $ | 3.9 | $ | 2.8 | ||||||||||||||
|
|
||||||||||||||||||||||||||||
NMHG has a long-term liability of approximately $12.2 million for unrecognized tax benefits as of
December 31, 2009. At this time, the Company is unable to make a reasonable estimate of the timing
of payments due to, among other factors, the uncertainty of the timing and outcome of its audits.
An event of default, as defined in the agreements governing the NMHG Term Loan, the NMHG Facility,
other revolving credit facilities, and in operating and capital lease agreements, could cause an
acceleration of the payment schedule. No such event of default has occurred or is anticipated
under these agreements.
NMHG’s interest payments are calculated based upon NMHG’s anticipated payment schedule and the
December 31, 2009 LIBOR rate and applicable margins, as defined in the NMHG Term Loan and its other
debt. A 1/8% increase in the LIBOR rate would increase NMHG’s estimated total interest payments on
the NMHG Term Loan by $0.8 million and its other debt by less than $0.1 million.
The purchase and other obligations are primarily for accounts payable, open purchase orders and
accrued payroll and incentive compensation.
Pension and post-retirement funding can vary significantly each year due to plan amendments,
changes in the market value of plan assets, legislation and the Company’s funding decisions to
contribute any excess above the minimum legislative funding requirements. As a result, pension and
postretirement funding has not been included in the table above. Pension benefit payments are made
from assets of the pension plans. NMHG expects to contribute approximately $1.4 million and $5.3
million to its U.S. and non-U.S. pension plans, respectively, in 2010. NHMG expects to make
payments related to its other
52
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| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
postretirement plans of an additional amount of approximately $0.5
million per year over the next ten years. Benefit payments beyond that time cannot currently be
estimated.
In addition, NMHG has recourse and repurchase obligations with a maximum undiscounted potential
liability of $140.2 million at December 31, 2009. Recourse and repurchase obligations primarily
represent contingent liabilities assumed by NMHG to support financing agreements made between
NMHG’s customers and third-party finance companies for the customer’s purchase of lift trucks from
NMHG. For these transactions, NMHG generally retains a perfected security interest in the lift
truck, such that NMHG would take possession of the lift truck in the event NMHG would become liable
under the terms of the recourse and repurchase obligations. Generally, these commitments are due
upon demand in the event of default by the customer. The security interest is normally expected to
equal or exceed the amount of the commitment. To the extent NMHG would be required to provide
funding as a result of these commitments, NMHG believes the value of its perfected security
interest and amounts available under existing credit facilities are adequate to meet these
commitments in the foreseeable future.
The amount of the recourse or repurchase obligations increases and decreases over time as
obligations under existing arrangements expire and new obligations arise in the ordinary course of
business. Losses anticipated under the terms of the recourse or repurchase obligations are not
significant and reserves have been provided for such losses in the Consolidated Financial
Statements included elsewhere in this Form 10-K. See also “Related Party Transactions” below.
Capital Expenditures
The following table summarizes actual and planned capital expenditures:
| Planned | Actual | Actual | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
NMHG
|
$ | 15.1 | $ | 5.8 | $ | 41.2 | ||||||
Planned expenditures in 2010 are primarily for product development and improvements to NMHG’s
information technology infrastructure. The principal sources of financing for these capital
expenditures are expected to be internally generated funds and bank borrowings.
Capital Structure
NMHG’s capital structure is presented below:
| December 31 | December 31 | |||||||||||
| 2009 | 2008 | Change | ||||||||||
|
Cash and cash equivalents
|
$ | 163.2 | $ | 58.0 | $ | 105.2 | ||||||
|
Other net tangible assets
|
290.8 | 387.4 | (96.6 | ) | ||||||||
|
|
||||||||||||
|
Net assets
|
454.0 | 445.4 | 8.6 | |||||||||
|
Advances from NACCO
|
— | (35.0 | ) | 35.0 | ||||||||
|
Other debt
|
(246.4 | ) | (256.0 | ) | 9.6 | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total equity
|
$ | 207.6 | $ | 154.4 | $ | 53.2 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Debt to total capitalization
|
54 | % | 65 | % | (11 | %) | ||||||
The $96.6 million decrease in other net tangible assets was primarily attributable to a decrease in
inventory primarily due to a reduction in production levels as a result of lower demand and a
reduction in accounts receivable primarily from the decline in revenues. The decrease was offset
by reduced accounts payable primarily due to the reduction in inventory and a decrease in other
current liabilities primarily as a result of cost containment actions, including reductions in
employee-related accruals, implemented in late 2008 and early 2009 and the payment of amounts
accrued at December 31, 2008 during 2009.
Total debt decreased due to the repayment of Advances from NACCO and payments of Other debt during
2009. Total equity, including noncontrolling interest, increased $53.2 million during 2009 as a
result of $79.7 million of cash and non-cash capital contributions from NACCO and a $21.7 million
decrease in accumulated other comprehensive loss, primarily due to changes in the cumulative
foreign currency translation and cash flow hedging amounts, partially offset by a $43.2 million net
loss, including noncontrolling interest of $0.1 million, and a $5.0 million declared dividend to
NACCO.
53
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
RELATED PARTY TRANSACTIONS
NMHG has a 20% ownership interest in NMHG Financial Services, Inc. (“NFS”), a joint venture with GE
Capital Corporation (“GECC”), formed primarily for the purpose of providing financial services to
independent Hyster
®
and Yale
®
lift truck dealers and National Account
customers in the United States. NMHG’s ownership in NFS is accounted for using the equity method
of accounting.
Generally, NMHG sells lift trucks through its independent dealer network or directly to customers.
These dealers and customers may enter into a financing transaction with NFS or other unrelated
third parties. NFS provides debt financing to dealers and lease financing to both dealers and
customers. NFS’ total purchases of Hyster
®
and Yale
®
lift trucks from
dealers, customers and directly from NMHG, such that NFS could provide lease financing to dealers
and customers, for the years ended December 31, 2009, 2008 and 2007 were $266.7 million, $428.3
million and $375.2 million, respectively. Of these amounts, $38.0 million, $73.9 million and $51.8
million for the years ended December 31, 2009, 2008 and 2007, respectively, were invoiced directly
from NMHG to NFS. Amounts receivable from NFS were $1.3 million and $8.6 million at December 31,
2009 and 2008, respectively.
Under the terms of the joint venture agreement with GECC, NMHG provides recourse for financing
provided by NFS to NMHG dealers. Additionally, the credit quality of a customer or concentration
issues within GECC may necessitate providing standby recourse or repurchase obligations for lift
trucks purchased by customers and financed through NFS. At December 31, 2009, approximately $106.4
million of the Company’s recourse or repurchase obligations of $140.2 million related to
transactions with NFS. NMHG has reserved for losses under the terms of the recourse or repurchase
obligations in its consolidated financial statements. Historically, NMHG has not had significant
losses with respect to these obligations. During 2009, 2008 and 2007, the net losses resulting
from customer defaults did not have a material impact on NMHG’s results of operations or financial
position.
In connection with the joint venture agreement, NMHG also provides a guarantee to GECC for 20% of
NFS’ debt with GECC, such that NMHG would become liable under the terms of NFS’ debt agreements
with GECC in the case of default by NFS. At December 31, 2009, loans from GECC to NFS totaled
$831.5 million. Although NMHG’s contractual guarantee was $166.3 million, the loans by GECC to NFS
are secured by NFS’ customer receivables, of which NMHG guarantees $106.4 million. Excluding the
$106.4 million of NFS receivables guaranteed by NMHG from NFS’ loans to GECC, NMHG’s incremental
obligation as a result of this guarantee to GECC is $145.0 million. NFS has not defaulted under
the terms of this debt financing in the past and although there can be no assurances, NMHG is not
aware of any circumstances that would cause NFS to default in future periods.
In addition to providing financing to NMHG’s dealers, NFS provides operating lease financing to
NMHG. Operating lease obligations primarily relate to specific sale-leaseback-sublease
transactions for certain NMHG customers whereby NMHG sells lift trucks to NFS, NMHG leases these
lift trucks back under an operating lease agreement and NMHG subleases those lift trucks to
customers under an operating lease agreement. Total obligations to NFS under the operating lease
agreements were $7.5 million and $7.6 million at December 31, 2009 and 2008, respectively. In
addition, NMHG provides certain subsidies to its customers that are paid directly to NFS. Total
subsidies were $5.4 million, $7.5 million and $7.7 million for 2009, 2008 and 2007, respectively.
NMHG provides certain services to NFS for which it receives compensation under the terms of the
joint venture agreement. These services consist primarily of administrative functions and
remarketing services. Total income recorded by NMHG related to these services was $7.6 million in
2009, $10.1 million in 2008 and $9.0 million in 2007.
NMHG has a 50% ownership interest in Sumitomo-NACCO Materials Handling Group, Ltd. (“SN”), a
limited liability company that was formed in 1970 to manufacture and distribute lift trucks in
Japan. Sumitomo Heavy Industries, Ltd. owns the remaining 50% interest in SN. Each shareholder of
SN is entitled to appoint directors representing 50% of the vote of SN’s board of directors. All
matters related to policies and programs of operation, manufacturing and sales activities require
mutual agreement between NMHG and Sumitomo Heavy Industries, Ltd. prior to a vote of SN’s board of
directors. As a result, NMHG accounts for its ownership in SN using the equity method of
accounting. NMHG purchases, under normal trade terms based on current market prices,
Hyster
®
- and Yale
®
-branded lift trucks and related component and aftermarket
parts from SN for sale outside of Japan. In 2009, 2008 and 2007, purchases from SN were $44.7
million, $116.0 million and $116.9 million, respectively. Amounts payable to SN at December 31,
2009 and 2008 were $15.1 million and $43.1 million, respectively.
During 2009, 2008 and 2007, NMHG recognized $1.8 million, $1.7 million and $2.0 million,
respectively, in expenses related to payments to SN for engineering design services. Additionally,
NMHG recognized income of $0.4 million, $1.6 million and $1.6 million during 2009, 2008 and 2007,
respectively, for payments from SN for use of technology developed by NMHG.
54
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| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
OUTLOOK
Global market levels for units and parts volumes appear to have stabilized in the second half of
2009. However, NMHG is not anticipating a market upturn of any significance in the first half of
2010, with the exception of China and Brazil, and is cautiously optimistic a moderate recovery in
other areas will begin in the second half of 2010. As a result, NMHG
expects moderate increases in bookings,
unit shipment levels and parts sales in 2010 compared with 2009, with gradual increases each
quarter.
NMHG took several actions in late 2008 and during 2009 to respond to depressed market conditions.
In 2009, NMHG announced and essentially completed the closure of one of its Italian facilities.
Estimated benefits from this restructuring program are approximately $3 million annually. This
program supplements the estimated benefits from the Irvine, Scotland restructuring program,
completed in the first quarter of 2009, of approximately $15 million annually. In addition,
estimated benefits at the current reduced workforce levels from the reduction-in-force programs
implemented over the last two years are approximately $50 million on a current annualized basis
with approximately 75 percent of the benefits related to manufacturing operations. Additional cost
containment actions taken during 2009 included capital expenditure restraints, additional planned
plant downtime, restrictions on spending and travel, suspension of incentive compensation and
profit-sharing, wage freezes and salary and benefit reductions. As the market begins to improve,
and as financial results permit, salary reductions and other suspended employee benefits will be
gradually restored, although NMHG will continue to monitor its operations closely and will make additional
adjustments if necessary.
Commodity costs appear to have stabilized and NMHG expects current levels to remain relatively
constant through 2010. Overall, despite some recent 2010 commodity cost increases, material costs are
expected to remain flat over the course of the year.
NMHG’s new electric-rider lift truck program and warehouse truck and big truck product development
programs are progressing as planned. The new electric-rider lift truck program is bringing a full
line of newly designed products to market. During 2009, NMHG introduced two series, the 1- to 2- ton
three- and four-wheel electric trucks in Europe and the 2- to 3- ton four-wheel electric trucks in
the Americas, all of which have been well received. NMHG introduced the 2- to 3- ton four-wheel
electric trucks in Europe in early 2010 and expects to introduce five additional series of
electric-rider lift trucks by the end of 2010. NMHG is also developing a new base-model internal
combustion engine lift truck aimed at the medium duty segment of the market.
The first lift trucks in this series are expected to be introduced in mid-2010, with a complete
roll-out by 2012. All of these new products are expected to help improve revenues and enhance
operating margins.
Overall, NMHG expects a net loss in the first half of 2010, with a more difficult first quarter.
However, the net loss is expected to be well below the loss realized in the first half of 2009.
Modest market improvements anticipated in the second half of 2010 are expected to generate about
break-even results for the full year, based on NMHG’s current
forecast of market conditions. Cash flow
before financing activities for 2010 is expected to be positive, but
significantly lower than 2009 since the working capital reductions
achieved in 2009 will not be repeated in 2010.
NMHG has been reviewing ways to strengthen its Hyster
®
and
Yale
®
dealer structure. As a result of this review, NMHG has adjusted its
policy to permit common representation by dealers of its two brands, Hyster
®
and Yale
®
, in defined territories, under
controlled conditions. NMHG will continue to focus on distribution effectiveness and on
capitalizing on its enhanced product and cost position to gain additional market share. It will
also continue its program of divesting its remaining retail dealerships to strong independent
dealers.
55
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
HAMILTON BEACH BRANDS, INC.
HBB’s business is seasonal and a majority of revenues and operating profit typically occurs in the
second half of the year when sales of small electric appliances to retailers and consumers increase
significantly for the fall holiday-selling season.
FINANCIAL REVIEW
Operating Results
The results of operations for HBB were as follows for the year ended December 31:
| 2009 | 2008 | 2007 | ||||||||||
|
Revenues
|
$ | 497.0 | $ | 528.7 | $ | 540.7 | ||||||
|
Operating profit (loss)
|
$ | 50.4 | $ | (60.8 | ) | $ | 42.2 | |||||
|
Interest expense
|
$ | (8.6 | ) | $ | (10.4 | ) | $ | (10.1 | ) | |||
|
Other income (expense)
|
$ | (0.3 | ) | $ | 0.6 | $ | (0.4 | ) | ||||
|
Net income (loss)
|
$ | 26.1 | $ | (73.3 | ) | $ | 19.5 | |||||
|
|
||||||||||||
|
Effective income tax rate
|
37.1 | % | (a | ) | 38.5 | % | ||||||
| (a) | The effective income tax rate is not meaningful. |
See the discussion of the consolidated effective income tax rate in the Consolidated Income Taxes
section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
2009 Compared with 2008
The following table identifies the components of change in revenues for 2009 compared with 2008:
| Revenues | ||||
|
|
||||
|
2008
|
$ | 528.7 | ||
|
|
||||
|
Increase (decrease) in 2009 from:
|
||||
|
Unit volume and mix
|
(32.9 | ) | ||
|
Foreign currency
|
(6.7 | ) | ||
|
Average sales price
|
7.9 | |||
|
|
||||
|
|
||||
|
2009
|
$ | 497.0 | ||
|
|
||||
Revenues decreased 6.0% in 2009 to $497.0 million compared with $528.7 million in 2008, primarily
due to a decline in unit volume as a result of reduced consumer spending from the weak global
economy along with reduced distribution to certain retailers, and unfavorable foreign currency
movements as the U.S. dollar strengthened against the Mexican peso and the Canadian dollar. The
decrease in revenues was partially offset by higher average sales prices in 2009 compared with
2008.
56
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
The following table identifies the components of change in operating profit (loss) for 2009
compared with 2008:
| Operating | ||||
| Profit (Loss) | ||||
|
2008
|
$ | (60.8 | ) | |
|
|
||||
|
Non-cash impairment charge
|
80.7 | |||
|
|
||||
|
|
19.9 | |||
|
|
||||
|
Increase in 2009 from:
|
||||
|
Gross profit
|
22.5 | |||
|
Selling, general and administrative expenses
|
7.7 | |||
|
Foreign currency
|
0.3 | |||
|
|
||||
|
|
||||
|
2009
|
$ | 50.4 | ||
|
|
||||
HBB recognized operating profit of $50.4 million in 2009 compared with an operating loss of $60.8
million in 2008, which includes a non-cash impairment charge for goodwill of $80.7 million due to
the decline in the Company’s stock price and uncertain market conditions during the fourth quarter
of 2008. Operating results increased primarily from an increase in gross profit from the favorable
effect of innovative new products, as well as reduced freight and product costs, partially offset
by lower unit volume. In addition, operating results were favorably impacted by lower selling,
general and administrative expenses mainly due to lower advertising expenses, lower professional
fees and a reduction in management fees charged by the parent company in 2009 compared with 2008.
See the discussion of “Management Fees” in the NACCO and Other section of Management’s Discussion
and Analysis of Financial Condition and Results of Operations in this Form 10-K.
HBB recognized net income of $26.1 million in 2009 compared with a net loss of $73.3 million in
2008. The change was mainly due to the increase in operating profit (loss) in 2009 and lower
interest expense.
2008 Compared with 2007
The following table identifies the components of change in revenues for 2008 compared with 2007:
| Revenues | ||||
|
|
||||
|
2007
|
$ | 540.7 | ||
|
|
||||
|
Increase (decrease) in 2008 from:
|
||||
|
Unit volume and mix
|
(13.6 | ) | ||
|
Foreign currency
|
(2.3 | ) | ||
|
Average sales price
|
3.9 | |||
|
|
||||
|
|
||||
|
2008
|
$ | 528.7 | ||
|
|
||||
Revenues decreased 2.2% in 2008 to $528.7 million compared with $540.7 million in 2007, primarily
as a result of lower unit volumes from a decrease in sales to key retailers in a weak U.S. consumer
market constrained by weak consumer purchasing activity as well as by foreign currency movements
during 2008 compared with 2007. These decreases were partially offset by a shift to sales of
higher-priced products and from higher average sales prices of products sold.
57
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
The following table identifies the components of change in operating profit (loss) for 2008
compared with 2007:
| Operating | ||||
| Profit (Loss) | ||||
|
2007
|
$ | 42.2 | ||
|
|
||||
|
Restructuring programs
|
0.5 | |||
|
|
||||
|
|
42.7 | |||
|
|
||||
|
Increase (decrease) in 2008 from:
|
||||
|
Gross profit
|
(29.4 | ) | ||
|
Selling, general and administrative expenses
|
5.9 | |||
|
Foreign currency
|
0.7 | |||
|
|
||||
|
|
19.9 | |||
|
|
||||
|
Non-cash impairment charge
|
(80.7 | ) | ||
|
|
||||
|
|
||||
|
2008
|
$ | (60.8 | ) | |
|
|
||||
HBB recognized an operating loss of $60.8 million in 2008 compared with operating profit of $42.2
million in 2007, which includes a non-cash impairment charge for goodwill of $80.7 million due to
the decline in the Company’s stock price and uncertain market conditions during the fourth quarter
of 2008 and a restructuring charge of $0.5 million in 2007. Operating profit decreased primarily
as a result of a reduction in gross profit mainly caused by increased product and freight costs,
lower unit volume, a shift in mix to higher-cost products and a lower of cost or market adjustment
to certain inventories. The reduction in gross profit was partially offset by the favorable effect
of new product introductions and placements and lower selling, general and administrative expenses.
Selling, general and administrative expenses declined primarily from lower employee-related
expenses and cost containment actions initiated in response to the weakening economy, partially
offset by an increase in HBB’s environmental liability due to the bankruptcy of a co-responsible
party and the absence of a favorable product liability adjustment recognized in 2007. Operating
profit was also favorably affected by foreign currency movements during 2008.
HBB recognized a net loss of $73.3 million in 2008 compared with net income of $19.5 million in
2007. The change was mainly due to the decrease in operating profit (loss) in 2008.
58
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
| The following tables detail the change in cash flow for the years ended December 31: |
| 2009 | 2008 | Change | ||||||||||
|
Operating activities:
|
||||||||||||
|
|
||||||||||||
|
Net income (loss)
|
$ | 26.1 | $ | (73.3 | ) | $ | 99.4 | |||||
|
Depreciation and amortization
|
3.7 | 4.2 | (0.5 | ) | ||||||||
|
Non-cash impairment charge
|
— | 80.7 | (80.7 | ) | ||||||||
|
Other
|
(0.6 | ) | (4.6 | ) | 4.0 | |||||||
|
Working capital changes
|
6.3 | 11.0 | (4.7 | ) | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash provided by operating activities
|
35.5 | 18.0 | 17.5 | |||||||||
|
|
||||||||||||
|
Investing activities:
|
||||||||||||
|
|
||||||||||||
|
Expenditures for property, plant and equipment
|
(2.1 | ) | (5.7 | ) | 3.6 | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash used for investing activities
|
(2.1 | ) | (5.7 | ) | 3.6 | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash flow before financing activities
|
$ | 33.4 | $ | 12.3 | $ | 21.1 | ||||||
|
|
||||||||||||
Net cash provided by operating activities increased $17.5 million primarily due to the change in
net income (loss), net of a non-cash impairment charge for goodwill and certain intangible assets
due to the decline in the Company’s stock price and uncertain market conditions during the fourth
quarter of 2008.
Net cash used for investing activities decreased primarily due to lower capital expenditures as a
result of cost containment actions implemented in late 2008 and early 2009.
| 2009 | 2008 | Change | ||||||||||
|
Financing activities:
|
||||||||||||
|
|
||||||||||||
|
Net reductions of long-term debt
and revolving credit agreements
|
$ | (3.3 | ) | $ | (35.6 | ) | $ | 32.3 | ||||
|
Cash dividends paid to NACCO
|
(3.0 | ) | — | (3.0 | ) | |||||||
|
Capital contribution from NACCO
|
— | 29.0 | (29.0 | ) | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash used for financing activities
|
$ | (6.3 | ) | $ | (6.6 | ) | $ | 0.3 | ||||
|
|
||||||||||||
Net cash used for financing activities decreased $0.3 million in 2009 compared with 2008, primarily
due to lower payments made on borrowings during 2009 compared with 2008, offset by the absence of
capital contributions from NACCO and a $3.0 million dividend paid to NACCO during 2009.
Financing Activities
HBB has a $115.0 million senior secured floating-rate revolving credit facility (the “HBB
Facility”) that expires July 31, 2012. The obligations under the HBB Facility are secured by a
first lien on the accounts receivable and inventory of HBB and a second lien on all of the other
assets of HBB. The approximate book value of HBB’s assets held as collateral for the first and
second lien under the HBB Facility was $220 million as of December 31, 2009.
59
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
The HBB Facility is governed by a borrowing base derived from advance rates against the inventory
and accounts receivable, as defined in the HBB Facility. Adjustments to reserves, including
derivative reserves, will change the eligible borrowing base. A portion of the availability can be
denominated in Canadian dollars to provide funding to HBB’s Canadian subsidiary. Borrowings bear
interest at a floating rate, which can be either a base rate, LIBOR or bankers’ acceptance rate, as
defined in the HBB Facility, plus an applicable margin. The applicable margins, effective December
31, 2009, for base rate loans and LIBOR loans denominated in U.S. dollars were 0.00% and 1.00%,
respectively. The applicable margins, effective December 31, 2009, for base rate and bankers’
acceptance loans denominated in Canadian dollars were 0.50% and 1.00%, respectively. The HBB
Facility also requires a fee of 0.20% per annum on the unused commitment. The margins and unused
commitment fee are subject to quarterly adjustment based on average excess availability.
At December 31, 2009, the borrowing base under the HBB Facility was $75.6 million. There were no
borrowings outstanding under the HBB Facility at December 31, 2009. The floating rate of interest
applicable to the HBB Facility at December 31, 2009 was 1.25% including the floating rate margin.
The HBB Facility includes restrictive covenants that, among other things, set limitations on
additional indebtedness (other than indebtedness under the HBB Facility and HBB Term Loan (defined
below)), investments, asset sales and the payment of dividends to NACCO. Subject to achieving
availability thresholds, annual dividends to NACCO are limited to $5.0 million plus 50% of HBB’s
net income since the closing date of the HBB Term Loan in 2007. The HBB Facility also requires HBB
to meet minimum fixed charge ratio tests in certain circumstances. At December 31, 2009, HBB was
in compliance with the covenants in the HBB Facility.
During 2007, HBB entered into a term loan agreement (the “HBB Term Loan”) that provided for term
loans up to an aggregate principal amount of $125.0 million. Borrowings outstanding under the HBB
Term Loan were $116.1 million at December 31, 2009. The term loans require quarterly principal
payments in an amount equal to 1% of the original principal amount per year for the term of the
loan, with the remaining balance to be paid at maturity in May 2013. Prior to maturity, the term
loans are subject to mandatory prepayments from the proceeds of the issuance of certain
indebtedness, certain asset sales and 50% of excess cash flow, as defined in the HBB Term Loan.
The obligations of HBB under the HBB Term Loan are secured by a second lien on accounts receivable
and inventory and a first lien on all of the other assets of HBB. The approximate book value of
HBB’s assets held as collateral for the first and second lien under the HBB Term Loan was $220
million as of December 31, 2009.
The term loans bear interest at a floating rate that, at HBB’s option, can be either a base rate or
LIBOR, as defined in the HBB Term Loan, plus an applicable margin. The applicable margins,
effective December 31, 2009, for base rate loans and LIBOR loans were 1.00% and 2.00%,
respectively. The applicable margins are subject to quarterly adjustment based on a leverage
ratio. The weighted average interest rate on the amount outstanding under the HBB Term Loan was
2.29% at December 31, 2009.
The HBB Term Loan contains restrictive covenants substantially similar to those in the HBB Facility
that, among other things, limit the amount of dividends HBB may declare and pay and the incurrence
of indebtedness (other than indebtedness under the HBB Facility). Dividends to NACCO are limited
to $5.0 million plus 50% of HBB’s net income since the closing date of the HBB Term Loan in 2007.
The HBB Term Loan also requires HBB to meet certain financial tests, including, but not limited to,
maximum total leverage ratio and minimum fixed charge coverage ratio tests. At December 31, 2009,
HBB was in compliance with the covenants in the HBB Term Loan.
HBB believes funds available from cash on hand at HBB and the Company, the HBB Facility and
operating cash flows will provide sufficient liquidity to meet its operating needs and commitments
arising during the next twelve months and until the HBB Facility expires in July 2012.
60
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
Contractual Obligations, Contingent Liabilities and Commitments
Following is a table which summarizes the contractual obligations of HBB as of December 31, 2009:
| Payments Due by Period | ||||||||||||||||||||||||||||
| Contractual Obligations | Total | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | |||||||||||||||||||||
|
HBB Term Loan
|
$ | 116.1 | $ | 1.3 | $ | 1.3 | $ | 1.2 | $ | 112.3 | $ | — | $ | — | ||||||||||||||
|
Variable interest payments on
HBB Term Loan
|
8.9 | 2.6 | 2.6 | 2.6 | 1.1 | — | — | |||||||||||||||||||||
|
Capital lease obligations including
principal and interest
|
0.4 | — | — | 0.1 | — | 0.1 | 0.2 | |||||||||||||||||||||
|
Purchase and other obligations
|
111.6 | 111.6 | — | — | — | — | — | |||||||||||||||||||||
|
Operating leases
|
17.0 | 5.6 | 3.5 | 1.9 | 1.8 | 1.9 | 2.3 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total contractual cash obligations
|
$ | 254.0 | $ | 121.1 | $ | 7.4 | $ | 5.8 | $ | 115.2 | $ | 2.0 | $ | 2.5 | ||||||||||||||
|
|
||||||||||||||||||||||||||||
HBB has a long-term liability of approximately $2.1 million for unrecognized tax benefits as of
December 31, 2009. At this time, the Company is unable to make a reasonable estimate of the timing
of payments due to, among other factors, the uncertainty of the timing and outcome of its audits.
An event of default, as defined in the HBB Facility, the HBB Term Loan and in HBB’s operating and
capital lease agreements, could cause an acceleration of the payment schedule. No such event of
default has occurred under these agreements.
HBB’s interest payments are calculated based upon HBB’s anticipated payment schedule and the
December 31, 2009 LIBOR rate and applicable margins, as defined in the HBB Term Loan. A 1/8%
increase in the LIBOR rate would increase HBB’s estimated total interest payments on the HBB’s Term
Loan by $0.5 million.
The purchase and other obligations are primarily for accounts payable, open purchase orders and
accrued payroll and incentive compensation.
Pension and post-retirement funding can vary significantly each year due to plan amendments,
changes in the market value of plan assets, legislation and the Company’s funding decisions to
contribute any excess above the minimum legislative funding requirements. As a result, pension and
post-retirement funding has not been included in the table above. Pension benefit payments are
made from assets of the pension plans. HBB contributed approximately $6.0 million and $1.2 million
to its U.S. and non-U.S. pension plans, respectively, in 2010. HBB expects to make payments
related to its other post-retirement plans of an additional amount of approximately $0.1 million
per year over the next ten years. Benefit payments beyond that time cannot currently be estimated.
Capital Expenditures
Following is a table which summarizes actual and planned capital expenditures:
| Planned | Actual | Actual | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
HBB
|
$ | 3.9 | $ | 2.1 | $ | 5.7 | ||||||
Planned expenditures for 2010 are primarily for tooling for new products. These expenditures are
expected to be funded from internally generated funds and bank borrowings.
61
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
Capital Structure
HBB’s capital structure is presented below:
| December 31 | ||||||||||||
| 2009 | 2008 | Change | ||||||||||
|
Cash and cash equivalents
|
$ | 34.1 | $ | 6.8 | $ | 27.3 | ||||||
|
Other net tangible assets
|
69.4 | 74.6 | (5.2 | ) | ||||||||
|
|
||||||||||||
|
Net assets
|
103.5 | 81.4 | 22.1 | |||||||||
|
Total debt
|
(116.3 | ) | (119.6 | ) | 3.3 | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total equity (deficit)
|
$ | (12.8 | ) | $ | (38.2 | ) | $ | 25.4 | ||||
|
|
||||||||||||
|
|
||||||||||||
|
Debt to total capitalization
|
(a | ) | (a | ) | (a | ) | ||||||
| (a) | Debt to total capitalization is not meaningful. |
Net assets increased $22.1 million at December 31, 2009 compared with December 31, 2008, primarily
due to a $27.3 million increase in cash partially offset by a decrease in other net tangible
assets. The decrease in other net tangible assets was primarily due to a decrease in deferred
taxes partially offset by an increase in long-term pension obligations and derivative liabilities.
Total debt decreased as a result of repayments made during 2009. Total equity (deficit) changed
primarily due to HBB’s net income of $26.1 million during 2009 and a $2.3 million decrease in
accumulated other comprehensive loss due to a decrease in the cumulative foreign currency
translation adjustment and a decrease in the pension adjustment. This was partially offset by a
$3.0 million dividend paid to NACCO during 2009.
OUTLOOK
The small kitchen appliance market in which HBB participates appears to be recovering. However,
while consumer confidence and other key indicators have improved
compared with 2009, the pace and sustainability of
the upturn is uncertain because consumers continue to struggle with financial concerns and high
unemployment rates. Accordingly, HBB anticipates revenues in 2010 to be comparable or slightly
lower than in 2009.
Despite the challenging economic environment, HBB continues to focus on strengthening its market
position through product innovation, promotions and branding programs, together with appropriate
levels of advertising for its highly successful Brewstation
®
coffee maker and
Stay-or-Go
®
slow cooker lines. In 2010, HBB expects to continue to introduce innovative
products in several small appliance categories. In addition, HBB is expected to launch a line of
Melitta-branded beverage appliances under its new licensing agreement. These products, as well as
other new product introductions in the pipeline for 2010, are expected to affect revenues
favorably.
Overall, full-year 2010 net income and cash flow before financing activities are currently expected
to be lower than 2009. Margins are expected to be somewhat lower and expenses somewhat higher than
in 2009. HBB continues to monitor commodity costs closely and
will adjust product prices and placements
as appropriate if product costs increase. Certain employee-related benefit programs, which were suspended at the beginning of
2009, were partially phased back in during the fourth quarter of 2009 and are expected to be fully
restored in 2010.
Longer term, HBB will continue to work to improve revenues and profitability by remaining focused
on developing consumer-driven innovative products, improving efficiencies, reducing costs, gaining
placements and pursuing additional strategic growth opportunities.
62
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
THE KITCHEN COLLECTION, INC.
KC’s business is seasonal and a majority of revenues and operating profit typically occurs in the
second half of the year when sales of small electric appliances to consumers increase significantly
for the fall holiday-selling season.
FINANCIAL REVIEW
Operating Results
The results of operations for KC were as follows for the year ended December 31:
| 2009 | 2008 | 2007 | ||||||||||
|
Revenues
|
$ | 213.9 | $ | 202.3 | $ | 210.0 | ||||||
|
Operating profit (loss)
|
$ | 6.7 | $ | (12.2 | ) | $ | 0.5 | |||||
|
Interest expense
|
$ | (0.4 | ) | $ | (1.1 | ) | $ | (1.8 | ) | |||
|
Other income (expense)
|
$ | (0.1 | ) | $ | — | $ | (0.1 | ) | ||||
|
Net income (loss)
|
$ | 3.9 | $ | (10.0 | ) | $ | (0.9 | ) | ||||
|
|
||||||||||||
|
Effective income tax rate
|
37.1 | % | 24.8 | % | 35.7 | % | ||||||
See the discussion of the consolidated effective income tax rate in the Consolidated Income Taxes
section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
2009 Compared with 2008
The following table identifies the components of change in revenues for 2009 compared with 2008:
| Revenues | ||||
|
2008
|
$ | 202.3 | ||
|
|
||||
|
Increase (decrease) in 2009 from:
|
||||
|
New store sales
|
9.7 | |||
|
KC comparable store sales
|
4.7 | |||
|
LGC comparable store sales
|
1.8 | |||
|
Closed stores
|
(4.6 | ) | ||
|
|
||||
|
|
||||
|
2009
|
$ | 213.9 | ||
|
|
||||
Revenues increased 5.7% in 2009 to $213.9 million compared with $202.3 million in 2008, primarily
as a result of the effect of opening new stores and an increase in comparable store sales at KC and
LGC. The increase in revenue was partially offset by the impact of closing unprofitable stores.
The increase in KC’s comparable store sales was mainly due to an increase in sales transactions and
customer visits partially offset by a lower average sales transaction value. The increase in
comparable store sales at LGC was primarily due to a higher average sales transaction value and
customer visits partially offset by fewer sales transactions. At December 31, 2009, KC operated
219 stores compared with 202 stores at December 31, 2008. The number of KC stores at December 31,
2009 included nine seasonal stores kept open after the 2008 holiday season and eleven new stores
opened during the fourth quarter of 2009 as a result of leasing opportunities to enter into
short-term leases with favorable terms for stores that would have otherwise been opened as seasonal
stores. LGC operated 77 stores at December 31, 2009 compared with 83 stores at December 31, 2008.
63
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
The following table identifies the components of change in operating profit (loss) for 2009
compared with 2008:
| Operating | ||||
| Profit (Loss) | ||||
|
2008
|
$ | (12.2 | ) | |
|
|
||||
|
Non-cash impairment charge
|
3.9 | |||
|
|
||||
|
|
(8.3 | ) | ||
|
|
||||
|
Increase in 2009 from:
|
||||
|
LGC comparable stores
|
6.2 | |||
|
KC comparable stores
|
3.9 | |||
|
Selling, general and administrative expenses
|
3.2 | |||
|
Closed stores
|
0.7 | |||
|
New stores
|
0.6 | |||
|
Other
|
0.4 | |||
|
|
||||
|
|
||||
|
2009
|
$ | 6.7 | ||
|
|
||||
KC recorded operating profit of $6.7 million in 2009 compared with an operating loss of $12.2
million in 2008 primarily due to higher gross margins caused by lower product and freight costs at
both LGC and KC. In addition, operating profit (loss) was favorably affected by fewer markdowns at
LGC in 2009 compared with 2008. Selling, general and administrative expenses decreased as a result
of a decrease in warehousing costs as a result of the movement of the LGC warehouse from a
third-party provider to a KC-managed distribution operation in 2008 and from other administrative
cost-control measures implemented in early 2009.
KC reported net income of $3.9 million in 2009 compared with a net loss of $10.0 million in 2008
primarily due to the factors affecting the change in operating profit (loss).
2008 Compared with 2007
The following table identifies the components of change in revenues for 2008 compared with 2007:
| Revenues | ||||
|
2007
|
$ | 210.0 | ||
|
|
||||
|
Increase (decrease) in 2008 from:
|
||||
|
LGC comparable store sales
|
(11.0 | ) | ||
|
Closed stores
|
(6.1 | ) | ||
|
New store sales
|
8.9 | |||
|
KC comparable store sales
|
0.5 | |||
|
|
||||
|
|
||||
|
2008
|
$ | 202.3 | ||
|
|
||||
Revenues decreased 3.7% in 2008 to $202.3 million compared with $210.0 million in 2007, primarily
as a result of a decrease in comparable store sales at LGC, primarily due to fewer customer visits,
a lower number of sales transactions and lower average sales transactions. Revenues were also
lower as a result of the impact of closing unprofitable stores. The decrease in revenues was partially offset by the effect of opening new stores and higher comparable
store sales at KC mainly due to higher average sales transactions. The net impact of opening new
stores and closing unprofitable stores caused the number of KC stores to increase to 202 stores at
December 31, 2008 from 198 stores at December 31, 2007, while LGC operated 83 stores at December
31, 2008 compared with 74 stores at December 31, 2007.
64
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| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
The following table identifies the components of change in operating profit (loss) for 2008
compared with 2007:
| Operating | ||||
| Profit (Loss) | ||||
|
2007
|
$ | 0.5 | ||
|
|
||||
|
(Increase) decrease in 2008 from:
|
||||
|
LGC comparable stores
|
(7.2 | ) | ||
|
New stores
|
(1.8 | ) | ||
|
KC comparable stores
|
(1.7 | ) | ||
|
Selling, general and administrative expenses
|
1.1 | |||
|
Closed stores
|
0.8 | |||
|
|
||||
|
|
(8.3 | ) | ||
|
|
||||
|
Non-cash impairment charge
|
(3.9 | ) | ||
|
|
||||
|
|
||||
|
2008
|
$ | (12.2 | ) | |
|
|
||||
KC recorded an operating loss of $12.2 million in 2008 compared with operating profit of $0.5
million in 2007. The change in operating results was primarily due to lower comparable LGC store
results attributable to fewer sales coupled with significant mark-downs on discontinued products
due to a change in format and a substantial updating of the product offering, as well as a non-cash
impairment charge for goodwill and other intangible assets due to the decline in the Company’s
stock price and uncertain market conditions during the fourth quarter of 2008. In addition, the
initial unfavorable effect of opening new stores as well as a decrease in comparable KC store
results mainly as a result of lower margins from promotional mark-downs also contributed to the
decrease in operating profit (loss). The decrease in operating profit (loss) was partially offset
by a reduction in selling, general and administrative expenses primarily due to lower
employee-related expenses and professional fees during 2008 compared with 2007 and the impact of
closing unprofitable stores.
KC reported a net loss of $10.0 million in 2008 compared with $0.9 million in 2007 primarily due to
the factors affecting the change in operating profit (loss), partially offset by lower interest
expense due to lower interest rates on outstanding borrowings.
65
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| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following tables detail the change in cash flow for the years ended December 31:
| 2009 | 2008 | Change | ||||||||||
|
Operating activities:
|
||||||||||||
|
|
||||||||||||
|
Net income (loss)
|
$ | 3.9 | $ | (10.0 | ) | $ | 13.9 | |||||
|
Depreciation and amortization
|
3.7 | 3.0 | 0.7 | |||||||||
|
Non-cash impairment charge
|
— | 3.9 | (3.9 | ) | ||||||||
|
Other
|
0.1 | 0.7 | (0.6 | ) | ||||||||
|
Working capital changes
|
(2.3 | ) | (4.0 | ) | 1.7 | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash provided by (used for) operating activities
|
5.4 | (6.4 | ) | 11.8 | ||||||||
|
|
||||||||||||
|
Investing activities:
|
||||||||||||
|
|
||||||||||||
|
Expenditures for property, plant and equipment
|
(1.0 | ) | (6.0 | ) | 5.0 | |||||||
|
Other
|
(0.1 | ) | — | (0.1 | ) | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash used for investing activities
|
(1.1 | ) | (6.0 | ) | 4.9 | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash flow before financing activities
|
$ | 4.3 | $ | (12.4 | ) | $ | 16.7 | |||||
|
|
||||||||||||
Net cash provided by (used for) operating activities increased $11.8 million primarily due to the
change in net income (loss), net of a non-cash impairment charge for goodwill and certain
intangible assets due to the decline in the Company’s stock price and uncertain market
conditions during the fourth quarter of 2008.
The decrease in expenditures for property, plant and equipment was primarily due to the addition of
fixtures and equipment at the new LGC distribution operations and for fixtures and equipment at new
stores during 2008.
| 2009 | 2008 | Change | ||||||||||
|
Financing activities:
|
||||||||||||
|
|
||||||||||||
|
Net additions (reductions) to long-term debt
and revolving credit agreement
|
$ | — | $ | (0.1 | ) | $ | 0.1 | |||||
|
Financing fees paid
|
— | (0.1 | ) | 0.1 | ||||||||
|
Capital contribution from NACCO
|
3.0 | 11.8 | (8.8 | ) | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash provided by financing activities
|
$ | 3.0 | $ | 11.6 | $ | (8.6 | ) | |||||
|
|
||||||||||||
Net cash provided by financing activities decreased $8.6 million primarily from a smaller capital
contribution from NACCO in 2009 compared with 2008.
Financing Activities
KC’s financing is provided by a $20.0 million secured floating-rate revolving line of credit (the
“KC Facility”) that expires in July 2010. The obligations under the KC Facility are secured by
substantially all assets of KC. The approximate book value of KC’s assets held as collateral under
the KC Facility was $80 million as of December 31, 2009. The availability is derived from a
borrowing base formula using KC’s eligible inventory, as defined in the KC Facility. At December
31, 2009, the borrowing base, as defined in the KC Facility, was $20.0 million. There were no
borrowings outstanding under the KC Facility at December 31, 2009. Therefore, at December 31,
2009, the excess availability under the KC Facility was $20.0 million. The KC Facility requires a
fee of 0.25% per annum on the unused commitment. Borrowings bear interest at LIBOR
66
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| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
plus 2.85%. The KC Facility includes restrictive covenants that, among other things, limit capital
expenditures and require that borrowings do not exceed $4.0 million for 30 consecutive days from
December 15 to February 13. The KC Facility also prohibits the payment of dividends to NACCO. At
December 31, 2009, KC was in compliance with the covenants in the KC Facility.
KC believes funds available from cash on hand at KC and the Company, the KC Facility and operating
cash flows will provide sufficient liquidity to meet its operating needs and commitments arising
until the KC Facility expires in July 2010.
Contractual Obligations, Contingent Liabilities and Commitments
Following is a table which summarizes the contractual obligations of KC as of December 31, 2009:
| Payments Due by Period | ||||||||||||||||||||||||||||
| Contractual Obligations | Total | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | |||||||||||||||||||||
|
Purchase and other obligations
|
$ | 38.9 | $ | 38.9 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
Operating leases
|
63.3 | 16.8 | 13.8 | 10.6 | 7.4 | 4.9 | 9.8 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total contractual cash obligations
|
$ | 102.2 | $ | 55.7 | $ | 13.8 | $ | 10.6 | $ | 7.4 | $ | 4.9 | $ | 9.8 | ||||||||||||||
|
|
||||||||||||||||||||||||||||
An event of default, as defined in KC’s operating lease agreements, could cause an acceleration of
the payment schedule. No such event of default has occurred under these agreements.
The purchase and other obligations are primarily for accounts payable, open purchase orders and
accrued payroll.
Capital Expenditures
Following is a table which summarizes actual and planned capital expenditures:
| Planned | Actual | Actual | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
KC
|
$ | 2.6 | $ | 1.0 | $ | 6.0 | ||||||
Planned expenditures in 2010 for property, plant and equipment are primarily for store fixtures and
equipment at new or existing stores and improvements to KC’s information technology infrastructure.
These expenditures are expected to be funded from internally generated funds and bank borrowings.
Capital Structure
KC’s capital structure is presented below.
| December 31 | ||||||||||||
| 2009 | 2008 | Change | ||||||||||
|
Cash and cash equivalents
|
$ | 8.5 | $ | 1.2 | $ | 7.3 | ||||||
|
Other net tangible assets
|
36.1 | 36.3 | (0.2 | ) | ||||||||
|
|
||||||||||||
|
Net assets
|
44.6 | 37.5 | 7.1 | |||||||||
|
Total debt
|
— | — | — | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total equity
|
$ | 44.6 | $ | 37.5 | $ | 7.1 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Debt to total capitalization
|
(a | ) | (a | ) | (a | ) | ||||||
| (a) | Debt to total capitalization is not meaningful. |
Total equity increased during 2009 due to KC’s net income of $3.9 million and $3.2 million of cash
and non-cash capital contributions from NACCO.
67
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| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
OUTLOOK
While consumer spending remains constrained by financial concerns and high unemployment rates, the
outlet mall market appears to be improving. KC expects a modest increase in revenue in 2010
compared with 2009 due to the continued strength of the Kitchen Collection
®
and Le
Gourmet Chef
®
stores. Favorable sales and margin trends that occurred in the
reformatted Le Gourmet Chef
®
stores in the second half of 2009 are expected to continue
in 2010. In addition, KC plans to continue to make further improvements to the merchandise mix
in the Le Gourmet Chef
®
stores. The opening of new store locations and KC’s aggressive
efforts to close or renegotiate leases for underperforming stores, whenever possible, are also
expected to provide improved results in 2010.
Overall, KC anticipates a moderate increase in full year net income for 2010 compared with 2009.
Cash flow before financing activities is expected to be comparable with 2009.
Longer term, KC plans to focus on enhancing sales volumes through continued enhancement of its
Kitchen Collection
®
and Le Gourmet Chef
®
store formats, which are designed to
respond to consumer preferences by strengthening its merchandise mix, store displays and
appearance, optimizing store selling space and generating sales growth. KC also expects to achieve
store growth in both the Kitchen Collection
®
and Le Gourmet Chef
®
outlet and
traditional mall store formats over the longer term while maintaining disciplined cost control.
However, the closure of underperforming stores in 2010 will result in a near-term reduction in the
number of Le Gourmet Chef
®
stores.
THE NORTH AMERICAN COAL CORPORATION
NACoal mines and markets coal primarily as fuel for power generation and provides selected
value-added mining services for other natural resources companies. Lignite is surface mined in
North Dakota, Texas and Mississippi. Total coal reserves approximate 2.2 billion tons with
approximately 1.2 billion tons committed to customers pursuant to long-term contracts. NACoal has
two consolidated mining operations: San Miguel Lignite Mine (“San Miguel”) and Mississippi Lignite
Mining Company (“MLMC”). NACoal has six unconsolidated mining operations: The Coteau Properties
Company (“Coteau”), The Falkirk Mining Company (“Falkirk”), The Sabine Mining Company (“Sabine”),
(collectively, the “project mining subsidiaries”), Demery Resources Company, LLC (“Demery”), Caddo
Creek Resources Company, LLC (“Caddo Creek”) and Camino Real Fuels, LLC (“Camino Real”). Demery,
Caddo Creek and Camino Real are developing plans to build mines and therefore do not currently mine
or deliver coal. NACoal also provides dragline mining services for independently owned limerock
quarries in Florida. During 2009, NACoal completed the sale of certain assets of the Red River.
The results of operations of Red River are reflected as discontinued operations.
The contracts with the project mining subsidiaries’ utility customers allow each mine to sell
lignite coal at a price based on actual cost plus an agreed pre-tax profit per ton or cost plus a
management fee. The pre-tax earnings of these mines are reported on the line “Earnings of
unconsolidated mines” in the Consolidated Statements of Operations with related taxes included in
the line “Income tax provision.”
FINANCIAL REVIEW
Tons delivered by NACoal’s operating lignite mines were as follows for the year ended December 31:
| 2009 | 2008 | 2007 | ||||||||||
|
Coteau
|
15.1 | 14.7 | 14.8 | |||||||||
|
Falkirk
|
8.1 | 7.5 | 7.9 | |||||||||
|
Sabine
|
3.3 | 4.1 | 4.2 | |||||||||
|
|
||||||||||||
|
Unconsolidated mines
|
26.5 | 26.3 | 26.9 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
San Miguel
|
3.2 | 3.1 | 2.9 | |||||||||
|
MLMC
|
3.7 | 3.0 | 3.4 | |||||||||
|
|
||||||||||||
|
Consolidated mines
|
6.9 | 6.1 | 6.3 | |||||||||
|
|
||||||||||||
|
Total lignite tons sold
|
33.4 | 32.4 | 33.2 | |||||||||
|
|
||||||||||||
The limerock dragline mining operations delivered 3.6 million, 22.0 million and 37.6 million cubic
yards of limerock for the years ended December 31, 2009, 2008 and 2007, respectively. The decrease
in limerock yards delivered during 2009 and 2008 was a result of an unfavorable legal ruling that
set aside NACoal’s customers’ mining permits at most of the limerock dragline mining operations and
a reduction in customer requirements due to a decline in the southern Florida housing and
68
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
construction markets. Red River sold 0.7 million, 0.6 million and 0.5 million tons of lignite in
2009, 2008 and 2007, respectively.
Total coal reserves were as follows at December 31:
| 2009 | 2008 | 2007 | ||||||||||
| (in billions of tons) | ||||||||||||
|
|
||||||||||||
|
Unconsolidated mines
|
1.1 | 1.1 | 1.1 | |||||||||
|
Consolidated Mines
|
1.1 | 1.1 | 1.2 | |||||||||
|
|
||||||||||||
|
Total coal reserves
|
2.2 | 2.2 | 2.3 | |||||||||
|
|
||||||||||||
Operating Results
The results of operations for NACoal were as follows for the year ended December 31:
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Revenues
|
$ | 129.5 | $ | 115.3 | $ | 124.4 | ||||||
|
Operating profit
|
$ | 42.6 | $ | 29.8 | $ | 43.1 | ||||||
|
Interest expense
|
$ | (4.1 | ) | $ | (5.5 | ) | $ | (7.0 | ) | |||
|
Other income (expense)
|
$ | 0.9 | $ | (1.3 | ) | $ | 0.6 | |||||
|
Income from continuing operations
|
$ | 30.6 | $ | 19.8 | $ | 30.4 | ||||||
|
Discontinued operations
|
$ | 22.6 | $ | 2.3 | $ | 0.6 | ||||||
|
Net income
|
$ | 53.2 | $ | 22.1 | $ | 31.0 | ||||||
|
|
||||||||||||
|
Effective income tax rate
|
22.3 | % | 13.9 | % | 17.2 | % | ||||||
See the discussion of the consolidated effective income tax rate in the Consolidated Income Taxes
section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
2009 Compared with 2008
The following table identifies the components of change in revenues for 2009 compared with 2008:
| Revenues | ||||
|
|
||||
|
2008
|
$ | 115.3 | ||
|
|
||||
|
Increase (decrease) in 2009 from:
|
||||
|
Consolidated coal mining operations
|
22.8 | |||
|
Other
|
2.2 | |||
|
Limerock dragline mining operations
|
(10.8 | ) | ||
|
|
||||
|
|
||||
|
2009
|
$ | 129.5 | ||
|
|
||||
Revenues for 2009 increased 12.3% to $129.5 million from $115.3 million in 2008. Revenues
increased mainly due to higher revenues at the consolidated coal mining operations primarily
attributable to an increase in tons delivered and contractual price escalation at MLMC and an
increase in revenues from the contractual pass-through costs at San Miguel. In addition, NACoal
recognized higher revenues from other mining services during 2009. The increase was partially
offset by fewer yards delivered at the Florida limerock dragline mining operations primarily
attributable to an unfavorable legal ruling that set aside NACoal’s customers’ mining permits at
most of the limerock dragline mining operations. The decrease at the limerock dragline mining
operations was partially offset by an increase in revenues from contractual pass-through costs.
69
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
The following table identifies the components of change in operating profit for 2009 compared with
2008.
| Operating | ||||
| Profit | ||||
|
|
||||
|
2008
|
$ | 29.8 | ||
|
|
||||
|
Increase (decrease) in 2009 from:
|
||||
|
Gain on the sale of assets
|
8.5 | |||
|
Consolidated coal and limerock dragline mining operating profit
|
5.6 | |||
|
Other
|
2.2 | |||
|
Selling, general and administrative expenses
|
(2.7 | ) | ||
|
Earnings of unconsolidated mines
|
(0.8 | ) | ||
|
|
||||
|
|
||||
|
2009
|
$ | 42.6 | ||
|
|
||||
Operating profit increased to $42.6 million in 2009 from $29.8 million in 2008, primarily from
gains on the sale of assets mainly due to the receipt of bonus payments for the lease of certain
oil and gas mineral rights to a third party in 2009, higher consolidated coal and limerock dragline
mining operating profit and higher revenues from other mining services. The increase in
consolidated coal and limerock dragline mining operating profit was mainly from increased tonnage
and contractual price escalation at MLMC and improved results at the limerock dragline mining
operations as a result of amending most of NACoal’s limerock dragline mining agreements to change
them to cost reimbursable management fee contracts during the second half of 2008. The increase
was partially offset by higher selling, general and administrative expenses and a decrease in
earnings of the unconsolidated mines primarily due to a decrease in contractual price escalators.
Selling, general and administrative expenses increased primarily from higher employee-related
expenses and higher management fees charged by the parent company. See additional discussion of
“Management Fees” in the NACCO and Other section of Management’s Discussion and Analysis of
Financial Condition and Results of Operations in this Form 10-K.
Net income increased to $53.2 million in 2009 from $22.1 million in 2008 primarily from the gain on
the sale of certain assets of Red River of $35.8 million ($22.3 million after taxes of $13.5
million) in 2009. In addition, net income also improved due to the increase in operating profit,
lower interest expense from lower average outstanding borrowings and lower interest rates and an
increase in other income (expense) mainly due to a gain on an ineffective interest rate swap
contract during 2009 compared with a loss during 2008.
2008 Compared with 2007
The following table identifies the components of change in revenues for 2008 compared with 2007:
| Revenues | ||||
|
|
||||
|
2007
|
$ | 124.4 | ||
|
|
||||
|
Increase (decrease) in 2008 from:
|
||||
|
Limerock dragline mining operations
|
(10.5 | ) | ||
|
Consolidated coal mining operations
|
0.8 | |||
|
Other
|
0.6 | |||
|
|
||||
|
|
||||
|
2008
|
$ | 115.3 | ||
|
|
||||
Revenues for 2008 decreased $9.1 million to $115.3 million from $124.4 million in 2007. The
decrease was primarily due to fewer yards delivered at the limerock dragline mining operations
primarily attributable to lower demand from the continuing decline in the southern Florida housing
and construction markets. The decrease was partially offset by higher sales at the
consolidated coal mining operations and improved royalty income included in Other in the table
above. The increase in sales from the consolidated coal mining operations was primarily due to an
increase in contractual pass-through of costs at San
70
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
Miguel and contractual price escalation at MLMC, partially offset by a decrease in tons delivered
at MLMC due largely to a planned customer power plant outage in 2008.
The following table identifies the components of change in operating profit for 2008 compared with
2007.
| Operating | ||||
| Profit | ||||
|
|
||||
|
2007
|
$ | 43.1 | ||
|
|
||||
|
Increase (decrease) in 2008 from:
|
||||
|
Consolidated coal and limerock dragline mining operating profit
|
(10.6 | ) | ||
|
2007 arbitration award
|
(3.7 | ) | ||
|
Other
|
(0.7 | ) | ||
|
Earnings of unconsolidated project mining subsidiaries
|
1.7 | |||
|
|
||||
|
|
||||
|
2008
|
$ | 29.8 | ||
|
|
||||
Operating profit decreased to $29.8 million in 2008 from $43.1 million in 2007, primarily as a
result of lower consolidated coal and limerock mining operating profit mainly due to lower tons
delivered at MLMC due to a planned customer power plant outage in 2008 and lower limerock yards
delivered. In addition, operating profit was unfavorably affected by higher cost of sales during
2008 at MLMC primarily from the capitalization of fixed costs over lower production levels in prior
years and by the absence of an arbitration award that was received in 2007. Operating profit was
favorably affected by contractual price escalation at the unconsolidated project mining
subsidiaries.
Net income in 2008 decreased to $22.1 million from $31.0 million in 2007 as a result of the factors
affecting operating profit and to a lesser extent a reduction in other income (expense) primarily
as a result of the ineffectiveness of interest rate swap contracts and the impairment of an equity
investment during 2008. The decrease was partially offset by lower interest expense due to lower
average outstanding borrowings and lower interest rates during 2008 compared with 2007.
71
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following tables detail the change in cash flow for the years ended December 31:
| 2009 | 2008 | Change | ||||||||||
|
Operating activities:
|
||||||||||||
|
|
||||||||||||
|
Net income
|
$ | 53.2 | $ | 22.1 | $ | 31.1 | ||||||
|
Depreciation, depletion and amortization expense
|
9.0 | 9.5 | (0.5 | ) | ||||||||
|
Other
|
(8.9 | ) | 5.2 | (14.1 | ) | |||||||
|
Working capital changes
|
19.7 | (15.9 | ) | 35.6 | ||||||||
|
Discontinued operations
|
(31.0 | ) | 2.3 | (33.3 | ) | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash provided by operating activities
|
42.0 | 23.2 | 18.8 | |||||||||
|
|
||||||||||||
|
Investing activities:
|
||||||||||||
|
|
||||||||||||
|
Expenditures for property, plant and equipment
|
(10.5 | ) | (12.1 | ) | 1.6 | |||||||
|
Proceeds from the sale of assets
|
9.4 | 1.4 | 8.0 | |||||||||
|
Investments in other unconsolidated affiliates
|
(5.4 | ) | (4.9 | ) | (0.5 | ) | ||||||
|
Discontinued operations
|
41.0 | (0.3 | ) | 41.3 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash provided by (used for) investing activities
|
34.5 | (15.9 | ) | 50.4 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash flow before financing activities
|
$ | 76.5 | $ | 7.3 | $ | 69.2 | ||||||
|
|
||||||||||||
The increase in net cash provided by operating activities was primarily the result of changes in
working capital partially offset by the change in other non-cash items during 2009 compared with
2008. The change in working capital was primarily the result of a decrease in intercompany
receivables for tax advances from NACCO during 2009 compared with an increase in 2008, an increase
in accounts payable during 2009 compared with a decrease in 2008 due to the timing of payments and
a slight increase in accrued payroll in 2009 compared with a decrease in 2008. In addition, the
change in other non-cash items was primarily from an increase in gains on the sale of assets during
2009 compared with 2008 and the change in deferred taxes.
Net cash provided by (used for) investing activities increased primarily due to the cash proceeds
received related to the sale of Red River in 2009, which is included in discontinued operations,
and an increase in proceeds received from the sale of assets during 2009 compared with 2008.
| 2009 | 2008 | Change | ||||||||||
|
Financing activities:
|
||||||||||||
|
|
||||||||||||
|
Reductions of long-term debt and revolving credit agreements
|
$ | (23.9 | ) | $ | (17.2 | ) | $ | (6.7 | ) | |||
|
Cash dividends paid to NACCO
|
(12.5 | ) | (7.2 | ) | (5.3 | ) | ||||||
|
Intercompany loans
|
(38.4 | ) | 17.3 | (55.7 | ) | |||||||
|
Financing fees paid
|
(1.1 | ) | — | (1.1 | ) | |||||||
|
Other
|
— | (0.1 | ) | 0.1 | ||||||||
|
Discontinued operations
|
— | (0.1 | ) | 0.1 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash used for financing activities
|
$ | (75.9 | ) | $ | (7.3 | ) | $ | (68.6 | ) | |||
|
|
||||||||||||
72
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
Net cash used for financing activities increased during 2009 compared with 2008 primarily due to
the repayment of intercompany loans and other debt and an increase in the amount of dividends paid
to NACCO.
Financing Activities
NACoal has an unsecured revolving line of credit of up to $100.0 million (the “NACoal Facility”)
that expires in October 2012. Borrowings outstanding under the NACoal Facility were $7.0 million
at December 31, 2009. Therefore, at December 31, 2009, the excess availability under the NACoal
Facility was $93.0 million.
The NACoal Facility has performance-based pricing, which sets interest rates based upon achieving
various levels of debt to EBITDA ratios, as defined in the NACoal Facility. Borrowings bear
interest at either a base rate plus a margin of 1.75% or LIBOR plus a margin of 2.75%. The NACoal
Facility also has a commitment fee of 0.50% per year on the unused commitment. The floating rate
of interest applicable to the NACoal Facility at December 31, 2009 was 5.25% including the floating
rate margin.
The NACoal Facility also contains restrictive covenants that require, among other things, NACoal to
maintain certain debt to EBITDA and interest coverage ratios and provides the ability to make
loans, dividends and advances to NACCO, with some restrictions based on the debt to EBITDA ratio
and achieving availability thresholds. At December 31, 2009, NACoal was in compliance with these
covenants.
During 2004 and 2005, NACoal issued unsecured notes totaling $45.0 million in a private placement
(the “NACoal Notes”), which require annual principal payments of approximately $6.4 million that
began in October 2008 and will mature on October 4, 2014. These unsecured notes bear interest at a
weighted-average fixed rate of 6.08%, payable semi-annually on April 4 and October 4. The NACoal
Notes are redeemable at any time at the option of NACoal, in whole or in part, at an amount equal
to par plus accrued and unpaid interest plus a “make-whole premium,” if applicable. NACoal had
$32.1 million of the private placement notes outstanding at December 31, 2009. The NACoal Notes
contain certain covenants and restrictions that require, among other things, NACoal to maintain
certain net worth, leverage and interest coverage ratios, and limit dividends to NACCO based upon
NACoal’s leverage ratio. At December 31, 2009, NACoal was in compliance with the covenants in the
NACoal Notes.
NACoal has a demand note payable to Coteau which bears interest based on the applicable quarterly
federal short-term interest rate as announced from time to time by the Internal Revenue Service.
At December 31, 2009, the balance of the note was $7.7 million and the interest rate was 0.75%.
NACoal believes funds available from the NACoal Facility and operating cash flows will provide
sufficient liquidity to finance its operating needs and commitments arising during the next 12
months and until the expiration of the NACoal Facility in October 2012.
Contractual Obligations, Contingent Liabilities and Commitments
Following is a table which summarizes the contractual obligations of NACoal as of December 31,
2009:
| Payments Due by Period | ||||||||||||||||||||||||||||
| Contractual Obligations | Total | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | |||||||||||||||||||||
|
NACoal Facility
|
$ | 7.0 | $ | 7.0 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
Variable interest payments on
NACoal Facility
|
0.3 | 0.3 | — | — | — | — | — | |||||||||||||||||||||
|
NACoal Notes
|
32.1 | 6.4 | 6.4 | 6.4 | 6.4 | 6.5 | — | |||||||||||||||||||||
|
Interest payments on NACoal Notes
|
5.4 | 1.8 | 1.5 | 1.1 | 0.7 | 0.3 | — | |||||||||||||||||||||
|
Other debt
|
7.7 | — | — | — | — | — | 7.7 | |||||||||||||||||||||
|
Purchase and other obligations
|
20.8 | 20.8 | — | — | — | — | — | |||||||||||||||||||||
|
Operating leases
|
32.2 | 7.2 | 5.4 | 4.6 | 4.5 | 4.2 | 6.3 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total contractual cash obligations
|
$ | 105.5 | $ | 43.5 | $ | 13.3 | $ | 12.1 | $ | 11.6 | $ | 11.0 | $ | 14.0 | ||||||||||||||
|
|
||||||||||||||||||||||||||||
NACoal has a long-term liability of approximately $1.3 million for unrecognized tax benefits as of
December 31, 2009. At this time, the Company is unable to make a reasonable estimate of the timing
of payments due to, among other factors, the uncertainty of the timing and outcome of its audits.
An event of default, as defined in the NACoal Facility, NACoal Notes and NACoal’s lease agreements,
could cause an acceleration of the payment schedule. No such event of default has occurred or is
anticipated to occur.
73
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
NACoal’s variable interest payments are calculated based upon NACoal’s anticipated payment schedule
and the December 31, 2009 LIBOR rate and applicable margins, as defined in the NACoal Facility. A
1/8% increase in the LIBOR rate would increase NACoal’s estimated total interest payments on the
NACoal Facility by less than $0.1 million.
The purchase and other obligations are primarily for accounts payable, open purchase orders and
accrued payroll and incentive compensation.
Pension and postretirement funding can vary significantly each year due to plan amendments, changes
in the market value of plan assets, legislation and the Company’s funding decisions to contribute
any excess above the minimum legislative funding requirements. As a result, pension and
post-retirement funding has not been included in the table above. NACoal does not expect to
contribute to its pension plan in 2010. NACoal maintains one supplemental retirement plan that
pays monthly benefits to participants directly out of corporate funds and expects to pay benefits
of approximately $0.3 million per year through 2011 and $0.4 million per year from 2012 through
2019. Benefit payments beyond that time cannot currently be estimated. All other pension benefit
payments are made from assets of the pension plans. NACoal also expects to make payments related
to its other postretirement plans of approximately $0.1 million in 2010 and $0.2 million per year
from 2011 through 2019. Benefit payments beyond that time cannot currently be estimated.
Capital Expenditures
Following is a table which summarizes actual and planned capital expenditures:
| Planned | Actual | Actual | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
NACoal
|
$ | 10.7 | $ | 10.5 | $ | 12.1 | ||||||
Planned expenditures for 2010 include mine equipment and development. These expenditures are
expected to be funded from internally generated funds and bank borrowings.
Capital Structure
NACoal’s capital structure is presented below:
| December 31 | ||||||||||||
| 2009 | 2008 | Change | ||||||||||
|
Cash and cash equivalents
|
$ | 1.6 | $ | 1.0 | $ | 0.6 | ||||||
|
Other net tangible assets
|
108.6 | 127.6 | (19.0 | ) | ||||||||
|
Coal supply agreement and other intangibles, net
|
63.5 | 66.4 | (2.9 | ) | ||||||||
|
|
||||||||||||
|
Net assets
|
173.7 | 195.0 | (21.3 | ) | ||||||||
|
Advances from NACCO
|
— | (38.3 | ) | 38.3 | ||||||||
|
Other debt
|
(46.8 | ) | (70.7 | ) | 23.9 | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total equity
|
$ | 126.9 | $ | 86.0 | $ | 40.9 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Debt to total capitalization
|
27 | % | 56 | % | (29 | )% | ||||||
The decrease in other net tangible assets is due primarily to an increase in net intercompany tax
payables. Total debt decreased due to the repayment of Advances from NACCO and Other debt during
2009.
Total equity increased primarily due to net income of $53.2 million, partially offset by dividends
paid to NACCO of $12.5 million during 2009.
OUTLOOK
NACoal expects steady performance at its coal mining operations in 2010 provided that
customers achieve currently planned power plant operating levels. As a result, tons delivered at
the coal mines in 2010 are expected to be comparable to 2009. Royalty income in 2010 is
expected to be moderately lower than 2009.
74
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
Limerock deliveries are expected to be significantly higher in 2010 than in 2009. In early 2010,
the U.S. Army Corps of Engineers began issuing new mining permits for NACoal’s limerock customers in the lake
belt region where an unfavorable legal ruling terminated the customers’ previous mining permits.
As a result, most of NACoal’s limerock operations are expected to be operating again by the end of
the first quarter. However, production will ramp up slowly and not all mining permits will be
issued at once. In addition, although these mines will be back in production, production levels
are expected to continue at low rates in 2010 because of the
continued depressed levels of the southern Florida housing and
construction markets. Delivery levels are not expected to return to
2008 levels until those
markets recover.
NACoal has a number of new projects that are expected to begin to generate modest income during
2010. These projects are in start-up and development phases and will not be fully operational for
several years. In the second quarter of 2009, NACoal entered into a contract mining services
agreement to mine approximately 300,000 to 400,000 tons of coal annually for a new
customer, with initial deliveries expected to commence in 2010. In addition, in the third quarter
of 2009, NACoal entered into a contract mining services agreement to mine approximately 650,000
tons of coal annually for a customer that currently purchases coal from Sabine,
with initial deliveries expected to commence in 2013. Finally, in the fourth quarter of 2009,
NACoal entered into a contract mining services agreement to mine approximately 2.7 million tons of
coal annually for a new customer, with initial deliveries expected to commence in
2012.
NACoal also has a number of new project opportunities for which it expects to continue to incur
additional expenses in 2010. NACoal continues to seek permitting at its Otter Creek reserve in
North Dakota in preparation for the expected construction of a new mine. The permit is anticipated
to be issued in mid-2010. In addition, NACoal continues to work on a project with Mississippi
Power to provide lignite coal to a new coal-fired Integrated Gasification Combined Cycle power
plant expected to be built in Mississippi.
Overall,
NACoal expects full year 2010 income from continuing operations to
increase moderately
over 2009 income from continuing operations, after excluding
the lease bonus payments of $7.1 million received during the third quarter of 2009. Cash flow
before financing activities in 2010 is expected to be positive, but down significantly from 2009
after excluding the effect of the Red River sale and lease bonus payments, as a result of changes in working capital.
NACoal’s
contract at San Miguel expires at the end of 2010. NACoal intends to respond to San Miguel
Electric’s “Request for Proposal” to operate the mine
beyond 2010.
Over the longer term, NACoal expects to continue its efforts to develop new mining projects.
NACoal is actively pursuing domestic opportunities for new coal mining projects which
include prospects for power generation, coal-to-liquids, coal gasification and other clean coal
technologies. Further, NACoal is encouraged that more new international value-added mining services
projects for coal and other aggregates may become available, as
evidenced by NACoal’s recent agreement for mining services in
India. NACoal also continues to pursue
additional non-coal mining opportunities outside of the United States.
75
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
NACCO AND OTHER
NACCO and Other includes the parent company operations and Bellaire. Although Bellaire’s
operations are immaterial, it has long-term liabilities related to closed mines, primarily from
former Eastern U.S. underground coal mining activities.
FINANCIAL REVIEW
Operating Results
The results of operations at NACCO and Other were as follows for the year ended December 31:
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Revenues
|
$ | — | $ | — | $ | — | ||||||
|
Operating loss
|
$ | (9.4 | ) | $ | (2.3 | ) | $ | (3.8 | ) | |||
|
Other income (expense)
|
$ | (2.0 | ) | $ | 2.5 | $ | 6.7 | |||||
|
Net income (loss)
|
$ | (9.0 | ) | $ | (0.4 | ) | $ | 1.6 | ||||
NACCO and Other’s operating loss increased to $9.4 million in 2009 compared with $2.3 million in
2008. The increase was primarily due to higher employee-related expenses, a reduction in
management fees charged to the subsidiaries, an impairment charge recognized in connection with the
buy-out of a capital lease asset, and higher professional fees during 2009. The change in other
income was primarily due to lower interest income at the parent company from lower levels of cash
investments and lower interest rates on investments. NACCO and Other recorded a net loss for 2009
of $9.0 million compared with $0.4 million in 2008, primarily due to the factors affecting
operating loss and other income (expense).
The decrease in operating loss in 2008 compared with 2007 is primarily attributable to lower
employee-related expenses in 2008 and the absence of expenses related to the cancelled spin-off of
Hamilton Beach, Inc. (“Hamilton Beach”), recognized in 2007. The decrease in operating loss was
partially offset by higher professional fees and lower management fees charged to the operating
subsidiaries during 2008. The change in other income was primarily due to lower interest income at
the parent company from lower levels of cash investments and lower interest rates on investments
offset by a decrease in transaction expenses related to the Applica transaction, as discussed in
the Applica Transaction section in Management’s Discussion and Analysis of Financial Position and
Results of Operations. NACCO and Other recorded a net loss for 2008 of $0.4 million compared with
net income of $1.6 million in 2007, due to the factors affecting operating loss and other income
(expense).
Applica Transaction
In 2006, the Company initiated litigation in the Delaware Chancery Court against Applica
Incorporated (“Applica”) and individuals and entities affiliated with Applica’s shareholder,
Harbinger Capital Partners Master Fund I, Ltd. The litigation is on-going and alleges a number of
contract and tort claims against the defendants related to the failed transaction with Applica,
which had been previously announced. In its claims, the Company seeks monetary damages and any
appropriate equitable relief.
Transaction related expenses were $1.1 million and $0.8 million in 2009 and 2008 for NACCO and
Other and $1.6 million for NACCO and Other and $0.2 million for HBB in 2007. The Company expects
to incur a higher level of litigation costs during 2010 related to this matter. The unsuccessful
merger costs related to the Applica transaction and on-going litigation have been recorded in
“Other income (expense)” in the Consolidated Statement of Operations.
HBB Spin-off
On April 26, 2007, NACCO announced that its Board of Directors approved a plan to spin off Hamilton
Beach to NACCO stockholders. On August 27, 2007, the Company announced that, in light of
volatility and uncertainty in the capital markets, NACCO’s Board of Directors had decided not to
pursue the tax-free spin-off of Hamilton Beach to NACCO stockholders. NACCO and Other and HBB
incurred $1.4 million and $0.9 million, respectively, of expenses for professional fees related to
this transaction, which have been included in “Selling, general and administrative expenses” for
the year ended December 31, 2007.
Management Fees
The parent company charges management fees to its operating subsidiaries for services provided by
the corporate headquarters. The management fees are based upon estimated parent company resources
devoted to providing centralized
76
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
services and stewardship activities and are allocated among all of its subsidiaries based upon the
relative size and complexity of each subsidiary. In order to determine the allocation of
management fees among the subsidiaries each year, the parent company reviews the time its employees
devoted to each operating subsidiary during the prior year and the estimated costs for providing
centralized services and stewardship activities in the next year to determine the amount of
management fees to allocate to each operating subsidiary for that year. In addition, the parent
company reviews the amount of management fees allocated to its operating subsidiaries each quarter
to ensure the amount continues to be reasonable based on the actual costs incurred to date. The
Company believes the allocation method is consistently applied and reasonable.
Following are the parent company management fees included in each subsidiary’s selling, general and
administrative expenses for the year ended December 31:
| 2009 | 2008 | 2007 | ||||||||||
|
NMHG
|
$ | 6.3 | $ | 9.0 | $ | 10.4 | ||||||
|
HBB
|
$ | 2.1 | $ | 3.4 | $ | 4.1 | ||||||
|
KC
|
$ | 0.1 | $ | 0.1 | $ | — | ||||||
|
NACoal
|
$ | 3.0 | $ | 1.4 | $ | 1.6 | ||||||
LIQUIDITY AND CAPITAL RESOURCES
Although NACCO’s subsidiaries have entered into substantial borrowing agreements, NACCO has not
guaranteed any borrowings of its subsidiaries. The borrowing agreements at NMHG, HBB, KC and
NACoal allow for the payment to NACCO of dividends and advances under certain circumstances.
Dividends (to the extent permitted by its subsidiaries’ borrowing agreements), advances and
management fees from its subsidiaries are the primary sources of cash for NACCO.
The Company believes funds available from cash on hand, its subsidiaries’ credit facilities and
anticipated funds generated from operations are sufficient to finance all of its scheduled
principal repayments, operating needs and commitments arising during the next twelve months and
until the expiration of its subsidiaries’ credit facilities.
Contractual Obligations, Contingent Liabilities and Commitments
Following is a table which summarizes the contractual obligations of NACCO and Other as of December
31, 2009:
| Contractual Obligations | Total | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | |||||||||||||||||||||
|
Operating leases
|
$ | 4.7 | $ | 0.6 | $ | 0.6 | $ | 0.6 | $ | 0.6 | $ | 0.6 | $ | 1.7 | ||||||||||||||
|
Purchase and other obligations
|
6.2 | 6.2 | — | — | — | — | — | |||||||||||||||||||||
|
Total contractual cash obligations
|
$ | 10.9 | $ | 6.8 | $ | 0.6 | $ | 0.6 | $ | 0.6 | $ | 0.6 | $ | 1.7 | ||||||||||||||
Pension and postretirement funding can vary significantly each year due to plan amendments, changes
in the market value of plan assets, legislation and the Company’s funding decisions to contribute
any excess above the minimum legislative funding requirements. As a result, pension and
postretirement funding has not been included in the table above. NACCO and Other maintains one
supplemental retirement plan that pays monthly benefits to participants directly out of corporate
funds. Annual benefit payments are expected to be less than $0.1 million per year over the next
ten years. Benefit payments beyond that time cannot currently be estimated. All other pension
benefit payments are made from assets of the pension plans. NACCO and Other expects to contribute
$0.1 million to its pension plan during 2010. NACCO and Other also expects to make payments
related to its other postretirement plans of less than $0.1 million per year over the next ten
years. Benefit payments beyond that time cannot currently be estimated.
The purchase and other obligations are primarily for accounts payable, open purchase orders,
accrued payroll and incentive compensation.
77
Table of Contents
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
Capital Structure
NACCO’s consolidated capital structure is presented below:
| December 31 | ||||||||||||
| 2009 | 2008 | Change | ||||||||||
|
Cash and cash equivalents
|
$ | 256.2 | $ | 138.2 | $ | 118.0 | ||||||
|
Other net tangible assets
|
501.4 | 615.2 | (113.8 | ) | ||||||||
|
Coal supply agreements and other intangibles, net
|
63.5 | 66.4 | (2.9 | ) | ||||||||
|
|
||||||||||||
|
Net assets
|
821.1 | 819.8 | 1.3 | |||||||||
|
Total debt
|
(409.5 | ) | (449.1 | ) | 39.6 | |||||||
|
Closed mine obligations, net-of-tax
|
(14.5 | ) | (13.8 | ) | (0.7 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total equity
|
$ | 397.1 | $ | 356.9 | $ | 40.2 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Debt to total capitalization
|
51 | % | 56 | % | (5 | )% | ||||||
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2009, the FASB issued authoritative guidance for accounting for transfers of financial
assets which is effective for the Company on January 1, 2010. The guidance requires more
information about transfers of financial assets, including securitization transactions, and where
entities have continuing exposure to the risks related to transferred financial assets. The
guidance eliminates the concept of a “qualifying special-purpose entity” and changes the
requirements for derecognizing financial assets. The guidance also requires enhanced disclosures
to provide financial statement users with greater transparency about transfers of financial assets
and a transferor’s continuing involvement with transferred financial assets. The Company does not
expect the adoption of the guidance to have a material effect on its financial position, results of
operations, cash flows or related disclosures.
In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest
entities which is effective for the Company on January 1, 2010. The guidance changes how a
reporting entity determines when an entity that is insufficiently capitalized or is not controlled
through voting (or similar rights) should be consolidated. The guidance requires an ongoing
assessment of whether an entity is the primary beneficiary of a variable interest entity and
eliminates the quantitative approach previously required for determining the primary beneficiary of
a variable interest entity. The guidance also requires additional disclosures regarding a
company’s involvement with variable interest entities, any significant changes in risk exposure due
to that involvement and how the company’s involvement with a variable interest entity affects the
company’s financial statements. The Company does not expect the adoption of the guidance to have a
material effect on its financial position, results of operations, cash flows or related
disclosures.
In October 2009, the FASB issued authoritative guidance on multiple-deliverable revenue
arrangements which is effective for the Company on January 1, 2011 for new revenue arrangements or
material modifications to existing agreements. The guidance amends the criteria for separating
consideration in multiple-deliverable arrangements. This guidance establishes a selling price
hierarchy for determining the selling price of a deliverable, which is based on: (a)
vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also
eliminates the residual method of allocation and requires that arrangement consideration be
allocated at the inception of the arrangement to all deliverables using the relative selling price
method. In addition, this guidance significantly expands required disclosures related to a vendor’s
multiple-deliverable revenue arrangements. The Company is currently evaluating the effect the
adoption of the guidance will have on its financial position, results of operations, cash flows and
related disclosures.
EFFECTS OF FOREIGN CURRENCY
NMHG and HBB operate internationally and enter into transactions denominated in foreign currencies.
As a result, the Company is subject to the variability that arises from exchange rate movements.
The effects of foreign currency on operating results at NMHG and HBB are discussed above. The
Company’s use of foreign currency derivative contracts is discussed in Item 7A, “Quantitative and
Qualitative Disclosures about Market Risk,” of this Form 10-K.
ENVIRONMENTAL MATTERS
The Company’s current and previous manufacturing operations, like those of other companies engaged
in similar businesses, involve the use, disposal and cleanup of substances regulated under
environmental protection laws. The Company’s NACoal
78
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| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data) |
and Bellaire subsidiaries are affected by the regulations of agencies under which they operate,
particularly the Federal Office of Surface Mining, the United States Environmental Protection
Agency and associated state regulatory authorities. In addition, NACoal and Bellaire closely
monitor proposed legislation concerning the Clean Air Act Amendments of 1990, reauthorization of
the Resource Conservation and Recovery Act, the Clean Water Act, the Endangered Species Act and
other regulatory actions.
Compliance with these increasingly stringent standards could result in higher expenditures for both
capital improvements and operating costs. The Company’s policies stress environmental
responsibility and compliance with these regulations. Based on current information, management
does not expect compliance with these regulations to have a material adverse effect on the
Company’s financial condition or results of operations. See Item 1 in Part I of this Form 10-K for
further discussion of these matters.
FORWARD-LOOKING STATEMENTS
The statements contained in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and elsewhere throughout this Annual Report on Form 10-K that are not
historical facts are “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are made subject to certain risks and uncertainties, which could cause
actual results to differ materially from those presented in these forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after the date hereof.
Such risks and uncertainties with respect to each subsidiary’s operations include, without
limitation:
NMHG:
(1) reduction in demand for lift trucks and related aftermarket parts and service on a
global basis, including the ability of NMHG’s dealers, suppliers and end-users to obtain financing
at reasonable rates, or at all, as a result of current economic conditions, (2) changes in sales
prices, (3) delays in delivery or increases in costs, including transportation costs, of raw
materials or sourced products and labor, (4) exchange rate fluctuations, changes in foreign import
tariffs and monetary policies and other changes in the regulatory climate in the foreign countries
in which NMHG operates and/or sells products, (5) delays in, increased costs from or reduced
benefits from restructuring programs, (6) customer acceptance of, changes in the costs of, or
delays in the development of new products, (7) introduction of new products by, or more favorable
product pricing offered by, NMHG’s competitors, (8) delays in manufacturing and delivery schedules,
(9) changes in or unavailability of suppliers, (10) bankruptcy of or loss of major dealers, retail
customers or suppliers, (11) product liability or other litigation, warranty claims or returns of
products, (12) the effectiveness of the cost reduction programs implemented globally, including the
successful implementation of procurement and sourcing initiatives, (13) acquisitions and/or
dispositions of dealerships by NMHG, (14) changes mandated by federal, state and other regulation,
including health, safety or environmental legislation and (15) the ability of NMHG to obtain future
financing on reasonable terms or at all.
HBB:
(1) changes in the sales prices, product mix or levels of consumer purchases of small
electric appliances, (2) changes in consumer retail and credit markets, (3) bankruptcy of or loss
of major retail customers or suppliers, (4) changes in costs, including transportation costs, of
sourced products, (5) delays in delivery of sourced products, (6) changes in, or unavailability of
quality or cost effective, suppliers, (7) exchange rate fluctuations, changes in the foreign import
tariffs and monetary policies and other changes in the regulatory climate in the foreign countries
in which HBB buys, operates and/or sells products, (8) product liability, regulatory actions or
other litigation, warranty claims or returns of products, (9) customer acceptance of, changes in
costs of, or delays in the development of new products, (10) increased competition, including
consolidation within the industry, (11) changes mandated by federal, state and other regulation,
including health, safety or environmental legislation, (12) the ability of HBB and its customers
and suppliers to access credit in the current economic environment and (13) the ability of HBB to
obtain future financing on reasonable terms or at all.
KC:
(1) changes in gasoline prices, weather conditions, the level of consumer confidence and
disposable income as a result of the current financial crisis or other events or other conditions
that may adversely affect the number of customers visiting Kitchen Collection
®
and Le
Gourmet Chef
®
stores, (2) changes in the sales prices, product mix or levels of consumer
purchases of kitchenware, small electric appliances and gourmet foods, (3) changes in costs,
including transportation costs, of inventory, (4) delays in delivery or the unavailability of
inventory, (5) customer acceptance of new products, (6) increased competition and (7) the ability
of KC to obtain future financing on reasonable terms or at all.
NACoal:
(1) weather conditions, extended power plant outages or other events that would change the
level of customers’ lignite coal or limerock requirements, (2) weather or equipment problems that
could affect lignite coal or limerock deliveries to customers, (3) changes in mining permit
requirements that could affect deliveries to customers, (4) changes in costs related to geological
conditions, repairs and maintenance, new equipment and replacement parts, fuel or other similar
items, (5) costs to
pursue and develop new mining opportunities, including costs in connection with NACoal’s joint
ventures, (6) changes in tax laws or regulatory requirements, including changes in power plant emission
regulations and health, safety or environmental legislation, (7) changes in the power industry that
would affect demand for NACoal’s reserves and (8) the ability of NACoal’s utility customers to
access credit markets to maintain current liquidity.
79
Table of Contents
| Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
INTEREST RATE RISK
The Company’s subsidiaries, NMHG, HBB, KC and NACoal, have entered into certain financing
arrangements that require interest payments based on floating interest rates. As such, the
Company’s financial results are subject to changes in the market rate of interest. To reduce the
exposure to changes in the market rate of interest, the Company has entered into interest rate swap
agreements for a significant portion of its floating rate financing arrangements. The Company does
not enter into interest rate swap agreements for trading purposes. Terms of the interest rate swap
agreements require the subsidiaries to receive a variable interest rate and pay a fixed interest
rate. See also Note 2 and Note 11 to the Consolidated Financial Statements in this Form 10-K.
In addition, NACoal has fixed rate debt arrangements. For purposes of risk analysis, the Company
uses sensitivity analysis to measure the potential loss in fair value of financial instruments
sensitive to changes in interest rates. The Company assumes that a loss in fair value is an
increase to its liabilities. NACoal’s fixed rate debt arrangements have a fair value based on
Company estimates of $32.2 million at December 31, 2009. Assuming a hypothetical 10% decrease in
the effective interest yield on this fixed rate debt, the fair value of this liability would
increase by $0.5 million compared with the fair value of this liability at December 31, 2009. The
fair value of the Company’s interest rate swap agreements was a liability of $20.8 million at
December 31, 2009. A hypothetical 10% decrease in interest rates would cause a decrease in the
fair value of interest rate swap agreements and the resulting fair value would be a liability of
$21.9 million.
FOREIGN CURRENCY EXCHANGE RATE RISK
NMHG and HBB operate internationally and enter into transactions denominated in foreign currencies.
As such, their financial results are subject to the variability that arises from exchange rate
movements. NMHG and HBB use forward foreign currency exchange contracts to partially reduce risks
related to transactions denominated in foreign currencies and not for trading purposes. These
contracts generally mature within twelve months and require the companies to buy or sell British
pounds, euros, Japanese yen, Australian dollars, Canadian dollars, Swedish kroner and Mexican pesos
for the functional currency in which the applicable subsidiary operates at rates agreed to at the
inception of the contracts. The fair value of these contracts was a net liability of $0.1 million
at December 31, 2009. See also Notes 2 and Note 11 to the Consolidated Financial Statements in
this Form 10-K.
For purposes of risk analysis, the Company uses sensitivity analysis to measure the potential loss
in fair value of financial instruments sensitive to changes in foreign currency exchange rates.
The Company assumes that a loss in fair value is either a decrease to its assets or an increase to
its liabilities. Assuming a hypothetical 10% strengthening of the U.S. dollar compared with other
foreign currencies at December 31, 2009, the fair value of foreign currency-sensitive financial
instruments, which primarily represents forward foreign currency exchange contracts, would decline
by $2.4 million compared with its fair value at December 31, 2009. It is important to note that
the loss in fair value indicated in this sensitivity analysis would be somewhat offset by changes
in the fair value of the underlying receivables and payables.
COMMODITY PRICE RISK
The Company uses certain commodities, including steel, lead, resins, linerboard and diesel fuel, in
the normal course of its manufacturing, distribution and mining processes. As such, the cost of
operations is subject to variability as the market for these commodities changes. The Company
monitors this risk and, from time to time, enters into derivative contracts to hedge this risk.
The Company does not currently have any such derivative contracts outstanding, nor does the Company
have any significant purchase obligations to obtain fixed quantities of commodities in the future.
80
Table of Contents
| Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The information required by this Item 8 is set forth in the Financial Statements and Supplementary
Data contained in Part IV of this Form 10-K and is hereby incorporated herein by reference to such
information.
| Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
There were no disagreements with accountants on accounting and financial disclosure for the three
year period ended December 31, 2009.
Item 9A
.
CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures:
An evaluation was carried out under the
supervision and with the participation of the Company’s management, including the principal
executive officer and the principal financial officer, of the effectiveness of the Company’s
disclosure controls and procedures as of the end of the period covered by this report. Based on
that evaluation, these officers have concluded that the Company’s disclosure controls and
procedures are effective.
Management’s report on internal control over financial reporting:
Management is responsible for
establishing and maintaining adequate internal control over financial reporting. Under the
supervision and with the participation of management, including the principal executive officer and
principal financial officer, the Company conducted an evaluation of the effectiveness of internal
control over financial reporting based on the framework in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation under the framework in Internal Control — Integrated Framework, management concluded
that the Company’s internal control over financial reporting was effective as of December 31, 2009.
The Company’s effectiveness of internal control over financial reporting as of December 31, 2009
has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated
in its report, which is included in Item 15 of this Form 10-K and incorporated herein by reference.
Changes in internal control:
During the fourth quarter of 2009, there have been no changes in the
Company’s internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B
.
OTHER INFORMATION
None.
| Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Information with respect to Directors of the Company will be set forth in the 2010 Proxy Statement
under the subheadings “Business to be Transacted — 1. Election of Directors — Director Nominee
Information” and “—Beneficial Ownership of Class A Common and Class B Common,” which information
is incorporated herein by reference.
Information with respect to the audit review committee and the audit review committee financial
expert will be set forth in the 2010 Proxy Statement under the heading “Business to be Transacted
— 1. Election of Directors — Directors’ Meetings and Committees,” which information is
incorporated herein by reference.
Information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 by
the Company’s Directors, executive officers and holders of more than ten percent of the Company’s
equity securities will be set forth in the 2010 Proxy Statement under the subheading “Business to
be Transacted — 1. Election of Directors — Section 16(a) Beneficial Ownership Reporting
Compliance,” which information is incorporated herein by reference.
Information regarding the executive officers of the Company is included in this Form 10-K as Item
4A of Part I as permitted by Instruction 3 to Item 401(b) of Regulation S-K.
The Company has adopted a code of ethics applicable to all Company personnel, including the
principal executive officer, principal financial officer, principal accounting officer or
controller, or other persons performing similar functions. The code of ethics, entitled the “Code
of Corporate Conduct,” is posted on the Company’s website at
http://www.nacco.com
under
“Corporate Governance.” Amendments and waivers of the Company’s Code of Corporate Conduct for
directors or executive officers of the Company, if any, will be disclosed on the Company’s website
or on a current report on Form 8-K.
81
Table of Contents
| Item 11. | EXECUTIVE COMPENSATION |
Information with respect to executive compensation will be set forth in the 2010 Proxy Statement
under the subheadings “Business to be Transacted — 1. Election of Directors — Director
Compensation” and “— Executive Compensation,” which information is incorporated herein by
reference.
| Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information with respect to security ownership of certain beneficial owners and management will be
set forth in the 2010 Proxy Statement under the subheading “Business to be Transacted — 1.
Election of Directors — Beneficial Ownership of Class A Common and Class B Common,” which
information is incorporated herein by reference.
Information with respect to compensation plans (including individual compensation arrangements)
under which equity securities are authorized for issuance will be set forth in the 2010 Proxy
Statement under the subheading “Business to be Transacted — 4. Approval for purposes of Section
162(m) of the Internal Revenue Code, of the NACCO Industries, Inc. Annual Incentive Compensation
Plan (Effective January 1, 2010),” which information is incorporated herein by reference.
| Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Information with respect to certain relationships and related transactions will be set forth in the
2010 Proxy Statement under the subheadings “Business to be Transacted — 1. Election of Directors
— Directors’ Meetings and Committees” and “— Certain Business Relationships,” which information
is incorporated herein by reference.
| Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Information with respect to principal accountant fees and services will be set forth in the 2010
Proxy Statement under the heading “Business to be Transacted — 6. Confirmation of Appointment of
Independent Registered Public Accounting Firm for the Current Fiscal Year,” which information is
incorporated herein by reference.
| Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) (1) and (2) The response to Item 15(a)(1) and (2) is set forth beginning at page F-1 of this
Form 10-K.
(a) (3) Listing of Exhibits — See the exhibit index beginning at page X-1 of this Form 10-K.
(b) The response to Item 15(b) is set forth beginning at page X-1 of this Form 10-K.
(c) Financial Statement Schedules — The response to Item 15(c) is set forth beginning at page F-52
of this Form 10-K.
82
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
NACCO Industries, Inc.
|
||||
| By: | /s/ Kenneth C. Schilling | |||
| Kenneth C. Schilling | ||||
|
Vice President and Controller
(principal financial and accounting officer) |
||||
March 2, 2010
83
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
/s/ Alfred M. Rankin, Jr.
|
Chairman, President and Chief Executive Officer (principal executive officer), Director | March 2, 2010 | ||
|
Alfred M. Rankin, Jr.
|
||||
|
|
||||
|
/s/ Kenneth C. Schilling
|
Vice President and Controller (principal financial and accounting officer) | March 2, 2010 | ||
|
|
||||
|
* Owsley Brown II
|
Director | March 2, 2010 | ||
|
Owsley Brown II
|
||||
|
|
||||
|
* Dennis W. LaBarre
|
Director | March 2, 2010 | ||
|
Dennis W. LaBarre
|
||||
|
|
||||
|
* Richard de J. Osborne
|
Director | March 2, 2010 | ||
|
Richard de J. Osborne
|
||||
|
|
||||
|
* Ian M. Ross
|
Director | March 2, 2010 | ||
|
Ian M. Ross
|
||||
|
|
||||
|
* Michael E. Shannon
|
Director | March 2, 2010 | ||
|
Michael E. Shannon
|
||||
|
|
||||
|
* Britton T. Taplin
|
Director | March 2, 2010 | ||
|
Britton T. Taplin
|
||||
|
|
||||
|
* David F. Taplin
|
Director | March 2, 2010 | ||
|
David F. Taplin
|
||||
|
|
||||
|
* John F. Turben
|
Director | March 2, 2010 | ||
|
|
||||
|
John F. Turben
|
||||
|
|
||||
|
* Eugene Wong
|
Director | March 2, 2010 | ||
|
Eugene Wong
|
| * | Kenneth C. Schilling, by signing his name hereto, does hereby sign this Form 10-K on behalf of each of the above named and designated directors of the Company pursuant to a Power of Attorney executed by such persons and filed with the Securities and Exchange Commission. |
| /s/ Kenneth C. Schilling | March 2, 2010 | |||
| Kenneth C. Schilling, Attorney-in-Fact | ||||
84
Table of Contents
ANNUAL REPORT ON FORM 10-K
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 2009
NACCO INDUSTRIES, INC.
CLEVELAND, OHIO
F-1
Table of Contents
FORM 10-K
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of NACCO Industries, Inc. and Subsidiaries are
incorporated by reference in Item 8:
| F-3 | ||
| F-4 | ||
| F-5 | ||
| F-6 | ||
| F-7 | ||
| F-8 | ||
| F-9 | ||
| F-10 |
The following consolidated financial statement schedules of NACCO Industries, Inc. and
Subsidiaries are included in Item 15(c):
| F-52 | ||
| F-56 |
All other schedules for which provision is made in the applicable accounting regulation of the
SEC are not required under the related instructions or are inapplicable, and therefore have been
omitted.
F-2
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of NACCO Industries, Inc.
We have audited the accompanying consolidated balance sheets of NACCO Industries, Inc. and
Subsidiaries (collectively “the Company”) as of December 31, 2009 and 2008, and the related
consolidated statements of operations, comprehensive income (loss), cash flows and equity for each
of the three years in the period ended December 31, 2009. Our audits also included the financial
statement schedules listed in the Index at Item 15(a). These financial statements and schedules are
the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of NACCO Industries, Inc. and Subsidiaries
at December 31, 2009 and 2008, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 2009, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken as a whole, present
fairly, in all material respects the information set forth therein.
As explained in Note 2 to the consolidated financial statements, during 2008, the Company adopted
Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans (Codified in FASB ASC 715, Compensation — Retirement
Benefits).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of NACCO Industries, Inc. and Subsidiaries’ internal
control over financial reporting as of December 31, 2009, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 2, 2010 expressed an unqualified opinion thereon.
/s/
Ernst & Young LLP
Cleveland, Ohio
March 2, 2010
March 2, 2010
F-3
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of NACCO Industries, Inc.
We have audited NACCO Industries, Inc. and Subsidiaries’ internal control over financial reporting
as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
NACCO Industries, Inc.’s management is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Form 10-K. Our responsibility is to express an
opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, NACCO Industries, Inc. and Subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2009 based on the COSO
criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of NACCO Industries, Inc. and Subsidiaries
as of December 31, 2009 and 2008, and the related consolidated statements of operations,
comprehensive income (loss), cash flows and equity for each of the three years in the period ended
December 31, 2009, and our report dated March 2, 2010
expressed an unqualified opinion thereon.
/s/
Ernst & Young LLP
Cleveland, Ohio
March 2, 2010
March 2, 2010
F-4
Table of Contents
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
| Year Ended December 31 | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In millions, except per share data) | ||||||||||||
|
|
||||||||||||
|
Revenues
|
$ | 2,310.6 | $ | 3,665.1 | $ | 3,590.0 | ||||||
|
Cost of sales
|
1,902.5 | 3,174.0 | 2,989.0 | |||||||||
|
|
||||||||||||
|
Gross Profit
|
408.1 | 491.1 | 601.0 | |||||||||
|
Earnings of unconsolidated mines
|
38.6 | 39.4 | 37.7 | |||||||||
|
Operating Expenses
|
||||||||||||
|
Selling, general and administrative expenses
|
388.3 | 475.3 | 492.2 | |||||||||
|
Goodwill and other intangible assets impairment charges
|
— | 435.7 | — | |||||||||
|
Restructuring charges
|
9.3 | 9.1 | 8.6 | |||||||||
|
Gain on sale of businesses
|
— | — | (1.3 | ) | ||||||||
|
Gain on sale of assets
|
(10.0 | ) | (0.1 | ) | — | |||||||
|
|
||||||||||||
|
|
387.6 | 920.0 | 499.5 | |||||||||
|
|
||||||||||||
|
Operating Profit (Loss)
|
59.1 | (389.5 | ) | 139.2 | ||||||||
|
Other income (expense)
|
||||||||||||
|
Interest expense
|
(32.2 | ) | (40.6 | ) | (40.7 | ) | ||||||
|
Interest income
|
3.2 | 7.6 | 12.0 | |||||||||
|
Income (loss) from other unconsolidated affiliates
|
(1.7 | ) | 4.6 | 8.1 | ||||||||
|
Unsuccessful merger costs
|
(1.1 | ) | (0.8 | ) | (1.8 | ) | ||||||
|
Other
|
1.6 | (2.3 | ) | (2.8 | ) | |||||||
|
|
||||||||||||
|
|
(30.2 | ) | (31.5 | ) | (25.2 | ) | ||||||
|
|
||||||||||||
|
Income (Loss) Before Income Taxes
|
28.9 | (421.0 | ) | 114.0 | ||||||||
|
Income tax provision
|
20.5 | 18.7 | 24.3 | |||||||||
|
|
||||||||||||
|
Income (Loss) From Continuing Operations
|
8.4 | (439.7 | ) | 89.7 | ||||||||
|
Discontinued operations, net of $13.5 tax expense in 2009, $0.1 tax benefit in 2008 and $0.4 tax benefit in 2007
|
22.6 | 2.3 | 0.6 | |||||||||
|
|
||||||||||||
|
Net Income (Loss)
|
31.0 | (437.4 | ) | 90.3 | ||||||||
|
Net (income) loss attributable to noncontrolling interest
|
0.1 | (0.2 | ) | 0.1 | ||||||||
|
|
||||||||||||
|
Net Income (Loss) Attributable to Stockholders
|
$ | 31.1 | $ | (437.6 | ) | $ | 90.4 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Amounts Attributable to Stockholders
|
||||||||||||
|
Income (loss) from continuing operations, net of tax
|
$ | 8.5 | $ | (439.9 | ) | $ | 89.8 | |||||
|
Discontinued operations, net of tax
|
22.6 | 2.3 | 0.6 | |||||||||
|
|
||||||||||||
|
Net Income (Loss) Attributable to Stockholders
|
$ | 31.1 | $ | (437.6 | ) | $ | 90.4 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Comprehensive Income (Loss)
|
$ | 55.3 | $ | (517.0 | ) | $ | 124.7 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Basic Earnings (Loss) per Share Attributable to Stockholders:
|
||||||||||||
|
Continuing operations
|
$ | 1.03 | $ | (53.12 | ) | $ | 10.87 | |||||
|
Discontinued operations
|
2.72 | 0.28 | 0.07 | |||||||||
|
|
||||||||||||
|
Basic Earnings (Loss) per Share
|
$ | 3.75 | $ | (52.84 | ) | $ | 10.94 | |||||
|
|
||||||||||||
|
Diluted Earnings (Loss) per Share Attributable to Stockholders:
|
||||||||||||
|
Continuing operations
|
$ | 1.03 | $ | (53.12 | ) | $ | 10.86 | |||||
|
Discontinued operations
|
2.72 | 0.28 | 0.07 | |||||||||
|
|
||||||||||||
|
Diluted Earnings (Loss) per Share
|
$ | 3.75 | $ | (52.84 | ) | $ | 10.93 | |||||
|
|
||||||||||||
See Notes to Consolidated Financial Statements.
F-5
Table of Contents
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Year Ended December 31 | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In millions) | ||||||||||||
|
|
||||||||||||
|
Net Income (Loss) Attributable to Stockholders
|
$ | 31.1 | $ | (437.6 | ) | $ | 90.4 | |||||
|
|
||||||||||||
|
Other comprehensive income (loss)
|
||||||||||||
|
Foreign currency translation adjustment
|
17.4 | (49.4 | ) | 28.4 | ||||||||
|
Current period cash flow hedging activity, net of $4.2 tax benefit
in 2009, $2.2 tax benefit in 2008 and $3.9 tax benefit in 2007
|
8.7 | (5.6 | ) | (6.1 | ) | |||||||
|
Reclassification of hedging activities into earnings, net of $2.1 tax
expense in 2009, $1.0 tax expense in 2008 and $0.5 tax
expense in 2007
|
3.9 | 2.2 | 0.8 | |||||||||
|
Current period pension and postretirement plan adjustment, net of $0.8 tax
expense in 2009, $17.9 tax benefit in 2008 and $0.2 tax expense in 2007
|
(9.9 | ) | (30.8 | ) | 0.4 | |||||||
|
Reclassification of pension and postretirement into earnings, net of $1.7
tax expense in 2009, $2.9 tax expense in 2008 and $5.4 tax expense in 2007
|
4.1 | 4.2 | 10.8 | |||||||||
|
|
||||||||||||
|
|
24.2 | (79.4 | ) | 34.3 | ||||||||
|
|
||||||||||||
|
Comprehensive Income (Loss)
|
$ | 55.3 | $ | (517.0 | ) | $ | 124.7 | |||||
|
|
||||||||||||
See Notes to Consolidated Financial Statements.
F-6
Table of Contents
CONSOLIDATED BALANCE SHEETS
| December 31 | ||||||||
| 2009 | 2008 | |||||||
| (In millions, except share data) | ||||||||
|
|
||||||||
|
ASSETS
|
||||||||
|
Current Assets
|
||||||||
|
Cash and cash equivalents
|
$ | 256.2 | $ | 138.2 | ||||
|
Accounts receivable, net of allowances of $18.6 in 2009 and $21.9 in 2008
|
315.0 | 418.1 | ||||||
|
Inventories, net
|
336.7 | 479.0 | ||||||
|
Deferred income taxes
|
23.4 | 38.2 | ||||||
|
Prepaid expenses and other
|
35.0 | 65.3 | ||||||
|
Current assets of discontinued operations
|
1.3 | 2.4 | ||||||
|
|
||||||||
|
Total Current Assets
|
967.6 | 1,141.2 | ||||||
|
Property, Plant and Equipment, Net
|
323.9 | 349.2 | ||||||
|
Coal Supply Agreement and Other Intangibles, Net
|
63.5 | 66.4 | ||||||
|
Long-term Deferred Income Taxes
|
11.8 | 21.3 | ||||||
|
Other Non-current Assets
|
121.9 | 99.8 | ||||||
|
Long-term Assets of Discontinued Operations
|
— | 10.0 | ||||||
|
|
||||||||
|
Total Assets
|
$ | 1,488.7 | $ | 1,687.9 | ||||
|
|
||||||||
|
LIABILITIES AND EQUITY
|
||||||||
|
Current Liabilities
|
||||||||
|
Accounts payable
|
$ | 271.7 | $ | 375.9 | ||||
|
Revolving credit agreements — not guaranteed by the parent company
|
9.5 | 6.4 | ||||||
|
Current maturities of long-term debt — not guaranteed by the parent company
|
22.4 | 42.4 | ||||||
|
Accrued payroll
|
44.3 | 60.1 | ||||||
|
Accrued warranty
|
27.9 | 46.3 | ||||||
|
Deferred revenue
|
12.5 | 17.7 | ||||||
|
Other current liabilities
|
89.1 | 125.4 | ||||||
|
Current liabilities of discontinued operations
|
1.9 | 1.1 | ||||||
|
|
||||||||
|
Total Current Liabilities
|
479.3 | 675.3 | ||||||
|
Long-term Debt — not guaranteed by the parent company
|
377.6 | 400.3 | ||||||
|
Pension and other Postretirement Obligations
|
98.5 | 100.9 | ||||||
|
Other Long-term Liabilities
|
136.2 | 151.6 | ||||||
|
Long-term Liabilities of Discontinued Operations
|
— | 2.9 | ||||||
|
|
||||||||
|
Total Liabilities
|
1,091.6 | 1,331.0 | ||||||
|
Stockholders’ Equity
|
||||||||
|
Common stock:
|
||||||||
|
Class A, par value $1 per share, 6,694,380 shares
outstanding (2008 - 6,680,652 shares outstanding)
|
6.7 | 6.7 | ||||||
|
Class B, par value $1 per share, convertible into Class A on a
one-for-one basis, 1,599,356 shares outstanding
(2008 - 1,605,226 shares outstanding)
|
1.6 | 1.6 | ||||||
|
Capital in excess of par value
|
16.1 | 14.4 | ||||||
|
Retained earnings
|
413.3 | 399.3 | ||||||
|
Accumulated other comprehensive income (loss):
|
||||||||
|
Foreign currency translation adjustment
|
34.8 | 17.4 | ||||||
|
Deferred gain (loss) on cash flow hedging
|
3.5 | (9.1 | ) | |||||
|
Pension and postretirement plan adjustment
|
(79.4 | ) | (73.6 | ) | ||||
|
|
||||||||
|
Total Stockholders’ Equity
|
396.6 | 356.7 | ||||||
|
Noncontrolling Interest
|
0.5 | 0.2 | ||||||
|
|
||||||||
|
Total Equity
|
397.1 | 356.9 | ||||||
|
|
||||||||
|
Total Liabilities and Equity
|
$ | 1,488.7 | $ | 1,687.9 | ||||
|
|
||||||||
See Notes to Consolidated Financial Statements.
F-7
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31 | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In millions) | ||||||||||||
|
Operating Activities
|
||||||||||||
|
Income (loss) from continuing operations
|
$ | 8.4 | $ | (439.7 | ) | $ | 89.7 | |||||
|
Discontinued operations
|
22.6 | 2.3 | 0.6 | |||||||||
|
|
||||||||||||
|
Net income (loss)
|
31.0 | (437.4 | ) | 90.3 | ||||||||
|
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
|
||||||||||||
|
Depreciation, depletion and amortization
|
53.6 | 58.9 | 59.0 | |||||||||
|
Amortization of deferred financing fees
|
2.2 | 2.0 | 2.0 | |||||||||
|
Deferred income taxes
|
24.7 | 20.3 | 5.2 | |||||||||
|
Goodwill and other intangible assets impairment charges
|
— | 435.7 | — | |||||||||
|
Restructuring charges
|
9.3 | 9.1 | 8.6 | |||||||||
|
Gain on sale of assets
|
(10.0 | ) | (0.1 | ) | — | |||||||
|
Gain on sale of businesses
|
— | — | (1.3 | ) | ||||||||
|
Other non-current liabilities
|
(30.3 | ) | (22.1 | ) | (15.9 | ) | ||||||
|
Non-cash foreign currency
|
(7.6 | ) | 24.1 | 4.5 | ||||||||
|
Other
|
0.6 | 7.3 | 4.8 | |||||||||
|
Working capital changes, excluding the effect of
business dispositions:
|
||||||||||||
|
Accounts receivable
|
126.8 | 15.1 | (112.5 | ) | ||||||||
|
Inventories
|
163.0 | 36.1 | (43.4 | ) | ||||||||
|
Other current assets
|
13.1 | (4.4 | ) | (4.5 | ) | |||||||
|
Accounts payable
|
(109.6 | ) | (107.6 | ) | 70.3 | |||||||
|
Other liabilities
|
(78.8 | ) | (34.4 | ) | 12.9 | |||||||
|
|
||||||||||||
|
Net cash provided by operating activities — continuing operations
|
188.0 | 2.6 | 80.0 | |||||||||
|
Net cash provided by (used for) operating activities — discontinued operations
|
(31.0 | ) | 2.3 | 1.4 | ||||||||
|
|
||||||||||||
|
Net cash provided by operating activities
|
157.0 | 4.9 | 81.4 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Investing Activities
|
||||||||||||
|
Expenditures for property, plant and equipment
|
(33.5 | ) | (71.4 | ) | (65.2 | ) | ||||||
|
Proceeds from the sale of assets
|
20.7 | 5.1 | 2.7 | |||||||||
|
Proceeds from the sale of businesses
|
— | — | 5.7 | |||||||||
|
Other
|
(5.1 | ) | (4.8 | ) | 0.5 | |||||||
|
|
||||||||||||
|
Net cash used for investing activities — continuing operations
|
(17.9 | ) | (71.1 | ) | (56.3 | ) | ||||||
|
Net cash provided by (used for) investing activities — discontinued operations
|
41.0 | (0.3 | ) | (3.6 | ) | |||||||
|
|
||||||||||||
|
Net cash provided by (used for) investing activities
|
23.1 | (71.4 | ) | (59.9 | ) | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Financing Activities
|
||||||||||||
|
Additions to long-term debt
|
13.0 | 31.7 | 147.4 | |||||||||
|
Reductions of long-term debt
|
(61.5 | ) | (71.8 | ) | (66.8 | ) | ||||||
|
Net additions (reductions) to revolving credit agreements
|
2.6 | (25.9 | ) | 2.7 | ||||||||
|
Cash dividends paid
|
(17.1 | ) | (16.9 | ) | (16.4 | ) | ||||||
|
Financing fees paid
|
(1.1 | ) | (0.1 | ) | (2.5 | ) | ||||||
|
Other
|
— | (0.1 | ) | — | ||||||||
|
|
||||||||||||
|
Net cash provided by (used for) financing activities — continuing operations
|
(64.1 | ) | (83.1 | ) | 64.4 | |||||||
|
Net cash used for financing activities — discontinued operations
|
— | (0.1 | ) | — | ||||||||
|
|
||||||||||||
|
Net cash provided by (used for) financing activities
|
(64.1 | ) | (83.2 | ) | 64.4 | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Effect of exchange rate changes on cash
|
2.0 | 6.7 | (1.4 | ) | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash and Cash Equivalents
|
||||||||||||
|
Increase (decrease) for the year
|
118.0 | (143.0 | ) | 84.5 | ||||||||
|
Balance at the beginning of the year
|
138.2 | 281.2 | 196.7 | |||||||||
|
|
||||||||||||
|
Balance at the end of the year
|
$ | 256.2 | $ | 138.2 | $ | 281.2 | ||||||
|
|
||||||||||||
See Notes to Consolidated Financial Statements.
F-8
Table of Contents
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
CONSOLIDATED STATEMENTS OF EQUITY
| Year Ended December 31 | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In millions, except per share data) | ||||||||||||
|
Stockholders’ Equity:
|
||||||||||||
|
|
||||||||||||
|
Class A Common Stock
|
$ | 6.7 | $ | 6.7 | $ | 6.7 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Class B Common Stock
|
1.6 | 1.6 | 1.6 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Capital in Excess of Par Value
|
||||||||||||
|
Beginning balance
|
14.4 | 14.1 | 12.5 | |||||||||
|
Stock-based compensation
|
1.8 | — | 1.1 | |||||||||
|
Shares issued under stock compensation plans
|
0.3 | 0.3 | 0.5 | |||||||||
|
Noncontrolling interest share of contributions to joint venture
|
(0.4 | ) | — | — | ||||||||
|
|
||||||||||||
|
|
16.1 | 14.4 | 14.1 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Retained Earnings
|
||||||||||||
|
Balance as of December 31:
|
||||||||||||
|
2008
|
399.3 | — | — | |||||||||
|
2007
|
— | 854.9 | — | |||||||||
|
2006
|
— | — | 790.7 | |||||||||
|
Cumulative effect of accounting change,
net of $0.5 tax benefit in 2008
|
— | (1.1 | ) | (9.8 | ) | |||||||
|
|
||||||||||||
|
Beginning balance
|
399.3 | 853.8 | 780.9 | |||||||||
|
Net income (loss) attributable to stockholders
|
31.1 | (437.6 | ) | 90.4 | ||||||||
|
Cash dividends on Class A and Class B common stock:
|
||||||||||||
|
2009: $2.0675 per share
|
(17.1 | ) | — | — | ||||||||
|
2008: $2.045 per share
|
— | (16.9 | ) | — | ||||||||
|
2007: $1.980 per share
|
— | — | (16.4 | ) | ||||||||
|
|
||||||||||||
|
|
413.3 | 399.3 | 854.9 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Accumulated Other Comprehensive Income (Loss)
|
||||||||||||
|
Beginning balance
|
(65.3 | ) | 14.1 | (20.2 | ) | |||||||
|
Foreign currency translation adjustment
|
17.4 | (49.4 | ) | 28.4 | ||||||||
|
Reclassification of hedging activities into earnings
|
3.9 | 2.2 | 0.8 | |||||||||
|
Current period cash flow hedging activity
|
8.7 | (5.6 | ) | (6.1 | ) | |||||||
|
Pension and postretirement plan adjustment
|
(11.6 | ) | (31.8 | ) | 0.4 | |||||||
|
Cumulative effect of accounting change
|
— | 1.0 | — | |||||||||
|
Reclassification of pension and postretirement
activities into earnings
|
5.8 | 4.2 | 10.8 | |||||||||
|
|
||||||||||||
|
|
(41.1 | ) | (65.3 | ) | 14.1 | |||||||
|
|
||||||||||||
|
Total Stockholders’ Equity
|
396.6 | 356.7 | 891.4 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Noncontrolling Interest
|
||||||||||||
|
Beginning balance
|
0.2 | — | — | |||||||||
|
Net (income) loss
|
(0.1 | ) | 0.2 | (0.1 | ) | |||||||
|
Foreign currency translation adjustment
|
— | — | 0.1 | |||||||||
|
Noncontrolling interest share of contributions to joint venture
|
0.4 | — | — | |||||||||
|
|
||||||||||||
|
Total Noncontrolling Interest
|
0.5 | 0.2 | — | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total Equity
|
$ | 397.1 | $ | 356.9 | $ | 891.4 | ||||||
|
|
||||||||||||
See Notes to Consolidated Financial Statements.
F-9
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
The Consolidated Financial Statements include the accounts of NACCO Industries, Inc. (the parent
company or “NACCO”) and its wholly owned subsidiaries (“NACCO Industries, Inc. and Subsidiaries,”
or the “Company”). Intercompany accounts and transactions are eliminated in consolidation. Also
included is Shanghai Hyster Forklift Ltd., a 73% owned joint venture of NMHG Holding Co. (“NMHG”)
in China. The Company’s subsidiaries operate in the following principal industries: lift trucks,
small appliances, specialty retail and mining. The Company manages its subsidiaries primarily by
industry; however, the Company manages its lift truck operations as two reportable segments:
wholesale manufacturing (“NMHG Wholesale”) and retail distribution (“NMHG Retail”).
NMHG designs, engineers, manufactures, sells, services and leases a comprehensive line of lift
trucks and aftermarket parts marketed globally under the Hyster
®
and Yale
®
brand names, primarily to independent and wholly owned Hyster
®
and Yale
®
retail dealerships. Lift trucks and component parts are manufactured in the United States,
Northern Ireland, The Netherlands, China, Italy, Japan, Mexico, the Philippines, Vietnam and
Brazil. The sale of service parts represents approximately 18%, 13% and 13% of total NMHG revenues
as reported for 2009, 2008 and 2007, respectively. Hamilton Beach Brands, Inc. (“HBB”) is a
leading designer, marketer and distributor of small electric household appliances, as well as
commercial products for restaurants, bars and hotels. The Kitchen Collection, Inc. (“KC”) is a
national specialty retailer of kitchenware and gourmet foods operating under the Kitchen
Collection
®
and Le Gourmet Chef
®
store names in outlet and traditional malls
throughout the United States. The North American Coal Corporation and its affiliated coal
companies (collectively, “NACoal”) mine and market coal primarily as fuel for power generation and
provide selected value-added mining services for other natural resources companies.
Six of NACoal’s wholly owned subsidiaries, The Coteau Properties Company (“Coteau”), The Falkirk
Mining Company (“Falkirk”), The Sabine Mining Company (“Sabine”) (collectively, the “project mining
subsidiaries”), Demery Resource Company, LLC (“Demery”), Caddo Creek Resource Company, LLC (“Caddo
Creek”) and Camino Real Fuels, LLC (“Camino Real”) each meet the definition of a variable interest
entity. The project mining subsidiaries were developed between 1974 and 1981 and operate lignite
coal mines under long-term contracts with various utility customers. The contracts with the
project mining subsidiaries’ utility customers allow each mine to sell lignite coal at a price
based on actual cost plus an agreed pre-tax profit per ton. These project mining subsidiaries are
capitalized primarily with debt financing, which the utility customers have arranged and
guaranteed. The obligations of the project mining subsidiaries are without recourse to NACCO and
NACoal. Demery, Caddo Creek and Camino Real were formed during 2009 to develop, construct and
operate lignite surface mines under long-term contracts. The contracts with the customers allow
for reimbursement of all costs plus a management fee. The taxes resulting from the earnings of
these six entities are solely the responsibility of the Company. Although NACoal owns 100% of the
stock and manages the daily operations of these entities, the Company has determined that the
equity capital provided by NACoal is not sufficient to adequately finance the ongoing activities or
absorb any expected losses without additional support from the customers. As a result, NACoal is
not the primary beneficiary and therefore does not consolidate these entities. See Note 20 for
further discussion.
Investments in Sumitomo-NACCO Materials Handling Company, Ltd. (“SN”), a 50% owned joint venture,
and NMHG Financial Services, Inc. (“NFS”), a 20% owned joint venture, are also accounted for by the
equity method. SN operates manufacturing facilities in Japan, the Philippines and Vietnam from
which NMHG purchases certain components and internal combustion lift trucks. Sumitomo Heavy
Industries, Ltd. owns the remaining 50% interest in SN. Each shareholder of SN is entitled to
appoint directors representing 50% of the vote of SN’s board of directors. All matters related to
policies and programs of operation, manufacturing and sales activities require mutual agreement
between NMHG and Sumitomo Heavy Industries, Ltd. prior to a vote of SN’s board of directors. NFS
is a joint venture with General Electric Capital Corporation (“GECC”), formed primarily for the
purpose of providing financial services to independent Hyster
®
and Yale
®
lift truck dealers and
National Account customers in the United States. National Account customers are large customers
with centralized purchasing and geographically dispersed operations in multiple dealer territories.
See Note 20 for further discussion.
Use of Estimates:
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and judgments. These
estimates and judgments affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities (if any) at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.
Cash and Cash Equivalents:
Cash and cash equivalents include cash in banks and highly liquid
investments with original maturities of three months or less.
F-10
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Accounts Receivable, Net of Allowances:
Allowances for doubtful accounts are maintained against
accounts receivable for estimated losses resulting from the inability of customers to make required
payments. These allowances are based on both recent trends of certain customers estimated to be a
greater credit risk as well as general trends of the entire customer pool. Accounts are written
off against the allowance when it becomes evident collection will not occur.
Inventories:
Inventories are stated at the lower of cost or market. Cost is determined under the
last-in, first-out (“LIFO”) method for manufactured inventories in the United States and for
certain retail inventories. The weighted average method is used for coal inventory. KC retail
inventories are stated at the lower of cost or market using the retail inventory method. The
first-in, first-out (“FIFO”) method is used with respect to all other inventories. Reserves are
maintained for estimated obsolescence or excess inventory equal to the difference between the cost
of inventory and the estimated market value based upon assumptions about future demand and market
conditions. Upon a subsequent sale or disposal of the impaired inventory, the corresponding
reserve for impaired value is relieved to ensure that the cost basis of the inventory reflects any
write-downs.
Property, Plant and Equipment, Net:
Property, plant and equipment are recorded at cost.
Depreciation, depletion and amortization are provided in amounts sufficient to amortize the cost of
the assets, including assets recorded under capital leases, over their estimated useful lives using
the straight-line method. Buildings are depreciated using a 40-year life or, at NACoal, over the
life of the mine, which is 30 years. Estimated lives for machinery and equipment range from three
to 15 years and for building improvements from five to 40 years. The units-of-production method is
used to amortize certain tooling for sourced products and certain coal-related assets based on
estimated recoverable tonnages. Capital grants received for the acquisition of equipment are
recorded as reductions of the related equipment cost and reduce future depreciation expense.
Repairs and maintenance costs are generally expensed when incurred.
Long-Lived Assets:
The Company periodically evaluates long-lived assets for impairment when
changes in circumstances or the occurrence of certain events indicate the carrying amount of an
asset may not be recoverable. Upon identification of indicators of impairment, the Company
evaluates the carrying value of the asset by comparing the estimated future undiscounted cash flows
generated from the use of the asset and its eventual disposition with the asset’s net carrying
value. If the carrying value of an asset is considered impaired, an impairment charge is recorded
for the amount that the carrying value of the long-lived asset exceeds its fair value. Fair value
is estimated as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date.
Coal Supply Agreement and Other Intangibles, Net:
The coal supply agreement represents a long-term
supply agreement with NACoal’s customer and is recorded based on the fair value at the date of
acquisition. This intangible asset is being amortized based on units of production over the life
of the agreement, which is 30 years. The Company reviews identified intangible assets for
impairment when changes in circumstances or the occurrence of certain events indicate potential
impairment.
Restructuring Reserves:
Restructuring reserves reflect estimates related to employee-related
costs, lease termination costs and other exit costs. Lease termination costs include remaining
payments due under existing lease agreements after the cease-use date, less estimated sublease
income and any lease cancellation fees. Other costs include costs to move equipment and costs
incurred to close a facility. Actual costs could differ from management estimates, resulting in
additional expense or the reversal of previously recorded expenses.
Self-insurance Liabilities:
The Company is generally self-insured for product liability,
environmental liability, medical, certain workers’ compensation claims and certain closed mine
liabilities. For product liability, catastrophic insurance coverage is retained for potentially
significant individual claims. An estimated provision for claims reported and for claims incurred
but not yet reported under the self-insurance programs is recorded and revised periodically based
on industry trends, historical experience and management judgment. In addition, industry trends
are considered within management’s judgment for valuing claims. Changes in assumptions for such
matters as legal judgments and settlements, inflation rates, medical costs and actual experience
could cause estimates to change in the near term.
Revenue Recognition:
Revenues are generally recognized when title transfers and risk of loss
passes as customer orders are completed and shipped. For NMHG’s National Account customers,
revenue is recognized upon customer acceptance. Under its mining contracts, the Company recognizes
revenue as the coal or limerock is delivered.
Products generally are not sold with the right of return. However, based on the Company’s
historical experience, a portion of products sold is estimated to be returned due to reasons such
as buyer remorse, duplicate gifts received, product failure and excess inventory stocked by the
customer, which, subject to certain terms and conditions, the Company will agree to accept. The
Company records estimated reductions to revenues at the time of the sale based upon this historical
experience and the limited right of return provided to the Company’s customers.
The Company also records estimated reductions to revenues for customer programs and incentive
offerings, including special pricing agreements, price competition, promotions and other
volume-based incentives. At NMHG, lift truck sales revenue is recorded net of projected discounts.
The estimated discount amount is based upon historical trends for each lift truck model. In
addition to standard discounts, dealers can also request additional discounts that allow them to
offer price concessions to customers. From time to time, NMHG offers special incentives to
increase retail share or dealer stock and offers certain
F-11
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
customers volume rebates if a specified cumulative level of purchases is obtained. At HBB, net
sales represent gross sales less cooperative advertising, negotiated price allowances based
primarily on volume purchasing levels, estimated returns and allowances for defective products. At
KC, retail markdowns are incorporated into KC’s retail method of accounting for cost of sales.
Additionally, the Company provides for the estimated cost of product warranties at the time
revenues are recognized.
NMHG sells some lift trucks with multiple deliverables, including future product maintenance.
Under these arrangements, the revenue related to the undelivered portion is determined based on
vendor specific objective evidence and deferred until it can be properly recognized under company
policy. Maintenance revenues are recognized in proportion to expected maintenance expenses.
Advertising Costs:
Advertising costs, except for direct response advertising, are expensed as
incurred. Total advertising expense was $15.6 million, $23.8 million and $25.7 million in 2009,
2008 and 2007, respectively. Included in these advertising costs are amounts related to
cooperative advertising programs at HBB that are recorded as a reduction of sales in the
Consolidated Statements of Operations as related revenues are recognized. Direct response
advertising, which consists primarily of costs to produce television commercials for HBB products,
is capitalized and amortized over the expected period of future benefits. No assets related to
direct response advertising were capitalized at December 31, 2009 or 2008.
Product Development Costs:
Expenses associated with the development of new products and changes to
existing products are charged to expense as incurred. These costs amounted to $50.4 million, $62.5
million and $62.6 million in 2009, 2008 and 2007, respectively.
Shipping and Handling Costs:
Shipping and handling costs billed to customers are recognized as
revenue and shipping and handling costs incurred by the Company are included in cost of sales.
Taxes Collected from Customers and Remitted to Governmental Authorities:
The Company collects
various taxes and fees as an agent in connection with the sale of products and remits these amounts
to the respective taxing authorities. These taxes and fees have been presented on a net basis in
the Consolidated Statements of Operations and are recorded as a liability until remitted to the
respective taxing authority.
Stock Compensation:
The Company maintains long-term incentive programs at all of its subsidiaries.
The parent company has stock compensation plans for a limited number of executives that allows the
grant of shares of Class A common stock, subject to restrictions, as a means of retaining and
rewarding them for long-term performance and to increase ownership in the Company. Shares awarded
under the plans are fully vested and entitle the stockholder to all rights of common stock
ownership except that shares may not be assigned, pledged or otherwise transferred during the
restriction period. In general, the restriction period ends at the earliest of (i) five years
after the participant’s retirement date, (ii) ten years from the award date, or (iii) the
participant’s death or permanent disability. Pursuant to the plans, the Company issued 35,573 and
12,082 shares related to the years ended December 31, 2009 and 2007, respectively. Compensation
expense related to these share awards was $1.8 million ($1.2 million net of tax) and $1.2 million
($0.8 million net of tax) for the years ended December 31, 2009 and 2007, respectively.
Compensation expense represents fair value based on the market price of the shares. No shares were
issued related to the year ended December 31, 2008.
The Company also has a stock compensation plan for non-employee directors of the Company under
which a portion of the non-employee directors’ annual retainer is paid in restricted shares of
Class A common stock. For the year ended December 31, 2009, $27,000 of the non-employee directors’
annual retainer of $49,500 was paid in restricted shares of Class A common stock. For the year
ended December 31, 2008 and 2007, $30,000 of the non-employee directors’ annual retainer of $55,000
was paid in restricted shares of Class A common stock. Shares awarded under the plan are fully
vested and entitle the stockholder to all rights of common stock ownership except that shares may
not be assigned, pledged or otherwise transferred during the restriction period. In general, the
restriction period ends at the earliest of (i) ten years from the award date, (ii) the date of the
director’s death or permanent disability, (iii) five years (or earlier with the approval of the
Board of Directors) after the director’s date of retirement from the Board of Directors, or (iv)
the date of the participant’s retirement from the Board of Directors and the director has reached
70 years of age. Pursuant to this plan, the Company issued 6,066, 3,618 and 2,115 shares related
to the years ended December 31, 2009, 2008 and 2007, respectively. In addition to the mandatory
retainer fee received in restricted stock, directors may elect to receive shares of Class A common
stock in lieu of cash for up to 100% of the balance of their annual retainer, meeting attendance
fees, committee retainer and any committee chairman’s fees. These voluntary shares are not subject
to any restrictions. Total shares issued under voluntary elections were 1,792, 1,067 and 623 in
2009, 2008 and 2007, respectively. Compensation expense related to these awards was $0.3 million
($0.2 million net of tax) for each of the years ended December 31, 2009, 2008 and 2007.
Compensation expense represents fair value based on the market price of the shares at the grant
date.
Foreign Currency:
Assets and liabilities of foreign operations are translated into U.S. dollars at
the fiscal year-end exchange rate. The related translation adjustments are recorded as a separate
component of stockholders’ equity, except for NMHG’s Mexican operations. The U.S. dollar is
considered the functional currency for NMHG’s Mexican operations and, therefore, the effect of
translating assets and liabilities from the Mexican peso to the U.S. dollar is recorded in results
of operations. Revenues and expenses of all foreign operations are translated using average
monthly exchange rates prevailing during the year.
F-12
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Effective September 30, 2009, NMHG’s United Kingdom operations changed its functional currency to
the euro. The change in functional currency reflects the fact that the majority of its business
transactions are conducted in euros.
Financial Instruments and Derivative Financial Instruments:
Financial instruments held by the
Company include cash and cash equivalents, accounts receivable, accounts payable, revolving credit
agreements, long-term debt, interest rate swap agreements and forward foreign currency exchange
contracts. The Company does not hold or issue financial instruments or derivative financial
instruments for trading purposes.
The Company uses forward foreign currency exchange contracts to partially reduce risks related to
transactions denominated in foreign currencies. These contracts hedge firm commitments and
forecasted transactions relating to cash flows associated with sales and purchases denominated in
currencies other than the subsidiaries’ functional currencies. Changes in the fair value of
forward foreign currency exchange contracts that are effective as hedges are recorded in
accumulated other comprehensive income (loss) (“OCI”). Deferred gains or losses are reclassified
from OCI to the Consolidated Statement of Operations in the same period as the gains or losses from
the underlying transactions are recorded and are generally recognized in cost of sales. The
ineffective portion of derivatives that are classified as hedges is immediately recognized in
earnings and generally recognized in cost of sales.
The Company uses interest rate swap agreements to partially reduce risks related to floating rate
financing agreements that are subject to changes in the market rate of interest. Terms of the
interest rate swap agreements require the Company to receive a variable interest rate and pay a
fixed interest rate. The Company’s interest rate swap agreements and its variable rate financings
are predominately based upon the three-month and six-month LIBOR (London Interbank Offered Rate).
Changes in the fair value of interest rate swap agreements that are effective as hedges are
recorded in OCI. Deferred gains or losses are reclassified from OCI to the Consolidated Statement
of Operations in the same period as the gains or losses from the underlying transactions are
recorded and are generally recognized in interest expense. The ineffective portion of derivatives
that are classified as hedges is immediately recognized in earnings and included on the line
“Other” in the “Other income (expense)” section of the Consolidated Statements of Operations.
Interest rate swap agreements and forward foreign currency exchange contracts held by the Company
have been designated as hedges of forecasted cash flows. The Company does not currently hold any
nonderivative instruments designated as hedges or any derivatives designated as fair value hedges.
The Company periodically enters into foreign currency exchange contracts that do not meet the
criteria for hedge accounting. These derivatives are used to reduce the Company’s exposure to
foreign currency risk related to forecasted purchase or sales transactions or forecasted
intercompany cash payments or settlements. Gains and losses on these derivatives are included on
the line “Other” in the “Other income (expense)” section of the Consolidated Statements of
Operations.
Cash flows from hedging activities are reported in the Consolidated Statements of Cash Flows in the
same classification as the hedged item, generally as a component of cash flows from operations.
See Note 11 for further discussion of derivative financial instruments.
Recently Issued Accounting Standards
Accounting Standards Adopted in 2009:
On January 1, 2009, the Company adopted authoritative guidance issued by the Financial Accounting
Standards Board (“FASB”) on business combinations. The guidance modifies the accounting for
business combinations by requiring that acquired assets and assumed liabilities be recorded at fair
value, contingent consideration arrangements be recorded at fair value on the date of the
acquisition and preacquisition contingencies will generally be accounted for in purchase accounting
at fair value. The guidance also requires that transaction costs be expensed as incurred, acquired
research and development be capitalized as an indefinite-lived intangible asset and the
requirements for exit and disposal activities be met at the acquisition date in order to accrue for
a restructuring plan in purchase accounting. The adoption of the guidance did not have a material
effect on the Company’s financial position, results of operations, cash flows or related
disclosures.
On January 1, 2009, the Company adopted authoritative guidance issued by the FASB that changes the
accounting and reporting for noncontrolling interests. The guidance modifies the reporting for
noncontrolling interests in the balance sheet and minority interest income (loss) in the income
statement. The guidance also requires that increases and decreases in the noncontrolling ownership
interest amount be accounted for as equity transactions. The adoption of the guidance did not have
a material effect on the Company’s financial position, results of operations, cash flows or related
disclosures.
On June 30, 2009, the Company adopted authoritative guidance issued by the FASB on subsequent
events. The guidance provides general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial
statements are issued. The guidance provides (a) the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, (b)
F-13
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
the circumstances under which an entity should recognize events or transactions occurring after the
balance sheet date in its financial statements and (c) the disclosures that an entity should make
about events or transactions that occurred after the balance sheet date. The adoption of the
guidance did not have a material effect on the Company’s financial position, results of operations,
cash flows or related disclosures.
On June 30, 2009, the Company adopted authoritative guidance issued by the FASB on interim
disclosures about the fair value of financial instruments. The guidance requires an entity to
provide disclosures about fair value of financial instruments for interim reporting periods, as
well as in annual financial statements. The adoption of the guidance did not have a material
effect on the Company’s financial position, results of operations, cash flows or related
disclosures.
On September 30, 2009, the Company adopted authoritative guidance issued by the FASB which
establishes the FASB Accounting Standards Codification as the single source of authoritative U.S.
generally accepted accounting principles. The Company has modified its disclosures to comply with
the requirements. The adoption of the guidance did not have a material effect on the Company’s
financial position, results of operations or cash flows.
On December 31, 2009, the Company adopted authoritative guidance issued by the FASB on disclosures
about postretirement benefit plan assets. The guidance modifies existing requirements to include
additional disclosures about plan assets of an employer’s defined benefit pension or other
postretirement plan. The adoption of the guidance did not have a material effect on the Company’s
financial position, results of operations or cash flows. See Note 16 for additional disclosures
required by this guidance.
Accounting Standards adopted in 2008:
On January 1, 2008, the Company adopted authoritative guidance issued by the FASB on fair value
measurements. The guidance defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair value measurements.
The provisions of the guidance apply under other accounting pronouncements that require or permit
fair value measurements. The adoption of the guidance did not have a material effect on the
Company’s financial position, results of operations or cash flows. See Note 11 for additional
disclosures required by this guidance.
On December 31, 2006, the Company adopted authoritative guidance issued by the FASB on defined
benefit pension and other postretirement plans. The guidance requires an entity to recognize the
funded status of a defined benefit postretirement plan in its statement of financial position
measured as the difference between the fair value of plan assets and the benefit obligation. For a
pension plan, the benefit obligation would be the projected benefit obligation; for any other
postretirement benefit plan, the benefit obligation would be the accumulated postretirement benefit
obligation. In addition, the guidance also requires entities to recognize the actuarial gains and
losses and the prior service costs and credits that arise during the period but are not recognized
as components of net periodic benefit cost as a component of OCI. The guidance also requires
disclosure of additional information in the notes to financial statements about certain effects of
net periodic benefit cost in the subsequent fiscal year that arise from delayed recognition of the
actuarial gains and losses and the prior service costs and credits. The guidance also requires
entities to measure defined benefit plan assets and obligations as of the date of the employer’s
statement of financial position. During 2008, the Company changed the measurement date of its
postretirement benefit plans from September 30 to December 31, the date of its statement of
financial position. As a result, an adjustment of three-fifteenths of the net periodic benefit
cost determined for the period from September 30, 2007 to December 31, 2008 was recorded to opening
retained earnings on January 1, 2008. The remaining twelve-fifteenths were recognized as net
periodic benefit cost during 2008.
On January 1, 2008, the Company adopted authoritative guidance issued by the FASB that permits
entities to choose to measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. The guidance also establishes
presentation and disclosure requirements to facilitate comparisons between entities that choose
different measurement attributes for similar types of assets and liabilities. The Company did not
elect to measure its financial instruments or any other items at fair value as permitted by the
guidance. Therefore, the adoption of the guidance did not have a material effect on the Company’s
financial position, results of operations, cash flows or related disclosures.
On January 1, 2008, the Company adopted authoritative guidance issued by the FASB requiring
entities to offset fair value amounts (or amounts that approximate fair value) recognized in the
Consolidated Balance Sheets related to foreign currency exchange contracts executed with the same
counterparty. Prior to the adoption of this guidance, the Company offset the fair value amounts
recognized for foreign currency exchange contracts executed with the same counterparty. Therefore,
the adoption of the guidance did not have a material effect on the Company’s financial position,
results of operations, cash flows or related disclosures.
On December 31, 2008, the Company adopted authoritative guidance issued by the FASB on disclosures
about derivative instruments and hedging activities. The guidance modifies existing requirements
to include qualitative disclosures regarding the objectives and strategies for using derivatives,
fair value amounts of gains and losses on derivative instruments and disclosures about
credit-risk-related contingent features in derivative agreements. The pronouncement also requires
the cross-referencing of
F-14
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
derivative disclosures within the financial statements and notes thereto. See Note 11 for
additional disclosures required by this guidance.
On December 31, 2008, the Company adopted authoritative guidance issued by the FASB requiring
additional disclosures by public companies about transfers of financial assets and interests in
variable interest entities. See Notes 1, 13 and 20 for additional disclosures required by this
guidance.
Accounting Standards Not Yet Adopted:
In June 2009, the FASB issued authoritative guidance for accounting for transfers of financial
assets which is effective for the Company on January 1, 2010. The guidance requires more
information about transfers of financial assets, including securitization transactions, and where
entities have continuing exposure to the risks related to transferred financial assets. The
guidance eliminates the concept of a “qualifying special-purpose entity” and changes the
requirements for derecognizing financial assets. The guidance also requires enhanced disclosures
to provide financial statement users with greater transparency about transfers of financial assets
and a transferor’s continuing involvement with transferred financial assets. The Company does not
expect the adoption of the guidance to have a material effect on its financial position, results of
operations, cash flows or related disclosures.
In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest
entities which is effective for the Company on January 1, 2010. The guidance changes how a
reporting entity determines when an entity that is insufficiently capitalized or is not controlled
through voting (or similar rights) should be consolidated. The guidance requires an ongoing
assessment of whether an entity is the primary beneficiary of a variable interest entity and
eliminates the quantitative approach previously required for determining the primary beneficiary of
a variable interest entity. The guidance also requires additional disclosures regarding a
company’s involvement with variable interest entities, any significant changes in risk exposure due
to that involvement and how the company’s involvement with a variable interest entity affects the
company’s financial statements. The Company does not expect the adoption of the guidance to have a
material effect on its financial position, results of operations, cash flows or related
disclosures.
In October 2009, the FASB issued authoritative guidance on multiple-deliverable revenue
arrangements which is effective for the Company on January 1, 2011 for new revenue arrangements or
material modifications to existing agreements. The guidance amends the criteria for separating
consideration in multiple-deliverable arrangements. This guidance establishes a selling price
hierarchy for determining the selling price of a deliverable, which is based on: (a)
vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also
eliminates the residual method of allocation and requires that arrangement consideration be
allocated at the inception of the arrangement to all deliverables using the relative selling price
method. In addition, this guidance significantly expands required disclosures related to a vendor’s
multiple-deliverable revenue arrangements. The Company is currently evaluating the effect the
adoption of the guidance will have on its financial position, results of operations, cash flows and
related disclosures.
Reclassifications:
Certain amounts in the prior periods’ Consolidated Financial Statements have
been reclassified to conform to the current period’s presentation.
During 2009, NMHG’s management approved a plan to close its facility in Modena, Italy and
consolidate its activities into NMHG’s facility in Masate, Italy. These actions are being taken to
further reduce NMHG’s manufacturing capacity to more appropriate levels. As a result, NMHG
recognized a charge of approximately $5.6 million during 2009, which is classified in the
Consolidated Statement of Operations on the line “Restructuring charges.” Of this amount, $5.3
million related to severance and $0.3 million related to lease impairment. Severance payments of
$0.3 million were made during 2009. Payments related to this restructuring program are expected to
continue through 2013. No further charges related to this plan are expected.
During 2008 and 2009, based on the decline in economic conditions, NMHG’s management reduced its
number of employees worldwide. As a result, NMHG recognized a charge of approximately $6.3 million
in 2008 and $3.4 million in 2009 related to severance, which is classified in the Consolidated
Statement of Operations on the line “Restructuring charges.” In addition, $1.1 million of the
accrual was reversed during 2009 as a result of a reduction in the expected amount paid to
employees. Severance payments of $1.3 million and $4.4 million were made during 2008 and 2009,
respectively. Payments are expected to continue through 2010. NMHG continues to evaluate the
appropriate size of its workforce worldwide to match market demand for lift trucks in response to
the decline in economic conditions.
During 2009, NMHG’s management approved a plan for a reduction in the number of employees in
Asia-Pacific due to the sale of certain assets of NMHG’s fleet services business and wholly owned
Hyster
®
retail dealerships in Australia. As a result, NMHG recognized a charge of
approximately $2.7 million during 2009, which is classified in the Consolidated Statement of
Operations on the line “Restructuring charges.” Of this amount, $2.1 million related to severance,
$0.5 million related to lease termination costs and $0.1 million related to other costs of the
restructuring. In addition, $0.8 million of the severance accrual was reversed during 2009 as a
result of a reduction in the expected number of employees receiving severance payments.
F-15
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Payments of $1.4 million were made for severance during 2009. Payments related to this
restructuring are expected to continue through 2010. No further charges related to this plan are
expected.
During 2007, NMHG’s Board of Directors approved a plan to phase out production of current products
at its facility in Irvine, Scotland by early 2009, change the product mix at its Craigavon,
Northern Ireland facility and increase production at its Berea, Kentucky and Sulligent, Alabama
plants in the United States and at its Ramos Arizpe facility in Mexico. As a result, NMHG
Wholesale recognized a charge of approximately $5.5 million in 2007, which is classified in the
Consolidated Statement of Operations on the line “Restructuring charges.” Of this amount, $5.2
million related to severance and $0.3 million related to other costs of the restructuring. During
2008, NMHG recognized an additional charge of $3.2 million, which is classified in the Consolidated
Statement of Operations on the line “Restructuring charges.” Of this amount, $2.2 million related
to severance and $1.0 million related to other costs of the restructuring. In addition, $0.4
million of the amount previously accrued was reversed in 2008, as a result of a reduction in the
estimate of employees eligible to receive severance payments. During 2009, $0.5 million of the
amount previously accrued was reversed as a result of lower than estimated severance benefits paid
to fewer than estimated employees. Payments of $4.5 million were made for severance during 2009.
Payments of $1.0 million were made for other costs related to the restructuring and $0.1 million
for severance during 2008. Payments of $0.3 million were made for other costs related to the
restructuring during 2007. No further charges or payments related to this plan are expected.
Also during 2007, NMHG Wholesale’s management approved a plan for The Netherlands manufacturing
facility to outsource its welding and painting operations to a lower cost country. As a result,
NMHG Wholesale recognized a charge of approximately $2.5 million in 2007, which is classified in
the Consolidated Statement of Operations on the line “Restructuring charges.” This amount included
a cash charge of $1.1 million related to severance and $1.4 million related to a non-cash asset
impairment charge for equipment, which was determined based on current estimated market values for
similar assets compared with the net book value of these assets. Severance payments of $0.1
million and $1.0 million were made during 2008 and 2007, respectively. No further charges or
payments related to this restructuring plan are expected.
Following is the detail of the cash and non-cash charges related to the NMHG programs:
| Total charges | Charges | Charges | Charges | |||||||||||||
| expected to be | incurred in | incurred in | incurred in | |||||||||||||
| incurred | 2007 | 2008 | 2009 | |||||||||||||
|
NMHG Wholesale
|
||||||||||||||||
|
Cash charges
|
||||||||||||||||
|
Severance
|
$ | 21.8 | $ | 6.3 | $ | 7.8 | $ | 7.7 | ||||||||
|
Lease impairment
|
0.3 | — | — | 0.3 | ||||||||||||
|
Other
|
1.3 | 0.3 | 1.0 | — | ||||||||||||
|
|
||||||||||||||||
|
|
23.4 | 6.6 | 8.8 | 8.0 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Non-cash charges
|
||||||||||||||||
|
Asset impairment
|
1.4 | 1.4 | — | — | ||||||||||||
|
|
||||||||||||||||
|
|
1.4 | 1.4 | — | — | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 24.8 | $ | 8.0 | $ | 8.8 | $ | 8.0 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
NMHG Retail
|
||||||||||||||||
|
Cash charges
|
||||||||||||||||
|
Severance
|
$ | 1.0 | $ | — | $ | 0.3 | $ | 0.7 | ||||||||
|
Lease impairment
|
0.5 | — | — | 0.5 | ||||||||||||
|
Other
|
0.1 | — | — | 0.1 | ||||||||||||
|
|
||||||||||||||||
|
|
1.6 | — | 0.3 | 1.3 | ||||||||||||
|
|
||||||||||||||||
|
Total charges
|
$ | 26.4 | $ | 8.0 | $ | 9.1 | $ | 9.3 | ||||||||
|
|
||||||||||||||||
F-16
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Following is the activity related to the liability for the NMHG programs. Amounts for severance
expected to be paid within one year are included on the line “Accrued Payroll” and amounts for
severance expected to be paid after one year are included on the line “Other Long-term Liabilities”
in the Consolidated Balance Sheets. Amounts for lease impairment and other are included in “Other
current liabilities” in the Consolidated Balance Sheets.
| Lease | ||||||||||||||||
| Severance | Impairment | Other | Total | |||||||||||||
|
|
||||||||||||||||
|
Balance at January 1, 2008
|
$ | 5.3 | $ | — | $ | — | $ | 5.3 | ||||||||
|
Provision
|
8.5 | — | 1.0 | 9.5 | ||||||||||||
|
Reversal
|
(0.4 | ) | — | — | (0.4 | ) | ||||||||||
|
Payments
|
(1.5 | ) | — | (1.0 | ) | (2.5 | ) | |||||||||
|
Foreign currency effect
|
(1.9 | ) | — | — | (1.9 | ) | ||||||||||
|
|
||||||||||||||||
|
Balance at December 31, 2008
|
10.0 | — | — | 10.0 | ||||||||||||
|
|
||||||||||||||||
|
Provision
|
10.8 | 0.8 | 0.1 | 11.7 | ||||||||||||
|
Reversal
|
(2.4 | ) | — | — | (2.4 | ) | ||||||||||
|
Payments
|
(10.6 | ) | — | — | (10.6 | ) | ||||||||||
|
Foreign currency effect
|
0.1 | — | — | 0.1 | ||||||||||||
|
|
||||||||||||||||
|
Balance at December 31, 2009
|
$ | 7.9 | $ | 0.8 | $ | 0.1 | $ | 8.8 | ||||||||
|
|
||||||||||||||||
During 2006, HBB’s management approved a plan for the Saltillo, Mexico facility to phase out
production of blenders and coffeemakers for the Mexican and Latin American markets. Sourcing of
blenders and coffeemakers for the Mexican and Latin American markets was shifted to third-party
suppliers. As such, HBB recognized a charge of approximately $1.5 million in 2006. Of this
amount, $1.1 million was related to severance and $0.3 million was related to lease termination
costs for machinery and equipment no longer in use. Also included in the restructuring charge is a
$0.1 million non-cash asset impairment charge for equipment and tooling, which was determined based
on current estimated market values for similar assets compared with the net book value of these
assets. During 2007, HBB recognized an additional charge of approximately $0.9 million related to
the lease impairment of the building and equipment no longer in use and $0.1 million for other
costs related to the restructuring. Severance payments of $1.1 million were made during 2007.
Lease payments of $1.1 million and payments of $0.1 million for other costs were also made during
2007. Lease payments of $0.1 million were made during 2008. No further charges or payments
related to this restructuring plan are expected.
During 2005, HBB’s management approved a plan for the Saltillo, Mexico facility to phase out
production of blenders for the U.S. and Canadian markets and only produce blenders for the Mexican
and Latin American markets. Blenders for the U.S. and Canadian markets are now sourced from
third-party Chinese manufacturers. As such, HBB recognized a charge of approximately $3.8 million
in 2005. Of this amount, $2.3 million related to severance, $1.0 million related to lease
termination costs for machinery and equipment no longer in use and $0.1 million related to other
costs. Also included in the restructuring charge was a $0.2 million non-cash asset impairment
charge for equipment and tooling, which was determined based on current estimated market values for
similar assets compared with the net book value of these assets and $0.2 million, related to the
non-cash write-down of excess inventory. During 2006, HBB recognized a charge of approximately
$0.2 million for other costs related to the restructuring. Severance payments of $0.4 million were
made during 2007. Also, $0.1 million of the accrual related to lease termination costs for
machinery and equipment no longer in use was reversed due to receiving higher than estimated
proceeds for the sale of machinery and equipment during 2007. No further charges or payments
related to this restructuring plan are expected.
During 2004, HBB’s Board of Directors approved management’s plan to restructure HBB’s manufacturing
activities by closing the Sotec manufacturing facility located near Juarez, Mexico and
consolidating all remaining activities into its Saltillo, Mexico facility. In addition, it closed
its El Paso, Texas distribution center and consolidated these activities into its Memphis,
Tennessee distribution center. As a result, HBB recognized a charge of approximately $9.4 million
in 2004. Of this amount, $3.6 million was related to lease termination costs for closed facilities
and machinery and equipment no longer in use, $2.3 million was related to severance and $0.1
million was related to other expenses. Also included in the restructuring charge was a $3.0
million non-cash asset impairment charge for equipment and tooling, which was determined based on
current estimated market values for similar assets compared with the net book value of these assets
and $0.4 million for a non-cash writedown of inventory. During 2004, $0.6 million of the accrual
for lease impairment was reversed primarily due to lower costs to dispose of leased assets. During
2005, additional expenses of $0.3 million for lease impairment were incurred. During 2006, $0.1
million of the amount accrued at December 31, 2004 was reversed as a result of a reduction in the
estimate of employees eligible to receive severance payments. During 2007, severance payments of
$0.4 million were made and $0.3 million of the amount accrued for severance was reversed as a
result of a reduction in estimate of the total number of employees
to receive severance. In addition, $0.1 million of the accrual for the write-down of excess
inventory was reversed during 2007 and included in “Cost of sales” due to the inventory being sold
for an amount higher than previously estimated. No further charges or payments related to this
restructuring plan are expected.
F-17
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Following is the detail of the cash and non-cash charges related to the HBB programs:
| Charges | ||||||||||||
| incurred | ||||||||||||
| through | Charges | |||||||||||
| December | incurred in | |||||||||||
| Total charges | 31, 2006 | 2007 | ||||||||||
|
Cash charges
|
||||||||||||
|
Severance
|
$ | 5.3 | $ | 5.6 | $ | (0.3 | ) | |||||
|
Lease impairment
|
6.0 | 5.2 | 0.8 | |||||||||
|
Other
|
0.5 | 0.4 | 0.1 | |||||||||
|
|
||||||||||||
|
|
11.8 | 11.2 | 0.6 | |||||||||
|
|
||||||||||||
|
Non-cash charges
|
||||||||||||
|
Asset impairment
|
3.3 | 3.3 | — | |||||||||
|
Excess inventory
|
0.5 | 0.6 | (0.1 | ) | ||||||||
|
|
||||||||||||
|
|
3.8 | 3.9 | (0.1 | ) | ||||||||
|
|
||||||||||||
|
Total charges
|
$ | 15.6 | $ | 15.1 | $ | 0.5 | ||||||
|
|
||||||||||||
On December 29, 2009, NACoal completed the sale of certain assets of the Red River Mining Company
(“Red River”). The financial position, results of operations and cash flows of Red River are
reflected as discontinued operations in the accompanying Consolidated Financial Statements.
Discontinued operations include revenue of Red River of $17.8 million, $15.2 million and $12.7
million for 2009, 2008 and 2007, respectively. In addition, discontinued operations include income
before taxes of Red River of $0.3 million, $2.2 million and $0.2 million for 2009, 2008 and 2007,
respectively. As a result of the sale, the Company recognized a gain of $35.8 million ($22.3
million after taxes of $13.5 million) in 2009 which is included in the Consolidated Statement of
Operations on the line “Discontinued operations.” In addition, the Company received $41.4 million
of cash proceeds related to the sale.
NMHG:
During 2007, as part of its periodic review of product liability estimates, NMHG reduced its
product liability accrual by $5.5 million. The change in estimate is based upon historical trends
identifying recent favorable claim settlement experience that indicated both the frequency and
severity of claim estimates should be reduced. The reduction in the product liability accrual is
primarily the result of a reduction in the estimate of the number of claims that have been incurred
but not reported and the estimated average cost per claim. The adjustment is not necessarily
indicative of trends or adjustments that may be required in the future to adjust the product
liability accrual. The adjustment, reflected in the accompanying Consolidated Statement of
Operations in “Selling, general and administrative expenses,” improved net income by $3.4 million,
or $0.41 per diluted share, in 2007.
HBB:
During 2007, as part of its periodic review of product liability estimates, HBB reduced its
product liability accrual by $1.2 million. This change in estimate is based upon historical trends
identifying recent favorable claim settlement experience that indicated both the frequency and
severity of claim estimates should be reduced. The reduction in the product liability accrual is
primarily the result of a reduction in the estimate of the number of claims that have been incurred
but not reported and the estimated average cost per claim. This adjustment is not necessarily
indicative of trends or adjustments that may be required in the future to adjust the product
liability accrual. This adjustment, reflected in the accompanying Consolidated Statements of
Operations in “Selling, general and administrative expenses,” improved net income by $0.7 million,
or $0.08 per diluted share, in 2007.
NACoal
: During 2009, NACoal received bonus payments of $7.1 million for the lease of certain oil
and gas mineral rights to a third party, which is included on the line “Gain on sale of assets” in
the Consolidated Statement of Operations.
During 2007, NACoal received an arbitration award of $3.7 million, included in “Selling, general
and administrative expenses,” from a third party to recover costs related to a failed power plant
and mine development project in Turkey. The arbitration award consisted of damages for a portion
of the lost investment of the participants, interest, arbitration costs and legal fees. In 2000,
NACoal recognized a charge of $2.4 million, included in “Selling, general and administrative
expenses,” for the write-off of previously capitalized development costs contributed to the third
party for this project. In 2002, NACoal agreed to pay 25% of legal and other related fees in
support of the arbitration between the third party and the Republic of
F-18
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Turkey in exchange for 25% of any proceeds from an arbitration award or settlement between the
parties. Since 2002, NACoal has incurred $3.1 million of legal and other related arbitration
costs, which have been included in “Selling, general and administrative expenses.”
NACCO and Other:
On April 26, 2007, the Company announced that its Board of Directors approved
a plan to spin off Hamilton Beach, Inc. (“Hamilton Beach”), the parent of HBB, to NACCO
stockholders. On August 27, 2007, the Company announced that, in light of volatility and
uncertainty in the capital markets, its Board of Directors had decided not to pursue the previously
announced tax-free spin-off of Hamilton Beach to NACCO stockholders. During 2007, NACCO and Other
incurred $1.4 million and HBB incurred $0.9 million of expenses for professional fees related to
this transaction, which have been included in “Selling, general and administrative expenses.”
In 2006, the Company initiated litigation in the Delaware Chancery Court against Applica
Incorporated (“Applica”) and individuals and entities affiliated with Applica’s shareholder,
Harbinger Capital Partners Master Fund I, Ltd. The complaint alleges a number of contract and tort
claims against the defendants related to the failed transaction with Applica, which had been
previously announced. In its claims, the Company seeks monetary damages and any appropriate
equitable relief.
The Company incurred unsuccessful merger costs related to the Applica transaction of $1.1 million,
$0.8 million and $1.8 million in 2009, 2008 and 2007, respectively. The unsuccessful merger costs
related to the Applica transaction have been recorded in “Other income (expense)” in the
Consolidated Statement of Operations.
Inventories are summarized as follows:
| December 31 | ||||||||
| 2009 | 2008 | |||||||
|
Manufactured inventories:
|
||||||||
|
Finished goods and service parts —
|
||||||||
|
NMHG
|
$ | 110.0 | $ | 177.9 | ||||
|
Raw materials and work in process —
|
||||||||
|
NMHG
|
116.1 | 196.4 | ||||||
|
|
||||||||
|
Total manufactured inventories
|
226.1 | 374.3 | ||||||
|
|
||||||||
|
|
||||||||
|
Sourced inventories:
|
||||||||
|
HBB
|
67.0 | 70.4 | ||||||
|
|
||||||||
|
Retail inventories:
|
||||||||
|
NMHG
|
15.9 | 24.7 | ||||||
|
KC
|
57.0 | 50.4 | ||||||
|
|
||||||||
|
Total retail inventories
|
72.9 | 75.1 | ||||||
|
|
||||||||
|
|
||||||||
|
Total inventories at FIFO
|
366.0 | 519.8 | ||||||
|
|
||||||||
|
Coal — NACoal
|
5.0 | 11.0 | ||||||
|
Mining supplies — NACoal
|
11.2 | 11.2 | ||||||
|
|
||||||||
|
Total inventories at weighted average
|
16.2 | 22.2 | ||||||
|
|
||||||||
|
NMHG LIFO reserve
|
(45.5 | ) | (63.0 | ) | ||||
|
|
||||||||
|
|
$ | 336.7 | $ | 479.0 | ||||
|
|
||||||||
The cost of certain manufactured and retail inventories at NMHG, including service parts, has been
determined using the LIFO
method. At December 31, 2009 and 2008, 35% and 38%, respectively, of total inventories were
determined using the LIFO method. During 2009 and 2008, reductions in LIFO inventories at NMHG
resulted in liquidations of LIFO inventory layers carried at lower costs compared with current year
purchases. The income statement effect of such liquidations on “Cost of sales” was $14.6 million
and $6.7 million during 2009 and 2008, respectively.
F-19
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Property, plant and equipment, net includes the following:
| December 31 | ||||||||
| 2009 | 2008 | |||||||
|
Coal lands and real estate:
|
||||||||
|
NMHG
|
$ | 17.2 | $ | 18.3 | ||||
|
HBB
|
0.2 | 0.2 | ||||||
|
NACoal
|
33.3 | 32.7 | ||||||
|
|
||||||||
|
|
50.7 | 51.2 | ||||||
|
|
||||||||
|
Plant and equipment:
|
||||||||
|
NMHG
|
515.2 | 526.3 | ||||||
|
HBB
|
45.3 | 44.7 | ||||||
|
KC
|
25.8 | 24.7 | ||||||
|
NACoal
|
119.0 | 112.3 | ||||||
|
NACCO and Other
|
11.4 | 10.8 | ||||||
|
|
||||||||
|
|
716.7 | 718.8 | ||||||
|
|
||||||||
|
Property, plant and equipment, at cost
|
767.4 | 770.0 | ||||||
|
Less allowances for depreciation, depletion and
amortization
|
443.5 | 420.8 | ||||||
|
|
||||||||
|
|
$ | 323.9 | $ | 349.2 | ||||
|
|
||||||||
Total depreciation, depletion and amortization expense on property, plant and equipment was $50.7
million, $55.9 million and $55.8 million during 2009, 2008, and 2007, respectively.
Proven and probable coal reserves, excluding the unconsolidated project mining subsidiaries,
approximated 1.1 billion tons (unaudited) at December 31, 2009 and 2008, respectively. These tons
are reported on an as received by the customer basis and are the equivalent of “demonstrated
reserves” under the coal resource classification system of the U.S. Geological Survey. Generally,
these reserves would be commercially mineable at year-end prices and cost levels, using current
technology and mining practices.
During the fourth quarter of 2008, the Company’s stock price and operating results significantly
declined when compared with previous periods and the Company’s market value of equity was below the
book value of tangible assets and the book value of equity. The decline in stock price, among
other items, were indicators of impairment and therefore, the Company performed an impairment test
as of December 31, 2008. The Company reduced its forecasted future cash flows based on the current
deterioration and future uncertainty of global economic conditions for this test. The changes were
based on significantly reduced 2008 operating results and a high level of uncertainty regarding the
timing of the recovery of the economy. In addition to the impairment testing requirements, the
Company was required to perform a reconciliation of its market value of equity to the implied
aggregated value of equity of its reporting units. This reconciliation required a cost of capital
assumption well above normal market levels and, therefore, the second step of goodwill analysis was
required. The Company’s analysis indicated that the current value of goodwill at each of its
reporting units was impaired as of December 31, 2008. Accordingly, the Company recognized an
impairment charge of $434.4 million for goodwill in the fourth quarter of 2008. In addition, the
Company performed an impairment analysis of its tangible and other intangible assets that also
indicated certain intangible assets were impaired as of December 31, 2008. Accordingly, the
Company recorded an impairment charge of $1.3 million for other intangible assets at NMHG and KC
during the fourth quarter of 2008. Based on the Company’s analysis, all remaining long-lived
assets with finite lives were not impaired as of December 31, 2008.
F-20
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Intangible assets other than goodwill, which are subject to amortization, consist of the following:
| Gross Carrying | Accumulated | Net | ||||||||||
| Amount | Amortization | Balance | ||||||||||
|
Balance at December 31, 2009
|
||||||||||||
|
Coal supply agreement
|
$ | 84.2 | $ | (21.5 | ) | $ | 62.7 | |||||
|
Other intangibles
|
1.0 | (0.2 | ) | 0.8 | ||||||||
|
|
||||||||||||
|
|
$ | 85.2 | $ | (21.7 | ) | $ | 63.5 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Balance at December 31, 2008
|
||||||||||||
|
Coal supply agreement
|
$ | 84.2 | $ | (18.6 | ) | $ | 65.6 | |||||
|
Other intangibles
|
1.0 | (0.2 | ) | 0.8 | ||||||||
|
|
||||||||||||
|
|
$ | 85.2 | $ | (18.8 | ) | $ | 66.4 | |||||
|
|
||||||||||||
Amortization expense for intangible assets was $2.9 million, $2.8 million and $3.0 million in 2009,
2008 and 2007, respectively. Expected annual amortization expense of other intangible assets for
the next five years is as follows: $3.6 million in 2010, $2.8 million in 2011, $2.9 million in
2012, $2.8 million in 2013 and $2.9 million in 2014. The amortization period for the coal supply
agreement and other intangible assets is 30 years.
Following is a summary of goodwill by segment:
| Carrying Amount of Goodwill | ||||||||||||||||
| NMHG | NACCO | |||||||||||||||
| Wholesale | HBB | KC | Consolidated | |||||||||||||
|
Balance at January 1, 2008
|
$ | 358.2 | $ | 80.7 | $ | 3.0 | $ | 441.9 | ||||||||
|
Impairment charge
|
(350.7 | ) | (80.7 | ) | (3.0 | ) | (434.4 | ) | ||||||||
|
Foreign currency translation
|
(7.5 | ) | — | — | (7.5 | ) | ||||||||||
|
|
||||||||||||||||
|
Balance at December 31, 2008
|
$ | — | $ | — | $ | — | $ | — | ||||||||
|
|
||||||||||||||||
NACoal’s asset retirement obligations are principally for costs to dismantle certain mining
equipment as well as for costs to close its surface mines and reclaim the land it has disturbed as
a result of its normal mining activities. The Company determined the amounts of these obligations
based on estimates adjusted for inflation, projected to the estimated closure dates, and then
discounted using a credit-adjusted risk-free interest rate. The accretion of the liability is
being recognized over the estimated life of each individual asset retirement obligation and is
recorded in the line “Cost of sales” in the accompanying Consolidated Statements of Operations.
The associated asset is recorded in “Property, Plant and Equipment, net” in the accompanying
Consolidated Balance Sheets.
Bellaire Corporation (“Bellaire”) is a non-operating subsidiary of the Company with legacy
liabilities relating to closed mining operations, primarily former Eastern U.S. underground coal
mining operations. These legacy liabilities include obligations for water treatment and other
environmental remediation that arose as part of the normal course of closing these underground
mining operations. The Company determined the amounts of these obligations based on estimates
adjusted for inflation and then discounted using a credit-adjusted risk-free interest rate. The
accretion of the liability is recognized over the estimated life of the asset retirement obligation
and is recorded in the line “Other” in the accompanying Consolidated Statements of Operations.
Since Bellaire’s properties are no longer active operations, no associated asset has been
capitalized.
There are currently no assets legally restricted for purposes of settling the asset retirement
obligations. The asset retirement obligations will be funded out of general corporate funds.
F-21
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
A reconciliation of the beginning and ending aggregate carrying amount of the asset retirement
obligations are as follows:
| NACCO | ||||||||||||
| NACoal | Bellaire | Consolidated | ||||||||||
|
Balance at January 1, 2008
|
$ | 3.9 | $ | 12.2 | $ | 16.1 | ||||||
|
Liabilities settled during the period
|
— | (0.6 | ) | (0.6 | ) | |||||||
|
Accretion expense
|
0.4 | 0.9 | 1.3 | |||||||||
|
Revision of estimated cash flows
|
— | 0.9 | 0.9 | |||||||||
|
|
||||||||||||
|
Balance at December 31, 2008
|
4.3 | 13.4 | 17.7 | |||||||||
|
Liabilities settled during the period
|
— | (0.7 | ) | (0.7 | ) | |||||||
|
Accretion expense
|
0.4 | 0.8 | 1.2 | |||||||||
|
Revision of estimated cash flows
|
(0.5 | ) | (0.2 | ) | (0.7 | ) | ||||||
|
|
||||||||||||
|
Balance at December 31, 2009
|
$ | 4.2 | $ | 13.3 | $ | 17.5 | ||||||
|
|
||||||||||||
Financing arrangements are obtained and maintained at the subsidiary level. NACCO has not
guaranteed any borrowings of its subsidiaries.
F-22
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
The following table summarizes the Company’s available and outstanding borrowings:
| December 31 | ||||||||
| 2009 | 2008 | |||||||
|
Total outstanding borrowings:
|
||||||||
|
Revolving credit agreements:
|
||||||||
|
NMHG
|
$ | 2.5 | $ | 6.4 | ||||
|
NACoal
|
7.0 | — | ||||||
|
|
||||||||
|
|
9.5 | 6.4 | ||||||
|
|
||||||||
|
Capital lease obligations and other term loans:
|
||||||||
|
NMHG
|
243.9 | 249.6 | ||||||
|
HBB
|
116.3 | 119.6 | ||||||
|
NACoal
|
14.1 | 38.6 | ||||||
|
NACCO and Other
|
— | 2.8 | ||||||
|
|
||||||||
|
|
374.3 | 410.6 | ||||||
|
|
||||||||
|
Private Placement Notes — NACoal
|
25.7 | 32.1 | ||||||
|
|
||||||||
|
Total debt outstanding
|
$ | 409.5 | $ | 449.1 | ||||
|
|
||||||||
|
Current portion of borrowings outstanding:
|
||||||||
|
NMHG
|
$ | 17.2 | $ | 26.3 | ||||
|
HBB
|
1.3 | 3.3 | ||||||
|
NACoal
|
13.4 | 16.4 | ||||||
|
NACCO and Other
|
— | 2.8 | ||||||
|
|
||||||||
|
|
$ | 31.9 | $ | 48.8 | ||||
|
|
||||||||
|
Long-term portion of borrowings outstanding:
|
||||||||
|
NMHG
|
$ | 229.2 | $ | 229.7 | ||||
|
HBB
|
115.0 | 116.3 | ||||||
|
NACoal
|
33.4 | 54.3 | ||||||
|
|
||||||||
|
|
$ | 377.6 | $ | 400.3 | ||||
|
|
||||||||
|
Total available borrowings, net of limitations, under revolving
credit agreements:
|
||||||||
|
NMHG
|
$ | 102.3 | $ | 166.7 | ||||
|
HBB
|
75.6 | 78.0 | ||||||
|
KC
|
20.0 | 20.0 | ||||||
|
NACoal
|
100.0 | 75.0 | ||||||
|
|
||||||||
|
|
$ | 297.9 | $ | 339.7 | ||||
|
|
||||||||
|
Unused revolving credit agreements:
|
||||||||
|
NMHG
|
$ | 99.8 | $ | 160.3 | ||||
|
HBB
|
75.6 | 78.0 | ||||||
|
KC
|
20.0 | 20.0 | ||||||
|
NACoal
|
93.0 | 75.0 | ||||||
|
|
||||||||
|
|
$ | 288.4 | $ | 333.3 | ||||
|
|
||||||||
|
Weighted average stated interest rate on total borrowings:
|
||||||||
|
NMHG
|
2.6 | % | 4.2 | % | ||||
|
HBB
|
2.3 | % | 4.8 | % | ||||
|
NACoal
|
5.1 | % | 4.5 | % | ||||
|
Weighted average effective interest rate on total borrowings
(including interest rate swap agreements):
|
||||||||
|
NMHG
|
5.9 | % | 6.3 | % | ||||
|
HBB
|
5.5 | % | 6.6 | % | ||||
|
NACoal
|
5.1 | % | 5.1 | % | ||||
F-23
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Annual maturities of total debt, excluding capital leases, are as follows:
|
2010
|
$ | 30.1 | ||
|
2011
|
13.4 | |||
|
2012
|
170.8 | |||
|
2013
|
174.1 | |||
|
2014
|
7.3 | |||
|
thereafter
|
7.8 | |||
|
|
||||
|
|
$ | 403.5 | ||
|
|
||||
Interest paid on total debt was $31.1 million, $41.9 million and $42.2 million during 2009, 2008
and 2007, respectively. Interest capitalized was $0.3 million, $0.1 million and $0.8 million in
2009, 2008 and 2007, respectively.
NMHG:
NMHG’s primary financing is provided by a $175.0 million secured floating-rate revolving
credit facility (the “NMHG Facility”) and a term loan facility (the “NMHG Term Loan”). The
obligations under the NMHG Facility are secured by a first lien on the cash and cash equivalents,
accounts receivable and inventory of NMHG. The approximate book value of NMHG’s assets held as
collateral under the NMHG Facility was $235 million as of December 31, 2009.
The maximum availability under the NMHG Facility is governed by a borrowing base derived from
advance rates against the inventory and accounts receivable of the borrowers, as defined in the
NMHG Facility. Adjustments to reserves booked against these assets, including inventory reserves,
will change the eligible borrowing base and thereby impact the liquidity provided by the NMHG
Facility. A portion of the availability can be denominated in British pounds or euros. Borrowings
bear interest at a floating rate, which can be a base rate or LIBOR, as defined in the NMHG
Facility, plus an applicable margin. The current applicable margins, effective December 31, 2009,
for domestic base rate loans and LIBOR loans were 0.50% and 1.50%, respectively. The applicable
margin, effective December 31, 2009, for fixed foreign LIBOR loans was 1.50% and for foreign
overdraft loans was 1.75%. The NMHG Facility also requires the payment of a fee of 0.375% per
annum on the unused commitment. The margins and unused commitment fee are subject to quarterly
adjustment based on a leverage ratio.
At December 31, 2009, the excess availability under the NMHG Facility was $81.0 million, which
reflects underlying collateral availability of $131.1 million reduced by a $10.0 million excess
availability requirement, $22.7 million for a foreign credit facility commitment in Australia, $9.2
million in Europe for a reserve for preferential claims related to supplier-based inventory and
$8.2 million for letters of credit. If commitments or availability under these facilities are
increased, availability under the NMHG Facility will be reduced.
There were no borrowings outstanding under the NMHG Facility at December 31, 2009. The domestic
and foreign floating rates of interest applicable to the NMHG Facility on December 31, 2009 were
3.75% and a range of 2.75% to 3.63%, respectively, including the applicable floating rate margin.
The NMHG Facility expires in December 2010.
During 2006, NACCO Materials Handling Group, Inc. (“NMHG Inc.”), a wholly owned subsidiary of NMHG,
entered into the NMHG Term Loan that provided for term loans up to an aggregate principal amount of
$225.0 million, which mature in 2013. The term loans require quarterly payments in an amount equal
to 1% of the original principal per year for the first six years, with the remaining balance to be
paid in four equal installments in the seventh year. At December 31, 2009, there was $217.1
million outstanding under the NMHG Term Loan.
Borrowings under the NMHG Term Loan are guaranteed by NMHG and substantially all of NMHG’s domestic
subsidiaries. The obligations of the guarantors under the NMHG Term Loan are secured by a first
lien on all of the domestic machinery, equipment and real property owned by NMHG Inc. and each
guarantor and a second lien on all of the collateral securing the obligations of NMHG under its
revolving credit facility. The approximate book value of NMHG’s assets held as collateral under
the NMHG Term Loan was $350 million as of December 31, 2009, which includes the book value of the
assets securing the NMHG Facility.
Outstanding borrowings under the NMHG Term Loan bear interest at a variable rate that, at NMHG
Inc.’s option, will be either LIBOR or a floating rate, as defined in the NMHG Term Loan, plus an
applicable margin. The applicable margin is subject to adjustment based on a leverage ratio. The
weighted average interest rate on the amount outstanding under the NMHG Term Loan at December 31,
2009 was 2.36%.
In addition to the amount outstanding under the NMHG Term Loan and the NMHG Facility, NMHG had
borrowings of approximately $23.5 million at December 31, 2009 under various working capital
facilities.
Both the NMHG Facility and NMHG Term Loan include restrictive covenants, which, among other things,
limit the payment of dividends to NACCO. Subject to achieving availability thresholds, dividends
to NACCO are limited to the larger of $5.0 million or 50% of the preceding year’s net income for
NMHG. The NMHG Facility and the NMHG Term Loan also require
F-24
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NMHG to meet certain financial tests, including, but not limited to, minimum excess availability,
maximum capital expenditures, maximum leverage ratio and minimum fixed charge coverage ratio tests.
At December 31, 2009, NMHG was in compliance with the covenants in the NMHG Facility and the NMHG
Term Loan.
HBB:
HBB has a $115.0 million senior secured floating-rate revolving credit facility (the “HBB
Facility”) that expires July 31, 2012. The obligations under the HBB Facility are secured by a
first lien on the accounts receivable and inventory of HBB and a second lien on all of the other
assets of HBB. The approximate book value of HBB’s assets held as collateral for the first and
second lien under the HBB Facility was $220 million as of December 31, 2009.
The HBB Facility is governed by a borrowing base derived from advance rates against the inventory
and accounts receivable, as defined in the HBB Facility. Adjustments to reserves, including
derivative reserves, will change the eligible borrowing base. A portion of the availability can be
denominated in Canadian dollars to provide funding to HBB’s Canadian subsidiary. Borrowings bear
interest at a floating rate, which can be either a base rate, LIBOR or bankers’ acceptance rate, as
defined in the HBB Facility, plus an applicable margin. The applicable margins, effective December
31, 2009, for base rate loans and LIBOR loans denominated in U.S. dollars were 0.00% and 1.00%,
respectively. The applicable margins, effective December 31, 2009, for base rate and bankers’
acceptance loans denominated in Canadian dollars were 0.50% and 1.00%, respectively. The HBB
Facility also requires a fee of 0.20% per annum on the unused commitment. The margins and unused
commitment fee are subject to quarterly adjustment based on average excess availability.
At December 31, 2009, the borrowing base under the HBB Facility was $75.6 million. There were no
borrowings outstanding under the HBB Facility at December 31, 2009. The floating rate of interest
applicable to the HBB Facility at December 31, 2009 was 1.25% including the floating rate margin.
The HBB Facility includes restrictive covenants that, among other things, set limitations on
additional indebtedness (other than indebtedness under the HBB Facility and HBB Term Loan (defined
below)), investments, asset sales and the payment of dividends to NACCO. Subject to achieving
availability thresholds, annual dividends to NACCO are limited to $5.0 million plus 50% of HBB’s
net income since the closing date of the HBB Term Loan in 2007. The HBB Facility also requires HBB
to meet minimum fixed charge ratio tests in certain circumstances. At December 31, 2009, HBB was
in compliance with the covenants in the HBB Facility.
During 2007, HBB entered into a term loan agreement (the “HBB Term Loan”) that provided for term
loans up to an aggregate principal amount of $125.0 million. Borrowings outstanding under the HBB
Term Loan were $116.1 million at December 31, 2009. The term loans require quarterly principal
payments in an amount equal to 1% of the original principal amount per year for the term of the
loan, with the remaining balance to be paid at maturity in May 2013. Prior to maturity, the term
loans are subject to mandatory prepayments from the proceeds of the issuance of certain
indebtedness, certain asset sales and 50% of excess cash flow, as defined in the HBB Term Loan.
The obligations of HBB under the HBB Term Loan are secured by a second lien on accounts receivable
and inventory and a first lien on all of the other assets of HBB. The approximate book value of
HBB’s assets held as collateral for the first and second lien under the HBB Term Loan was $220
million as of December 31, 2009.
The term loans bear interest at a floating rate that, at HBB’s option, can be either a base rate or
LIBOR, as defined in the HBB Term Loan, plus an applicable margin. The applicable margins,
effective December 31, 2009, for base rate loans and LIBOR loans were 1.00% and 2.00%,
respectively. The applicable margins are subject to quarterly adjustment based on a leverage
ratio. The weighted average interest rate on the amount outstanding under the HBB Term Loan was
2.29% at December 31, 2009.
The HBB Term Loan contains restrictive covenants substantially similar to those in the HBB Facility
that, among other things, limit the amount of dividends HBB may declare and pay and the incurrence
of indebtedness (other than indebtedness under the HBB Facility). Dividends to NACCO are limited
to $5.0 million plus 50% of HBB’s net income since the closing date of the HBB Term Loan in 2007.
The HBB Term Loan also requires HBB to meet certain financial tests, including, but not limited to,
maximum total leverage ratio and minimum fixed charge coverage ratio tests. At December 31, 2009,
HBB was in compliance with the covenants in the HBB Term Loan.
HBB incurred fees and expenses of approximately $2.5 million in 2007 related to the HBB Term Loan
and the amendment of the HBB Facility. These fees were deferred and are being amortized as
interest expense in the Consolidated Statements of Operations over the term of the HBB Term Loan
and the HBB Facility. No similar fees were incurred in 2009 or 2008.
KC:
KC’s financing is provided by a $20.0 million secured floating-rate revolving line of credit
(the “KC Facility”) that expires in July 2010. The obligations under the KC Facility are secured
by substantially all assets of KC. The approximate book value of KC’s assets held as collateral
under the KC Facility was $80 million as of December 31, 2009. The availability is derived from a
borrowing base formula using KC’s eligible inventory, as defined in the KC Facility. At December
31, 2009, the borrowing base, as defined in the KC Facility, was $20.0 million. There were no
borrowings outstanding under the KC Facility at December 31, 2009. Therefore, at December 31,
2009, the excess availability under the KC Facility was $20.0 million. The KC Facility requires a
fee of 0.25% per annum on the unused commitment. Borrowings bear interest at LIBOR plus 2.85%.
The KC Facility includes restrictive covenants that, among other things, limit capital expenditures
and require that borrowings
F-25
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
do not exceed $4.0 million for 30 consecutive days from December 15 to February 13. The KC
Facility also prohibits the payment of dividends to NACCO. At December 31, 2009, KC was in
compliance with the covenants in the KC Facility.
KC incurred fees and expenses of approximately $0.1 million in 2008, related to the amendment of
the KC Facility. These fees were deferred and are being amortized as interest expense in the
Consolidated Statements of Operations over the term of the KC Facility. No similar fees were
incurred in 2009 or 2007.
NACoal:
NACoal has an unsecured revolving line of credit of up to $100.0 million (the “NACoal
Facility”) that expires in October 2012. Borrowings outstanding under the NACoal Facility were
$7.0 million at December 31, 2009. Therefore, at December 31, 2009, the excess availability under
the NACoal Facility was $93.0 million.
The NACoal Facility has performance-based pricing, which sets interest rates based upon achieving
various levels of debt to EBITDA ratios, as defined in the NACoal Facility. Borrowings bear
interest at either a base rate plus a margin of 1.75%, or LIBOR plus a margin of 2.75%. The NACoal
Facility also has a commitment fee of 0.50% per year on the unused commitment. The floating rate
of interest applicable to the NACoal Facility at December 31, 2009 was 5.25% including the floating
rate margin.
The NACoal Facility also contains restrictive covenants which require, among other things, NACoal
to maintain certain debt to EBITDA and interest coverage ratios and provides the ability to make
loans, dividends and advances to NACCO, with some restrictions based on the debt to EBITDA ratio
and achieving availability thresholds. At December 31, 2009, NACoal was in compliance with these
covenants.
During 2004 and 2005, NACoal issued unsecured notes totaling $45.0 million in a private placement
(the “NACoal Notes”), which require annual principal payments of approximately $6.4 million that
began in October 2008 and will mature on October 4, 2014. These unsecured notes bear interest at a
weighted-average fixed rate of 6.08%, payable semi-annually on April 4 and October 4. The NACoal
Notes are redeemable at any time at the option of NACoal, in whole or in part, at an amount equal
to par plus accrued and unpaid interest plus a “make-whole premium,” if applicable. NACoal had
$32.1 million of the private placement notes outstanding at December 31, 2009. The NACoal Notes
contain certain covenants and restrictions that require, among other things, NACoal to maintain
certain net worth, leverage and interest coverage ratios, and limit dividends to NACCO based upon
NACoal’s leverage ratio. At December 31, 2009, NACoal was in compliance with the covenants in the
NACoal Notes.
NACoal has a demand note payable to Coteau which bears interest based on the applicable quarterly
federal short-term interest rate as announced from time to time by the Internal Revenue Service.
At December 31, 2009, the balance of the note was $7.7 million and the interest rate was 0.75%.
NACoal incurred fees and expenses of approximately $1.1 million in 2009, related to the NACoal
Facility. These fees were deferred and are being amortized as interest expense in the Consolidated
Statements of Operations over the term of the NACoal Facility. No similar fees were incurred in
2008 or 2007.
Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable
approximate fair value due to the short-term maturities of these instruments. The fair values of
revolving credit agreements and long-term debt, excluding capital leases, were determined using
current rates offered for similar obligations taking into account subsidiary credit risk, which is
Level 2 as defined in the fair value hierarchy. At December 31, 2009, the fair value of revolving
credit agreements and long-term debt, excluding capital leases, was $341.5 million compared with
the book value of $403.5 million. At December 31, 2008, the fair value of revolving credit
agreements and long-term debt, excluding capital leases, was $271.6 million compared with the book
value of $438.8 million.
Financial instruments that potentially subject the Company to concentration of credit risk consist
principally of accounts receivable and derivatives. The large number of customers comprising the
Company’s customer base and their dispersion across many different industries and geographies
mitigates concentration of credit risk on accounts receivable. However, HBB maintains significant
accounts receivable balances with several large retail customers. At December 31, 2009 and 2008,
receivables from HBB’s five largest customers represented 17.4% and 13.3%, respectively, of the
Company’s net accounts receivable. In addition, under its mining contracts, NACoal recognizes
revenue and a related receivable as the coal is delivered. Substantially all of NACoal’s coal
sales are to utilities or subsidiaries directly controlled by the utilities. As is customary in
the coal industry, these mining contracts provide for monthly settlements. The Company’s
significant credit concentration is uncollateralized; however, historically minimal credit losses
have been incurred. To further reduce credit risk associated with accounts receivable, the Company
performs periodic credit evaluations of its customers, but does not generally require advance
payments or collateral. The Company enters into derivative contracts with high-quality financial
institutions and limits the amount of credit exposure to any one institution.
F-26
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Derivative Financial Instruments
The Company measures its derivatives at fair value on a recurring basis using significant
observable inputs, which is Level 2 as defined in the fair value hierarchy. The Company uses a
present value technique that incorporates the LIBOR swap curve, foreign currency spot rates and
foreign currency forward rates to value its derivatives, including its interest rate swap
agreements and foreign currency exchange contracts, and also incorporates the effect of its
subsidiary and counterparty credit risk into the valuation.
Foreign Currency Derivatives
: NMHG and HBB held forward foreign currency exchange contracts with
total notional amounts of $173.0 million and $10.0 million, respectively, at December 31, 2009,
primarily denominated in British pounds, euros, Japanese yen, Australian dollars, Canadian dollars,
Swedish kroner and Mexican pesos. NMHG and HBB held forward foreign currency exchange contracts
with total notional amounts of $561.1 million and $13.0 million, respectively, at December 31,
2008, primarily denominated in euros, British pounds, Japanese yen, Canadian dollars, Swedish
kroner, Australian dollars and Mexican pesos. The fair value of these contracts approximated a net
liability of $0.1 million and $10.8 million at December 31, 2009 and 2008, respectively.
Forward foreign currency exchange contracts that qualify for hedge accounting are used to hedge
transactions expected to occur within the next twelve months. The mark-to-market effect of forward
foreign currency exchange contracts that are considered effective as hedges has been included in
OCI. Based on market valuations at December 31, 2009, $15.8 million of the amount included in OCI
at December 31, 2009 is expected to be reclassified as income into the Consolidated Statement of
Operations over the next twelve months, as the transactions occur.
During the year ended December 31, 2009 and 2008, the Company settled $11.5 million and $18.7
million, respectively, of its foreign currency exchange contracts ahead of their maturities which
are classified in the Consolidated Statements of Cash Flows on the line “Other Liabilities.”
During 2009 and 2008, $15.1 million and $1.1 million, respectively, of the total $30.2 million was
recognized as a gain in the Consolidated Statements of Operations on the line “Cost of sales.” The
remaining gain of $14.0 million will be recognized during 2010.
Interest Rate Derivatives
: The following table summarizes the notional amounts, related rates and
remaining terms of interest rate swap agreements active at December 31:
| Notional Amount | Average Fixed Rate | Remaining Term at | ||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | December 31, 2009 | ||||||||||||||||
|
NMHG
|
$ | 206.5 | $ | 211.0 | 4.3 | % | 4.4 | % | Various, extending to May 2012 | |||||||||||
|
HBB
|
$ | 84.0 | $ | 108.0 | 4.7 | % | 4.7 | % | Various, extending to May 2012 | |||||||||||
|
NACoal
|
$ | 15.0 | $ | 25.0 | 5.7 | % | 5.8 | % | March 2010 | |||||||||||
In addition to the interest rate swap agreements reflected in the table, at December 31, 2009, NMHG
holds certain contracts that begin on various dates starting in May 2010 and extend to various
dates through February 2013. These contracts increase the notional amount to $367.5 million at
December 31, 2009, but the amount outstanding at any one time will not exceed the balance of the
NMHG Term Loan. In addition to the interest rate swap agreements reflected in the table, at
December 31, 2009, HBB holds certain contracts that begin on various dates starting in June 2010
and extend to various dates through June 2013. These contracts increase the notional amount to
$159.0 million at December 31, 2009, but the amount outstanding at any one time will not exceed the
balance of the HBB Term Loan. The fair value of all interest rate swap agreements was a net
liability of $20.8 million and $26.1 million at December 31, 2009 and 2008, respectively. The
mark-to-market effect of interest rate swap agreements that are considered effective as hedges has
been included in OCI. Based on market valuations at December 31, 2009, $7.9 million of the amount
included in OCI is expected to be reclassified as expense into the Consolidated Statement of
Operations over the next twelve months, as cash flow payments are made in accordance with the
interest rate swap agreements.
NMHG:
NMHG has interest rate swap agreements that hedge interest payments on the NMHG Term Loan.
The interest rate swap agreements held by NMHG on December 31, 2009 are expected to continue to be
effective as hedges.
HBB:
HBB has interest rate swaps that hedge interest payments on the HBB Term Loan. The interest
rate swap agreements held by HBB on December 31, 2009 are expected to continue to be effective as
hedges.
NACoal:
During 2008, the Company discontinued hedge accounting for NACoal’s interest rate swap
agreements and subsequently recognized $0.6 million of a gain and $0.8 million of a loss on
interest rate swap agreements in the Consolidated Statement of Operations on the line “Other”
during 2009 and 2008, respectively.
F-27
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
The following table summarizes the fair value of derivative instruments at December 31 as recorded
in the Consolidated Balance Sheets:
| Asset Derivatives | Liability Derivatives | |||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||||||
| Balance sheet location | Fair value | Fair value | Balance sheet location | Fair value | Fair value | |||||||||||||||
|
Derivatives designated as hedging instruments
|
||||||||||||||||||||
|
Interest rate swap agreements
|
||||||||||||||||||||
|
Current
|
Prepaid expenses and other | $ | — | $ | — | Other current liabilities | $ | 4.8 | $ | 4.4 | ||||||||||
|
Long-term
|
Other non-current assets | — | — | Other long-term liabilities | 15.8 | 20.9 | ||||||||||||||
|
|
||||||||||||||||||||
|
Foreign currency exchange contracts
|
||||||||||||||||||||
|
Current
|
Prepaid expenses and other | 1.4 | 1.4 | Other current liabilities | 1.5 | 13.8 | ||||||||||||||
|
Long-term
|
Other non-current assets | — | 1.7 | Other long-term liabilities | — | — | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Total
derivatives designated as hedging instruments
|
$ | 1.4 | $ | 3.1 | $ | 22.1 | $ | 39.1 | ||||||||||||
|
|
||||||||||||||||||||
|
Derivatives not designated as hedging instruments
|
||||||||||||||||||||
|
Interest rate swap agreements
|
||||||||||||||||||||
|
Current
|
Prepaid expenses and other | $ | — | $ | — | Other current liabilities | $ | 0.2 | $ | 0.7 | ||||||||||
|
Long-term
|
Other non-current assets | — | — | Other long-term liabilities | — | — | ||||||||||||||
|
|
||||||||||||||||||||
|
Foreign currency exchange contracts
|
||||||||||||||||||||
|
Current
|
Prepaid expenses and other | — | (0.1 | ) | Other current liabilities | — | — | |||||||||||||
|
Long-term
|
Other non-current assets | — | — | Other long-term liabilities | — | — | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Total derivatives not designated as hedging instruments
|
$ | — | $ | (0.1 | ) | $ | 0.2 | $ | 0.7 | |||||||||||
|
|
||||||||||||||||||||
|
Total derivatives
|
$ | 1.4 | $ | 3.0 | $ | 22.3 | $ | 39.8 | ||||||||||||
|
|
||||||||||||||||||||
F-28
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
The following table summarizes the impact of derivative instruments for each year ended
December 31 as recorded in the Consolidated Statements of Operations:
| Location of Gain or | ||||||||||||||||||||||||||||||||||||||||||||
| (Loss) Recognized | ||||||||||||||||||||||||||||||||||||||||||||
| in Income on | ||||||||||||||||||||||||||||||||||||||||||||
| Derivative | ||||||||||||||||||||||||||||||||||||||||||||
| Location of Gain or | (Ineffective | Amount of Gain or (Loss) Recognized | ||||||||||||||||||||||||||||||||||||||||||
| Amount of Gain or (Loss) | (Loss) Reclassified | Portion and Amount | in Income on Derivative (Ineffective | |||||||||||||||||||||||||||||||||||||||||
| Recognized in OCI on | from OCI into | Amount of Gain or (Loss) Reclassified from OCI | Excluded from | Portion and Amount Excluded from | ||||||||||||||||||||||||||||||||||||||||
| Derivatives in Cash Flow | Derivative (Effective Portion) | Income (Effective | into Income (Effective Portion) | Effectiveness | Effectiveness Testing) | |||||||||||||||||||||||||||||||||||||||
| Hedging Relationships | 2009 | 2008 | 2007 | Portion) | 2009 | 2008 | 2007 | Testing) | 2009 | 2008 | 2007 | |||||||||||||||||||||||||||||||||
|
Interest rate swap agreements
|
$ | (8.2 | ) | $ | (17.0 | ) | $ | (5.3 | ) | Interest income (expense) | $ | 0.2 | $ | (5.3 | ) | $ | (2.4 | ) | N/A | $ | — | $ | — | $ | — | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Foreign currency
|
||||||||||||||||||||||||||||||||||||||||||||
|
exchange contracts
|
12.8 | 8.6 | 3.9 | Cost of sales | 1.7 | (2.4 | ) | (2.9 | ) | N/A | — | — | — | |||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Total
|
$ | 4.6 | $ | (8.4 | ) | $ | (1.4 | ) | $ | 1.9 | $ | (7.7 | ) | $ | (5.3 | ) | $ | — | $ | — | $ | — | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Location of Gain or | ||||||||||||||
| (Loss) Recognized | ||||||||||||||
| in Income on | Amount of Gain or (Loss) Recognized in Income on Derivative | |||||||||||||
| Derivatives Not Designated as Hedging Instruments | Derivative | 2009 | 2008 | 2007 | ||||||||||
|
Interest rate swap agreements
|
Other | $ | 0.6 | $ | (0.8 | ) | $ | — | ||||||
|
|
||||||||||||||
|
Foreign currency exchange contracts
|
Cost of sales or Other | (10.4 | ) | 9.0 | (4.2 | ) | ||||||||
|
|
||||||||||||||
|
Total
|
$ | (9.8 | ) | $ | 8.2 | $ | (4.2 | ) | ||||||
|
|
||||||||||||||
F-29
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
The Company leases certain office, manufacturing and warehouse facilities, retail stores and
machinery and equipment under noncancellable capital and operating leases that expire at various
dates through 2020. NMHG Retail also leases certain lift trucks that are carried in its rental
fleet or subleased to customers. Many leases include renewal and/or fair value purchase options.
Future minimum capital and operating lease payments at December 31, 2009 are:
| Capital | Operating | |||||||
| Leases | Leases | |||||||
|
2010
|
$ | 2.6 | $ | 81.4 | ||||
|
2011
|
1.7 | 55.1 | ||||||
|
2012
|
1.4 | 36.4 | ||||||
|
2013
|
0.7 | 23.3 | ||||||
|
2014
|
0.3 | 14.4 | ||||||
|
Subsequent to 2014
|
0.2 | 20.5 | ||||||
|
|
||||||||
|
Total minimum lease payments
|
6.9 | $ | 231.1 | |||||
|
|
||||||||
|
Amounts representing interest
|
0.9 | |||||||
|
|
||||||||
|
Present value of net minimum lease payments
|
6.0 | |||||||
|
Current maturities
|
1.8 | |||||||
|
|
||||||||
|
Long-term capital lease obligation
|
$ | 4.2 | ||||||
|
|
||||||||
Rental expense for all operating leases was $93.0 million, $98.4 million and $86.9 million for
2009, 2008 and 2007, respectively. The Company also recognized $40.7 million, $63.5 million and
$43.4 million for 2009, 2008 and 2007, respectively, in rental income on subleases of equipment
under operating leases in which it was the lessee. These subleases were primarily related to lift
trucks in which NMHG derives revenues in the ordinary course of business under rental agreements
with its customers. The sublease rental income for these lift trucks is included in “Revenues” and
the related rent expense is included in “Cost of sales” in the Consolidated Statements of
Operations for each period. Aggregate future minimum rentals to be received under noncancellable
subleases of lift trucks as of December 31, 2009 are $55.4 million.
Assets recorded under capital leases are included in property, plant and equipment and consist of
the following:
| December 31 | ||||||||
| 2009 | 2008 | |||||||
|
Plant and equipment
|
$ | 14.7 | $ | 20.5 | ||||
|
Less accumulated amortization
|
7.3 | 6.8 | ||||||
|
|
||||||||
|
|
$ | 7.4 | $ | 13.7 | ||||
|
|
||||||||
Amortization of plant and equipment under capital leases is included in depreciation expense in
each of the years ended December 31, 2009, 2008 and 2007.
Capital lease obligations of $1.2 million, $5.8 million and $2.7 million were incurred in
connection with lease agreements to acquire plant and equipment during 2009, 2008 and 2007,
respectively. Included in the 2008 obligation is NACCO’s airplane that was accounted for as a
capital lease in 2008 and an operating lease in prior years.
Various legal and regulatory proceedings and claims have been or may be asserted against NACCO and
certain subsidiaries relating to the conduct of their businesses, including product liability,
environmental and other claims. These proceedings and claims are incidental to the ordinary course
of business of the Company. Management believes that it has meritorious defenses and will
vigorously defend the Company in these actions. Any costs that management estimates will be paid
as a result of these claims are accrued when the liability is considered probable and the amount
can be reasonably estimated. Although the ultimate disposition of these proceedings is not
presently determinable, management believes, after consultation with its legal counsel, that the
likelihood is remote that material costs will be incurred in excess of accruals already recognized.
F-30
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Under various financing arrangements for certain customers, including independently owned retail
dealerships, NMHG provides recourse or repurchase obligations such that NMHG would be obligated in
the event of default by the customer. Terms of the third-party financing arrangements for which
NMHG is providing recourse or repurchase obligations generally range from one to five years. Total
amounts subject to recourse or repurchase obligations at December 31, 2009 and 2008 were $140.2
million and $190.1 million, respectively. Losses anticipated under the terms of the recourse or
repurchase obligations are not significant and reserves have been provided for such losses based on
historical experience in the accompanying Consolidated Financial Statements. In such
circumstances, NMHG generally retains a security interest in the related assets financed such that,
in the event NMHG would become obligated under the terms of the recourse or repurchase obligations,
NMHG would take title to the assets financed. The fair value of collateral held at December 31,
2009 was approximately $169.5 million based on Company estimates. The Company estimates the fair
value of the collateral using information regarding the original sales price, the current age of
the equipment and general market conditions that influence the value of both new and used lift
trucks. The Company also regularly monitors the external credit ratings of the entities in which
it has provided recourse or repurchase obligations. As of December 31, 2009, the Company does not
believe there is a significant risk of non-payment or non-performance of the obligations by these
entities; however based upon the current economic environment, there can be no assurance that the
risk may not increase in the future. In addition, NMHG has an agreement with GECC to limit its
exposure to losses at certain eligible dealers. Under this agreement, losses related to $43.1
million of recourse or repurchase obligations for these certain eligible dealers are limited to
7.5% of their original loan balance, or $15.7 million as of December 31, 2009. The $43.1 million
is included in the $140.2 million of total amounts subject to recourse or repurchase obligations at
December 31, 2009.
NMHG provides a standard warranty on its lift trucks, generally for six to twelve months or 1,000
to 2,000 hours. For certain components in some series of lift trucks, NMHG provides an additional
standard warranty of two to three years or 4,000 to 5,000 hours. HBB provides a standard warranty
to consumers for all of its products. The specific terms and conditions of those warranties vary
depending upon the product brand. In general, if a product is returned under warranty, a refund is
provided to the consumer by HBB’s customer, the retailer. Generally, the retailer returns those
products to HBB for a credit. The Company estimates the costs which may be incurred under its
standard warranty programs and records a liability for such costs at the time product revenue is
recognized.
In addition, NMHG sells extended warranty agreements, which provide a warranty for an additional
two to five years or up to 2,400 to 10,000 hours. The specific terms and conditions of those
warranties vary depending upon the product sold and the country in which NMHG does business.
Revenue received for the sale of extended warranty contracts is deferred and recognized in the same
manner as the costs incurred to perform under the warranty contracts.
NMHG also maintains a quality enhancement program under which it provides for specifically
identified field product improvements in its warranty obligation. Accruals under this program are
determined based on estimates of the potential number of claims to be processed and the cost of
processing those claims based on historical costs.
The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the
amounts as necessary. Factors that affect the Company’s warranty liability include the number of
units sold, historical and anticipated rates of warranty claims and the cost per claim.
Changes in the Company’s current and long-term warranty obligations, including deferred revenue on
extended warranty contracts, are as follows:
| 2009 | 2008 | |||||||
|
Balance at beginning of year
|
$ | 59.9 | $ | 52.8 | ||||
|
Warranties issued
|
26.4 | 78.5 | ||||||
|
Settlements made
|
(49.2 | ) | (67.3 | ) | ||||
|
Foreign currency effect
|
1.4 | (4.1 | ) | |||||
|
|
||||||||
|
Balance at December 31
|
$ | 38.5 | $ | 59.9 | ||||
|
|
||||||||
NACCO Industries, Inc. Class A common stock is traded on the New York Stock Exchange under the
ticker symbol “NC.” Because of transfer restrictions on Class B common stock, no trading market
has developed, or is expected to develop, for the Company’s Class B common stock. The Class B
common stock is convertible into Class A common stock on a one-for-one basis at any time at the
request of the holder. The Company’s Class A common stock and Class B common stock have the same
cash dividend rights per share. The Class A common stock has one vote per share and the Class B
common stock has ten votes per share. The total number of authorized shares of Class A common
stock and Class B common stock at December 31, 2009
was 25,000,000 shares and 6,756,176 shares, respectively. Treasury shares of Class A common stock
totaling 1,490,106 and 1,497,964 at December 31, 2009 and 2008, respectively, have been deducted
from shares outstanding.
F-31
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Stock Options:
The 1975 and 1981 stock option plans, as amended, provide for the granting to
officers and other key employees of options to purchase Class A common stock and Class B common
stock of the Company at a price not less than the market value of such stock at the date of grant.
Options become exercisable over a four-year period and expire ten years from the date of the grant.
During the three-year period ending December 31, 2009, there were 80,701 shares of Class A common
stock and 80,100 shares of Class B common stock available for grant. However, no options were
granted during the three-year period ending December 31, 2009 and no options remain outstanding at
the end of any of the years ended December 31, 2009, 2008 and 2007. At present, the Company does
not intend to issue additional stock options.
Stock Compensation:
See Note 2 for a discussion of the Company’s restricted stock awards.
Earnings per Share:
For purposes of calculating earnings per share, no adjustments have been made
to the reported amounts of net income attributable to stockholders. In addition, basic and diluted
earnings per share for Class A common stock and Class B common stock are the same. The weighted
average number of shares of Class A common stock and Class B common stock outstanding used to
calculate basic and diluted earnings per share were as follows:
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Basic weighted average shares outstanding
|
8.290 | 8.281 | 8.263 | |||||||||
|
Dilutive effect of restricted stock awards
|
0.006 | — | 0.009 | |||||||||
|
|
||||||||||||
|
Diluted weighted average shares outstanding
|
8.296 | 8.281 | 8.272 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Basic earnings (loss) per share
|
$ | 3.75 | $ | (52.84 | ) | $ | 10.94 | |||||
|
Diluted earnings (loss) per share
|
$ | 3.75 | $ | (52.84 | ) | $ | 10.93 | |||||
The components of income before income taxes and provision for income taxes for the years ended
December 31 are as follows:
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Income (loss) before income taxes
|
||||||||||||
|
Domestic
|
$ | 49.1 | $ | (394.0 | ) | $ | 57.3 | |||||
|
Foreign
|
(20.2 | ) | (27.0 | ) | 56.7 | |||||||
|
|
||||||||||||
|
|
$ | 28.9 | $ | (421.0 | ) | $ | 114.0 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Income tax provision
|
||||||||||||
|
Current tax provision (benefit):
|
||||||||||||
|
Federal
|
$ | (12.1 | ) | $ | (8.6 | ) | $ | 4.4 | ||||
|
State
|
4.6 | 0.4 | 1.8 | |||||||||
|
Foreign
|
3.0 | 5.6 | 13.2 | |||||||||
|
|
||||||||||||
|
Total current
|
(4.5 | ) | (2.6 | ) | 19.4 | |||||||
|
|
||||||||||||
|
Deferred tax provision (benefit):
|
||||||||||||
|
Federal
|
23.8 | (1.6 | ) | 7.8 | ||||||||
|
State
|
(2.3 | ) | (0.2 | ) | (1.8 | ) | ||||||
|
Foreign
|
(14.3 | ) | (9.5 | ) | 4.5 | |||||||
|
|
||||||||||||
|
Total deferred
|
7.2 | (11.3 | ) | 10.5 | ||||||||
|
|
||||||||||||
|
Increase (decrease) in valuation allowance
|
17.8 | 32.6 | (5.6 | ) | ||||||||
|
|
||||||||||||
|
|
$ | 20.5 | $ | 18.7 | $ | 24.3 | ||||||
|
|
||||||||||||
The Company made income tax payments of $8.5 million, $24.3 million and $18.4 million during 2009,
2008 and 2007, respectively. During the same periods, income tax refunds totaled $11.0 million,
$4.1 million and $1.6 million, respectively.
F-32
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
A reconciliation of the federal statutory and effective income tax rate for the year ended December
31 is as follows:
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Income (loss) before income taxes
|
$ | 28.9 | $ | (421.0 | ) | $ | 114.0 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Statutory taxes at 35.0%
|
$ | 10.1 | $ | (147.4 | ) | $ | 39.9 | |||||
|
Valuation allowance
|
17.8 | 32.6 | (5.6 | ) | ||||||||
|
Unremitted foreign earnings
|
10.3 | 0.3 | — | |||||||||
|
Non-deductible expenses
|
1.7 | 1.3 | 0.8 | |||||||||
|
State income taxes
|
1.3 | (1.8 | ) | — | ||||||||
|
Equity interest earnings
|
1.2 | (0.8 | ) | (1.5 | ) | |||||||
|
Tax controversy resolution
|
0.7 | (0.8 | ) | 0.5 | ||||||||
|
Basis difference in foreign stock
|
(11.9 | ) | — | — | ||||||||
|
Percentage depletion
|
(6.5 | ) | (5.7 | ) | (7.3 | ) | ||||||
|
Foreign statutory rate differences
|
(3.1 | ) | (5.9 | ) | (2.4 | ) | ||||||
|
R&D Credit
|
(0.9 | ) | (0.9 | ) | (0.8 | ) | ||||||
|
Goodwill impairment
|
— | 148.8 | — | |||||||||
|
Other
|
(0.2 | ) | (1.0 | ) | 0.7 | |||||||
|
|
||||||||||||
|
Income tax provision
|
$ | 20.5 | $ | 18.7 | $ | 24.3 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Effective income tax rate
|
70.9 | % | (a) | 21.3 | % | |||||||
|
|
||||||||||||
| (a) | The effective income tax rate is not meaningful. |
As of December 31, 2009, the cumulative unremitted earnings of the Company’s foreign subsidiaries
are approximately $275 million. The Company determined during the fourth quarter of 2009 that up
to $75 million in foreign earnings with respect to its European business group may be repatriated
within the foreseeable future. As a result of this determination, the Company has provided a
deferred tax liability in the amount $10.1 million with respect to these earnings. The Company has
continued to conclude that predominantly all remaining foreign earnings in excess of this amount
will be indefinitely reinvested in its foreign operations and, therefore, the recording of deferred
tax liabilities for such unremitted earnings is not required. It is impracticable to determine the
total amount of unrecognized deferred taxes with respect to these permanently reinvested earnings;
however, foreign tax credits would be available to partially reduce U.S. income taxes in the event
of a distribution.
A detailed summary of the total deferred tax assets and liabilities in the Company’s Consolidated
Balance Sheets resulting from differences in the book and tax basis of assets and liabilities
follows:
| December 31 | ||||||||
| 2009 | 2008 | |||||||
|
Deferred tax assets
|
||||||||
|
Accrued expenses and reserves
|
$ | 56.8 | $ | 78.3 | ||||
|
Tax carryforwards
|
73.3 | 36.0 | ||||||
|
Accrued pension benefits
|
30.9 | 35.2 | ||||||
|
Other employee benefits
|
13.1 | 16.4 | ||||||
|
Other
|
11.5 | 10.6 | ||||||
|
|
||||||||
|
Total deferred tax assets
|
185.6 | 176.5 | ||||||
|
Less: Valuation allowance
|
66.5 | 43.7 | ||||||
|
|
||||||||
|
|
119.1 | 132.8 | ||||||
|
|
||||||||
|
Deferred tax liabilities
|
||||||||
|
Depreciation and depletion
|
49.8 | 50.9 | ||||||
|
Partnership investment
|
20.7 | 19.8 | ||||||
|
Inventories
|
2.6 | 2.1 | ||||||
|
Unremitted foreign earnings
|
10.8 | 0.5 | ||||||
|
|
||||||||
|
Total deferred tax liabilities
|
83.9 | 73.3 | ||||||
|
|
||||||||
|
Net deferred tax asset
|
$ | 35.2 | $ | 59.5 | ||||
|
|
||||||||
F-33
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
The following table summarizes the tax carryforwards and associated carryforward periods and
related valuation allowances where the Company has determined that realization is uncertain:
| December 31, 2009 | ||||||||||
| Net deferred tax | Valuation | Carryforwards | ||||||||
| asset | allowance | expire during: | ||||||||
|
Non-U.S. net operating loss
|
$ | 36.4 | $ | 35.0 | 2010-Indefinite | |||||
|
State losses
|
15.9 | 9.8 | 2010-2029 | |||||||
|
Foreign tax credit
|
9.5 | — | 2013-2019 | |||||||
|
Alternative minimum tax
credit
|
7.6 | — | Indefinite | |||||||
|
General business credit
|
3.3 | — | 2024-2029 | |||||||
|
Contributions
|
0.6 | — | 2013-2014 | |||||||
|
|
||||||||||
|
Total
|
$ | 73.3 | $ | 44.8 | ||||||
|
|
||||||||||
| December 31, 2008 | ||||||||||
| Net deferred tax | Valuation | Carryforwards | ||||||||
| asset | allowance | expire during: | ||||||||
|
Non-U.S. net operating loss
|
$ | 10.1 | $ | 8.6 | 2010-Indefinite | |||||
|
State losses
|
14.7 | 10.4 | 2009-2028 | |||||||
|
Foreign tax credit
|
7.3 | — | 2013-2018 | |||||||
|
Alternative minimum tax
credit
|
1.5 | — | Indefinite | |||||||
|
General business credit
|
2.0 | — | 2026-2028 | |||||||
|
Contributions
|
0.4 | — | 2013 | |||||||
|
|
||||||||||
|
Total
|
$ | 36.0 | $ | 19.0 | ||||||
|
|
||||||||||
The Company continually evaluates its deferred tax assets to determine if a valuation allowance is
required. A valuation allowance is required where realization is determined to no longer meet the
“more likely than not” standard. During 2008 and continuing into 2009, significant downturns were
experienced in NMHG’s major markets. The significant decrease in the operations, and certain
actions taken by management to reduce NMHG’s manufacturing capacity to more appropriate levels,
resulted in a three-year cumulative loss for each of NMHG’s Australian, European and U.S.
operations. Although NMHG projects earnings over the longer term for the operations, such
longer-term forecasts cannot be utilized to support the future utilization of deferred tax assets
when a three-year cumulative loss is present. Accordingly, in 2009, NMHG recorded, as a discrete
adjustment, additional valuation allowances against the accumulated deferred tax assets with
respect to its European operations of $1.1 million. In addition, during 2008, NMHG recorded, as a
discrete adjustment, a valuation allowance against the accumulated deferred tax assets for its
Australian, other European operations and certain U.S. state taxing jurisdictions of $10.7 million,
$15.3 million and $3.8 million, respectively.
The establishment of a valuation allowance does not have an impact on cash, nor does such an
allowance preclude the Company from using its loss carryforwards or other deferred tax assets in
future periods. The tax net operating losses that comprise the Australian and the substantial
portion of the European deferred tax assets do not expire under local law and the U.S. state taxing
jurisdictions provide for a carryforward period of up to 20 years.
The net valuation allowance provided against certain deferred tax assets during 2009 increased by
$22.8 million. The increase in the total valuation allowance included a net increase in tax
expense for valuation allowance in the amount of $17.8 million, an increase in the overall U.S.
dollar value of valuation allowances previously recorded in foreign currencies of approximately
$5.4 million and a decrease of $0.4 million reflected in income from discontinued operations.
The net valuation allowance provided against certain deferred tax assets during 2008 increased by
$30.7 million. The increase in the total valuation allowance included a net increase in tax expense
for valuation allowance in the amount of $32.6 million and a charge of $1.9 million related to the
items recorded directly to OCI, partly offset by a decrease in the overall U.S. dollar value of
valuation allowances previously recorded in foreign currencies of approximately $3.8 million.
Based upon the review of historical earnings and trends, forecasted earnings and the relevant
expiration of carryforwards, the Company believes the valuation allowances provided are
appropriate. At December 31, 2009, the Company had gross net operating loss carryforwards in
non-U.S. jurisdictions of $126.8 million and U.S. state jurisdictions of $340.6 million.
The tax returns of the Company and certain of its subsidiaries are under routine examination by
various taxing authorities. The Company has not been informed of any material assessment for which
an accrual has not been previously provided and
F-34
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
the Company would vigorously contest any material assessment. Management believes any potential
adjustment would not materially affect the Company’s financial condition or results of operations.
On January 1, 2007, the Company recognized an additional liability of approximately $9.8 million
for “unrecognized tax benefits,” defined as the aggregate tax effect of differences between tax
return positions and the benefits recognized in the financial statements, which was accounted for
as a reduction to the beginning balance of retained earnings.
The following is a reconciliation of the Company’s total gross unrecognized tax benefits for the
years ended December 31, 2009 and 2008. Approximately $15.0 million and $12.7 million of these
gross amounts as of December 31, 2009 and 2008, respectively, relate to permanent items that, if
recognized, would impact the effective income tax rate. This amount differs
from the gross unrecognized tax benefits presented in the table below due to the decrease in U.S.
federal income taxes which would occur upon the recognition of the state tax benefits included
herein.
| 2009 | 2008 | |||||||
|
Balance at January 1
|
$ | 14.8 | $ | 17.9 | ||||
|
Net additions for tax positions of prior years
|
0.9 | 0.1 | ||||||
|
Additions based on tax positions related to the current year
|
3.8 | 1.0 | ||||||
|
Reductions due to settlements with taxing authorities and
the lapse of the applicable statute of limitations
|
(3.4 | ) | (2.4 | ) | ||||
|
Other changes in unrecognized tax benefits including foreign
currency translations adjustments
|
0.5 | (1.8 | ) | |||||
|
|
||||||||
|
Balance at December 31
|
$ | 16.6 | $ | 14.8 | ||||
|
|
||||||||
The Company records interest and penalties on uncertain tax positions as a component of the income
tax provision. The Company recognized a net benefit of $1.0 million and $0.3 million and a net
charge of $0.8 million in interest and penalties during 2009, 2008 and 2007, respectively, related
to uncertain tax positions. The total amount of interest and penalties accrued was $3.5 million
and $4.5 million as of December 31, 2009 and 2008, respectively.
The Company expects the amount of unrecognized tax benefits will change within the next twelve
months; however, the change in unrecognized tax benefits, which is reasonably possible within the
next twelve months, is not expected to have a significant effect on the Company’s financial
position or results of operations.
In general, the Company operates in taxing jurisdictions that provide a statute of limitations
period ranging from three to six years for the taxing authorities to review the applicable tax
filings. The examination of the U.S. federal tax returns for the 2007 and 2008 tax years began in
the fall of 2009. The examination of the 2005 and 2006 U.S. federal tax returns was completed in
2009; however, the Company is currently pursuing one unsettled issue through the Internal Revenue
Service Appeals process which the Company expects to settle during 2010. The Company does not
expect the outcome of the settlement to have a material effect on the Company’s results of
operations. The Company is currently under examination in various non-U.S. jurisdictions for which
the statute of limitations has been extended. The Company believes these examinations are routine
in nature and are not expected to result in any material tax assessments. The Company does not
have any additional material taxing jurisdictions in which the statute of limitations has been
extended beyond the applicable time frame allowed by law.
Defined Benefit Plans:
The Company maintains various defined benefit pension plans that provide
benefits based on years of service and average compensation during certain periods. The Company’s
policy is to make contributions to fund these plans within the range allowed by applicable
regulations. Plan assets consist primarily of publicly traded stocks and government and corporate
bonds.
Pension benefits for all parent company, HBB and NACoal employees in the United States, excluding
certain project mining subsidiary employees, have been frozen since at least 2004. Pension
benefits were frozen for employees covered under NMHG’s U.S. plans, except for those NMHG employees
in the United States participating in collective bargaining agreements, in 1996. During 2009, the
Company negotiated that pension benefits for the remaining NMHG collectively-bargained employees
were frozen effective December 31, 2009. As a result, no employees in the United States, other
than certain project mining subsidiary employees, earn retirement benefits under defined benefit
pension plans after December 31, 2009. Effective January 1, 2009, pension benefits for HBB
employees in Canada were frozen. Only certain grandfathered NMHG employees in the United Kingdom
and the Netherlands still earn retirement benefits under defined benefit pension plans. All other
eligible employees of the Company, including employees whose pension benefits are frozen, receive
retirement benefits under defined contribution retirement plans.
F-35
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
The assumptions used in accounting for the defined benefit plans were as follows for the years
ended December 31:
| 2009 | 2008 | 2007 | ||||||||||
|
United States Plans
|
||||||||||||
|
Weighted average discount rates
|
5.65% - 5.90 | % | 6.25% - 6.30 | % | 6.25 | % | ||||||
|
Expected long-term rate of return on
assets
|
8.50% | 8.50% | 9.00 | % | ||||||||
|
|
||||||||||||
|
Non-U.S. Plans
|
||||||||||||
|
Weighted average discount rates
|
5.70% - 6.00 | % | 6.25% - 6.70 | % | 5.25% - 5.90 | % | ||||||
|
Rate of increase in compensation levels
|
2.50% - 4.00 | % | 3.00% - 3.60 | % | 3.00% - 4.00 | % | ||||||
|
Expected long-term rate of return on
assets
|
3.50% - 8.50 | % | 4.00% - 8.50 | % | 3.75% - 9.00 | % | ||||||
Set forth below is a detail of the net periodic pension (income) expense for the defined benefit
plans for the years ended December 31:
| 2009 | 2008 | 2007 | ||||||||||
|
United States Plans
|
||||||||||||
|
Service cost
|
$ | 0.3 | $ | 0.3 | $ | 0.4 | ||||||
|
Interest cost
|
8.4 | 8.5 | 8.1 | |||||||||
|
Expected return on plan assets
|
(8.8 | ) | (10.3 | ) | (9.4 | ) | ||||||
|
Amortization of actuarial loss
|
4.8 | 2.5 | 3.2 | |||||||||
|
Amortization of prior service cost
|
0.1 | 0.2 | 0.2 | |||||||||
|
|
||||||||||||
|
Net periodic pension expense
|
$ | 4.8 | $ | 1.2 | $ | 2.5 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Non-U.S. Plans
|
||||||||||||
|
Service cost
|
$ | 1.4 | $ | 2.0 | $ | 2.2 | ||||||
|
Interest cost
|
6.9 | 8.2 | 7.6 | |||||||||
|
Expected return on plan assets
|
(8.3 | ) | (9.3 | ) | (8.9 | ) | ||||||
|
Amortization of actuarial loss
|
1.6 | 3.5 | 4.4 | |||||||||
|
Amortization of prior service cost
|
(0.1 | ) | (0.1 | ) | — | |||||||
|
Amortization of transition liability
|
0.1 | 0.2 | 0.1 | |||||||||
|
|
||||||||||||
|
Net periodic pension expense
|
$ | 1.6 | $ | 4.5 | $ | 5.4 | ||||||
|
|
||||||||||||
Set forth below is a detail of other changes in plan assets and benefit obligations recognized in
other comprehensive income (loss) for the year ended December 31:
| 2009 | 2008 | 2007 | ||||||||||
|
United States Plans
|
||||||||||||
|
Current year actuarial (gain) loss
|
$ | 0.2 | $ | 43.7 | $ | (4.0 | ) | |||||
|
Amortization of actuarial loss
|
(4.8 | ) | (2.5 | ) | (3.2 | ) | ||||||
|
Current year prior service (credit) cost
|
(2.9 | ) | — | — | ||||||||
|
Amortization of prior service cost
|
(0.1 | ) | (0.2 | ) | (0.2 | ) | ||||||
|
|
||||||||||||
|
Total recognized in other comprehensive
income (loss)
|
$ | (7.6 | ) | $ | 41.0 | $ | (7.4 | ) | ||||
|
|
||||||||||||
|
|
||||||||||||
|
Non-U.S. Plans
|
||||||||||||
|
Current year actuarial (gain) loss
|
$ | 11.4 | $ | 5.6 | $ | (3.8 | ) | |||||
|
Amortization of actuarial loss
|
(1.6 | ) | (3.5 | ) | (4.4 | ) | ||||||
|
Amortization of prior service credit
|
0.1 | 0.1 | — | |||||||||
|
Amortization of transition liability
|
(0.1 | ) | (0.1 | ) | (0.1 | ) | ||||||
|
Curtailment effect
|
— | (0.1 | ) | (0.6 | ) | |||||||
|
|
||||||||||||
|
Total recognized in other comprehensive
income (loss)
|
$ | 9.8 | $ | 2.0 | $ | (8.9 | ) | |||||
|
|
||||||||||||
F-36
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
The following table sets forth the changes in the benefit obligation and the plan assets during the
year and the funded status of the defined benefit plans at December 31:
| 2009 | 2008 | |||||||||||||||
| Non-U.S. | Non-U.S. | |||||||||||||||
| U.S. Plans | Plans | U.S. Plans | Plans | |||||||||||||
|
Change in benefit obligation
|
||||||||||||||||
|
Projected benefit obligation at beginning of year
|
$ | 139.4 | $ | 99.4 | $ | 141.2 | $ | 151.0 | ||||||||
|
Service cost
|
0.3 | 1.4 | 0.3 | 2.0 | ||||||||||||
|
Interest cost
|
8.4 | 6.9 | 8.5 | 8.2 | ||||||||||||
|
Actuarial (gain) loss
|
8.2 | 19.7 | 0.6 | (21.5 | ) | |||||||||||
|
Benefits paid
|
(12.6 | ) | (6.9 | ) | (11.0 | ) | (6.5 | ) | ||||||||
|
Employee contributions
|
— | 0.6 | — | 1.2 | ||||||||||||
|
Curtailments
|
— | — | — | (0.1 | ) | |||||||||||
|
Plan amendments
|
(2.9 | ) | — | — | — | |||||||||||
|
Change in measurement date
|
— | — | (0.2 | ) | 0.8 | |||||||||||
|
Foreign currency exchange rate changes
|
— | 11.5 | — | (35.7 | ) | |||||||||||
|
|
||||||||||||||||
|
Projected benefit obligation at end of
year
|
$ | 140.8 | $ | 132.6 | $ | 139.4 | $ | 99.4 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Accumulated benefit obligation at end of year
|
$ | 140.8 | $ | 131.5 | $ | 139.4 | $ | 97.4 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Change in plan assets
|
||||||||||||||||
|
Fair value of plan assets at beginning of year
|
$ | 83.1 | $ | 79.0 | $ | 122.1 | $ | 119.5 | ||||||||
|
Actual return on plan assets
|
16.9 | 17.1 | (32.8 | ) | (16.8 | ) | ||||||||||
|
Employer contributions
|
2.7 | 8.9 | 4.2 | 9.2 | ||||||||||||
|
Employee contributions
|
— | 0.6 | — | 1.0 | ||||||||||||
|
Benefits paid
|
(12.6 | ) | (6.9 | ) | (11.0 | ) | (6.5 | ) | ||||||||
|
Change in measurement date
|
— | — | 0.6 | (0.1 | ) | |||||||||||
|
Foreign currency exchange rate changes
|
— | 9.1 | — | (27.3 | ) | |||||||||||
|
|
||||||||||||||||
|
Fair value of plan assets at end of year
|
$ | 90.1 | $ | 107.8 | $ | 83.1 | $ | 79.0 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Funded status at end of year
|
$ | (50.7 | ) | $ | (24.8 | ) | $ | (56.3 | ) | $ | (20.4 | ) | ||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Amounts recognized in the balance
sheets consist of:
|
||||||||||||||||
|
Noncurrent assets
|
$ | — | $ | 3.2 | $ | — | $ | 2.1 | ||||||||
|
Current liabilities
|
(0.3 | ) | — | (0.3 | ) | — | ||||||||||
|
Noncurrent liabilities
|
(50.4 | ) | (28.0 | ) | (56.0 | ) | (22.5 | ) | ||||||||
|
|
||||||||||||||||
|
|
$ | (50.7 | ) | $ | (24.8 | ) | $ | (56.3 | ) | $ | (20.4 | ) | ||||
|
|
||||||||||||||||
|
Components of accumulated other
comprehensive income (loss) consist of:
|
||||||||||||||||
|
Actuarial loss
|
$ | 73.6 | $ | 49.1 | $ | 78.2 | $ | 46.3 | ||||||||
|
Prior service (credit) cost
|
(2.6 | ) | (0.5 | ) | 0.4 | (0.7 | ) | |||||||||
|
Transition obligation
|
— | 0.9 | — | 1.1 | ||||||||||||
|
Deferred taxes
|
(25.6 | ) | 0.1 | (28.3 | ) | (0.1 | ) | |||||||||
|
Change in statutory tax rate
|
(1.2 | ) | (10.6 | ) | (1.2 | ) | (10.6 | ) | ||||||||
|
Foreign currency translation adjustment
|
— | (2.9 | ) | — | (9.7 | ) | ||||||||||
|
|
||||||||||||||||
|
|
$ | 44.2 | $ | 36.1 | $ | 49.1 | $ | 26.3 | ||||||||
|
|
||||||||||||||||
The transition obligation, prior service credit and actuarial loss included in accumulated other
comprehensive income (loss) expected to be recognized in net periodic benefit cost in 2010 are $0.1
million (less than $0.1 million net of tax), $0.5 million ($0.3 million net of tax) and $7.8
million ($6.2 million net of tax), respectively.
The projected benefit obligation included in the table above represents the actuarial present value
of benefits attributable to employee service rendered to date, including the effects of estimated
future pay increases. The accumulated benefit obligation also reflects the actuarial present value
of benefits attributable to employee service rendered to date, but does not include the effects of
estimated future pay increases.
F-37
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
The Company expects to contribute $7.5 million and $6.6 million to its U.S. and non-U.S. pension
plans, respectively, in 2010.
The Company maintains two supplemental defined benefit plans that pay monthly benefits to
participants directly out of corporate funds. All other pension benefit payments are made from
assets of the pension plans. Future pension benefit payments expected to be paid are:
| U.S. Plans | Non-U.S. Plans | |||||||
|
2010
|
$ | 10.5 | $ | 7.5 | ||||
|
2011
|
10.7 | 7.8 | ||||||
|
2012
|
10.3 | 8.2 | ||||||
|
2013
|
10.5 | 8.6 | ||||||
|
2014
|
10.3 | 8.8 | ||||||
|
2015 - 2019
|
53.2 | 48.7 | ||||||
|
|
||||||||
|
|
$ | 105.5 | $ | 89.6 | ||||
|
|
||||||||
The expected long-term rate of return on plan assets reflects management’s expectations of
long-term rates of return on funds invested to provide for benefits included in the projected
benefit obligations. The Company has established the expected long-term rate of return assumption
for plan assets by considering historical rates of return over a period of time that is consistent
with the long-term nature of the underlying obligations of these plans. The historical rates of
return for each of the asset classes used by the Company to determine its estimated rate of return
assumption were based upon the rates of return earned by investments in the equivalent benchmark
market indices for each of the asset classes.
The pension plans maintain an investment policy that, among other things, establishes a portfolio
asset allocation methodology with percentage allocation bands for individual asset classes. The
investment policy provides that investments are reallocated between asset classes as balances
exceed or fall below the appropriate allocation bands.
The following is the actual allocation percentage and target allocation percentage for the U.S.
pension plan assets at the measurement date:
| 2009 | 2008 | |||||||||||
| Actual | Actual | Target Allocation | ||||||||||
| Allocation | Allocation | Range | ||||||||||
|
U.S. equity securities
|
52.5 | % | 49.4 | % | 41.0% - 62.0 | % | ||||||
|
Non-U.S. equity securities
|
13.0 | % | 11.7 | % | 10.0% - 16.0 | % | ||||||
|
Fixed income securities
|
33.7 | % | 37.4 | % | 30.0% - 40.0 | % | ||||||
|
Money market
|
0.8 | % | 1.5 | % | 0.0% - 10.0 | % | ||||||
The following is the actual allocation percentage and target allocation percentage for the NMHG
U.K. pension plan assets at the measurement date:
| 2009 | 2008 | |||||||||||
| Actual | Actual | Target Allocation | ||||||||||
| Allocation | Allocation | Range | ||||||||||
|
U.K. equity securities
|
35.2 | % | 35.2 | % | 33.5% - 36.5 | % | ||||||
|
Non-U.K. equity securities
|
35.6 | % | 35.5 | % | 27.5% - 42.5 | % | ||||||
|
Fixed income securities
|
29.2 | % | 29.3 | % | 25.5% - 34.5 | % | ||||||
HBB maintains a pension plan for certain employees in Canada, which maintains 100% of its assets in
a balanced fund. NMHG maintains a pension plan for certain employees in The Netherlands, which
maintains 100% of its assets in fixed income securities.
The defined benefit pension plans do not have any direct ownership of NACCO common stock.
F-38
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
The fair value of each major category of plan assets for the Company’s pension plans are valued
using quoted market prices in active markets for identical assets, or Level 1 in the fair value
hierarchy. Following are the values as of December 31:
| 2009 | ||||
|
|
||||
|
U.S. equity securities
|
$ | 58.5 | ||
|
U.K. equity securities
|
33.2 | |||
|
Non-U.S., non-U.K. equity securities
|
37.2 | |||
|
Fixed income securities
|
68.3 | |||
|
Money market
|
0.7 | |||
|
|
||||
|
Total
|
$ | 197.9 | ||
|
|
||||
Post-retirement Health Care and Life Insurance:
The Company also maintains health care and life
insurance plans that provide benefits to eligible retired employees. Effective January 1, 2010,
NMHG eliminated its retiree life insurance plan. The plans have no assets. Under the Company’s
current policy, plan benefits are funded at the time they are due to participants.
The assumptions used in accounting for the post-retirement benefit plans are set forth below for
the years ended December 31:
| 2009 | 2008 | 2007 | ||||||||||
|
Weighted average discount rates
|
5.30 | % | 6.20 | % | 6.03 | % | ||||||
|
Health care cost trend rate assumed for next year
|
6.0 | % | 7.0 | % | 8.0 | % | ||||||
|
Rate to which the cost trend rate is assumed to
decline (ultimate trend rate)
|
5.0 | % | 5.0 | % | 5.0 | % | ||||||
|
Year that the rate reaches the ultimate trend rate
|
2012 | 2012 | 2012 | |||||||||
Assumed health care cost trend rates can have a significant effect on the amounts reported for the
health care plans. A one-percentage-point change in the assumed health care cost trend rates would
have the following effects at December 31, 2009:
| 1-Percentage-Point | 1-Percentage-Point | |||||||
| Increase | Decrease | |||||||
|
Effect on total of service and interest cost
|
$ | — | $ | — | ||||
|
Effect on postretirement benefit obligation
|
$ | 0.3 | $ | (0.2 | ) | |||
Set forth below is a detail of the net periodic benefit cost for the post-retirement health care
and life insurance plans for the years ended December 31:
| 2009 | 2008 | 2007 | ||||||||||
|
Service cost
|
$ | 0.2 | $ | 0.2 | $ | 0.2 | ||||||
|
Interest cost
|
0.6 | 0.7 | 0.8 | |||||||||
|
Amortization of actuarial (gain) loss
|
0.7 | (0.5 | ) | (0.8 | ) | |||||||
|
Amortization of prior service credit
|
(3.3 | ) | (0.2 | ) | (0.2 | ) | ||||||
|
|
||||||||||||
|
Net periodic benefit (income) cost
|
$ | (1.8 | ) | $ | 0.2 | $ | — | |||||
|
|
||||||||||||
F-39
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Set forth below is a detail of other changes in plan assets and benefit obligations recognized in
other comprehensive income (loss) for the year ended December 31:
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Current year actuarial (gain) loss
|
$ | 1.6 | $ | (0.2 | ) | $ | (1.5 | ) | ||||
|
Amortization of actuarial gain (loss)
|
(0.7 | ) | 0.5 | 0.8 | ||||||||
|
Current year prior service credit
|
(3.1 | ) | (0.7 | ) | — | |||||||
|
Amortization of prior service credit
|
3.3 | 0.2 | 0.2 | |||||||||
|
|
||||||||||||
|
Total recognized in other comprehensive income (loss)
|
$ | 1.1 | $ | (0.2 | ) | $ | (0.5 | ) | ||||
|
|
||||||||||||
The following sets forth the changes in benefit obligations during the year and the funded status
of the post-retirement health care and life insurance plans at December 31:
| 2009 | 2008 | |||||||
|
Change in benefit obligation
|
||||||||
|
Benefit obligation at beginning of year
|
$ | 10.7 | $ | 12.2 | ||||
|
Service cost
|
0.2 | 0.2 | ||||||
|
Interest cost
|
0.6 | 0.7 | ||||||
|
Actuarial gain (loss)
|
1.6 | (0.2 | ) | |||||
|
Plan amendments
|
(3.1 | ) | (0.7 | ) | ||||
|
Change in measurement date
|
— | (0.2 | ) | |||||
|
Benefits paid
|
(1.7 | ) | (1.3 | ) | ||||
|
|
||||||||
|
Benefit
obligation at end of year
|
$ | 8.3 | $ | 10.7 | ||||
|
|
||||||||
|
|
||||||||
|
Funded status at end of year
|
$ | (8.3 | ) | $ | (10.7 | ) | ||
|
|
||||||||
|
|
||||||||
|
Amounts recognized in the balance
sheets consist of:
|
||||||||
|
Current liabilities
|
$ | (0.8 | ) | $ | (1.0 | ) | ||
|
Noncurrent liabilities
|
(7.5 | ) | (9.7 | ) | ||||
|
|
||||||||
|
|
$ | (8.3 | ) | $ | (10.7 | ) | ||
|
|
||||||||
|
|
||||||||
|
Components of accumulated other
comprehensive income (loss) consist of:
|
||||||||
|
Actuarial gain
|
$ | 0.6 | $ | (0.2 | ) | |||
|
Prior service credit
|
(2.0 | ) | (2.3 | ) | ||||
|
Change in measurement date
|
— | (0.1 | ) | |||||
|
Deferred taxes
|
0.5 | 1.0 | ||||||
|
|
||||||||
|
|
$ | (0.9 | ) | $ | (1.6 | ) | ||
|
|
||||||||
The prior service credit included in accumulated other comprehensive income (loss) expected to be
recognized in net periodic benefit cost in 2010 is $0.3 million ($0.2 million net of tax). No
transition obligation or actuarial loss is expected to be recognized in net periodic benefit cost
in 2010.
F-40
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Future post-retirement benefit payments expected to be paid are:
|
2010
|
$ | 0.8 | ||
|
2011
|
0.8 | |||
|
2012
|
0.8 | |||
|
2013
|
0.8 | |||
|
2014
|
0.9 | |||
|
2015 - 2019
|
3.8 | |||
|
|
||||
|
|
$ | 7.9 | ||
|
|
||||
Defined Contribution Plans:
NACCO and its subsidiaries have defined contribution (401(k)) plans
for substantially all U.S. employees and similar plans for employees outside of the United States.
For NACCO and those subsidiaries, other than HBB, the applicable company matches employee
contributions based on plan provisions. In addition, NACCO and certain other subsidiaries have
defined contribution retirement plans that generally provide for a stated minimum employer
contribution. These plans also permit additional contributions whereby the applicable company’s
contribution to participants is determined annually based on a formula that includes the effect of
actual compared with targeted operating results and the age and compensation of the participants.
Total costs, including Company contributions, for these plans were $5.4 million, $15.5 million and
$22.6 million in 2009, 2008 and 2007, respectively. During 2009, the Company and certain
subsidiaries of the Company suspended or reduced the company match of employee contributions and
the employer contributions to its defined contribution retirement plans.
Financial information for each of NACCO’s reportable segments is presented in the following table.
See Note 1 for a discussion of the Company’s operating segments and product lines. NACCO’s
non-operating segment, NACCO and Other, includes the accounts of the parent company and Bellaire.
The accounting policies of the segments are the same as those described in Note 2. NMHG Wholesale
derives a portion of its revenues from transactions with NMHG Retail. The amounts of these
revenues, which are based on current market prices in similar third-party transactions, are
indicated in the following table on the line “NMHG Eliminations” in the revenues section. HBB
derives a portion of its revenues from transactions with KC. The amounts of these revenues, which
are based on current market prices in similar third-party transactions, are indicated in the
following table on the line “Eliminations” in the revenues section. No other sales transactions
occur among reportable segments. Intercompany loans from NACCO to NMHG and KC were interest free
beginning in the fourth quarter of 2008. Other intersegment transactions are recognized based on
similar third-party transactions; that is, at current market prices.
The parent company charges management fees to its operating subsidiaries for services provided by
the corporate headquarters. The management fees are based upon estimated parent company resources
devoted to providing centralized services and stewardship activities and are allocated among all
subsidiaries based upon the relative size and complexity of each subsidiary. In order to determine
the allocation of management fees among the subsidiaries each year, the parent company reviews the
time its employees devoted to each operating subsidiary during the prior year and the estimated
costs for providing centralized services and stewardship activities in the next year to determine
the amount of management fees to allocate to each operating subsidiary for that year. In addition,
the parent company reviews the amount of management fees allocated to its operating subsidiaries
each quarter to ensure the amount continues to be reasonable based on the actual costs incurred to
date. The Company believes the allocation method is consistently applied and reasonable. Total
2009, 2008 and 2007 fees were $11.5 million, $13.9 million and $16.1 million, respectively.
F-41
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
| 2009 | 2008 | 2007 | ||||||||||
|
Revenues from external customers
|
||||||||||||
|
NMHG
|
||||||||||||
|
NMHG Wholesale
|
$ | 1,410.0 | $ | 2,740.1 | $ | 2,581.9 | ||||||
|
NMHG Retail
|
97.8 | 175.4 | 228.8 | |||||||||
|
NMHG Eliminations
|
(32.6 | ) | (91.2 | ) | (91.0 | ) | ||||||
|
|
||||||||||||
|
|
1,475.2 | 2,824.3 | 2,719.7 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
HBB
|
497.0 | 528.7 | 540.7 | |||||||||
|
KC
|
213.9 | 202.3 | 210.0 | |||||||||
|
NACoal
|
129.5 | 115.3 | 124.4 | |||||||||
|
NACCO and Other
|
— | — | — | |||||||||
|
Eliminations
|
(5.0 | ) | (5.5 | ) | (4.8 | ) | ||||||
|
|
||||||||||||
|
Total
|
$ | 2,310.6 | $ | 3,665.1 | $ | 3,590.0 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Gross profit
|
||||||||||||
|
NMHG
|
||||||||||||
|
NMHG Wholesale
|
$ | 167.6 | $ | 278.4 | $ | 339.6 | ||||||
|
NMHG Retail
|
14.6 | 30.6 | 34.0 | |||||||||
|
NMHG Eliminations
|
2.5 | 1.1 | 1.1 | |||||||||
|
|
||||||||||||
|
|
184.7 | 310.1 | 374.7 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
HBB
|
107.4 | 84.2 | 112.4 | |||||||||
|
KC
|
94.8 | 84.1 | 91.6 | |||||||||
|
NACoal
|
21.3 | 12.5 | 23.0 | |||||||||
|
NACCO and Other
|
(0.1 | ) | 0.2 | (0.6 | ) | |||||||
|
Eliminations
|
— | — | (0.1 | ) | ||||||||
|
|
||||||||||||
|
Total
|
$ | 408.1 | $ | 491.1 | $ | 601.0 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Selling, general and administrative expenses
|
||||||||||||
|
NMHG
|
||||||||||||
|
NMHG Wholesale
|
$ | 189.6 | $ | 261.3 | $ | 264.5 | ||||||
|
NMHG Retail
|
18.5 | 32.7 | 45.4 | |||||||||
|
NMHG Eliminations
|
(0.1 | ) | — | — | ||||||||
|
|
||||||||||||
|
|
208.0 | 294.0 | 309.9 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
HBB
|
57.0 | 64.2 | 69.6 | |||||||||
|
KC
|
88.1 | 92.4 | 91.1 | |||||||||
|
NACoal
|
25.9 | 22.2 | 18.4 | |||||||||
|
NACCO and Other
|
9.3 | 2.5 | 3.2 | |||||||||
|
|
||||||||||||
|
Total
|
$ | 388.3 | $ | 475.3 | $ | 492.2 | ||||||
|
|
||||||||||||
F-42
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
| 2009 | 2008 | 2007 | ||||||||||
|
Operating profit (loss)
|
||||||||||||
|
NMHG
|
||||||||||||
|
NMHG Wholesale
|
$ | (29.1 | ) | $ | (342.7 | ) | $ | 66.3 | ||||
|
NMHG Retail
|
(4.7 | ) | (2.4 | ) | (10.1 | ) | ||||||
|
NMHG Eliminations
|
2.6 | 1.1 | 1.1 | |||||||||
|
|
||||||||||||
|
|
(31.2 | ) | (344.0 | ) | 57.3 | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
HBB
|
50.4 | (60.8 | ) | 42.2 | ||||||||
|
KC
|
6.7 | (12.2 | ) | 0.5 | ||||||||
|
NACoal
|
42.6 | 29.8 | 43.1 | |||||||||
|
NACCO and Other
|
(9.4 | ) | (2.3 | ) | (3.8 | ) | ||||||
|
Eliminations
|
— | — | (0.1 | ) | ||||||||
|
|
||||||||||||
|
Total
|
$ | 59.1 | $ | (389.5 | ) | $ | 139.2 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Interest expense
|
||||||||||||
|
NMHG
|
||||||||||||
|
NMHG Wholesale
|
$ | (18.4 | ) | $ | (24.2 | ) | $ | (21.7 | ) | |||
|
NMHG Retail
|
(0.1 | ) | (1.4 | ) | (2.8 | ) | ||||||
|
NMHG Eliminations
|
(0.5 | ) | (0.3 | ) | (0.9 | ) | ||||||
|
|
||||||||||||
|
|
(19.0 | ) | (25.9 | ) | (25.4 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
HBB
|
(8.6 | ) | (10.4 | ) | (10.1 | ) | ||||||
|
KC
|
(0.4 | ) | (1.1 | ) | (1.8 | ) | ||||||
|
NACoal
|
(4.1 | ) | (5.5 | ) | (7.0 | ) | ||||||
|
NACCO and Other
|
(0.4 | ) | — | — | ||||||||
|
Eliminations
|
0.3 | 2.3 | 3.6 | |||||||||
|
|
||||||||||||
|
Total
|
$ | (32.2 | ) | $ | (40.6 | ) | $ | (40.7 | ) | |||
|
|
||||||||||||
|
|
||||||||||||
|
Interest income
|
||||||||||||
|
NMHG
|
||||||||||||
|
NMHG Wholesale
|
$ | 2.8 | $ | 4.4 | $ | 5.2 | ||||||
|
NMHG Retail
|
— | — | — | |||||||||
|
|
||||||||||||
|
|
2.8 | 4.4 | 5.2 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
HBB
|
0.1 | 0.2 | — | |||||||||
|
KC
|
— | — | — | |||||||||
|
NACoal
|
0.3 | 0.1 | 0.8 | |||||||||
|
NACCO and Other
|
0.3 | 5.2 | 9.6 | |||||||||
|
Eliminations
|
(0.3 | ) | (2.3 | ) | (3.6 | ) | ||||||
|
|
||||||||||||
|
Total
|
$ | 3.2 | $ | 7.6 | $ | 12.0 | ||||||
|
|
||||||||||||
F-43
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
| 2009 | 2008 | 2007 | ||||||||||
|
Other income (expense)
|
||||||||||||
|
NMHG
|
||||||||||||
|
NMHG Wholesale
|
$ | 0.5 | $ | 5.3 | $ | 7.3 | ||||||
|
NMHG Retail
|
0.1 | (0.1 | ) | (0.2 | ) | |||||||
|
|
||||||||||||
|
|
0.6 | 5.2 | 7.1 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
HBB
|
(0.4 | ) | 0.4 | (0.4 | ) | |||||||
|
KC
|
(0.1 | ) | — | (0.1 | ) | |||||||
|
NACoal
|
0.6 | (1.4 | ) | (0.2 | ) | |||||||
|
NACCO and Other
|
(1.9 | ) | (2.7 | ) | (2.9 | ) | ||||||
|
|
||||||||||||
|
Total
|
$ | (1.2 | ) | $ | 1.5 | $ | 3.5 | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Income tax provision
(benefit)
|
||||||||||||
|
NMHG
|
||||||||||||
|
NMHG Wholesale
|
$ | (4.1 | ) | $ | 8.2 | $ | 9.0 | |||||
|
NMHG Retail
|
0.9 | 7.0 | (3.6 | ) | ||||||||
|
NMHG Eliminations
|
(0.4 | ) | 0.3 | (0.4 | ) | |||||||
|
|
||||||||||||
|
|
(3.6 | ) | 15.5 | 5.0 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
HBB
|
15.4 | 2.7 | 12.2 | |||||||||
|
KC
|
2.3 | (3.3 | ) | (0.5 | ) | |||||||
|
NACoal
|
8.8 | 3.2 | 6.3 | |||||||||
|
NACCO and Other
|
(2.4 | ) | 0.6 | 1.3 | ||||||||
|
|
||||||||||||
|
Total
|
$ | 20.5 | $ | 18.7 | $ | 24.3 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net income (loss)
attributable to
stockholders
|
||||||||||||
|
NMHG
|
||||||||||||
|
NMHG Wholesale
|
$ | (40.0 | ) | $ | (365.6 | ) | $ | 48.2 | ||||
|
NMHG Retail
|
(5.6 | ) | (10.9 | ) | (9.5 | ) | ||||||
|
NMHG Eliminations
|
2.5 | 0.5 | 0.6 | |||||||||
|
|
||||||||||||
|
|
(43.1 | ) | (376.0 | ) | 39.3 | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
HBB
|
26.1 | (73.3 | ) | 19.5 | ||||||||
|
KC
|
3.9 | (10.0 | ) | (0.9 | ) | |||||||
|
NACoal
|
53.2 | 22.1 | 31.0 | |||||||||
|
NACCO and Other
|
(9.0 | ) | (0.4 | ) | 1.6 | |||||||
|
Eliminations
|
— | — | (0.1 | ) | ||||||||
|
|
||||||||||||
|
Total
|
$ | 31.1 | $ | (437.6 | ) | $ | 90.4 | |||||
|
|
||||||||||||
F-44
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
| 2009 | 2008 | 2007 | ||||||||||
|
Total assets
|
||||||||||||
|
NMHG
|
||||||||||||
|
NMHG Wholesale
|
$ | 969.2 | $ | 1,123.1 | $ | 1,647.5 | ||||||
|
NMHG Retail
|
46.8 | 54.5 | 93.5 | |||||||||
|
NMHG Eliminations
|
(101.9 | ) | (82.5 | ) | (137.4 | ) | ||||||
|
|
||||||||||||
|
|
914.1 | 1,095.1 | 1,603.6 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
HBB
|
217.8 | 203.3 | 307.5 | |||||||||
|
KC
|
81.9 | 74.9 | 70.7 | |||||||||
|
NACoal
|
266.6 | 276.6 | 268.7 | |||||||||
|
NACCO and Other
|
105.1 | 188.5 | 308.0 | |||||||||
|
Eliminations
|
(96.8 | ) | (150.5 | ) | (131.2 | ) | ||||||
|
|
||||||||||||
|
Total
|
$ | 1,488.7 | $ | 1,687.9 | $ | 2,427.3 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Depreciation,
depletion and
amortization
|
||||||||||||
|
NMHG
|
||||||||||||
|
NMHG Wholesale
|
$ | 33.7 | $ | 38.4 | $ | 33.9 | ||||||
|
NMHG Retail
|
2.5 | 3.6 | 7.8 | |||||||||
|
|
||||||||||||
|
|
36.2 | 42.0 | 41.7 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
HBB
|
3.7 | 4.2 | 4.3 | |||||||||
|
KC
|
3.7 | 3.0 | 2.3 | |||||||||
|
NACoal
|
9.0 | 9.5 | 10.6 | |||||||||
|
NACCO and Other
|
1.0 | 0.2 | 0.1 | |||||||||
|
|
||||||||||||
|
Total
|
$ | 53.6 | $ | 58.9 | $ | 59.0 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Capital expenditures
|
||||||||||||
|
NMHG
|
||||||||||||
|
NMHG Wholesale
|
$ | 5.5 | $ | 39.2 | $ | 35.9 | ||||||
|
NMHG Retail
|
0.3 | 2.0 | 5.3 | |||||||||
|
|
||||||||||||
|
|
5.8 | 41.2 | 41.2 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
HBB
|
2.1 | 5.7 | 3.9 | |||||||||
|
KC
|
1.0 | 6.0 | 3.9 | |||||||||
|
NACoal
|
10.5 | 12.1 | 15.9 | |||||||||
|
NACCO and Other
|
14.1 | 6.4 | 0.3 | |||||||||
|
|
||||||||||||
|
Total
|
$ | 33.5 | $ | 71.4 | $ | 65.2 | ||||||
|
|
||||||||||||
F-45
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Data By Geographic Region
No single country outside of the United States comprised 10% or more of the Company’s revenues from
unaffiliated customers. The “Other” category below includes Canada, Mexico, South America and
Asia-Pacific. In addition, no single customer comprised 10% or more of the Company’s revenues from
unaffiliated customers. However, HBB and NACoal each derive sales from a single customer that
exceeds 10% of the respective segment’s revenues. The loss of that operating segment’s customer
would be material to each respective operating segment.
| Europe, | ||||||||||||||||
| United | Africa and | |||||||||||||||
| States | Middle East | Other | Consolidated | |||||||||||||
|
2009
|
||||||||||||||||
|
Revenues from unaffiliated customers,
based on the customers’ location
|
$ | 1,415.5 | $ | 410.6 | $ | 484.5 | $ | 2,310.6 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Long-lived assets
|
$ | 277.4 | $ | 48.1 | $ | 66.2 | $ | 391.7 | ||||||||
|
|
||||||||||||||||
|
2008
|
||||||||||||||||
|
Revenues from unaffiliated customers,
based on the customers’ location
|
$ | 1,923.7 | $ | 921.8 | $ | 819.6 | $ | 3,665.1 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Long-lived assets
|
$ | 279.7 | $ | 60.0 | $ | 76.3 | $ | 416.0 | ||||||||
|
|
||||||||||||||||
|
2007
|
||||||||||||||||
|
Revenues from unaffiliated customers,
based on the customers’ location
|
$ | 1,971.2 | $ | 896.3 | $ | 722.5 | $ | 3,590.0 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Long-lived assets
|
$ | 275.6 | $ | 67.6 | $ | 74.6 | $ | 417.8 | ||||||||
|
|
||||||||||||||||
F-46
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
A summary of the unaudited results of operations for the year ended December 31 is as follows:
| 2009 | ||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
|
Revenues
|
||||||||||||||||
|
NMHG
|
$ | 389.1 | $ | 362.0 | $ | 328.4 | $ | 395.7 | ||||||||
|
HBB
|
94.2 | 107.2 | 118.9 | 176.7 | ||||||||||||
|
KC
|
39.7 | 40.6 | 48.3 | 85.3 | ||||||||||||
|
NACoal
|
32.6 | 31.5 | 32.9 | 32.5 | ||||||||||||
|
Eliminations
|
(0.9 | ) | (0.8 | ) | (0.7 | ) | (2.6 | ) | ||||||||
|
|
||||||||||||||||
|
|
$ | 554.7 | $ | 540.5 | $ | 527.8 | $ | 687.6 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Gross profit
|
$ | 85.9 | $ | 92.8 | $ | 94.1 | $ | 135.3 | ||||||||
|
|
||||||||||||||||
|
Earnings of unconsolidated mines
|
$ | 10.5 | $ | 9.8 | $ | 10.5 | $ | 7.8 | ||||||||
|
|
||||||||||||||||
|
Operating profit (loss)
|
||||||||||||||||
|
NMHG
|
$ | (12.6 | ) | $ | (1.7 | ) | $ | (20.4 | ) | $ | 3.5 | |||||
|
HBB
|
4.4 | 9.8 | 13.5 | 22.7 | ||||||||||||
|
KC
|
(4.3 | ) | (2.6 | ) | 0.6 | 13.0 | ||||||||||
|
NACoal
|
13.0 | 9.2 | 16.7 | 3.7 | ||||||||||||
|
NACCO and Other
|
(1.1 | ) | (1.5 | ) | (1.4 | ) | (5.4 | ) | ||||||||
|
Eliminations
|
— | 0.1 | — | (0.1 | ) | |||||||||||
|
|
||||||||||||||||
|
|
$ | (0.6 | ) | $ | 13.3 | $ | 9.0 | $ | 37.4 | |||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Income (loss) from continuing operations
|
$ | (9.1 | ) | $ | 1.1 | $ | (4.4 | ) | $ | 20.8 | ||||||
|
|
||||||||||||||||
|
Discontinued operations
|
$ | — | $ | 0.3 | $ | 0.4 | $ | 21.9 | ||||||||
|
|
||||||||||||||||
|
Net income (loss)
|
$ | (9.1 | ) | $ | 1.4 | $ | (4.0 | ) | $ | 42.7 | ||||||
|
|
||||||||||||||||
|
Net income (loss) attributable to stockholders
|
||||||||||||||||
|
NMHG
|
$ | (18.5 | ) | $ | (3.1 | ) | $ | (22.4 | ) | $ | 0.9 | |||||
|
HBB
|
1.4 | 4.7 | 6.9 | 13.1 | ||||||||||||
|
KC
|
(2.8 | ) | (1.7 | ) | 0.3 | 8.1 | ||||||||||
|
NACoal
|
10.8 | 7.1 | 11.4 | 23.9 | ||||||||||||
|
NACCO and Other
|
(1.5 | ) | (1.4 | ) | (1.5 | ) | (4.6 | ) | ||||||||
|
Eliminations
|
1.5 | (4.0 | ) | 1.4 | 1.1 | |||||||||||
|
|
||||||||||||||||
|
|
$ | (9.1 | ) | $ | 1.6 | $ | (3.9 | ) | $ | 42.5 | ||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Basic and Diluted earnings (loss) per share
|
$ | (1.10 | ) | $ | 0.19 | $ | (0.47 | ) | $ | 5.12 | ||||||
|
|
||||||||||||||||
The significant increase in operating results in the fourth quarter of 2009 compared with the prior
quarters of 2009 is primarily due to the seasonal nature of HBB’s and KC’s business.
F-47
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
| 2008 | ||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
|
Revenues
|
||||||||||||||||
|
NMHG
|
$ | 698.9 | $ | 767.5 | $ | 696.4 | $ | 661.5 | ||||||||
|
HBB
|
95.2 | 108.8 | 138.2 | 186.5 | ||||||||||||
|
KC
|
39.2 | 39.7 | 45.6 | 77.8 | ||||||||||||
|
NACoal
|
28.4 | 29.9 | 34.6 | 22.4 | ||||||||||||
|
Eliminations
|
(0.6 | ) | (1.0 | ) | (1.4 | ) | (2.5 | ) | ||||||||
|
|
||||||||||||||||
|
|
$ | 861.1 | $ | 944.9 | $ | 913.4 | $ | 945.7 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Gross profit
|
$ | 132.1 | $ | 121.7 | $ | 102.7 | $ | 134.6 | ||||||||
|
|
||||||||||||||||
|
Earnings of unconsolidated mines
|
$ | 8.6 | $ | 9.3 | $ | 9.7 | $ | 11.8 | ||||||||
|
|
||||||||||||||||
|
Operating profit (loss)
|
||||||||||||||||
|
NMHG
|
$ | 13.2 | $ | 7.2 | $ | (5.6 | ) | $ | (358.8 | ) | ||||||
|
HBB
|
2.7 | 1.3 | 4.0 | (68.8 | ) | |||||||||||
|
KC
|
(5.5 | ) | (5.3 | ) | (4.8 | ) | 3.4 | |||||||||
|
NACoal
|
6.4 | 7.5 | 8.1 | 7.8 | ||||||||||||
|
NACCO and Other
|
(0.7 | ) | (0.3 | ) | 0.2 | (1.5 | ) | |||||||||
|
Eliminations
|
0.1 | (0.1 | ) | — | — | |||||||||||
|
|
||||||||||||||||
|
|
$ | 16.2 | $ | 10.3 | $ | 1.9 | $ | (417.9 | ) | |||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Income (loss) from continuing operations
|
$ | 5.4 | $ | 2.1 | $ | (18.4 | ) | $ | (428.8 | ) | ||||||
|
|
||||||||||||||||
|
Discontinued operations
|
$ | 0.2 | $ | 0.3 | $ | 1.3 | $ | 0.5 | ||||||||
|
|
||||||||||||||||
|
Net income (loss)
|
$ | 5.6 | $ | 2.4 | $ | (17.1 | ) | $ | (428.3 | ) | ||||||
|
|
||||||||||||||||
|
Net income (loss) attributable to
stockholders
|
||||||||||||||||
|
NMHG
|
$ | 7.3 | $ | 2.6 | $ | (20.1 | ) | $ | (365.8 | ) | ||||||
|
HBB
|
0.1 | (0.6 | ) | 1.3 | (74.1 | ) | ||||||||||
|
KC
|
(3.2 | ) | (3.7 | ) | (3.3 | ) | 0.2 | |||||||||
|
NACoal
|
3.8 | 6.4 | 7.0 | 4.9 | ||||||||||||
|
NACCO and Other
|
0.4 | (0.6 | ) | 0.8 | (1.0 | ) | ||||||||||
|
Eliminations
|
(2.8 | ) | (1.8 | ) | (3.0 | ) | 7.6 | |||||||||
|
|
||||||||||||||||
|
|
$ | 5.6 | $ | 2.3 | $ | (17.3 | ) | $ | (428.2 | ) | ||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Basic and Diluted earnings (loss) per share
|
$ | 0.68 | $ | 0.28 | $ | (2.09 | ) | $ | (51.69 | ) | ||||||
|
|
||||||||||||||||
The significant decrease in operating results in the fourth quarter of 2008 compared with the prior
quarters of 2008 is primarily due to impairment charges for goodwill and other intangible assets
recorded by NMHG, HBB and KC during the fourth quarter of 2008 of $435.7 million.
F-48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
The condensed balance sheets of NACCO, the parent company, at December 31 are as follows:
| 2009 | 2008 | |||||||
|
ASSETS
|
||||||||
|
Cash and cash equivalents
|
$ | 48.8 | $ | 71.2 | ||||
|
Other current assets
|
1.4 | 10.2 | ||||||
|
Notes receivable from subsidiaries
|
— | 73.3 | ||||||
|
Investment in subsidiaries
|
||||||||
|
NMHG
|
207.1 | 154.2 | ||||||
|
HBB
|
(12.8 | ) | (38.2 | ) | ||||
|
KC
|
44.6 | 37.5 | ||||||
|
NACoal
|
126.9 | 86.0 | ||||||
|
Other
|
17.2 | 17.0 | ||||||
|
|
||||||||
|
|
383.0 | 256.5 | ||||||
|
Property, plant and equipment, net
|
5.2 | 5.2 | ||||||
|
Other non-current assets
|
22.3 | 9.0 | ||||||
|
|
||||||||
|
Total Assets
|
$ | 460.7 | $ | 425.4 | ||||
|
|
||||||||
|
|
||||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current liabilities
|
$ | 6.1 | $ | 8.8 | ||||
|
Current intercompany accounts payable, net
|
15.7 | 17.2 | ||||||
|
Note payable to Bellaire
|
27.8 | 28.2 | ||||||
|
Other non-current liabilities
|
14.5 | 14.5 | ||||||
|
Stockholders’ equity
|
396.6 | 356.7 | ||||||
|
|
||||||||
|
Total Liabilities and Stockholders’ Equity
|
$ | 460.7 | $ | 425.4 | ||||
|
|
||||||||
The credit agreements at NMHG, HBB, KC and NACoal allow the transfer of assets to NACCO under
certain circumstances. The amount of NACCO’s investment in NMHG, HBB, KC and NACoal and NACCO and
Other that was restricted at December 31, 2009 totaled approximately $296.9 million. The amount of
unrestricted cash available to NACCO included in “Investment in subsidiaries” was $8.6 million at
December 31, 2009. Dividends, advances and management fees from its subsidiaries are the primary
sources of cash for NACCO.
Six of NACoal’s wholly owned subsidiaries, The Coteau Properties Company (“Coteau”), The Falkirk
Mining Company (“Falkirk”), The Sabine Mining Company (“Sabine”) (collectively, the “project mining
subsidiaries”), Demery Resource Company, LLC (“Demery”), Caddo Creek Resource Company, LLC (“Caddo
Creek”), and Camino Real Fuels, LLC (“Camino Real”) each meet the definition of a variable interest
entity. The project mining subsidiaries were developed between 1974 and 1981 and operate lignite coal mines under long-term contracts with various utility
customers. The contracts with the project mining subsidiaries’ utility customers allow each mine
to sell lignite coal at a price based on actual cost plus an agreed pre-tax profit per ton. These
project mining subsidiaries are capitalized primarily with debt financing, which the utility
customers have arranged and guaranteed. The obligations of the project mining subsidiaries are
without recourse to NACCO and NACoal. Demery, Caddo Creek and Camino Real were formed during 2009
to develop, construct and operate lignite surface mines under long-term contracts. The contracts
with the customers allow for reimbursement of all costs plus a management fee. The taxes resulting
from earnings of these six entities are solely the responsibility of the Company. Although NACoal
owns 100% of the stock and manages the daily operations of these entities, the Company has
determined that the equity capital provided by NACoal is not sufficient to adequately finance the
ongoing activities or absorb any expected losses without additional support from the customers. As
a result, NACoal is not the primary beneficiary and therefore does not consolidate these entities’
financial position or results of operations. The pre-tax income from the unconsolidated mines is
reported on the line “Earnings of unconsolidated mines” in the Consolidated Statements of
Operations with related taxes included in the provision for income taxes. The Company has included
the pre-tax earnings of the unconsolidated mines above operating profit as they are an integral
component of the Company’s business and operating results. The investment in the unconsolidated
mines and related tax assets and liabilities was $17.3 million and $16.6 million at December 31,
2009 and 2008, respectively, and are included on the line “Other Non-Current Assets” in the
Consolidated Balance Sheets. The Company’s risk of loss relating to these entities is limited to
its invested capital, which was $3.5 million, $5.0 million and $5.1 million at December 31, 2009,
2008 and 2007, respectively.
F-49
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Summarized financial information for the project mining subsidiaries is as follows:
| 2009 | 2008 | 2007 | ||||||||||
|
Statement of Operations
|
||||||||||||
|
Revenues
|
$ | 421.1 | $ | 402.6 | $ | 346.4 | ||||||
|
Gross profit
|
$ | 63.7 | $ | 58.3 | $ | 52.4 | ||||||
|
Income before income taxes
|
$ | 38.6 | $ | 39.4 | $ | 37.7 | ||||||
|
Income from continuing operations
|
$ | 29.8 | $ | 30.3 | $ | 29.7 | ||||||
|
Net income
|
$ | 29.8 | $ | 30.3 | $ | 29.7 | ||||||
|
|
||||||||||||
|
Balance Sheet
|
||||||||||||
|
Current assets
|
$ | 119.6 | $ | 94.0 | ||||||||
|
Non-current assets
|
$ | 637.6 | $ | 557.4 | ||||||||
|
Current liabilities
|
$ | 112.6 | $ | 93.0 | ||||||||
|
Non-current liabilities
|
$ | 641.1 | $ | 553.4 | ||||||||
NACoal received dividends of $31.2 million and $30.4 million from the unconsolidated mines in 2009
and 2008, respectively.
In addition, NMHG maintains an interest in one variable interest entity, NFS. NFS is a joint
venture with GECC formed primarily for the purpose of providing financial services to independent
Hyster
®
and Yale
®
lift truck dealers and National Account customers in the
United States. The Company, however, has concluded that NMHG is not the primary beneficiary and
will, therefore, continue to use the equity method to account for its 20% interest in NFS. NMHG
does not consider its variable interest in NFS to be significant.
Generally, NMHG sells lift trucks through its independent dealer network or directly to customers.
These dealers and customers may enter into a financing transaction with NFS or other unrelated
third-parties. NFS provides debt financing to dealers and lease financing to both dealers and
customers. NFS’ total purchases of Hyster
®
and Yale
®
lift trucks from
dealers, customers and directly from NMHG, such that NFS could provide lease financing to dealers
and customers, for the years ended December 31, 2009, 2008 and 2007 were $266.7 million, $428.3
million and $375.2 million, respectively. Of these amounts, $38.0 million, $73.9 million and $51.8
million for the years ended December 31, 2009, 2008 and 2007, respectively, were invoiced directly
from NMHG to NFS so that the dealer or customer could obtain operating lease financing from NFS.
Amounts receivable from NFS were $1.3 million and $8.6 million at December 31, 2009 and 2008,
respectively.
Under the terms of the joint venture agreement with GECC, NMHG provides recourse for financing
provided by NFS to NMHG dealers. Additionally, the credit quality of a customer or concentration
issues within GECC may necessitate providing standby recourse or repurchase obligations or a
guarantee of the residual value of the lift trucks purchased by customers and financed through NFS.
At December 31, 2009, approximately $106.4 million of the Company’s total recourse or repurchase
obligations related to transactions with NFS. NMHG has reserved for losses under the terms of the
recourse or repurchase obligations in its consolidated financial statements. Historically, NMHG
has not had significant losses with respect to these obligations. During 2009, 2008 and 2007, the
net losses resulting from customer defaults did not have a material impact on NMHG’s results of
operations or financial position.
In connection with the joint venture agreement, NMHG also provides a guarantee to GECC for 20% of
NFS’ debt with GECC, such that NMHG would become liable under the terms of NFS’ debt agreements
with GECC in the case of default by NFS. At December 31, 2009, loans from GECC to NFS totaled
$831.5 million. Although NMHG’s contractual guarantee was $166.3 million, the loans by GECC to NFS
are secured by NFS’ customer receivables, of which NMHG guarantees $106.4 million. Excluding the
$106.4 million of NFS receivables guaranteed by NMHG from NFS’ loans to GECC, NMHG’s incremental
obligation as a result of this guarantee to GECC is $145.0 million. NFS has not defaulted under
the terms of this debt financing in the past and although there can be no assurances, NMHG is not
aware of any circumstances that would cause NFS to default in future periods.
In addition to providing financing to NMHG’s dealers, NFS provides operating lease financing to
NMHG. Operating lease obligations primarily relate to specific sale-leaseback-sublease
transactions for certain NMHG customers whereby NMHG sells lift trucks to NFS, NMHG leases these
lift trucks back under an operating lease agreement and NMHG subleases those lift trucks to
customers under an operating lease agreement. Total obligations to NFS under the operating lease
agreements were $7.5 million and $7.6 million at December 31, 2009 and 2008, respectively. In
addition, NMHG provides certain subsidies to its customers that are paid directly to NFS. Total
subsidies were $5.4 million, $7.5 million and $7.7 million for 2009, 2008 and 2007, respectively.
F-50
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NMHG provides certain services to NFS for which it receives compensation under the terms of the
joint venture agreement. These services consist primarily of administrative functions and
remarketing services. Total income recorded by NMHG related to these services was $7.6 million in
2009, $10.1 million in 2008 and $9.0 million in 2007.
NMHG has a 50% ownership interest in SN, a limited liability company that was formed primarily to
manufacture and distribute Sumitomo-Yale and Shinko-branded lift trucks in Japan and export
Hyster
®
- and Yale
®
-branded lift trucks and related
components and service parts outside of Japan. NMHG purchases products from SN under normal trade
terms based on current market prices. In 2009, 2008 and 2007, purchases from SN were $44.7
million, $116.0 million and $116.9 million, respectively. Amounts payable to SN at December 31,
2009 and 2008 were $15.1 million and $43.1 million, respectively.
During 2009, 2008 and 2007, NMHG recognized $1.8 million, $1.7 million and $2.0 million,
respectively, in expenses related to payments to SN for engineering design services. These
expenses were included in “Selling, general and administrative expenses” in the Consolidated
Statement of Operations. Additionally, NMHG recognized income of $0.4 million, $1.6 million and
$1.6 million for payments from SN for use of technology developed by NMHG that are included in
“Revenues” in the Consolidated Statement of Operations for the year ended December 31, 2009, 2008
and 2007, respectively.
Summarized financial information for both equity investments is as follows:
| 2009 | 2008 | 2007 | ||||||||||
|
Statement of Operations
|
||||||||||||
|
Revenues
|
$ | 310.6 | $ | 445.0 | $ | 408.7 | ||||||
|
Gross profit
|
$ | 88.5 | $ | 121.3 | $ | 120.2 | ||||||
|
Income from continuing operations
|
$ | 1.5 | $ | 18.9 | $ | 27.6 | ||||||
|
Net income
|
$ | 1.5 | $ | 18.9 | $ | 27.6 | ||||||
|
|
||||||||||||
|
Balance Sheet
|
||||||||||||
|
Current assets
|
$ | 95.6 | $ | 146.1 | ||||||||
|
Non-current assets
|
$ | 1,159.2 | $ | 1,274.4 | ||||||||
|
Current liabilities
|
$ | 104.1 | $ | 141.6 | ||||||||
|
Non-current liabilities
|
$ | 1,028.8 | $ | 1,144.3 | ||||||||
The Company’s percentage share of the net income or loss from its equity investments is reported on
the line “Income from other unconsolidated affiliates” in the “Other income (expense)” portion of
the Consolidated Statements of Operations.
At December 31, 2009 and 2008, NMHG’s investment in NFS was $13.9 million and $14.8 million,
respectively, and NMHG’s investment in SN was $25.8 million and $29.9 million, respectively. NMHG
received dividends of $2.6 million and $3.1 million from NFS and $0.1 million and $0.1 million from
SN in 2009 and 2008, respectively.
Legal services rendered by Jones Day approximated $2.7 million, $3.2 million and $3.2 million for
the years ended December 31, 2009, 2008 and 2007, respectively. A director of the Company is also
a partner of this law firm.
F-51
Table of Contents
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED BALANCE SHEETS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED BALANCE SHEETS
| December 31 | ||||||||
| 2009 | 2008 | |||||||
| (In millions) | ||||||||
|
|
||||||||
|
Cash and cash equivalents
|
$ | 48.8 | $ | 71.2 | ||||
|
|
||||||||
|
Other current assets
|
1.4 | 10.2 | ||||||
|
|
||||||||
|
Notes receivable from subsidiaries
|
— | 73.3 | ||||||
|
|
||||||||
|
Investment in subsidiaries
|
||||||||
|
NMHG
|
207.1 | 154.2 | ||||||
|
HBB
|
(12.8 | ) | (38.2 | ) | ||||
|
KC
|
44.6 | 37.5 | ||||||
|
NACoal
|
126.9 | 86.0 | ||||||
|
Other
|
17.2 | 17.0 | ||||||
|
|
||||||||
|
|
383.0 | 256.5 | ||||||
|
|
||||||||
|
Property, plant and equipment, net
|
5.2 | 5.2 | ||||||
|
|
||||||||
|
Other non-current assets
|
22.3 | 9.0 | ||||||
|
|
||||||||
|
|
||||||||
|
Total Assets
|
$ | 460.7 | $ | 425.4 | ||||
|
|
||||||||
|
|
||||||||
|
Current liabilities
|
$ | 6.1 | $ | 8.8 | ||||
|
|
||||||||
|
Current intercompany accounts payable, net
|
15.7 | 17.2 | ||||||
|
|
||||||||
|
Note payable to Bellaire
|
27.8 | 28.2 | ||||||
|
|
||||||||
|
Other non-current liabilities
|
14.5 | 14.5 | ||||||
|
|
||||||||
|
Stockholders’ equity
|
396.6 | 356.7 | ||||||
|
|
||||||||
|
|
||||||||
|
Total Liabilities and Stockholders’ Equity
|
$ | 460.7 | $ | 425.4 | ||||
|
|
||||||||
See Notes to Parent Company Condensed Financial Statements.
F-52
Table of Contents
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED STATEMENTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED STATEMENTS OF OPERATIONS
| Year ended December 31 | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In millions) | ||||||||||||
|
|
||||||||||||
|
Income (expense):
|
||||||||||||
|
Intercompany interest income (expense)
|
$ | (1.6 | ) | $ | 0.1 | $ | (0.4 | ) | ||||
|
Other, net
|
(1.5 | ) | 2.2 | 4.1 | ||||||||
|
|
||||||||||||
|
|
(3.1 | ) | 2.3 | 3.7 | ||||||||
|
Administrative and general expenses
|
9.2 | 2.0 | 3.3 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Income (loss) before income taxes
|
(12.3 | ) | 0.3 | 0.4 | ||||||||
|
|
||||||||||||
|
Income tax provision (benefit)
|
(2.7 | ) | 0.6 | 0.4 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net loss before equity in earnings
of subsidiaries
|
(9.6 | ) | (0.3 | ) | — | |||||||
|
|
||||||||||||
|
Equity in earnings (loss) of subsidiaries
|
40.6 | (437.1 | ) | 90.3 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net income (loss)
|
31.0 | (437.4 | ) | 90.3 | ||||||||
|
|
||||||||||||
|
Net (income) loss attributable to noncontrolling interest
|
0.1 | (0.2 | ) | 0.1 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net income (loss) attributable to stockholders
|
$ | 31.1 | $ | (437.6 | ) | $ | 90.4 | |||||
|
|
||||||||||||
See Notes to Parent Company Condensed Financial Statements.
F-53
Table of Contents
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED STATEMENTS OF CASH FLOWS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED STATEMENTS OF CASH FLOWS
| Year Ended December 31 | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In millions) | ||||||||||||
|
Operating Activities
|
||||||||||||
|
Net income (loss)
|
$ | 31.0 | $ | (437.4 | ) | $ | 90.3 | |||||
|
Equity in earnings (loss) of subsidiaries
|
(40.6 | ) | 437.1 | (90.3 | ) | |||||||
|
|
||||||||||||
|
Parent company only net loss
|
(9.6 | ) | (0.3 | ) | — | |||||||
|
Net changes related to operating activities
|
(31.6 | ) | (1.2 | ) | (11.2 | ) | ||||||
|
|
||||||||||||
|
Net cash used for operating activities
|
(41.2 | ) | (1.5 | ) | (11.2 | ) | ||||||
|
|
||||||||||||
|
Investing Activities
|
||||||||||||
|
Expenditures for property, plant and equipment
|
(14.1 | ) | (6.4 | ) | (0.2 | ) | ||||||
|
|
||||||||||||
|
Net cash used for investing activities
|
(14.1 | ) | (6.4 | ) | (0.2 | ) | ||||||
|
|
||||||||||||
|
Financing Activities
|
||||||||||||
|
Dividends received from subsidiaries
|
15.5 | 52.2 | 148.8 | |||||||||
|
Intercompany notes
|
72.9 | (53.3 | ) | 48.0 | ||||||||
|
Notes payable to Bellaire
|
(0.4 | ) | (46.1 | ) | (39.1 | ) | ||||||
|
Capital contributions to subsidiaries
|
(38.0 | ) | (65.8 | ) | (6.0 | ) | ||||||
|
Cash dividends paid
|
(17.1 | ) | (16.9 | ) | (16.4 | ) | ||||||
|
|
||||||||||||
|
Net cash provided by (used for) financing activities
|
32.9 | (129.9 | ) | 135.3 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash and cash equivalents
|
||||||||||||
|
Increase (decrease) for the period
|
(22.4 | ) | (137.8 | ) | 123.9 | |||||||
|
Balance at the beginning of the period
|
71.2 | 209.0 | 85.1 | |||||||||
|
|
||||||||||||
|
Balance at the end of the period
|
$ | 48.8 | $ | 71.2 | $ | 209.0 | ||||||
|
|
||||||||||||
See Notes to Parent Company Condensed Financial Statements.
F-54
Table of Contents
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2009, 2008 AND 2007
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2009, 2008 AND 2007
The notes to Consolidated Financial Statements, incorporated in Item 15 of this Form 10-K, are
hereby incorporated by reference into these Notes to Parent Company Condensed Financial Statements.
NOTE A — LONG-TERM OBLIGATIONS AND GUARANTEES
NACCO Industries, Inc. (the parent company or “NACCO”) is a holding company that has five operating
segments. It is NACCO’s policy not to guarantee the debt of its subsidiaries, which make up these
segments.
NOTE B — UNRESTRICTED CASH
The amount of unrestricted cash available to NACCO, included in “Investment in subsidiaries” was
$8.6 million at December 31, 2009 and was in addition to the $48.8 million of cash included in the
Parent Company Condensed Balance Sheets at December 31, 2009.
F-55
Table of Contents
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 2009, 2008 AND 2007
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 2009, 2008 AND 2007
| COL A. | COL B. | COL C. | COL D. | COL E. | ||||||||||||||||
| Additions | (E) | |||||||||||||||||||
| Balance at | Charged to | Charged to | Balance at | |||||||||||||||||
| Beginning | Costs and | Other Accounts | Deductions | End of | ||||||||||||||||
| Description | of Period | Expenses | — Describe (C) | — Describe | Period | |||||||||||||||
| (In millions) | ||||||||||||||||||||
|
|
||||||||||||||||||||
|
2009
|
||||||||||||||||||||
|
Reserves deducted from asset accounts:
|
||||||||||||||||||||
|
Allowance for doubtful accounts
(D)
|
$ | 15.7 | $ | 3.9 | $ | 0.8 | $ | 1.3 | (A) | $ | 19.1 | |||||||||
|
|
||||||||||||||||||||
|
Allowance for discounts,
adjustments and returns
|
12.4 | 17.0 | — | 17.9 | (B) | 11.5 | ||||||||||||||
|
|
||||||||||||||||||||
|
2008
|
||||||||||||||||||||
|
Reserves deducted from asset accounts:
|
||||||||||||||||||||
|
Allowance for doubtful accounts
(D)
|
$ | 9.7 | $ | 8.8 | $ | (0.7 | ) | $ | 2.1 | (A) | $ | 15.7 | ||||||||
|
|
||||||||||||||||||||
|
Allowance for discounts,
adjustments and returns
|
12.4 | 20.4 | — | 20.4 | (B) | 12.4 | ||||||||||||||
|
|
||||||||||||||||||||
|
2007
|
||||||||||||||||||||
|
Reserves deducted from asset accounts:
|
||||||||||||||||||||
|
Allowance for doubtful accounts
(D)
|
$ | 9.1 | $ | 2.4 | $ | 0.1 | $ | 1.9 | (A) | $ | 9.7 | |||||||||
|
|
||||||||||||||||||||
|
Allowance for discounts,
adjustments and returns
|
7.1 | 18.4 | — | 13.1 | (B) | 12.4 | ||||||||||||||
| (A) | Write-offs, net of recoveries. | |
| (B) | Payments and customer deductions for product returns, discounts and allowances. | |
| (C) | Subsidiary’s foreign currency translation adjustments and other. | |
| (D) | Includes allowance of receivables classified as long-term of $12.0 million, $6.2 million and $4.6 million in 2009, 2008 and 2007, respectively. | |
| (E) | Balances which are not required to be presented and those which are immaterial have been omitted. |
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EXHIBIT INDEX
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession.
| 2.1(i) | Amended and Restated Spin-Off Agreement, dated as of April 25, 2007, among NACCO Industries, Inc., Housewares Holding Company, Hamilton Beach, Inc. and Hamilton Beach/Proctor-Silex, Inc., is incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed by the Company on May 1, 2007, Commission File Number 1-9172. |
(3) Articles of Incorporation and By-laws.
| 3.1(i) | Restated Certificate of Incorporation of the Company is incorporated herein by reference to Exhibit 3(i) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Commission File Number 1-9172. | |
| 3.1(ii) | Amended and Restated By-laws of the Company are incorporated herein by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on August 7, 2008, Commission File Number 1-9172. |
| (4) | Instruments defining the rights of security holders, including indentures. |
| 4.1 | The Company by this filing agrees, upon request, to file with the Securities and Exchange Commission the instruments defining the rights of holders of long-term debt of the Company and its subsidiaries where the total amount of securities authorized thereunder does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. | |
| 4.2 | The Mortgage and Security Agreement, dated April 8, 1976, between The Falkirk Mining Company (as Mortgagor) and Cooperative Power Association and United Power Association (collectively as Mortgagee) is incorporated herein by reference to Exhibit 4(ii) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Commission File Number 1-9172. | |
| 4.3 | Amendment No. 1 to the Mortgage and Security Agreement, dated as of December 15, 1993, between Falkirk Mining Company (as Mortgagor) and Cooperative Power Association and United Power Association (collectively as Mortgagee) is incorporated herein by reference to Exhibit 4(iii) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997, Commission File Number 1-9172. | |
| 4.4 | Stockholders’ Agreement, dated as of March 15, 1990, among the signatories thereto, the Company and Ameritrust Company National Association, as depository, is incorporated herein by reference to Exhibit 2 to the Schedule 13D filed on March 29, 1990 with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.5 | Amendment to Stockholders’ Agreement, dated as of April 6, 1990, among the signatories thereto, the Company and Ameritrust Company National Association, as depository, is incorporated herein by reference to Exhibit 4 to Amendment No. 1 to the Schedule 13D filed on April 11, 1990 with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.6 | Amendment to Stockholders’ Agreement, dated as of April 6, 1990, among the signatories thereto, the Company and Ameritrust Company National Association, as depository, is incorporated herein by reference to Exhibit 5 to Amendment No. 1 to the Schedule 13D filed on April 11, 1990 with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.7 | Amendment to Stockholders’ Agreement, dated as of November 17, 1990, among the signatories thereto, the Company, and Ameritrust Company National Association, as depository, is incorporated herein by reference to Amendment No. 2 to the Schedule 13D filed on March 18, 1991 with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.8 | Amendment to Stockholders’ Agreement, dated as of November 14, 1996, among the signatories thereto, the Company, the New Participating Stockholders (as defined therein) and Key Bank, N.A. (successor to Ameritrust Company National Association), as depository, is incorporated herein by reference to Amendment No. 3 to the Schedule 13D filed on November 26, 1996, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.9 | Amendment to Stockholders’ Agreement, dated as of November 14, 1996, among the signatories thereto, the Company, the New Participating Stockholders (as defined therein) and Key Bank, N.A. (successor to Ameritrust Company National Association), as depository, is incorporated herein by reference to Amendment No. 3 to the Schedule 13D filed on November 26, 1996, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.10 | Amendment to Stockholders’ Agreement, dated as of April 9, 1998, by and among KeyCorp Shareholder Services, Inc., the Company, the Participating Stockholders (as defined therein) and the New Participating Stockholders (as defined therein) is incorporated herein by reference to Amendment No. 6 to the Schedule 13D filed on March 25, 1999, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. |
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| 4.11 | Amendment to Stockholders’ Agreement, dated as of December 26, 1998, by and among KeyCorp Shareholder Services, Inc., the Company, the Participating Stockholders (as defined therein) and the New Participating Stockholders (as defined therein) is incorporated herein by reference to Amendment No. 6 to the Schedule 13D filed on March 25, 1999, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.12 | Amendment to Stockholders’ Agreement, dated as of November 30, 1999, by and among First Chicago Trust Company of New York, the Company and the Participating Stockholders (as defined therein) is incorporated herein by reference to Amendment No. 7 to the Schedule 13D filed on March 30, 2000, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.13 | Amendment to Stockholders’ Agreement, dated as of November 30, 1999, by and among First Chicago Trust Company of New York, the Company and the Participating Stockholders (as defined therein) is incorporated herein by reference to Amendment No. 7 to the Schedule 13D filed on March 30, 2000, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.14 | Amendment to Stockholders’ Agreement, dated as of March 30, 2000, by and among First Chicago Trust Company of New York, the Company, the Participating Stockholders (as defined therein) and the New Participating Stockholders (as defined therein) is incorporated herein by reference to Amendment No. 7 to the Schedule 13D filed on March 30, 2000, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.15 | Amendment to Stockholders’ Agreement, dated as of October 31, 2000, by and among First Chicago Trust Company of New York, the Company and the Participating Stockholders (as defined therein) is incorporated herein by reference to Amendment No. 8 to the Schedule 13D filed on February 14, 2001, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.16 | Amendment to Stockholders’ Agreement, dated as of October 31, 2000, by and among National City Bank (Cleveland), the Company, the Participating Stockholders (as defined therein) and the New Participating Stockholders (as defined therein) is incorporated herein by reference to Amendment No. 8 to the Schedule 13D filed on February 14, 2001, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.17 | Amendment to Stockholders’ Agreement, dated as of February 14, 2001, by and among National City Bank (Cleveland), the Company, the Participating Stockholders (as defined therein) and the New Participating Stockholders (as defined therein) is incorporated herein by reference to Amendment No. 8 to the Schedule 13D filed on February 14, 2001, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.18 | Amendment to Stockholders’ Agreement, dated as of December 26, 2001, by and among National City Bank (Cleveland), the Company, the Participating Stockholders (as defined therein) and the New Participating Stockholder (as defined therein) is incorporated herein by reference to Amendment No. 9 to the Schedule 13D filed on February 14, 2002, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.19 | Amendment to Stockholders’ Agreement, dated as of February 11, 2002, by and among National City Bank (Cleveland), the Company, the Participating Stockholders (as defined therein) and the New Participating Stockholder (as defined therein) is incorporated herein by reference to Amendment No. 9 to the Schedule 13D filed on February 14, 2002, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.20 | Indenture, dated as of May 9, 2002, by and among NMHG Holding Co., the Subsidiary Guarantors named therein and U.S. Bank National Association, as Trustee (including the form of 10% senior note due 2009) is incorporated herein by reference to Exhibit 4.2 to the NMHG Holding Co.’s Registration Statement on Form S-4 filed on May 28, 2002, Commission File Number 333-89248. | |
| 4.21 | Amendment to Stockholders’ Agreement, dated as of October 24, 2002, by and among National City Bank (Cleveland), the Company, the Participating Stockholders (as defined therein) and the New Participating Stockholder (as defined therein) is incorporated herein by reference to Amendment No. 10 to the Schedule 13D filed on February 14, 2003, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.22 | Amendment to Stockholders’ Agreement, dated as of December 30, 2002, by and among National City Bank (Cleveland), the Company, the Participating Stockholders (as defined therein) and the New Participating Stockholder (as defined therein) is incorporated herein by reference to Amendment No. 10 to the Schedule 13D filed on February 14, 2003, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.23 | Amendment to Stockholders’ Agreement, dated as of December 28, 2004, by and among National City Bank (Cleveland), the Company, the Participating Stockholders (as defined therein) and the New Participating Stockholders (as defined therein) is incorporated herein by reference to Exhibit 4.23 of the Registration Statement on Form S-4, filed by the Company on January 12, 2005, Commission File Number 333-121996. | |
| 4.24 | Amendment to Stockholders’ Agreement, dated as of February 7, 2005, by and among National City Bank (Cleveland), the Company, the Participating Stockholders (as defined therein) and the New Participating Stockholder (as defined therein) is incorporated herein by reference to Exhibit 4.24 of the Pre-Effective Amendment No. 1 to the Registration Statement on Form S-4, filed by the Company on February 7, 2005, Commission File Number 333-121996. |
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| 4.25 | Amendment to Stockholders’ Agreement, dated as of March 24, 2006, by and among National City Bank (Cleveland), the Company, the Participating Stockholders (as defined therein) and the New Participating Stockholder (as defined therein) is incorporated herein by reference to Amendment No. 15 to the Schedule 13D filed on February 14, 2008, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.26 | Amendment to Stockholders’ Agreement, dated as of September 19, 2007, by and among National City Bank (Cleveland), the Company, the Participating Stockholders (as defined therein) and the New Participating Stockholder (as defined therein) is incorporated herein by reference to Amendment No. 15 to the Schedule 13D filed on February 14, 2008, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.27 | Amendment to Stockholders’ Agreement, dated as of November 13, 2008, by and among National City Bank, the Company, the Participating Stockholders and the New Participating Stockholders is incorporated herein by reference to Amendment No. 16 to the Schedule 13D filed on February 13, 2009, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.28 | Amendment to Stockholders’ Agreement, dated as of November 26, 2008, by and among National City Bank, the Company, the Participating Stockholders and the New Participating Stockholders is incorporated herein by reference to Amendment No. 16 to the Schedule 13D filed on February 13, 2009, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001. | |
| 4.29 | Amendment to Stockholders’ Agreement, dated as of November 27, 2009, by and among National City Bank, the Company, the Participating Stockholders and the New Participating Stockholders is incorporated herein by reference to Amendment No. 17 to the Schedule 13D filed on February 16, 2010, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc., Commission File Number 5-38001 |
(10) Material Contracts.
| 10.1* | The NACCO Industries, Inc. 1975 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(i) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. | |
| 10.2* | Form of Incentive Stock Option Agreement for incentive stock options granted after 1986 under The NACCO Industries, Inc. 1975 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(iii) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. | |
| 10.3* | Form of Non-Qualified Stock Option Agreement under The NACCO Industries, Inc., 1975 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(iv) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. | |
| 10.4* | The NACCO Industries, Inc. 1981 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(v) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. | |
| 10.5* | Form of Non-Qualified Stock Option Agreement under The NACCO Industries, Inc. 1981 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(vi) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. | |
| 10.6* | Form of Incentive Stock Option Agreement for incentive stock options granted after 1986 under The NACCO Industries, Inc. 1981 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(viii) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. | |
| 10.7* | Form of award agreement for the NACCO Industries, Inc. Supplemental Executive Long-Term Incentive Bonus Plan is incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed by the Company on May 15, 2006, Commission File Number 1-9172. | |
| 10.8* | Form of award agreement for the NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan, effective December 12, 2006, is incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2006, Commission File Number 1-9172. | |
| 10.9* | NACCO Industries, Inc. 2007 Annual Incentive Compensation Plan, is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on March 23, 2007, Commission File Number 1-9172. | |
| 10.10* | NACCO Industries, Inc. Supplemental Annual Incentive Compensation Plan (As Amended and Restated Effective as of January 1, 2008) is incorporated herein by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, Commission File Number 1-9172. (Terminated effective as of December 31, 2009.) |
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| 10.11* | NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan (As Amended and Restated Effective as of January 1, 2008) is incorporated herein by reference to Exhibit 10.44 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, Commission File Number 1-9172. | |
| 10.12* | NACCO Industries, Inc. Supplemental Executive Long-Term Incentive Bonus Plan (Effective as of January 1, 2008) is incorporated herein by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, Commission File Number 1-9172. | |
| 10.13* | NACCO Industries, Inc. Non-Employee Directors’ Equity Compensation Plan (Effective as of January 1, 2008) is incorporated herein by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, Commission File Number 1-9172. | |
| 10.14* | The Retirement Plan For Alfred M. Rankin, Jr. (As Amended and Restated as of December 1, 2007) is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172. | |
| 10.15* | The NACCO Industries, Inc. Unfunded Benefit Plan (As Amended and Restated as of December 1, 2007) is incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172. | |
| 10.16* | The NACCO Industries, Inc. Excess Retirement Plan (Effective January 1, 2008) is incorporated herein by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172. | |
| 10.17* | NACCO Industries, Inc. 2008 Annual Incentive Compensation Plan, is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on March 31, 2008, Commission File Number 1-9172. | |
| 10.18* | Amendment No. 1 to the Retirement Benefit Plan for Alfred M. Rankin, Jr. (As Amended and Restated as of December 1, 2007) is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K., filed by the Company on November 13, 2008, Commission File Number 1-9172. | |
| 10.19* | Amendment No. 1 to the NACCO Industries, Inc. Unfunded Benefit Plan (As Amended and Restated Effective as of December 1, 2007) is incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed by the Company on November 13, 2008, Commission File Number 1-9172. | |
| 10.20* | Amendment No. 1 to the NACCO Industries, Inc. Supplemental Executive Long-Term Incentive Bonus Plan (As Amended and Restated Effective as of January 1, 2008) is incorporated herein by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, Commission File Number 1-9172. | |
| 10.21* | The NACCO Industries, Inc. Unfunded Benefit Plan for Terminated NMHG Employees is incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on May 5, 2009, Commission File Number 1-9172. | |
| 10.22* | Consulting Agreement between NACCO Industries, Inc. and Michael J. Morecroft, dated February 10, 2009 (effective as of June 30, 2008) is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on February 12, 2009, Commission File Number 1-9172. | |
| 10.23* | NACCO Industries, Inc. 2009 Annual Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on June 22, 2009, Commission File Number 1-9172. | |
| 10.24* | Amendment No. 2 to the Retirement Benefit Plan for Alfred M. Rankin, Jr. (As Amended and Restated as of December 1, 2007) is attached hereto as Exhibit 10.24. | |
| 10.25* | Amendment No. 1 to the NACCO Industries, Inc. Excess Retirement Plan (Effective January 1, 2008) is attached hereto as Exhibit No 10.25. | |
| 10.26* | Amendment No. 2 to the NACCO Industries, Inc. Unfunded Benefit Plan (As Amended and Restated Effective as of December 1, 2007) is attached hereto as Exhibit 10.26. | |
| 10.27 | Purchase and Sale Agreement, dated October 11, 2000, by and among Phillips Petroleum Company, Phillips Coal Company, The North American Coal Corporation, Oxbow Property Company L.L.C. and Red Hills Property Company L.L.C. is incorporated herein by reference to Exhibit 10(xxxvii) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File Number 1-9172. | |
| 10.28 | Credit Agreement, dated as of October 11, 2000, by and among The North American Coal Corporation, the Initial Lenders named therein, Salomon Smith Barney Inc., as Lead Arranger and Book Manager, Keybank National Association, as Syndication Agent, and Citibank N.A., as Agent, is incorporated herein by reference to Exhibit 10(liv) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File Number 1-9172. | |
| 10.29 | Credit Agreement, dated as of October 27, 2009, by and among The North American Coal Corporation, the Lenders party hereto and U.S. Bank National Association and Regions Bank, as Co-Syndication Agents, and PNC Bank, National |
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| Association, as Administrative Agent is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on November 2, 2009, Commission File Number 1-9172. |
| 10.30* | The North American Coal Corporation Deferred Compensation Plan For Management Employees (As Amended and Restated as of December 1, 2007) is incorporated herein by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172. | |
| 10.31* | The North American Coal Corporation Excess Retirement Plan (Effective January 1, 2008) is incorporated herein by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172. | |
| 10.32* | The North American Coal Corporation Supplemental Retirement Benefit Plan (As Amended and Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172. | |
| 10.33* | The North American Coal Corporation Value Appreciation Plan For Years 2000 to 2009 (As Amended and Restated Effective as of December 1, 2007) is incorporated herein by reference to Exhibit 10.16 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172. | |
| 10.34* | The North American Coal Corporation Value Appreciation Plan For Years 2006 to 2015 (As Amended and Restated Effective as of January 1, 2008) is incorporated herein by reference to Exhibit 10.17 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172. | |
| 10.35* | The North American Coal Corporation 2008 Annual Incentive Compensation Plan, is incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed by the Company on March 31, 2008, Commission File Number 1-9172. | |
| 10.36* | Amendment No. 1 to The North American Coal Corporation Deferred Compensation Plan For Management Employees (As Amended and Restated as of December 1, 2007) is incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed by the Company on November 13, 2008, Commission File Number 1-9172. | |
| 10.37* | Amendment No. 1 to the North American Coal Corporation Value Appreciation Plan for Years 2006 to 2015 (Amended and Restated Effective January 1, 2008) is incorporated herein by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, Commission File Number 1-9172. | |
| 10.38 | Purchase and Sale Agreement, dated April 29, 2009, by and among The North American Coal Corporation, Oxbow Property Company L.L.C., Red River Mining Company, Cleco Power LLC, Southwestern Electric Power Company, and Dolet Hills Lignite Company, LLC is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on April 30, 2009, Commission File Number 1-9172. | |
| 10.39* | The North American Coal Corporation 2009 Annual Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed by the Company on June 22, 2009, Commission File Number 1-9172. | |
| 10.40* | Amendment No. 2 to The North American Coal Corporation Value Appreciation Plan for Years 2006 to 2015 (Amended and Restated Effective January 1, 2008) is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on November 4, 2009, Commission File Number 1-9172. | |
| 10.41* | Amendment No. 1 to The North America Coal Corporation Supplemental Retirement Benefit Plan (As Amended and Restated as of January 1, 2008) is attached hereto as Exhibit 10.41. | |
| 10.42* | Amendment No. 2 to the North American Coal Corporation Deferred Compensation Plan for Management Employees (As Amended and Restated as of December 1, 2007) is attached hereto as Exhibit 10.42. | |
| 10.43 | Agreement and Plan of Merger, dated as of April 7, 1989, among NACCO Industries, Inc., Yale Materials Handling Corporation, Acquisition I, Esco Corporation, Hyster Company and Newesco, is incorporated herein by reference to Exhibit 2.1 to Hyster-Yale Materials Handling, Inc.’s Registration Statement on Form S-1 filed May 17, 1989, Commission File Number 33-28812. | |
| 10.44 | Agreement and Plan of Merger, dated as of April 7, 1989, among NACCO Industries, Inc., Yale Materials Handling Corporation, Acquisition II, Hyster Company and Newesco, is incorporated herein by reference to Exhibit 2.2 to Hyster-Yale Materials Handling, Inc.’s Registration Statement on Form S-1 filed May 17, 1989, Commission File Number 33-28812. | |
| 10.45 | Credit Agreement, dated as of May 9, 2002, among NMHG Holding Co., NACCO Materials Handling Group, Inc., NMHG Distribution Co., NACCO Materials Handling Limited, NACCO Materials Handling B.V., the financial institutions from time to time a party thereto as Lenders, the financial institutions from time to time a party thereto as Issuing Bank, Citicorp North America, Inc., as administrative agent for the Lenders and the Issuing Bank thereunder and Credit Suisse First Boston as joint arrangers and joint bookrunners and CSFB as syndication agent is incorporated herein by reference to Exhibit 10.1 to the NMHG Holding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248. |
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| 10.46 | Operating Agreement, dated July 31, 1979, among Eaton Corporation and Sumitomo Heavy Industries, Ltd. is incorporated herein by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248. | |
| 10.47 | Amendment, dated as of January 1, 1994, to the Third Amendment and Restated Operating Agreement dated as of November 7, 1991, between NACCO Materials Handling Group and AT&T Commercial Finance Corporation is incorporated herein by reference to Exhibit 10(c) to the Hyster-Yale Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, Commission File Number 33-28812. | |
| 10.48 | Equity joint venture contract, dated November 27, 1997, between Shanghai Perfect Jinqiao United Development Company Ltd., People’s Republic of China, NACCO Materials Handling Group, Inc., USA, and Sumitomo-Yale Company Ltd., Japan is incorporated herein by reference to Exhibit 10.3 to NMHG Holding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248. | |
| 10.49 | Recourse and Indemnity Agreement, dated October 21, 1998, between General Electric Capital Corp., NMHG Financial Services, Inc. and NACCO Materials Handling Group, Inc. is incorporated herein by reference to Exhibit 10.4 to NMHG Holding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248. | |
| 10.50 | Restated and Amended Joint Venture and Shareholders Agreement, dated April 15, 1998, between General Electric Capital Corp. and NACCO Materials Handling Group, Inc. is incorporated herein by reference to Exhibit 10.5 to NMHG Holding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248. | |
| 10.51 | Amendment No. 1 to the Restated and Amended Joint Venture and Shareholders Agreement between General Electric Capital Corporation and NACCO Materials Handling Group, Inc., dated as of October 21, 1998 is incorporated herein by reference to Exhibit 10.6 to NMHG Holding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248. | |
| 10.52 | International Operating Agreement, dated April 15, 1998, between NACCO Materials Handling Group, Inc. and General Electric Capital Corp. (the “International Operating Agreement”) is incorporated herein by reference to Exhibit 10.7 to NMHG Holding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248. | |
| 10.53 | Amendment No. 1 to the International Operating Agreement, dated as of October 21, 1998 is incorporated herein by reference to Exhibit 10.8 to NMHG Holding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248. | |
| 10.54 | Amendment No. 2 to the International Operating Agreement, dated as of December 1, 1999, is incorporated herein by reference to Exhibit 10.9 to NMHG Holding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248. | |
| 10.55 | Amendment No. 3 to the International Operating Agreement, dated as of May 1, 2000, is incorporated herein by reference to Exhibit 10.10 to NMHG Holding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248. | |
| 10.56 | Letter agreement, dated November 22, 2000, between General Electric Capital Corporation and NACCO Materials Handling Group, Inc. amending the International Operating Agreement is incorporated herein by reference to Exhibit 10.11 to NMHG Holding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248. | |
| 10.57 | A$ Facility Agreement, dated November 22, 2000, between GE Capital Australia and National Fleet Network Pty Limited is incorporated herein by reference to Exhibit 10.12 to NMHG Holding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248. | |
| 10.58 | Loan Agreement, dated as of June 28, 1996, between NACCO Materials Handling Group, Inc. and NACCO Industries, Inc. is incorporated herein by reference to Exhibit 10.13 to NMHG Holding Co.’s Registration Statement on Form S-4, dated May 28, 2002, Commission File Number 333-89248. | |
| 10.59 | First Amendment, dated as of June 28, 2002, to the Credit Agreement dated as of May 9, 2002, among NMHG Holding Co., NACCO Materials Handling Group, Inc. NMHG Distribution Co., NACCO Materials Handling Limited, NACCO Materials Handling B.V., the financial institutions from time to time a party thereto as Lenders, the financial institutions from time to time a party thereto as Issuing Bank, Citicorp North America, Inc., as administrative agent for the Lenders and the Issuing Bank thereunder and Credit Suisse First Boston as joint arrangers and joint bookrunners and CSFB as syndication agent is incorporated herein by reference to Exhibit 10(xci) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, Commission File Number 1-9172. | |
| 10.60 | Amendment No. 2, dated as of January 1, 2004, to the Restated and Amended Joint Venture and Shareholders Agreement between General Electric Capital Corporation and NACCO Materials Handling Group, Inc. is incorporated herein by reference to Exhibit 10.35 to NMHG Holding Co.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, Commission File Number 333-89248. |
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| 10.61 | Letter Agreement, dated March 12, 2004, between General Electric Capital Corporation and NACCO Materials Handling Group, Inc. amending the International Operating Agreement is incorporated herein by reference to Exhibit 10.36 to NMHG Holding Co.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, Commission File Number 333-89248. | |
| 10.62 | Letter Agreement, dated December 15, 2004, between General Electric Capital Corporation and NACCO Materials Handling Group, Inc. amending the International Operating Agreement is incorporated herein by reference to Exhibit 10.1 to NMHG Holding Co.’s Current Report on Form 8-K, filed on February 18, 2005, Commission File Number 333-89248. | |
| 10.63 | Letter Agreement, dated February 14, 2005, between General Electric Capital Corporation and NACCO Materials Handling Group, Inc. amending the International Operating Agreement is incorporated herein by reference to Exhibit 10.2 to NMHG Holding Co.’s Current Report on Form 8-K, filed on February 18, 2005, Commission File Number 333-89248. | |
| 10.64 | Fourth Amendment, dated as of June 30, 2004, to the Credit Agreement dated as of May 9, 2002, among NMHG Holding Co., NACCO Materials Handling Group, Inc., NACCO Materials Handling Limited, NACCO Materials Handling B.V., the financial institutions from time to time a party thereto as Lenders, the financial institutions from time to time a party thereto as Issuing Bank, Citicorp North America, Inc., as administrative agent for the Lenders and the Issuing Bank thereunder and Credit Suisse First Boston as joint arrangers and joint bookrunners and CSFB as syndication agent is incorporated herein by reference to Exhibit 10.37 to NMHG Holding Co.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, Commission File Number 333-89248. | |
| 10.65 | Letter Agreement, dated March 28, 2005, between NACCO Materials Handling Group, Inc. and General Electric Capital Corporation is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on April 1, 2005, Commission File Number 1-9172. | |
| 10.66 | Letter Agreement, dated May 31, 2005, between NACCO Materials Handling Group, Inc. and General Electric Capital Corporation is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on June 6, 2005, Commission File Number 1-9172. | |
| 10.67 | Amendment No. 5, dated September 29, 2005, to the International Operating Agreement between NACCO Materials Handling Group, Inc. and General Electric Capital Corporation is incorporated herein by reference to Exhibit 10.1 to NMHG Holding Co.’s Current Report on Form 8-K, filed on October 4, 2005, Commission File Number 333-89248. | |
| 10.68 | Amended and Restated Credit Agreement, dated as of December 19, 2005, among NMHG Holding Co., NACCO Materials Handling Group, Inc., NACCO Materials Handling Limited, NACCO Materials Handling B.V., the financial institutions from time to time a party thereto as Lenders, the financial institutions from time to time a party thereto as Issuing Bank, Citicorp North America, Inc., in its capacity as administrative agent for the Lenders and the Issuing Bank thereunder and Citigroup Global Markets Inc. as sole lead arranger and sole bookrunner is incorporated herein by reference to Exhibit 10.1 to NMHG Holding Co.’s Current Report on Form 8-K, filed on December 21, 2005, Commission File Number 333-89248. | |
| 10.69 | Term Loan Agreement, dated March 22, 2006, by and among NACCO Materials Handling Group, Inc., as borrower, the financial institutions party thereto, Citicorp North America, Inc., as Administrative Agent, and Citigroup Global Markets Inc., as Sole Lead Arranger, Sole Bookrunner and Syndication Agent, is incorporated herein by reference to Exhibit 10.1 to NMHG Holding Co.’s Current Report on Form 8-K, filed on March 28, 2006, Commission File Number 333-89248. | |
| 10.70 | First Amendment to the Amended and Restated Credit Agreement, dated as of March 22, 2006, by and among NMHG Holding Co., NACCO Materials Handling Group, Inc., NACCO Materials Handling Limited, NACCO Materials Handling B.V., the financial institutions from time to time a party thereto as Lenders, the financial institutions from time to time a party thereto as Issuing Bank, Citicorp North America, Inc., in its capacity as administrative agent for the Lenders and the Issuing Bank thereunder, and Citigroup Global Markets Inc. as sole lead arranger and sole bookrunner is incorporated herein by reference to Exhibit 10.1 to NMHG Holding Co.’s Current Report on Form 8-K, filed on April 3, 2006, Commission File Number 333-89248. | |
| 10.71 | Second Amendment to the Amended and Restated Credit Agreement, dated as of December 19, 2005, by and among NMHG Holding Co., certain of its subsidiaries, the Lenders, as defined in the Credit Agreement, and Citicorp North America, Inc., as administrative agent for the Lenders, is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on July 27, 2006, Commission File Number 1-9172. | |
| 10.72 | Third Amendment to the Amended and Restated Credit Agreement, dated as of December 19, 2005, by and among NMHG Holding Co., NACCO Materials Handling Group, Inc., NACCO Materials Handling Limited, NACCO Materials Handling B.V., the financial institutions from time to time a party thereto as Lenders, the financial institutions from time to time a party thereto as Issuing Bank, Citicorp North America, Inc., in its capacity as administrative agent for the Lenders and the Issuing Bank thereunder, and Citigroup Global Markets Inc. as sole lead arranger and sole bookrunner is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on December 19, 2006, Commission File Number 1-9172. | |
| 10.73 | Agreement for Services between NMHG Oregon, LLC and Reginald R. Eklund, Effective July 1, 2006 is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on September 6, 2006, Commission File Number 1-9172. |
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| 10.74* | The NACCO Materials Handling Group, Inc. Excess Retirement Plan (Effective January 1, 2008), is incorporated herein by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172. | |
| 10.75* | The NACCO Materials Handling Group, Inc. Long-Term Incentive Compensation Plan For the Period From January 1, 2000 Through December 31, 2007 (As Amended and Restated as of December 1, 2007), is incorporated herein by reference to Exhibit 10.14 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172. | |
| 10.76* | Amendment No. 1 to The NACCO Materials Handling Group, Inc. Long-Term Incentive Compensation Plan For the Period From January 1, 2000 Through December 31, 2007 (As Amended and Restated as of December 1, 2007), is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on April 30, 2008, Commission File Number 1-9172. | |
| 10.77* | The NACCO Materials Handling Group, Inc. 2008 Annual Incentive Compensation Plan, is incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed by the Company on March 31, 2008, Commission File Number 1-9172. | |
| 10.78* | The NACCO Materials Handling Group, Inc. Long-Term Incentive Compensation Plan (Effective January 1, 2008), is incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed by the Company on May 16, 2008, Commission File Number 1-9172. | |
| 10.79 | Amendment No. 3, effective as of July 1, 2008, to the Restated and Amended Joint Venture and Shareholders Agreement, dated as of April 15, 1998, by and between NACCO Materials Handling Group, Inc. and General Electric Capital Corporation, is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on August 1, 2008, Commission File Number 1-9172. | |
| 10.80 | Amendment No. 7, effective as of July 1, 2008, to the International Operating Agreement, dated as of April 15, 1998, by and between NACCO Materials Handling Group, Inc. and General Electric Capital Corporation, is incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed by the Company on August 1, 2008, Commission File Number 1-9172. | |
| 10.81 | Amendment No. 2, effective as of July 1, 2008, to the Recourse and Indemnity Agreement, dated as of October 21, 1998, by and among NACCO Materials Handling Group, Inc., NMHG Financial Services, Inc. and General Electric Capital Corporation, is incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed by the Company on August 1, 2008, Commission File Number 1-9172. | |
| 10.82 | Letter Agreement executed October 15, 2008 by and between NACCO Materials Handling Group, Inc. and General Electric Capital Corporation is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on October 20, 2008, Commission File Number 1-9172. | |
| 10.83* | NACCO Materials Handling Group, Inc. Excess Pension Plan for UK Transferees (As Amended and Restated Effective November 11, 2008) is incorporated herein by reference to Exhibit 10.81 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, Commission File Number 1-9172. | |
| 10.84* | Amendment No. 1 to the NACCO Materials Handling Group, Inc. Excess Retirement Plan (Effective January 1, 2008) is incorporated herein by reference to Exhibit 10.82 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, Commission File Number 1-9172. | |
| 10.85* | The NACCO Materials Handling Group, Inc. Unfunded Benefit Plan (As Amended and Restated April 24, 2009) is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on May 5, 2009, Commission File Number 1-9172. | |
| 10.86* | Amendment No. 1 to the NACCO Materials Handling Group, Inc. Unfunded Benefit Plan (As Amended and Restated Effective April 24, 2009) is attached hereto as Exhibit 10.86. | |
| 10.87* | Amendment No. 1 to the NACCO Materials Handling Group, Inc. Long-Term Incentive Compensation Plan (Effective January 1, 2008) is attached hereto as Exhibit 10.87. | |
| 10.88* | Amendment No. 2 to the NACCO Materials Handling Group, Inc. Long-Term Incentive Compensation Plan for the Period from January 1, 2000 through December 31, 2007 (As Amended and Restated as of December 1, 2007) is attached hereto as Exhibit 10.88. | |
| 10.89* | The Kitchen Collection, Inc. Deferred Compensation Plan for Management Employees (As Amended and Restated Effective December 1, 2007), is incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172. | |
| 10.90* | The Kitchen Collection, Inc. Excess Retirement Plan (Effective January 1, 2008), is incorporated herein by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172. |
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| 10.91* | The Kitchen Collection, Inc. Long-Term Incentive Compensation Plan For the Period From January 1, 2003 Through December 31, 2007 (As Amended and Restated Effective as of December 1, 2007), is incorporated herein by reference to Exhibit 10.15 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172. | |
| 10.92* | Amendment No. 1 to The Kitchen Collection, Inc. Long-Term Incentive Compensation Plan For the Period From January 1, 2003 Through December 31, 2007 (As Amended and Restated Effective as of December 1, 2007), is incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on April 30, 2008, Commission File Number 1-9172. | |
| 10.93* | The Kitchen Collection, Inc. 2008 Annual Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on April 30, 2008, Commission File Number 1-9172. | |
| 10.94* | The Kitchen Collection, Inc. Long-Term Incentive Compensation Plan (Effective January 1, 2008), is incorporated herein by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on April 30, 2008, Commission File Number 1-9172. | |
| 10.95 | Guaranty Agreement, dated as of December 17, 2002, executed by Hamilton Beach/Proctor-Silex, Inc. in favor of Wachovia National Association, as Administrative Agent, and ABN Amro Bank N.V., Canadian Branch, as Canadian Agent, and the Lenders, for the benefit of Proctor-Silex Canada, Inc. is incorporated herein by reference to Exhibit 10(xcvii) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, Commission File Number 1-9172. | |
| 10.96 | Pledge Agreement, dated as of December 17, 2002, by and among HB-PS Holding Company, Inc. and Wachovia National Association, as Administrative Agent (100% of stock of Hamilton Beach/Proctor-Silex, Inc.) is incorporated herein by reference to Exhibit 10(xcviii) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, Commission File Number 1-9172. | |
| 10.97 | Pledge Agreement, dated as of December 17, 2002, by and among Hamilton Beach/Proctor-Silex, Inc. and Wachovia National Association, as Administrative Agent (65% of stock of each of Proctor-Silex Canada, Inc., Grupo HB/PS, S.A. de C.V., Hamilton Beach/Proctor-Silex de Mexico, S.A. de C.V., and Proctor-Silex, S.A. de C.V. and 100% of Altoona Services, Inc.) is incorporated herein by reference to Exhibit 10(xcix) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, Commission File Number 1-9172. | |
| 10.98 | Agreement of Merger, dated as of January 20, 1988, among NACCO Industries, Inc., Housewares Holding Company, WE-PS Merger, Inc. and WearEver-ProctorSilex, Inc., is incorporated herein by reference to pages 8 through 97 of Exhibit 2 to the Company’s Current Report on Form 8-K, dated February 1, 1988, Commission File Number 1-9172. | |
| 10.99 | Shareholders Agreement, dated January 20, 1988, among NACCO Industries, Inc. and the shareholders named therein is incorporated herein by reference to pages 98 through 108 of Exhibit 2 to the Company’s Current Report on Form 8-K, dated February 1, 1988, Commission File Number 1-9172. | |
| 10.100 | Credit Agreement, dated as of December 17, 2002, among Hamilton Beach/Proctor-Silex, Inc. and Proctor-Silex Canada, Inc., as Borrowers, each of the Financial Institutions initially a signatory, as Lenders, Wachovia National Association, as Administrative Agent, ABN Amro Bank N.V., Canadian Branch, as Canadian Agent, Key Bank, National Association, as Syndication Agent, Fleet Capital Corporation, as Documentation Agent, LaSalle Business Credit, Inc., as Documentation Agent, and National City Commercial Finance, Inc., as Documentation Agent is incorporated herein by reference to Exhibit 10(xciv) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, Commission File Number 1-9172. | |
| 10.101 | Security Agreement, dated as of December 17, 2002, between Hamilton Beach/Proctor-Silex, Inc. and Wachovia National Association, as Administrative Agent is incorporated herein by reference to Exhibit 10 (xcv) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, Commission File Number 1-9172. | |
| 10.102 | Security Agreement, dated as of December 17, 2002, between Proctor-Silex Canada, Inc., Wachovia National Association, as Administrative Agent, and ABN Amro Bank N.V., Canadian Branch, as Canadian Agent is incorporated herein by reference to Exhibit 10(xcvi) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, Commission File Number 1-9172. | |
| 10.103 | First Amendment, dated as of June 29, 2004, to the Credit Agreement, dated as of December 17, 2002, among Hamilton Beach/Proctor-Silex, Inc. and Proctor-Silex Canada, Inc., as Borrowers, each of the Financial Institutions initially a signatory, as Lenders, Wachovia National Association, as Administrative Agent, ABN Amro Bank N.V., Canadian Branch, as Canadian Agent, Key Bank, National Association, as Syndication Agent, Fleet Capital Corporation, as Documentation Agent, LaSalle Business Credit, Inc., as Documentation Agent, and National City Business Credit, Inc., as Documentation Agent is incorporated herein by reference to Exhibit 10(cxxxvi) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, Commission File Number 1-9172. |
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| 10.104 | Second Amendment to Credit Agreement, dated as of June 23, 2005, among Hamilton Beach/Proctor-Silex, Inc., the Lenders named therein and Wachovia Bank, as Agent, is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on June 24, 2005, Commission File Number 1-9172. | |
| 10.105 | Third Amendment to Credit Agreement, dated as of May 17, 2006, among Hamilton Beach/Proctor-Silex, Inc., the Lenders named therein and Wachovia Bank, as Agent, is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on June 26, 2006, Commission File Number 1-9172. | |
| 10.106 | Fourth Amendment to Credit Agreement, dated as of May 31, 2007, among Hamilton Beach/Proctor-Silex, Inc., the Lenders named therein and UBS AG, Stamford Branch as Administrative Agent, KeyBank National Association as Documentation Agent and Wachovia Bank, National Association as Syndication Agent, is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on June 4, 2007, Commission File Number 1-9172. | |
| 10.107 | Term Loan Credit Agreement, dated as of May 31, 2007, among Hamilton Beach/Proctor-Silex, Inc., the Lenders named therein and UBS AG, Stamford Branch as Administrative Agent, KeyBank National Association as Documentation Agent and Wachovia Bank, National Association as Syndication Agent, is incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed by the Company on June 4, 2007, Commission File Number 1-9172. | |
| 10.108 | First Amendment to Term Loan Credit Agreement, dated as of July 6, 2007, among Hamilton Beach/Proctor-Silex, Inc., the Lenders named therein and UBS AG, Stamford Branch as Administrative Agent, is incorporated herein by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on August 6, 2007, Commission File Number 1-9172. | |
| 10.109* | The Hamilton Beach Brands, Inc. Unfunded Benefit Plan (As Amended and Restated Effective as of December 1, 2007), is incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172. | |
| 10.110* | The Hamilton Beach Brands, Inc. Excess Retirement Plan (Effective January 1, 2008), is incorporated herein by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172. | |
| 10.111* | The Hamilton Beach Brands, Inc. Long-Term Incentive Compensation Plan For the Period From January 1, 2003 Through December 31, 2007 (As Amended and Restated as of December 1, 2007), is incorporated herein by reference to Exhibit 10.13 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172. | |
| 10.112* | Amendment No. 1 to The Hamilton Beach Brands, Inc. Long-Term Incentive Compensation Plan For the Period From January 1, 2003 Through December 31, 2007 (As Amended and Restated Effective as of December 1, 2007), is incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on April 30, 2008, Commission File Number 1-9172. | |
| 10.113* | The Hamilton Beach Brands, Inc. 2008 Annual Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed by the Company on March 31, 2008, Commission File Number 1-9172. | |
| 10.114* | The Hamilton Beach Brands, Inc. Long-Term Incentive Compensation Plan (Effective January 1, 2008) is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on May 16, 2008, Commission File Number 1-9172. | |
| 10.115* | Amendment No. 1 to the Hamilton Beach Brands, Inc. Unfunded Benefit Plan (As Amended and Restated Effective as of December 1, 2007), is incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed by the Company on November 13, 2008, Commission File Number 1-9172. | |
| 10.116* | Consulting Agreement between Hamilton Beach Brands, Inc. and Michael J. Morecroft, dated November 10, 2009 (effective January 1, 2010) is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on November 13, 2009, Commission File Number 1-9172. | |
| 10.117* | Amendment No. 2 to the Hamilton Beach Brands, Inc. Long-Term Incentive Compensation Plan for the Period from January 1, 2003 through December 31, 2007 (As Amended and Restated Effective as of December 1, 2007) is attached hereto as Exhibit 10.117. | |
| 10.118* | Amendment No. 2 to the Hamilton Beach Brands, Inc. Unfunded Benefit Plan (As Amended and Restated Effective as of December 1, 2007) is attached hereto as Exhibit 10.118. | |
| 10.119* | Amendment No. 1 to the Hamilton Beach Brands, Inc. Long-Term Incentive Compensation Plan (Effective January 1, 2008) is attached hereto as Exhibit 10.119. | |
| (21) | Subsidiaries. A list of the subsidiaries of the Company is attached hereto as Exhibit 21. |
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| (23) | Consents of experts and counsel. | |
| 23.1 | The consent of Ernst & Young LLP, independent registered public accounting firm, is attached hereto as Exhibit 23.1. | |
| (24) | Powers of Attorney. | |
| 24.1 | A copy of a power of attorney for Owsley Brown II is attached hereto as Exhibit 24.1. | |
| 24.2 | A copy of a power of attorney for Dennis W. LaBarre is attached hereto as Exhibit 24.2. | |
| 24.3 | A copy of a power of attorney for Richard de J. Osborne is attached hereto as Exhibit 24.3. | |
| 24.4 | A copy of a power of attorney for Ian M. Ross is attached hereto as Exhibit 24.4. | |
| 24.5 | A copy of a power of attorney for Michael E. Shannon is attached hereto as Exhibit 24.5. | |
| 24.6 | A copy of a power of attorney for Britton T. Taplin is attached hereto as Exhibit 24.6. | |
| 24.7 | A copy of a power of attorney for David F. Taplin is attached hereto as Exhibit 24.7. | |
| 24.8 | A copy of a power of attorney for John F. Turben is attached hereto as Exhibit 24.8. | |
| 24.9 | A copy of a power of attorney for Eugene Wong is attached hereto as Exhibit 24.9. | |
| (31) | Rule 13a-14(a)/15d-14(a) Certifications. | |
| 31(i)(1) | Certification of Alfred M. Rankin, Jr. pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act is attached hereto as Exhibit 31(i)(1). | |
| 31(i)(2) | Certification of Kenneth C. Schilling pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act is attached hereto as Exhibit 31(i)(2). | |
| (32) | Certification of Alfred M. Rankin, Jr. and Kenneth C. Schilling pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is attached hereto as Exhibit 32. | |
| (99) | Other exhibits not required to otherwise be filed. Audited Combined Financial Statements for the Unconsolidated Mines of The North American Coal Corporation, dated December 31, 2009, 2008 and 2007 with Report of Independent Registered Public Accounting Firm is attached hereto as Exhibit 99. |
| * | Management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of this Annual Report on Form 10-K. |
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Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. ReservedItem 4A. Executive Officers Of The RegistrantPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement SchedulesItem 8, Item 15(a)(1) and (2), and Item 15(c)Item 15(a)(1) and (2)Note 1 Principles Of Consolidation and Nature Of OperationsNote 2 Significant Accounting PoliciesNote 3 Restructuring and Related ProgramsNote 4 DispositionsNote 5 Other TransactionsNote 6 InventoriesNote 7 Property, Plant and Equipment, NetNote 8 Goodwill and Intangible AssetsNote 9 Asset Retirement ObligationsNote 10 Current and Long-term FinancingNote 11 Financial Instruments and Derivative Financial InstrumentsNote 12 Leasing ArrangementsNote 13 Guarantees and ContingenciesNote 14 Common Stock and Earnings Per ShareNote 15 Income TaxesNote 16 Retirement Benefit PlansNote 17 Business SegmentsNote 18 Quarterly Results Of Operations (unaudited)Note 19 Parent Company Condensed Balance SheetsNote 20 Related Party Transactions