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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002 Commission File No 333-89248
NMHG HOLDING CO.
(Exact name of registrant as specified in its charter)
Delaware 31-1637659
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
650 NE Holladay Street, Suite 1600
Portland, Oregon 97232
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (503) 721-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH
EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------- -------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 X NO
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. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
YES NO X
As of February 28, 2003, the registrant had 100 shares of common stock
outstanding, all of which was held by an affiliate of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I 1(a) AND
(b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED
DISCLOSURE FORMAT.
PART I
ITEM 1. BUSINESS.
GENERAL
NMHG Holding Co. ("NMHG") is a wholly owned subsidiary of NACCO
Industries, Inc. ("NACCO"). NMHG and its wholly owned subsidiaries, NACCO
Materials Handling Group, Inc. ("NMHG Wholesale") and NMHG Distribution Co.
("NMHG Retail"), design, engineer, manufacture, sell, service and lease a
comprehensive line of lift trucks and aftermarket parts and service marketed
globally under the Hyster(R) and Yale(R) brand names.
NMHG was incorporated in Delaware in 1999 to serve as a holding company
for Hyster-Yale Materials Handling, Inc., which was incorporated in Delaware in
1991 as part of a holding company reorganization, and NMHG Retail, which was
incorporated in Delaware in 1999.
NMHG operates in two reportable segments: NMHG Wholesale and NMHG
Retail.
NMHG WHOLESALE
NMHG Wholesale designs, engineers, manufactures and sells a
comprehensive line of lift trucks and aftermarket parts on a global basis under
the Hyster and Yale brand names.
MANUFACTURING AND ASSEMBLY
NMHG Wholesale manufactures components, such as masts and transmissions,
and assembles products in the market of sale 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. NMHG
Wholesale operates 14 manufacturing and assembly operations worldwide with six
plants in the Americas, five in Europe and three in Asia-Pacific.
Sales of lift trucks represented approximately 81% of NMHG Wholesale's
annual revenues in each of 2002, 2001 and 2000.
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, direct advertising, specialized sales material
development, help desks, order entry, marketing strategy and field service
support. Only the specific aspects of NMHG Wholesale's sales and marketing
activities that interact directly with dealers and customers, such as dealer
consulting and new lift truck units and aftermarket parts transaction support,
are brand specific.
DISTRIBUTION NETWORK
NMHG Wholesale distributes lift trucks and aftermarket parts through two
channels: dealers and a National Accounts organization.
DEALERS
Independent Dealers
The majority of NMHG Wholesale's dealers are independently owned and
operated. In the Americas, NMHG Wholesale had 60 independent Hyster dealers and
75 independent Yale dealers as of December 31, 2002.
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In Europe, including the Middle East and Africa, Hyster had 78 independent
dealers with locations in 97 countries and Yale had 75 independent dealers with
locations in 39 countries as of December 31, 2002. Hyster had 15 independent
dealers in Asia-Pacific as of December 31, 2002. Yale was represented by 11
independent dealers in Asia-Pacific as of December 31, 2002.
Owned Dealers
From time to time, NMHG has acquired, on an interim basis, certain
independent Hyster, Yale and competitor dealers and rental companies to
strengthen or protect Hyster's and Yale's presence in select territories. See
section following entitled "NMHG Retail" for a description of NMHG's owned
dealers.
NATIONAL ACCOUNTS
NMHG Wholesale operates a National Accounts organization for both Hyster
and Yale focused on large customers with centralized purchasing and
geographically dispersed operations in multiple dealer territories. The National
Accounts organization accounted for 18% of new lift truck unit volume in 2002.
The dealer network described above supports the National Accounts organization
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 organization
markets services including full maintenance leases and total fleet management.
CUSTOMERS
NMHG Wholesale's customer base is diverse and fragmented, including,
among others, food distributors, trucking and automotive companies, lumber,
metal products, rental, paper and building materials suppliers, warehouses,
light and heavy manufacturers, retailers and container handling companies.
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 to obtain the required aftermarket
parts for a job and an aftermarket parts ordering system. Aftermarket parts
sales represented approximately 19% of NMHG Wholesale's annual revenues in each
of 2002, 2001 and 2000.
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(TM), MULTIQUIP(TM) and PREMIER(TM) brands to Hyster
and Yale dealers for the service of competitor lift trucks.
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 an agreement that expires in 2003. NMHG accounts for its ownership of NFS
using the equity method of accounting.
In addition, NMHG Wholesale has also entered into an International
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
reached. This agreement expires in 2003.
Under the agreements with NFS and with GECC pursuant to the
International Operating Agreement, 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 residual value
guarantees or standby recourse or repurchase obligations to NFS or to GECC. In
substantially all of these transactions, NMHG maintains perfected security
interests in the lift
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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. NMHG expects to renew or replace these agreements at the end of
2003.
BACKLOG
As of December 31, 2002, NMHG Wholesale's backlog of unfilled orders
placed with its manufacturing and assembly operations for new lift trucks was
approximately 18,800 units, or $340 million, of which substantially all is
expected to be filled during fiscal 2003. This compares to the backlog as of
December 31, 2001 of approximately 15,100 units, or $266 million. Backlog
represents unfilled lift truck orders to NMHG Wholesale's manufacturing and
assembly facilities from dealers, National Accounts customers and contracts with
the United States government.
KEY SUPPLIERS
In 2002, no single supplier accounted for more than 7% of NMHG
Wholesale's purchases. NMHG Wholesale believes there are competitive
alternatives to all suppliers.
COMPETITION
Competition in the lift truck industry is based primarily on strength
and quality of dealers, brand loyalty, customer service, 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's management believes that it is competitive in all
of these areas.
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.
PATENTS, TRADEMARKS AND LICENSES
NMHG Wholesale is not materially dependent upon patents or patent
protection. NMHG Wholesale is the owner of the Hyster trademark. NMHG uses the
Yale trademark on a perpetual royalty-free basis in connection with the
manufacture and sale of lift trucks and related components. NMHG believes that
the Hyster and Yale trademarks are material to its business.
NMHG RETAIL
GENERAL
From time to time, NMHG, through NMHG Retail, has acquired, on an
interim basis, certain independent Hyster, Yale and competitor dealers and
rental companies to strengthen or protect 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. In early 2003, NMHG sold its sole company owned retail dealership in
North America to MH Logistics Corporation, which already owned three Hyster
dealerships.
As of December 31, 2002, NMHG Retail had eight dealerships and rental
companies in Europe and nine dealerships and rental companies in Asia-Pacific.
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 allied lines of equipment from other manufacturers pursuant to dealer
agreements. Allied equipment includes such items as sweepers, aerial work
platforms, personnel carts,
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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. A
source of revenue for dealerships is the sale of parts and service for equipment
sold by the dealership. Service is performed both in-shop and on-site. In
addition to the outright sale of new and used equipment, dealerships provide
equipment for lease and for short- or long-term rental.
NMHG Retail dealerships are granted a primary geographic territory by
NMHG Wholesale in which they operate. NMHG Retail operations are conducted at
branch facilities located in major cities within NMHG Retail's assigned area of
operations.
COMPETITION
The materials handling equipment sales and rental industry is highly
fragmented and competitive. NMHG Retail's competitors include dealers owned by
original equipment manufacturers, original equipment manufacturer direct sales
efforts, independently owned competitive dealerships and forklift rental
outlets, independent parts operations, independent service shops and, to a
lesser extent, independent Hyster or Yale dealers. The forklift truck industry
also competes with alternative methods of materials handling, including conveyor
systems, automated guided vehicle systems and manual labor.
CUSTOMERS
NMHG Retail's customer base is highly diversified and ranges from
Fortune 100 companies to small businesses in a substantial number of
manufacturing and service industries. No single customer accounted for more than
10% of NMHG Retail's revenues during 2002. NMHG Retail's customer base varies
widely by branch and is determined by several factors, including the equipment
mix and marketing focus of the particular branch 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 with a wide
variety of financial products at competitive rates. See also "NMHG Wholesale --
Financing of Sales" above.
RESEARCH AND DEVELOPMENT
NMHG's research and development capability is organized around four
major engineering centers, all coordinated on a global basis from NMHG's
Portland, Oregon headquarters. 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 primarily used
in industrial applications, is located in Portland, 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. As a
result, 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.
NMHG's engineering centers utilize a three-dimensional CAD/CAM system
and are electronically connected to one another, to all of NMHG's manufacturing
and assembly facilities and to 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 $43.7 million, $44.7 million and $43.9
million on product design and development activities in 2002, 2001 and 2000,
respectively.
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SUMITOMO-NACCO JOINT VENTURE
NMHG has a 50% ownership interest in Sumitomo-NACCO Materials Handling
Group ("S-N"), a limited liability company that was formed in 1970 to
manufacture and distribute lift trucks in Japan. Sumitomo Heavy Industries, Inc.
owns the remaining 50% interest in S-N. Each shareholder of S-N is entitled to
appoint directors representing 50% of S-N'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,
Inc. prior to a vote of S-N's board of directors. As a result, NMHG accounts for
its ownership in S-N using the equity method of accounting. NMHG purchases
Hyster and Yale branded lift trucks and related components and aftermarket parts
from S-N under normal trade terms for sale outside of Japan.
EMPLOYEES
As of February 28, 2002, NMHG had approximately 7,000 employees,
approximately 5,950 of whom were employed by the wholesale operations and
approximately 1,050 of whom were employed by owned dealers. A majority of the
employees in the Danville, Illinois parts depot operations (approximately 135
employees) are unionized, as are tool room employees (approximately 15
employees) located in Portland, Oregon. NMHG's contracts with the Danville and
Portland unions each expire in 2003. Negotiations with respect to these
contracts have not yet commenced. Employees at the facilities in Berea,
Kentucky; Sulligent, Alabama; and Greenville and Lenoir, North Carolina are not
represented by unions.
In Europe, some employees in the Craigavon, Northern Ireland and Irvine,
Scotland facilities are unionized. Employees in the Nijmegen, The Netherlands
facility are not represented by unions. The employees in Nijmegen have organized
a works council, as required by Dutch law, which performs a consultative role on
employment matters. In Mexico, shop employees are unionized. All of the European
employees are part of European Works Council that performs a consultative role
on business and employment matters.
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.
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 or criminal sanctions. In addition, future changes to
environmental laws could require NMHG to incur significant additional expense or
restrict operations. Based on current information, management 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 will 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 that the impact of expenditures to comply with these requirements
will not have a material adverse effect on its business.
NMHG is investigating or remediating historical contamination caused by
its operations or those of businesses it acquired at some current and former
sites. 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 Superfund and often
under similar state laws, the entire cost
6
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.
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 a prior owner of the
business. 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
Since June 1988, Japanese-built internal combustion engine lift trucks
imported into the United States, with lifting capacities between 2,000 and
15,000 pounds, including finished and unfinished lift trucks, chassis, frames
and frames assembled with one or more component parts, have been subject to an
anti-dumping duty order. Anti-dumping duty rates in effect through 2002 range
from 7.39% to 56.81% depending on manufacturer or importer. The anti-dumping
duty rate applicable to imports from S-N is 51.33%. NMHG does not currently
import for sale in the United States any lift trucks or components subject to
the anti-dumping duty order. This anti-dumping duty order will remain in effect
until the Japanese manufacturers and importers satisfy the U.S. Department of
Commerce that they have not individually sold merchandise subject to the order
in the United States below fair market value for at least three consecutive
years, or unless the Commerce Department or the U.S. International Trade
Commission finds that changed circumstances exist sufficient to warrant the
retirement of the order. All of NMHG's major Japanese competitors have either
built or acquired manufacturing or assembly facilities over the past decade in
the United States and any products manufactured at these facilities are not
subject to the anti-dumping duty order. The legislation implementing the Uruguay
round of GATT negotiations passed in 1994 provided for the anti-dumping order to
be reviewed for possible retirement in 2000. NMHG opposed retirement of the
order and the 2000 review did not result in retirement of the anti-dumping duty.
The anti-dumping order will again be reviewed for possible retirement in 2005.
There are no formal restraints on foreign lift truck manufacturers in
the European Union. Several Japanese manufacturers have established
manufacturing or assembly facilities within the European Union.
SEGMENT AND FOREIGN OPERATIONS FINANCIAL DISCLOSURES
For financial information on each of NMHG's segments, see Note 15 to the
Consolidated Financial Statements contained in Item 15 of this Form 10-K. For a
description of revenues and other financial information by geographic region,
see Note 15 to the Consolidated Financial Statements contained in Item 15 of
this Form 10-K.
7
ITEM 2. PROPERTIES.
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
Danville, Illinois Owned Americas parts distribution center
Greenville, North Owned Divisional headquarters and marketing and sales
Carolina operations for Hyster and Yale in Americas; Americas
warehouse development center; assembly of lift trucks
Lenoir, North Carolina Owned Manufacture and assembly of component parts for lift
trucks
Portland, Oregon Owned Counterbalanced development center for design and
testing of lift trucks, prototype equipment and
component parts
Portland, Oregon Leased Manufacture of production tooling and prototype units
Portland, Oregon Leased Global headquarters
Ramos Arizpe, Mexico Owned Manufacture of component parts for lift trucks
Sao Paolo, Brazil Owned Assembly of lift trucks and marketing operations for
Brazil
Sulligent, Alabama Owned Manufacture of component parts for lift trucks
- -----------------------------------------------------------------------------------------------------------------
EUROPE Craigavon, Northern Owned Manufacture of lift trucks; cylinder and
Ireland transmission assembly; mast fabrication and assembly
for Europe
Fleet, England Leased Hyster and Yale marketing and sales operations in
Europe
Irvine, Scotland Owned Divisional headquarters; assembly of lift trucks,
mast manufacturing and assembly
Modena, Italy Leased Assembly of lift trucks
Masate, Italy Leased Assembly of lift trucks; European warehouse
development center
Nijmegen, The Owned Big trucks development center; manufacture and
Netherlands assembly of big trucks and component parts; European
parts distribution center
- -----------------------------------------------------------------------------------------------------------------
ASIA 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; distribution of aftermarket parts
- -----------------------------------------------------------------------------------------------------------------
(1) This facility is owned by Shanghai Hyster Forklift Ltd., NMHG's Chinese
joint venture company.
S-N's operations are supported by two facilities. S-N's headquarters are
located in Obu, Japan at a facility owned by S-N. The Obu facility also has
assembly and distribution capabilities. In Cavite, the Philippines, S-N owns a
facility for the manufacture of frames for S-N products.
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NMHG RETAIL
NMHG's 17 dealerships operate from 51 locations. Of these locations, 23
are in Europe and 28 are in Asia-Pacific, as shown below:
EUROPE ASIA-PACIFIC
------ ------------
France (15) Australia (27)
Germany (3) Singapore (1)
The Netherlands (1)
United Kingdom (4)
Dealer locations generally include facilities for displaying equipment,
storing rental equipment, servicing equipment, aftermarket parts storage and
sales and administrative offices. NMHG owns 4 of these locations and leases 47
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.
NMHG Retail geographic headquarters are shared with NMHG Wholesale in
Fleet, England and Sydney, Australia.
ITEM 3. LEGAL PROCEEDINGS.
Various legal proceedings and claims have been or may be asserted
against NMHG relating to the conduct of its business, including product
liability, environmental and other claims. These proceedings are incidental to
the ordinary course of NMHG's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted pursuant to General Instruction I 2(c) of Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
NMHG is a wholly owned subsidiary of NACCO Industries, Inc. and there is
no established public trading market for its common stock. In 2002 and 2001,
NMHG declared a cash dividend of $15.0 million and $5.0 million, respectively,
on its common stock. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a description of the
restrictions on NMHG's ability to pay such dividends.
NMHG does not maintain compensation plans under which equity securities
of NMHG are authorized for issuance.
ITEM 6. SELECTED FINANCIAL DATA.
Omitted pursuant to General Instruction I 2(a) of Form 10-K.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
NMHG Holding Co. ("NMHG Parent"), through its wholly owned subsidiaries,
NACCO Materials Handling Group, Inc. ("NMHG Wholesale") and NMHG Distribution
Co. ("NMHG Retail") (collectively "NMHG" or the "Company") designs, engineers,
manufactures, sells, services and leases a full line of lift trucks and service
parts marketed worldwide under the Hyster(R) and Yale(R) brand names. The
Company manages its operations as two reportable segments: wholesale
manufacturing and retail distribution. NMHG Wholesale includes the manufacture
and sale of lift trucks and related service parts, primarily to independent and
wholly owned Hyster and Yale retail dealerships and rental companies. NMHG
Retail includes the sale, leasing and service of Hyster and Yale lift trucks and
related service parts by wholly owned retail dealerships and rental companies.
Results of operations and financial condition are discussed separately for NMHG
Wholesale and NMHG Retail. Results by segment are also summarized in Note 15 to
the Consolidated Financial Statements. NMHG Parent is a wholly owned subsidiary
of NACCO Industries, Inc. ("NACCO").
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 accounting principles
generally accepted in the United States. 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, including those related to product
discounts and returns, bad debts, inventories, income taxes, warranty
obligations, product liabilities, restructuring, pensions and other
post-retirement benefits, and contingencies and litigation. The Company bases
its estimates 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.
The Company believes the following critical accounting policies affect
its more significant judgments and estimates used in the preparation of its
consolidated financial statements.
PRODUCT LIABILITIES: The Company provides for the estimated cost of
personal and property damage relating to the Company's products. Reserves are
made 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 provision for product liabilities is also
affected by changes in assumptions for medical costs, inflation rates, trends in
damages awarded by juries and estimates of the number of claims that have been
incurred but not yet reported. Changes to the estimate of any of these factors
could result in a material change to the Company's product liability provision
causing a related increase or decrease in reported net operating results in the
period of change in the estimate.
GOODWILL: In accordance with Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets," the Company is
required to test goodwill for impairment at least annually. Changes in
management's judgments and estimates could significantly affect the Company's
analysis of the impairment of goodwill. To test goodwill for impairment, the
Company is required to estimate the fair value of each of its reporting units.
Since quoted market prices in an active market are not available for the
Company's reporting units, the Company uses other valuation techniques. The
Company has developed a model to estimate the fair value of the reporting units,
primarily incorporating a discounted cash flow valuation technique. This model
incorporates the Company's estimates of future cash flows, allocations of
certain assets and cash flows among reporting units, future growth rates and
management's judgment regarding the applicable discount rates to use to discount
those estimated cash flows. Changes to these judgments and estimates could
result in a significantly different estimate of the fair value of the reporting
units which could result in an impairment of goodwill.
REVENUE RECOGNITION: Revenues are generally recognized when title
transfers as customer orders are completed and shipped. Reserves for discounts,
returns and product warranties are maintained for anticipated future claims. The
accounting policies used to develop these product discounts, returns and
warranties include:
PRODUCT DISCOUNTS: The Company records estimated reductions to revenues
for customer programs and
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
incentive offerings including special pricing agreements, price
competition, promotions and other volume-based incentives. 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.
PRODUCT RETURNS: Products generally are not sold with the right of
return. However, based on the Company's historical experience, a portion
of aftermarket parts sold are estimated to be returned due to reasons
such as product failure and excess inventory stocked by dealers 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 the Company's dealers. If future trends were to
change significantly from those experienced in the past, incremental
reductions to revenues may result based on this new experience.
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. Should actual product failure
rates, labor costs or replacement component costs differ from the
Company's estimates, revisions to the estimated warranty liability would
be required which would affect net income.
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.
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.
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. While the Company has considered future taxable income
and ongoing prudent and feasible tax planning strategies in assessing the need
for the valuation allowance, 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
deferred tax asset 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 deferred tax asset would be expensed in the period such determination was
made.
FINANCIAL SUMMARY
Selected consolidated operating results of the Company were as follows:
2002 2001 2000
-------------- ------------ -------------
CONSOLIDATED OPERATING RESULTS:
Income (loss) before cumulative effect of
accounting changes $ 12.3 $ (48.1) $ 21.3
Cumulative effect of accounting changes, net-of-tax(1) --- (1.3) ---
-------------- ------------ -------------
Net income (loss) $ 12.3 $ (49.4) $ 21.3
============== ============ =============
(1) Cumulative effects of changes in accounting were recognized in 2001 as a
result of the adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and for a change in calculating
pension costs. See discussion in Note 2 to the Consolidated Financial
Statements.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
The following schedule identifies the components of the changes in
consolidated revenues, operating profit (loss) and income (loss) before
cumulative effect of accounting changes for 2002 compared with 2001:
Operating Income (loss) before
Profit cumulative effect of
Revenues (Loss) accounting changes
------------ ------------- -------------------------
2001 $ 1,672.4 $ (44.9) $ (48.1)
Increase (decrease) in 2002
NMHG Wholesale (47.1) 52.1 34.3
NMHG Retail (36.9) 36.2 26.1
------------ ------------- ---------------
2002 $ 1,588.4 $ 43.4 $ 12.3
============ ============= ===============
Following is a discussion of operating results by segment, including
those items that materially affect the year-to-year comparison within each of
the segment discussions.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
FINANCIAL REVIEW
The segment and geographic results of operations for NMHG were as
follows for the year ended December 31:
2002 2001 2000
-------------- ------------- --------------
Revenues
Wholesale
Americas $ 958.3 $ 1,031.1 $ 1,291.6
Europe, Africa and Middle East 385.8 363.9 394.6
Asia-Pacific 72.1 68.3 63.8
-------------- ------------- --------------
1,416.2 1,463.3 1,750.0
-------------- ------------- --------------
Retail (net of eliminations)
Americas 26.2 30.9 33.1
Europe, Africa and Middle East 66.2 106.8 97.3
Asia-Pacific 79.8 71.4 51.7
-------------- ------------- --------------
172.2 209.1 182.1
-------------- ------------- --------------
NMHG Consolidated $ 1,588.4 $ 1,672.4 $ 1,932.1
============== ============= ==============
Operating profit (loss)
Wholesale
Americas $ 49.0 $ 10.0 $ 78.5
Europe, Africa and Middle East (2.8) (13.7) 2.3
Asia-Pacific 0.4 (1.8) (2.3)
-------------- ------------- --------------
46.6 (5.5) 78.5
-------------- ------------- --------------
Retail (net of eliminations)
Americas (2.7) (2.4) (0.9)
Europe, Africa and Middle East 0.4 (34.8) (15.3)
Asia-Pacific (0.9) (2.2) 0.9
-------------- ------------- --------------
(3.2) (39.4) (15.3)
-------------- ------------- --------------
NMHG Consolidated $ 43.4 $ (44.9) $ 63.2
============== ============= ==============
Operating profit (loss) excluding goodwill amortization
Wholesale
Americas $ 49.0 $ 17.8 $ 86.4
Europe, Africa and Middle East (2.8) (10.4) 5.7
Asia-Pacific 0.4 (1.5) (2.0)
-------------- ------------- --------------
46.6 5.9 90.1
-------------- ------------- --------------
Retail (net of eliminations)
Americas (2.7) (2.1) (0.8)
Europe, Africa and Middle East 0.4 (34.4) (14.7)
Asia-Pacific (0.9) (1.4) 1.2
-------------- ------------- --------------
(3.2) (37.9) (14.3)
-------------- ------------- --------------
NMHG Consolidated $ 43.4 $ (32.0) $ 75.8
============== ============= ==============
Interest expense
Wholesale $ (25.9) $ (12.9) $ (13.4)
Retail (net of eliminations) (8.0) (10.2) (7.8)
-------------- ------------- --------------
NMHG Consolidated $ (33.9) $ (23.1) $ (21.2)
============== ============= ==============
Other-net
Wholesale $ (1.2) $ 4.2 $ (4.6)
Retail (net of eliminations) 1.5 0.4 0.2
-------------- ------------- --------------
NMHG Consolidated $ 0.3 $ 4.6 $ (4.4)
============== ============= ==============
Net income (loss)
Wholesale $ 21.5 $ (14.1) $ 37.0
Retail (net of eliminations) (9.2) (35.3) (15.7)
-------------- ------------- --------------
NMHG Consolidated $ 12.3 $ (49.4) $ 21.3
============== ============= ==============
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
2002 2001 2000
-------------- ------------- --------------
Effective tax rate
Wholesale (4.1%) 4.2% 40.7%
Retail (net of eliminations) 5.1% 28.3% 31.4%
NMHG Consolidated (13.3%) 22.9% 46.3%
For 2002, the effective tax rate for NMHG Wholesale and NMHG
Consolidated includes the effect of certain favorable tax adjustments including
a $4.2 million settlement from a transfer pricing tax audit, a $1.9 million tax
benefit related to the recognition of previously generated losses in China and
the resolution of certain other tax issues provided for in prior years. The
effect of these items resulted in a net tax benefit on pre-tax income in 2002.
The effective tax rate for NMHG Wholesale in 2001 includes the effect of
nondeductible goodwill amortization, an increase in the valuation allowance
provided for certain deferred tax assets and state income tax adjustments.
The effective tax rate benefit on pre-tax losses at NMHG Retail declined
in 2002 as compared with 2001 and 2000 primarily due to an increase in 2002 in
the valuation allowance provided for certain deferred tax assets.
A detail of Other-net is as follows for the year ended December 31:
2002 2001 2000
-------------- ------------- ------------
Other-net
NMHG Wholesale
Interest income $ 3.3 $ 3.4 $ 2.2
U.S. customs award 2.0 --- ---
Foreign currency exchange gain 0.8 0.4 0.4
Equity in earnings (loss) of
unconsolidated affiliates 0.5 2.6 (0.2)
Insurance recovery --- 8.0 ---
Loss on interest rate swap agreements (5.7) (1.4) ---
Discount on the sale of accounts receivable (0.5) (4.7) (5.5)
Other (1.6) (4.1) (1.5)
-------------- ------------- ------------
$ (1.2) $ 4.2 $ (4.6)
============== ============= ============
NMHG Retail
Interest income $ 0.1 $ 0.2 $ 0.1
Other 1.4 0.2 0.1
-------------- ------------- ------------
$ 1.5 $ 0.4 $ 0.2
============== ============= ============
-------------- ------------- ------------
NMHG Consolidated $ 0.3 $ 4.6 $ (4.4)
============== ============= ============
Other-net in 2002 includes income of $2.0 million for an anti-dumping
settlement awarded by U.S. customs to NMHG during 2002. Equity in the earnings
(loss) of unconsolidated affiliates declined in 2002 as compared with 2001
primarily resulting from a $2.4 million write-down for an other than temporary
decline in the value of an investment in a non-consolidated retail dealership.
The change in the equity in the earnings (loss) of unconsolidated affiliates in
2001 as compared with 2000 is primarily due to the change in earnings from
Sumitomo-NACCO Materials Handling Group ("S-N"), a 50 percent-owned joint
venture with Sumitomo Heavy Industries, Ltd. in Japan. The insurance recovery of
$8.0 million recognized in 2001 relates to a recovery from flood damages
incurred in September 2000 at S-N.
The increase in the loss on interest rate swap agreements to $5.7
million in 2002 as compared with $1.4 million in 2001 is primarily due to the
recognition of the ineffective portion of interest rate swap agreements which no
longer qualified for hedge accounting as a result of the refinancing of NMHG's
debt in May 2002. All of NMHG's interest rate swap agreements were terminated
prior to December 31, 2002. Discounts on the sale of receivables decreased in
2002 to $0.5 million from $4.7 million in 2001 and $5.5 million in 2000 due to
the December 2001 termination in Americas and the May 2002 termination in Europe
of programs to sell accounts receivable.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
NMHG WHOLESALE
2002 COMPARED WITH 2001
Revenues decreased 3.2% to $1,416.2 million in 2002 from $1,463.3
million in 2001. The decline in revenues was primarily driven by decreased unit
volume in the first half of 2002 that was partially offset by increased unit
volume in the second half of 2002, as compared with volumes in the same periods
of 2001. Unit shipments declined 6.5% to 64,437 units in 2002 as compared with
68,929 units in 2001 primarily as a result of the low levels of unit shipments
during the first half of 2002. Lift truck shipments in the second half of 2002
increased 15.3% to 33,331 units compared with 28,903 units in the second half of
2001. The decline in revenues from unit volume for the full year, however, was
partially offset by the favorable effect of currency movements in Europe and a
shift in mix to higher-priced lift trucks. While revenues declined in 2002,
bookings have increased steadily from the low levels in mid-2001, reflecting an
increase from the severe decline in the lift truck segment of the broader
capital goods market in North America in 2001.
Despite the volume decline, operating profit increased to $46.6 million
in 2002 from an operating loss of $5.5 million in 2001. Results in 2002 include
a restructuring charge of $12.3 million, which is discussed in further detail
below. Results in 2001 included $12.0 million of expenses incurred during 2001
related to the Danville plant closure announced in 2000 and a restructuring
charge of $4.5 million recognized in 2001 for cost reductions in Europe. In
addition, 2001 includes goodwill amortization expense of $11.4 million, which is
no longer required beginning in 2002 as a result of the adoption of SFAS No.
142, "Goodwill and Other Intangible Assets." The adoption of the Statement is
discussed further in Note 2 and Note 8 to the Consolidated Financial Statements.
Excluding these non-comparable items, the increase in operating profit was
primarily driven by a shift in mix to higher-margin lift trucks and the positive
impact on the cost of operations from improvement programs initiated in 2001,
including the completion of the Danville, Illinois, plant closure in the fourth
quarter of 2001 and the benefits of procurement, restructuring and cost control
programs. The impact of these factors was partially offset by reduced unit
volume.
Net income increased to $21.5 million in 2002 from a net loss of $14.1
million in 2001 as a result of the factors affecting operating profit and due to
certain favorable tax adjustments including a $4.2 million settlement from a
transfer pricing tax audit and a $1.9 million tax benefit related to the
recognition of previously generated losses in China. The positive effect of
these factors was partially offset by (i) increased interest expense, including
the amortization of deferred financing fees, (ii) the negative effect of
interest rate swap agreements and (iii) a charge for the impairment of certain
investments in unconsolidated affiliates. The increase in interest expense, the
negative effect of interest rate swap agreements and the amortization of
deferred financing fees relate to the refinancing of NMHG's debt during the
second quarter of 2002. See Note 9 to the Consolidated Financial Statements for
a discussion of this debt refinancing.
Also affecting the year over year comparability of net income is a
pre-tax insurance recovery of $8.0 million ($5.0 million after-tax) included in
other income in 2001 relating to flood damage in September 2000 at S-N and a
$1.3 million after-tax charge in 2001 for the cumulative effect of accounting
changes for derivatives and pension costs.
The worldwide backlog level increased to 18,800 units at December 31,
2002 from 15,100 units at December 31, 2001 and from 18,700 units at September
30, 2002 primarily due to increased demand for lift trucks in the Americas.
2002 RESTRUCTURING PLAN
In 2002, management committed to the restructuring of certain operations
in Americas and Europe. As such, NMHG Wholesale recognized a restructuring
charge of $12.5 million pre-tax ($8.0 million after-tax), of which $3.8 million
relates to a non-cash asset impairment charge and $8.7 million relates to
severance and other employee benefits to be paid to approximately 615
manufacturing and administrative employees. Severance payments are expected to
begin in 2003 and continue through 2005. As announced in December 2002, NMHG
Wholesale will phase out its Lenoir, North Carolina, lift truck component
facility and restructure other manufacturing and administrative operations,
primarily its Irvine, Scotland, lift truck assembly and component facility.
These actions are designed to essentially complete the restructuring of NMHG
Wholesale's global manufacturing facility structure. Previously announced
programs such as Demand Flow Technology(TM), selected component outsourcing and
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
innovative lift truck designs have enabled NMHG to maintain substantially
unchanged lift truck production capacity in fewer facilities and at a reduced
cost.
The Lenoir component facility is expected to be phased out over a 12- to
15-month period, beginning December 31, 2002. The Lenoir plant's lift truck
component operations, including mast and cylinder manufacturing, will be
consolidated into plants in Sulligent, Alabama; Berea, Kentucky; and Greenville,
North Carolina.
The Irvine assembly and component facility is expected to be
restructured to an appropriately sized operation. The restructured facility is
expected to manufacture three- and four-wheel electric rider lift trucks and
mast components for the European market. Other lift truck components currently
manufactured in Irvine will be outsourced to independent suppliers.
In 2003, NMHG expects to recognize pre-tax costs, net of certain
benefits, of approximately $14.0 million related to this restructuring program.
However, total costs of this restructuring program incurred in 2003 and beyond
are expected to be substantially mitigated by government incentives. Initial net
benefits from this restructuring program are expected to be realized in 2004
with full twelve months of estimated annual pre-tax benefits of approximately
$12.3 million expected beginning in 2006. Although a majority of the projected
savings is the result of a reduction in fixed factory costs, the overall benefit
estimates could vary depending on unit volumes and the resulting impact on
manufacturing efficiencies. In addition, outlays for capital expenditures,
primarily for new tooling and equipment, of approximately $7.3 million are
expected in 2003.
2001 COMPARED WITH 2000
Revenues decreased 16.4% to $1,463.3 million in 2001 from $1,750.0
million in 2000. A steep drop in the lift truck segment of the broader capital
goods market in North America resulted in an 18.7% reduction in worldwide lift
truck shipments at NMHG Wholesale. A total of 68,929 units were shipped in 2001
compared with 84,825 units shipped in 2000. The rate of monthly retail orders in
the U.S. and Canada declined approximately 50% from the peak month in 2000 as
compared with the lowest month in 2001. NMHG Wholesale's revenues also declined
due to lower parts sales resulting from reduced lift truck utilization which is
typical during a capital goods recession. The decrease in revenues, which was
primarily driven by unit volume, was partially offset by a shift in mix to
higher-priced lift trucks.
NMHG Wholesale's operating loss was $5.5 million for 2001 as compared
with an operating profit of $78.5 million for 2000. The decrease was largely due
to reduced unit and parts volume and resulting reductions in the absorption of
manufacturing overhead costs and related manufacturing inefficiencies.
Additionally, operating profit was adversely affected by $12.0 million of
expenses incurred during 2001 related to the Danville plant closure announced in
2000 and a restructuring charge of $4.5 million recognized in 2001 for cost
reductions in Europe. These 2001 charges compare with a restructuring charge of
$13.9 million recognized in 2000 for the Danville plant closure. See below for a
further discussion of these restructuring charges. The decrease in operating
profit is also attributable to write-downs of inventory taken in 2001 primarily
due to an increase in the estimate of obsolete and excess inventory on hand. The
decline in operating profit was offset somewhat by favorable foreign currency
effects, lower incentive compensation costs and an increase in the average sales
price per unit.
NMHG Wholesale recorded a net loss for 2001 of $14.1 million as compared
with net income of $37.0 million for 2000. The decline in net operating results
was due to the factors affecting operating profit, the effect of nondeductible
goodwill amortization and an increase in the valuation allowance on the tax
provision and due to a $1.3 million after-tax charge for the cumulative effect
of accounting changes in 2001. See Note 2 to the Consolidated Financial
Statements for a discussion of these accounting changes. The decline in
operating results for 2001 as compared with 2000 was offset somewhat by
insurance proceeds resulting in income of $5.0 million after-tax recognized in
2001 relating to flood damage in September 2000 at a facility owned by S-N.
2001 AND 2000 RESTRUCTURING PLANS
In 2001, management committed to the restructuring of certain wholesale
operations in Europe. As such, NMHG Wholesale recognized a restructuring charge
of approximately $4.5 million pre-tax for severance and other employee benefits
to be paid to approximately 285 manufacturing and administrative personnel in
Europe. As of December 31, 2002, approximately $3.4 million has been paid to
approximately 245 employees and $0.2 million of
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
the amount accrued at December 31, 2001 was reversed in 2002 leaving an ending
accrual balance, net of currency adjustments, of $1.1 million at December 31,
2002.
Additional pre-tax costs of $0.2 million were recognized in 2002 for the
NMHG Wholesale European restructuring plan for costs not eligible to be accrued
as of December 31, 2001. As a result of the reduced headcount in Europe, NMHG
Wholesale realized pre-tax cost savings primarily from reduced employee wages
and benefits of $7.1 million in 2002 and estimates annual pre-tax cost saving of
$8.6 million beginning in 2003. However, additional costs of approximately $1.1
million are expected to be recognized in 2003 relating to this program. Although
a majority of the projected savings is the result of a reduction in fixed
factory costs, the overall benefit estimates could vary depending on unit
volumes and the resulting impact on manufacturing efficiencies.
In 2000, the Board of Directors approved management's plan to transfer
manufacturing activities from NMHG's Danville, Illinois, assembly plant to its
other global manufacturing plants. The adoption of this plan resulted in $11.7
million of costs accrued in 2000, relating to retirement costs, medical costs
and employee severance benefits. In addition, an impairment charge of $2.2
million was recognized in 2000 as a result of the anticipated disposition of
certain assets at an amount below net book value. During 2001, payments for
severance and other benefits of $1.6 million were made to approximately 350
employees. In addition, the accrual for severance was reduced by $0.4 million.
Approximately $12.0 million of pre-tax costs associated with the Danville
phase-out, which were not eligible for accrual as of December 31, 2000, were
expensed during 2001.
In 2002, final severance payments of $2.1 million were made to
approximately 215 employees of the Danville, Illinois, assembly plant. Also in
2002, NMHG Wholesale recognized a charge of approximately $2.0 million, which
had not previously been accrued, related primarily to the costs of the idle
Danville facility. Cost savings primarily from reduced employee wages and
benefits of approximately $10.9 million pre-tax were realized in 2002 related to
this program. Cost savings primarily from reduced employee wages and benefits
are estimated to be $11.4 million pre-tax, net of idle facility costs, in 2003
and $13.4 million pre-tax annually thereafter, as a result of anticipated
improved manufacturing efficiencies and reduced fixed factory overhead. Although
a significant portion of the projected savings is the result of a reduction in
fixed factory costs, the overall benefit estimates could vary depending on unit
volumes and the resulting impact on manufacturing efficiencies. See also
discussion in Note 3 to the Consolidated Financial Statements.
NMHG RETAIL (NET OF ELIMINATIONS)
2002 COMPARED WITH 2001
Revenues decreased 17.6% to $172.2 million in 2002 from $209.1 million
in 2001. Revenues declined primarily due to the sale of certain European retail
dealerships in the fourth quarter of 2001 (the "sold operations"), which
generated revenues of $26.4 million, net of intercompany eliminations, in 2001.
The decline in revenues is also attributable to reduced market demand in the
Americas and in Europe, especially in the territories in which NMHG's owned
retail dealerships operate.
Operating loss in 2002 was $3.2 million compared with $39.4 million in
2001. Operating results improved primarily due to (i) several non-cash charges
recognized in 2001, primarily in Europe, including a $4.7 million restructuring
charge for downsizing retail operations in Europe and non-cash charges of
approximately $7.1 million to establish full accounting consistency among owned
dealers on a global basis, to cause those dealers previously reporting on a
one-month lag to report on months consistent with the rest of NMHG and to reduce
asset values and increase reserves reflective of the weakened capital goods
market, (ii) lower operating costs in Europe resulting from restructuring
programs implemented in 2001 as discussed below, (iii) the elimination of $9.5
million of operating losses incurred by the sold operations in 2001 and (iv) the
elimination of goodwill amortization of $1.5 million as a result of the adoption
of SFAS No. 142. Net loss improved to $9.2 million in 2002 compared with $35.3
million in 2001 primarily due to the factors affecting operating loss, partially
offset by a decrease in the effective tax rate benefit on the losses in 2002, as
discussed above.
On January 3, 2003, NMHG sold substantially all of the assets and
liabilities of its wholly owned dealer in the U.S, which comprises the Americas
component of NMHG Retail. The loss recognized in 2002 as a result of the
write-down to fair value, less cost to sell, of the disposed net assets was not
material to the operating results of the Company. Furthermore, the Company does
not expect any significant additional loss to be recognized in 2003 as a result
of this transaction. Revenues and operating loss from the NMHG Retail-Americas
operation in 2002 were
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
$26.2 million and $2.7 million, respectively, net of eliminations from
transactions with NMHG Wholesale. As a result of the sale of this business,
these revenues and losses are not expected to continue in 2003. However, NMHG
Wholesale is expected to sell lift trucks and service parts to the new
independent owner of this retail dealership.
2001 COMPARED WITH 2000
Revenues increased 14.8% to $209.1 million for 2001 from $182.1 million
for 2000 largely as a result of the effect of a full year of revenues in 2001
from dealerships acquired in Asia-Pacific in the fourth quarter of 2000. This
revenue growth was partially offset by lower parts and service revenues and
unfavorable pricing and product mix.
Operating loss in 2001 was $39.4 million compared with $15.3 million in
2000. The increase in operating loss was primarily due to several unusual
adjustments in 2001. The majority of these unusual adjustments were recognized
in Europe, which accounted for a significant portion of NMHG Retail's 2001
operating loss. The 2001 operating loss includes a charge of $10.4 million for a
loss on the sale of certain wholly owned dealers and related wind-down costs.
See also Note 4 to the Consolidated Financial Statements for a discussion of
this transaction. The 2001 operating loss also includes a $4.7 million
restructuring charge for downsizing to match then current levels of demand at
retail operations in Europe that NMHG Retail had acquired over several prior
years. In addition, the 2001 operating loss includes charges of approximately
$7.1 million to reduce asset values and increase reserves reflective of the
weakened capital goods markets, establish full accounting consistency among
retail operations on a global basis and to cause those dealers previously
reporting on a one-month lag to report on months consistent with the rest of
NMHG.
Net loss was $35.3 million for 2001 compared with $15.7 million for
2000, primarily due to the factors affecting operating loss combined with an
increase in interest expense allocated to NMHG Retail.
2001 RESTRUCTURING PLAN
In 2001, as previously discussed, management committed to the
restructuring of certain retail operations in Europe. As such, NMHG Retail
recognized a restructuring charge of approximately $4.7 million pre-tax, of
which $0.4 million relates to lease termination costs and $4.3 million relates
to severance and other employee benefits to be paid to approximately 140 service
technicians, salesmen and administrative personnel at wholly owned dealers in
Europe. In 2001, $0.4 million was paid to approximately 40 employees.
In 2002, severance payments of $2.5 million were made to approximately
70 employees. A majority of the headcount reductions were made by the end of the
first half of 2002. Cost savings primarily from reduced employee wages, employee
benefits and lease costs of approximately $2.9 million pre-tax were realized in
2002 related to this program. Cost savings primarily from reduced employee
wages, employee benefits and lease costs are estimated to be $2.9 million
pre-tax annually beginning in 2003. Estimated benefits could be reduced by
additional severance payments, if any, made to employees above the statutory or
contractually required amount that was accrued in 2001.
LIQUIDITY AND CAPITAL RESOURCES
On May 9, 2002, NMHG replaced its primary financing agreement, an
unsecured floating-rate revolving line of credit with availability of up to
$350.0 million, certain other lines of credit with availability of $28.6 million
and a program to sell accounts receivable in Europe, with the proceeds from the
sale of $250.0 million of 10% unsecured Senior Notes due 2009 and borrowings
under a secured, floating-rate revolving credit facility which expires in May
2005. The proceeds from the Senior Notes were reduced by an original issue
discount of $3.1 million.
The $250.0 million of 10% Senior Notes mature on May 15, 2009. The
Senior Notes are senior unsecured obligations of NMHG Holding Co. and are
guaranteed by substantially all of NMHG's domestic subsidiaries. NMHG Holding
Co. has the option to redeem all or a portion of the Senior Notes on or after
May 15, 2006 at the redemption prices set forth in the Indenture governing the
Senior Notes.
Availability under the new revolving credit facility is up to $175.0
million and is governed by a borrowing base derived from advance rates against
the inventory and accounts receivable of the borrowers, as defined in the new
revolving credit 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 facility. The borrowers include
NMHG Holding Co. and certain domestic and foreign subsidiaries of NMHG Holding
Co. Borrowings bear interest at a floating rate, which can be either a base rate
or LIBOR, as defined, plus an applicable margin. The current
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
applicable margins, effective December 31, 2002, for base rate loans and LIBOR
loans were 2.0% and 3.0%, respectively. The new revolving credit facility also
requires the payment of a fee of 0.5% 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, 2002, the borrowing base under the new revolving credit
facility was $112.7 million, which has been reduced by the commitments or
availability under certain foreign credit facilities and an excess availability
requirement of $15.0 million. Borrowings outstanding under this facility were
$5.2 million at December 31, 2002. Therefore, at December 31, 2002, the excess
availability under the new revolving credit facility was $107.5 million.
The domestic floating rate of interest applicable to this facility on
December 31, 2002 was 6.25%, including the applicable floating rate margin. The
new revolving credit facility includes a subfacility for foreign borrowers which
can be denominated in British pounds sterling or euros. Included in the
borrowing capacity is a $15.0 million overdraft facility available to foreign
borrowers. At December 31, 2002, there were no borrowings outstanding under
these foreign subfacilities. The new revolving credit facility is guaranteed by
certain domestic and foreign subsidiaries of NMHG Holding Co. and is secured by
substantially all of the assets, other than property, plant and equipment, of
the borrowers and guarantors, both domestic and foreign, under the facility.
The terms of the new revolving credit facility provide that availability
is reduced by the commitments or availability under a foreign credit facility of
the borrowers and certain foreign working capital facilities. A foreign credit
facility commitment of approximately U.S. $18.9 million on December 31, 2002,
denominated in Australian dollars, reduced the amount of availability under the
new revolving credit facility. In addition, availability under the new revolving
credit facility was reduced by $5.5 million for a working capital facility in
China and by $3.7 million for other letters of credit. If the commitments or
availability under these facilities are increased, availability under the new
revolving credit facility will be reduced. The $112.7 million of borrowing base
capacity under the new revolving credit facility at December 31, 2002 reflected
reductions for these foreign credit facilities. See Note 9 to the Consolidated
Financial Statements for further discussion of NMHG's additional borrowings.
Both the new revolving credit facility and terms of the Senior Notes
include restrictive covenants which, among other things, limit the payment of
dividends to NACCO. The new revolving credit facility also requires 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. The borrowers must maintain aggregate excess
availability under the new revolving credit facility of at least $15.0 million.
NMHG paid financing fees of approximately $15.7 million related to this
refinancing. These fees were deferred and are being amortized as interest
expense in the statement of operations over the respective terms of the new
financing facilities.
As a result of the refinancing of NMHG's floating-rate revolving credit
facility, NMHG terminated all of its interest rate swap agreements. NMHG
terminated interest rate swap agreements with a total notional amount of $285.0
million and a total net payable balance of $11.5 million at the respective dates
of termination. Prior to the refinancing, however, certain of these interest
rate swap agreements qualified for hedge accounting treatment in accordance with
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended. As such, the mark-to-market effect of these interest rate swap
agreements was previously recognized as a component of other comprehensive
income (loss) ("OCL") in stockholder's equity.
Prior to the cessation of hedge accounting resulting from the May 9,
2002 refinancing, the balance in OCL for NMHG's interest rate swap agreements
that qualified for hedge accounting was a pre-tax loss of $4.2 million ($2.6
million after-tax). This balance is being amortized into the statement of
operations over the original remaining lives of the terminated interest rate
swap agreements in accordance with the provisions in SFAS No. 133, as amended.
The amount of amortization of accumulated other comprehensive income included in
the statement of operations on the line "losses on interest rate swap
agreements" during 2002 was a pre-tax expense of $2.5 million.
The mark-to-market effect of the interest rate swap agreements that was
included in the statement of operations because these derivatives did not
qualify for hedge accounting treatment during 2002 was an expense of $3.2
million and is included on the line, "losses on interest rate swap agreements."
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
CONTRACTUAL OBLIGATIONS, CONTINGENT LIABILITIES AND COMMITMENTS
Following is a table which summarizes the contractual obligations of
NMHG:
PAYMENTS DUE BY PERIOD
--------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL 2003 2004 2005 2006 2007 THEREAFTER
- ---------------------------------------- ------------ ---------- ----------- ---------- ----------- ----------- ---------------
NMHG senior notes(1)(2) $ 250.0 $ --- $ --- $ --- $ --- $ --- $ 250.0
NMHG revolving credit
facilities(2)(3) 31.3 26.1 --- 5.2 --- --- ---
Term loans(2) 18.1 6.1 6.3 5.7 --- --- ---
Capital lease obligations including
principal and interest(2) 30.9 14.9 8.7 5.2 2.0 .1 ---
Off-balance-sheet operating
lease obligations(2) 118.6 40.7 30.4 21.4 14.1 7.7 4.3
Unconditional purchase obligations 3.9 .8 .6 .9 .2 1.4 ---
------------ ---------- ----------- ---------- ----------- ---------- ---------------
Total contractual cash obligations $ 452.8 $ 88.6 $ 46.0 $ 38.4 $ 16.3 $ 9.2 $ 254.3
============ ========== =========== ========== =========== ========== ===============
(1) The face value of the Senior Notes due in 2009 is $250.0 million. The
initial proceeds from the Senior Notes received in 2002 were reduced by
an original issue discount of $3.1 million. The unamortized balance of
this discount at December 31, 2002 is $2.9 million. Therefore, the
amount recognized as Senior Notes in the Consolidated Balance Sheet at
December 31, 2002 is $247.1 million.
(2) An event of default, as defined in the Indenture governing NMHG's Senior
Notes, in NMHG's revolving credit facilities, in NMHG's term loan
agreements and in NMHG's operating and capital lease agreements, could
cause an acceleration of the payment schedule. No such event of default
has occurred or is anticipated to occur under these agreements.
(3) Note that, contractually, all amounts outstanding under NMHG's new
revolving credit facility are due in 2005 and have been reflected as
such in the above table. However, the Company has classified the balance
outstanding under this facility, $5.2 million at December 31, 2002, as a
current obligation since that is the amount expected to be repaid in
2003.
In addition, NMHG has the following commitments, stated at the maximum
undiscounted potential liability, at December 31, 2002:
Total
---------------
Standby recourse obligations $ 149.4
Guarantees or repurchase obligations 4.2
---------------
Total commercial commitments $ 153.6
===============
Guarantees and standby recourse or 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. These contingent liabilities may
take the form of guarantees of residual values or standby recourse or repurchase
obligations. 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 that NMHG would become liable under the terms of the
guarantees or standby recourse or repurchase obligations. Generally, these
commitments are due upon demand in the event of default by the customer. The
security interest is by and large expected to equal or exceed the amount of the
commitment. To the extent that NMHG would be required to provide funding as a
result of these commitments, NMHG believes that 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 standby recourse or repurchase obligations increase
and decrease 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 guarantees or standby recourse or repurchase obligations are
not significant and have been reserved for in the Consolidated Financial
Statements.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
CAPITAL EXPENDITURES
NMHG Wholesale anticipates spending approximately $33.8 million for
property, plant and equipment in 2003, compared with capital expenditures of
$12.1 million in 2002 and $46.6 million in 2001. NMHG Retail anticipates
spending approximately $2.5 million for property, plant and equipment in 2003,
compared with capital expenditures of $4.0 million in 2002 and $6.9 million in
2001. Capital expenditures for 2002 are significantly lower as compared with
planned expenditures for 2003 and actual expenditures for 2001 primarily due to
the timing of projects at NMHG Wholesale. Capital expenditures in 2001 included
spending for the implementation of a new accounting system and for new equipment
and tooling resulting from moving production from the Danville, Illinois,
facility, which was closed in 2001, to other facilities in Americas and Europe.
NMHG's planned expenditures in 2003 include tooling for a significant new
product launch, approximately $7.3 million for new equipment and tooling
resulting from the 2002 manufacturing restructuring program in Americas and
Europe, investments in manufacturing equipment, and retail lease and rental
fleet. The principal sources of financing for these capital expenditures are
expected to be internally generated funds and facility borrowings.
CAPITAL STRUCTURE
NMHG's capital structure is presented below:
December 31
-------------------------------------
2002 2001
----------------- -----------------
Total net tangible assets $ 362.8 $ 402.5
Goodwill and other intangibles at cost 487.7 491.2
----------------- -----------------
Net assets before amortization of intangibles 850.5 893.7
Accumulated goodwill and other intangibles amortization (142.3) (147.0)
Advances from NACCO --- (8.0)
Other debt (324.8) (354.4)
Minority interest (1.1) (2.3)
----------------- -----------------
Stockholder's equity $ 382.3 $ 382.0
================= =================
Debt to total capitalization 46% 48%
The decrease in total net tangible assets of $39.7 million is primarily
due to a $4.7 million decrease in cash and cash equivalents, a $28.6 million
decrease in property, plant and equipment, a $7.9 million decrease in inventory
and a $37.9 million increase in certain long-term liabilities, somewhat offset
by a $20.6 million increase in total net receivables, an $8.9 million decrease
in net derivative liabilities and a $5.2 million increase in net deferred tax
assets. Property, plant and equipment decreased as a result of depreciation
expense that was partially offset by capital expenditures and due to certain
asset impairment charges, primarily resulting from the 2002 NMHG Wholesale
manufacturing restructuring program discussed above. The decrease in inventory
is primarily due to NMHG Retail's transfer of new and used units, that were
previously in inventory, to rental fleet in 2002. Long-term liabilities
increased primarily due to an increase in the accrued pension obligation
resulting from an update in the assumptions used to actuarially calculate this
liability. Total net receivables increased primarily due to the second quarter
2002 termination of an agreement to sell European accounts receivable as part of
NMHG's debt refinancing. The decrease in net derivative liabilities is due to
the termination of all of NMHG's interest rate swap agreements during 2002 as a
result of the refinancing of NMHG's debt.
Stockholder's equity increased $0.3 million in 2002 as a result of net
income of $12.3 million, a $16.6 million favorable adjustment to the foreign
currency cumulative translation balance and a $3.5 million decrease in the
deferred loss on derivatives, which were almost entirely offset by a dividend to
NACCO of $15.0 million and an increase to the minimum pension liability
adjustment of $17.1 million.
RECENTLY ISSUED ACCOUNTING STANDARDS
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 provides accounting requirements for
retirement obligations associated with tangible long-lived assets, including:
(i) the timing of liability recognition; (ii) initial measurement of the
liability; (iii) allocation of asset retirement cost to expense; (iv) subsequent
measurement of the liability; and (v) financial statement disclosures. SFAS No.
143 requires that an asset's retirement cost should be capitalized as part of
the cost of the related long-lived asset and subsequently allocated to expense
using a systematic and rational method. This standard becomes effective for
fiscal years beginning after June 15, 2002. The Company will adopt the Statement
effective
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
January 1, 2003. The transition adjustment resulting from the adoption of SFAS
No. 143 will be reported as a cumulative effect of a change in accounting
principle. The adoption of this Statement is not expected to have a material
impact on the Company's financial position or results of operations in 2003.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 requires gains and losses on extinguishments of debt
to be reclassified as income or loss from continuing operations rather than as
extraordinary items as previously required by SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt." SFAS No. 145 also amends SFAS No. 13 to
require certain modifications to capital leases to be treated as sale-leaseback
transactions and modifies the accounting for subleases when the original lessee
remains a secondary obligor, or guarantor. SFAS No.145 also rescinded SFAS No.
44, which addressed the accounting for intangible assets of motor carriers and
made numerous technical corrections.
The provisions of SFAS No. 145 related to the rescission of SFAS No. 4
are effective for fiscal years beginning after May 15, 2002, with restatement of
prior periods for any gain or loss on the extinguishment of debt that was
classified as an extraordinary item in prior periods, as necessary. The
remaining provisions of SFAS No. 145 are effective for transactions and
reporting subsequent to May 15, 2002. The adoption of SFAS No. 145 did not have
a material impact to the Company's financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities." SFAS No. 146 is effective for exit or disposal activities
initiated after December 31, 2002. SFAS No. 146 requires that liabilities for
one-time termination benefits that will be incurred over future service periods
should be measured at the fair value as of the termination date and recognized
over the future service period. This Statement also requires that liabilities
associated with disposal activities should be recorded when incurred. These
liabilities should be adjusted for subsequent changes resulting from revisions
to either the timing or amount of estimated cash flows, discounted at the
original credit-adjusted risk-free rate. Interest on the liability would be
accreted and charged to expense as an operating item. Subsequent to its
adoption, the new Statement may effect the periods in which costs are recognized
for workforce reductions or facility closures, although the ultimate amount of
costs recognized will be the same as per current accounting guidance.
In November 2002, the FASB issued Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 requires guarantors
to recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee for those guarantees
initiated or modified after December 31, 2002. However, certain guarantees,
including product warranties and guarantees between parties under common control
(i.e., parent and subsidiary), are not required to be recognized at fair value
at inception. FIN No. 45 also requires additional disclosures of guarantees,
including product warranties and guarantees between parties under common
control, beginning with interim or annual periods ending after December 15,
2002. Guarantees initiated prior to December 31, 2002 are not recognized as a
liability measured at fair value per this Interpretation, but are subject to the
disclosure requirements. The Company has made the required disclosure in the
Consolidated Financial Statements. As required, the Company will recognize
guarantees included within the scope of this Interpretation and initiated after
December 31, 2002 as liabilities measured at fair value. Although the impact of
this Interpretation is dependent upon the level of guarantees issued by the
Company in the future and the future market volatility on which the fair value
of those guarantees would be based, the Company does not expect the adoption of
the fair value provisions of this Interpretation to have a material impact on
the Company's financial position or results of operations.
In November 2002, the Emerging Issues Task Force reached a consensus on
Issue 00-21 ("EITF 00-21"), "Accounting for Revenue Arrangements with Multiple
Deliverables." EITF 00-21 addresses how to account for arrangements that may
involve the delivery or performance of multiple products, services, and/or
rights to use assets. The final consensus will be applicable to agreements
entered into in fiscal years beginning after June 15, 2003 with early adoption
permitted. Additionally, companies will be permitted to apply the consensus
guidance to all existing arrangements as the cumulative effect of a change in
accounting principle in accordance with APB Opinion No. 20, "Accounting
Changes." In accordance with the model developed by the Task Force, revenue
arrangements with multiple deliverables should be divided into separate units of
accounting if the deliverables in the arrangement meet certain criteria. Revenue
is then allocated to the separate units based on either the relative fair value
method or the residual method, as applicable. The Company will adopt EITF 00-21
effective January 1, 2004, as required, and has not yet determined what impact,
if any, the adoption of this Statement will have on either its financial
position or results of operations.
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
In December 2002, the FASB issued SFAS No. 148, "Accounting For
Stock-Based Compensation - Transition and Disclosure, an Amendment of FASB
Statement No. 123." This Statement amends FASB Statement No. 123, "Accounting
for Stock-Based Compensation, " to provide alternative methods of transition for
an entity that voluntarily changes to the fair value based method of accounting
for stock-based employee compensation. It also amends the disclosure provisions
of that Statement to require prominent disclosure about the effects on reported
net income of an entity's accounting policy decisions with respect to
stock-based employee compensation. Finally, this Statement amends APB Opinion
No. 28, "Interim Financial Reporting," to require disclosure about those effects
in interim financial information. The Company does not have any stock options
outstanding nor does it intend to issue stock options in the foreseeable future.
As a result, the adoption of this Statement will not have any affect on the
Company's financial statements or disclosures unless and until such time the
Company issues stock options.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities. " FIN No. 46 clarifies the application of Accounting Research
Bulletin ("ARB") No. 51, "Consolidated Financial Statements" for certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN No. 46 requires that variable interest entities,
as defined, should be consolidated by the primary beneficiary, which is defined
as the entity that is expected to absorb the majority of the expected losses,
receive a majority of the expected gains, or both. The Interpretation requires
that companies disclose certain information about a variable interest entity
created prior to February 1, 2003 if it is reasonably possible that the
enterprise will be required to consolidate that entity. The Company is currently
evaluating its affiliated entities, however, at this time, the Company does not
believe that it is reasonably possible that any entity it is affiliated with but
does not currently consolidate will meet the definition of a variable interest
entity.
The application of this Interpretation is required on July 1, 2003 for
entities created prior to February 1, 2003. The application of this
Interpretation is required immediately for any variable interest entities
created subsequent to January 31, 2003. At this time, the Company has not yet
determined what impact, if any, the adoption of this Interpretation will have on
either its financial position or results of operations.
EFFECTS OF FOREIGN CURRENCY AND INFLATION
NMHG operates internationally and enters 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 were discussed previously. The Company's use of
foreign currency derivative contracts is discussed under the heading,
"Quantitative and Qualitative Disclosures about Market Risk."
The Company believes that overall inflation has not materially affected
its results of operations in 2002, 2001 and 2000 and does not expect overall
inflation to be a significant factor in 2003.
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
OUTLOOK
NMHG WHOLESALE
In 2003, NMHG Wholesale anticipates a modest strengthening of the
Americas lift truck market, a relatively flat European lift truck market and a
slight improvement in the Asia-Pacific lift truck market. The war and continuing
economic uncertainty in the U.S. and Europe could affect overall shipments in
2003. As compared with exchange rates in effect during 2002, adverse currency
effects could also reduce NMHG Wholesale's 2003 results. Backlog in 2003 is
anticipated to remain at approximately fourth quarter 2002 levels.
NMHG Wholesale expects to incur additional costs for product
development in 2003 as it moves toward the initial introduction of newly
redesigned 1.0-to-8.0-ton internal combustion engine lift trucks planned for the
fourth quarter of 2004. Furthermore, in 2003 NMHG Wholesale expects to incur
additional costs related to the Lenoir, North Carolina, and Irvine, Scotland,
manufacturing restructuring program announced in December 2002. Total costs of
the restructuring program to be incurred in 2003 and beyond are expected to be
substantially mitigated by future government incentives. NMHG Wholesale expects
to realize initial net benefits from this manufacturing restructuring program in
2004 with a full 12-months of estimated annual benefits beginning in 2006.
Furthermore, NMHG Wholesale expects additional employee costs as compensation
and benefits return to more normal levels. NMHG Wholesale expects income taxes
to be at more normal levels in 2003 as one-time tax benefits received in 2002
are not expected to recur.
NMHG RETAIL
NMHG Retail's operations remaining following the sale of its wholly
owned U.S. dealer in January 2003 achieved profitability in the fourth quarter
of 2002. NMHG Retail expects to continue its programs to improve the performance
of its wholly owned dealerships in 2003 as part of its program to reach at least
break-even results.
The statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere throughout this
Annual Report 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
include without limitation: (1) changes in demand for lift trucks and related
aftermarket parts and service on a worldwide basis, especially in the U.S. where
the company derives a majority of its sales, (2) changes in sales prices, (3)
delays in delivery or changes in costs of raw materials or sourced products and
labor, (4) delays in manufacturing and delivery schedules, (5) 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, (6) product liability or other litigation,
warranty claims or returns of products, (7) delays in or increased costs of
restructuring programs, (8) the effectiveness of the cost reduction programs
implemented globally, including the successful implementation of procurement
initiatives, (9) customer acceptance of, changes in costs of, or delays in the
development of new products, (10) acquisitions and/or dispositions of
dealerships by NMHG, (11) the impact of the euro, including increased
competition, foreign currency exchange movements and/or changes in operating
costs and (12) the uncertain impact on the economy or the public's confidence in
general from terrorist activities and the war.
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
On May 9, 2002, NMHG refinanced a majority of its floating-rate debt
financing with the issuance of Senior Notes at a fixed rate of interest. As a
result of this refinancing during 2002, NMHG terminated all of its interest rate
swap agreements. The combined notional amount and fair market value of the
interest rate swap agreements terminated was $285.0 million and a payable of
$11.5 million, respectively, on the respective dates of termination. A small
portion of NMHG's financing, however, requires interest payments based on
floating interest rates. See additional discussion of this transaction in Note 9
to the Consolidated Financial Statements.
For purposes of specific 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. The fair market value, based on a
market quote, of the Company's fixed rate debt, which was issued in 2002, was
$255.0 million at December 31, 2002. Assuming a hypothetical 10% decrease in the
effective interest yield on this fixed rate debt, the fair market value of this
liability would increase by $17.4 million as compared with the fair market value
of this liability at December 31, 2002. The fair market value of the Company's
interest rate swap agreements was a liability of $11.5 million prior to their
termination in 2002. Assuming a hypothetical 10% decrease in the interest rate
as of December 31, 2001, the fair market value of interest rate sensitive
financial instruments, which primarily represents interest rate swap agreements,
would decline by $1.6 million as compared with their fair market value at
December 31, 2001.
FOREIGN CURRENCY EXCHANGE RATE RISK
NMHG operates internationally and enters into transactions denominated
in foreign currencies. As such, its financial results are subject to the
variability that arises from exchange rate movements. NMHG uses forward foreign
currency exchange contracts to partially reduce risks related to transactions
denominated in foreign currencies and not for trading purposes. These contracts
mature within one year and require the companies to buy or sell Japanese yen,
Australian dollars, Canadian dollars, Mexican pesos, British pounds sterling or
euros for the functional currency in which the applicable subsidiary operates at
rates agreed to at the inception of the contracts. The fair market value of
these contracts was a net asset of $3.2 million and a net liability of $0.8
million at December 31, 2002 and 2001, respectively. See also Note 2 and Note 10
to the Consolidated Financial Statements.
For purposes of specific 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 as
compared with other foreign currencies at December 31, 2002 and 2001, the fair
market value of foreign currency-sensitive financial instruments, which
primarily represents forward foreign currency exchange contracts, would decline
by $4.5 million and $3.3 million, respectively, as compared with their fair
market value at December 31, 2002 and 2001, respectively. It is important to
note that the loss in fair market value indicated in this sensitivity analysis
would be somewhat offset by changes in the fair market value of the underlying
receivables, payables and net investments in foreign subsidiaries.
COMMODITY PRICE RISK
The Company uses certain commodities, including steel in the normal
course of its manufacturing processes. As such, the cost of operations is
subject to variability as the market for these commodities change. 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.
25
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 Item 15(a) hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Disclosure required by this Item was previously reported in NMHG's
Registration Statement on Form S-4 (File No. 333-89248).
There were no disagreements with accountants on accounting and financial
disclosure for the two-year period ended December 31, 2002.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Omitted pursuant to General Instruction I 2(c) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Omitted pursuant to General Instruction I 2(c) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Omitted pursuant to General Instruction I 2(c) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Omitted pursuant to General Instruction I 2(c) of Form 10-K.
ITEM 14. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES: The Company maintains
a set of disclosure controls and procedures designed to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms. Within the 90-day period prior to the filing of this report, 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. Based on that evaluation, these officers have concluded
that the Company's disclosure controls and procedures are effective.
CHANGES IN INTERNAL CONTROLS: Subsequent to the date of their
evaluation, there have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls,
including any corrective action with regard to significant deficiencies and
material weaknesses.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The response to Item 15(a)(1) and (2) is set forth beginning on page
F-1 of this Form 10-K.
(a) (3) Exhibits. See the exhibit index beginning on page X-1 of this
Form 10-K.
(b) Reports on Form 8-K.
Current Report on Form 8-K filed with the Commission on November 14,
2002 (Item 9)
26
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.
NMHG Holding Co.
By: /s/ Michael K. Smith
-----------------------------------------------
Michael K. Smith
Vice President, Finance and Information Systems
and Chief Financial Officer
(principal financial
and accounting officer)
March 27, 2003
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/ Reginald R. Eklund President and Chief March 27, 2003
- ---------------------------------- Executive Officer
Reginald R. Eklund (principal executive
officer), Director
/s/ Michael K. Smith Vice President, Finance March 27, 2003
- ---------------------------------- and Information Systems
Michael K. Smith and Chief Financial
Officer (principal
financial officer)
* Owsley Brown II Director March 27, 2003
- ----------------------------------
Owsley Brown II
* Eiichi Fujita Director March 27, 2003
- ----------------------------------
Eiichi Fujita
* Robert M. Gates Director March 27, 2003
- ----------------------------------
Robert M. Gates
* Leon J. Hendrix, Jr. Director March 27, 2003
- ----------------------------------
Leon J. Hendrix, Jr.
* David H. Hoag Director March 27, 2003
- ----------------------------------
David H. Hoag
* Dennis W. LaBarre Director March 27, 2003
- ----------------------------------
Dennis W. LaBarre
* Richard de J. Osborne Director March 27, 2003
- ----------------------------------
Richard de J. Osborne
* Alfred M. Rankin, Jr. Director March 27, 2003
- ----------------------------------
Alfred M. Rankin, Jr.
* Claiborne R. Rankin Director March 27, 2003
- ----------------------------------
Claiborne R. Rankin
* Ian M. Ross Director March 27, 2003
- ----------------------------------
Ian M. Ross
* Michael E. Shannon Director March 27, 2003
- ----------------------------------
Michael E. Shannon
* Britton T. Taplin Director March 27, 2003
- ----------------------------------
Britton T. Taplin
* David F. Taplin Director March 27, 2003
- ----------------------------------
David F. Taplin
* Frank F. Taplin Director March 27, 2003
- ----------------------------------
Frank F. Taplin
* John F. Turben Director March 27, 2003
- ----------------------------------
John F. Turben
*Michael K. Smith, by signing his name hereto, does hereby sign this
Annual Report on 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/ Michael K. Smith March 27, 2003
- ----------------------------------------------------
Michael K. Smith, Attorney-in-Fact
CERTIFICATIONS
I, Reginald R. Eklund, certify that:
1. I have reviewed this annual report on Form 10-K of NMHG Holding Co.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
such term is defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 27, 2003 /s/ Reginald R. Eklund
-------------------------- -------------------------------------
Reginald R. Eklund
President and Chief Executive Officer
(Principal Executive Officer)
I, Michael K. Smith, certify that:
1. I have reviewed this annual report on Form 10-K of NMHG Holding Co.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
such term is defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 27, 2003 /s/ Michael K. Smith
-------------------------- ---------------------------------------
Michael K. Smith
Vice President, Finance and Information
Systems and Chief Financial Officer
(Principal Financial Officer)
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 15(a)(1) AND (2), AND ITEM 15(d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 2002
NMHG HOLDING CO.
PORTLAND, OREGON
F-1
FORM 10-K
ITEM 15(a)(1) AND (2)
NMHG HOLDING CO. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of NMHG Holding Co. and
Subsidiaries are incorporated by reference in Item 8:
Report of Ernst & Young, Independent Public Accountants--Year ended
December 31, 2002.
Report of Arthur Andersen, Independent Public Accountants--Year ended
December 31, 2001 and 2000.
Consolidated Statements of Operations and Comprehensive Income
(Loss)--Year ended December 31, 2002, 2001 and 2000.
Consolidated Balance Sheets--December 31, 2002 and December 31, 2001.
Consolidated Statements of Cash Flows--Year ended December 31, 2002,
2001 and 2000.
Consolidated Statements of Stockholder's Equity--Year ended December 31,
2002, 2001 and 2000.
Notes to Consolidated Financial Statements.
NMHG Holding Co. Report of Management.
The following consolidated financial statement schedule of NMHG Holding
Co. and Subsidiaries is included in Item 15(d):
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
F-2
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholder of NMHG Holding Co.
We have audited the accompanying Consolidated Balance Sheet of NMHG
Holding Co. (a wholly owned subsidiary of NACCO Industries, Inc.) and
Subsidiaries (collectively "the Company") as of December 31, 2002, and the
related Consolidated Statements of Operations and Comprehensive Income (Loss),
Stockholder's Equity and Cash Flows for the year then ended. Our audit also
included the financial statement schedule for the year ended December 31, 2002
listed in item 15(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit. The
Consolidated Financial Statements and schedule of the Company as of December 31,
2001, and for each of the years in the two year period ended December 31, 2001,
were audited by other auditors, who have ceased operations and whose report
dated January 25, 2002 expressed an unqualified opinion before the additional
disclosures described below and in Notes 8 and 17.
We conducted our audit in accordance with auditing standards generally
accepted in the 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 audit provides a reasonable basis
for our opinion.
In our opinion, the 2002 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of NMHG Holding Co. and Subsidiaries as of December 31, 2002, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the financial statement schedule for the year
ended December 31, 2002, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As explained in Note 2 and Note 8 to the Consolidated Financial
Statements, effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
("SFAS No. 142").
As discussed above, the consolidated financial statements of the Company
as of December 31, 2001, and for each of the years in the two year period ended
December 31, 2001, were audited by other auditors who have ceased operations.
However, the Company has added certain disclosures to those financial statements
to comply with the adoption requirements of new accounting pronouncements and to
add certain disclosures to conform with the current year's presentation, as
follows:
(i) As described in Note 8, the 2001 and 2000 consolidated financial
statements have been revised to include the transitional and other
disclosures required by SFAS No. 142, which was adopted by the Company
effective January 1, 2002. Our audit procedures with respect to the
disclosures in Note 8 relating to 2001 and 2000 included (a) agreeing
the previously reported income (loss) before cumulative effect of
accounting changes and reported net income (loss) to the previously
issued consolidated financial statements and the adjustments to these
amounts representing amortization expense (including any related tax
effects) recognized in those periods related to goodwill as a result of
initially applying SFAS No. 142 to the Company's underlying records
obtained from management, and (b) testing the mathematical accuracy of
the reconciliation of reported income (loss) before cumulative effect of
accounting changes and reported net income (loss) to adjusted income
(loss) before cumulative effect of accounting changes and adjusted net
income (loss), respectively.
(ii) Note 17 includes summarized financial information for investees
accounted for by the equity method that was not previously included in
the 2001 and 2000 consolidated financial statements. Our audit
procedures with respect to the disclosures in Note 17 relating to 2001
and 2000 included (a) agreeing the amounts included in the table to the
underlying analysis obtained from management, (b) agreeing the investee
amount included in the analysis obtained from management to the
respective investee financial statements, and (c) testing the
mathematical accuracy of the analysis.
F-3
In our opinion, the disclosures described in (i) and (ii) above are
appropriate. However, we were not engaged to audit, review, or apply any
procedures to the 2001 and 2000 consolidated financial statements of the Company
other than with respect to such disclosures and, accordingly, we do not express
an opinion or any other form of assurance on the 2001 and 2000 consolidated
financial statements taken as a whole.
/s/ Ernst & Young LLP
Cleveland, Ohio,
January 23, 2003
F-4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of NMHG Holding Co. and Subsidiaries:
We have audited the accompanying Consolidated Balance Sheets of NMHG
Holding Co. (a Delaware corporation and a wholly owned subsidiary of NACCO
Industries, Inc., a Delaware corporation) and Subsidiaries as of December 31,
2001 and 2000, and the related Consolidated Statements of Operations and
Comprehensive Income (Loss), Stockholder's Equity and Cash Flows for each of the
three years in the period ended December 31, 2001. These financial statements
and the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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 financial statements referred to above present
fairly, in all material respects, the financial position of NMHG Holding Co. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
As explained in Note 2 to the financial statements, effective January 1,
2001, the Company changed its method of accounting for derivative instruments
and hedging activities, and its method of calculating pension costs for a
defined benefit pension plan in the United Kingdom.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Cleveland, Ohio,
January 25, 2002.
This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with NMHG Holding Co.'s filing of its registration statement on Form
S-4 declared effective by the United States Securities and Exchange Commission
on August 12, 2002. This audit report has not been reissued by Arthur Andersen
LLP in connection with this filing on Form 10-K. The Consolidated Balance Sheet
for the year ended December 31, 2000 is not included in this filing on Form
10-K.
F-5
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
NMHG HOLDING CO. AND SUBSIDIARIES
Year Ended December 31
------------------------------------------
2002 2001 2000
--------- ---------- ------------
(In millions)
REVENUES................................................................... $1,588.4 $1,672.4 $1,932.1
Cost of.sales.............................................................. 1,294.7 1,422.8 1,584.6
---------- ---------- ----------
GROSS PROFIT............................................................... 293.7 249.6 347.5
Selling, general and administrative expenses............................... 236.8 262.4 257.8
Amortization of goodwill................................................... -- 12.9 12.6
Restructuring charges...................................................... 12.3 8.8 13.9
Loss on sale of dealers.................................................... 1.2 10.4 --
---------- ---------- ----------
OPERATING PROFIT (LOSS).................................................... 43.4 (44.9) 63.2
Other income (expense)
Interest expense....................................................... (33.9) (23.1) (21.2)
Losses on interest rate swap agreements................................ (5.7) (1.4) --
Insurance recovery..................................................... -- 8.0 --
Income (loss) from unconsolidated affiliates 0.5 2.6 (0.2)
Other-net.............................................................. 5.5 (4.6) (4.2)
---------- ---------- ----------
(33.6) (18.5) (25.6)
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES........................... 9.8 (63.4) 37.6
Income tax provision (benefit)............................................. (1.3) (14.5) 17.4
---------- ---------- ----------
INCOME (LOSS) BEFORE MINORITY INTEREST AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES........................................... 11.1 (48.9) 20.2
Minority interest income................................................... 1.2 0.8 1.1
---------- ---------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES.............. 12.3 (48.1) 21.3
Cumulative effect of accounting changes, net of $0.8 tax benefit.......... -- (1.3) --
---------- ---------- ----------
NET INCOME (LOSS)......................................................... 12.3 (49.4) 21.3
---------- ---------- ----------
Other comprehensive income (loss)
Foreign currency translation adjustment.............................. 16.6 (9.2) (15.6)
Minimum pension liability adjustment, net of ($11.5) tax
benefit in 2002; ($8.1) tax benefit in 2001;
($1.0) tax benefit in 2000........................... (17.1) (13.4) (1.4)
Current period cash flow hedging activity, net of $2.0 tax
expense in 2002 and ($2.0) tax benefit in 2001....... 3.1 (3.3) --
Cumulative effect of change in accounting for derivatives and
hedging, net of ($0.4) tax benefit................... -- (0.7) --
Reclassification of hedging activity into earnings, net of $0.3 tax
expense.................................................... 0.4 -- --
---------- ---------- ----------
3.0 (26.6) (17.0)
---------- ---------- ----------
COMPREHENSIVE INCOME (LOSS).............................................. $ 15.3 $ (76.0) $ 4.3
========== ========== ==========
See Notes to Consolidated Financial Statements.
F-6
CONSOLIDATED BALANCE SHEETS
NMHG HOLDING CO. AND SUBSIDIARIES
December 31
-----------------------------------
2002 2001
------------------ ---------------
ASSETS (In millions)
CURRENT ASSETS
Cash and cash equivalents........................................................ $ 54.9 $ 59.6
Accounts receivable, net of allowances of $8.7 in 2002 and $8.0 in 2001 ......... 193.1 165.6
Tax advances, parent company..................................................... 16.4 23.1
Inventories...................................................................... 222.0 234.5
Deferred income taxes............................................................ 21.6 32.9
Prepaid expenses and other....................................................... 29.9 12.2
-------------- --------------
TOTAL CURRENT ASSETS....................................................... 537.9 527.9
PROPERTY, PLANT AND EQUIPMENT, NET................................................... 242.1 280.5
GOODWILL............................................................................. 343.7 344.2
OTHER NON-CURRENT ASSETS............................................................. 79.8 52.5
-------------- --------------
TOTAL ASSETS..................................................................... $ 1,203.5 $ 1,205.1
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable................................................................. $ 186.9 $ 176.7
Revolving credit agreements...................................................... 31.3 36.2
Revolving credit agreement refinanced in May 2002................................ --- 265.0
Current maturities of long-term debt............................................. 20.0 25.5
Note payable, parent company..................................................... --- 8.0
Accrued payroll.................................................................. 23.3 20.0
Accrued warranty obligations..................................................... 23.1 26.4
Other current liabilities........................................................ 114.2 112.2
-------------- -------------
TOTAL CURRENT LIABILITIES.................................................. 398.8 670.0
LONG-TERM DEBT....................................................................... 273.5 27.7
SELF-INSURANCE LIABILITIES........................................................... 51.6 52.7
OTHER NON-CURRENT LIABILITIES........................................................ 96.2 70.4
MINORITY INTEREST.................................................................... 1.1 2.3
STOCKHOLDER'S EQUITY
Common stock, par value $1 per share, 100 shares authorized;
100 shares outstanding........................................................... --- ---
Capital in excess of par value....................................................... 198.2 198.2
Retained earnings.................................................................... 226.8 229.5
Accumulated other comprehensive loss:
Foreign currency translation adjustment.......................................... (10.3) (26.9)
Minimum pension liability adjustment............................................. (31.9) (14.8)
Deferred loss on cash flow hedging............................................... (0.5) (3.3)
Cumulative effect of change in accounting for derivatives and hedging............ --- (0.7)
-------------- --------------
382.3 382.0
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........................................$ 1,203.5 $ 1,205.1
============== ==============
See Notes to Consolidated Financial Statements.
F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS
NMHG HOLDING CO. AND SUBSIDIARIES
Year Ended December 31
----------------------------------------------------
2002 2001 2000
---------------- ---------------- ----------------
(In millions)
OPERATING ACTIVITIES
Net income (loss)..................................................... $ 12.3 $ (49.4) $ 21.3
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization..................................... 40.5 60.4 54.6
Deferred income taxes............................................. 3.9 (8.5) (12.2)
Restructuring charges............................................. 12.3 8.8 13.9
Minority interest income.......................................... (1.2) (0.8) (1.1)
Cumulative effect of accounting changes........................... --- 1.3 ---
Loss on sale of assets............................................ 1.3 10.5 0.7
Other non-cash items.............................................. (11.4) 1.6 (5.8)
Working capital changes, excluding the effect of business acquisitions:
Intercompany receivable/payable, affiliate........................ 6.7 (17.4) (1.5)
Accounts receivable............................................... 7.5 30.6 (36.3)
Inventories....................................................... 8.6 38.2 (19.0)
Other current assets.............................................. (1.2) 1.3 0.9
Accounts payable and other current liabilities.................... (14.4) (45.6) 47.1
-------------- -------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES......................... 64.9 31.0 62.6
--------------- -------------- -------------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment........................ (16.1) (53.5) (51.8)
Proceeds from the sale of property, plant and equipment............... 6.2 13.0 10.1
Acquisitions of businesses, net of cash acquired...................... --- (3.9) (16.6)
Investments in unconsolidated affiliates.............................. --- (0.3) (1.4)
Proceeds from unconsolidated affiliates............................... 2.3 --- ---
Other-net............................................................. 0.3 (2.5) ---
--------------- -------------- -------------
NET CASH USED FOR INVESTING ACTIVITIES............................ (7.3) (47.2) (59.7)
--------------- -------------- -------------
FINANCING ACTIVITIES
Additions to long-term debt and revolving credit agreements........... 283.8 68.9 38.6
Reductions of long-term debt and revolving credit agreements.......... (311.7) (22.0) (46.1)
Cash dividends paid................................................... (15.0) (5.0) (10.0)
Capital grants........................................................ --- 0.1 0.4
Notes receivable/payable, parent company.............................. (8.0) 11.0 7.0
Financing fees paid................................................... (15.7) (0.7) ---
--------------- -------------- -------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES.............. (66.6) 52.3 (10.1)
--------------- -------------- -------------
Effect of exchange rate changes on cash............................... 4.3 (0.9) 0.5
--------------- -------------- -------------
CASH AND CASH EQUIVALENTS
Increase (decrease) for the year...................................... (4.7) 35.2 (6.7)
Balance at the beginning of the year.................................. 59.6 24.4 31.1
--------------- -------------- -------------
BALANCE AT THE END OF THE YEAR.................................... $ 54.9 $ 59.6 $ 24.4
============== ============== ============
See Notes to Consolidated Financial Statements.
F-8
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
NMHG HOLDING CO. AND SUBSIDIARIES
Year Ended December 31
---------------------------------------------------
2002 2001 2000
---------------- --------------- ---------------
(In millions)
COMMON STOCK........................................................... $ --- $ --- $ ---
------------ ------------ -----------
CAPITAL IN EXCESS OF PAR VALUE......................................... 198.2 198.2 198.2
------------ ------------ -----------
RETAINED EARNINGS
Beginning balance.................................................... 229.5 283.9 272.6
Net income (loss).................................................... 12.3 (49.4) 21.3
Cash dividends....................................................... (15.0) (5.0) (10.0)
------------ ------------ -----------
226.8 229.5 283.9
------------ ------------ -----------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Beginning balance.................................................... (45.7) (19.1) (2.1)
Foreign currency translation adjustment.............................. 16.6 (9.2) (15.6)
Minimum pension liability adjustment................................. (17.1) (13.4) (1.4)
Current period cash flow hedge activity.............................. 3.1 (3.3) ---
Cumulative effect of change in accounting for derivatives and
hedging........................................................ 0.7 (0.7) ---
Reclassification from cumulative effect of change in accounting for
derivatives and hedging to deferred loss on cash flow hedging.... (0.7) --- ---
Reclassification of hedging activity into earnings................... 0.4 --- ---
------------ ------------ -----------
(42.7) (45.7) (19.1)
------------ ------------ -----------
TOTAL STOCKHOLDER'S EQUITY......................................... $ 382.3 $ 382.0 $ 463.0
=========== ============ ===========
See Notes to Consolidated Financial Statements.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
NOTE 1--PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS
The Consolidated Financial Statements include the accounts of NMHG Holding
Co. ("NMHG Holding," the parent company), a Delaware corporation, and its
wholly owned subsidiaries, NACCO Materials Handling Group, Inc. ("NMHG
Wholesale") and NMHG Distribution Co. ("NMHG Retail") (collectively, "NMHG"
or the "Company"). NMHG Holding is a wholly owned subsidiary of NACCO
Industries, Inc. ("NACCO").
NMHG designs, engineers, manufactures, sells, services and leases a full
line of lift trucks and service parts marketed worldwide under the Hyster(R)
and Yale(R) brand names. The Company manages its operations as two
reportable segments: wholesale manufacturing and retail distribution. NMHG
Wholesale includes the manufacture and sale of lift trucks and related
service parts, primarily to independent and wholly owned Hyster and Yale
retail dealerships. NMHG Retail includes the sale, leasing and service of
Hyster and Yale lift trucks and related service parts by wholly owned retail
dealerships and rental companies. The sale of service parts represents
approximately 18%, 18% and 17% of total NMHG revenues as reported for 2002,
2001 and 2000, respectively.
The Consolidated Financial Statements include the accounts of NMHG's wholly
owned domestic and international manufacturing and retail subsidiaries. Also
included is Shanghai Hyster Forklift Ltd., a 55% owned joint venture in
China. All significant intercompany accounts and transactions among the
consolidated companies are eliminated in consolidation.
During the period of its ownership, the Company applied the equity method of
accounting for its 25% ownership in QFS Holdings (Queensland) Pty Limited
("QFS"), a forklift parts depot located in Australia, which was purchased in
May 2000 and sold in December 2002. 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 and the
Philippines from which the Company purchases certain components and internal
combustion engine and electric forklift trucks. Sumitomo Heavy Industries,
Inc. owns the remaining 50% interest in SN. Each shareholder of SN is
entitled to appoint directors representing 50% of SN's board of directors.
All matters related to policies and programs of operation, manufacturing and
sales activities require mutual agreement between the Company and Sumitomo
Heavy Industries, Inc. prior to a vote of SN's board of directors. NFS is a
joint venture with GE Capital Corporation, formed primarily for the purpose
of providing financial services to independent and wholly owned Hyster and
Yale lift truck dealers and national account customers in the United States.
The Company's percentage share of the net income or loss from its equity
investments is reported on the line "Income (loss) from unconsolidated
affiliates" in the Other income (expense) portion of the Consolidated
Statements of Operations and Comprehensive Income (Loss).
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions. These estimates and
assumptions 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.
ACCOUNTS RECEIVABLE, NET OF ALLOWANCES: Allowances are maintained against
accounts receivable for doubtful accounts. Allowances for doubtful accounts
are maintained 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. See also the Company's
revenue recognition policy regarding allowances for product returns and
discounts.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
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
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 historical inventory turnover activity.
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 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,
improvements to land and buildings are depreciated over 20 and 15 years,
respectively, and equipment is depreciated over estimated useful lives
ranging from 3 to 12 years. Repairs and maintenance costs are generally
expensed when incurred.
GOODWILL: Goodwill represents the excess purchase price paid over the fair
value of the net assets acquired. Effective January 1, 2002, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill and
intangible assets that have indefinite lives are no longer subject to
amortization but rather are subject to periodic impairment testing.
Accordingly, the Company ceased amortization of all goodwill upon adoption.
Prior to adoption, goodwill was amortized on a straight-line basis generally
over a 40-year period. Accumulated amortization of goodwill was $141.8
million and $147.0 million at December 31, 2002 and 2001, respectively.
SFAS No. 142 also requires that goodwill be tested for impairment at least
annually. Impairment exists when the carrying amount of goodwill exceeds its
fair value. The Company performed the impairment tests upon the adoption of
SFAS No. 142 effective January 1, 2002, and again as of May 1, 2002, using a
model developed by the Company which incorporates estimates of future cash
flows, allocations of certain assets and cash flows among reporting units,
and future growth rates and management judgment regarding the applicable
discount rates to discount those estimated cash flows. The results of this
testing indicated that, on those dates, goodwill was not impaired. The
Company plans to continue impairment tests annually on May 1st. In addition,
goodwill will be tested as necessary if changes in circumstances or the
occurrence of certain events indicate potential impairment.
Prior to the adoption of SFAS No. 142, the Company evaluated whether events
and circumstances had occurred subsequent to its acquisitions that indicated
whether the remaining estimated useful life of goodwill would have warranted
revision or that the remaining balance of goodwill would not have been
recoverable. When factors indicated that goodwill should have been evaluated
for possible impairment, and at least annually, the Company used an estimate
of its discounted cash flows generated from operations in measuring whether
the goodwill was impaired.
SELF-INSURANCE LIABILITIES: The Company is generally self-insured for
product liability, environmental liability, and medical and workers'
compensation claims. For product liability, catastrophic 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 judgment for
valuing claims. Changes in assumptions for such matters as legal judgments
and settlements, legal defense costs, 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
or risk of loss passes as customer orders are completed and shipped. For
National Account customers, revenue is generally recognized upon customer
acceptance of the product. Products generally are not sold with the right of
return. However, based on the Company's historical experience, a portion of
aftermarket parts sold is estimated to be returned for reasons such as
product failure and excess inventory stocked by the Company's dealers,
which, subject to certain terms and conditions, the Company will agree to
accept. The Company records estimated reductions to revenues and a
corresponding allowance against accounts receivable at the time of the sale
based upon this historical experience and the limited right of return
provided to the Company's dealers. The Company
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
also records estimated reductions to revenues for customer programs and
incentive offerings, including special pricing agreements, price
competition, promotions and other volume-based incentives. Additionally, the
Company provides for the estimated cost of product warranties at the time
revenues are recognized.
ADVERTISING COSTS: Advertising costs are expensed as incurred and amounted
to $7.1 million, $7.6 million and $10.8 million in 2002, 2001 and 2000,
respectively.
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 $43.7 million, $44.7 million and $43.9
million in 2002, 2001 and 2000, respectively.
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
stockholder's equity, except for the Company's Mexican operations. The U.S.
dollar is considered the functional currency for the Company's Mexican
operations and, therefore, the effect of translating assets and liabilities
from the Mexican peso to the U.S dollar is recorded in the Consolidated
Statements of Operations and Comprehensive Income (Loss). Revenues and
expenses of all foreign operations are translated using a weighted average
rate during the year.
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 primarily firm commitments and, to a lesser degree,
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 Loss ("OCL"). Deferred gains or losses are reclassified from
OCL in the same period as the gains or losses from the underlying
transactions are recorded and are generally recognized in cost of sales.
Prior to refinancing its outstanding debt in May 2002, the Company used
interest rate swap agreements to partially reduce risks related to floating
rate financing agreements which were subject to changes in the market rate
of interest. Terms of the interest rate swap agreements required 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
were predominately based upon the three-month LIBOR (London Interbank
Offered Rate). Changes in the fair value of interest rate swap agreements
that were effective as hedges were recorded in OCL. Deferred gains or losses
were reclassified from OCL to the Consolidated Statement of Operations and
Comprehensive Income (Loss) in the same period as the gains or losses from
the underlying transactions were recorded and were recognized in interest
expense. Prior to the cessation of hedge accounting resulting from
refinancing, the balance in OCL for NMHG's interest rate swap agreements
that qualified for hedge accounting was a pre-tax loss of $4.2 million ($2.6
million after-tax). This balance is being amortized into the statement of
operations over the original remaining lives of the terminated interest rate
swap agreements in accordance with the provisions in SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
Interest rate swap agreements and forward foreign currency exchange
contracts held by the Company which qualify as hedges 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 as defined in SFAS No. 133.
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.
NEW ACCOUNTING STANDARDS: In October 2001, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 addresses the financial
accounting and reporting for the impairment or disposal of long-lived
assets. This statement supercedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
Of" and the accounting and reporting provisions of APB Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," for the disposal of a segment of a
business, as previously defined in that Opinion. SFAS No. 144 provides a
single accounting model, based on the framework established in SFAS No. 121,
for long-lived assets to be disposed of by sale. Many of the provisions of
SFAS No. 121 are retained, however, SFAS No. 144 clarifies some of the
implementation issues related to SFAS No. 121. SFAS No. 144 also broadens
the presentation of discontinued operations to include more disposal
transactions. This Statement is effective for fiscal years beginning after
December 15, 2001, with early adoption encouraged. The Company adopted this
Statement effective January 1, 2002, as required. In accordance with this
Statement, the Company measures impairment when events or circumstances
indicate an asset's carrying value may not be recoverable. The estimate of
an asset's fair value used in the measuring for impairment is based on the
best available evidence at the time, which may include broker quotes, values
of similar transactions and/or discounting the probability-weighted future
cash flows expected to be generated by the asset. The adoption of this
statement did not have a material effect on the Company's 2002 financial
position or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 requires gains and losses on extinguishments of
debt to be reclassified as income or loss from continuing operations rather
than as extraordinary items as previously required by SFAS No. 4, "Reporting
Gains and Losses from Extinguishment of Debt." SFAS No. 145 also amends SFAS
No. 13 to require certain modifications to capital leases to be treated as
sale-leaseback transactions and modifies the accounting for subleases when
the original lessee remains a secondary obligor, or guarantor. SFAS No.145
also rescinded SFAS No. 44, which addressed the accounting for intangible
assets of motor carriers and made numerous technical corrections.
The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 are
effective for fiscal years beginning after May 15, 2002, with restatement of
prior periods for any gain or loss on the extinguishment of debt that was
classified as an extraordinary item in prior periods, as necessary. The
remaining provisions of SFAS No. 145 are effective for transactions and
reporting subsequent to May 15, 2002. The adoption of SFAS No. 145 did not
have a material impact on the Company's financial position or results of
operations.
On January 1, 2001, the Company adopted SFAS No. 133, as amended by SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities." This Statement establishes accounting and reporting standards
for derivative instruments and for hedging activities. It requires companies
to recognize all derivatives on the balance sheet as assets and liabilities,
measured at fair value. Gains or losses resulting from changes in the values
of those derivatives are accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting.
As a result of the adoption of SFAS No. 133, the Company recognized a
cumulative effect of a change in accounting charge to the Consolidated
Statement of Operations and Comprehensive Income (Loss) for the year ended
December 31, 2001 of $0.9 million, net of $0.5 million of tax benefit,
relating primarily to certain interest rate swap agreements which did not
qualify for hedge accounting treatment at January 1, 2001. In addition,
effective January 1, 2001, the Company recognized a cumulative effect of a
change in accounting charge against OCL in the Consolidated Balance Sheet at
December 31, 2001 of $0.7 million, net of $0.4 million of tax benefit,
relating to net deferred losses on derivative instruments that qualified for
hedge accounting treatment under SFAS No. 133.
On January 1, 2001, the Company recognized a cumulative effect of a change
in accounting charge of $0.4 million, net of $0.3 million tax benefit,
relating to a change in the method of calculating pension costs for the
defined benefit pension plan in the United Kingdom. Prior to January 1,
2001, actuarially determined net gains and losses of the United Kingdom plan
were recognized in full as a component of net pension cost in the year
incurred. However, actuarially determined net gains and losses of all other
defined benefit pension plans of the Company are amortized and included as a
component of net pension cost over the next four years. Both of these
methods are permissible pursuant to SFAS No. 87, "Employers' Accounting for
Pensions." However, effective January 1, 2001, the Company changed the
method of recognition of actuarially determined net gains and losses of the
United Kingdom plan to conform with the methodology utilized by all other
defined benefit plans of the Company. This change in accounting was made to
achieve consistency of application of this accounting principle among all
members of the consolidated group, which the Company believes is the
preferred application of accounting principles generally accepted in the
United States.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
In September 2000, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue Number 00-10, "Accounting for Shipping and Handling Fees
and Costs" ("EITF 00-10"), which requires shipping and handling amounts
billed to a customer to be classified as revenue. In addition, the EITF's
preference is to classify shipping and handling costs as "cost of sales."
For certain shipping and handling fees, the Company previously netted the
charge to the customer with the cost incurred within its Consolidated
Statements of Operations and Comprehensive Income (Loss) on the line cost of
sales. In 2000, the Company changed its method of reporting to comply with
EITF 00-10. Shipping and handling costs billed to customers are recognized
as revenues and shipping and handling costs incurred by the Company are
included in cost of sales.
ACCOUNTING STANDARDS NOT YET ADOPTED: In August 2001, the FASB issued SFAS
No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143
provides accounting requirements for retirement obligations associated with
tangible long-lived assets, including: (i) the timing of liability
recognition; (ii) initial measurement of the liability; (iii) allocation of
asset retirement cost to expense; (iv) subsequent measurement of the
liability; and (v) financial statement disclosures. SFAS No. 143 requires
that an asset's retirement cost should be capitalized as part of the cost of
the related long-lived asset and subsequently allocated to expense using a
systematic and rational method. This standard becomes effective for fiscal
years beginning after June 15, 2002. The Company will adopt the Statement
effective January 1, 2003. The transition adjustment resulting from the
adoption of SFAS No. 143 will be reported as a cumulative effect of a change
in accounting principle. The adoption of this Statement is not expected to
have a material affect on the results of operations in 2003.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities." SFAS No. 146 is effective for exit or disposal activities
initiated after December 31, 2002. SFAS No. 146 requires that liabilities
for one-time termination benefits that will be incurred over future service
periods should be measured at the fair value as of the termination date and
recognized over the future service period. This Statement also requires that
liabilities associated with disposal activities should be recorded when
incurred. These liabilities should be adjusted for subsequent changes
resulting from revisions to either the timing or amount of estimated cash
flows, discounted at the original credit-adjusted risk-free rate. Interest
on the liability would be accreted and charged to expense as an operating
item. Subsequent to its adoption, the new Statement may effect the periods
in which costs are recognized for workforce reductions or facility closures,
although the ultimate amount of costs recognized will be the same as per
current accounting guidance.
In November 2002, the FASB issued Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN No. 45
requires guarantors to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee for those guarantees initiated or modified after December 31,
2002. However, certain guarantees, including product warranties and
guarantees between parties under common control (i.e., parent and
subsidiary), are not required to be recognized at fair value at inception.
FIN No. 45 also requires additional disclosures of guarantees, including
product warranties and guarantees between parties under common control,
beginning with interim or annual periods ending after December 15, 2002.
Guarantees initiated prior to December 31, 2002 are not recognized as a
liability measured at fair value per this Interpretation, but are subject to
the disclosure requirements. The Company has made the required disclosures
in these financial statements. As required, the Company will recognize
guarantees included within the scope of this Interpretation and initiated
after December 31, 2002 as liabilities measured at fair value. Although the
impact of this Interpretation is dependent upon the level of guarantees
issued by the Company in the future and the future market volatility on
which the fair value of those guarantees would be based, the Company does
not expect the adoption of the fair value provisions of this Interpretation
to have a material impact on the Company's financial position or results of
operations.
In November 2002, the Emerging Issues Task Force reached a consensus on
Issue 00-21 ("EITF 00-21"), "Accounting for Revenue Arrangements with
Multiple Deliverables." EITF 00-21 addresses how to account for arrangements
that may involve the delivery or performance of multiple products, services,
and/or rights to use assets. The final consensus will be applicable to
agreements entered into in fiscal years beginning after June 15, 2003 with
early adoption permitted. Additionally, companies will be permitted to apply
the consensus guidance to all existing arrangements as the cumulative effect
of a change in accounting principle in accordance with APB Opinion No. 20,
"Accounting Changes." In accordance with the model developed by the Task
Force, revenue arrangements with multiple deliverables should be divided
into separate units of accounting if the deliverables in the arrangement
meet certain criteria. Revenue is then allocated to the separate units based
on either the relative
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
fair value method or the residual method, as applicable. The Company will
adopt EITF 00-21 effective January 1, 2004, as required, and has not yet
determined what impact, if any, the adoption of this Statement will have on
either its financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting For Stock-Based
Compensation - Transition and Disclosure, an Amendment of FASB Statement No.
123." This Statement amends FASB Statement No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for
an entity that voluntarily changes to the fair value based method of
accounting for stock-based employee compensation. It also amends the
disclosure provisions of that Statement to require prominent disclosure
about the effects on reported net income of an entity's accounting policy
decisions with respect to stock-based employee compensation. Finally, this
Statement amends APB Opinion No. 28, "Interim Financial Reporting," to
require disclosure about those effects in interim financial information. At
December 31, 2002, the Company does not have any stock options outstanding.
Furthermore, as of December 31, 2002, the Company does not intend to issue
stock options in the foreseeable future. As a result, the adoption of this
Statement will not have any affect on the Company's financial statements or
disclosures unless and until such time the Company issues stock options.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN No. 46 clarifies the application of Accounting
Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements" for
certain entities in which equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient equity at risk
for the entity to finance its activities without additional subordinated
financial support from other parties. FIN No. 46 requires that variable
interest entities, as defined, should be consolidated by the primary
beneficiary, which is defined as the entity that is expected to absorb the
majority of the expected losses, receive a majority of the expected gains,
or both. The Interpretation requires that companies disclose certain
information about a variable interest entity created prior to February 1,
2003 if it is reasonably possible that the enterprise will be required to
consolidate that entity. The Company is currently evaluating its affiliated
entities, however, at this time, the Company does not believe that it is
reasonably possible that any entity it is affiliated with but does not
currently consolidate will meet the definition of a variable interest
entity.
RECLASSIFICATIONS: Certain amounts in the prior periods' Consolidated
Financial Statements have been reclassified to conform to the current
period's presentation.
NOTE 3--RESTRUCTURING AND OTHER TRANSACTIONS
RESTRUCTURING CHARGES
2002 RESTRUCTURING PROGRAM
As announced in December 2002, NMHG Wholesale will phase out its Lenoir,
North Carolina, lift truck component facility and restructure other
manufacturing and administrative operations, primarily its Irvine, Scotland,
lift truck assembly and component facility. As such, NMHG Wholesale
recognized a restructuring charge of approximately $12.5 million pre-tax,
classified in the 2002 Consolidated Statement of Operations and
Comprehensive Income (Loss) on the line "Restructuring charges." Of this
amount, $3.8 million relates to a non-cash asset impairment charge for a
building, machinery and tooling, which was determined based on current
market values for similar assets and broker quotes as compared to the net
book value of these assets; and $8.7 million relates to severance and other
employee benefits to be paid to approximately 615 manufacturing and
administrative employees. No payments were made as of December 31, 2002.
Payments are expected to begin in 2003 and continue through 2005.
2001 RESTRUCTURING PROGRAMS
During 2001, management committed to the restructuring of certain operations
in Europe for both the Wholesale and Retail segments of the business. As
such, NMHG Wholesale recognized a restructuring charge of approximately $4.5
million pre-tax, classified in the 2001 Consolidated Statement of Operations
and Comprehensive Income (Loss) on the line "Restructuring charges," for
severance and other employee benefits to be paid to approximately 285 direct
and indirect factory labor and administrative personnel in Europe. Payments
of $2.1 million to approximately 95 employees and $1.3 million to
approximately 150 employees were made in 2002 and 2001, respectively, and
$0.2 million of the amount accrued at December 31, 2001 was reversed in
2002. A majority of the headcount reductions were made by the end of 2002.
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
NMHG Retail recognized a restructuring charge of approximately $4.7 million
pre-tax in 2001, of which $0.4 million related to lease termination costs
and $4.3 million related to severance and other employee benefits to be paid
to approximately 140 service technicians, salesmen and administrative
personnel at wholly owned dealers in Europe. During 2001, severance payments
of $0.4 million were made to approximately 40 employees. In 2002, severance
payments of $2.5 million were made to approximately 70 employees. A majority
of the headcount reductions were made by the end of 2002.
2000 RESTRUCTURING PROGRAM
During 2000, NMHG made the determination that the consolidation of the
Americas' truck assembly activities offered significant opportunity to
reduce structure costs while further optimizing the use of NMHG's global
manufacturing capacity. Accordingly, a decision was made to phase out
certain manufacturing activities in the Danville, Illinois, assembly plant.
In December 2000, the Board of Directors approved management's plan to
transfer manufacturing activities from NMHG's Danville plant to its other
global manufacturing plants. The adoption of this plan resulted in a charge
to operations of approximately $13.9 million recognized in the 2000
Consolidated Statement of Operations and Comprehensive Income (Loss) on the
line "Restructuring charges." This charge was comprised of a $7.6 million
curtailment loss for pension and other post-retirement benefits, $4.0
million for employee severance to be paid to approximately 425 manufacturing
and office personnel, $2.2 million of asset impairment charges and $0.1
million for other costs.
As noted above, in connection with the phase-out of activities at the
Danville, Illinois, assembly plant, NMHG recognized an impairment charge of
$2.2 million in accordance with SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Fair
market value used in determining the impairment charge was estimated using
current market values for similar assets.
Final severance payments for the Danville restructuring program were made in
2002. During 2002 and 2001, respectively, payments of $2.1 million to
approximately 215 employees and $1.6 million to approximately 350 employees
were made. Approximately $2.0 million and $12.0 million of pre-tax costs
associated with the Danville phase-out, which were not eligible for accrual
as of December 31, 2000, were expensed during 2002 and 2001, respectively,
and classified as cost of sales in the 2002 and 2001 Consolidated Statements
of Operations and Comprehensive Income (Loss). In addition, the accrual for
restructuring was reduced by $0.4 million in 2001. Included in the table
below is $7.6 million for curtailment losses relating to pension and other
post-retirement benefits which will not be paid until employees reach
retirement age.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
The changes to the Company's restructuring accruals are as follows:
CURTAILMENT
LOSS - PENSION AND
OTHER
ASSET LEASE POST-RETIREMENT
SEVERANCE IMPAIRMENT IMPAIRMENT BENEFITS OTHER TOTAL
--------- ---------- ----------- -------- ----- -----
NMHG WHOLESALE
Balance at December 31, 1999......$ --- $ --- $ --- $ --- $ --- $ ---
Provision........................ 4.0 2.2 --- 7.6 0.1 13.9
Payments......................... --- --- --- --- --- ---
-------------- ----------- --------------- ---------- ------------ -----------
Balance at December 31, 2000...... 4.0 2.2 --- 7.6 0.1 13.9
Provision (reversal), net........ 4.2 --- --- --- (0.1) 4.1
Payments/assets disposed......... (2.9) (2.2) --- --- --- (5.1)
-------------- ----------- --------------- ---------- ------------ -----------
Balance at December 31, 2001...... 5.3 --- --- 7.6 --- 12.9
Foreign currency effect.......... 0.6 --- --- --- --- 0.6
Provision (reversal), net........ 7.6 3.8 --- --- 0.9 12.3
Payments......................... (4.2) --- --- --- --- (4.2)
-------------- ----------- --------------- ---------- ------------ -----------
BALANCE AT DECEMBER 31, 2002......$ 9.3 $ 3.8 $ --- $ 7.6 $ 0.9 $ 21.6
============= -========== ============== ========== ============ ===========
NMHG RETAIL
Balance at December 31, 2000 .....$ --- $ --- $ --- $ --- $ --- $ ---
Provision........................ 4.3 --- 0.4 --- --- 4.7
Payments......................... (0.4) --- --- --- --- (0.4)
-------------- ----------- --------------- ---------- ------------ -----------
Balance at December 31, 2001 ..... 3.9 --- 0.4 --- --- 4.3
Foreign currency effect.......... 0.1 --- --- --- --- 0.1
Payments......................... (2.5) --- (0.3) --- --- (2.8)
------------- ----------- ------------ ---------- ----------- ------------
BALANCE AT DECEMBER 31, 2002......$ 1.5 $ --- $ 0.1 $ --- $ --- $ 1.6
============= =========== ============ ========== =========== =============
OTHER TRANSACTION
In 2001, NMHG recognized income of $8.0 million classified in other income
(expense) in the Consolidated Statements of Operations and Comprehensive
Income (Loss) resulting from the receipt of insurance proceeds relating to
flood damage in September 2000 at NMHG's Sumitomo-NACCO joint venture in
Japan.
NOTE 4--ACQUISITIONS AND DISPOSITION
During 2001 and 2000, NMHG acquired either 100% of the stock or
substantially all of the assets of several forklift truck retail dealerships
and forklift truck rental businesses. The dealerships acquired were either
existing independent Hyster or Yale dealerships or were converted to Hyster
or Yale dealerships at the time of acquisition. The combined purchase prices
of the businesses acquired during 2001 and 2000 were approximately $3.9
million and $16.6 million, respectively. Funds for the purchases were
provided by either borrowings advanced to NMHG Retail by NMHG Wholesale
under previously existing NMHG Wholesale facilities or by internally
generated cash flows.
These acquisitions were accounted for as purchases and, accordingly, the
results of operations of the acquired businesses are included in the
accompanying financial statements from their respective dates of
acquisition.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
As a result of the acquisitions by NMHG, certain liabilities were assumed
as follows:
2001 2000
------- -------
Fair value of assets acquired ....................... $ 4.2 $ 49.1
Cash paid for the net assets, net of cash acquired .. (3.9) (16.6)
------- -------
Liabilities assumed ....................... $ 0.3 $ 32.5
======= =======
On a pro forma basis, as if the businesses had been acquired on January 1,
2001 and 2000, respectively, revenues and net income (loss) would not have
differed materially from the amounts reported in the accompanying
consolidated financial statements for 2001 and 2000.
In 2001, NMHG sold certain of its wholly owned dealers, which were included
in the segment NMHG Retail. This transaction resulted in initial proceeds
of approximately $8.0 million and a preliminary charge for the loss on the
sale of assets and related wind-down costs of $10.4 million, of which
approximately $2.1 million related to recognition in the Consolidated
Statement of Operations and Comprehensive Income (Loss) of amounts
previously reported in cumulative translation adjustment. During 2002,
revisions to the purchase price, as provided in the agreement to sell these
dealers, and an increase to certain wind-down costs, resulted in an
additional loss of $0.6 million. The agreement to sell these dealers
includes certain contingent obligations, which could result in the future
recognition of additional losses if events and circumstances change.
However, the Company believes that its reserves for these contingent
obligations, recognized in the Consolidated Balance Sheet at December 31,
2002, are adequate. Revenues for these sold dealers for each of the years
ended December 31, 2001 and 2000 were $45.1 million and $46.8 million,
respectively. Net losses for these sold dealers for each of the years ended
December 31, 2001 and 2000 were $18.2 million and $5.5 million,
respectively.
On January 3, 2003, NMHG sold substantially all of the assets and
liabilities of its sole wholly owned dealer in the U.S., which was included
in the segment NMHG Retail. In accordance with SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets," the assets and
liabilities sold (the "disposal group") have been reclassified as held for
sale in the Consolidated Balance Sheet at December 31, 2002 and written
down in 2002 to fair value, less cost to sell. The assets and liabilities
held for sale are included in the Consolidated Balance Sheet at December
31, 2002 in the captions, "prepaid expenses and other" and "other current
liabilities," respectively, and are not material. The loss recognized in
2002 as a result of the write-down to fair value, less cost to sell, of the
disposal group was not material to the operating results of the Company.
The Company does not expect any significant additional loss to be
recognized in 2003 as a result of this transaction.
NOTE 5--ACCOUNTS RECEIVABLE SECURITIZATION
On May 9, 2002 NMHG Wholesale terminated agreements with financial
institutions outside of the United States (the "Foreign Program") which
allowed for the sale, without recourse, of undivided interests in revolving
pools of its foreign trade accounts receivable. On December 5, 2001, NMHG
Wholesale's domestic accounts receivable securitization program (the "U.S.
Program") was terminated. Prior to their terminations, the transfer of
receivables pursuant to the U.S. and Foreign Programs were accounted for as
a sale in accordance with SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities - a
Replacement of FASB Statement No. 125." The U.S. Program's agreement to
sell an undivided percentage ownership interest in certain eligible
accounts receivable provided for recourse in the limited circumstance in
which NMHG granted a discount, credit or other adjustment to its customer
in resolution of disputes regarding the value of goods underlying the
account receivable sold. In that case, a compensating adjustment would have
been made to the counterparty.
As a result of the termination of both the U.S. and Foreign Programs, NMHG
Wholesale will rely on its debt agreements, as discussed in Note 9, to
finance accounts receivable that otherwise would have been sold under the
U.S. and Foreign Programs. On December 5, 2001, additional borrowings of
$33.4 million were used to finance the outstanding balance of accounts
receivable sold pursuant to the U.S. Program. The balance of accounts
receivable sold at December 31, 2001 was $27.7 million. Beginning in March
2002, accounts receivable sold of $20.8 million were effectively replaced
with debt financing, such that there were no accounts receivable sold on
the Foreign Program's termination date of May 9, 2002. As a result of the
termination of the U.S. and Foreign Programs, an increase in interest
expense arising from increased outstanding borrowings is expected to be
offset
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
by a decrease in the cost of the Programs, which is classified in the
Consolidated Statement of Operations and Comprehensive Income (Loss) as
other-net.
Gross proceeds of $88.0 million, $855.7 million, and $858.2 million were
received during 2002, 2001 and 2000, respectively, pursuant to the U.S. and
Foreign Programs. The discount and other transaction gains and losses are
included in other-net in the Consolidated Statements of Operations and
Comprehensive Income (Loss) and totaled $0.5 million, $4.7 million and $5.5
million in 2002, 2001 and 2000, respectively.
NOTE 6--INVENTORIES
Inventories are summarized as follows:
December 31
----------------------
2002 2001
------- -------
Manufactured inventories:
Finished goods and service parts ... $ 99.9 $ 99.6
Raw materials and work in process .. 110.3 111.4
------- -------
Total manufactured inventories ... 210.2 211.0
Retail inventories ................... 23.4 35.8
------- -------
Total inventories at FIFO ........ 233.6 246.8
LIFO reserve ......................... (11.6) (12.3)
------- -------
$ 222.0 $ 234.5
======= =======
The cost of certain manufactured and retail inventories, including service
parts, has been determined using the LIFO method. At December 31, 2002 and
2001, 64% and 68% of total inventories, respectively, were determined using
the LIFO method.
NOTE 7--PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net includes the following:
December 31
---------------------
2002 2001
------- -------
Land and land improvements ......................... $ 13.5 $ 15.8
Plant and equipment:
NMHG Wholesale ................................... 409.4 413.2
NMHG Retail ...................................... 101.6 109.1
------- -------
511.0 522.3
Property, plant and equipment, at cost ............. 524.5 538.1
Less allowances for depreciation and amortization .. 282.4 257.6
------- -------
$ 242.1 $ 280.5
======= =======
Total depreciation and amortization expense on property, plant and
equipment was $40.2 million, $47.0 million and $41.9 million during 2002,
2001 and 2000, respectively.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
NOTE 8--GOODWILL AND INTANGIBLE ASSETS
As discussed further in Note 2, on January 1, 2002, the Company adopted
SFAS No. 142, "Goodwill and Other Intangible Assets." In accordance with
this Statement, the Company discontinued amortization of its goodwill
effective January 1, 2002. The amortization periods of the Company's other
intangible assets were not revised as a result of the adoption of this
Statement. Adjusted net income (loss), assuming the adoption of this
Statement in prior years, is as follows:
Year ended December 31
----------------------------------
2002 2001 2000
------- ------- -------
Reported net income (loss) before
cumulative effect of accounting
changes................................... $ 12.3 $ (48.1) $ 21.3
Add back goodwill amortization, net of tax ... -- 12.9 12.6
------- ------- -------
Adjusted income (loss) before
cumulative effect of accounting changes .. $ 12.3 $ (35.2) $ 33.9
======= ======= =======
Reported net income (loss) .................... $ 12.3 $ (49.4) $ 21.3
Add back goodwill amortization, net of tax ... -- 12.9 12.6
------- ------- -------
Adjusted net income (loss) .................... $ 12.3 $ (36.5) $ 33.9
======= ======= =======
The process to test goodwill for impairment included an allocation of
goodwill among the Company's reporting units. As a result of this
allocation process, $40.3 million of goodwill that was previously reported
in the Company's reportable segment, NMHG Retail, was reallocated to NMHG
Wholesale. This reallocation was primarily based on an analysis of the
synergy benefits that arose as a result of the acquisitions of the retail
dealerships.
Following is a summary of the changes in goodwill during the year ended
December 31, 2002:
CARRYING AMOUNT OF GOODWILL
-------------------------------------
NMHG NMHG NMHG
WHOLESALE RETAIL CONSOLIDATED
--------- ------ ------------
Balance at December 31, 2001 ............. $304.6 $ 39.6 $344.2
Reclassification to other intangibles .. -- (1.8) (1.8)
Reallocation between segments .......... 40.3 (40.3) --
Impairment of investment ............... (1.6) -- (1.6)
Foreign currency translation ........... 0.4 2.5 2.9
------ ------ ------
BALANCE AT DECEMBER 31, 2002 ............. $343.7 $ -- $343.7
====== ====== ======
During 2002, $1.8 million that was previously preliminarily classified as
goodwill relating to an acquisition of a retail dealership in 2001 was
reclassified to other intangibles upon finalization of the purchase price
allocation.
During 2002, NMHG Wholesale recognized an impairment charge of $1.6 million
relating to the goodwill associated with the 2000 acquisition of a 25%
interest in QFS. Prior to its sale in December 2002, this investment was
accounted for using the equity method. As such, the impairment of the
goodwill relating to this investment was recognized in accordance with APB
Opinion No. 18, "The Equity Method of Accounting for Investments in Common
Stock," as an other than temporary impairment in the value of the
investment. The impairment charge is recognized in the 2002 Consolidated
Statement of Operations and Comprehensive Income (Loss) on the line "Income
(loss) from unconsolidated affiliates."
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
The balance of other intangible assets, which continue to be subject to
amortization, is as follows:
December 31
---------------------
2002 2001
------- -------
Gross Carrying Amount ............................................ $ 2.2 $ --
Less: Accumulated Amortization ................................... 0.5 --
------- -------
Net Balance ........................................ $ 1.7 $ --
======= =======
Expected annual amortization expense of other intangible assets is $0.3
million for each of the five years from 2003 through 2007. The weighted
average amortization period for other intangible assets is 12 years.
NOTE 9--CURRENT AND LONG-TERM FINANCING
The following table summarizes the Company's available and outstanding
borrowings under revolving credit agreements and long-term debt.
December 31
---------------------
2002 2001
------- -------
Total outstanding borrowings:
Revolving credit agreements ...................................... $ 31.3 $ 301.2
Capital lease obligations and other term loans ................... 46.4 53.2
Senior Notes ..................................................... 247.1 --
------- -------
Total debt outstanding ................................... $ 324.8 $ 354.4
======= =======
Current portion of borrowings outstanding ........................ $ 51.3 $ 326.7
Long-term portion of borrowings outstanding ...................... $ 273.5 $ 27.7
December 31
---------------------
2002 2001
------- -------
Total available borrowings, net of limitations, under revolving
credit agreements .............................................. $ 155.6 $ 450.5
======= =======
Unused revolving credit agreements ............................... $ 124.3 $ 149.3
======= =======
Weighted average stated interest rate on total borrowings ........ 9.2% 2.8%
======= =======
Weighted average effective interest rate on total borrowings
(including interest rate swap agreements) ..................... 9.2% 5.8%
======= =======
Annual maturities of total debt, excluding capital leases are as follows:
$32.2 million in 2003, $6.3 million in 2004, $10.9 million in 2005 and
$250.0 million subsequent to 2007. The 2005 maturities include $5.2 million
due in 2005 under the new revolving credit facility, which is included in
current revolving credit agreements in the Consolidated Balance Sheet at
December 31, 2002, due to the Company's expectation of repaying this
balance within the next 12 months. Interest paid on total debt was $29.0
million, $25.4 million and $19.8 million during 2002, 2001 and 2000,
respectively. Interest capitalized was $0.8 million in 2001.
On May 9, 2002, NMHG replaced its primary financing agreement, an unsecured
floating-rate revolving line of credit with availability of up to $350.0
million, certain other lines of credit with availability of $28.6 million
and a program to sell accounts receivable in Europe, with the proceeds from
the sale of $250.0 million of unsecured 10% Senior Notes due 2009 and
borrowings under a secured, floating-rate revolving credit facility which
expires in May 2005. The proceeds from the Senior Notes were reduced by an
original issue discount of $3.1 million resulting in an effective interest
rate of 10.1%.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
Availability under the new revolving credit facility is up to $175.0
million and is governed by a borrowing base derived from advance rates
against the inventory and accounts receivable of the "borrowers," as
defined in the new revolving credit 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
facility. The borrowers include NMHG Holding Co. and certain domestic and
foreign subsidiaries of NMHG Holding Co. Borrowings bear interest at a
floating rate, which can be either a base rate or LIBOR, as defined, plus
an applicable margin. The current applicable margins, effective through
December 31, 2002, for base rate loans and LIBOR loans are 2.0% and 3.0%,
respectively. The new revolving credit facility also requires a fee of 0.5%
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, 2002, the borrowing base under the new revolving credit
facility was $112.7 million, which has been reduced by the commitments or
availability under certain foreign credit facilities and an excess
availability requirement of $15.0 million. Borrowings outstanding under
this facility were $5.2 million at December 31, 2002. Therefore, at
December 31, 2002, the excess availability under the new revolving credit
facility was $107.5 million.
The domestic floating rate of interest applicable to this facility on
December 31, 2002 was 6.25%, including the applicable floating rate margin.
The new revolving credit facility includes a subfacility for foreign
borrowers which can be denominated in British pounds sterling or euros.
Included in the borrowing capacity is a $15.0 million overdraft facility
available to foreign borrowers. At December 31, 2002, there were no
borrowings outstanding under these foreign subfacilities. The new revolving
credit facility is guaranteed by certain domestic and foreign subsidiaries
of NMHG Holding Co. and is secured by substantially all of the assets,
other than property, plant and equipment, of the borrowers and guarantors,
both domestic and foreign, under the facility.
The terms of the new revolving credit facility provide that availability is
reduced by the commitments or availability under a foreign credit facility
of the borrowers and certain foreign working capital facilities. A foreign
credit facility commitment of approximately U.S. $18.9 million on December
31, 2002, denominated in Australian dollars, reduced the amount of
availability under the new revolving credit facility. In addition,
availability under the new revolving credit facility was reduced by $5.5
million for a working capital facility in China and by $3.7 million for
other letters of credit. If the commitments or availability under these
facilities are increased, availability under the new revolving credit
facility will be reduced. The $112.7 million of borrowing base capacity
under the new revolving credit facility at December 31, 2002 reflected
reductions for these foreign credit facilities.
The $250.0 million of 10% Senior Notes mature on May 15, 2009. The Senior
Notes are senior unsecured obligations of NMHG Holding Co. and are
guaranteed by substantially all of NMHG's domestic subsidiaries. NMHG
Holding Co. has the option to redeem all or a portion of the Senior Notes
on or after May 15, 2006 at the redemption prices set forth in the
Indenture governing the Senior Notes.
Both the new revolving credit facility and terms of the Senior Notes
include restrictive covenants which, among other things, limit the payment
of dividends to NACCO. The new revolving credit facility also requires 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. The borrowers must maintain
aggregate excess availability under the new revolving credit facility of at
least $15.0 million. At December 31, 2002, NMHG was in compliance with all
covenants.
NMHG paid financing fees of approximately $15.7 million related to this
refinancing. These fees were deferred and are being amortized as interest
expense in the Consolidated Statement of Operations and Comprehensive
Income (Loss) over the respective terms of the new financing facilities.
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
NOTE 10--FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
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 were determined using current rates offered for similar
obligations. At December 31, 2002, the fair market value of revolving
credit agreements and long-term debt exceeded the book value by
approximately $7.9 million. At December 31, 2001, the fair market value of
revolving credit agreements and long-term debt approximated carrying
values.
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. 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.
DERIVATIVE FINANCIAL INSTRUMENTS
FOREIGN CURRENCY DERIVATIVES: NMHG held forward foreign currency exchange
contracts with a total notional amount of $107.5 and $101.6 million at
December 31, 2002 and 2001, primarily denominated in euros, British pounds
sterling, Japanese yen, Canadian dollars, Australian dollars and Mexican
pesos. The fair market value of these contracts was estimated based on
quoted market prices and approximated a net asset of $3.2 million and a net
liability of $0.8 million at December 31, 2002 and 2001, respectively.
For the years ended December 31, 2002 and 2001, there was no
ineffectiveness of forward foreign currency exchange contracts that would
have resulted in recognition in the Consolidated Statement of Operations
and Comprehensive Income (Loss). Forward foreign currency exchange
contracts are used to hedge transactions expected to occur within the next
12 months. Based on market valuations at December 31, 2002, the amount of
net deferred gain included in OCL at December 31, 2002 of $0.6 million is
expected to be reclassified into the Consolidated Statement of Operations
and Comprehensive Income (Loss) over the next 12 months, as those
transactions occur.
INTEREST RATE DERIVATIVES: As a result of the refinancing of NMHG's
floating-rate revolving credit facility in 2002, NMHG terminated all of its
interest rate swap agreements in 2002. In addition to its active swaps,
NMHG had certain interest rate swap agreements with dates that began
subsequent to December 31, 2001 ("delayed-start" agreements). These
interest rate swap agreements were intended to replace agreements that were
active as of December 31, 2001, but expired in the near term. The notional
amount of these delayed-start agreements was $110.0 million at December 31,
2001. In 2002, NMHG terminated all active and delayed-start interest rate
swap agreements which had a total notional amount of $285.0 million and a
total net payable balance of $11.5 million at the respective dates of
termination. Prior to the refinancing, however, certain of these interest
rate swap agreements qualified for hedge accounting treatment in accordance
with SFAS No. 133. As such, the mark-to-market effect of these interest
rate swap agreements was previously recognized in OCL.
Prior to the cessation of hedge accounting resulting from the May 9, 2002
refinancing, the balance in OCL for NMHG's interest rate swap agreements
that qualified for hedge accounting was a pre-tax loss of $4.2 million
($2.6 million after-tax). This balance is being amortized into the
Consolidated Statement of Operations and Comprehensive Income (Loss) over
the original remaining lives of the terminated interest rate swap
agreements in accordance with the provisions of SFAS No. 133, as amended.
The amount of amortization of accumulated other comprehensive income (loss)
included in the Consolidated Statement of Operations and Comprehensive
Income (Loss) on the line "Losses on interest rate swap agreements" during
2002 was a pre-tax expense of $2.5 million.
The mark-to-market effect of the interest rate swap agreements that was
included in the Consolidated Statement of Operations and Comprehensive
Income (Loss) because these derivatives did not qualify for hedge
accounting treatment was a pre-tax expense of $3.2 million and $1.4 million
for the years ended December 31, 2002 and
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
2001, respectively. These charges are included on the line, "Losses on
interest rate swap agreements" in the Consolidated Statement of Operations
and Comprehensive Income (Loss).
The notional amounts on interest rate swap agreements active at December
31, 2001 was $225.0 million with an average fixed rate (including
applicable margins) of 5.8% and terms that varied from one-year to
seven-year periods from inception. The fair market value of all interest
rate swap agreements, which was based on quotes obtained from the Company's
counterparties, was a net payable of $10.7 million at December 31, 2001.
NOTE 11--LEASING ARRANGEMENTS
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 2011. NMHG Retail
also leases certain forklift trucks that are carried in its rental fleet or
subleased to customers. Many leases include renewal and/or purchase
options.
Future minimum capital and operating lease payments at December 31, 2002
are:
Capital Operating
Leases Leases
------- ---------
2003 ......................................... $ 14.8 $ 40.7
2004 ......................................... 8.7 30.4
2005 ......................................... 5.2 21.4
2006 ......................................... 1.9 14.1
2007 ......................................... 0.2 7.7
Subsequent to 2007 ........................... -- 4.3
------ ------
Total minimum lease payments ................. 30.8 $118.6
======
Amounts representing interest ................ 2.5
------
Present value of net minimum lease payments .. 28.3
Current maturities ........................... 13.9
------
Long-term capital lease obligation ........... $ 14.4
======
Aggregate future minimum rentals to be received under noncancellable
subleases of forklift trucks as of December 31, 2002 are $148.9 million.
Rental expense for all operating leases was $39.4 million, $30.3 million
and $20.2 million for 2002, 2001 and 2000, respectively. The Company also
recognized $61.7 million, $45.5 million and $10.4 million for 2002, 2001
and 2000, 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 the Company derives revenue 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 and Comprehensive Income (Loss) for each period.
Assets recorded under capital leases are included in property, plant and
equipment and consist of the following:
December 31
---------------------
2002 2001
------- -------
Plant and equipment $ 71.2 $ 60.8
Less accumulated amortization 36.4 26.3
------- -------
$ 34.8 $ 34.5
======= =======
During 2001 and 2000, capital lease obligations of $5.4 million and $22.3
million, respectively, were incurred in connection with lease agreements to
acquire plant and equipment.
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
NOTE 12--GUARANTEES AND CONTINGENCIES
Various legal and regulatory proceedings and claims have been or may be
asserted against the Company relating to the conduct of its business,
including product liability, environmental and other claims. These
proceedings are incidental to the ordinary course of business of the
Company. Management believes that it has meritorious defenses and will
vigorously defend itself 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.
Under various financing arrangements for certain customers, including
independently owned retail dealerships, NMHG provides guarantees of the
residual values of the lift trucks, or 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 the Company is
providing a guarantee generally range from one to five years. Total
guarantees and amounts subject to recourse or repurchase obligations at
December 31, 2002 and 2001 were $153.6 million and $158.7 million,
respectively. Losses anticipated under the terms of the guarantees,
recourse or repurchase obligations are not significant and have been
reserved for in the accompanying Consolidated Financial Statements.
Generally, NMHG retains a security interest in the related assets financed
such that, in the event that 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, 2002 was
approximately $157.5 million, based on Company estimates. See also Note 17
for discussion of these guarantees provided to related parties.
NMHG provides a standard warranty on its forklift trucks, generally for six
to twelve months or 1,000 to 2,000 hours. In addition, NMHG sells extended
warranty agreements which provide additional warranty up to three to five
years or up to 3,600 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. The Company estimates the costs that may be
incurred under its warranty programs, both standard and extended, and
records a liability for such costs at the time product revenue is
recognized. In addition, revenue received for the sale of extended warranty
contracts is deferred and recognized in the same manner as the costs to
perform under the warranty contracts, in accordance with FASB Technical
Bulletin 90-1, "Accounting for Separately Priced Extended Warranty and
Product Maintenance Contracts." 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. The Company periodically
assesses the adequacy of its recorded warranty liabilities and adjusts the
amounts as necessary.
Changes in the Company's current and long-term warranty obligations,
including deferred revenue on extended warranty contracts, during the year
are as follows:
Balance at December 31, 2001 $43.9
Warranty accruals 28.9
Warranty payments (30.9)
-----
BALANCE AT DECEMBER 31, 2002 $41.9
=====
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
NOTE 13--INCOME TAXES
The Company is included in the consolidated federal income tax return filed
by NACCO. The Company's tax-sharing agreement with NACCO provides that
federal income taxes are computed by the Company on a separate-return
basis, except that net operating loss and tax credit carryovers that
benefit the consolidated tax return are advanced to the Company and are
repaid as utilized on a separate-return basis. To the extent that these
carryovers are not used on a separate-return basis, the Company is
required, under conditions pursuant to the tax-sharing agreement, to refund
to NACCO the balance of carryovers advanced and not used by the Company.
The components of income (loss) before income taxes and provision for
income taxes for the year ended December 31 are as follows:
2002 2001 2000
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES
Domestic .............................................. $ 0.1 $ (19.3) $ 45.5
Foreign ............................................... 9.7 (44.1) (7.9)
------- ------- -------
$ 9.8 $ (63.4) $ 37.6
======= ======= =======
INCOME TAX PROVISION (BENEFIT)
Current tax provision (benefit):
Federal .......................................... $ (11.2) $ (3.3) $ 22.1
State ............................................ (1.6) (0.5) 4.7
Foreign .......................................... 7.6 0.7 1.6
------- ------- -------
Total current ............................... (5.2) (3.1) 28.4
------- ------- -------
Deferred tax provision (benefit):
Federal .......................................... 3.3 0.8 (3.0)
State ............................................ 2.0 (0.3) (0.9)
Foreign .......................................... (1.2) (17.4) (4.0)
------- ------- -------
Total deferred .............................. 4.1 (16.9) (7.9)
------- ------- -------
Increase (decrease) in valuation allowance ............ (0.2) 5.5 (3.1)
------- ------- -------
$ (1.3) $ (14.5) $ 17.4
======= ======= =======
Substantially all of the Company's interest expense and goodwill
amortization expense in 2001 and 2000 has been allocated to domestic income
(loss) before income taxes.
The Company made income tax payments of $12.2 million, $22.7 million and
$34.6 million during 2002, 2001 and 2000, respectively. During the same
period, income tax refunds totaled $29.9 million, $6.6 million and $6.9
million, respectively.
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
A reconciliation of the federal statutory and effective income tax for the
year ended December 31 is as follows:
2002 2001 2000
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES ......... $ 9.8 $ (63.4) $ 37.6
======= ======= =======
Statutory taxes at 35.0% .............................. $ 3.4 $ (22.2) $ 13.2
Valuation allowance .............................. (0.2) 5.5 (2.3)
Amortization of goodwill ......................... -- 4.3 4.1
Foreign statutory rate differences ............... (0.6) 0.2 --
Tax credits and capital grants ................... (0.3) (0.4) (0.7)
State income taxes ............................... 0.3 (0.3) 2.3
Tax controversy resolution ....................... (2.6) -- --
Export benefits .................................. (0.4) (0.5) (1.0)
Other-net ........................................ (0.9) (1.1) 1.8
------- ------- -------
Income tax provision (benefit) ........................ $ (1.3) $ (14.5) $ 17.4
======= ======= =======
Effective rate ........................................ (13.3)% 22.9% 46.3%
======= ======= =======
The Company does not provide for deferred taxes on certain unremitted
foreign earnings. Management has decided that earnings of the Company's
foreign subsidiaries have been and will be indefinitely reinvested in the
Company's foreign operations and, therefore, the recording of deferred tax
liabilities for unremitted foreign earnings is not required. As of December
31, 2002, the cumulative unremitted earnings of the Company's foreign
subsidiaries are $179.6 million. It is impracticable to determine the
amount of unrecognized deferred taxes with respect to these 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
--------------------
2002 2001
------- -------
DEFERRED TAX ASSETS
Accrued expenses and reserves .................... $ 60.6 $ 63.9
Accrued pension benefits ......................... 18.8 9.7
Tax attribute carryforwards ...................... 18.3 16.1
Employee benefits ................................ 12.3 12.2
------- -------
Total deferred tax assets ..................... 110.0 101.9
Less: Valuation allowance .................... 9.9 10.1
------- -------
$ 100.1 $ 91.8
------- -------
DEFERRED TAX LIABILITIES
Depreciation and amortization .................... $ 22.4 $ 24.1
Inventories ...................................... 11.5 9.4
Other ............................................ 12.4 9.7
------- -------
Total deferred tax liabilities ............... 46.3 43.2
------- -------
Net deferred tax asset ................... $ 53.8 $ 48.6
======= =======
The Company periodically reviews the need for a valuation allowance against
deferred tax assets and recognizes these assets to the extent that
realization is more likely than not. Based on a review of earnings history
and trends, forecasted earnings and expiration of carryforwards, the
Company believes that the valuation allowance provided is appropriate. At
December 31, 2002, the Company had $6.4 million of net operating loss
carryforwards which expire, if unused, in years 2003 through 2022 and $10.1
million which are not subject to expiration. Additionally, at December 31,
2002, the Company had $1.7 million of capital loss carryforwards, which
expire if unused in 2007. The Company has $0.1 million of foreign tax
credit carryforwards, which will expire, if unused, in 2005 and 2006.
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
The tax returns of the Company and certain of its subsidiaries are being
examined by various taxing authorities. The Company has not been informed
of any material assessment resulting from these examinations and will
vigorously contest any material assessment. Management believes that any
potential adjustment would not materially affect the Company's financial
condition or results of operations.
NOTE 14--RETIREMENT AND OTHER POST-RETIREMENT BENEFIT PLANS
DEFINED BENEFIT PLANS: The Company participates in the combined defined
benefit plan of NACCO for certain employee groups. The Company also
maintains a defined benefit plan for those employees who are covered under
collective bargaining agreements. 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,
investment contracts and government and corporate bonds.
In 1996, pension benefits were frozen for employees covered under NMHG's
United States plans, except for those NMHG employees participating in
collective bargaining agreements. As a result, in the United States only
certain NMHG employees covered under collective bargaining agreements will
earn retirement benefits under defined benefit pension plans. Other
employees of the Company, including NMHG employees whose pension benefits
were frozen as of December 31, 1996, will receive retirement benefits under
defined contribution retirement plans.
In 2000, as a result of management's decision to phase out certain
manufacturing activities in the NMHG Danville, Illinois, assembly plant,
the Company recognized a curtailment loss of $7.6 million pursuant to
defined benefit pension and other post-retirement benefit plans. See also
Note 3.
Set forth below is a detail of the net periodic pension (income) expense
and the assumptions used in accounting for the United States and the United
Kingdom defined benefit plans for the years ended December 31:
2002 2001 2000
-------- -------- --------
UNITED STATES PLANS
Service cost ........................................ $ 0.1 $ 0.1 $ 0.5
Interest cost ....................................... 4.2 4.2 3.5
Expected return on plan assets ...................... (4.9) (5.3) (4.8)
Net amortization and deferral ....................... 0.6 0.4 0.4
Curtailment loss .................................... -- -- 5.1
-------- -------- --------
Net periodic pension (income) expense .......... $ -- $ (0.6) $ 4.7
======== ======== ========
Assumptions:
Weighted average discount rates ................ 6.75% 7.50% 8.00%
Rate of increase in compensation levels ........ 3.75% 3.75% 4.25%
Expected long-term rate of return on assets .... 9.00% 9.00% 9.00%
UNITED KINGDOM PLAN
Service cost ........................................ $ 1.8 $ 2.0 $ 2.0
Interest cost ....................................... 3.7 3.2 3.0
Expected return on plan assets ...................... (5.6) (5.2) (4.3)
Amortization of transition asset .................... (0.1) (0.1) (0.1)
Amortization of prior service cost .................. 0.1 0.1 0.1
Recognized actuarial (gain) loss .................... 0.1 (0.5) (0.4)
-------- -------- --------
Net periodic pension (income) expense .......... $ -- $ (0.5) $ 0.3
======== ======== ========
Assumptions:
Weighted average discount rates .............. 5.75% 6.25% 6.75%
Rate of increase in compensation levels ...... 3.50% 3.75% 4.25%
Expected long-term rate of return on assets .. 9.00% 9.00% 9.00%
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
The following sets forth the changes in the benefit obligation and the plan
assets during the year and reconciles the funded status of the defined
benefit plans with the amounts recognized in the Consolidated Balance
Sheets at December 31:
2002 2001
------------------- --------------------
UNITED UNITED United United
STATES KINGDOM States Kingdom
PLANS PLAN Plans Plan
------ ------- ------ -------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year ......... $ 57.0 $ 57.6 $54.7 $49.7
Service cost .................................... 0.1 1.8 0.1 2.0
Interest cost ................................... 4.2 3.7 4.2 3.2
Actuarial (gain) loss ........................... 7.7 3.9 1.9 5.5
Benefits paid ................................... (4.9) (2.8) (3.9) (1.4)
Foreign currency exchange rate changes .......... -- 6.7 -- (1.4)
------ ------ ----- -----
Benefit obligation at end of year .......... $ 64.1 $ 70.9 $57.0 $57.6
====== ====== ===== =====
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year .. $ 49.0 $ 49.9 $60.9 $65.2
Actual return on plan assets .................... (1.9) (8.6) (8.0) (14.0)
Employer contributions .......................... 1.2 1.8 -- 1.5
Employee contributions .......................... -- 0.5 -- 0.5
Benefits paid ................................... (4.9) (2.8) (3.9) (1.4)
Foreign currency exchange rate changes .......... -- 4.7 -- (1.9)
------ ------ ----- -----
Fair value of plan assets at end of year ... $ 43.4 $ 45.5 $49.0 $49.9
====== ====== ===== =====
NET AMOUNT RECOGNIZED
Obligation in excess of plan assets ............. $(20.7) $(25.4) $(8.0) $(7.7)
Unrecognized prior service cost ................. -- 0.6 0.3 0.7
Unrecognized actuarial loss ..................... 25.2 40.1 11.0 19.1
Unrecognized net transition asset ............... -- (0.2) -- (0.2)
Contributions in fourth quarter ................. -- 0.2 -- 0.3
------ ------ ----- -----
Net amount recognized ...................... $ 4.5 $ 15.3 $ 3.3 $12.2
====== ====== ===== =====
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE
SHEETS CONSIST OF:
Prepaid benefit cost ........................... $ 6.2 $ -- $ 5.1 $ --
Accrued benefit liability ...................... (19.4) (21.8) (8.9) (5.6)
Intangible asset ............................... 0.2 0.6 0.3 0.7
Accumulated other comprehensive income ......... 10.8 21.1 4.2 10.6
Deferred tax asset ............................. 6.7 13.9 2.6 6.5
Foreign currency exchange rate changes ......... -- 1.5 -- --
------ ------ ----- -----
Net amount recognized ..................... $ 4.5 $ 15.3 $ 3.3 $12.2
====== ====== ===== =====
During 2002, 2001 and 2000, other comprehensive loss in the Consolidated
Statements of Operations and Comprehensive Income (Loss) includes $17.1
million, $13.4 million, and $1.4 million, respectively, net of tax,
resulting from changes in the minimum pension liability adjustments, which
were determined in accordance with SFAS No. 87, "Employers' Accounting for
Pensions." The minimum pension liability adjustment, which is a component
of accumulated other comprehensive loss in the stockholder's equity section
of the Consolidated Balance Sheet, represents the net loss not yet
recognized as net periodic pension cost determined by an actuarial
calculation of the funded status of the pension plan at the end of each
measurement period.
The increase in the 2002 accrued benefit liability as compared with the
2001 accrued benefit liability is due to both a decrease in discount rates,
which increased the benefit obligation in 2002, and a decrease in the fair
value of the plan's assets in 2002.
POST-RETIREMENT HEALTH CARE AND LIFE INSURANCE: The Company also maintains
health care and life insurance plans which provide benefits to eligible
retired employees. The Company funds these benefits on a "pay as you go"
basis, with the retirees paying a portion of the costs.
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
The assumed health care cost trend rate for measuring the post-retirement
benefit cost was 9.0% in 2002 and 10.0% in 2001, gradually reducing to 5.0%
through years 2010 and after. If the assumed health care cost trend rate
was increased or decreased by one percentage point, the effect would be to
increase or decrease the Accumulated Post-retirement Benefit Obligation by
approximately $0.1 million.
Set forth below is a detail of the net periodic (income) expense and the
assumptions used in accounting for the post-retirement health care and life
insurance plans for the year ended December 31:
2002 2001 2000
-------- -------- --------
Service cost .......................... $ 0.1 $ 0.1 $ 0.1
Interest cost ......................... 0.7 0.8 0.6
Recognized actuarial (gain) loss ...... (0.9) (0.1) 1.5
Termination benefits .................. (0.1) -- --
Curtailment loss ...................... -- -- 2.5
-------- -------- --------
Net periodic (income) expense .... $ (0.2) $ 0.8 $ 4.7
======== ======== ========
Assumptions:
Weighted average discount rates .. 6.75% 7.50% 8.00%
The following sets forth the changes in benefit obligations and reconciles
the funded status of the post-retirement health care and life insurance
plans with the amounts recognized in the Consolidated Balance Sheets at
December 31:
2002 2001
------- -------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year ....................................... $ 10.5 $ 11.2
Service cost .................................................................. 0.1 0.1
Interest cost ................................................................. 0.7 0.8
Actuarial (gain) loss ......................................................... (0.9) (0.1)
Termination benefits .......................................................... 0.2 --
Curtailment loss .............................................................. (0.3) --
Benefits paid ................................................................. (1.8) (1.5)
------- -------
Benefit obligation recognized in the Consolidated Balance Sheet at end
of year .............................................................. $ 8.5 $ 10.5
======= =======
DEFINED CONTRIBUTION PLANS: The Company has defined contribution (401(k))
plans for substantially all U.S. employees and similar plans for employees
outside of the U.S. NMHG matches employee contributions based on plan
provisions. In addition, NMHG has defined contribution retirement plans
whereby the contribution to participants is determined annually based on a
formula which includes the effect of actual compared to targeted operating
results and the age and compensation of the participants. Total costs,
including Company contributions, for these plans were $5.8 million, $12.7
million and $14.2 million in 2002, 2001 and 2000, respectively. The
decrease in 2002 was primarily the result of suspending 401(k)
employer-match contributions for a portion of 2002.
NOTE 15--BUSINESS SEGMENTS
Financial information for each of NMHG's reportable segments, as defined by
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is presented in the following table. See Note 1 for a
discussion of the Company's operating segments and product lines.
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 amount of these revenues, which are based on current
market prices on similar third-party transactions, are indicated in the
following table on the line "NMHG Eliminations" in the revenues section.
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
2002 2001 2000
-------- -------- --------
REVENUES FROM EXTERNAL CUSTOMERS
NMHG Wholesale ........................................ $1,416.2 $1,463.3 $1,750.0
NMHG Retail ........................................... 241.0 298.8 280.3
NMHG Eliminations ..................................... (68.8) (89.7) (98.2)
-------- -------- --------
$1,588.4 $1,672.4 $1,932.1
======== ======== ========
GROSS PROFIT
NMHG Wholesale ........................................ $ 241.7 $ 189.9 $ 292.9
NMHG Retail ........................................... 49.9 54.8 54.1
NMHG Eliminations ..................................... 2.1 4.9 0.5
-------- -------- --------
$ 293.7 $ 249.6 $ 347.5
======== ======== ========
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
NMHG Wholesale ........................................ $ 182.8 $ 179.9 $ 188.9
NMHG Retail ........................................... 55.8 84.7 69.8
NMHG Eliminations ..................................... (1.8) (2.2) (0.9)
-------- -------- --------
$ 236.8 $ 262.4 $ 257.8
======== ======== ========
AMORTIZATION OF GOODWILL
NMHG Wholesale ........................................ $ -- $ 11.4 $ 11.6
NMHG Retail ........................................... -- 1.5 1.0
-------- -------- --------
$ -- $ 12.9 $ 12.6
======== ======== ========
OPERATING PROFIT (LOSS)
NMHG Wholesale ........................................ $ 46.6 $ (5.5) $ 78.5
NMHG Retail ........................................... (7.1) (46.5) (16.7)
NMHG Eliminations ..................................... 3.9 7.1 1.4
-------- -------- --------
$ 43.4 $ (44.9) $ 63.2
======== ======== ========
OPERATING PROFIT (LOSS) EXCLUDING GOODWILL AMORTIZATION
NMHG Wholesale ........................................ $ 46.6 $ 5.9 $ 90.1
NMHG Retail ........................................... (7.1) (45.0) (15.7)
NMHG Eliminations ..................................... 3.9 7.1 1.4
-------- -------- --------
$ 43.4 $ (32.0) $ 75.8
======== ======== ========
INTEREST EXPENSE
NMHG Wholesale ........................................ $ (25.9) $ (12.9) $ (13.4)
NMHG Retail ........................................... (3.1) (5.0) (4.6)
NMHG Eliminations ..................................... (4.9) (5.2) (3.2)
-------- -------- --------
$ (33.9) $ (23.1) $ (21.2)
======== ======== ========
INTEREST INCOME
NMHG Wholesale ........................................ $ 3.3 $ 3.4 $ 2.2
NMHG Retail ........................................... 0.1 0.2 0.1
NMHG Eliminations ..................................... -- -- --
-------- -------- --------
$ 3.4 $ 3.6 $ 2.3
======== ======== ========
OTHER-NET, INCOME (EXPENSE) - (EXCLUDING INTEREST INCOME)
NMHG Wholesale ........................................ $ (4.5) $ 0.8 $ (6.8)
NMHG Retail ........................................... 1.4 0.2 0.2
NMHG Eliminations ..................................... -- -- (0.1)
-------- -------- --------
$ (3.1) $ 1.0 $ (6.7)
======== ======== ========
INCOME TAX PROVISION (BENEFIT)
NMHG Wholesale ........................................ $ (0.8) $ (0.6) $ 24.6
NMHG Retail ........................................... (0.2) (14.6) (6.7)
NMHG Eliminations ..................................... (0.3) 0.7 (0.5)
-------- -------- --------
$ (1.3) $ (14.5) $ 17.4
======== ======== ========
NET INCOME (LOSS)
NMHG Wholesale ........................................ $ 21.5 $ (14.1) $ 37.0
NMHG Retail ........................................... (8.5) (36.5) (14.3)
NMHG Eliminations ..................................... (0.7) 1.2 (1.4)
-------- -------- --------
$ 12.3 $ (49.4) $ 21.3
======== ======== ========
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
2002 2001 2000
-------- -------- --------
TOTAL ASSETS
NMHG Wholesale ............................... $1,070.7 $1,164.9 $1,167.2
NMHG Retail .................................. 187.7 215.6 232.8
NMHG Eliminations ............................ (54.9) (175.4) (158.3)
-------- -------- --------
$1,203.5 $1,205.1 $1,241.7
======== ======== ========
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE
NMHG Wholesale ............................... $ 29.4 $ 47.0 $ 40.6
NMHG Retail .................................. 11.1 13.4 14.0
-------- -------- --------
$ 40.5 $ 60.4 $ 54.6
======== ======== ========
CAPITAL EXPENDITURES
NMHG Wholesale ............................... $ 12.1 $ 46.6 $ 43.3
NMHG Retail .................................. 4.0 6.9 8.5
-------- -------- --------
$ 16.1 $ 53.5 $ 51.8
======== ======== ========
DATA BY GEOGRAPHIC AREA
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.
Europe,
United Africa and
States Middle East Other Consolidated
-------- ----------- -------- ------------
2002
- -------------------------------
REVENUES FROM UNAFFILIATED
CUSTOMERS, BASED ON THE
CUSTOMERS' LOCATION $ 867.2 $ 452.0 $ 269.2 $1,588.4
======== ======== ======== ========
LONG-LIVED ASSETS $ 438.4 $ 116.1 $ 65.8 $ 620.3
======== ======== ======== ========
2001
- -------------------------------
Revenues from unaffiliated
customers, based on the
customers' location $ 934.5 $ 470.7 $ 267.2 $1,672.4
======== ======== ======== ========
Long-lived assets $ 367.9 $ 184.8 $ 90.1 $ 642.8
======== ======== ======== ========
2000
- -------------------------------
Revenues from unaffiliated
customers, based on the
customers' location $1,413.1 $ 372.4 $ 146.6 $1,932.1
======== ======== ======== ========
Long-lived assets $ 381.8 $ 199.1 $ 89.1 $ 670.0
======== ======== ======== ========
F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
NOTE 16--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
A summary of the unaudited quarterly results of operations for the year
ended December 31 is as follows:
2002
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
REVENUES
NMHG Wholesale............................ $327.7 $347.2 $342.3 $399.0
NMHG Retail (including eliminations)...... 44.1 41.5 43.3 43.3
------ ------ ------ ------
371.8 388.7 385.6 442.3
------ ------ ------ ------
GROSS PROFIT................................. 61.7 68.5 70.8 92.7
------ ------ ------ ------
OPERATING PROFIT (LOSS)......................
NMHG Wholesale............................ 6.4 13.2 12.9 14.1
NMHG Retail (including eliminations)...... 0.2 (2.8) 0.2 (0.8)
------ ------ ------ ------
6.6 10.4 13.1 13.3
------ ------ ------ ------
NET INCOME (LOSS)............................ $ 4.3 $ (1.2) $ (0.8) $ 10.0
====== ====== ====== ======
2001
-----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
REVENUES
NMHG Wholesale .......................... $442.9 $392.0 $314.4 $314.0
NMHG Retail (including eliminations) .... 52.7 52.7 45.7 58.0
------ ------ ------ ------
495.6 444.7 360.1 372.0
------ ------ ------ ------
GROSS PROFIT ............................... 88.8 72.0 40.9 47.9
------ ------ ------ ------
OPERATING PROFIT (LOSS) ....................
NMHG Wholesale .......................... 24.1 6.1 (20.8) (14.9)
NMHG Retail (including eliminations) .... (3.4) (2.8) (15.9) (17.3)
------ ------ ------ ------
20.7 3.3 (36.7) (32.2)
------ ------ ------ ------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES ..................... 9.6 1.2 (32.6) (26.3)
Cumulative Effect of Accounting Changes .... (1.3) -- -- --
------ ------ ------ ------
NET INCOME (LOSS) .......................... $ 8.3 $ 1.2 $(32.6) $(26.3)
====== ====== ====== ======
The results of NMHG Wholesale in the fourth quarter of 2002 include income
of $4.2 million related to the settlement of a transfer pricing audit.
Also, operating results in the fourth quarter of 2001 include a loss on the
sale of dealers of $10.4 million recognized by NMHG Retail.
NOTE 17--EQUITY INVESTMENTS AND RELATED PARTY TRANSACTIONS
EQUITY INVESTMENTS: NMHG has a 20% ownership interest in NMHG Financial
Services, Inc. ("NFS"), a joint venture with GE Capital Corporation, formed
primarily for the purpose of providing financial services to independent
and wholly owned 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 another unrelated third-party. 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,
2002, 2001 and 2000 were $194.5 million, $251.2
F-33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
million and $190.8 million, respectively. Of this amount, $32.2 million,
$40.5 million and $23.3 million for the years ended December 31, 2002, 2001
and 2000, respectively, was invoiced directly from NMHG to NFS so that the
dealer or customer could obtain operating lease financing from NFS. Amounts
receivable from NFS at December 31, 2002 and 2001 were immaterial.
On occasion, the credit quality of the customer or concentration issues
within GE Capital Corporation 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,
2002, approximately $120.7 million of the Company's total guarantees,
recourse or repurchase obligations related to transactions with NFS. NMHG
has reserved for losses under the terms of the guarantees or standby
recourse or repurchase obligations in its consolidated financial
statements. Historically, NMHG has not had significant losses in respect to
these obligations. In 2002, four customers for which NMHG provided a
guarantee or had standby recourse or repurchase obligations defaulted under
their obligations to NFS. NMHG exercised its rights in the lift truck
purchased for each of these customer defaults. In each of the years 2002,
2001 and 2000, the net losses resulting from customer defaults did not have
a material impact on NMHG's results of operations or financial position.
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 $10.0 million
and $15.3 million at December 31, 2002 and 2001, respectively.
In addition, NMHG is reimbursed for certain services, primarily
administrative functions, provided to NFS. The amount of NMHG's expenses
reimbursable by NFS were $1.7 million, $1.8 million and $1.5 million in
2002, 2001 and 2000, respectively.
NMHG has a 50% ownership interest in SN, a limited liability company which
was formed primarily for the manufacture and distribution of Sumitomo-Yale
branded lift trucks in Japan and the export of Hyster and Yale branded lift
trucks and related components and service parts outside of Japan. NMHG
purchases products from SN under normal trade terms. In 2002, 2001 and
2000, purchases from SN were $65.7 million, $63.7 million and $90.5
million, respectively. Amounts payable to SN at December 31, 2002 and 2001
were $17.5 million and $16.1 million, respectively.
Summarized financial information for these equity investments is as
follows:
2002 2001 2000
------- ------- -------
STATEMENT OF OPERATIONS
Revenues $ 211.9 $ 216.1 $ 226.1
Gross Profit 70.5 66.2 62.7
Income from Continuing Operations 11.2 11.4 11.8
Net Income 11.2 11.4 3.5
BALANCE SHEET
Current Assets $ 91.6 $ 64.4
Non-current Assets 663.2 611.5
Current Liabilities 107.5 76.3
Non-current Liabilities 588.5 552.1
RELATED PARTY TRANSACTIONS: NACCO charges fees to its operating
subsidiaries for services provided by the corporate headquarters. NACCO
charged fees of $7.0 million, $7.7 million and $7.4 million in 2002, 2001
and 2000, respectively, which are included as a component of selling,
general and administrative expenses in the Consolidated Statements of
Operations and Comprehensive Income (Loss).
Legal services rendered by Jones Day approximated $2.7 million, $0.8
million and $0.9 million for the years ended December 31, 2002, 2001 and
2000, respectively. A director of the Company is also a partner at this
firm. The increase in 2002 legal services rendered over 2001 is primarily
due to services provided by the firm related to the Company's refinancing
of its debt during 2002. See further discussion of the refinancing in Note
9.
F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
NOTE 18--CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL
INFORMATION
The following tables set forth the condensed consolidating statements of
operations and cash flows for each of the three years in the period ended
December 31, 2002 and the condensed consolidating balance sheets as of
December 31, 2002 and December 31, 2001. The following information is
included as a result of the guarantee of the Parent Company's Senior Notes
by each of its wholly owned U.S. subsidiaries ("Guarantor Companies"). None
of the Company's other subsidiaries has guaranteed any of these notes. Each
of the guarantees is joint and several and full and unconditional. "NMHG
Holding Co." includes the consolidated financial results of the parent
company only, with all of its wholly owned subsidiaries accounted for under
the equity method.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 2002
(In millions)
NMHG Guarantor Non-Guarantor Consolidating NMHG
Holding Co. Companies Companies Eliminations Consolidated
----------- --------- ------------- ------------- ------------
Revenues ...................................... $ -- $1,004.7 $ 783.7 $ (200.0) $1,588.4
Cost of sales ................................. -- 841.2 653.5 (200.0) 1,294.7
Restructuring ................................. -- 8.2 4.1 -- 12.3
Loss on sale of dealers ....................... -- -- 1.2 -- 1.2
All other operating expenses .................. -- 130.2 106.6 -- 236.8
-------- -------- -------- -------- --------
Operating profit .............................. -- 25.1 18.3 -- 43.4
Interest expenses ........................ (3.5) (24.1) (6.3) -- (33.9)
Other income (expense) ................... (0.1) 6.8 (6.9) -- (0.2)
-------- -------- -------- -------- --------
Income (loss) before income taxes, minority
interest and equity in unconsolidated
affiliates ............................... (3.6) 7.8 5.1 -- 9.3
Income tax expense (benefit) ............. (1.4) (5.2) 5.3 -- (1.3)
Minority interest income ................. -- -- 1.2 -- 1.2
Equity in unconsolidated
affiliates .......................... 14.5 1.5 (1.5) (14.0) 0.5
-------- -------- -------- -------- --------
Net income (loss) ............................. $ 12.3 $ 14.5 $ (0.5) $ (14.0) $ 12.3
======== ======== ======== ======== ========
F-35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 2001
(In millions)
NMHG Guarantor Non-Guarantor Consolidating NMHG
Holding Co. Companies Companies Eliminations Consolidated
----------- --------- ------------- ------------- ------------
Revenues ....................................... $ -- $1,100.2 $ 835.4 $ (263.2) $1,672.4
Cost of sales .................................. -- 968.3 722.6 (268.1) 1,422.8
Restructuring .................................. -- (0.4) 9.2 -- 8.8
Loss on sale of dealers ........................ -- 0.6 11.4 (1.6) 10.4
All other operating expenses ................... -- 144.0 131.9 (0.6) 275.3
-------- -------- -------- -------- --------
Operating profit (loss) ........................ -- (12.3) (39.7) 7.1 (44.9)
Interest expenses ......................... (0.9) (13.2) (3.8) (5.2) (23.1)
Other income (expense) .................... -- 1.3 0.7 -- 2.0
-------- -------- -------- -------- --------
Income (loss) before income taxes, minority
interest, equity in unconsolidated
affiliates and
cumulative effect of accounting changes ... (0.9) (24.2) (42.8) 1.9 (66.0)
Income tax expense (benefit) .............. (2.6) (3.6) (9.0) 0.7 (14.5)
Minority interest income .................. -- -- 0.8 -- 0.8
Equity in unconsolidated
affiliates ........................... (51.1) (30.8) -- 84.5 2.6
-------- -------- -------- -------- --------
Income (loss) before cumulative
effect of accounting changes .............. (49.4) (51.4) (33.0) 85.7 (48.1)
Cumulative effect of accounting changes ........ -- (0.9) (0.4) -- (1.3)
-------- -------- -------- -------- --------
Net income (loss) .............................. $ (49.4) $ (52.3) $ (33.4) $ 85.7 $ (49.4)
======== ======== ======== ======== ========
F-36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000
(In millions)
NMHG Guarantor Non-Guarantor Consolidating NMHG
Holding Co. Companies Companies Eliminations Consolidated
----------- --------- ------------- ------------- ------------
Revenues ...................................... $ -- $1,374.2 $ 859.0 $ (301.1) $1,932.1
Cost of sales ................................. -- 1,162.7 723.5 (301.6) 1,584.6
Restructuring ................................. -- 13.0 0.9 -- 13.9
All other operating expenses .................. -- 133.2 138.1 (0.9) 270.4
-------- -------- -------- -------- --------
Operating profit (loss) ....................... -- 65.3 (3.5) 1.4 63.2
Interest expenses ........................ (1.1) (12.9) (4.0) (3.2) (21.2)
Other income (expense) ................... -- (2.9) (1.3) -- (4.2)
-------- -------- -------- -------- --------
Income (loss) before income taxes, minority
interest and equity in unconsolidated
affiliates ............................... (1.1) 49.5 (8.8) (1.8) 37.8
Income tax expense (benefit) ............. (0.5) 17.2 1.2 (0.5) 17.4
Minority interest income ................. -- -- 1.1 -- 1.1
Equity in unconsolidated
affiliates .......................... 21.9 (9.1) 0.1 (13.1) (0.2)
-------- -------- -------- -------- --------
Net income (loss) ............................. $ 21.3 $ 23.2 $ (8.8) $ (14.4) $ 21.3
======== ======== ======== ======== ========
F-37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
CONDENSED CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 2002
(In millions)
NMHG Guarantor Non-Guarantor Consolidating NMHG
Holding Co. Companies Companies Eliminations Consolidated
----------- ---------- ------------- ------------- ------------
Cash and cash equivalents ................ $ -- $ 5.3 $ 49.6 $ -- $ 54.9
Accounts and notes receivable, net ....... 259.7 120.3 161.7 (348.6) 193.1
Inventories .............................. -- 121.5 100.5 -- 222.0
Other current assets ..................... 3.7 55.2 9.3 (0.3) 67.9
-------- -------- -------- -------- --------
Total current assets ................ 263.4 302.3 321.1 (348.9) 537.9
Property, plant and equipment, net ....... -- 133.3 108.8 -- 242.1
Goodwill ................................. -- 307.3 36.4 -- 343.7
Other non-current assets ................. 374.8 238.4 27.1 (560.5) 79.8
-------- -------- -------- -------- --------
Total assets ........................ $ 638.2 $ 981.3 $ 493.4 $ (909.4) $1,203.5
======== ======== ======== ======== ========
Accounts and intercompany notes payable .. $ -- $ 375.2 $ 152.5 $ (340.8) $ 186.9
Other current liabilities ................ 3.6 114.4 75.1 (12.5) 180.6
Revolving credit agreements .............. 5.2 -- 26.1 -- 31.3
-------- -------- -------- -------- --------
Total current liabilities ........... 8.8 489.6 253.7 (353.3) 398.8
Long-term debt ........................... 247.1 11.5 14.9 -- 273.5
Other long-term liabilities .............. -- 118.7 44.2 (14.0) 148.9
Stockholder's equity ..................... 382.3 361.5 180.6 (542.1) 382.3
-------- -------- -------- -------- --------
Total liabilities and stockholder's
equity ................................ $ 638.2 $ 981.3 $ 493.4 $ (909.4) $1,203.5
======== ======== ======== ======== ========
F-38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
CONDENSED CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 2001
(In millions)
NMHG Guarantor Non-Guarantor Consolidating NMHG
Holding Co. Companies Companies Eliminations Consolidated
----------- ---------- ------------- ------------- ------------
Cash and cash equivalents ............. $ -- $ 21.9 $ 37.7 $ -- $ 59.6
Accounts and notes receivable, net .... -- 211.9 225.8 (272.1) 165.6
Inventories ........................... -- 136.9 97.8 (0.2) 234.5
Other current assets .................. 2.6 55.4 10.2 -- 68.2
-------- -------- -------- -------- --------
Total current assets ............. 2.6 426.1 371.5 (272.3) 527.9
Property, plant and equipment, net .... -- 163.0 118.0 (0.5) 280.5
Goodwill, net ......................... -- 307.3 36.9 -- 344.2
Other non-current assets .............. 476.7 213.6 22.3 (660.1) 52.5
-------- -------- -------- -------- --------
Total assets .................... $ 479.3 $1,110.0 $ 548.7 $ (932.9) $1,205.1
======== ======== ======== ======== ========
Accounts and intercompany notes
payable .......................... $ 96.3 $ 143.3 $ 211.8 $ (274.7) $ 176.7
Other current liabilities ............. 0.9 383.9 109.5 (1.0) 493.3
-------- -------- -------- -------- --------
Total current liabilities ........ 97.2 527.2 321.3 (275.7) 670.0
Long-term debt ........................ -- 3.2 24.5 -- 27.7
Other long-term liabilities ........... 0.1 102.9 28.1 (5.7) 125.4
Stockholder's equity .................. 382.0 476.7 174.8 (651.5) 382.0
-------- -------- -------- -------- --------
Total liabilities and stockholder's
equity ............................. $ 479.3 $1,110.0 $ 548.7 $ (932.9) $1,205.1
======== ======== ======== ======== ========
F-39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
DECEMBER 31, 2002
(In millions)
NMHG Guarantor Non-Guarantor Consolidating NMHG
Holding Co. Companies Companies Eliminations Consolidated
----------- ---------- ------------- ------------- ------------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES ........................... $ (3.6) $ 67.5 $ 1.3 $ (0.3) $ 64.9
INVESTING ACTIVITIES
Expenditures for property, plant
and equipment ............................ -- (8.6) (7.5) -- (16.1)
Proceeds from the sale of property, plant and
equipment .................................. -- 0.6 5.6 -- 6.2
Other-net ...................................... 132.7 1.5 1.1 (132.7) 2.6
------ ------ ------ ------ ------
NET CASH PROVIDED BY
(USED FOR) INVESTING
ACTIVITIES ................................ 132.7 (6.5) (0.8) (132.7) (7.3)
FINANCING ACTIVITIES
Additions to long-term debt and
revolving credit agreements ............... 252.1 18.3 13.4 -- 283.8
Reductions of long-term debt
and revolving
credit agreements ......................... -- (279.2) (32.5) -- (311.7)
Notes receivable/payable, parent ............... (350.5) 316.0 26.2 0.3 (8.0)
Other-net ...................................... (30.7) (132.7) -- 132.7 (30.7)
------ ------ ------ ------ ------
NET CASH PROVIDED BY (USED
FOR) FINANCING ACTIVITIES ................. (129.1) (77.6) 7.1 133.0 (66.6)
Effect of exchange rate changes on cash ............. -- -- 4.3 -- 4.3
------ ------ ------ ------ ------
CASH AND CASH EQUIVALENTS
Increase for the year .......................... -- (16.6) 11.9 -- (4.7)
Balance at the beginning of the
year ...................................... -- 21.9 37.7 -- 59.6
------ ------ ------ ------ ------
BALANCE AT THE END OF THE YEAR ................. $ -- $ 5.3 $ 49.6 $ -- $ 54.9
====== ====== ====== ====== ======
F-40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
DECEMBER 31, 2001
(In millions)
NMHG Guarantor Non-Guarantor Consolidating NMHG
Holding Co. Companies Companies Eliminations Consolidated
----------- ---------- ------------- ------------- ------------
NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES ........................... $ 2.2 $18.7 $48.8 $(38.7) $31.0
INVESTING ACTIVITIES
Expenditures for property,
plant and equipment .............. -- (31.6) (24.3) 2.4 (53.5)
Proceeds from the sale of
property, plant and
equipment ........................ -- 6.0 7.0 -- 13.0
Other-net ............................. -- 2.8 (9.5) -- (6.7)
----- ----- ----- ----- -----
NET CASH PROVIDED BY (USED
FOR) INVESTING ACTIVITIES ........ -- (22.8) (26.8) 2.4 (47.2)
FINANCING ACTIVITIES
Additions to long-term debt and
revolving credit agreements ...... -- 68.9 -- -- 68.9
Reductions of long-term debt
and revolving
credit agreements ................ -- (3.9) (18.1) -- (22.0)
Notes receivable/payable, parent ...... 80.5 (37.4) (32.1) -- 11.0
Other-net ............................. (82.7) (4.4) 45.2 36.3 (5.6)
----- ----- ----- ----- -----
NET CASH PROVIDED BY (USED
FOR) FINANCING ACTIVITIES ........ (2.2) 23.2 (5.0) 36.3 52.3
Effect of exchange rate changes on cash .... -- -- (0.9) -- (0.9)
----- ----- ----- ----- -----
CASH AND CASH EQUIVALENTS
Increase for the year ................. -- 19.1 16.1 -- 35.2
Balance at the beginning of the
year ............................. -- 2.8 21.6 -- 24.4
----- ----- ----- ----- -----
BALANCE AT THE END OF THE YEAR ........ $ -- $21.9 $37.7 $ -- $59.6
===== ===== ===== ===== =====
F-41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NMHG HOLDING CO. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Percentage Data)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
DECEMBER 31, 2000
(In millions)
NMHG Guarantor Non-Guarantor Consolidating NMHG
Holding Co. Companies Companies Eliminations Consolidated
----------- ---------- ------------- ------------- ------------
NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES ..................................... $ 0.2 $31.9 $(26.2) $56.7 $62.6
INVESTING ACTIVITIES
Expenditures for property, plant and equipment .. -- (31.0) (21.6) 0.8 (51.8)
Proceeds from the sale of property, plant and
equipment ................................... -- 3.1 7.1 (0.1) 10.1
Other-net ....................................... -- -- (18.3) 0.3 (18.0)
----- ----- ----- ----- -----
NET CASH PROVIDED BY (USED FOR) INVESTING
ACTIVITIES ................................. -- (27.9) (32.8) 1.0 (59.7)
FINANCING ACTIVITIES
Additions to long-term debt and
revolving credit agreements ................ -- 32.4 6.2 -- 38.6
Reductions of long-term debt
and revolving
credit agreements .......................... -- (43.2) (2.9) -- (46.1)
Notes receivable/payable, parent ................ (0.2) (5.8) 13.0 -- 7.0
Other-net ....................................... -- 12.9 35.2 (57.7) (9.6)
----- ----- ----- ----- -----
NET CASH PROVIDED BY (USED
FOR) FINANCING ACTIVITIES ................ (0.2) (3.7) 51.5 (57.7) (10.1)
Effect of exchange rate changes on cash .............. -- -- 0.5 -- 0.5
----- ----- ----- ----- -----
CASH AND CASH EQUIVALENTS
Increase for the year ........................... -- 0.3 (7.0) -- (6.7)
Balance at the beginning of the
year ....................................... -- 2.5 28.6 -- 31.1
----- ----- ----- ----- -----
BALANCE AT THE END OF THE YEAR .................. $ -- $ 2.8 $21.6 $ -- $24.4
===== ===== ===== ===== =====
F-42
NMHG HOLDING CO. REPORT OF MANAGEMENT
To the Stockholder of NMHG Holding Co.
The management of NMHG Holding Co. is responsible for the preparation,
content and integrity of the financial statements and related information
contained within this report. The accompanying financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States and include amounts that are based on informed judgments and
estimates.
The Company's code of conduct, communicated throughout the organization,
requires adherence to high ethical standards in the conduct of the Company's
business.
NMHG Holding Co. and each of its subsidiaries maintain a system of internal
controls designed to provide reasonable assurance as to the protection of assets
and the integrity of the financial statements. These systems are augmented by
the selection of qualified financial management personnel. In addition, an
internal audit function periodically assesses the internal controls.
Ernst & Young LLP, independent auditors, audited NMHG Holding Co. and its
subsidiaries' financial statements for the year ended December 31, 2002. Arthur
Andersen, LLP, independent certified public accountants, audited NMHG Holding
Co. and its subsidiaries' financial statements for the years ended December 31,
2001 and 2000. Those audits were conducted in accordance with auditing standards
generally accepted in the United States and provide an objective and independent
assessment that helps ensure fair presentation of the Company's operating
results and financial position. The independent auditors have access to all
financial records and related data of the Company, as well as to the minutes of
stockholder's and directors' meetings.
The Audit Review Committee of the Board of Directors, composed of
independent directors, meets regularly with the independent auditors and
internal auditors to review the scope of their audit reports and to discuss any
action to be taken. The independent auditors and the internal auditors have free
and direct access to the Audit Review Committee. The Audit Review Committee also
reviews the financial reporting process and accounting policies of NMHG Holding
Co. and each of its subsidiaries.
/s/ Reginald R. Eklund /s/ Michael K. Smith
-------------------------- -----------------------------
Reginald R. Eklund Michael K. Smith
President and Vice President, Finance and
Chief Executive Officer Information Services and
Chief Financial Officer
F-43
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
NMHG HOLDING CO. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
- ----------------------------------------------------------------------------------------------------------------------------------
COL A. COL B. COL C. COL D. COL E.
- ----------------------------------------------------------------------------------------------------------------------------------
Additions
----------------------------- (C)
Balance at Charged to Charged to Balance at
Beginning of Costs and Other Accounts Deductions End of
Description Period Expenses --Describe --Describe Period
- ----------------------------------------------------------------------------------------------------------------------------------
(In millions)
2002
RESERVES DEDUCTED FROM ASSET
ACCOUNTS:
ALLOWANCE FOR DOUBTFUL ACCOUNTS .... $ 8.0 $ 3.2 $ (0.3)(B) $ 2.2 (A) $ 8.7
RESERVE FOR LOSSES ON INVENTORY .... 22.5 3.3 0.2 (B) 9.6 (A) 16.4
VALUATION ALLOWANCE AGAINST
DEFERRED TAX ASSETS ........... 10.1 (0.2) -- -- 9.9
2001
Reserves deducted from asset accounts:
Allowance for doubtful accounts .... $ 7.7 $ (0.4) $ 0.1 (B) $ (0.6)(A) $ 8.0
Reserve for losses on inventory .... 17.3 9.4 -- 4.2(A) 22.5
Valuation allowance against
deferred tax assets ........... 4.6 5.5 -- -- 10.1
2000
Reserves deducted from asset accounts:
Allowance for doubtful accounts .... $ 6.4 $ 1.6 $ 0.2 (B) $ 0.5 (A) $ 7.7
Reserve for losses on inventory .... 18.5 2.4 0.8 (B) 4.4 (A) 17.3
Valuation allowance against
deferred tax assets ........... 7.9 (3.1) (0.2)(B) -- 4.6
(A) Write-offs, net of recoveries.
(B) Subsidiary's foreign currency translation adjustments and other.
(C) Balances which are not required to be presented and those which are
immaterial have been omitted.
F-44
EXHIBIT INDEX
3.1 (i) Certificate of Incorporation of NMHG Holding Co. is incorporated by
reference to Exhibit 3.1(i) to the Company's Registration Statement
on Form S-4, dated August 12, 2002, Commission File number
333-89248.
3.1 (ii) By-laws of NMHG Holding Co. of NMHG Holding Co. is incorporated by
reference to Exhibit 3.1(ii) to the Company's Registration Statement
on Form S-4, dated August 12, 2002, Commission File number
333-89248.
4.1 Form of Common Stock Certificate is incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-4,
dated August 12, 2002, Commission File number 333-89248.
4.2 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 by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-4, dated August 12, 2002,
Commission File number 333-89248.
4.3 Registration Rights Agreement, dated as of May 9, 2002, by and among
NMHG Holding Co., the Guarantors named therein and Credit Suisse
First Boston Corporation, Salomon Smith Barney Inc., U.S. Bancorp
Piper Jaffray Inc., McDonald Investments Inc., NatCity Investments,
Inc. and Wells Fargo Brokerage Services, LLC is incorporated by
reference to Exhibit 4.3 to the Company's Registration Statement on
Form S-4, dated August 12, 2002, Commission File number 333-89248.
10.1 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 by reference to Exhibit 10.1 to
the Company's Registration Statement on Form S-4, dated August 12,
2002, Commission File number 333-89248.
10.2 Operating Agreement, dated July 31, 1979, among Eaton Corporation
and Sumitomo Heavy Industries, Ltd. is incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form S-4,
dated August 12, 2002, Commission File number 333-89248.
10.3 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 by reference to
Exhibit 10.3 to the Company's Registration Statement on Form S-4,
dated August 12, 2002, Commission File number 333-89248.
10.4 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 by reference to
Exhibit 10.4 to the Company's Registration Statement on Form S-4,
dated August 12, 2002, Commission File number 333-89248.
10.5 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 by reference to
Exhibit 10.5 to the Company's Registration Statement on Form S-4,
dated August 12, 2002, Commission File number 333-89248.
10.6 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 by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-4, dated August 12, 2002,
Commission File number 333-89248.
X-1
10.7 International Operating Agreement, dated April 15, 1998, between
NACCO Materials Handling Group, Inc. and General Electric Capital
Corp. (the "International Operating Agreement") is incorporated by
reference to Exhibit 10.7 to the Company's Registration Statement on
Form S-4, dated August 12, 2002, Commission File number 333-89248.
10.8 Amendment No. 1 to the International Operating Agreement, dated as
of October 21, 1998 is incorporated by reference to Exhibit 10.8 to
the Company's Registration Statement on Form S-4, dated August 12,
2002, Commission File number 333-89248.
10.9 Amendment No. 2 to the International Operating Agreement, dated as
of December 1, 1999 is incorporated by reference to Exhibit 10.9 to
the Company's Registration Statement on Form S-4, dated August 12,
2002, Commission File number 333-89248.
10.10 Amendment No. 3 to the International Operating Agreement, dated as
of May 1, 2000 is incorporated by reference to Exhibit 10.10 to the
Company's Registration Statement on Form S-4, dated August 12, 2002,
Commission File number 333-89248.
10.11 Letter agreement, dated November 22, 2000, between General Electric
Capital Corporation and NACCO Materials Handling Group, Inc.
amending the International Operating Agreement is incorporated by
reference to Exhibit 10.11 to the Company's Registration Statement
on Form S-4, dated August 12, 2002, Commission File number
333-89248.
10.12 A$ Facility Agreement, dated November 22, 2000, between GE Capital
Australia and National Fleet Network Pty Limited is incorporated by
reference to Exhibit 10.12 to the Company's Registration Statement
on Form S-4, dated August 12, 2002, Commission File number
333-89248.
10.13 Loan Agreement, dated as of June 28, 1996, between NACCO Materials
Handling Group, Inc. and NACCO Industries, Inc. is incorporated by
reference to Exhibit 10.13 to the Company's Registration Statement
on Form S-4, dated August 12, 2002, Commission File number
333-89248.
10.14 Business Sale Agreement, dated November 10, 2000, between Brambles
Australia Limited, ACN 094 802 141 Pty Limited and NACCO Materials
Handling Group, Inc. is incorporated by reference to Exhibit 10.14
to the Company's Registration Statement on Form S-4, dated August
12, 2002, Commission File number 333-89248.
10.15* NACCO Materials Handling Group, Inc. 2002 Annual Incentive
Compensation Plan, effective as of January 1, 2002, is incorporated
herein by reference to Exhibit 10(lxiii) to NACCO Industries, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
2001, Commission File Number 1-9172.
10.16* NACCO Materials Handling Group, Inc. Senior Executive Long-Term
Incentive Compensation Plan, effective as of January 1, 2000, is
incorporated herein by reference to Exhibit 10(lxiv) to NACCO
Industries, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 2000, Commission File Number 1-9172.
10.17* NACCO Materials Handling Group, Inc. Long-Term Incentive
Compensation Plan, effective as of January 1, 2000, is incorporated
by reference to Exhibit 10(lxv) to NACCO Industries, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 2000,
Commission File Number 1-9172.
10.18* Amendment No. 1, dated as of June 8, 2001, to the NACCO Materials
Handling Group, Inc. Senior Executive Long-Term Incentive
Compensation Plan (effective as of January 1, 2000) is incorporated
herein by reference to Exhibit 10 (lxvi) to NACCO Industries, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
2001, Commission File Number 1-9172.
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10.19* Amendment No. 1, dated as of June 8, 2001, to the NACCO Materials
Handling Group, Inc. Long-Term Incentive Compensation Plan
(effective as of January 1, 2000) is incorporated herein by
reference to Exhibit 10(lxvii) to NACCO Industries, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 2001,
Commission File Number 1-9172.
10.20* Amendment No. 1, dated as of February 19, 2001, to the NACCO
Materials Handling Group, Inc. Unfunded Benefit Plan (as amended and
restated effective September 1, 2000) is incorporated herein by
reference to Exhibit 10(lxviii) to NACCO Industries, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 2001,
Commission File Number 1-9172.
10.21* NACCO Materials Handling Group, Inc. Unfunded Benefit Plan (as
amended and restated effective as of September 1, 2000) is
incorporated herein by reference to Exhibit 10(lxxiii) to NACCO
Industries, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 2000, Commission File Number 1-9172.
10.22* Amendment No. 2, dated as of August 6, 2001, to the NACCO Materials
Handling Group, Inc. Unfunded Benefit Plan (as amended and restated
effective September 1, 2000) is incorporated herein by reference to
Exhibit 10(lxxix) to NACCO Industries, Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 2001, Commission File
Number 1-9172.
10.23* Amendment No. 3, dated as of June 8, 2001, to the NACCO Materials
Handling Group, Inc. Unfunded Benefit Plan (as amended and restated
effective September 1, 2000) is incorporated herein by reference to
Exhibit 10(lxxx) to NACCO Industries, Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 2001, Commission File
Number 1-9172.
10.24* Amendment No. 4, dated as of November 1, 2001, to the NACCO
Materials Handling Group, Inc. Unfunded Benefit Plan (as amended and
restated effective September 1, 2000) is incorporated herein by
reference to Exhibit 10(lxxxi) to NACCO Industries, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 2001,
Commission File Number 1-9172.
10.25* Amendment No. 5, dated as of December 21, 2001, to the NACCO
Materials Handling Group, Inc. Unfunded Benefit Plan (as amended and
restated effective September 1, 2000) is incorporated herein by
reference to Exhibit 10(lxxxii) to NACCO Industries, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 2001,
Commission File Number 1-9172.
10.26* Amendment No. 6, dated as of January 31, 2003 to the NACCO Materials
Handling Group, Inc. Unfunded Benefit Plan (as amended and restated
effective September 1, 2000) is incorporated by reference to Exhibit
10(lxxxii) to NACCO Industries, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 2002, Commission File Number
1-9172.
10.27* The NACCO Materials Handling Group, Inc. Excess Pension Plan for UK
Transferees (Effective as of October 1, 2002) is incorporated by
reference to Exhibit 10(lxxxiv) to NACCO Industries, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 2002,
Commission File Number 1-9172.
10.28* NACCO Materials Handling Group, Inc. 2003 Annual Incentive
Compensation Plan, effective as of January 1, 2003, is incorporated
by reference to Exhibit 10(lxiii) to NACCO Industries, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 2002,
Commission File Number 1-9172.
10.29* Amendment No. 2 to the NACCO Materials Handling Group, Inc. Senior
Executive Long-Term Incentive Compensation Plan (effective as of
January 1, 2000) is incorporated by reference to Exhibit 10(lxxi) to
NACCO Industries, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 2002, Commission File Number 1-9172.
10.30* Amendment No. 2 to the NACCO Materials Handling Group, Inc.
Long-Term Incentive Compensation Plan (effective as of January 1,
2000) is incorporated by reference to Exhibit 10(lxxiv) to NACCO
Industries, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 2002, Commission File Number 1-9172.
X-3
21 Subsidiaries of the registrant. Omitted pursuant to General
Instruction I b of Form 10-K.
24 Powers of Attorney.
(i) A copy of a power of attorney for Owsley Brown II is
attached hereto as Exhibit 24(i).
(ii) A copy of a power of attorney for Eiichi Fujita is attached
hereto as Exhibit 24(iii).
(iii) A copy of a power of attorney for Robert M. Gates is
attached hereto as Exhibit 24(iv).
(iv) A copy of a power of attorney for Leon J. Hendrix, Jr. is
attached hereto as Exhibit 24(v).
(v) A copy of a power of attorney for David H. Hoag is attached
hereto as Exhibit 24(vi).
(vi) A copy of a power of attorney for Dennis W. LaBarre is
attached hereto as Exhibit 24(vii).
(vii) A copy of a power of attorney for Richard de J. Osborne is
attached hereto as Exhibit 24(viii).
(viii) A copy of a power of attorney for Alfred M. Rankin, Jr. is
attached hereto as Exhibit 24(ix).
(ix) A copy of a power of attorney for Claiborne R. Rankin is
attached hereto as Exhibit 24(x).
(x) A copy of a power of attorney for Ian M. Ross is attached
hereto as Exhibit 24(xi).
(xi) A copy of a power of attorney for Michael E. Shannon is
attached hereto as Exhibit 24(xii).
(xii) A copy of a power of attorney for Britton T. Taplin is
attached hereto as Exhibit 24(xiii).
(xiii) A copy of a power of attorney for David F. Taplin is
attached hereto as Exhibit 24(xiv).
(xiv) A copy of a power of attorney for Frank F. Taplin is
attached hereto as Exhibit 24(xv).
(xv) A copy of a power of attorney for John F. Turben is attached
hereto as Exhibit 24(xvi).
* Management contract or compensation plan or arrangement required to be
filed as an exhibit pursuant to Item 15(c) of the Annual report on Form
10-K.
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