UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-9172

NACCO INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		34-1505819
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
5875 LANDERBROOK DRIVE, CLEVELAND, OHIO		44124-4069
(Address of principal executive offices)		(Zip code)

(440) 449-9600

(Registrant’s telephone number, including area code)

N/A

 

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ            NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES o           NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o           NO þ

Number of shares of Class A Common Stock outstanding at October 30, 2009 6,693,017
Number of shares of Class B Common Stock outstanding at October 30, 2009 1,599,356

 

 

NACCO INDUSTRIES, INC.

TABLE OF CONTENTS

		Page Number
Part I. FINANCIAL INFORMATION
Item 1 Financial Statements
Unaudited Condensed Consolidated Balance Sheets at September 30, 2009 and December 31, 2008			2
Unaudited Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2009 and 2008			3
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008			4
Unaudited Condensed Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2009 and 2008			5
Notes to Unaudited Condensed Consolidated Financial Statements			6 - 20
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			21 - 50
Item 3 Quantitative and Qualitative Disclosures About Market Risk			51
Item 4 Controls and Procedures			51
Part II. OTHER INFORMATION
Item 1 Legal Proceedings			52
Item 1A Risk Factors			52
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			52
Item 3 Defaults Upon Senior Securities			52
Item 4 Submission of Matters to a Vote of Security Holders			52
Item 5 Other Information			52
Item 6 Exhibits			52
Signatures			53
Exhibit Index			54
EX-10.1
EX-31.I.1
EX-31.I.2
EX-32

Part I
FINANCIAL INFORMATION

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

		SEPTEMBER 30				DECEMBER 31
		2009				2008
		(In millions, except share data)
ASSETS
Current Assets
Cash and cash equivalents		$	187.6			$	138.3
Accounts receivable, net			313.6				419.2
Inventories, net			393.8				480.2
Deferred income taxes			30.2				38.2
Prepaid expenses and other			43.9				65.3
Total Current Assets			969.1				1,141.2
Property, Plant and Equipment, Net			340.3				358.9
Coal Supply Agreements and Other Intangibles, Net			64.4				66.7
Long-term Deferred Income Taxes			21.4				21.3
Other Non-current Assets			122.4				99.8
Total Assets		$	1,517.6			$	1,687.9
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable		$	279.6			$	376.4
Revolving credit agreements — not guaranteed by the parent company			26.4				6.4
Current maturities of long-term debt — not guaranteed by the parent company			44.5				42.6
Accrued payroll			23.8				34.2
Accrued warranty			31.7				46.3
Deferred revenue			12.9				17.7
Other current liabilities			123.6				151.7
Total Current Liabilities			542.5				675.3
Long-term Debt — not guaranteed by the parent company			380.7				400.5
Pension and other Post-retirement Obligations			83.0				100.9
Other Long-term Liabilities			142.0				154.3
Total Liabilities			1,148.2				1,331.0
Stockholders’ Equity
Common stock:
Class A, par value $1 per share, 6,692,977 shares outstanding (2008 - 6,680,652 shares outstanding)			6.7				6.7
Class B, par value $1 per share, convertible into Class A on a one-for-one basis, 1,599,396 shares outstanding (2008 - 1,605,226 shares outstanding)			1.6				1.6
Capital in excess of par value			14.6				14.4
Retained earnings			375.0				399.3
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment			36.5				17.4
Deferred gain (loss) on cash flow hedging			4.9				(9.1	)
Pension and post-retirement plan adjustment			(70.2	)			(73.6	)
Total Stockholders’ Equity			369.1				356.7
Noncontrolling Interest			0.3				0.2
Total Equity			369.4				356.9
Total Liabilities and Equity		$	1,517.6			$	1,687.9

See Notes to unaudited condensed consolidated financial statements.

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30								SEPTEMBER 30
		2009				2008				2009				2008
		(In millions, except per share data)
Revenues		$	532.6			$	917.8			$	1,636.4			$	2,730.9
Cost of sales			438.3				813.8				1,363.2				2,372.7
Gross Profit			94.3				104.0				273.2				358.2
Earnings of unconsolidated mines			10.5				9.7				30.8				27.6
Operating Expenses
Selling, general and administrative expenses			94.7				109.2				281.1				353.1
Restructuring charges			6.9				1.7				9.1				3.1
Gain on sale of assets			(6.0	)			(0.3	)			(8.2	)			(0.5	)
			95.6				110.6				282.0				355.7
Operating Profit			9.2				3.1				22.0				30.1
Other income (expense)
Interest expense			(8.3	)			(9.9	)			(24.3	)			(31.6	)
Interest income			1.0				1.6				2.7				6.4
Income (loss) from other unconsolidated affiliates			(0.7	)			1.3				(1.7	)			4.7
Other			0.3				—				0.5				(2.3	)
			(7.7	)			(7.0	)			(22.8	)			(22.8	)
Income (Loss) Before Income Taxes			1.5				(3.9	)			(0.8	)			7.3
Income tax provision			5.5				13.2				10.9				16.4
Net Loss		$	(4.0	)		$	(17.1	)		$	(11.7	)		$	(9.1	)
Net (income) loss attributable to noncontrolling interest			0.1				(0.2	)			0.3				(0.3	)
Net Loss Attributable to Stockholders		$	(3.9	)		$	(17.3	)		$	(11.4	)		$	(9.4	)
Comprehensive Income (Loss)		$	1.4			$	(45.4	)		$	25.1			$	(15.5	)
Basic and Diluted Loss per Share		$	(0.47	)		$	(2.09	)		$	(1.38	)		$	(1.14	)
Dividends per Share		$	0.5175			$	0.5150			$	1.5500			$	1.5300
Basic and Diluted Weighted Average Shares Outstanding			8.291				8.283				8.289				8.279

See notes to unaudited condensed consolidated financial statements.

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		NINE MONTHS ENDED
		SEPTEMBER 30
		2009				2008
		(In millions)
Operating Activities
Net loss		$	(11.7	)		$	(9.1	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Depreciation, depletion and amortization			40.7				45.9
Amortization of deferred financing fees			1.5				1.5
Deferred income taxes			9.5				17.8
Restructuring charges			9.1				3.1
Gain on sale of assets			(8.2	)			(0.5	)
Other			(33.0	)			(5.6	)
Working capital changes
Accounts receivable			137.5				18.8
Inventories			107.8				(53.6	)
Other current assets			1.4				(13.5	)
Accounts payable			(103.0	)			0.8
Other liabilities			(75.2	)			(50.6	)
Net cash provided by (used for) operating activities			76.4				(45.0	)
Investing Activities
Expenditures for property, plant and equipment			(23.8	)			(57.5	)
Proceeds from the sale of assets			13.3				3.1
Other			(3.6	)			(2.2	)
Net cash used for investing activities			(14.1	)			(56.6	)
Financing Activities
Additions to long-term debt			8.5				24.1
Reductions of long-term debt			(33.9	)			(58.7	)
Net additions to revolving credit agreements			20.0				37.2
Cash dividends paid			(12.9	)			(12.6	)
Other			—				(0.1	)
Net cash used for financing activities			(18.3	)			(10.1	)
Effect of exchange rate changes on cash			5.3				1.8
Cash and Cash Equivalents
Increase (decrease) for the period			49.3				(109.9	)
Balance at the beginning of the period			138.3				281.2
Balance at the end of the period		$	187.6			$	171.3

See notes to unaudited condensed consolidated financial statements.

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

		NINE MONTHS ENDED
		SEPTEMBER 30
		2009				2008
		(In millions, except per share data)
Stockholders’ Equity:
Class A Common Stock		$	6.7			$	6.7
Class B Common Stock			1.6				1.6
Capital in Excess of Par Value
Beginning balance			14.4				14.1
Stock-based compensation			0.4				0.6
Shares issued under stock compensation plans			0.2				0.2
Noncontrolling interest share of contributions to joint venture			(0.4	)			—
			14.6				14.9
Retained Earnings
Balance as of December 31:
2008			399.3				—
2007			—				854.9
Cumulative effect of accounting change, net of $0.5 tax benefit			—				(1.1	)
Beginning balance			399.3				853.8
Net loss attributable to stockholders			(11.4	)			(9.4	)
Cash dividends on Class A and Class B common stock:
2009 $1.5500 per share			(12.9	)			—
2008 $1.5300 per share			—				(12.6	)
			375.0				831.8
Accumulated Other Comprehensive Income (Loss)
Beginning balance			(65.3	)			14.1
Foreign currency translation adjustment			19.1				(19.2	)
Reclassification of hedging activity into earnings			4.7				4.4
Current period cash flow hedging activity			9.3				4.6
Cumulative effect of accounting change			—				1.0
Reclassification of pension and post-retirement activities into earnings			3.4				3.1
			(28.8	)			8.0
Total Stockholders’ Equity			369.1				863.0
Noncontrolling Interest
Beginning balance			0.2				—
Net income (loss)			(0.3	)			0.3
Noncontrolling interest share of contributions to joint venture			0.4				—
Total Noncontrolling Interest			0.3				0.3
Total Equity		$	369.4			$	863.3

See notes to unaudited condensed consolidated financial statements.

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(Tabular Amounts in Millions, Except Per Share and Percentage Data)

Note 1 — Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of NACCO Industries, Inc. (the parent company or “NACCO”) and its wholly owned subsidiaries (collectively, “NACCO Industries, Inc. and Subsidiaries” or the “Company”). Intercompany accounts and transactions are eliminated in consolidation. Also included is Shanghai Hyster Forklift Ltd., a 73% owned joint venture of NMHG Holding Co. (“NMHG”) in China. The Company’s subsidiaries operate in the following principal industries: lift trucks, small appliances, specialty retail and mining. The Company manages its subsidiaries primarily by industry; however, the Company manages its lift truck operations as two reportable segments: wholesale manufacturing (“NMHG Wholesale”) and retail distribution (“NMHG Retail”).

NMHG designs, engineers, manufactures, sells, services and leases a comprehensive line of lift trucks and aftermarket parts marketed globally under the Hyster^® and Yale^® brand names, primarily to independent and wholly owned Hyster^® and Yale^® retail dealerships. Lift trucks and component parts are manufactured in the United States, Northern Ireland, The Netherlands, China, Italy, Japan, Mexico, the Philippines and Brazil. Hamilton Beach Brands, Inc. (“HBB”) is a leading designer, marketer and distributor of small electric household appliances, as well as commercial products for restaurants, bars and hotels. The Kitchen Collection, Inc. (“KC”) is a national specialty retailer of kitchenware and gourmet foods operating under the Kitchen Collection^® and Le Gourmet Chef^® store names in outlet and traditional malls throughout the United States. The North American Coal Corporation and its affiliated coal companies (collectively, “NACoal”) mine and market lignite coal primarily as fuel for power generation and provide selected value-added mining services for other natural resources companies.

These financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company as of September 30, 2009 and the results of its operations for the three and nine months ended September 30, 2009 and 2008 and the results of its cash flows and changes in equity for the nine months ended September 30, 2009 and 2008 have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

The balance sheet at December 31, 2008 has been derived from the audited financial statements at that date but does not include all of the information or notes required by U.S. generally accepted accounting principles for complete financial statements.

Operating results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the remainder of the year ending December 31, 2009. Because the HBB and KC businesses are seasonal, a majority of revenues and operating profit typically occurs in the second half of the calendar year when sales of small electric household appliances to retailers and consumers increase significantly for the fall holiday-selling season. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Management performed an evaluation of the Company’s activities through the date of filing this Form 10-Q with the Securities and Exchange Commission on November 4, 2009. No significant subsequent events have occurred that required recognition or disclosure in the Unaudited Condensed Consolidated Financial Statements.

Note 2 — Recently Issued Accounting Standards

Accounting Standards Adopted in 2009:

On January 1, 2009, the Company adopted authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) on business combinations. The guidance modifies the accounting for business combinations by requiring that acquired assets and assumed liabilities be recorded at fair value, contingent consideration arrangements be recorded at fair value on the date of the acquisition and preacquisition contingencies will generally be accounted for in purchase accounting at fair value. The guidance also requires that transaction costs be expensed as incurred, acquired research and development be capitalized as an indefinite-lived intangible asset and the requirements for exit and disposal activities be met at the acquisition date in order to accrue for a restructuring plan in purchase accounting. The adoption of the guidance did not have a material effect on the Company’s financial position, results of operations, cash flows or related disclosures.

On January 1, 2009, the Company adopted authoritative guidance issued by the FASB that changes the accounting and reporting for noncontrolling interests. The guidance modifies the reporting for noncontrolling interests in the balance sheet and minority interest income (loss) in the income statement. The guidance also requires that increases and decreases in the noncontrolling ownership interest amount be accounted for as equity transactions. The adoption of the guidance did not have a material effect on the Company’s financial position, results of operations, cash flows or related disclosures.

On June 30, 2009, the Company adopted authoritative guidance issued by the FASB on subsequent events. The guidance provides general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The guidance provides, (a) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (b) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (c) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of the guidance did not have a material effect on the Company’s financial position, results of operations, cash flows or related disclosures.

On June 30, 2009, the Company adopted authoritative guidance issued by the FASB on interim disclosures about the fair value of financial instruments. The guidance requires an entity to provide disclosures about fair value of financial instruments for interim reporting periods, as well as in annual financial statements. The Company has included the required disclosures in Note 6.

On September 30, 2009, the Company adopted authoritative guidance issued by the FASB which establishes the FASB Accounting Standards Codification as the single source of authoritative U.S. generally accepted accounting principles. The Company has modified its disclosures in this Form 10-Q to comply with the requirements. The adoption of the guidance did not have a material effect on the Company’s financial position, results of operations or cash flows.

Accounting Standards Not Yet Adopted:

In October 2009, the FASB issued authoritative guidance on multiple-deliverable revenue arrangements which is effective for the Company on January 1, 2011 for new revenue arrangements or material modifications to existing agreements. The guidance amends the criteria for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. In addition, this guidance significantly expands required disclosures related to a vendor’s multiple-deliverable revenue arrangements. The Company is currently evaluating the effect the adoption of the guidance will have on its financial position, results of operations, cash flows and related disclosures.

In June 2009, the FASB issued authoritative guidance for accounting for transfers of financial assets which is effective for the Company on January 1, 2010. The guidance requires more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets. The guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The guidance also requires enhanced disclosures to provide financial statement users with greater transparency about transfers of financial assets and a transferor’s continuing involvement with transferred financial assets. The Company is currently evaluating the effect the adoption of the guidance will have on its financial position, results of operations, cash flows and related disclosures.

In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities which is effective for the Company on January 1, 2010. The guidance changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The guidance requires an ongoing assessment of whether an entity is the primary beneficiary of a variable interest entity and eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity. The guidance also requires additional disclosures regarding a company’s involvement with variable interest entities, any significant changes in risk exposure due to that involvement and how the company’s involvement with a variable interest entity affects the company’s financial statements. The Company is currently evaluating the effect the adoption of the guidance will have on its financial position, results of operations, cash flows and related disclosures.

In December 2008, the FASB issued authoritative guidance on disclosures about postretirement benefit plan assets which is effective for the Company on December 31, 2009. The guidance modifies existing requirements to include additional disclosures about plan assets of an employer’s defined benefit pension or other postretirement plan. The Company will include the disclosures upon adoption in its Annual Report on Form 10-K for the fiscal year ending December 31, 2009.

Reclassifications: Certain amounts in the prior periods’ Unaudited Condensed Consolidated Financial Statements have been reclassified to conform to the current period’s presentation.

Note 3 — Restructuring and Related Programs

During 2009, NMHG’s management approved a plan to close its facility in Modena, Italy and consolidate its activities into NMHG’s facility in Masate, Italy. These actions are being taken to further reduce NMHG’s manufacturing capacity to more appropriate levels. As a result, NMHG recognized a charge of approximately $5.3 million related to severance in the first nine months of 2009, which is classified in the Unaudited Condensed Consolidated Statement of Operations on the line “Restructuring charges.” In addition, NMHG anticipates that it will incur subsequent charges related to this program, which were not eligible for accrual at September 30, 2009, of approximately $0.4 million for lease termination costs and $0.2 million of other charges during the fourth quarter of 2009. Payments are expected to continue through 2013.

During 2009, NMHG’s management approved a plan for a reduction in the number of employees in Asia-Pacific due to the sale of certain assets of NMHG’s fleet services business and wholly owned Hyster^® retail dealerships in Australia. As a

result, NMHG recognized a charge of approximately $2.0 million during the first nine months of 2009, which is classified in the Unaudited Condensed Consolidated Statement of Operations on the line “Restructuring charges.” Of this amount, $1.9 million related to severance and $0.1 million related to other costs of the restructuring. NMHG anticipates that it will incur subsequent charges related to this program, which were not eligible for accrual at September 30, 2009, of approximately $0.2 million for lease termination costs and $0.2 million of other charges, which includes approximately $0.2 million during the remainder of 2009 and $0.2 million during 2010. In addition, $0.8 million of the severance accrual was reversed during the first nine months of 2009 as a result of a reduction in the expected number of employees receiving severance payments. Payments of $1.1 million were made for severance during the first nine months of 2009. Payments are expected to continue through the remainder of 2009.

During 2008 and 2009, based on the decline in economic conditions, NMHG’s management reduced its number of employees worldwide. As a result, NMHG recognized a charge of approximately $6.3 million in 2008 and $3.2 million in the first nine months of 2009 related to severance. In addition, $0.4 million of the accrual was reversed during the first nine months of 2009 as a result of a reduction in the expected amount paid to employees. Severance payments of $4.1 million were made during the first nine months of 2009. Payments are expected to continue through 2010. NMHG continues to evaluate the appropriate size of its workforce worldwide to match market demand for lift trucks in response to the decline in economic conditions.

During 2007, NMHG’s Board of Directors approved a plan to phase out production of current products at its facility in Irvine, Scotland by early 2009, change the product mix at its Craigavon, Northern Ireland facility and increase production at its Berea, Kentucky and Sulligent, Alabama plants in the United States and at its Ramos Arizpe facility in Mexico. As a result, NMHG recognized a charge of approximately $5.5 million in 2007. Of this amount, $5.2 million related to severance and $0.3 million related to other costs of the restructuring. During 2008, NMHG recognized an additional charge of $3.2 million. Of this amount, $2.2 million related to severance and $1.0 million related to other costs of the restructuring. In addition, $0.4 million of the amount previously accrued was reversed in 2008 as a result of a reduction in the estimate of employees eligible to receive severance payments. During the first nine months of 2009, $0.2 million of the amount previously accrued was reversed as a result of a reduction in the estimate of employees eligible to receive severance benefits. Payments of $4.5 million were made for severance during the first nine months of 2009. Payments are expected to continue through the remainder of 2009. No further charges related to this plan are expected.

Following is the detail of the cash charges related to the NMHG programs:

		Total charges				Total charges				Charges incurred in				Additional charges
		expected to be				incurred through				the nine months ended				expected to be
		incurred				December 31, 2008				September 30, 2009				incurred
NMHG Wholesale
Severance		$	21.2			$	13.0			$	8.2			$	—
Lease impairment			0.4				—				—				0.4
Other			1.5				1.3				—				0.2
		$	23.1			$	14.3			$	8.2			$	0.6
NMHG Retail
Severance		$	1.1			$	0.3			$	0.8			$	—
Lease impairment			0.2				—				—				0.2
Other			0.3				—				0.1				0.2
		$	1.6			$	0.3			$	0.9			$	0.4
Total charges		$	24.7			$	14.6			$	9.1			$	1.0

Following is the activity related to the liability for the NMHG programs, which is included on the line “Other current liabilities” in the Unaudited Condensed Consolidated Balance Sheets:

		Severance				Other				Total
Balance at January 1, 2009		$	10.0			$	—			$	10.0
Provision			10.4				0.1				10.5
Reversal			(1.4	)			—				(1.4	)
Payments			(9.7	)			—				(9.7	)
Balance at September 30, 2009		$	9.3			$	0.1			$	9.4

Note 4 — Inventories

Inventories are summarized as follows:

		SEPTEMBER 30				DECEMBER 31
		2009				2008
Manufactured inventories:
Finished goods and service parts - NMHG		$	120.7			$	177.9
Raw materials and work in process - NMHG			128.8				196.4
Total manufactured inventories			249.5				374.3
Sourced inventories:
HBB			99.9				70.4
Retail inventories:
NMHG			18.6				24.7
KC			56.3				50.4
Total retail inventories			74.9				75.1
Total inventories at FIFO			424.3				519.8
Coal — NACoal			6.2				11.8
Mining supplies — NACoal			11.7				11.6
Total inventories at weighted average			17.9				23.4
NMHG LIFO reserve			(48.4	)			(63.0	)
		$	393.8			$	480.2

The cost of certain manufactured and retail inventories at NMHG, including service parts, has been determined using the last-in-first-out (“LIFO”) method. At September 30, 2009 and December 31, 2008, 32% and 38%, respectively, of total inventories were determined using the LIFO method. An actual valuation of inventory under the LIFO method can be made only at the end of the year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on management’s estimates of expected year-end inventory levels and costs. Because these estimates are subject to change and may be different than the actual inventory levels and costs at the end of the year, interim results are subject to the final year-end LIFO inventory valuation. During the three and nine months ended September 30, 2009 and 2008, reductions in LIFO inventories at NMHG resulted in liquidations of LIFO inventory layers carried at lower costs compared with current year purchases. The income statement effect of such liquidations on “Cost of sales” during the three and nine months ended September 30, 2009 was a benefit of $3.5 million and $10.0 million, respectively. This compares with a benefit of $1.3 million and $3.1 million during the three and nine months ended September 30, 2008, respectively.

Note 5 — Current and Long-Term Financing

On October 27, 2009, NACoal entered into a credit agreement for a new three-year, $100.0 million unsecured revolving line of credit (the “NACoal Facility”). The NACoal Facility has performance-based pricing, which sets interest rates based upon achieving various levels of debt to EBITDA ratios, as defined in the NACoal Facility. Borrowings bear interest at a floating rate plus a margin based on the level of debt to EBITDA ratio achieved, as defined, which can be either a base rate plus a margin ranging from 1.75% to 2.25%, or LIBOR plus a margin ranging from 2.75% to 3.25%. The NACoal Facility also has a commitment fee of 0.50% per year on the unused commitment. In addition, the NACoal Facility contains restrictive covenants which require, among other things, NACoal to maintain certain debt to EBITDA and interest coverage ratios and provides the ability to make loans, dividends and advances to NACCO, with some restrictions based on the debt to EBITDA ratio and achieving availability thresholds.

Note 6 — 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, excluding capital leases, were determined using current rates offered for similar obligations taking into account subsidiary credit risk. At September 30, 2009, the fair value of revolving credit agreements and long-term debt, excluding capital leases, was $346.0 million compared with the book value of $442.5 million. At December 31, 2008, the fair value of revolving credit agreements and long-term debt, excluding capital leases, was $271.6 million compared with the book value of $438.8 million.

Derivative Financial Instruments

The Company uses forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies. These contracts hedge firm commitments and forecasted transactions relating to cash flows associated with sales and purchases denominated in currencies other than the subsidiaries’ functional currencies. Changes in the fair value of forward foreign currency exchange contracts that are effective as hedges are recorded in accumulated other comprehensive income (loss) (“OCI”). Deferred gains or losses are reclassified from OCI to the Unaudited Condensed Consolidated Statements of Operations in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in cost of sales. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and generally recognized in cost of sales.

The Company uses interest rate swap agreements to partially reduce risks related to floating rate financing agreements that are subject to changes in the market rate of interest. Terms of the interest rate swap agreements require the Company to receive a variable interest rate and pay a fixed interest rate. The Company’s interest rate swap agreements and its variable rate financings are predominately based upon the three-month and six-month LIBOR (London Interbank Offered Rate). Changes in the fair value of interest rate swap agreements that are effective as hedges are recorded in OCI. Deferred gains or losses are reclassified from OCI to the Unaudited Condensed Consolidated Statements of Operations in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in interest expense. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and included on the line “Other” in the “Other income (expense)” section of the Unaudited Condensed Consolidated Statements of Operations.

Interest rate swap agreements and forward foreign currency exchange contracts held by the Company have been designated as hedges of forecasted cash flows. The Company does not currently hold any nonderivative instruments designated as hedges or any derivatives designated as fair value hedges.

The Company periodically enters into foreign currency exchange contracts that do not meet the criteria for hedge accounting. These derivatives are used to reduce the Company’s exposure to foreign currency risk related to forecasted purchase or sales transactions or forecasted intercompany cash payments or settlements. Gains and losses on these derivatives are included on the line “Other” in the “Other income (expense)” section of the Unaudited Condensed Consolidated Statements of Operations.

Cash flows from hedging activities are reported in the Unaudited Condensed Consolidated Statements of Cash Flows in the same classification as the hedged item, generally as a component of cash flows from operations.

The Company measures its derivatives at fair value on a recurring basis using significant observable inputs, which is Level 2 as defined in the fair value hierarchy. The Company uses a present value technique that incorporates the LIBOR swap curve, foreign currency spot rates and foreign currency forward rates to value its derivatives, including its interest rate swap agreements and foreign currency exchange contracts, and also incorporates the effect of its subsidiary and counterparty credit risk into the valuation. The fair value of derivative assets was $1.0 million and the fair value of derivative liabilities was $29.0 million at September 30, 2009. The fair value of derivative assets was $3.0 million and the fair value of derivative liabilities was $39.8 million at December 31, 2008.

Foreign Currency Derivatives: NMHG and HBB held forward foreign currency exchange contracts with total notional amounts of $213.6 million and $12.1 million, respectively, at September 30, 2009, primarily denominated in euros, British pounds, Japanese yen, Canadian dollars, Brazilian real, Swedish kroner, Australian dollars and Mexican pesos. NMHG and HBB held forward foreign currency exchange contracts with total notional amounts of $561.1 million and $13.0 million, respectively, at December 31, 2008, primarily denominated in euros, British pounds, Japanese yen, Canadian dollars, Swedish kroner, Australian dollars and Mexican pesos. The fair value of these contracts approximated a net liability of $5.2 million and $10.7 million at September 30, 2009 and December 31, 2008, respectively.

Forward foreign currency exchange contracts that qualify for hedge accounting are used to hedge transactions expected to occur within the next twelve months. The mark-to-market effect of forward foreign currency exchange contracts that are considered effective as hedges has been included in OCI. Based on market valuations at September 30, 2009, $15.6 million of the amount included in OCI at September 30, 2009 is expected to be reclassified as income into the Consolidated Statement of Operations over the next twelve months, as the transactions occur.

Interest Rate Derivatives: The following table summarizes the notional amounts, related rates and remaining terms of interest rate swap agreements active at September 30, 2009 and December 31, 2008:

		Notional Amount								Average Fixed Rate
		September 30				December 31				September 30				December 31				Remaining Term at
		2009				2008				2009				2008				September 30, 2009
NMHG		$	206.5			$	211.0				4.3	%			4.4	%		Various, extending to May 2012
HBB		$	108.0			$	108.0				4.8	%			4.7	%		Various, extending to May 2012
NACoal		$	15.0			$	25.0				5.7	%			5.8	%		March 2010

In addition to the interest rate swap agreements reflected in the table, at September 30, 2009, NMHG holds certain contracts that begin on various dates starting in May 2010 and extend to various dates through February 2013. These contracts increase the notional amount to $367.5 million at September 30, 2009, but the amount outstanding at any one time will not exceed the balance of the NMHG Term Loan. In addition to the interest rate swap agreements reflected in the table, at September 30, 2009, HBB holds certain contracts that begin on various dates starting in June 2010 and extend to various dates through June 2013. These contracts increase the notional amount to $183.0 million at September 30, 2009, but the amount outstanding at any one time will not exceed the balance of the HBB Term Loan. The fair value of all interest rate swap agreements was a net liability of $22.8 million and $26.1 million at September 30, 2009 and December 31, 2008, respectively. The mark-to-market effect of interest rate swap agreements that are considered effective as hedges has been included in OCI. Based on market valuations at September 30, 2009, $6.6 million of the amount included in OCI is expected to be reclassified as expense into the Consolidated Statement of Operations over the next twelve months, as cash flow payments are made in accordance with the interest rate swap agreements.

NMHG: NMHG has interest rate swap agreements that hedge interest payments on the NMHG Term Loan. The interest rate swap agreements held by NMHG on September 30, 2009 are expected to continue to be effective as hedges.

HBB: HBB has interest rate swap agreements that hedge interest payments on the HBB Term Loan. The interest rate swap agreements held by HBB on September 30, 2009 are expected to continue to be effective as hedges.

NACoal: NACoal has interest rate swap agreements that hedge interest payments on NACoal’s $15.0 million unsecured term loan. As a result of the Company discontinuing hedge accounting for NACoal’s interest rate swap agreements, $0.2 million and $0.5 million of a gain on interest rate swap agreements was recognized on the line “Other” in the “Other income (expense)” section of the Unaudited Condensed Consolidated Statement of Operations during the three and nine months ended September 30, 2009, respectively. This compares with a gain of $0.2 million and a loss of $0.4 million during the three and nine months ended September 30, 2008, respectively.

The following table summarizes the fair value of derivative instruments reflected on a gross basis at September 30, 2009 and December 31, 2008 as recorded in the Consolidated Balance Sheets:

		Asset Derivatives										Liability Derivatives
				September 30				December 31						September 30				December 31
		Balance sheet		2009				2008				Balance sheet		2009				2008
		location		Fair value				Fair value				location		Fair value				Fair value
Derivatives designated as hedging instruments
Interest rate swap agreements
Current		Prepaid expenses and other		$	—			$	—			Other current liabilities		$	6.1			$	3.4
Long-term		Other non-current assets			—				—			Other long-term liabilities			16.4				21.9
Foreign currency exchange contracts
Current		Prepaid expenses and other			(0.1	)			1.4			Other current liabilities			5.9				13.8
Long-term		Other non-current assets			—				1.7			Other long-term liabilities			—				—
Total derivatives designated as hedging instruments				$	(0.1	)		$	3.1					$	28.4			$	39.1
Derivatives not designated as hedging instruments
Interest rate swap agreements
Current		Prepaid expenses and other		$	—			$	—			Other current liabilities		$	0.3			$	0.7
Long-term		Other non-current assets			—				—			Other long-term liabilities			—				—
Foreign currency exchange contracts
Current		Prepaid expenses and other			1.1				(0.1	)		Other current liabilities			0.3				—
Long-term		Other non-current assets			—				—			Other long-term liabilities			—				—
Total derivatives not designated as hedging instruments				$	1.1			$	(0.1	)				$	0.6			$	0.7
Total derivatives				$	1.0			$	3.0					$	29.0			$	39.8

The following table summarizes the impact of derivative instruments for the three and nine months ended September 30 as recorded in the Unaudited Condensed Consolidated Statements of Operations:

																																					Location of Gain
																																					(Loss) Recognized
																		Location of																			in Income on
																		Gain (Loss)																			Derivative				Amount of Gain (Loss) Recognized in
																		Reclassified																			(Ineffective				Income on Derivative (Ineffective Portion
		Amount of Gain (Loss) Recognized in OCI on																from OCI into			Amount of Gain (Loss) Reclassified from OCI																Portion and				and Amount Excluded from Effectiveness
		Derivative (Effective Portion)																Income			into Income (Effective Portion)																Amount Excluded				Testing)
Derivatives in Cash Flow		THREE MONTHS								NINE MONTHS								(Effective			THREE MONTHS								NINE MONTHS								from Effectiveness				THREE MONTHS								NINE MONTHS
Hedging Relationships		2009				2008				2009				2008				Portion)			2009				2008				2009				2008				Testing)				2009				2008				2009				2008
Interest rate swap agreements		$	(0.7	)		$	(0.4	)		$	6.5			$	2.1			Interest income (expense)			$	(3.0	)		$	(2.9	)		$	(7.5	)		$	(3.2	)			N/A			$	—			$	—			$	—			$	—
Foreign currency exchange contracts			(3.8	)			16.8				8.2				14.1			Cost of sales				0.9				(3.0	)			1.2				(4.0	)			N/A				—				—				—				—
Total		$	(4.5	)		$	16.4			$	14.7			$	16.2						$	(2.1	)		$	(5.9	)		$	(6.3	)		$	(7.2	)						$	—			$	—			$	—			$	—

		Location of
		Gain (Loss)				Amount of Gain (Loss) Recognized in Income on
		Recognized in				Derivative
Derivatives Not Designated as		Income on				THREE MONTHS								NINE MONTHS
Hedging Instruments		Derivative				2009				2008				2009				2008
Interest rate swap agreements		Other				$	0.2			$	0.2			$	0.5			$	(0.4	)
Foreign currency exchange contracts		Cost of sales or Other					(3.4	)			2.9				(8.6	)			3.8
Total						$	(3.2	)		$	3.1			$	(8.1	)		$	3.4

Note 7 — Unconsolidated Subsidiaries and Equity Investments

Five of NACoal’s wholly owned subsidiaries, The Coteau Properties Company (“Coteau”), The Falkirk Mining Company (“Falkirk”), The Sabine Mining Company (“Sabine”) (collectively, the “project mining subsidiaries”), Demery Resource Company, LLC (“Demery”) and Caddo Creek Resource Company, LLC (“Caddo Creek”) each meet the definition of a variable interest entity. The project mining subsidiaries were developed between 1974 and 1981 and operate lignite coal mines under long-term contracts with various utility customers. The contracts with the project mining subsidiaries’ utility customers allow each mine to sell lignite coal at a price based on actual cost plus an agreed pre-tax profit per ton. These project mining subsidiaries are capitalized primarily with debt financing, which the utility customers have arranged and guaranteed. The obligations of the project mining subsidiaries are without recourse to NACCO and NACoal. Demery and Caddo Creek were formed during 2009 to develop, construct and operate lignite surface mines under long-term contracts for use in activated carbon plants of its customers. The contracts with the customers allow for reimbursement of all costs plus a management fee. The taxes resulting from earnings of these five entities are solely the responsibility of the Company. Although NACoal owns 100% of the stock and manages the daily operations of these entities, the Company has determined that the equity capital provided by NACoal is not sufficient to adequately finance the ongoing activities or absorb any expected losses without additional support from the customers. As a result, NACoal is not the primary beneficiary and therefore does not consolidate these entities’ financial position or results of operations. The pre-tax income from the unconsolidated mines is reported on the line “Earnings of unconsolidated mines” in the Unaudited Condensed Consolidated Statements of Operations with related taxes included in the provision for income taxes. The Company has included the pre-tax earnings of the unconsolidated mines above operating profit as they are an integral component of the Company’s business and operating results. The investment in the unconsolidated mines and related tax assets and liabilities was $18.3 million and $16.6 million at September 30, 2009 and December 31, 2008, respectively, and are included on the line “Other Non-current Assets” in the Unaudited Condensed Consolidated Balance Sheets. The Company’s risk of loss relating to these entities is limited to its invested capital, which was $3.3 million and $5.0 million at September 30, 2009 and December 31, 2008, respectively.

Summarized financial information for the unconsolidated mines is as follows:

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30								SEPTEMBER 30
		2009				2008				2009				2008
Revenues		$	118.5			$	106.9			$	322.9			$	290.4
Gross profit		$	18.3			$	15.4			$	49.6			$	41.4
Income before income taxes		$	10.5			$	9.7			$	30.8			$	27.6
Income from continuing operations		$	7.7			$	7.3			$	23.6			$	21.2
Net income		$	7.7			$	7.3			$	23.6			$	21.2

NMHG has a 20% ownership interest in NMHG Financial Services, Inc. (“NFS”), a joint venture with GE Capital Corporation (“GECC”), formed primarily for the purpose of providing financial services to independent Hyster^® and Yale^® lift truck dealers and National Account customers in the United States. NMHG’s ownership in NFS is accounted for using the equity method of accounting. NFS is considered a variable interest entity; however, the Company has concluded that NMHG is not the primary beneficiary. NMHG does not consider its variable interest in NFS to be significant.

NMHG has a 50% ownership interest in Sumitomo NACCO Materials Handling Company, Ltd. (“SN”), a limited liability company which was formed primarily for the manufacture and distribution of Sumitomo-Yale and Shinko- 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 based on current market prices. NMHG’s ownership in SN is also accounted for using the equity method of accounting.

The Company’s percentage share of the net income or loss from its equity investments in NFS and SN are reported on the line “Income (loss) from other unconsolidated affiliates” in the “Other income (expense)” section of the Unaudited Condensed Consolidated Statements of Operations. The Company’s equity investments are included on the line “Other Non-current Assets” in the Unaudited Condensed Consolidated Balance Sheets. At September 30, 2009 and December 31, 2008, NMHG’s investment in NFS was $13.6 million and $14.8 million, respectively, and NMHG’s investment in SN was $26.7 million and $29.9 million, respectively.

Summarized financial information for these two NMHG equity investments is as follows:

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30								SEPTEMBER 30
		2009				2008				2009				2008
Revenues		$	71.4			$	103.7			$	213.9			$	311.9
Gross profit		$	17.2			$	27.5			$	58.9			$	85.3
Income (loss) from continuing operations		$	(0.6	)		$	4.2			$	0.5			$	15.8
Net income (loss)		$	(0.6	)		$	4.2			$	0.5			$	15.8

Note 8 — Guarantees and Contingencies

Various legal and regulatory proceedings and claims have been or may be asserted against NACCO and certain subsidiaries relating to the conduct of their businesses, including product liability, environmental and other claims. These proceedings and claims are incidental to the ordinary course of business of the Company. Management believes that it has meritorious defenses and will vigorously defend the Company in these actions. Any costs that management estimates will be paid as a result of these claims are accrued when the liability is considered probable and the amount can be reasonably estimated. Although the ultimate disposition of these proceedings is not presently determinable, management believes, after consultation with its legal counsel, that the likelihood is remote that material costs will be incurred in excess of accruals already recognized.

Under various financing arrangements for certain customers, including independently owned retail dealerships, NMHG provides recourse or repurchase obligations such that NMHG would be obligated in the event of default by the customer. Terms of the third-party financing arrangements for which NMHG is providing recourse or repurchase obligations generally range from one to five years. Total amounts subject to recourse or repurchase obligations at September 30, 2009 and December 31, 2008 were $147.7 million and $190.1 million, respectively. Losses anticipated under the terms of the recourse or repurchase obligations are not significant and reserves have been provided for such losses in the accompanying Unaudited Condensed Consolidated Financial Statements. In such circumstances, NMHG retains a security interest in the related assets financed such that, in the event NMHG would become obligated under the terms of the recourse or repurchase obligations, NMHG would take title to the assets financed. The fair value of collateral held at September 30, 2009 was approximately $177.7 million based on Company estimates. The Company estimates the fair value of the collateral using information regarding the original sales price, the current age of the equipment and general market conditions that influence the value of both new and used lift trucks. The Company also regularly monitors the external credit ratings of the entities in which it has provided recourse or repurchase obligations. As of September 30, 2009, the Company does not believe there is a significant risk of non-payment or non-performance of the obligations by these entities; however based upon the current economic environment, there can be no assurance that the risk may not increase in the future. In addition, NMHG has an agreement with GECC to limit its exposure to losses at certain eligible dealers. Under this agreement, losses related to $45.8 million of recourse or repurchase obligations for these certain eligible dealers are limited to 7.5% of their original loan balance, or $17.7 million as of September 30, 2009. The $45.8 million is included in the $147.7 million of total amounts subject to recourse or repurchase obligations at September 30, 2009.

Generally, NMHG sells lift trucks through its independent dealer network or directly to customers. These dealers and customers may enter into a financing transaction with NFS or other unrelated third parties. NFS provides debt financing to dealers and lease financing to both dealers and customers. On occasion, the credit quality of a customer or concentration issues within GECC may necessitate providing recourse or repurchase obligations of the lift trucks purchased by customers and financed through NFS. At September 30, 2009, approximately $110.8 million of the Company’s total recourse or repurchase obligations related to transactions with NFS. In addition, in connection with the joint venture agreement, NMHG also provides a guarantee to GECC for 20% of NFS’ debt with GECC, such that NMHG would become liable under the terms of NFS’ debt agreements with GECC in the case of default by NFS. At September 30, 2009, the amount of NFS’ debt guaranteed by NMHG was $168.7 million. NFS has not defaulted under the terms of this debt financing in the past and although there can be no assurances, NMHG is not aware of any circumstances that would cause NFS to default in future periods, but is monitoring the effect of the current economic environment on NFS and GECC.

NMHG provides a standard warranty on its lift trucks, generally for six to twelve months or 1,000 to 2,000 hours. For certain series of lift trucks, NMHG provides an extended powertrain warranty of two years or 4,000 hours and an extended transmission warranty of three years or 5,000 hours as part of the standard warranty. HBB provides a standard warranty to consumers for all of its products. The specific terms and conditions of those warranties vary depending upon the product brand. In general, if a product is returned under warranty, a refund is provided to the consumer by HBB’s customer, the retailer. Generally, the retailer returns those products to HBB for a credit. The Company estimates the costs which may be incurred under its standard warranty programs and records a liability for such costs at the time product revenue is recognized.

In addition, NMHG sells extended warranty agreements, which provide a warranty for an additional two to five years or up to 2,400 to 10,000 hours. The specific terms and conditions of those warranties vary depending upon the product sold and the country in which NMHG does business. Revenue received for the sale of extended warranty contracts is deferred and recognized in the same manner as the costs incurred to perform under the warranty contracts.

NMHG also maintains a quality enhancement program under which it provides for specifically identified field product improvements in its warranty obligation. Accruals under this program are determined based on estimates of the potential number of claims to be processed and the cost of processing those claims based on historical costs.

The Company periodically assesses the adequacy of its recorded warranty liabilities at NMHG and HBB and adjusts the amounts as necessary. Factors that affect the Company’s warranty liability include the number of units sold, historical and anticipated rates of warranty claims and the cost per claim.

Changes in the Company’s current and long-term warranty obligations, including deferred revenue on extended warranty contracts, are as follows:

		2009
Balance at January 1		$	59.9
Warranties issued			23.2
Settlements made			(41.5	)
Foreign currency effect			1.3
Balance at September 30		$	42.9

Note 9 — Income Taxes

The income tax provision includes U.S. federal, state and local, and foreign income taxes and is based on the application of a forecasted annual income tax rate applied to the current quarter’s year-to-date pre-tax income or loss. In determining the estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Company’s annual earnings, taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the Company’s ability to use tax credits and net operating loss carryforwards, and available tax planning alternatives. Discrete items, including the effect of changes in tax laws, tax rates, and certain circumstances with respect to valuation allowances or other unusual or non-recurring tax adjustments are reflected in the period in which they occur as an addition to, or reduction from, the income tax provision, rather than included in the estimated effective annual income tax rate. Additionally, the Company’s interim effective income tax rate is computed and applied without regard to pre-tax losses where such losses are not expected to generate a current-year tax benefit.

The Company continually evaluates its deferred tax assets to determine if a valuation allowance is required. During the third quarter of 2008, significant downturns were experienced in NMHG’s major markets. The significant decrease in the year-to-date operations resulted in an adjusted three-year cumulative loss for each of NMHG’s Australian and U.S. operations. Although NMHG projected earnings over the longer term for the Australian and U.S. operations, such longer-term forecasts cannot be utilized to support the future utilization of deferred tax assets when an adjusted three-year cumulative loss is present. Accordingly, in the third quarter of 2008, NMHG recorded a valuation allowance against the accumulated deferred tax assets for its Australian operations and certain U.S. state taxing jurisdictions of $14.5 million where realization was determined to no longer meet the “more likely than not” standard.

A reconciliation of the Company’s consolidated federal statutory and effective income tax is as follows:

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30								SEPTEMBER 30
		2009				2008				2009				2008
Income (loss) before income taxes:		$	1.5			$	(3.9	)		$	(0.8	)		$	7.3
Statutory taxes (benefit) at 35%		$	0.5			$	(1.4	)		$	(0.3	)		$	2.6
Discrete items:
NMHG valuation allowance			—				14.5				—				14.5
Other			(1.8	)			(0.8	)			(1.7	)			(0.6	)
			(1.8	)			13.7				(1.7	)			13.9
Interim adjustment			7.0				0.6				13.3				0.6
Other permanent items:
NACoal percentage depletion			(0.2	)			—				0.2				(0.4	)
Foreign tax rate differential			(0.1	)			0.2				0.1				(0.6	)
Valuation allowance			0.1				—				(0.6	)			(0.1	)
Other			—				0.1				(0.1	)			0.4
			(0.2	)			0.3				(0.4	)			(0.7	)
Income tax provision		$	5.5			$	13.2			$	10.9			$	16.4
Effective income tax rate			(a	)			(a	)			(a	)			(a	)

The effective income tax rates for the three and nine months ended September 30, 2009 and 2008 were not meaningful primarily due to the interim accounting adjustment to exclude pre-tax losses not expected to generate a tax benefit for the full year.

Other discrete items include adjustments to the income tax provision based on the actual income tax returns filed by the Company in various jurisdictions during the third quarter of 2009 and 2008.

Note 10 — Retirement Benefit Plans

The Company maintains various defined benefit pension plans that provide benefits based on years of service and average compensation during certain periods. The Company’s policy is to make contributions to fund these plans within the range allowed by applicable regulations. Plan assets consist primarily of publicly traded stocks and government and corporate bonds.

Pension benefits for all parent company, HBB and NACoal employees in the United States, excluding certain project mining subsidiary employees, have been frozen since at least 2004. Pension benefits were frozen for employees covered under NMHG’s U.S. plans, except for those NMHG employees in the United States participating in collective bargaining agreements, in 1996. In the second quarter of 2009, the Company negotiated that pension benefits for the remaining NMHG collectively-bargained employees will be frozen effective December 31, 2009. As a result, no employees in the United States, other than certain project mining subsidiary employees, will earn retirement benefits under defined benefit pension plans after December 31, 2009. Effective January 1, 2009, pension benefits for HBB employees in Canada were frozen. Only certain grandfathered NMHG employees in the United Kingdom and the Netherlands still earn retirement benefits under defined benefit pension plans. All other eligible employees of the Company, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans.

The Company also maintains health care and life insurance plans which provide benefits to eligible retired employees. These plans have no assets. Under the Company’s current policy, benefits under these plans are funded at the time they are due to participants or beneficiaries.

The components of pension and post-retirement (income) expense are set forth below:

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30								SEPTEMBER 30
		2009				2008				2009				2008
U.S. Pension
Service cost		$	—			$	—			$	0.2			$	0.2
Interest cost			2.1				2.1				6.3				6.4
Expected return on plan assets			(2.1	)			(2.5	)			(6.6	)			(7.7	)
Amortization of actuarial loss			1.2				0.7				3.6				1.9
Amortization of prior service cost			0.1				—				0.1				0.1
Total		$	1.3			$	0.3			$	3.6			$	0.9
Non-U.S. Pension
Service cost		$	0.6			$	0.8			$	1.6			$	2.4
Interest cost			1.7				2.0				5.0				6.3
Expected return on plan assets			(2.1	)			(2.3	)			(6.0	)			(7.2	)
Employee contributions			(0.2	)			(0.3	)			(0.6	)			(0.8	)
Amortization of transition obligation			0.1				—				0.1				0.1
Amortization of actuarial loss			0.4				0.9				1.2				2.7
Amortization of prior service credit			(0.1	)			—				(0.1	)			—
Total		$	0.4			$	1.1			$	1.2			$	3.5
Post-retirement
Service cost		$	—			$	—			$	0.1			$	0.1
Interest cost			0.2				0.1				0.5				0.5
Amortization of prior service credit			(0.1	)			—				(0.2	)			(0.1	)
Total		$	0.1			$	0.1			$	0.4			$	0.5

Note 11 — Business Segments

Financial information for each of NACCO’s reportable segments is presented in the following table. See Note 1 for a discussion of the Company’s segments and product lines. NACCO’s non-operating segment, NACCO and Other, includes the accounts of the parent company and Bellaire Corporation.

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 in similar third-party transactions, are included in the following table on the line “NMHG Eliminations” in the revenues section. HBB derives a portion of its revenues from transactions with KC. The amounts of these revenues, which are based on current market prices of similar third-party transactions, are included in the following table on the line “Eliminations” in the revenues section. No other sales transactions occur among reportable segments. Other transactions among reportable segments are recognized based on similar third-party transactions; that is, at current market prices.

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30								SEPTEMBER 30
		2009				2008				2009				2008
Revenue from external customers
NMHG
NMHG Wholesale		$	314.2			$	673.2			$	1,028.5			$	2,093.5
NMHG Retail			17.6				45.0				79.8				139.5
NMHG Eliminations			(3.4	)			(21.8	)			(28.8	)			(70.2	)
			328.4				696.4				1,079.5				2,162.8
HBB			118.9				138.2				320.3				342.2
KC			48.3				45.6				128.6				124.5
NACoal			37.7				39.0				110.4				104.4
NACCO and Other			—				—				—				—
Eliminations			(0.7	)			(1.4	)			(2.4	)			(3.0	)
Total		$	532.6			$	917.8			$	1,636.4			$	2,730.9
Operating profit (loss)
NMHG
NMHG Wholesale		$	(19.7	)		$	(5.0	)		$	(33.2	)		$	15.7
NMHG Retail			(2.0	)			(1.4	)			(3.1	)			(1.6	)
NMHG Eliminations			1.3				0.8				1.6				0.7
			(20.4	)			(5.6	)			(34.7	)			14.8
HBB			13.5				4.0				27.7				8.0
KC			0.6				(4.8	)			(6.3	)			(15.6	)
NACoal			16.9				9.3				39.2				23.7
NACCO and Other			(1.4	)			0.2				(4.0	)			(0.8	)
Eliminations			—				—				0.1				—
Total		$	9.2			$	3.1			$	22.0			$	30.1