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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K ANNUAL REPORT
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997 Commission File No. 1-9172
NACCO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 34-1505819
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5875 Landerbrook Drive
Mayfield Heights, Ohio 44124-4017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (440) 449-9600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH
EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Class A Common Stock, New York Stock Exchange
Par Value $1.00 Per Share
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class B Common Stock, Par Value $1.00 Per Share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirement for
the past 90 days.
YES X NO
Indicate by checkmark 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 the 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. [ ]
Aggregate market value of Class A Common Stock and Class B Common Stock held by
non-affiliates as of February 27, 1998:
$645,337,229
Number of shares of Class A Common Stock outstanding at February 27, 1998:
6,490,599
Number of shares of Class B Common Stock outstanding at February 27, 1998:
1,672,618
DOCUMENTS INCORPORATED BY REFERENCE
(a) The Company's Proxy Statement for its 1998 annual meeting of
stockholders is incorporated herein by reference in Part III.
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ITEM 1. BUSINESS
GENERAL
NACCO Industries, Inc. ("NACCO" or the "Company") is a holding company
which owns four principal operating subsidiaries:
(a) NACCO Materials Handling Group. The Company owns approximately 98%
of the outstanding capital stock of Hyster-Yale Materials Handling, Inc.
("Hyster-Yale"), which is the sole stockholder of NACCO Materials Handling
Group, Inc. (For convenience of reference NACCO Materials Handling Group, Inc.
and Hyster-Yale are hereinafter referred to as "NMHG"). NMHG markets two full
lines of forklift trucks and related service parts under the Hyster(R) and
Yale(R) brand names. NMHG accounted for 66% and 53% of NACCO's revenues and
operating profits, respectively, in 1997.
(b) Hamilton Beach*Proctor-Silex. The Company's wholly owned
subsidiary, Hamilton Beach*Proctor-Silex, Inc. ("Hamilton Beach*
Proctor-Silex"), is one of the nation's leading manufacturers and marketers of
small electric kitchen appliances. Hamilton Beach*Proctor-Silex accounted for
19% and 18% of NACCO's revenues and operating profits, respectively, in 1997.
(c) North American Coal. The Company's wholly owned subsidiary, The
North American Coal Corporation, and its affiliated coal companies
(collectively, "North American Coal"), mine and market lignite for use primarily
as fuel for power generation by electric utilities. North American Coal also
provides dragline mining services for a limerock quarry near Miami, Florida.
North American Coal accounted for 12% and 33% of NACCO's revenues and operating
profits, respectively, in 1997.
(d) Kitchen Collection. The Company's wholly owned subsidiary, The
Kitchen Collection, Inc. ("Kitchen Collection"), is a national specialty
retailer of kitchenware, small electric appliances and related accessories.
Kitchen Collection accounted for 3% and 2% of NACCO's revenues and operating
profits, respectively, in 1997.
Additional information relating to financial and operating data on a
segment basis (including NACCO and Other, which reduced operating profits by 6%
in 1997) is set forth in Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in Part II hereof and in Note 19
to the Consolidated Financial Statements contained in Part IV hereof.
NACCO was incorporated as a Delaware corporation in 1986 in connection
with the formation of a holding company structure for a predecessor corporation
organized in 1913.
SIGNIFICANT EVENTS
In 1997, NMHG announced a restructuring of its organizations around the
world to reduce costs and enhance efficiencies. In connection with the
restructuring, NMHG took a special charge of $16.3 million. NMHG is centralizing
the administrative functions of its Hyster and Yale marketing operations and
relocating those functions to one North American location (Greenville, North
Carolina) and one European location (Basingstoke, England). NMHG also is
restructuring its engineering and development function and consolidating that
function for counterbalanced trucks in Portland, Oregon for warehouse equipment
in Greenville, North Carolina and for big trucks in Nijmegen, The Netherlands.
The restructuring also involves reorganizing its world headquarters in Portland,
Oregon to focus on global strategic initiatives. NMHG anticipates that the
restructuring will be completed by the end of 1998.
On December 31, 1997, the Chinese government gave approval for the
formation of Shanghai Hyster Forklift Truck, Ltd., a joint venture (the
"Shanghai Hyster Joint Venture") among NMHG (55% share), Sumitomo-NACCO
Materials Handling Group (30% share) and Shanghai Perfect Jinqiao United
Development Co. (15% share). The Shanghai Hyster Joint Venture has acquired land
in the Pudong area of Shanghai and will commence construction of a
manufacturing facility in the second quarter of 1998. NMHG expects production to
commence in the second quarter of 1999. The facility will manufacture Hyster
large and medium capacity lift trucks primarily for sale in the Chinese domestic
market. The Shanghai Hyster Joint Venture will also distribute domestic and
imported Hyster forklift trucks.
In February 1998, NMHG acquired land in Saltillo, Mexico and entered
into an agreement to construct a manufacturing facility on the land. The purpose
of the facility will be to manufacture components for shipment primarily to
NMHG's plants in the United States. NMHG expects production to commence in the
third quarter of 1998.
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In April 1997, Hamilton Beach*Proctor-Silex began production at its
recently completed manufacturing facility in Saltillo, Mexico. The new facility
is expected to allow Hamilton Beach*Proctor-Silex to compete more effectively
with low-cost Chinese manufacturers.
In July 1997, North American Coal began providing mining services at
San Miguel Electric Cooperative, Inc.'s lignite mine in Texas under a contract
for 10 1/2 years.
In September 1997, Phillips Coal Company and North American Coal formed
a joint venture (75% owned by Phillips Coal and 25% owned by North American
Coal) to develop a new lignite mine in Mississippi. The 30 year lignite sales
contract between the joint venture and the electric power facility is currently
being negotiated. Commercial operation of the electric power facility is
scheduled for the year 2000.
BUSINESS SEGMENT INFORMATION
A. NACCO MATERIALS HANDLING GROUP
NMHG is one of the leading worldwide designers, manufacturers and
marketers of forklift trucks, which comprise the largest segment of the
materials handling equipment industry. NMHG accounted for 54% and 43% of NACCO's
assets and liabilities, respectively, as of December 31, 1997, while its
operations accounted for 66% and 53% of NACCO's revenues and operating profits,
respectively, in 1997.
THE INDUSTRY
Forklift trucks are used in a wide variety of business applications
including manufacturing and warehousing. The materials handling industry,
especially in industrialized nations, is generally a mature industry, which has
historically been cyclical. Fluctuations in the rate of orders for forklift
trucks reflect the capital investment decisions of the customers, which in turn
depend upon the general level of economic activity in the various industries
served by such customers.
Since 1991, the worldwide market for forklift trucks has gradually
increased to approximately 475,000 units. During this time, however, individual
geographic markets have been subject to cyclicality. The North American market
for forklift trucks peaked in 1995, began a cyclical downturn in 1996 and then
recovered to a new high in 1997. The European market reversed a declining trend
in 1994, peaked in 1996 and exhibited a decline in 1997. The Japanese market
reversed a declining trend in 1994 and has since exhibited modest growth. The
market in Asia-Pacific (outside of Japan) continued modest growth in 1996 and
the first half of 1997. However, the late-1997 Asian financial crisis has
negatively impacted lift truck demand in that part of the world.
COMPANY OPERATIONS
NMHG maintains product differentiation between Hyster and Yale brands
of forklift trucks and distributes its products through separate worldwide
dealer networks. Nevertheless, opportunities have been identified and addressed
to improve the company's results by integrating overlapping operations and
taking advantage of economies of scale in design, manufacturing and purchasing.
NMHG provides virtually all of its own design, manufacturing and administrative
functions. Products are marketed and sold through two separate dealer networks
which retain and promote the Hyster and Yale identities. In Japan, NMHG has a
50% owned joint venture with Sumitomo Heavy Industries Ltd. which is generally
known as Sumitomo-NACCO Materials Handling Group ("S-N"). S-N performs certain
design activities and produces lift trucks and components which it markets in
Japan under the name "Sumitomo Yale" and which are exported for sale by NMHG and
its affiliates in the U.S., Europe and Asia-Pacific.
NMHG continued to expand its presence in the European market through
the acquisition in 1996 of Ormic, an Italian manufacturer of warehouse
equipment. In combination with the 1995 acquisition of DECA, another Italian
warehouse equipment company, NMHG can now provide a full line of Hyster and Yale
warehouse equipment for the European market.
PRODUCT LINES
NMHG manufactures a wide range of forklift trucks under both the Hyster
and Yale brand names. The principal categories of forklift trucks include
electric rider, electric narrow-aisle and electric motorized hand forklift
trucks primarily for indoor use and internal combustion engine ("ICE") forklift
trucks for indoor or outdoor use. Forklift truck sales accounted for
approximately 82%, 84% and 85% of NMHG's net sales in 1997, 1996 and 1995,
respectively.
NMHG also derives significant revenues from the sale of service parts
for its products. Profit margins on service parts are greater than those on
forklift trucks. The large population of Hyster and Yale forklift trucks now in
service provides a market for service parts. In addition to parts for its own
forklift trucks, NMHG has a program in North America (termed UNISOURCE(TM)) and
in Europe (termed
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MULTIQUIP(TM)) designed to supply Hyster dealers with replacement parts for most
competing brands of forklift trucks. NMHG has a similar program (termed
PREMIER(TM)) for its Yale dealers in the Americas and Europe. Accordingly, NMHG
dealers can offer their mixed fleet customers a "one stop" supply source.
Certain of these parts are manufactured by and purchased from third party
component makers. Service parts accounted for approximately 18%, 16% and 15% of
NMHG net sales in 1997, 1996 and 1995, respectively. For further information on
geographic regions, see Note 19 to the Consolidated Financial Statements
contained in Part IV hereof.
COMPETITION
The forklift truck industry is highly competitive. The worldwide
competitive structure of the industry is fragmented by product line and country;
however, the three largest manufacturers have a significantly greater market
position on a unit volume basis than the other manufacturers. The principal
methods of competition among forklift truck manufacturers are product
performance, price, service and distribution networks. The forklift truck
industry also competes with alternative methods of materials handling, including
conveyor systems, automated guided vehicle systems and hand labor. Global
competition is also affected by a number of other factors, including currency
fluctuations, variations in labor costs and effective tax rates, and the costs
related to compliance with applicable regulations, including export restraints,
antidumping provisions and environmental regulations.
Although there is no official source for information on the subject,
NACCO believes that in 1997 NMHG was the leading manufacturer of forklift trucks
in the world, based on number of lift trucks sold.
NMHG's position is strongest in North America, where it believes it is
the leader in unit sales of electric rider and ICE forklift trucks and has a
significant share of unit sales of electric narrow-aisle and electric motorized
hand forklift trucks. Although the European market is fragmented and competitive
positions vary from country to country, NMHG believes that it has a significant
share of unit sales of electric rider and ICE forklift trucks in Western Europe.
Although NMHG's current market share in the Asia-Pacific, Chinese and Japanese
markets is lower than in other geographic areas, these markets have been
targeted for additional opportunities. The Japanese market reversed a declining
trend in 1994 and has since exhibited modest growth. The market in Asia-Pacific
(outside of Japan) continued a steady growth in 1996 and the first half of 1997.
However, the late-1997 Asian financial crisis has negatively impacted lift
truck demand in that part of the world.
TRADE RESTRICTIONS
A. UNITED STATES
Since June 1988, Japanese-built ICE forklift trucks imported into the
U.S., with lifting capacities between 2,000 and 15,000 pounds, including
finished and unfinished forklift trucks, chassis, frames and frames assembled
with one or more component parts, have been subject to an antidumping duty
order. Antidumping duty rates in effect through 1997 range from 7.39% to 56.81%
depending on manufacturer or importer. The antidumping duty rate applicable to
imports from S-N is 51.33%, and is likely to continue unchanged for the
foreseeable future, unless S-N and NMHG decide to participate in proceedings to
have it reduced. NMHG does not currently import for sale in the United States
any forklift trucks or components subject to the antidumping duty order. This
antidumping duty order will remain in effect until the Japanese manufacturers
and importers satisfy the U.S. Department of Commerce (the "Commerce
Department") that they have not individually sold merchandise subject to the
order in the United States below foreign 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 revocation of the order. The legislation implementing the Uruguay round of
GATT negotiations passed in 1994 provides that the antidumping order will be
reviewed for possible revocation in 2000. All of NMHG's major Japanese
competitors have either built or acquired manufacturing or assembly facilities
in the United States. NMHG cannot predict with any certainty if there have been
or will be any negative effects to it resulting from Japanese manufacturers
sourcing their forklift products from the United States.
B. EUROPE
From 1986 through 1994, Japanese forklift truck manufacturers were
subject to informal export restraints on Japanese-manufactured electric rider,
electric narrow-aisle and ICE forklift trucks shipped to Europe. These informal
restraints terminated in 1995. Several Japanese manufacturers have announced
either that they have established, or intend to establish, manufacturing or
assembly facilities within the European Community. NMHG also cannot predict with
any certainty if there have been or will be any negative effects to NMHG
resulting from Japanese manufacturers sourcing their forklift products from
Europe.
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PRODUCT DESIGN AND DEVELOPMENT
NMHG spent $23.5 million, $23.3 million and $24.2 million on product
design and development activities in 1997, 1996 and 1995, respectively. The
Hyster and Yale products are differentiated for the specific needs of their
respective customer bases. NMHG continues to pursue opportunities to improve
product costs by engineering new Hyster and Yale brand products with component
commonality.
Certain product design and development activities with respect to ICE
forklift trucks and some components are performed in Japan by S-N. S-N spent
approximately $4.1 million, $4.2 million and $3.8 million on product design and
development in 1997, 1996 and 1995, respectively.
BACKLOG
As of December 31, 1997, NMHG's backlog of unfilled orders for forklift
trucks was approximately 22,100 units, or $392 million, of which substantially
all is expected to be filled during fiscal 1998. This compares to the backlog as
of December 31, 1996 of approximately 11,700 units, or $219 million. An increase
in the demand for forklift trucks in 1997 caused backlog levels to increase as
dealers sought to increase inventory. Backlog represents unit orders to NMHG's
manufacturing plants from independent dealerships, retail customers and
contracts with the U.S. Government. Although these orders are believed to be
firm, such orders may be subject to cancellation or modification.
SOURCES
NMHG has adopted a strategy of obtaining its raw materials and
principal components on a global basis from competitively priced sources. NMHG
is dependent on a limited number of suppliers for certain of its critical
components, including diesel and gasoline engines and cast-iron counterweights
used on certain forklift trucks. There would be a material adverse effect on
NMHG if it were unable to obtain all or a significant portion of such
components, or if the cost of such components was to increase significantly
under circumstances which prevented NMHG from passing on such increases to its
customers.
DISTRIBUTION
The Hyster and Yale brand products are distributed through separate
highly developed worldwide dealer networks which are primarily independently
owned. In addition, NMHG has an internal sales force for each brand to sell
directly to major customers.
In Japan, forklift truck products are distributed by S-N. In 1995, Yale
reached agreement with Jungheinrich Aktiengesellschaft ("Jungheinrich"), a
German manufacturer of forklift trucks, to terminate Jungheinrich's distribution
of Yale brand products in Germany and Austria at the end of 1996. By mid-1997,
NMHG ceased to provide to Jungheinrich certain ICE and electric-powered products
for sale in other major European countries under the Jungheinrich brand name.
Yale is continuing to establish a new distribution network in Germany through
the appointment of additional dealers. NMHG's management does not believe that
the termination of its relationship with Jungheinrich will have a materially
adverse effect on NMHG.
FINANCING OF SALES
Hyster U.S. dealer and direct sales of Hyster products in the U.S. are
supported by leasing and financing services provided by Hyster Credit Company, a
division of Newcourt Capital Group, pursuant to an operating agreement which
expires in 2000.
NMHG is a 20% stockholder of Yale Financial Services, Inc., a
subsidiary of General Electric Capital Corporation, which offers U.S. dealers of
Yale products wholesale and retail financing and leasing services for its
forklift trucks. Such retail financing and leasing services are also available
to Yale national account customers.
EMPLOYEES
As of February 28, 1998, NMHG had approximately 7,000 employees.
Employees in the Danville, Illinois manufacturing and parts depot operations are
unionized, as are tool room employees located in Portland, Oregon. A three-year
contract for the Danville union employees expires in June 2000. A one-year
contract with the Portland tool room union expires in October 1998. Employees at
the facilities in Berea, Kentucky; Sulligent, Alabama; and Greenville and
Lenoir, North Carolina are not represented by unions.
In Europe, shop employees in the Craigavon, Northern Ireland facility
are unionized. Employees in the Irvine, Scotland and Nijmegen, The Netherlands
facilities are not represented by unions. The
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employees in Nijmegen have organized a works council, as required by Dutch law,
which performs a consultative role on employment matters.
NMHG's management believes its current labor relations with both union
and non-union employees are generally satisfactory and that it will be able to
renew the Portland union contract in 1998 on acceptable terms.
GOVERNMENT REGULATION
NMHG's manufacturing facilities, in common with others in the industry,
are subject to numerous laws and regulations designed to protect the
environment, particularly with respect to disposal of plant waste. NMHG's
products are also subject to various industry and governmental standards. NMHG's
management believes that the impact of expenditures to comply with such
requirements will not have a material adverse effect on NMHG.
PATENTS, TRADEMARKS AND LICENSES
NMHG is not materially dependent upon patents or patent protection.
NMHG is the owner of the Hyster trademark, which is currently registered in
approximately 55 countries. The Yale trademark, which is used on a perpetual
royalty-free basis by NMHG in connection with the manufacture and sale of
forklift trucks and related components, is currently registered in approximately
150 countries. NMHG's management believes that its business is not dependent
upon any individual trademark registration or license, but that the Hyster and
Yale trademarks are material to its business.
FOREIGN OPERATIONS
For a description of net sales and other financial information by
geographic region, see Note 19 to the Company's Consolidated Financial
Statements contained in Part IV hereof.
B. HAMILTON BEACH*PROCTOR-SILEX
GENERAL
Hamilton Beach*Proctor-Silex believes that it is the largest full-line
manufacturer and marketer of small electric kitchen appliances in North America
based on market share of key product categories. Hamilton Beach*Proctor-Silex's
products are marketed primarily to retail merchants and wholesale distributors.
Hamilton Beach*Proctor-Silex accounted for 17% and 12% of NACCO's assets and
liabilities, respectively, as of December 31, 1997, while its operations
accounted for 19% and 18% of NACCO's revenues and operating profits,
respectively, in 1997.
SALES AND MARKETING
Hamilton Beach*Proctor-Silex manufactures and markets a wide range of
small electric kitchen appliances, including motor driven appliances such as
blenders, food processors, mixers and electric knives, and heat-generating
appliances such as toasters, irons, coffeemakers, indoor grills and toaster
ovens. Hamilton Beach*Proctor-Silex generally markets its "better" and "best"
categories under the Hamilton Beach(R) brand and uses the Proctor-Silex(R) brand
for the "good" and "better" categories. Hamilton Beach*Proctor-Silex generally
markets its products primarily in North America, but also sells products in
Latin America, Asia and Europe. Sales are generated predominantly by a network
of inside sales employees to mass merchandisers, national department stores,
variety store chains, drug store chains, catalog showrooms and other retail
outlets. Principal customers include Wal*Mart, Kmart, Target, Canadian
Tire, Caldor, Montgomery Ward, Zellers and Ames. Sales promotional activities
are primarily focused on cooperative advertising.
Because of the seasonal nature of the markets for small electric
appliances, Hamilton Beach*Proctor-Silex's management believes that backlog is
not a meaningful indicator of performance and is not a significant indicator of
annual sales. Backlog of orders as of December 31, 1997 was approximately $11.0
million. This compares with the aggregate backlog as of December 31, 1996 of
approximately $8.4 million. This backlog represents customer orders, which may
be canceled at any time prior to shipment.
Hamilton Beach*Proctor-Silex's warranty program to the consumer
consists generally of a limited warranty lasting for two years for electric
appliances. Under its warranty program, the company may repair or replace, at
its option, those products found to contain manufacturing defects.
Revenues and operating profit for Hamilton Beach*Proctor-Silex are
traditionally greater in the second half of the year as sales of small electric
appliances increase significantly with the fall holiday selling season. Because
of the seasonality of purchases of its products, Hamilton Beach*Proctor-Silex
incurs substantial short-term debt to finance inventories and accounts
receivable.
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PRODUCT DESIGN AND DEVELOPMENT
Hamilton Beach*Proctor-Silex spent $4.4 million in 1997, $3.7 million
in 1996 and $3.3 million in 1995 on product design and development activities.
SOURCES
The principal raw materials used to manufacture and distribute Hamilton
Beach*Proctor-Silex's products are steel, aluminum, plastic and packaging
materials. Hamilton Beach*Proctor-Silex's management believes that adequate
quantities of raw materials are available from various suppliers.
COMPETITION
The small electric kitchen appliance industry is highly competitive.
Based on publicly available information about the industry, Hamilton
Beach*Proctor-Silex's management believes it is the largest full-line
manufacturer and marketer of small kitchen appliances in North America based on
key product categories.
As retailers generally purchase a limited selection of small electric
appliances, Hamilton Beach*Proctor-Silex competes with other suppliers for
retail shelf space and focuses its primary marketing efforts on retailers rather
than consumers. In 1996, the company also initiated consumer advertising for the
Hamilton Beach brand. Hamilton Beach*Proctor-Silex's management believes that
the principal areas of competition with respect to its products are quality,
price, product design, product features, merchandising, promotion and warranty.
Hamilton Beach*Proctor-Silex's management believes that it is competitive in all
of these areas.
GOVERNMENT REGULATION
Hamilton Beach*Proctor-Silex, in common with other manufacturers, is
subject to numerous Federal and state health, safety and environmental
regulations. The company's management believes that the impact of expenditures
to comply with such laws will not have a material adverse effect on Hamilton
Beach*Proctor-Silex. The company's products are subject to testing or regulation
by Underwriters' Laboratories, the Canadian Standards Association and various
entities in foreign countries which review product design.
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
Hamilton Beach*Proctor-Silex holds patents and trademarks registered in
the United States and foreign countries for various products. The company's
management believes that its business is not dependent upon any individual
patent, trademark, copyright or license, but that the Hamilton Beach and
Proctor-Silex trademarks are material to its business.
EMPLOYEES
As of February 28, 1998, Hamilton Beach*Proctor-Silex's work force
consisted of approximately 4,700 employees, most of which are not represented by
unions. In Canada, approximately 20 hourly employees at the Picton, Ontario
distribution facility are unionized. These employees are represented by an
employee association which performs a consultative role on employment matters.
On January 17, 1997, a collective bargaining agreement was executed for the
Saltillo manufacturing facility which was under construction at that time.
There are approximately 650 employees subject to the terms of this agreement.
Hamilton Beach*Proctor-Silex's management believes its current labor
relations with both union and non-union employees are satisfactory.
C. NORTH AMERICAN COAL
GENERAL
North American Coal is engaged in the mining and marketing of lignite
for use primarily as fuel for power generation by electric utilities. Sales by
North American Coal are made primarily through wholly owned project mining
subsidiaries pursuant to long-term, cost plus a profit per ton contracts. The
utility customers have arranged and guaranteed the financing of the development
and operation of the project mining subsidiaries. There is no recourse to NACCO
or North American Coal for the financing of these subsidiary mines. North
American Coal also provides dragline mining services for a limerock quarry near
Miami, Florida. At December 31, 1997, North American Coal's operating mines
consisted of mines where the reserves were acquired and developed by North
American Coal, except for the South Hallsville No. 1 Mine and the San Miguel
Lignite Mine where reserves are owned by the customers of these mines. North
American Coal also earns royalty income from the lease of various coal and gas
properties. For further information as to the financing of the project mining
subsidiaries,
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see Note 10 to the Consolidated Financial Statements contained in Part IV
hereof. Project mining subsidiaries accounted for 23% and 31% of NACCO's assets
and liabilities, respectively, as of December 31, 1997, while their operations
accounted for 10% and 30% of NACCO's revenues and operating profits,
respectively, in 1997.
SALES, MARKETING AND OPERATIONS
The principal customers of North American Coal are electric utilities
and a synfuels plant. In 1997, sales to one customer, which supplies coal to
four facilities, accounted for 46% of North American Coal's revenues compared
with 57% and 46% in 1996 and 1995, respectively. The distribution of sales in
the last five years has been as follows:
DISTRIBUTION
------------
TOTAL
TONS SOLD ELECTRIC SYNFUELS
(MILLIONS) UTILITIES PLANT
---------- --------- -----
1997 29.9 80% 20%
1996 27.6 77% 23%
1995 26.7 76% 24%
1994 27.2 76% 24%
1993 26.5 75% 25%
The contracts under which the project mining subsidiaries were
organized provide that, under certain conditions of default, the customer(s)
involved may elect to acquire the assets (subject to the liabilities) or the
capital stock of the subsidiary, for an amount effectively equal to book value.
In one case, the customer may elect to acquire the stock of the subsidiary after
a specified period of time without reference to default, in exchange for certain
payments on coal thereafter mined. North American Coal does not know of any
conditions of default that currently exist.
The location, mine type, reserve data, coal quality characteristics,
customer, sales tonnage and contract expiration date for the mines operated by
North American Coal in 1997 were as follows:
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DEVELOPED LIGNITE MINING OPERATIONS
- -----------------------------------
PROVEN AND PROBABLE RESERVES
(MILLIONS OF TONS)(1)
---------------------
Committed Average
Project Mining under BTUs
Subsidiaries Mine Location Type of Mine Contract Uncommitted Per Pound
- --------------- ---- -------- ------------ -------- ----------- ---------
The Coteau Freedom Mine(2) Beulah, ND Surface Lignite 555.5 ---- 6,767
Properties Company
The Falkirk Falkirk Mine(2) Underwood, ND Surface Lignite 528.7 ---- 6,200
Mining Company
The Sabine Mining South Hallsville, TX Surface Lignite (4) (4) (4)
Company Hallsville
No. 1 Mine (2)
Other
- -----
San Miguel San Miguel Jourdanton, TX Surface Lignite (5) (5) (5)
Lignite Mining Lignite
Operations Mine
Red River Mining Oxbow Mine Coushatta, LA Surface Lignite 10.8 (7) 12.4 6,722
Company (6) ------- ----
Total Developed 1,095.1 12.4
Undeveloped
- -----------
Mining Operations
- -----------------
North Dakota ---- ---- ---- ---- 566.5 6,428
Texas ---- ---- ---- ---- 129.1 6,208
Eastern ---- ---- ---- 65.2 67.4 12,070
Mississippi (9) ---- ---- ---- 39.8 24.7 5,300
---- ----
Total 105.1 787.6
Undeveloped
Total Developed/ 1,200.1 800.0
Undeveloped
Average
Sulfur
Content Per 1997 Sales
Project Mining Unit Tonnage Contract
Subsidiaries Mine Location of Weight Customer(s) (Plant) (Millions) Expires
- --------------- ---- -------- --------- ------------------- ---------- -------
The Coteau Freedom Mine(2) Beulah, ND 0.8% Dakota Coal Company 6.1 2007(3)
Properties Company (Great Plains Synfuels
Plant)
Dakota Coal Company 5.4 2007(3)
(Antelope Valley Station)
Dakota Coal Company 3.5 2007(3)
(Leland Olds Station)
Dakota Coal Company 0.9 1999
(Stanton Station of
United Power
Association)
The Falkirk Falkirk Mine(2) Underwood, ND 0.6% United Power Association/ 6.9 2020
Mining Company Cooperative Power
Association
(Coal Creek Station)
The Sabine Mining South Hallsville, TX (4) Southwestern Electric 4.1 2020
Company Hallsville Power Company
No. 1 Mine (2) (Henry W. Pirkey Power
Plant)
Other
San Miguel San Miguel Jourdanton, TX (5) San Miguel Electric 2.0 2007
Lignite Mining Lignite Cooperative,
Operations Mine Inc. (San Miguel Power
Plant)
Red River Mining Oxbow Mine Coushatta, LA 0.7% Central Louisiana 1.0 (8) 2010
Company (6) Electric Company/
Southwestern Electric
Power Company
(Dolet Hills Power Plant)
Undeveloped
Mining Operations
North Dakota ---- ---- 0.7% ---- ---- ----
Texas ---- ---- 0.9% ---- ---- ----
Eastern ---- ---- 3.3% ---- ---- ----
Mississippi (9) ---- ---- 0.6% ---- ---- ----
(1) The projected extraction loss is approximately ten percent (10%) of the
proven and probable reserves, except with respect to the reserves for the
Eastern Undeveloped Mining Operations, in which case the extraction loss is
approximately thirty percent (30%) of the proven and probable reserves.
(2) The contracts for these mines require the customer to cover the cost of the
ongoing replacement and upkeep of the plant and equipment of the mine.
(3) Although the term of the existing coal sales agreement terminates in 2007,
the term may be extended for six (6) additional periods of five years, or
until 2037, at the option of The Coteau Properties Company.
(4) The reserves of the South Hallsville No. 1 Mine are owned and controlled by
the customer and, therefore, have not been listed in the table.
(5) The reserves of the San Miguel Lignite Mine are owned and controlled by the
customer and, therefore, have not been listed in the table.
(6) Joint venture with Phillips Coal Company.
(7) These amounts represent the total (100%) of the joint venture reserves.
(8) These amounts represent the total (100%) of the 1997 joint venture tonnage.
(9) These amounts represent 25% of the reserves owned and controlled by the
joint venture with Phillips Coal Company.
8
10
Under terms of a lignite mining agreement entered into in 1985 with
Houston Lighting & Power Company ("HL&P") (as successor to Utility Fuels, Inc.),
a subsidiary of Houston Industries Incorporated, North American Coal was
retained to design, develop, construct and operate the proposed Trinity Mine in
the Malakoff-Cayuga reserves near Malakoff, Texas. The Trinity Mine was expected
to produce from 4.5 to 6.5 million tons of lignite annually. After several
delays, however, the proposed Malakoff Generating Station was canceled in July
1994. North American Coal and its wholly owned subsidiary, North American Coal
Royalty Company ("Royalty Company"), have received certain management fees,
minimum royalties and other payments in connection with the future development
of the Trinity Mine project. In December 1992, the Lignite Lease and Sublease
Agreement under which the minimum royalties were received was amended. The
parties agreed that, in light of the delayed development of this mining project,
effective January 1, 1993 HL&P was no longer obligated to pay minimum royalties
to Royalty Company. Termination of this obligation reduces North American Coal's
annual net income approximately $2.4 million, after tax. Under the original
agreement, these minimum royalty payments would have terminated at the end of
2005.
Under the lignite mining agreement with HL&P, North American Coal had
been receiving annual management fees. HL&P accelerated payment of the final
management fee of $2.6 million, after-tax, into 1995. In December 1995, HL&P
also terminated the lignite mining agreement and North American Coal will no
longer receive such management fees. Termination of this obligation reduces
North American Coal's annual net income approximately $5.3 million, after-tax,
compared with 1995 levels.
GOVERNMENT REGULATION
North American Coal, in common with other coal producers, continues to
be subject to Federal and state health, safety and environmental regulations.
The 1998 expenditures which will be required for compliance with the provisions
of governmental regulations, including mined land reclamation and other air and
water pollution abatement requirements, are estimated at $5.9 million for
certain closed mines and are included in the caption "Self-Insurance Reserves
and Other" in NACCO's Consolidated Financial Statements in this Annual Report on
Form 10-K. The active operations are required to make certain additional capital
expenditures to comply with such governmental regulations, which expenditures
will be recovered under the terms of the coal sales agreements with the utility
customers.
North American Coal's management believes that the Clean Air Act
Amendments, which became effective in 1990, will not have a material adverse
effect on its current operations, because substantially all of the power
generating facilities operated or supplied by North American Coal's customers
meet or exceed the requirements of the Clean Air Act.
The Federal Energy Regulatory Commission ("FERC") issued Order 636,
effective in May 1992, which requires gas pipeline companies to separate or
"unbundle" their gas sales and gas transportation functions. Effectively, order
636 forced pipelines to abandon their traditional merchant function meaning that
the nation's natural gas pipeline companies, including the four which purchase
gas produced by the Great Plains Synfuels Plant ("the Synfuels Plant"), which is
supplied by the company's Coteau mining subsidiary, have much less need for gas
supply under contract and are actively seeking to restructure or terminate many
supply contracts. In 1994, the four pipeline companies that purchase gas from
the Synfuels Plant each reached a tentative settlement agreement with the
plant's operator, Dakota Gasification Company ("DGC"), and the U.S. Department
of Energy ("DOE") over the dispute regarding the pipeline companies' gas
purchase contracts. The FERC approved these settlement agreements by order of
December 18, 1996. No requests for a rehearing were filed meaning the order
became final and unappealable. The settlements resolve all pricing disputes for
past periods and establish a new pricing formula for future gas sales.
COMPETITION
The coal industry competes with other sources of energy, particularly
oil, gas, hydro-electric power and nuclear power. Among the factors that affect
competition are the price and availability of oil and natural gas, environmental
considerations, the time and expenditures required to develop new energy
sources, the cost of transportation, the cost of compliance with governmental
regulation of operations, the impact of Federal and State energy policies and
the current trend toward deregulation of energy markets. The ability of North
American Coal to market and develop its reserves will depend upon the
interaction of these factors.
There is no official source of information on the subject, but North
American Coal believes that it is the ninth largest commercial coal producer in
the United States.
EMPLOYEES
As of February 28, 1998, North American Coal had approximately 990
employees.
9
11
D. KITCHEN COLLECTION
Kitchen Collection is a national specialty retailer of kitchenware,
small electric appliances and related accessories which operated 143 retail
stores as of February 28, 1998. Stores are located primarily in factory outlet
complexes that feature merchandise of highly recognizable name-brand
manufacturers. Kitchen Collection's product mix includes a broad line of
appliances from leading manufacturers, including Hamilton Beach*Proctor-Silex.
As the outlet channel of the retail industry is approaching maturity,
the management of Kitchen Collection continues to explore alternate areas of
growth and diversification. For the past several years, Kitchen Collection has
been testing alternative store formats both within the outlet industry and the
more traditional retail environments. Not all of these formats have met the
company's rigorous financial performance standards. Kitchen Collection continues
to explore alternate channels of distribution, including distribution through
the Internet.
Kitchen Collection accounted for 1% of NACCO's assets and liabilities
as of December 31, 1997, while its operations accounted for 3% and 2% of NACCO's
revenues and operating profits, respectively, in 1997.
ITEM 2. PROPERTIES
A. NACCO
NACCO currently leases its corporate headquarters building in Mayfield
Heights, Ohio.
B. NMHG
The following table summarizes certain information with respect to the
principal manufacturing, distribution and office facilities owned or leased by
NMHG.
LOCATION OWNED LEASED FUNCTION/PRINCIPAL PRODUCTS
- -------- ----- ------ ---------------------------
Basingstoke, England X Hyster and Yale forklift truck marketing and sales operations
for Europe, the Middle East and Africa
Berea, Kentucky X Manufacture of forklift trucks
Craigavon, Northern Ireland X Manufacture of forklift trucks
Danville, Illinois X Manufacture of forklift trucks, components and service parts
Danville, Illinois X Distribution of service parts for both Hyster and Yale
forklift trucks
Danville, Illinois X Hyster forklift truck marketing and sales operations for NMHG
Americas division
Flemington, New Jersey X Yale forklift truck marketing and sales operations for NMHG
Americas division and certain NMHG engineering operations
Greenville, North Carolina X NMHG Americas division headquarters; manufacture of forklift
trucks
Irvine, Scotland X NMHG European division headquarters; manufacture of forklift
trucks
Lenoir, North Carolina X Manufacture of component parts for forklift trucks
Masate, Italy X Manufacture of forklift trucks
Modena, Italy X Manufacture of forklift trucks
Nijmegen, The Netherlands X Manufacture of forklift trucks and component parts;
distribution of service parts for forklift trucks
Obu, Japan X S-N headquarters; manufacture of forklift trucks and
component parts; distribution of service parts for forklift
trucks
10
12
LOCATION OWNED LEASED FUNCTION/PRINCIPAL PRODUCTS
- -------- ----- ------ ---------------------------
Portland, Oregon X Technical center for testing of prototype equipment and
component parts
Portland, Oregon X NMHG headquarters
Portland, Oregon X Manufacture of production tooling and prototype units
Saltillo, Mexico X Land acquired for construction of manufacturing facility for
component parts of forklift trucks
Sao Paulo, Brazil X Assembly of forklift trucks; distribution of service parts
for forklift trucks
Shanghai, China X Land acquired by Shanghai Hyster Joint Venture for
construction of manufacturing facility for forklift trucks
Sulligent, Alabama X Manufacture of component parts for forklift trucks
Sydney, Australia X Distribution of service parts for forklift trucks and staff
operations for NMHG Asia-Pacific division
C. HAMILTON BEACH*PROCTOR-SILEX
The following table summarizes certain information with respect to the
principal manufacturing, distribution and office facilities owned or leased by
Hamilton Beach*Proctor-Silex.
LOCATION OWNED LEASED FUNCTION/PRINCIPAL PRODUCTS
- -------- ----- ------ ---------------------------
Collierville, Tennessee X Distribution center
El Paso, Texas X Distribution center
Glen Allen, Virginia X Corporate headquarters
Juarez, Chihuahua, Mexico X Assembly of heat driven products (two plants); plastic molding
facility (one plant)
Mt. Airy, North Carolina X Manufacture of heat driven products
Picton, Ontario, Canada X Distribution center
Southern Pines, North Carolina X Manufacture of iron components; service center for customer
returns; catalog sales center; parts distribution center
Toronto, Ontario, Canada X Proctor-Silex Canada sales and administration headquarters
Washington, North Carolina X Distribution and warranty center; manufacture of motor driven
products; plastic molding facility
Saltillo, Mexico X Manufacture of heat driven and motor products and plastic
molding facility
Sales offices are also leased in several cities in the United States
and Canada.
D. NORTH AMERICAN COAL
North American Coal's proven and probable coal reserves and deposits
(owned in fee or held under leases which generally remain in effect until
exhaustion of the reserves if mining is in progress) are estimated at
approximately 2.0 billion tons, approximately 83% of which are lignite deposits
in North Dakota. Reserves are estimates of quantities of coal, made by North
American Coal's geological and engineering staff, that are considered mineable
in the future using existing operating methods. Developed reserves are those
which have been allocated to mines which are in operation; all
11
13
other reserves are classified as undeveloped. Information concerning mine type,
reserve data and coal quality characteristics for North American Coal's
properties are set forth on the table on page 8 under "Item 1. Business -- C.
North American Coal -- Sales, Marketing and Operations."
E. KITCHEN COLLECTION
Kitchen Collection currently leases its corporate headquarters
building, a warehouse/distribution facility and a retail store in Chillicothe,
Ohio. Kitchen Collection leases the remainder of its retail stores. A typical
store is approximately 3,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to any
material pending legal proceeding other than ordinary routine litigation
incidental to its respective business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders of the Company.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The information under this Item is furnished pursuant to Instruction 3
to Item 401(b) of Regulation S-K.
There exists no arrangement or understanding between any executive
officer and any other person pursuant to which such executive officer was
elected. Each executive officer serves until his successor is elected and
qualified.
The table on the following pages sets forth the name, age, current
position and principal occupation and employment during the past five years of
the Company's executive officers.
12
14
EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE CURRENT POSITION OTHER POSITIONS
- ---- --- ---------------- ---------------
Alfred M. Rankin, Jr. 56 Chairman, President and Chief From prior to 1993 to May 1994, President
Executive Officer of NACCO (since May and Chief Executive Officer of NACCO.
1994)
Charles A. Bittenbender 48 Vice President, General Counsel and
Secretary of NACCO (since prior to 1993)
Kenneth C. Schilling 38 Vice President and Controller of NACCO From June 1996 to May 1997, Controller of
(since May 1997) NACCO. From July 1995 to May 1996, Manager
of Tax and Budgeting of NACCO. From prior
to 1993 to June 1995, Manager of Tax of
NACCO.
J.C. Butler, Jr. 37 Vice President - Corporate Development From June 1996 to May 1997, Manager of
and Treasurer of NACCO (since May 1997) Corporate Development and Treasurer of
NACCO. From May 1995 to May 1996, Manager
of Corporate Development of NACCO. From
prior to 1993 to 1995, Associate at
McFarland Dewey & Co. (investment banking).
Lauren E. Miller 43 Vice President - Counsulting Services From January 1996 to May 1997, Director of
of NACCO (since May 1997) Internal Counsulting of NACCO. From prior
to 1993 to December 1995, Manager of
Strategy Development of NACCO.
13
15
PRINCIPAL OFFICERS OF THE COMPANY'S SUBSIDIARIES
A. NMHG
NAME AGE CURRENT POSITION OTHER POSITIONS
- ---- --- ---------------- ---------------
Reginald R. Eklund 57 President and Chief Executive Officer From August 1993 to September 1993, Vice
of NMHG (since prior to 1993) President of Hyster and Yale. From prior
to 1993 to August 1993, President and Chief
Executive Officer of Hyster-Yale. From
prior to 1993 to August 1993, President and
Chief Executive Officer of Yale.
Julie C. Hui 41 Controller of NMHG (since January 1995) From prior to 1993 to January 1995,
Controller, Burr Brown Corporation
(manufacturer of micro electronics and
systems products).
Geoffrey D. Lewis 40 Vice President, General Counsel and From prior to 1993 to September 1995,
Secretary of NMHG (since September 1995) Senior Vice President, General Counsel and
Corporate Secretary for American Health
Properties, Inc. (health care facilities).
Jeffrey C. Mattern 45 Treasurer of NMHG (since prior to 1993)
William C. Maxwell 51 Vice President, Finance and Chief From March 1993 to August 1996, Vice
Financial Officer of NMHG (since August President Finance - Europe of NMHG. From
1996) prior to 1993 to February 1993, Director
of Business Planning of NMHG.
Frank G. Muller 56 Vice President, President - Americas From February 1993 to December 1993, Vice
for NMHG (since May 1993) President of Hyster-Yale. From prior to
1993 to May 1993, Vice President,
Manufacturing, Americas for NMHG.
Victoria L. Rickey 45 Vice President, Managing Director, NMHG From 1993 to January 1995, Senior Vice
Europe (since January 1995) President International Business Group,
J.I. Case (manufacturer of agricultural
and construction equipment). From prior to
1993 to 1993, Vice President, Agricultural
Equipment of J.I. Case.
Edward W. Ryan 59 Vice President, Marketing and From January 1994 to February 1995, Vice
Counterbalanced Trucks Worldwide (since President, Yale Materials Handling
February 1995) and President Corporation. From prior to 1993 to
Asia-Pacific and China (since November February 1995, Vice President, Yale
1996) Marketing.
Graham D. Tribe 55 Vice President, Managing Director, NMHG From prior to 1993 to May 1994, Managing
Asia-Pacific (since May 1994) Director, Hyster Australia Pty. Ltd.
14
16
PRINCIPAL OFFICERS OF THE COMPANY'S SUBSIDIARIES
B. HAMILTON BEACH*PROCTOR-SILEX
NAME AGE CURRENT POSITION OTHER POSITIONS
- ---- --- ---------------- ---------------
Richard E. Posey 51 President and Chief Executive Officer From January 1993 to June 1994, Executive
of Hamilton Beach*Proctor-Silex (since Vice President, Consumer Products, North
September 1995) America, S.C. Johnson & Sons, Inc.
(manufacturer of consumer products).
Charles B. Hoyt 50 Senior Vice President - Finance and From prior to 1993 to January 1997, Vice
Chief Financial Officer of Hamilton President - Finance and Chief Financial
Beach*Proctor-Silex (since January 1997) Officer of Hamilton Beach*Proctor-Silex.
Clark S. Leslie 64 Senior Vice President - Operations of From March 1996 to December 1996, Vice
Hamilton Beach*Proctor-Silex (since President - Operations of Hamilton
January 1997) Beach*Proctor-Silex. From December 1993 to
March 1996, General Manager, Washington,
N.C. plant, Hamilton Beach*Proctor-Silex.
From prior to 1993 to December 1993,
Senior Vice President of Operations,
Esselt Pendaflex Corp. (manufacturer of
office supplies).
Michael J. Morecroft 55 Senior Vice President, Engineering From prior to 1993 to December 1996, Vice
/Product Development of Hamilton President, Engineering/Product Development
Beach*Proctor-Silex (since January 1997) of Hamilton Beach*Proctor-Silex.
Judith B. McBee 50 Senior Vice President - Marketing of From October 1994 to December 1996,
Hamilton Beach*Proctor-Silex (since Executive Vice President - Marketing of
January 1997) Hamilton Beach*Proctor-Silex. From prior to
1993 to September 1994, Executive Vice
President - Marketing/Sales of Hamilton
Beach*Proctor Silex.
Paul C. Smith 51 Senior Vice President - Sales and From September 1994 to January 1996,
International of Hamilton Beach*Proctor Senior Vice President - Sales of Hamilton
Silex (since January 1996) Beach*Proctor-Silex. From prior to 1993 to
September 1994, Vice President and General
Manager, Consumer Markets Division, Fuji
Photo Film U.S.A. (manufacturer of
photographic film).
George P. Manson, Jr. 44 Vice President, General Counsel and From March 1995 to July 1996, Corporate
Secretary of Hamilton Counsel of American Home Products Corp.
Beach*Proctor-Silex (since July 1996) (health care and consumer products
manufacturer). From February 1994 to
January 1995, Assistant General Counsel,
A.T. Massey Coal Company (mining company).
From prior to 1993 to December 1993,
Corporate Counsel of American Home
Products Corp.
James H. Taylor 40 Vice President and Treasurer of
Hamilton Beach*Proctor-Silex (since
prior to 1993)
15
17
PRINCIPAL OFFICERS OF THE COMPANY'S SUBSIDIARIES
C. NORTH AMERICAN COAL
NAME AGE CURRENT POSITION OTHER POSITIONS
- ---- --- ---------------- ---------------
Clifford R. Miercort 58 President and Chief Executive Officer
of North American Coal (since prior to
1993)
Herschell A. Cashion 55 Senior Vice President - Business From prior to 1993 to August 1994, Vice
Development of North American Coal President - Business Development of North
(since August 1994) American Coal.
Charles B. Friley 56 Vice President and Chief Financial From prior to 1993 to October 1994, Senior
Officer of North American Coal (since Vice President of Phillips Alaska Natural
February 1995) Gas Company.
Thomas A. Koza 51 Vice President - Law and Administration
of North American Coal; Secretary of
North American Coal (since prior to
1993)
K. Donald Grischow 50 Controller and Treasurer of North
American Coal (since prior to 1993)
16
18
PRINCIPAL OFFICERS OF THE COMPANY'S SUBSIDIARIES
D. KITCHEN COLLECTION
NAME AGE CURRENT POSITION OTHER POSITIONS
- ---- --- ---------------- ---------------
Randall D. Lynch 50 President and Chief Executive Officer
of Kitchen Collection (since prior to
1993)
Randolph J. Gawelek 50 Executive Vice President and Secretary
of Kitchen Collection (since prior to
1993)
17
19
PART II
ITEM 5. MARKET FOR NACCO INDUSTRIES, INC. COMMON STOCK AND RELATED SECURITY
HOLDERS' MATTERS
NACCO Industries, Inc. Class A common stock is traded on the New York Stock
Exchange under the ticker symbol NC. Because of transfer restrictions, no
trading market has developed, or is expected to develop, for the Company's Class
B common stock. The Class B common stock is convertible into Class A common
stock on a one-for-one basis. The high and low market prices for the Class A
common stock and dividends per share for both classes of stock for each quarter
during the past two years are presented in the table below:
1997
----
Sales Price
----------- Cash
High Low Dividend
------- ------ -----------
First quarter $ 55.38 $49.13 18.75(cents)
Second quarter $ 56.69 $44.38 19.50(cents)
Third quarter $119.50 $55.75 19.50(cents)
Fourth quarter $127.00 $96.28 19.50(cents)
1996
----
Sales Price
----------- Cash
High Low Dividend
------- ------ -----------
First quarter $59.88 $51.50 18.00(cents)
Second quarter $64.00 $54.63 18.75(cents)
Third quarter $56.00 $47.75 18.75(cents)
Fourth quarter $55.00 $43.13 18.75(cents)
At December 31, 1997, there were approximately 600 holders of record of Class A
common stock and 400 holders of record of Class B common stock.
On February 10, 1998, the Company issued 9,657 shares of Class A common stock to
certain employees of the Company pursuant to the NACCO Industries, Inc.
Executive Long-Term Incentive Compensation Plan (the "Plan"). These shares are
fully vested but are subject to a ten year restriction on transfer. The Plan is
further described in footnote 1 to the table "Item 1. Election of Directors -
Long-Term Incentive Plans" in the 1998 Proxy Statement.
18
20
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
NACCO Industries, Inc. and Subsidiaries
Year Ended December 31
----------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In millions, except per share and employee data)
Total revenues $2,246.9 $2,273.2 $2,204.5 $1,864.9 $1,549.4
Operating profit $ 132.0 $ 131.2 $ 148.7 $ 129.6 $ 88.5
Income before extraordinary items $ 61.8 $ 50.6 $ 65.5 $ 45.3 $ 11.6
Extraordinary items:
Extraordinary gain, net-of-tax 32.3
Extraordinary charges, net-of-tax (3.4) (3.2) (3.3)
-------- -------- -------- -------- --------
Net income (loss) $ 61.8 $ 50.6 $ 94.4 $ 42.1 $ 8.3
======== ======== ======== ======== ========
Total assets $1,729.1 $1,708.1 $1,833.8 $1,694.3 $1,642.5
Long-term debt $ 230.2 $ 333.3 $ 320.2 $ 286.7 $ 357.8
Stockholders' equity $ 425.1 $ 379.3 $ 370.1 $ 279.4 $ 235.6
Basic earnings per share:
Income before extraordinary items $ 7.56 $ 5.67 $ 7.31 $ 5.06 $ 1.30
Extraordinary items:
Extraordinary gain, net-of-tax 3.61
Extraordinary charges, net-of-tax (0.38) (.36) (.37)
-------- -------- -------- -------- --------
Net income (loss) $ 7.56 $ 5.67 $ 10.54 $ 4.70 $ .93
======== ======== ======== ========= ========
Diluted earnings per share:
Income before extraordinary items $ 7.55 $ 5.67 $ 7.30 $ 5.05 $ 1.30
Extraordinary items:
Extraordinary gain, net-of-tax 3.60
Extraordinary charges, net-of-tax (0.38) (.35) (.37)
-------- -------- -------- -------- --------
Net income (loss) $ 7.55 $ 5.67 $ 10.52 $ 4.70 $ .93
======== ======== ======== ======== ========
Cash dividends $ 0.773 $ 0.743 $ 0.710 $ 0.675 $ 0.655
Market value at December 31 $ 107.19 $ 53.50 $ 55.50 $ 48.38 $ 51.50
Stockholders' equity $ 52.13 $ 46.34 $ 41.28 $ 31.21 $ 26.35
Average shares outstanding 8.171 8.920 8.963 8.948 8.938
Total employees 13,400 11,800 12,300 11,100 10,900
19
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data)
FINANCIAL SUMMARY
NACCO Industries, Inc. ("NACCO," the parent company) has four operating
subsidiaries (collectively, the "Company"): NACCO Materials Handling Group, Inc.
("NMHG"), Hamilton Beach/Proctor-Silex, Inc. ("HB*PS"), The North American Coal
Corporation ("NACoal") and The Kitchen Collection, Inc. ("KCI").
Consolidated net income was $61.8 million, or $7.56 basic earnings per share, in
1997, $50.6 million, or $5.67 basic earnings per share, in 1996, and $94.4
million, or $10.54 basic earnings per share, in 1995. Included in the 1995 net
income are extraordinary items, which affect the year-to-year comparison. An
extraordinary gain of $32.3 million, net-of-tax, or $3.61 basic earnings per
share, was recognized as a result of an adjustment to the obligation to the
United Mine Workers of America Combined Benefit Fund ("UMWA"). In addition, an
extraordinary charge of $3.4 million, net-of-tax, or $0.38 basic earnings per
share, was recognized in 1995 to reflect retirement of debt and debt
restructuring costs at NMHG. Income before the effect of these extraordinary
items was $65.5 million, or $7.31 basic earnings per share, in 1995. See Note 3
to the Consolidated Financial Statements contained in Part IV hereof.
The following schedule identifies the components of the changes in consolidated
revenues, operating profit and net income for 1997 compared with 1996:
Operating Net
Revenues Profit Income
------------------ ------------------ ------------------
1996 $ 2,273.2 $ 131.2 $ 50.6
Increase (decrease) in 1997 from:
NMHG (Excluding special charges) (72.1) 14.3 14.8
HB*PS 28.0 (1.0) (.8)
NACoal 13.8 3.6 (1.3)
KCI 4.1 (.3) (.2)
NACCO & Other (.1) .5 (.1)
Difference between effective and
statutory tax rates (Excluding
special credit) -- -- (.5)
Minority interest -- -- .5
------------------ ------------------ ------------------
$ 2,246.9 $ 148.3 $ 63.0
Special charge: Restructuring (8.0) (5.2)
Special charge: Employee relocation (8.3) (5.4)
Special credit: Tax adjustments 9.4
------------------ ------------------ ------------------
1997 $ 2,246.9 $ 132.0 $ 61.8
================== ================== ==================
The special charges and credits noted above, which were recorded in the fourth
quarter of 1997, materially affect year-to-year comparability and are discussed
below.
20
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued
(Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data)
FINANCIAL SUMMARY--Continued
During the fourth quarter of 1997, the board of directors approved a plan to
restructure certain operating activities and to relocate certain employees at
NMHG. In accordance with this plan, NMHG recognized special charges of $16.3
million. The planned restructuring activities, which the Company began to
implement in December 1997, include the relocation and consolidation of certain
engineering and marketing functions with the objective of improving customer
service, raising productivity and thereby reducing costs. The Consolidated
Statements of Income include a Restructuring charge, which was recorded in the
fourth quarter of 1997, of $8.0 million ($4.8 million after effective tax
provision, or $0.59 per share) and represents an accrual for employee severance
costs and costs to terminate certain facility leases. In addition, Selling,
general and administrative expenses in the 1997 Consolidated Statements of
Income include a charge of $8.3 million ($5.0 million after effective tax
provision, or $0.61 per share) arising from commitments to provide relocation
benefits to certain employees. See also Note 4 to the Consolidated Financial
Statements for additional discussion of these special charges.
Restructuring activities and employee relocations are expected to be completed
by the end of 1998, and no material incremental costs resulting from these
activities are anticipated in future periods. In 1999, it is anticipated that
cost savings will be approximately $14.0 million ($8.4 million after effective
tax provision).
Also during the fourth quarter of 1997, NMHG recognized several tax adjustments
that affect year-to-year comparability. Management identified certain future
business opportunities and financing alternatives and concluded that the
earnings of its foreign subsidiaries will remain invested offshore for the
foreseeable future. This conclusion resulted in a fourth quarter credit to net
income of $17.4 million, representing the reversal of deferred taxes on
unremitted foreign earnings of $15.3 million provided prior to 1997 and $2.1
million provided in the first three quarters of 1997. In addition, NMHG
recognized a valuation allowance of $5.9 million against certain deferred tax
assets. See Note 17 to the Consolidated Financial Statements for a further
discussion of these items. The net effect of these tax adjustments of $9.4
million (or $1.15 per share) reduced NACCO's consolidated effective tax rate by
11 percent and reduced NMHG's effective tax rate by 18 percent in 1997.
SEGMENT INFORMATION
NACCO's four subsidiaries function in distinct business environments, and
results of operations and financial condition are, therefore, discussed at the
subsidiary level. Results by segment are summarized in Note 19 to the
Consolidated Financial Statements.
21
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued
(Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data)
NACCO MATERIALS HANDLING GROUP, INC.
NMHG, 98 percent-owned by NACCO, designs, manufactures and markets forklift
trucks and related service parts under the Hyster(R) and Yale(R) brand names.
FINANCIAL REVIEW
The results of operations for NMHG were as follows for the year ended December
31:
1997 1996 1995
-------------- -------------- --------------
Revenues
Americas $ 1,015.4 $ 1,015.5 $ 1,002.7
Europe, Africa and Middle East 398.9 451.8 422.3
Asia - Pacific 73.7 92.8 85.1
-------------- -------------- --------------
$ 1,488.0 $ 1,560.1 $ 1,510.1
============== ============== ==============
Operating profit (loss)
Americas $ 52.3 $ 43.7 $ 48.8
Europe, Africa and Middle East 22.6 32.5 34.4
Asia - Pacific (4.4) (3.7) .2
-------------- -------------- --------------
$ 70.5 $ 72.5 $ 83.4
============== ============== ==============
Operating profit (loss) excluding
goodwill amortization
Americas $ 60.2 $ 51.6 $ 56.5
Europe, Africa and Middle East 26.2 35.9 37.2
Asia - Pacific (4.2) (3.5) .5
-------------- -------------- --------------
$ 82.2 $ 84.0 $ 94.2
============== ============== ==============
Net income before
extraordinary charges $ 38.7 $ 26.4 $ 36.9
Extraordinary charges, net-of-tax -- -- (3.4)
-------------- -------------- --------------
Net income $ 38.7 $ 26.4 $ 33.5
============== ============== ==============
22
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued
(Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data)
NACCO MATERIALS HANDLING GROUP, INC.--Continued
FINANCIAL REVIEW--Continued
1997 COMPARED WITH 1996
The following schedule identifies the components of the changes in revenues,
operating profit and net income for 1997 compared with 1996:
Operating Net
Revenues Profit Income
-------------- -------------- -----------------
1996 $ 1,560.1 $ 72.5 $ 26.4
Increase (decrease) in 1997 from:
Unit volume (71.2) (16.0) (10.4)
Sales mix 8.3 11.9 7.7
Average sales price 1.5 1.5 1.0
Service parts 14.5 5.5 3.6
Foreign currency (25.2) (3.6) (2.4)
Manufacturing cost -- 18.4 11.9
Other operating expense -- (3.4) (2.2)
Other income and expense -- -- 5.6
Difference between effective and
statutory tax rates -- -- (1.3)
-------------- -------------- --------------
$ 1.488.0 $ 86.8 $ 39.9
Restructuring charge -- (8.0) (5.2)
Employee relocation charge -- (8.3) (5.4)
Tax adjustments -- -- 9.4
-------------- -------------- --------------
1997 $ 1,488.0 $ 70.5 $ 38.7
============== ============== ==============
While revenues in 1997 decreased 4.6 percent, net income increased 46.6 percent.
The decrease in revenues can be attributed to a decline in worldwide unit volume
from 69,389 units in 1996 to 66,833 units in 1997. Unit volume declined
significantly during the first quarter of 1997 as compared with the first
quarter of 1996, while unit volume during the last nine months of 1997 was
comparable to the same period of 1996. The decrease in unit volume in the first
quarter of 1997 was driven by decreased demand for forklift trucks during the
fourth quarter of 1996 and the first quarter of 1997, resulting in a decline in
production rates, especially during the first quarter of 1997. In addition to
the decrease in unit volume, a slight decline in the European market size,
coupled with adverse currency impacts on pricing, contributed to NMHG's decline
in revenue. A decrease in the Asia-Pacific market size and a decline in NMHG's
market share in that region due to intense competition also contributed to the
drop in revenue. Although revenues declined in 1997, worldwide backlog increased
to 22,100 units at December 31, 1997 from 11,700 units at December 31, 1996.
The strengthening of the British pound sterling during 1997 had an adverse
impact on NMHG's revenues, operating profit and net income. This impact on
operating profit and net income was partially offset, however, by significant
savings from material purchases denominated in Japanese yen, which weakened
against the U.S. dollar.
23
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued
(Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data)
NACCO MATERIALS HANDLING GROUP, INC.--Continued
FINANCIAL REVIEW--Continued
Excluding the effects of the restructuring charge, the employee relocation
provision and the tax adjustments discussed previously, operating profit and net
income increased as compared with 1996. This increase primarily resulted from
improved manufacturing efficiencies, savings from process re-engineering, gains
from strategic supplier alliances, favorable sales mix and increased parts
sales. In addition, net income increased due to lower interest expense as a
result of reduced borrowings, reflecting strong operating cash flows and the
impact of the sale of certain accounts receivable.
1996 COMPARED WITH 1995
The following schedule identifies the components of the changes in revenues,
operating profit and net income for 1996 compared with 1995:
Operating Net
Revenues Profit Income
-------------- -------------- --------------
1995 $ 1,510.1 $ 83.4 $ 33.5
Increase (decrease) in 1996 from:
Unit volume (14.4) (2.4) (1.6)
Sales mix 43.4 5.9 3.8
Average sales price (4.0) (4.0) (2.6)
Service parts 26.5 11.6 7.5
Foreign currency (1.5) 9.6 6.2
Manufacturing cost -- (19.7) (12.5)
Other operating expense -- (11.9) (7.7)
Other income and expense -- -- (1.5)
Difference between effective and
statutory tax rates -- -- (2.1)
Extraordinary charges -- -- 3.4
-------------- -------------- --------------
1996 $ 1,560.1 $ 72.5 $ 26.4
============== ============== ==============
While the worldwide market size of forklift trucks declined approximately 3
percent during 1996, NMHG obtained a slightly improved market share in 1996 over
1995. Unit volume in the Americas declined 5 percent to 47,628 units due to the
decline in market size and dealer inventory reductions. This decline was
partially offset by increased volume in Europe of 12 percent to 18,702 units and
in Asia-Pacific of 7 percent to 3,059 units. Late 1995 and mid 1996 acquisitions
of European warehouse equipment businesses principally contributed to the unit
growth in Europe. Product sales mix favorably impacted revenues due to increased
sales of higher value product. Intensified pricing pressures in the Americas due
to decreased industry demand, slightly offset by price increases implemented in
Europe, caused the unfavorable pricing impact. The improvement in service parts,
concentrated in the Americas, resulted from NMHG's increasing lift truck
population.
Operating profit was positively affected by currency as the strength of the U.S.
dollar against the Japanese yen reduced the cost of Japanese sourced goods.
Manufacturing costs increased due to lower plant utilization and labor
inefficiencies resulting from the decline in market demand and due to increased
warranty and inventory reserves. Higher marketing costs expended to generate
sales volume and operating expenses of recently acquired businesses also
contributed to the decline in operating profit and net income.
24
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued
(Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data)
NACCO MATERIALS HANDLING GROUP, INC.--Continued
FINANCIAL REVIEW--Continued
OTHER INCOME, EXPENSE AND INCOME TAXES: The components of other income (expense)
and the effective tax rate are as follows for the year ended December 31:
1997 1996 1995
-------------- -------------- --------------
Interest expense $ (14.5) $ (25.0) $ (25.9)
Other-net (3.7) (1.5) .7
-------------- -------------- --------------
$ (18.2) $ (26.5) $ (25.2)
============== ============== ==============
Effective tax rate 26.0% 42.5% 36.8%
The decline in interest expense in 1997 as compared with 1996 and 1995 resulted
from both a decrease in the effective interest rate and reduced average
borrowings during 1997. The reduction in the average borrowings was facilitated
by improved cash flow from operations and proceeds from the sale of certain
accounts receivable.
Other-net consists primarily of equity in the earnings of unconsolidated
affiliates, including Sumitomo-NACCO Materials Handling Group ("S-N"), a 50
percent-owned joint venture, and gains and losses on the sale of assets,
including receivables. In 1997, other-net included income of $0.4 million from
S-N, compared with income of $1.5 million in 1996 and $2.2 million in 1995.
Discounts on the sale of receivables, including domestic and international, were
$4.3 million in 1997, $1.8 million in 1996 and $1.6 million in 1995, reflecting
the 1997 addition of the domestic sale of receivables and an increase in the
amount of international receivables sold in 1997.
As noted previously, the net effect of an adjustment to reverse the unremitted
foreign earnings reserve and the recognition of a valuation allowance against
certain deferred tax assets resulted in an 18 percent reduction in the effective
tax rate in 1997. Excluding these adjustments, the increase in the 1997
effective tax rate as compared with 1996 and 1995 primarily resulted from
non-recurring favorable income tax adjustments recognized in 1996 and 1995 due
to the resolution of tax issues from prior years.
EXTRAORDINARY CHARGES: In 1995, NMHG recognized an extraordinary charge of $3.4
million due to the write-off of premiums and unamortized financing fees
associated with the early retirement of certain debt agreements and debentures.
See Note 3 to the Consolidated Financial Statements for further discussion.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, NMHG had available $181.4 million of its $350.0 million
revolving credit facility. The expiration date of this revolving credit
facility, which is currently June 2002, may be extended, on an annual basis, for
one additional year upon the mutual consent of NMHG and the bank group. In
addition, the NMHG facility has performance-based pricing which sets interest
rates based upon the achievement of certain financial performance targets. NMHG
also has separate credit facilities totaling $38.5 million, of which $27.6
million was available at December 31, 1997. NMHG believes it can meet all of its
current and long-term commitments and operating needs from operating cash flows
and funds available under revolving credit agreements.
25
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued
(Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data)
NACCO MATERIALS HANDLING GROUP, INC.--Continued
LIQUIDITY AND CAPITAL RESOURCES.--Continued
Planned capital expenditures for property, plant and equipment in 1998 are
anticipated to be approximately $78.1 million, compared with capital
expenditures of $25.3 million in 1997 and $42.3 million in 1996. The increase in
the anticipated 1998 capital expenditures results from significant capital
projects to be undertaken, including: office additions related to the
restructuring program, a plant expansion in Europe, investments in manufacturing
facilities in Mexico and China, information systems and tooling for new
products. Capital for these expenditures has been and is expected to be provided
primarily by internally generated funds and short-term borrowings.
In the second quarter of 1997, NMHG entered into an agreement with a financial
institution to sell an undivided percentage ownership interest in certain
eligible domestic accounts receivable, on a revolving basis, up to a maximum of
$60.0 million. The expiration date of this agreement, which is currently April
1998, may be extended for one-year periods through April 2001, upon the mutual
consent of both parties. As of December 31, 1997, $18.6 million of NMHG's trade
receivables were sold in accordance with this agreement and are reflected in the
Consolidated Balance Sheets as a reduction of accounts receivable, net. The
proceeds from the sale of receivables were used to reduce the level of
borrowings under NMHG's revolving credit facility. Discounts and other
transaction losses incurred in 1997 were approximately $1.4 million and have
been reflected in other - net in the Consolidated Statements of Income. In
connection with this transaction, NMHG's revolving credit facility was amended
to provide that the total credit available at any point in time under this $350
million facility will be reduced by the amount of domestic receivables sold at
such time.
As of December 31, 1997, $33.5 million of trade accounts receivable have been
sold pursuant to the agreement discussed above and pre-existing agreements to
sell trade accounts receivable in Europe and Australia. This compares with $56.3
million of trade receivables sold as of December 31, 1996.
26
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued
(Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data)
NACCO MATERIALS HANDLING GROUP, INC.--Continued
LIQUIDITY AND CAPITAL RESOURCES - Continued
NMHG's capital structure is presented below:
DECEMBER 31 DECEMBER 31
1997 1996
----------------- -----------------
Total net tangible assets $ 188.4 $ 267.9
Goodwill at cost 447.7 443.6
----------------- -----------------
Net assets before goodwill amortization 636.1 711.5
Accumulated goodwill amortization (94.4) (82.8)
Total debt (156.8) (258.9)
----------------- -----------------
Stockholders' equity $ 384.9 $ 369.8
================= =================
Debt to total capitalization 29% 41%
The decrease in net tangible assets of $79.5 million primarily results from a
$25.7 million decline in cash and cash equivalents, a $9.5 million reduction of
inventory, a $42.8 million increase in accounts payable and a $40.6 million
increase in other current liabilities. These items are partially offset by a
$16.9 million increase in accounts receivable, a $10.0 million addition to net
current deferred tax assets and a $12.5 million decrease in net non-current
deferred tax liabilities.
The decrease in cash and cash equivalents results from the repayment of $102.1
million of debt, the expenditure of $36.9 million for capital improvements and a
business acquisition and the payment of a $15.3 million dividend to
stockholders, partially offset by cash generated from operations of $126.9
million. The decline in inventory reflects a reduction in the number of days
supply on hand and the increase in accounts payable reflects an increase in the
volume of inventory purchases. Other current liabilities have increased
primarily due to the 1997 restructuring and employee relocation reserves, an
increase in accrued warranty obligations and an increase in other employee wage
and benefit accruals. The change in accounts receivable reflects an increase in
the volume of fourth quarter 1997 sales as compared with 1996 and a reduction in
the amount of receivables sold.
The increase in net current deferred tax assets relates to provisions for
increased accruals and reserves, including the restructuring and employee
relocation reserves. The net non-current deferred tax liability decreased due to
the reversal of the reserve for unremitted foreign earnings, as previously
discussed.
Debt levels declined due to an improvement in domestic cash flow and proceeds
from the sale of accounts receivable which were used to retire debt.
27
29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued
(Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data)
HAMILTON BEACH*PROCTOR-SILEX, INC.
HB*PS, wholly owned by NACCO, is a leading manufacturer of small electric
appliances. In 1996, NACCO purchased the remaining 20 percent minority interest
in HB*PS from the minority stockholder.
The housewares business is seasonal. A majority of revenues and operating profit
is earned in the second half of the year, when sales of small electric
appliances increase significantly for the fall holiday selling season.
FINANCIAL REVIEW
The results of operations for HB*PS were as follows for the year ended December
31:
1997 1996 1995
-------------- -------------- --------------
Revenues $ 423.1 $ 395.1 $ 381.4
Operating profit $ 23.3 $ 24.3 $ 25.0
Operating profit excluding
goodwill amortization $ 27.3 $ 28.1 $ 27.8
Net income $ 9.2 $ 10.7 $ 11.8
1997 COMPARED WITH 1996
The following schedule identifies the components of the changes in revenues,
operating profit and net income for 1997 compared with 1996:
Operating Net
Revenues Profit Income
-------------- -------------- --------------
1996 $ 395.1 $ 24.3 $ 10.7
Increase (decrease) in 1997 from:
Unit volume and sales mix 40.7 13.1 8.5
Average sales price (12.7) (12.7) (8.3)
Manufacturing cost -- .4 .3
Other operating expense -- (1.8) (1.1)
Other income and expense -- -- (.2)
Difference between effective and
statutory tax rates -- -- (.7)
-------------- -------------- --------------
1997 $ 423.1 $ 23.3 $ 9.2
============== ============== ==============
28
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued
(Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data)
HAMILTON BEACH*PROCTOR-SILEX, INC.--Continued
FINANCIAL REVIEW--Continued
Revenues in 1997 increased due to an increase in unit volume, partially offset
by a decline in the average sales price per unit. Increased volume from 29.6
million units in 1996 to 33.4 million units in 1997 resulted from increased
sales of toasters, blenders, hand mixers and irons, partially offset by
decreased sales of toaster ovens, roasters and can openers. These volume
increases were largely driven by increased sales to key mass merchants and
resulted in improved market share. The increase in operating profit and net
income resulting from this volume growth was almost entirely offset by price
decreases primarily on irons, toasters, coffeemakers and indoor grills, which
were necessary to compete with Chinese imports. Also contributing to the decline
in net income were higher employee costs, start-up costs of the Saltillo
facility, expenses to reduce manufacturing activities in the United States and
increased interest expense due to higher average debt levels. Average debt
levels were higher in 1997 due to capital expenditures and the 1996 purchase of
the minority interest.
1996 COMPARED WITH 1995
The following schedule identifies the components of the changes in revenues,
operating profit and net income for 1996 compared with 1995:
Operating Net
Revenues Profit Income
-------------- -------------- --------------
1995 $ 381.4 $ 25.0 $ 11.8
Increase (decrease) in 1996 from:
Unit volume and sales mix 23.3 11.1 7.2
Average sales price (9.6) (9.6) (6.3)
Manufacturing cost -- 5.1 3.3
Other operating expense -- (7.3) (4.7)
Other income and expense -- -- .7
Difference between effective and
statutory tax rates -- -- (1.3)
-------------- -------------- --------------
1996 $ 395.1 $ 24.3 $ 10.7
============== ============== ==============
Increased unit sales of blenders, coffeemakers, food processors and sandwich
makers partially offset by reduced unit sales of toasters, irons and toaster
ovens were driven by increased sales to key mass merchants and resulted in
improved market share. The benefit from this volume growth was somewhat offset
by a decrease in the average sales price due to competition from low-cost
Chinese imports. Favorable materials pricing somewhat offset by higher overhead
costs contributed to the reduction in manufacturing costs. The reduction in
materials pricing includes the favorable effect of the 1995 acquisition of
Plasticos Sotec de Mexico, S.A. de C.V. ("Sotec"), which supplies plastic parts
to certain of HB*PS's Mexican operations. Other operating expenses increased
over 1995 due to additional marketing expenses relating to a national
advertising campaign and additional amortization related to the 1995 acquisition
of Sotec.
29
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued
(Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data)
HAMILTON BEACH*PROCTOR-SILEX, INC.--Continued
FINANCIAL REVIEW--Continued
OTHER INCOME, EXPENSE AND INCOME TAXES: The components of other income (expense)
and the effective tax rate are as follows for the year ended December 31:
1997 1996 1995
--------------- -------------- --------------
Interest expense $ (6.9) $ (6.6) $ (7.2)
Other-net (.1) (.3)