SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to ________
Commission file number 1-9172
NACCO INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 34-1505819
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5875 LANDERBROOK DRIVE, MAYFIELD HEIGHTS, OHIO 44124-4017
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(Address of principal executive offices) (Zip code)
(440) 449-9600
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(Registrant's telephone number, including area code)
N/A
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(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 X NO ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES X NO ____
Number of shares of Class A Common Stock outstanding at April 30, 2003:
6,579,967
Number of shares of Class B Common Stock outstanding at April 30, 2003:
1,623,410
NACCO INDUSTRIES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Unaudited Condensed Consolidated Balance Sheets -
March 31, 2003 and December 31, 2002
Unaudited Condensed Consolidated Statements of Income
for the Three Months Ended March 31, 2003 and 2002
Unaudited Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2003 and 2002
Unaudited Condensed Consolidated Statements of Changes
in Stockholders' Equity for the Three Months Ended
March 31, 2003 and 2002
Notes to Unaudited Condensed Consolidated Financial
Statements
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Item 4 Controls and Procedures
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signature
Certifications
Exhibit Index
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
MARCH 31 DECEMBER 31
2003 2002
---------- ----------
(In millions, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 60.0 $ 64.1
Accounts receivable, net 276.1 278.8
Inventories 366.7 357.0
Deferred income taxes 28.4 29.0
Prepaid expenses and other 55.6 54.1
---------- ----------
TOTAL CURRENT ASSETS 786.8 783.0
PROPERTY, PLANT AND EQUIPMENT, NET 659.7 658.0
GOODWILL 428.5 427.4
COAL SUPPLY AGREEMENTS AND OTHER INTANGIBLES, NET 84.2 85.0
OTHER NON-CURRENT ASSETS 186.1 170.5
---------- ----------
TOTAL ASSETS $ 2,145.3 $ 2,123.9
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 258.4 $ 257.2
Revolving credit agreements 22.6 33.2
Current maturities of long-term debt 33.8 35.0
Current obligations of project mining subsidiaries 33.5 35.0
Other current liabilities 227.6 235.8
---------- ----------
TOTAL CURRENT LIABILITIES 575.9 596.2
LONG-TERM DEBT- not guaranteed by the parent company 413.4 406.5
OBLIGATIONS OF PROJECT MINING SUBSIDIARIES - not guaranteed by
the parent company or its North American Coal subsidiary 270.8 275.1
SELF-INSURANCE LIABILITIES AND OTHER 320.6 285.6
MINORITY INTEREST .8 1.1
STOCKHOLDERS' EQUITY
Common stock:
Class A, par value $1 per share, 6,579,967 shares outstanding
(2002 - 6,576,936 shares outstanding) 6.6 6.6
Class B, par value $1 per share, convertible into Class A
on a one-for-one basis, 1,623,410 shares outstanding
(2002 - 1,623,651 shares outstanding) 1.6 1.6
Capital in excess of par value 5.0 4.9
Retained earnings 607.8 605.7
Accumulated other comprehensive loss:
Foreign currency translation adjustment (9.0) (11.6)
Deferred loss on cash flow hedging (13.7) (13.3)
Minimum pension liability adjustment (34.5) (34.5)
---------- ----------
563.8 559.4
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,145.3 $ 2,123.9
========== ==========
See notes to unaudited condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
THREE MONTHS ENDED
MARCH 31
----------------------
2003 2002
---------- ----------
(In millions, except per
share data)
Net sales $ 617.4 $ 571.7
Other revenues 2.5 4.8
---------- ----------
REVENUES 619.9 576.5
Cost of sales 507.1 476.1
---------- ----------
GROSS PROFIT 112.8 100.4
Selling, general and administrative expenses 92.2 81.6
---------- ----------
OPERATING PROFIT 20.6 18.8
Other income (expense)
Interest expense (16.8) (14.5)
Gain (loss) on interest rate swap agreements (.4) .3
Income from unconsolidated affiliates .7 1.0
Other - net (.3) .4
---------- ----------
(16.8) (12.8)
---------- ----------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND CUMULATIVE 3.8 6.0
EFFECT OF ACCOUNTING CHANGE
Income tax provision (benefit) 1.2 (.1)
---------- ----------
INCOME BEFORE MINORITY INTEREST AND CUMULATIVE EFFECT OF 2.6 6.1
ACCOUNTING CHANGE
Minority interest income .3 .2
---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 2.9 6.3
Cumulative effect of accounting change (net of $0.7 tax expense) 1.2 ---
---------- ----------
NET INCOME $ 4.1 $ 6.3
========== ==========
COMPREHENSIVE INCOME $ 6.3 $ 9.1
========== ==========
EARNINGS PER SHARE:
Income Before Cumulative Effect of Accounting Change $ .35 $ .77
Cumulative effect of accounting change (net-of-tax) .15 ---
---------- ----------
Net Income $ .50 $ .77
========== ==========
DIVIDENDS PER SHARE $ .245 $ .235
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 8.202 8.196
========== ==========
See notes to unaudited condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
THREE MONTHS ENDED
MARCH 31
------------------
2003 2002
----- -----
(In millions)
OPERATING ACTIVITIES
Net income $ 4.1 $ 6.3
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, depletion and amortization 22.5 24.6
Deferred income taxes 6.6 7.6
Minority interest (.3) (.2)
Cumulative effect of accounting change, net-of-tax (1.2) ---
Other non-cash items 3.3 (1.2)
Working capital changes
Accounts receivable (1.0) (11.8)
Inventories (7.3) 8.9
Other current assets (18.6) (2.8)
Accounts payable and other liabilities 2.6 15.7
----- -----
NET CASH PROVIDED BY OPERATING ACTIVITIES 10.7 47.1
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (9.5) (10.4)
Proceeds from the sale of assets 8.1 .4
Proceeds from unconsolidated affiliates --- .6
Other - net --- .2
----- -----
NET CASH USED FOR INVESTING ACTIVITIES (1.4) (9.2)
FINANCING ACTIVITIES
Additions to long-term debt and revolving credit agreements 25.4 10.3
Reductions of long-term debt and revolving credit agreements (29.7) (47.0)
Additions to obligations of project mining subsidiaries .3 34.6
Reductions of obligations of project mining subsidiaries (6.7) (40.2)
Cash dividends paid (2.0) (1.9)
Financing fees paid (.2) (.6)
Other - net --- .1
----- -----
NET CASH USED FOR FINANCING ACTIVITIES (12.9) (44.7)
Effect of exchange rate changes on cash (.5) ---
----- -----
CASH AND CASH EQUIVALENTS
Decrease for the period (4.1) (6.8)
Balance at the beginning of the period 64.1 71.9
----- -----
BALANCE AT THE END OF THE PERIOD $60.0 $65.1
===== =====
See notes to unaudited condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
THREE MONTHS ENDED
MARCH 31
-------------------
2003 2002
------ ------
(In millions, except per share data)
CLASS A COMMON STOCK
Beginning balance $ 6.6 $ 6.5
Shares issued under stock compensation plans --- .1
------ ------
6.6 6.6
------ ------
CLASS B COMMON STOCK 1.6 1.6
------ ------
CAPITAL IN EXCESS OF PAR VALUE
Beginning balance 4.9 4.7
Shares issued under stock compensation plans .1 ---
------ ------
5.0 4.7
------ ------
RETAINED EARNINGS
Beginning balance 605.7 571.3
Net income 4.1 6.3
Cash dividends on Class A and Class B common stock:
2003 $0.245 per share (2.0) ---
2002 $0.235 per share --- (1.9)
------ ------
607.8 575.7
------ ------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Beginning balance (59.4) (54.8)
Foreign currency translation adjustment 2.6 (.5)
Reclassification of hedging activity into earnings 1.3 2.2
Current period cash flow hedging activity (1.7) 1.1
------ ------
(57.2) (52.0)
------ ------
TOTAL STOCKHOLDERS' EQUITY $563.8 $536.6
====== ======
See notes to unaudited condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of NACCO Industries, Inc. ("NACCO," the parent company) and its
wholly owned subsidiaries ("NACCO Industries, Inc. and Subsidiaries," or the
"Company"). Intercompany accounts and transactions have been eliminated. The
Company's subsidiaries operate in three principal industries: lift trucks,
housewares and lignite mining. The Company manages its subsidiaries primarily by
industry; however, the Company manages its lift truck operations as two
reportable segments: wholesale manufacturing and retail distribution.
NMHG Holding Co., through its wholly owned subsidiaries, NACCO Materials
Handling Group, Inc. ("NMHG Wholesale") and NMHG Distribution Co. ("NMHG
Retail") (collectively "NMHG") designs, engineers, manufactures, sells, services
and leases a comprehensive line of lift trucks and aftermarket parts and service
marketed globally under the Hyster(R) and Yale(R) brand names. NMHG Wholesale
includes the manufacture and sale of lift trucks and related service parts,
primarily to independent and wholly owned Hyster and Yale retail dealerships.
NMHG Retail includes the sale, leasing and service of Hyster and Yale lift
trucks and related service parts by wholly owned retail dealerships and rental
companies. NACCO Housewares Group ("Housewares") consists of Hamilton
/Proctor-Silex, Inc. ("HB/PS"), a leading manufacturer, marketer and distributor
of small electric motor and heat-driven appliances as well as commercial
products for restaurants, bars and hotels, and The Kitchen Collection, Inc.
("KCI"), a national specialty retailer of brand-name kitchenware, small
electrical appliances and related accessories. The North American Coal
Corporation ("NACoal") mines and markets lignite primarily as fuel for power
providers.
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States 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 accounting principles generally accepted in the United States. 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 March 31, 2003 and the results of its operations, cash flows and
changes in stockholders' equity for the three month periods ended March 31, 2003
and 2002 have been included.
The balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date but does not include all of the information or
notes required by accounting principles generally accepted in the United States
for complete financial statements.
Operating results for the three month period ended March 31, 2003 are not
necessarily indicative of the results that may be expected for the remainder of
the year ending December 31, 2003. Because the housewares business is seasonal,
a majority of revenues and operating profit occurs in the second half of the
calendar year when sales of small electric appliances to retailers and consumers
increase significantly for the fall holiday selling season. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002.
NOTE 2 - INVENTORIES
Inventories are summarized as follows:
MARCH 31 DECEMBER 31
2003 2002
------ ------
Manufactured inventories:
Finished goods and service parts -
NMHG Wholesale $109.0 $ 99.9
Housewares 61.5 66.8
------ ------
170.5 166.7
Raw materials and work in process -
NMHG Wholesale 110.7 110.3
Housewares 6.6 6.5
------ ------
117.3 116.8
------ ------
Total manufactured inventories 287.8 283.5
Retail inventories:
NMHG Retail 26.8 23.4
Housewares 21.1 21.4
------ ------
Total retail inventories 47.9 44.8
------ ------
Total inventories at FIFO 335.7 328.3
Coal - NACoal 15.9 14.5
Mining supplies - NACoal 22.7 22.3
------ ------
Total inventories at weighted average 38.6 36.8
LIFO reserve -
NMHG (12.9) (11.6)
Housewares 5.3 3.5
------ ------
(7.6) (8.1)
------ ------
$366.7 $357.0
====== ======
The cost of certain manufactured and retail inventories, including service
parts, has been determined using the LIFO method. At March 31, 2003 and December
31, 2002, 58% and 59% of total inventories, respectively, 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 necessarily 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 year-end, interim results are subject to the final
year-end LIFO inventory valuation.
Housewares' LIFO inventory value exceeds its FIFO value primarily due to price
deflation experienced by HB/PS.
NOTE 3 - RESTRUCTURING CHARGES
The changes to the Company's restructuring accruals since December 31, 2002 are
as follows:
ASSET LEASE
SEVERANCE IMPAIRMENT IMPAIRMENT OTHER TOTAL
--------- ---------- ---------- ----- -----
NMHG WHOLESALE
Balance at December 31, 2002 $ 9.3 $ 3.8 $ --- $ .9 $ 14.0 (a)
Foreign currency effect (.1) --- --- --- (.1)
Payments
(.8) --- --- --- (.8)
--------------------------------------------------------------
BALANCE AT MARCH 31, 2003 $ 8.4 $ 3.8 $ --- $ .9 $ 13.1
==============================================================
NMHG RETAIL
Balance at December 31, 2002 $ 1.5 $ --- $ .1 $ --- $ 1.6
Reversal (.1) --- --- --- (.1)
Payments (.2) --- (.1) --- (.3)
-------------------------------------------------------------
BALANCE AT MARCH 31, 2003 $ 1.2 $ --- $ --- $ --- $ 1.2
=============================================================
HOUSEWARES
Balance at December 31, 2002 $ --- $ --- $ 1.2 $ .4 $ 1.6
Payments --- --- (.3) (.1) (.4)
--------------------------------------------------------------
BALANCE AT MARCH 31, 2003 $ --- $ --- $ .9 $ .3 $ 1.2
==============================================================
(a) The December 31, 2002 balance indicated in the table above does not include
$7.6 million in curtailment losses relating to pension and other post-retirement
benefits which will not be paid until employees reach retirement age. These
amounts were accrued in the fiscal year ended December 31, 2000 as part of the
restructuring of the Danville, Illinois assembly plant. Final severance payments
for the Danville restructuring plan were made in 2002.
NMHG 2002 RESTRUCTURING PROGRAM
As announced in December 2002, NMHG Wholesale is phasing out its Lenoir, North
Carolina, lift truck component facility and restructuring other manufacturing
and administrative operations, primarily its Irvine, Scotland, lift truck
assembly and component facility. During the fourth quarter of 2002, NMHG
Wholesale recognized a restructuring charge of approximately $12.5 million
pre-tax. Of this amount, $3.8 million relates to a non-cash asset impairment
charge for building, machinery and tooling, which was determined based on the
then current market values for similar assets and broker quotes as compared to
the net book value of these assets; and $8.7 million relates to severance and
other employee benefits to be paid to approximately 615 manufacturing and
administrative employees. No payments have been made as of March 31, 2003.
Payments are expected to begin in 2003 and continue through 2005. Approximately
$0.8 million of pre-tax costs which were not eligible for accrual and are not
shown in the table above, primarily related to manufacturing inefficiencies,
were expensed in the first quarter of 2003 and are classified as cost of sales
in the Unaudited Condensed Consolidated Statement of Income for the three months
ended March 31, 2003.
NMHG 2001 RESTRUCTURING PROGRAMS
During 2001, management committed to the restructuring of certain operations in
Europe for both the Wholesale and Retail segments of the business. As such, NMHG
Wholesale recognized a restructuring charge of approximately $4.5 million
pre-tax for severance and other employee benefits to be paid to approximately
285 direct and indirect factory labor and administrative personnel in Europe. As
of December 31, 2002, payments of $3.4 million to approximately 245 employees
had been made and $0.2 million of the amount originally accrued was reversed in
2002. Payments of $0.8 million to 13 employees were made during the first
quarter of 2003. The majority of the headcount reductions were made by the end
of 2002.
NMHG Retail recognized a restructuring charge of approximately $4.7 million
pre-tax in 2001, of which $0.4 million related to lease termination costs and
$4.3 million related to severance and other employee benefits to be paid to
approximately 140 service technicians, salesmen and administrative personnel at
wholly owned dealers in Europe. As of December 31, 2002, severance payments, net
of currency effects, of $2.8 million had been made to approximately 110
employees. During the first quarter of 2003, severance payments of $0.2 million
were made to three employees. In addition, $0.1 million of the amount accrued at
December 31, 2002 was reversed in the first quarter of 2003. The majority of the
headcount reductions were made by the end of 2002.
HOUSEWARES: In 2001, the Board of Directors approved management's plan to
restructure HB/PS' manufacturing activities in Mexico by outsourcing certain of
the company's products and consolidating production from three of the company's
Mexican manufacturing plants into one plant. This restructuring was
substantially completed during 2002. However, lease payments on idle facilities
are expected to continue through 2003.
NOTE 4 - ACCOUNTING CHANGES
ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS
On January 1, 2003, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." SFAS
No. 143 provides accounting requirements for retirement obligations associated
with tangible long-lived assets, including: (i) the timing of liability
recognition; (ii) initial measurement of the liability; (iii) allocation of
asset retirement cost to expense; (iv) subsequent measurement of the liability;
and (v) financial statement disclosures. SFAS No. 143 requires that an asset's
retirement cost should be capitalized as part of the cost of the related
long-lived asset and subsequently allocated to expense using a systematic and
rational method.
A cumulative effect of a change in accounting principle ("CECAP") adjustment of
$1.2 million, net of a tax expense of $0.7 million, to increase net income has
been recognized in the accompanying Unaudited Condensed Consolidated Statement
of Income for the three months ended March 31, 2003, as a result of the adoption
of SFAS No. 143 on January 1, 2003. This adjustment consists of a CECAP
adjustment to decrease net income by $1.3 million, net of a tax benefit of $0.7
million, recorded by NACoal and a CECAP adjustment to increase net income by
$2.5 million, net of $1.4 million tax expense, recorded by Bellaire Corporation
("Bellaire"). Bellaire's results are included in the non-operating segment
"NACCO & Other."
Bellaire is a non-operating subsidiary of the Company with legacy liabilities
relating to closed mining operations, primarily former Eastern U.S. underground
mining operations. These legacy liabilities include obligations for water
treatment and other environmental remediation which arose as part of the normal
course of closing these underground mining operations. Prior to the adoption of
SFAS No. 143, an accrual for these legacy liabilities was estimated and
discounted using an applicable risk-free rate of return. As of January 1, 2003,
these obligations have been remeasured to their estimated fair market value and
discounted using a credit-adjusted risk-free rate, as required per SFAS No. 143.
This change in the measurement of these liabilities as required per SFAS No. 143
resulted in a CECAP adjustment to increase net income, primarily as a result of
the change in the discount rate used to measure these liabilities. As a result,
future accretion expense is expected to increase as compared with the Company's
previous methodology for measuring this obligation. Since Bellaire's properties
are no longer active operations, no associated asset was capitalized as a result
of the adoption of SFAS No. 143.
NACoal's asset retirement obligations are for costs to close its surface mines
and reclaim the land it has disturbed as a result of its normal mining
activities. As a result of the adoption of SFAS No. 143, NACoal has estimated
these costs and recognized that liability and associated asset in accordance
with the Statement. The associated assets established in connection with the
implementation of SFAS No. 143 are recorded in property, plant and equipment in
the accompanying Unaudited Condensed Consolidated Balance Sheet at March 31,
2003. Prior to the adoption of SFAS No. 143, NACoal's accounting policy was to
accrue for mine-closing costs over the five-year period prior to the closing of
the mine. Since none of NACoal's mines were forecasted to be closed within the
next five years, NACoal did not have an accrual recognized for asset retirement
obligations prior to the adoption of this Statement.
For NACoal and Bellaire, there are no assets legally restricted for purposes of
settling the asset retirement obligations. The asset retirement obligations for
the project mining subsidiaries will be funded by the respective project mining
subsidiaries' customer. NACoal's non-project mining operations and Bellaire's
asset retirement obligation will be funded out of general corporate funds.
A reconciliation of the beginning and ending aggregate carrying amount of the
asset retirement obligation is as follows:
NACOAL NACOAL
PROJECT NON-PROJECT NACOAL NACCO
MINES MINES CONSOLIDATED BELLAIRE CONSOLIDATED
------- ----------- ------------ -------- ------------
Balance at December 31, 2002 $ --- $ --- $ --- $ 15.9 $ 15.9
Increase (decrease) to liabilities
recorded as a result of the
adoption of SFAS No. 143 40.8 3.5 44.3 (3.9) 40.4
Liabilities settled during the
period --- --- --- (.1) (.1)
Accretion expense .7 .1 .8 .3 1.1
------ -------- --------- -------- --------
BALANCE AT MARCH 31, 2003 $ 41.5 $ 3.6 $ 45.1 $ 12.2 $ 57.3
====== ======== ========= ======== ========
If this new accounting method had been adopted in the prior year, the impact on
the consolidated statement of income for the first quarter of 2002 would not be
material. Assuming the adoption of SFAS No. 143 in the prior year, the December
31, 2002 liabilities recorded on the balance sheet for the project mines,
non-project mines and Bellaire would have been $40.8 million, $3.5 million, and
$12.0 million, respectively.
ACCOUNTING FOR GUARANTEES
In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN No. 45 requires guarantors to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee for those guarantees initiated or modified after December
31, 2002. However, certain guarantees, including product warranties and
guarantees between parties under common control (i.e., parent and subsidiary),
are not required to be recognized at fair value at inception. FIN No. 45 also
requires additional disclosures of guarantees, including product warranties and
guarantees between parties under common control, beginning with interim or
annual periods ending after December 15, 2002. Guarantees initiated prior to
December 31, 2002 are not recognized as a liability measured at fair value per
this Interpretation, but are subject to the disclosure requirements. The Company
has made the required disclosures in these financial statements. Also, the
Company has recognized guarantees included within the scope of this
Interpretation and initiated after December 31, 2002 as liabilities measured at
fair value. The adoption of the fair value provisions of this Interpretation did
not have a material impact on the Company's financial position or results of
operations for the three months ended March 31, 2003.
Under various financing arrangements for certain customers, including
independently owned retail dealerships, NMHG provides guarantees of the residual
values of lift trucks, or recourse or repurchase obligations such that NMHG
would be obligated in the event of default by the customer. Terms of the
third-party financing arrangements for which NMHG is providing a guarantee
generally range from one to five years. Total guarantees and amounts subject to
recourse or repurchase obligations at March 31, 2003 and December 31, 2002 were
$163.2 million and $153.6 million, respectively. Losses anticipated under the
terms of the guarantees, recourse or repurchase obligations, which are not
significant, have been reserved for in the accompanying Unaudited Condensed
Consolidated Financial Statements. Generally, NMHG retains a security interest
in the related assets financed such that, in the event that NMHG would become
obligated under the terms of the recourse or repurchase obligations, NMHG would
take title to the assets financed. The fair value of collateral held at March
31, 2003 was approximately $177.5 million, based on Company estimates.
NMHG provides a standard warranty on its forklift trucks, generally for six to
twelve months or 1,000 to 2,000 hours. In addition, NMHG sells extended warranty
agreements which provide additional warranty up to three to five years or up to
3,600 to 10,000 hours. The specific terms and conditions of those warranties
vary depending upon the product sold and the country in which NMHG does
business. Revenue received for the sale of extended warranty contracts is
deferred and recognized in the same manner as the costs are incurred to perform
under the warranty contracts, in accordance with FASB Technical Bulletin 90-1,
"Accounting for Separately Priced Extended Warranty and Product Maintenance
Contracts." HB/PS 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 HB/PS' customer, the retailer. Generally,
the retailer returns those products to HB/PS for a credit. The Company estimates
the costs that may be incurred under its warranty programs, both standard and
extended, and records a liability for such costs at the time product revenue is
recognized. Factors that affect the Company's warranty liability include the
number of units sold, historical and anticipated rates of warranty claims and
the cost per claim. The Company periodically assesses the adequacy of its
recorded warranty liabilities and adjusts the amounts as necessary.
Changes in the Company's current and long-term warranty obligations, including
deferred revenue on extended warranty contracts, during the three months ended
March 31, 2003 are as follows:
Balance at December 31, 2002 $ 43.9
Warranties issued 9.8
Settlements made (9.6)
Changes in estimates (2.2)
--------
BALANCE AT MARCH 31, 2003 $ 41.9
========
The Company's periodic review of the esitmates used to calculate its warranty
obligations resulted in an adjustment of $2.2 million recognized in the first
quarter of 2003 to reduce the estimated required accrual at March 31, 2003. This
adjustment is not necessarily indicative of future trends or adjustments that
may be required to adjust the warranty accrual during the remainder of 2003.
NOTE 5 - ACCOUNTING STANDARDS NOT YET ADOPTED
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities." FIN No. 46 clarifies the application of Accounting Research Bulletin
("ARB") No. 51, "Consolidated Financial Statements" for certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. FIN No. 46 requires that variable interest entities, as defined,
should be consolidated by the primary beneficiary, which is defined as the
entity that is expected to absorb the majority of the expected losses, receive a
majority of the expected gains, or both. The Company is currently evaluating its
affiliated entities, however, at this time, the Company does not believe that it
is reasonably possible that any entity it is affiliated with but does not
currently consolidate will meet the definition of a variable interest entity.
In addition, the Company is also evaluating certain entities that it does
consolidate to determine if they meet the definition of a variable interest
entity. Although the Company has not yet completed its evaluation, the Company
believes that it is reasonably possible that three of NACoal's wholly owned
subsidiaries, the "project mining subsidiaries," may be required to be
deconsolidated beginning upon adoption of this Interpretation on July 1, 2003.
The project mining subsidiaries operate lignite mines under long-term contracts
with various utility customers to sell lignite at a price based on actual cost
plus an agreed pre-tax profit per ton. The utility customers have arranged and
guaranteed the financing for the development and operation of the project mining
subsidiaries. The obligations of these project mining subsidiaries are currently
included in the Company's consolidated balance sheets, but do not affect the
short-term or long-term liquidity of the Company and are without recourse to
NACCO and NACoal. NACoal owns 100% of the stock and manages the daily operations
of these entities.
The Company's risk of loss relating to these entities is limited to its invested
capital, which was $4.5 million at March 31, 2003. Selected financial
information for the project mining subsidiaries is as follows:
AS OF AND AS OF AND
FOR THE THREE FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 2003 DECEMBER 31, 2002
-------------- -----------------
Revenues $ 61.7 $ 263.1
Net income $ 6.7 $ 24.7
Total assets $ 417.7 $ 381.2
Stockholder's equity $ 4.5 $ 4.9
If the Company deconsolidates these entities effective July 1, 2003, the
financial statement presentation of the Company will change significantly.
Subsequent to the adoption of this Interpretation, the Company will account for
its 100% ownership investment in these entities using the equity method of
accounting. This change in accounting, however, will not affect the reported net
earnings of the Company.
On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement amends and
clarifies accounting for derivatives and hedging based on decisions made: (a)
previously as part of the Derivative Implementation Group process, (b) in
connection with other FASB projects and (c) regarding other issues raised,
including the characteristics of a derivative that contains a financing
component. This Statement is effective for contracts entered into or modified
after June 30, 2003 and should be applied prospectively, with the exception of
certain transactions. The Company has not yet determined what impact, if any,
the adoption of this Statement will have on its results of operations or
financial position.
NOTE 6 - SEGMENT INFORMATION
Financial information for each of the Company's reportable segments, as defined
by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is presented in the following table. Additional information
regarding the project mining subsidiaries has also been provided.
NMHG Wholesale derives a portion of its revenues from transactions with NMHG
Retail. The amount of these revenues, which are derived based on current market
prices on similar third-party transactions, are indicated in the following table
on the line "NMHG Eliminations" in the revenues section. No other intersegment
sales transactions occur.
THREE MONTHS ENDED
MARCH 31
-------------------
2003 2002
------ ------
REVENUES FROM EXTERNAL CUSTOMERS
NMHG Wholesale $382.6 $327.7
NMHG Retail 53.9 56.2
NMHG Eliminations (17.5) (12.1)
------ ------
NMHG Consolidated 419.0 371.8
Housewares 116.0 121.6
NACoal 84.9 83.1
------ ------
$619.9 $576.5
====== ======
GROSS PROFIT (LOSS)
NMHG Wholesale $ 64.1 $ 48.8
NMHG Retail 10.3 12.3
NMHG Eliminations .4 .6
------ ------
NMHG Consolidated 74.8 61.7
Housewares 21.5 20.3
NACoal 16.6 18.5
NACCO and Other (.1) (.1)
------ ------
$112.8 $100.4
====== ======
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
NMHG Wholesale $ 50.4 $ 41.8
NMHG Retail 11.7 13.0
NMHG Eliminations --- (.3)
------ ------
NMHG Consolidated 62.1 54.5
Housewares 25.3 22.9
NACoal 4.8 3.5
NACCO and Other --- .7
------ ------
$ 92.2 $ 81.6
====== ======
OPERATING PROFIT (LOSS)
NMHG Wholesale $ 13.7 $ 7.0
NMHG Retail (1.4) (.7)
NMHG Eliminations .4 .9
------ ------
NMHG Consolidated 12.7 7.2
Housewares (3.8) (2.6)
NACoal 11.8 15.0
NACCO and Other (.1) (.8)
------ ------
$ 20.6 $ 18.8
====== ======
THREE MONTHS ENDED
MARCH 31
-------------------
2003 2002
------ ------
INTEREST EXPENSE
NMHG Wholesale $ (7.2) $ (3.6)
NMHG Retail (.9) (.8)
NMHG Eliminations (.5) (1.1)
------ ------
NMHG Consolidated (8.6) (5.5)
Housewares (1.6) (1.9)
NACoal (2.3) (3.2)
NACCO and Other (.3) ---
Eliminations .1 .1
------ ------
(12.7) (10.5)
Project mining subsidiaries (4.1) (4.0)
------ ------
$(16.8) $(14.5)
====== ======
INTEREST INCOME
NMHG Wholesale $ .5 $ .6
NMHG Retail .1 ---
------ ------
NMHG Consolidated .6 .6
NACoal .2 ---
NACCO and Other .1 .1
Eliminations (.1) (.1)
------ ------
$ .8 $ .6
====== ======
OTHER-NET, INCOME (EXPENSE), EXCLUDING INTEREST INCOME
NMHG Wholesale $ (.3) $ .9
NMHG Retail .2 ---
------ ------
NMHG Consolidated (.1) .9
Housewares (.3) (.1)
NACoal (.1) (.2)
NACCO and Other (.3) .5
------ ------
$ (.8) $ 1.1
====== ======
INCOME TAX PROVISION (BENEFIT)
NMHG Wholesale $ 2.3 $ (.5)
NMHG Retail (.7) (.3)
NMHG Eliminations --- (.1)
------ ------
NMHG Consolidated 1.6 (.9)
Housewares (2.3) (1.8)
NACoal .9 1.2
NACCO and Other 1.0 1.4
------ ------
$ 1.2 $ (.1)
====== ======
NET INCOME (LOSS)
NMHG Wholesale $ 4.7 $ 5.6
NMHG Retail (1.3) (1.2)
NMHG Eliminations (.1) (.1)
------ ------
NMHG Consolidated 3.3 4.3
Housewares (3.4) (2.8)
NACoal 3.3 6.4
NACCO and Other .9 (1.6)
------ ------
$ 4.1 $ 6.3
====== ======
THREE MONTHS ENDED
MARCH 31
-------------------
2003 2002
------ ------
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE
NMHG Wholesale $ 6.6 $ 7.6
NMHG Retail 1.9 3.0
------ ------
NMHG Consolidated 8.5 10.6
Housewares 3.2 4.2
NACoal 2.5 2.1
NACCO and Other .1 ---
------ ------
14.3 16.9
Project mining subsidiaries 8.2 7.7
------ ------
$ 22.5 $ 24.6
====== ======
CAPITAL EXPENDITURES
NMHG Wholesale $ 2.8 $ 5.4
NMHG Retail .7 .8
------ ------
NMHG Consolidated 3.5 6.2
Housewares 1.4 1.0
NACoal 1.7 1.2
NACCO and Other --- .4
------ ------
6.6 8.8
Project mining subsidiaries 2.9 1.6
------ ------
$ 9.5 $ 10.4
====== ======
MARCH 31 DECEMBER 31
2003 2002
-------- --------
TOTAL ASSETS
NMHG Wholesale $1,105.9 $1,070.7
NMHG Retail 158.8 187.7
NMHG Eliminations (67.3) (54.9)
-------- --------
NMHG Consolidated 1,197.4 1,203.5
Housewares 313.8 331.5
NACoal 230.0 224.2
NACCO and Other 73.8 75.5
-------- --------
1,815.0 1,834.7
Project mining subsidiaries 417.7 381.2
-------- --------
2,232.7 2,215.9
Consolidating Eliminations (87.4) (92.0)
-------- --------
$2,145.3 $2,123.9
======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Tabular Amounts in Millions)
==========================================
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
==========================================
Please refer to the discussion of the Company's Critical Accounting Policies and
Estimates as disclosed on pages 21 and 22 in the Company's Form 10-K for the
fiscal year ended December 31, 2002.
=================
FINANCIAL SUMMARY
=================
The parent company charges fees to its operating subsidiaries for services
provided by the corporate headquarters. These services represent most of the
parent company's operating expenses. The classification in the income statement
by the segments, however, has changed to reflect all of the fees in selling,
general and administrative expenses, as directed by the parent company for
purposes of internal analysis. Following is a table for comparison of parent
company fees year over year:
THREE MONTHS ENDED
MARCH 31
--------------------
2003 2002
------ ------
NACCO FEES INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
NMHG Wholesale $ 2.0 $ 1.2
Housewares .8 .5
NACoal .3 .1
------ ------
$ 3.1 $ 1.8
====== ======
NACCO FEES INCLUDED IN OTHER-NET, INCOME (EXPENSE)
NMHG Wholesale $ -- $ .6
Housewares -- .2
NACoal -- .1
------ ------
$ -- $ .9
====== ======
TOTAL NACCO FEES CHARGED TO SEGMENTS
NMHG Wholesale $ 2.0 $ 1.8
Housewares .8 .7
NACoal .3 .2
------ ------
$ 3.1 $ 2.7
====== ======
================
NMHG HOLDING CO.
================
NMHG designs, engineers, manufactures, sells, services and leases a
comprehensive line of lift trucks and aftermarket parts and service marketed
globally under the Hyster(R) and Yale(R) brand names.
FINANCIAL REVIEW
The segment and geographic results of operations for NMHG were as follows for
the three months ended March 31:
2003 2002
------ ------
REVENUES
Wholesale
Americas $256.2 $228.3
Europe, Africa and Middle East 102.7 84.6
Asia-Pacific 23.7 14.8
------ ------
382.6 327.7
------ ------
Retail (net of eliminations)
Americas .7 7.6
Europe, Africa and Middle East 17.5 16.1
Asia-Pacific 18.2 20.4
------ ------
36.4 44.1
------ ------
NMHG Consolidated $419.0 $371.8
====== ======
OPERATING PROFIT (LOSS)
Wholesale
Americas $ 13.2 $ 9.8
Europe, Africa and Middle East .5 (2.8)
Asia-Pacific --- ---
------ ------
13.7 7.0
------ ------
Retail (net of eliminations)
Americas .2 .2
Europe, Africa and Middle East (1.5) .3
Asia-Pacific .3 (.3)
------ ------
(1.0) .2
------ ------
NMHG Consolidated $ 12.7 $ 7.2
====== ======
INTEREST EXPENSE
Wholesale $ (7.2) $ (3.6)
Retail (net of eliminations) (1.4) (1.9)
------ ------
NMHG Consolidated $ (8.6) $ (5.5)
====== ======
OTHER INCOME, NET
Wholesale $ .2 $ 1.5
Retail (net of eliminations) .3 --
------ ------
NMHG Consolidated $ .5 $ 1.5
====== ======
NET INCOME (LOSS)
Wholesale $ 4.7 $ 5.6
Retail (net of eliminations) (1.4) (1.3)
------ ------
NMHG Consolidated $ 3.3 $ 4.3
====== ======
NMHG HOLDING CO. - continued
FINANCIAL REVIEW - continued
2003 2002
---- ----
EFFECTIVE TAX RATE
Wholesale 34.3% (a)
Retail (net of eliminations) 33.3% 23.5%
NMHG Consolidated 34.8% (a)
(a) The effective tax rate for the first quarter of 2002 for NMHG Wholesale and
NMHG Consolidated is not meaningful due to a $1.9 million tax benefit recognized
in the first quarter of 2002 related to the recognition of previously generated
losses in China, combined with a relatively low level of pre-tax income. These
factors resulted in a net tax benefit generated on pre-tax income.
FIRST QUARTER OF 2003 COMPARED WITH FIRST QUARTER OF 2002
NMHG WHOLESALE
Revenues increased to $382.6 million in the first quarter of 2003, up 16.8% from
$327.7 million in the first quarter of 2002. Increased unit volume in the
Americas and, to a lesser degree, favorable currency movements in Europe
contributed to revenue growth. Worldwide unit volumes increased 16.6% to 17,452
units shipped in the first quarter of 2003 compared with 14,971 units shipped in
the first quarter of 2002. Increased revenues from these factors were partially
offset by a higher proportion of lower-priced lift trucks sold in the first
quarter of 2003 compared with the first quarter of 2002.
Operating profit increased to $13.7 million in the first quarter of 2003 from
$7.0 million in the first quarter of 2002. Operating profit improved primarily
due to increased unit and parts volume and a favorable shift in mix to
higher-margin products sold. The increase in operating profit was partially
offset by increased product development expenses of $2.6 million and additional
expenses related to the previously announced phase-out of the Lenoir, North
Carolina lift truck component facility. See additional discussion of the NMHG
Wholesale restructuring programs under the heading "NMHG Restructuring Plans" in
this Form 10-Q.
The increase in operating profit was also partially offset by a change in
classification of management fees charged to NMHG Wholesale by NACCO. In the
first quarter of 2003, the parent company began classifying all management fees
charged to NMHG Wholesale and the other segments as selling, general and
administrative expenses for purposes of internal analysis. In comparison, in the
first quarter of 2002, a portion of the fees, $0.6 million for NMHG Wholesale,
were recorded as a component of other income (expense).
Net income decreased to $4.7 million in the first quarter of 2003 from $5.6
million in the first quarter of 2002. Although operating profit increased in the
first quarter of 2003 as compared with the first quarter of 2002, net income
declined primarily due to (i) increased interest expense, including the
amortization of deferred financing fees, resulting from the refinancing of
NMHG's debt in the second quarter of 2002, (ii) an increase in the effective tax
rate due to a non-recurring $1.9 million tax benefit recorded in 2002 related to
the recognition of previously generated losses in China and (iii) the negative
effect of the amortization of accumulated other comprehensive income related to
terminated interest rate swap agreements. The interest rate swap agreements were
terminated in 2002 as a result of the May 2002 refinancing of NMHG's floating
rate revolving credit facility.
NMHG HOLDING CO. - continued
FINANCIAL REVIEW - continued
NMHG Wholesale's worldwide backlog level at the end of the first quarter of 2003
increased 6.1% to 17,300 units, compared with 16,300 units at the end of first
quarter of 2002. However, the backlog level at March 31, 2003 decreased 8.0%,
compared with 18,800 units at the end of the fourth quarter of 2002. NMHG
Wholesale's bookings in the first quarter of 2003 were affected, like many
capital goods manufacturers, by pre-war purchasing conservatism by customers.
NMHG RETAIL (NET OF ELIMINATIONS)
Revenues decreased to $36.4 million in the first quarter of 2003 from $44.1
million in the first quarter of 2002. This decrease is primarily due to the
January 3, 2003 sale of NMHG Retail's only wholly owned U.S. dealer. NMHG
Retail-Americas revenues were $7.6 million in the first quarter of 2002 compared
with $0.7 million in the first quarter of 2003. Revenues in Europe increased
primarily due to favorable currency movements, while revenues in Asia-Pacific
decreased primarily due to lower service and parts sales. NMHG Retail generated
an operating loss of $1.0 million in the first quarter of 2003 compared with an
operating profit of $0.2 million in the first quarter of 2002. The decrease in
operating results is primarily due to $1.1 million of additional wind-down costs
related to dealers which have been sold. Net loss in the first quarter of 2003
was $1.4 million compared with a net loss of $1.3 million in the first quarter
of 2002. The 2003 net loss is comparable to 2002 results due to the factors
affecting operating profit (loss), partially offset by (i) a decrease in
interest expense allocated to NMHG Retail, (ii) favorable foreign currency
movements included in other-net expenses and (iii) an increase in the effective
tax rate benefit applied to the pre-tax loss in the first quarter of 2003 as
compared with the first quarter of 2002.
NMHG RESTRUCTURING PLANS
NMHG 2002 RESTRUCTURING PROGRAM
As announced in December 2002, NMHG Wholesale is phasing out its Lenoir, North
Carolina, lift truck component facility and restructuring other manufacturing
and administrative operations, primarily its Irvine, Scotland, lift truck
assembly and component facility. During the fourth quarter of 2002, NMHG
Wholesale recognized a restructuring charge of approximately $12.5 million
pre-tax. Of this amount, $3.8 million relates to a non-cash asset impairment
charge for building, machinery and tooling, which was determined based on the
then current market values for similar assets and broker quotes as compared to
the net book value of these assets; and $8.7 million relates to severance and
other employee benefits to be paid to approximately 615 manufacturing and
administrative employees. No payments have been made as of March 31, 2003.
Payments are expected to begin in 2003 and continue through 2005.
Approximately $0.8 million of pre-tax costs primarily related to manufacturing
inefficiencies were expensed in the first quarter of 2003 and are classified as
cost of sales in the Unaudited Condensed Consolidated Statement of Income for
the three months ended March 31, 2003. Additional costs for severance and
manufacturing inefficiencies to be expensed as incurred are expected to be
approximately $10.0 million for the remainder of 2003, $8.1 million in 2004 and
$5.7 million in 2005. Initial net benefits from this restructuring program are
expected to be realized in 2004 with a full twelve months of estimated annual
pre-tax benefits of approximately $14.8 million expected beginning in 2006.
Although a majority of the projected savings is the result of a reduction in
fixed factory costs, the overall benefit estimates could vary depending on unit
volumes and the resulting impact on manufacturing efficiencies. In addition,
outlays for capital expenditures, primarily for new tooling and equipment, of
approximately $6.8 million are expected for the remainder of 2003.
This restructuring program will allow the Company to re-focus its product line
manufacturing activities, including the manufacture of new product lines in
Europe. As a result, the Company expects to receive government grants during
2003 through 2005 totaling approximately $6.5 million over that three-year
period. Of this total amount, $0.3 million is expected to be received in 2003.
NMHG HOLDING CO. - continued
FINANCIAL REVIEW - continued
NMHG 2001 RESTRUCTURING PROGRAMS
During 2001, management committed to the restructuring of certain operations in
Europe for both the Wholesale and Retail segments of the business. As such, NMHG
Wholesale recognized a restructuring charge of approximately $4.5 million
pre-tax for severance and other employee benefits to be paid to approximately
285 direct and indirect factory labor and administrative personnel in Europe. As
of December 31, 2002, payments of $3.4 million to approximately 245 employees
had been made and $0.2 million of the amount originally accrued was reversed in
2002. Payments of $0.8 million to 13 employees were made during the first
quarter of 2003. The majority of the headcount reductions were made by the end
of 2002. As a result of the reduced headcount in Europe, NMHG Wholesale realized
pre-tax cost savings primarily from reduced employee wages and benefits of $2.3
million for the first three months of 2003 and estimates pre-tax savings of $6.9
million for the remainder of 2003. Annual pre-tax cost saving of $9.2 million
are expected to continue subsequent to 2003 as a result of this program.
Although a majority of the projected savings is the result of a reduction in
fixed factory costs, the overall benefit estimates could vary depending on unit
volumes and the resulting impact on manufacturing efficiencies or due to changes
in foreign currency rates.
NMHG Retail recognized a restructuring charge of approximately $4.7 million
pre-tax in 2001, of which $0.4 million related to lease termination costs and
$4.3 million related to severance and other employee benefits to be paid to
approximately 140 service technicians, salesmen and administrative personnel at
wholly owned dealers in Europe. As of December 31, 2002, severance payments, net
of currency effects, of $2.8 million had been made to approximately 110
employees. During the first quarter of 2003, severance payments of $0.2 million
were made to three employees. In addition, $0.1 million of the amount accrued at
December 31, 2002 was reversed in the first quarter of 2003. The majority of the
headcount reductions were made by the end of 2002. Cost savings primarily from
reduced employee wages, employee benefits and lease costs of approximately $0.7
million pre-tax were realized in the first three months of 2003 and are expected
to be approximately $2.4 million for the remainder of 2003 related to this
program. Annual pre-tax cost saving of $3.1 million are expected to continue
subsequent to 2003 as a result of this program. Estimated benefits could be
reduced by additional severance payments, if any, made to employees above the
statutory or contractually required amount that was accrued in 2001 or due to
changes in foreign currency rates.
LIQUIDITY AND CAPITAL RESOURCES
Expenditures for property, plant and equipment were $2.8 million for NMHG
Wholesale and $0.7 million for NMHG Retail during the first three months of
2003. These capital expenditures include tooling for new products, machinery,
equipment and lease and rental fleet. It is estimated that NMHG's capital
expenditures for the remainder of 2003 will be approximately $31.0 million for
NMHG Wholesale and $0.8 million for NMHG Retail. Planned expenditures for the
remainder of 2003 include tooling for new products, capital expenditures arising
as a result of the manufacturing restructuring programs, replacement of
machinery and equipment and additions to retail lease and rental fleet. The
principal sources of financing for these capital expenditures will be internally
generated funds and bank borrowings.
Since December 31, 2002, there have been no significant changes in the total
amount of NMHG's contractual obligations or commercial commitments, or the
timing of cash flows in accordance with those obligations, as reported in the
Company's 10-K for the year ended December 31, 2002.
During 2002, NMHG issued $250.0 million of 10% unsecured Senior Notes that
mature on May 15, 2009. The Senior Notes are senior unsecured obligations of
NMHG Holding Co. and are guaranteed by substantially all of NMHG's domestic
subsidiaries. NMHG Holding Co. has the option to redeem all or a portion of the
Senior Notes on or after May 15, 2006 at the redemption prices set forth in the
Indenture governing the Senior Notes. The proceeds from the Senior Notes were
reduced by an original issue discount of $3.1 million.
NMHG HOLDING CO. - continued
LIQUIDITY AND CAPITAL RESOURCES - continued
Additionally, NMHG has a secured, floating-rate revolving credit facility which
expires in May 2005. Availability under the revolving credit facility is up to
$175.0 million and is governed by a borrowing base derived from advance rates
against the inventory and accounts receivable of the borrowers, as defined in
the revolving credit facility. Adjustments to reserves booked against these
assets, including inventory reserves, will change the eligible borrowing base
and thereby impact the liquidity provided by the facility. At March 31, 2003,
the borrowing base under the revolving credit facility was $93.0 million, which
reflects reductions for the commitments or availability under certain foreign
credit facilities and for an excess availability requirement of $15.0 million.
There were no borrowings outstanding under this facility at March 31, 2003.
Therefore, at March 31, 2003, the excess availability under the revolving credit
facility was $93.0 million. The floating rate of interest applicable to this
facility on March 31, 2003 was 6.25%, including the applicable floating rate
margin.
In addition to the amount outstanding under the Senior Notes, NMHG had
borrowings of approximately $32.2 million outstanding at March 31, 2003 under
various foreign working capital facilities and other domestic term loans.
NMHG believes that funds available under the revolving credit facility, other
available lines of credit and operating cash flows are sufficient to finance all
of its operating needs and commitments arising during the foreseeable future.
NMHG's capital structure is presented below:
MARCH 31 DECEMBER 31
2003 2002
------ ------
Total net tangible assets $342.7 $362.8
Goodwill and other intangibles at cost 491.4 487.7
------ ------
Net assets before amortization of intangibles 834.1 850.5
Accumulated goodwill and other intangibles amortization (144.8) (142.3)
Total debt (306.3) (324.8)
Minority interest (.8) (1.1)
------ ------
Stockholder's equity $382.2 $382.3
====== ======
Debt to total capitalization 44% 46%
The decrease in total net tangible assets of $20.1 million is in part due to an
$8.6 million decrease in net assets as a result of the sale of NMHG Retail's
wholly owned U.S. dealership on January 3, 2003. The remaining $11.5 million
decrease in net tangible assets is primarily due to a $17.5 million increase in
trade and intercompany accounts payable and a $5.8 million decrease in property,
plant, and equipment, partially offset by an $11.6 million increase in
inventories. Total debt decreased consistent with the decrease in total net
tangible assets and from the use of $7.3 million of proceeds received in the
first quarter of 2003 from the January 3, 2003 sale of NMHG Retail's wholly
owned U.S. dealership. Stockholder's equity at March 31, 2003 decreased $0.1
million as a result of a dividend to NACCO of $5.0 million and an unfavorable
adjustment to the deferred loss on hedges of $0.7 million, partially offset by
net income of $3.3 million and a favorable foreign currency translation
adjustment of $2.3 million for the first three months of 2003.
======================
NACCO HOUSEWARES GROUP
======================
Because the housewares business is seasonal, a majority of revenues and
operating profit occurs in the second half of the calendar year when sales of
small electric appliances to retailers and consumers increase significantly for
the fall holiday selling season.
FINANCIAL REVIEW
The results of operations for Housewares were as follows for the three months
ended March 31:
2003 2002
----------- -----------
Revenues $ 116.0 $ 121.6
Operating loss $ (3.8) $ (2.6)
Interest expense $ (1.6) $ (1.9)
Other-net $ (.3) $ (.1)
Net loss $ (3.4) $ (2.8)
Effective tax rate 40.4% 39.1%
FIRST QUARTER OF 2003 COMPARED WITH FIRST QUARTER OF 2002
Housewares' revenues decreased to $116.0 million in the first quarter of 2003
from $121.6 million in the first quarter of 2002, primarily due to lower unit
volume at HB/PS driven by a weak retail environment in the United States and
Canada and the company's strategic decision to withdraw, beginning in the fourth
quarter of 2001, from selected low-margin, opening price point business. KCI
revenues decreased primarily due to lower comparable store sales for the first
quarter of 2003, compared with the first quarter of 2002, due to a weak retail
environment which was further compounded by severe winter weather. The number of
stores operated by KCI increased to 172 stores at March 31, 2003 from 167 stores
at March 31, 2002.
Operating loss in the seasonally weak first quarter was $3.8 million in the
first quarter of 2003 compared with $2.6 million in the first quarter of 2002.
The increase in operating loss was primarily due to a $1.5 million write-off of
accounts receivable, primarily Kmart pre-petition bankruptcy receivables, at
HB/PS and lower sales volume at KCI, partially offset by an improved sales mix
of higher margin products and lower manufacturing costs at HB/PS. Net loss of
$3.4 million for the first quarter of 2003 increased as compared with a net loss
of $2.8 million for the first quarter of 2002 primarily due to the factors
affecting operating loss.
LIQUIDITY AND CAPITAL RESOURCES
Housewares' expenditures for property, plant and equipment were $1.4 million
during the first three months of 2003 and are estimated to be $11.4 million for
the remainder of 2003. These planned capital expenditures are primarily for
tooling and equipment designed for new products, as well as tooling and
equipment intended to reduce manufacturing costs and increase efficiency. These
expenditures will be funded primarily from internally generated funds and bank
borrowings.
HB/PS' credit agreement provides for a revolving credit facility with
availability of up to $140.0 million, which is governed by a borrowing base
derived from advance rates against the inventory, accounts receivable and
certain trademarks of HB/PS. A portion of the availability can be denominated in
Canadian dollars to provide funding to HB/PS' Canadian subsidiary. The borrowing
base is reduced by specific reserves for inventory, accounts receivable,
obligations outstanding under letters of credit and interest rate derivatives,
among others, and an excess availability requirement of $10.0 million.
Adjustments to reserves booked against inventory and accounts receivable will
change the eligible borrowing base and thereby impact the liquidity provided by
the facility.
NACCO HOUSEWARES GROUP - continued
LIQUIDITY AND CAPITAL RESOURCES - continued
Borrowings bear interest at a floating rate, which can be either a base rate or
LIBOR, as defined, plus an applicable margin. The applicable margins, effective
March 31, 2003, for base rate loans and LIBOR loans were 0.75% and 2.00%,
respectively. This is a decline from the applicable margins effective as of
December 31, 2002, which were 1.50% and 2.75%, respectively. The revolving
credit facility also requires the payment of a fee on the unused commitment. The
unused commitment fee has declined from 0.50% per annum at December 31, 2002 to
0.375% per annum at March 31, 2003. The margins and unused commitment fee are
subject to quarterly adjustment based on a leverage ratio. The revolving credit
facility is secured by substantially all of HB/PS' assets. The facility expires
in December 2005.
At March 31, 2003, the borrowing base under the revolving credit facility was
$70.9 million, which reflects reductions for reserves and the excess
availability requirement of $10.0 million. Borrowings outstanding under this
facility were $56.2 million at March 31, 2003. Therefore, at March 31, 2003, the
excess availability under the revolving credit facility was $14.7 million. The
floating rate of interest applicable to this facility on March 31, 2003 was
3.56%, including the applicable floating rate margin.
KCI's credit agreement provides for a secured, floating-rate revolving line of
credit (the "KCI Facility") with availability up to $15.0 million, based on a
formula using KCI's eligible inventory, as defined. At March 31, 2003, the
borrowing base as defined in the agreement was $10.8 million. Borrowings
outstanding at March 31, 2003 were $8.9 million at an effective interest rate of
LIBOR plus 1.35%, or 2.71%.
Since December 31, 2002, there have been no significant changes in the total
amount of Housewares' contractual obligations or commercial commitments, or the
timing of cash flows in accordance with those obligations, as reported in the
Company's 10-K for the year ended December 31, 2002.
Housewares believes that funds available under its credit facilities and
operating cash flows are sufficient to finance all of its operating needs and
commitments arising during the foreseeable future.
Housewares' capital structure is presented below:
MARCH 31 DECEMBER 31
2003 2002
------ ------
Total net tangible assets $131.4 $128.1
Goodwill at cost 123.5 123.5
------ ------
Net assets before goodwill amortization 254.9 251.6
Accumulated goodwill amortization (39.8) (39.8)
Total debt (65.4) (57.9)
------ ------
Stockholder's equity $149.7 $153.9
====== ======
Debt to total capitalization 30% 27%
Total net tangible assets increased $3.3 million primarily due to a $13.8
million decrease in trade and intercompany accounts payable and a $7.6 million
decrease in other current liabilities, partially offset by a $12.2 million
decrease in accounts receivable, a $3.7 million decrease in inventory and a $2.3
million decrease in property, plant and equipment. Accounts payable declined
primarily due to decreased inventory purchases and the timing of payments. Other
current liabilities declined primarily due to the payment of payroll and
incentive compensation in the first quarter of 2003 relating to amounts accrued
at December 31, 2002. Accounts receivable declined primarily as a result of
lower sales in the first quarter of 2003 as compared with sales in the
seasonally higher fourth quarter of 2002.
===============================
NORTH AMERICAN COAL CORPORATION
===============================
NACoal mines and markets lignite for use primarily as fuel for power providers.
The lignite is surface mined in North Dakota, Texas, Louisiana and Mississippi.
Total coal reserves approximate 2.5 billion tons, with 1.3 billion tons
committed to customers pursuant to long-term contracts. NACoal operates six
wholly owned lignite mines: The Coteau Properties Company ("Coteau"), The
Falkirk Mining Company ("Falkirk"), The Sabine Mining Company ("Sabine"), San
Miguel Lignite Mine ("San Miguel"), Red River Mining Company ("Red River") and
Mississippi Lignite Mining Company ("MLMC"). NACoal also provides dragline
mining services ("Florida dragline operations") for a limerock quarry near
Miami, Florida. The operating results of Coteau, Falkirk and Sabine are included
in "project mining subsidiaries." The operating results of all other operations
are included in "other mining operations."
NACoal's subsidiaries, Coteau, Falkirk and Sabine, are termed "project mining
subsidiaries" because they mine lignite for utility customers pursuant to
long-term contracts at a price based on actual cost plus an agreed pre-tax
profit per ton. Due to the cost-plus nature of these contracts, revenues and
operating profits are affected by increases and decreases in operating costs, as
well as by tons sold. Net income of the project mining subsidiaries, however, is
not significantly affected by changes in such operating costs, which include
costs of operations, interest expense and certain other items. Because of the
nature of the contracts at these mines and because the operating results of the
project mining subsidiaries represent a substantial portion of NACoal's revenues
and profits, operating results are best analyzed in terms of lignite tons sold,
income before taxes and net income.
FINANCIAL REVIEW
Lignite tons sold by NACoal's operating lignite mines were as follows for the
three months ended March 31:
2003 2002
--------- ---------
Coteau 4.3 4.1
Falkirk 2.0 1.9
Sabine 1.0 1.1
San Miguel .7 .8
Red River .2 .1
MLMC 1.0 .3
--------- ---------
Total lignite 9.2 8.3
========= =========
The Florida dragline operations delivered 2.8 and 2.4 million cubic yards of
limerock in the three months ended March 31, 2003 and March 31, 2002,
respectively.
THE NORTH AMERICAN COAL CORPORATION - continued
FINANCIAL REVIEW - continued
Revenues, income before taxes, provision for taxes and net income were as
follows for the three months ended March 31:
2003 2002
------ ------
Revenues
Project mining subsidiaries $ 61.7 $ 64.4
Other mining operations 22.6 14.4
------ ------
84.3 78.8
Liquidated damages payments recorded by MLMC --- 3.3
Royalties and other .6 1.0
------ ------
$ 84.9 $ 83.1
====== ======
Income before taxes
Project mining subsidiaries $ 7.5 $ 7.4
Other mining operations 1.9 4.3
------ ------
Total from operating mines 9.4 11.7
Royalties and other expenses, net (1.9) (2.5)
Other operating expenses (2.0) (1.6)
------ ------
Income before tax provision 5.5 7.6
Provision for taxes .9 1.2
------ ------
Income before cumulative effect of accounting change 4.6 6.4
Cumulative effect of accounting change, net-of-tax (1.3) ---
------ ------
Net income $ 3.3 $ 6.4
====== ======
Effective tax rate (a) 16.4% 15.8%
(a) The effective tax rate for NACoal is lower than the statutory federal tax
rate of 35% primarily due to the benefit received from percentage depletion.
FIRST QUARTER OF 2003 COMPARED WITH FIRST QUARTER OF 2002
Revenues in the first quarter of 2003 were $84.9 million compared with revenues
in the first quarter of 2002 of $83.1 million. Revenues from project mining
subsidiaries were down slightly in the first quarter of 2003 as compared with
the first quarter of 2002 as revenues from increased tonnage volume at Coteau
and Falkirk were offset by decreased tonnage volume at Sabine and decreased
pass-through costs billed to the project mining subsidiaries' customers.
Variances in tonnages were primarily due to customer requirements. Increased
revenues from the other mining operations in the first quarter of 2003 as
compared with the first quarter of 2002 were due to increased tonnage volume at
MLMC partially offset by decreased tonnage volume at San Miguel, primarily due
to weather. The increase in tons sold at MLMC was due to the commencement of
commercial operations of the customer's power plant at the end of the first
quarter of 2002. The increase in revenues from tonnage volume at MLMC was
partially offset by a decrease in revenues from contractual liquidated damages
payments, which were recorded in the first quarter of 2002.
Income before taxes decreased to $5.5 million in the first quarter of 2003 from
$7.6 million in the first quarter of 2002. This decrease is primarily due to
increased operating costs at MLMC due to the significant increase in production
and delivery of lignite to the customer during 2003 as compared with lower
operating costs recognized when receiving liquidated damages payments during the
first quarter of 2002. Increased maintenance costs in the first quarter of 2003
due to the timing of repairs at San Miguel and Red River also caused a decrease
in income before taxes. Decreased income before taxes from these factors was
partially offset by decreased interest expense.
Net income in the first quarter of 2003 decreased to $3.3 million from $6.4
million in the first quarter of 2002 as a result of these factors and due to a
$1.3 million after-tax charge for the cumulative effect of accounting change
related to the adoption of SFAS No. 143. See Note 4 to the Unaudited Condensed
Consolidated Financial Statements for a discussion related to the adoption of
SFAS No. 143.
THE NORTH AMERICAN COAL CORPORATION - continued
LIQUIDITY AND CAPITAL RESOURCES
Expenditures for property, plant and equipment were $4.6 million during the
first three months of 2003. NACoal estimates that its capital expenditures for
the remainder of 2003 will be $46.2 million, of which $22.3 million relates to
the development, establishment and improvement of the project mining
subsidiaries' mines and are financed or guaranteed by the utility customers. The
remaining $23.9 million of capital expenditures for 2003 primarily relates to
machinery and equipment at MLMC. Of this amount, approximately $15.6 million
relates to purchases of mining equipment, such as trucks, dozers, graders and a
backhoe, in April 2003 that were previously financed with operating leases.
These April 2003 purchases were financed with three collateralized notes payable
that expire, in accordance with their respective terms, in either 2007 or 2008
and require monthly principal and interest payments at a weighted-average fixed
interest rate of 5.45%.
NACoal's non-project-mine financing needs are provided by a revolving line of
credit of up to $60.0 million and a term loan with a principal balance of $85.0
million at March 31, 2003 (the "NACoal Facility"). The NACoal Facility requires
annual term loan repayments of $15.0 million, with a final term loan repayment
of $55.0 million in October 2005. The revolving line of credit of up to $60.0
million is available until the facility's expiration in October 2005. The NACoal
Facility has performance-based pricing which sets interest rates based upon
achieving various levels of Debt to EBITDA ratios, as defined therein. At March
31, 2003, the stated interest rate, including the applicable margin, for the
revolving line of credit and for the term loan was LIBOR plus 1.45% and LIBOR
plus 1.75%, respectively. The applicable margins at March 31, 2003 have declined
from those in effect at December 31, 2002 of 1.85% and 2.25%, respectively. The
revolving credit facility fee has also declined from 0.40% at December 31, 2002
to 0.30% at March 31, 2003. At March 31, 2003, NACoal had borrowings outstanding
under its revolving line of credit of $13.0 million, leaving $47.0 million
available.
Since December 31, 2002, there have been no significant changes in the total
amount of NACoal's contractual obligations or commercial commitments, or the
timing of cash flows in accordance with those obligations, as reported in the
Company's 10-K for the year ended December 31, 2002.
The financing of the project mining subsidiaries, which is either provided or
guaranteed by the utility customers, includes long-term equipment leases, notes
payable and non-interest-bearing advances from customers. The obligations of the
project mining subsidiaries do not affect the short-term or long-term liquidity
of NACoal and are without recourse to NACCO or NACoal. These arrangements allow
the project mining subsidiaries to pay dividends to NACoal in amounts based on
their earnings.
NACoal believes that funds available under its revolving line of credit,
operating cash flows and financing provided by the project mining subsidiaries'
customers are sufficient to finance all of its term loan principal repayments
and its operating needs and commitments arising during the foreseeable future.
THE NORTH AMERICAN COAL CORPORATION - continued
LIQUIDITY AND CAPITAL RESOURCES - continued
NACoal's capital structure, excluding the project mining subsidiaries, is
presented below:
MARCH 31 DECEMBER 31
2003 2002
------ ------
Investment in project mining subsidiaries $ 4.5 $ 4.9
Other net tangible assets 92.6 93.2
Coal supply agreements, net 82.0 82.8
------ ------
Net assets 179.1 180.9
Advances from NACCO (16.3) (25.7)
Other debt (98.1) (92.0)
------ ------
Total debt (114.4) (117.7)
------ ------
Stockholder's equity $ 64.7 $ 63.2
====== ======
Debt to total capitalization 64% 65%
At NACoal, there were no significant changes to the company's financial position
since December 31, 2002. However, increased external borrowings allowed NACoal
to repay a portion of the advances from NACCO. The change in stockholder's
equity is the result of net income of $3.3 million and a $0.6 million increase
in accumulated other comprehensive income related to hedging activity, partially
offset by $2.4 million in dividends paid to the parent company.
===============
NACCO AND OTHER
===============
FINANCIAL REVIEW
NACCO and Other includes the parent company operations and Bellaire Corporation
("Bellaire"), a non-operating subsidiary of NACCO. While Bellaire's results are
immaterial, it has significant long-term liabilities related to closed mines,
primarily from former Eastern U.S. underground coal-mining activities. Cash
payments related to Bellaire's obligations, net of internally generated cash,
are funded by NACCO and historically have not been material.
The results of operations at NACCO and Other were as follows for the three
months ended March 31:
2003 2002
------------ -------------
Revenues $ --- $ ---
Operating loss $ (.1) $ (.8)
Other income (loss), net $ (.5) $ .6
Net income (loss) $ .9 $ (1.6)
The change in operating loss and other income (loss) is primarily due to a
change in the classification of certain of NACCO's fees charged to the operating
segments. In 2003, $0.9 million of income from fees charged to the operating
segments is included in operating loss, but was classified in other income
(loss) in 2002. The change in net income (loss) is primarily due a $2.5 million
after-tax cumulative effect benefit recorded by Bellaire for the adoption of
SFAS No. 143. See Note 4 to the Unaudited Condensed Consolidated Financial
Statements for a discussion of the adoption of SFAS No. 143.
LIQUIDITY AND CAPITAL RESOURCES
Although NACCO's subsidiaries have entered into substantial borrowing
agreements, NACCO has not guaranteed the long-term debt or any borrowings of its
subsidiaries. The borrowing agreements at NMHG, Housewares and NACoal allow for
the payment to NACCO of dividends, advances and management fees under certain
circumstances. Dividends, advances and management fees from its subsidiaries are
the primary sources of cash for NACCO.
The Company believes that funds available under financing agreements,
anticipated funds to be generated from operations and the utility customers'
funding of the project mining subsidiaries are sufficient to finance all of its
scheduled principal repayments, operating needs and commitments arising during
the foreseeable future.
NACCO AND OTHER - continued
LIQUIDITY AND CAPITAL RESOURCES - continued
NACCO's consolidated capital structure is presented below:
MARCH 31 DECEMBER 31
2003 2002
------ ------
Total net tangible assets $566.8 $570.8
Coal supply agreements and other intangibles, net 84.2 85.0
Goodwill at cost 612.5 609.0
------ ------
Net assets before goodwill amortization 1,263.5 1,264.8
Accumulated goodwill amortization (184.0) (181.6)
Total debt, excluding current and long-term portion of
obligations of project mining subsidiaries (469.8) (474.7)
Closed mine obligations (Bellaire), including the
United Mine Worker retirees' medical fund, net-of-tax (45.1) (48.0)
Minority interest (.8) (1.1)
------ ------
Stockholders' equity $563.8 $559.4
====== ======
Debt to total capitalization 45% 46%
EFFECTS OF FOREIGN CURRENCY
NMHG and Housewares operate internationally and enter into transactions
denominated in foreign currencies. As such, the Company's financial results are
subject to the variability that arises from exchange rate movements. The effects
of foreign currency fluctuations on revenues, operating profit (loss) and net
income (loss) at NMHG and Housewares have either been discussed above or were
not material in the first quarter of 2003 as compared with the first quarter of
2002. See also Item 3, "Quantitative and Qualitative Disclosures About Market
Risk."
OUTLOOK
NMHG WHOLESALE
NMHG Wholesale expects overall lift truck shipments to increase modestly in 2003
compared with 2002. While market prospects are currently more uncertain than
usual, lift truck markets in the Americas are anticipated to improve in the
second half of 2003 while markets in Europe and Asia-Pacific are expected to
remain relatively flat.
NMHG Wholesale expects that results in 2003 will be affected by ongoing costs
for a product development program that is expected to mature in 2004-2006 and
additional costs related to the Lenoir, North Carolina, and Irvine, Scotland,
manufacturing restructuring program announced in December 2002.
NMHG RETAIL
NMHG Retail expects to continue its programs to improve the performance of its
wholly owned dealerships in 2003 as part of its objective to achieve and sustain
at least break-even results.
OUTLOOK - continued
HOUSEWARES
HB/PS expects that programs begun in 2002 designed to reduce operating costs and
enhance manufacturing and distribution efficiencies will improve results in
2003. However, revenues for 2003 could be affected by the continuing weak retail
environment and by Kmart's store closing program. HB/PS believes lower sales to
Kmart could be offset by incremental sales to other customers and to other
distribution channels and through sales of innovative new products, such as the
Hamilton Beach(R) BrewStation(TM) coffeemaker. In addition, HB/PS expects to
continue improving working capital efficiency.
KCI expects to continue programs designed to enhance operating results,
including improving its merchandise mix, closing non-performing stores and
prudently opening new Kitchen Collection(R) and Gadgets & More(R) stores,
expanding the offerings of Hamilton Beach and Proctor-Silex-branded products and
aggressively managing its costs during 2003.
NACOAL
NACoal anticipates increased lignite coal deliveries in 2003, compared to 2002,
primarily due to an expected increase in lignite coal production at MLMC.
However, certain favorable items which improved financial results in 2002,
including liquidated damages payments and related settlements, are not expected
to be repeated in 2003. Furthermore, the adoption of SFAS No. 143 is expected to
reduce future operating results modestly compared to operating results in 2002.
In the first quarter of 2003, NACoal reached an agreement on a new limerock
mining contract which has minimum deliveries of 3.0 million cubic yards
annually. This operation is expected to begin late in 2003. NACoal expects to
continue its efforts to develop other new domestic mining projects.
The statements contained in this Form 10-Q that are not historical facts are
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are made subject to certain risks and uncertainties
which could cause actual results to differ materially from those presented in
these forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date hereof. Such risks and uncertainties
with respect to each subsidiary's operations include, without limitation:
NMHG: (1) changes in demand for lift trucks and related aftermarket parts and
service on a worldwide basis, especially in the U.S. where the company derives a
majority of its sales, (2) changes in sales prices, (3) delays in delivery or
changes in costs of raw materials or sourced products and labor, (4) delays in
manufacturing and delivery schedules, (5) exchange rate fluctuations, changes in
foreign import tariffs and monetary policies and other changes in the regulatory
climate in the foreign countries in which NMHG operates and/or sells products,
(6) product liability or other litigation, warranty claims or returns of
products, (7) delays in or increased costs of restructuring programs, (8) the
effectiveness of the cost reduction programs implemented globally, including the
successful implementation of procurement initiatives, (9) customer acceptance
of, changes in costs of, or delays in the development of new products, (10)
acquisitions and/or dispositions of dealerships by NMHG, and (11) the uncertain
impact on the economy or the public's confidence in general from terrorist
activities and the impact of the war in Iraq.
HOUSEWARES: (1) changes in the sales prices, product mix or levels of consumer
purchases of kitchenware and small electric appliances, (2) bankruptcy of or
loss of major retail customers or suppliers, (3) changes in costs of raw
materials or sourced products, (4) delays in delivery or the unavailability of
raw materials, key component parts or sourced products, (5) exchange rate
fluctuations, changes in the foreign import tariffs and monetary policies and
other changes in the regulatory climate in the foreign countries in which HB/PS
buys, operates and/or sells products, (6) product liability, regulatory actions
or other litigation, warranty claims or returns of products, (7) increased
competition, (8) customer acceptance of, changes in costs of, or delays in the
development of new products, (9) weather conditions or other events that would
affect the number of customers visiting KCI stores and (10) the uncertain impact
on the economy or the public's confidence in general from terrorist activities
and the impact of the war in Iraq.
NACOAL: (1) weather conditions and other events that would change the level of
customers' fuel requirements, (2) weather or equipment problems that could
affect lignite deliveries to customers, (3) changes in maintenance, fuel or
other similar costs, (4) costs to pursue and develop new mining opportunities
and (5) changes in the U.S. economy, in U.S. regulatory requirements or in the
power industry that would affect demand for NACoal's reserves.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See pages 47, F-11, F-25 and F-26 of the Company's Form 10-K for the fiscal year
ended December 31, 2002, for a discussion of its derivative hedging policies and
use of financial instruments. There have been no material changes in the
Company's market risk exposures since December 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES: The Company maintains a set of
disclosure controls and procedures designed to ensure that information required
to be disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms. Within the 90-day period prior to the filing of this report, an
evaluation was carried out under the supervision and with the participation of
the Company's management, including the Principal Executive Officer and the
Principal Financial Officer, of the effectiveness of the Company's disclosure
controls and procedures. Based on that evaluation, these officers have concluded
that the Company's disclosure controls and procedures are effective.
CHANGES IN INTERNAL CONTROLS: Subsequent to the date of their evaluation, there
have been no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls, including any corrective
action with regard to significant deficiencies and material weaknesses.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
See Exhibit Index on page 38 of this quarterly report
on Form 10-Q.
(b) Reports on Form 8-K.
Current Report on Form 8-K filed with the Commission on
March 27, 2003 (Item 9)
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NACCO Industries, Inc.
----------------------
(Registrant)
Date May 14, 2003 /s/ Kenneth C. Schilling
------------------------------ ----------------------------------
Kenneth C. Schilling
Vice President and Controller
(Authorized Officer and Principal
Financial and Accounting Officer)
Certifications
I, Alfred M. Rankin, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of NACCO Industries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003 /s/ Alfred M. Rankin, Jr.
------------------ -------------------------
Alfred M. Rankin, Jr.
Chairman, President and Chief Executive
Officer
(Principal Executive Officer)
I, Kenneth C. Schilling, certify that:
1. I have reviewed this quarterly report on Form 10-Q of NACCO Industries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c. Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. All significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. Any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003 /s/ Kenneth C. Schilling
------------------ ------------------------
Kenneth C. Schilling
Vice President and Controller
(Principal Financial Officer)
Exhibit Index
Exhibit
Number* Description of Exhibits
- ------- -----------------------
99.1 Certifications under Section 906 of the Sarbanes-Oxley Act of
2002
99.2 Comments of Alfred M. Rankin, Jr., Chairman, President and
Chief Executive Officer, at the NACCO Industries, Inc.
Annual Meeting of Stockholders on May 14, 2003
*Numbered in accordance with Item 601 of Regulation S-K.