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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002 Commission File No. 1-9172
NACCO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 34-1505819
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5875 Landerbrook Drive
Mayfield Heights, Ohio 44124-4017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (440) 449-9600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH
EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Class A Common Stock, New York Stock Exchange
Par Value $1.00 Per Share
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class B Common Stock, Par Value $1.00 Per Share
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirement for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
YES [X] NO [ ]
Aggregate market value of Class A Common Stock and Class B Common Stock held by
non-affiliates as of June 28, 2002 (the last business day of the registrant's
most recently completed second fiscal quarter):
$293,576,453
Number of shares of Class A Common Stock outstanding at February 28, 2003:
6,578,144
Number of shares of Class B Common Stock outstanding at February 28, 2003:
1,623,594
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Company's Proxy Statement for its 2003 annual
meeting of stockholders are incorporated herein by reference in Part III.
PART I
ITEM 1. BUSINESS
GENERAL
NACCO Industries, Inc. ("NACCO" or the "Company") is a holding company
whose principal operating subsidiaries function in three distinct industries:
lignite mining, lift trucks and housewares.
(a) North American Coal. The Company's wholly owned subsidiary, The North
American Coal Corporation, and its affiliated coal companies (collectively,
"NACoal"), mine and market lignite primarily as fuel for power providers. NACoal
also provides dragline mining services for a limerock quarry near Miami,
Florida.
(b) NACCO Materials Handling Group. NACCO Materials Handling Group
consists of the Company's wholly owned subsidiary, NMHG Holding Co., and its
wholly owned subsidiaries (collectively, "NMHG"), including NACCO Materials
Handling Group, Inc. ("NMHG Wholesale") and NMHG Distribution Co. ("NMHG
Retail"). NMHG, through NMHG Wholesale and NMHG Retail, 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.
(c) NACCO Housewares Group. NACCO Housewares Group ("Housewares") consists
of two of the Company's wholly owned subsidiaries: Hamilton BeachoProctor-Silex,
Inc. ("HB-PS"), a leading manufacturer, marketer and distributor of small
electric motor and heat-driven household 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.
Additional information relating to financial and operating data on a segment
basis (including NACCO and Other) and by geographic region is set forth under
the heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in Part II hereof and in Note 19 to the
Consolidated Financial Statements contained in Part IV hereof.
NACCO was incorporated as a Delaware corporation in 1986 in connection
with the formation of a holding company structure for a predecessor corporation
organized in 1913. As of February 28, 2003, the Company and its subsidiaries had
approximately 11,500 employees.
The Company makes its annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and any amendments to those reports
available, free of charge, through its website, http://www.nacco.com, as soon as
reasonably practicable after such material is electronically filed with, or
furnished to, the Securities and Exchange Commission.
SIGNIFICANT EVENTS
In the fourth quarter of 2001, NACoal's Mississippi Lignite Mining Company
("MLMC") mine commenced limited deliveries of lignite to its customer. The
customer's power plant did not reach Commercial Operations Date ("COD"), as
defined in the lignite sales agreement, until March 1, 2002. As a result, in
January 2001 MLMC began to collect contractual liquidated damages, which when
combined with a final settlement from its customer amounted to $26.3 million for
the delay in COD.
On May 9, 2002, NMHG replaced its primary financing agreement, an
unsecured, floating-rate revolving line of credit with availability of up to
$350 million, certain other lines of credit with availability of $4.6 million
and a program to sell accounts receivable in Europe with the proceeds from the
private placement of $250 million of 10% Senior Notes due 2009 ("Senior Notes")
and borrowings under a secured, floating-rate revolving credit facility which
expires in May 2005. Availability under the new revolving credit facility is up
to $175.0 million. On September 18, 2002, NMHG exchanged outstanding Senior
Notes with Senior Notes registered pursuant to the federal securities laws.
On December 9, 2002, NMHG announced that it will phase out its Lenoir,
North Carolina lift truck component facility and restructure its Irvine,
Scotland lift truck assembly and component facility. These actions are designed
to complete the restructuring of the Company's global manufacturing facility
structure.
On January 3, 2003, NMHG Retail sold Hyster MidEast, its sole company
owned retail dealership in North America, to MH Logistics Corporation, which
already owned three Hyster dealerships.
In 2002, HB-PS substantially completed the previously announced
restructuring of its manufacturing activities in Mexico, resulting in the
outsourcing of certain of the company's products and the consolidation of
production in three of the company's Juarez manufacturing plants into one of
those plants.
On December 17, 2002, HB-PS replaced its primary financing agreement with
borrowings under a new senior secured, floating-rate revolving credit facility
which expires in December 2005. The new revolving credit facility provides
availability of up to $140 million.
BUSINESS SEGMENT INFORMATION
A. NORTH AMERICAN COAL
GENERAL
NACoal is engaged in the mining and marketing of lignite primarily as fuel
for power providers. Sales by NACoal are made primarily through wholly owned
project mining subsidiaries pursuant to long-term, cost plus a profit per ton
contracts. The utility customers have provided, arranged and/or guaranteed the
financing of the development and operation of the project mining subsidiaries.
There is no recourse to NACCO or NACoal for the financing of these subsidiary
mines. The balance of NACoal's lignite sales are from non-project mining
subsidiaries for which NACoal has arranged and provided the necessary financing.
NACoal also provides dragline mining services for a limerock quarry near Miami,
Florida and earns royalty income from the lease of various coal and gas
properties. At December 31, 2002, NACoal's operating mines consist of mines
where the reserves were acquired and developed by NACoal, except for the South
Hallsville No. 1 Mine and the San Miguel Lignite Mine where reserves are owned
by the customers of these mines. For further information as to the financing of
the project mining subsidiaries, see Note 12 to the Consolidated Financial
Statements contained in Part IV hereof.
SALES, MARKETING AND OPERATIONS
The principal customers of NACoal are electric utilities, an independent
power provider and a synfuels plant. Sales to Dakota Coal Company, which
supplies coal to four facilities, accounted for 46%, 40% and 47% of NACoal's
revenues in 2002, 2001 and 2000, respectively. The distribution of sales in the
last five years has been as follows:
DISTRIBUTION
----------------------------------
ELECTRIC
TOTAL UTILITIES/
TONS SOLD INDEPENDENT SYNFUELS
(MILLIONS) POWER PROVIDER PLANT
---------- -------------- -----
2002 34.2 82% 18%
2001 31.4 80% 20%
2000 31.6 80% 20%
1999 31.3 80% 20%
1998 31.7 80% 20%
The contracts under which the project mining subsidiaries were organized
provide that, under certain conditions of default, the customer(s) involved may
elect to acquire the assets (subject to the liabilities) or the capital stock of
the subsidiary for an amount effectively equal to book value. NACoal does not
know of any conditions of default that currently exist. In one case, the
customer may elect to acquire the stock of the subsidiary after a specified
period of time without reference to default, in exchange for certain payments on
coal thereafter mined. In another case, the customer may elect to terminate the
contract for convenience. NACoal does not know of any current intention of any
customer to acquire the stock of a subsidiary or terminate a contract for
convenience.
The location, mine type, reserve data, coal quality characteristics,
customer, sales tonnage and contract expiration date for the mines operated by
NACoal in 2002 were as follows:
2
DEVELOPED LIGNITE MINING OPERATIONS
PROVEN AND PROBABLE RESERVES (1)
COMMITTED AVERAGE
UNDER SULFUR
CONTRACT UNCOMMITTED AVERAGE CONTENT
PROJECT MINING (MILLIONS (MILLIONS BTUS PER UNIT
SUBSIDIARIES MINE LOCATION TTYPE OF MINE OF TONS) OF TONS) PER POUND OF WEIGHT
- ------------ ---- -------- ------------- ----- ----- --------- ---------
The Coteau Properties
Company Freedom Mine (2) Beulah, ND Surface Lignite 584.0 8.4 6,767 0.8%
The Falkirk Mining
Company Falkirk Mine (2) Underwood, ND Surface Lignite 484.5 ---- 6,200 0.6%
The Sabine Mining Company South Hallsville Hallsville, TX Surface Lignite (4) (4) (4) (4)
No. 1 Mine (2)
OTHER
- -----
San Miguel Lignite Mining San Miguel Jourdanton, TX Surface Lignite (5) (5) (5) (5)
Operations Lignite
Mine
Red River Mining Company Oxbow Mine Coushatta, LA Surface Lignite 6.8 56.3 6,722 0.7%
Mississippi Lignite
Mining Company Red Hills Mine Ackerman, MS Surface Lignite 163.9 126.7 5,200 0.6%
----- -----
Total Developed 1,239.2 191.4
UNDEVELOPED MINING OPERATIONS
- -----------------------------
North Dakota ---- ---- ---- ---- 565.1 6,500 0.8%
Texas ---- ---- ---- ---- 192.9 6,800 1.0%
Eastern ---- ---- ---- 60.6 49.6 12,070 3.3%
Mississippi ---- ---- ---- ---- 143.4 5,200 0.6%
Tennessee ---- ---- ---- ---- 81.2 5,200 0.7%
---- ----
Total Undeveloped 60.6 1,032.2
Total Developed/ 1,299.8 1,223.6
Undeveloped
2002 SALES
PROJECT MINING TONNAGE CONTRACT
SUBSIDIARIES CUSTOMER(S) (PLANT) (MILLIONS) EXPIRES
- ------------ ------------------- ---------- -------
The Coteau Properties
Company Dakota Coal Company 6.2 2007 (3)
(Great Plains Synfuels
Plant)
Dakota Coal Company 5.5 2007 (3)
(Antelope Valley Station)
Dakota Coal Company 3.0 2007 (3)
(Leland Olds Station)
Dakota Coal Company 1.1 2003
(Stanton Station of United
Power Association)
The Falkirk Mining
Company United Power Association/ 7.6 2020
Cooperative Power
Association
(Coal Creek Station)
The Sabine Mining Company Southwestern Electric 4.0 2020
Power Company
(Henry W. Pirkey Power
Plant)
OTHER
- -----
San Miguel Lignite Mining San Miguel Electric 3.3 2007
Operations Cooperative, Inc.
(San Miguel Power Plant)
Red River Mining Company CLECO Utility Group, Inc./ 0.6 2010
Southwestern Electric
Power Company
(Dolet Hills Power Plant)
Mississippi Lignite Choctaw Generation Limited
Mining Company Partnership 2.9 2032
(Red Hills Power Plant)
UNDEVELOPED MINING OPERATIONS
- -----------------------------
North Dakota ---- ---- ----
Texas ---- ---- ----
Eastern ---- ---- ----
Mississippi ---- ---- ----
Tennessee ---- ---- ----
(1) The projected extraction loss is approximately ten percent (10%) of the
proven and probable reserves, except with respect to the reserves for the
Eastern Undeveloped Mining Operations, in which case the extraction loss
is approximately thirty percent (30%) of the proven and probable reserves.
(2) The contracts for these mines require the customer to cover the cost of
the ongoing replacement and upkeep of the plant and equipment of the mine.
(3) Although the term of the existing coal sales agreement terminates in 2007,
the term may be extended for six (6) additional periods of five years, or
until 2037, at the option of The Coteau Properties Company.
(4) The reserves of the South Hallsville No. 1 Mine are owned and controlled
by the customer and, therefore, have not been listed in the table.
(5) The reserves of the San Miguel Lignite Mine are owned and controlled by
the customer and, therefore, have not been listed in the table.
3
GOVERNMENT REGULATION
NACoal, like other coal producers, continues to be subject to Federal and
state health, safety and environmental regulations. NACoal's active operations
are required to make certain additional capital expenditures to comply with such
governmental regulations. For the project mining subsidiaries these expenditures
will be recovered under the terms of the coal sales agreements with the utility
customers.
NACoal's management believes that the Clean Air Act Amendments, which
became effective in 1990, have not had and will not have a material adverse
effect on its current operations, because substantially all of the power
generating facilities operated or supplied by NACoal's customers meet or exceed
the requirements of the Clean Air Act.
COMPETITION
The coal industry competes with other sources of energy, particularly oil,
gas, hydro-electric power and nuclear power. Among the factors that affect
competition are the price and availability of oil and natural gas, environmental
considerations, the time and expenditures required to develop new energy
sources, the cost of transportation, the cost of compliance with governmental
regulation of operations, the impact of Federal and state energy policies and
the current trend toward deregulation of energy markets. The ability of NACoal
to market and develop its reserves will depend upon the interaction of these
factors.
There is no official source of information on the subject, but NACoal
believes that it was one of the ten largest coal producers in the United States
in 2002 based on total coal tons sold.
EMPLOYEES
As of February 28, 2003, NACoal had approximately 1,200 employees.
B. NACCO MATERIALS HANDLING GROUP
1. NMHG WHOLESALE
GENERAL
NMHG Wholesale designs, engineers, manufactures and sells a comprehensive
line of lift trucks and aftermarket parts on a global basis under the Hyster and
Yale brand names.
MANUFACTURING AND ASSEMBLY
NMHG Wholesale manufactures components, such as masts and transmissions,
and assembles products in the market of sale to minimize freight cost and
balance currency mix. In some instances, however, it utilizes one worldwide
location to manufacture specific components or assemble specific products. NMHG
Wholesale operates 14 manufacturing and assembly operations worldwide with six
plants in the Americas, five in Europe, including the Middle East and Africa,
and three in Asia-Pacific.
Sales of lift trucks represented approximately 81% of NMHG Wholesale's
annual revenues in each of 2002, 2001 and 2000.
MARKETING
NMHG Wholesale's marketing organization is structured in three regional
divisions: the Americas; Europe, which includes the Middle East and Africa; and
Asia-Pacific. In each region, certain marketing support functions for the Hyster
and Yale brands are combined into a single shared services organization. These
activities include sales and service training, information systems support,
product launch coordination, direct advertising, specialized sales material
development, help desks, order entry, marketing strategy and field service
support. Only the specific aspects of NMHG Wholesale's sales and marketing
activities that interact directly with dealers and customers, such as dealer
consulting and new lift truck units and aftermarket parts transaction support,
are brand specific.
DISTRIBUTION NETWORK
NMHG Wholesale distributes lift trucks and aftermarket parts through two
channels: dealers and a National Accounts organization.
4
DEALERS
INDEPENDENT DEALERS
The majority of NMHG Wholesale's dealers are independently owned and
operated. In the Americas, NMHG Wholesale had 60 independent Hyster dealers and
75 independent Yale dealers as of December 31, 2002. In Europe, including the
Middle East and Africa, Hyster had 78 independent dealers with locations in 97
countries and Yale had 75 independent dealers with locations in 39 countries as
of December 31, 2002. Hyster had 15 independent dealers in Asia-Pacific as of
December 31, 2002. Yale was represented by 11 independent dealers in
Asia-Pacific as of December 31, 2002.
OWNED DEALERS
From time to time, NMHG has acquired, on an interim basis, certain
independent Hyster, Yale and competitor dealers and rental companies to
strengthen or protect Hyster's and Yale's presence in select territories. See
"2. NMHG Retail" for a description of NMHG's owned dealers.
NATIONAL ACCOUNTS
NMHG Wholesale operates a National Accounts organization for both Hyster
and Yale focused on large customers with centralized purchasing and
geographically dispersed operations in multiple dealer territories. The National
Accounts organization accounted for 18% of new lift truck unit volume in 2002.
The dealer network described above supports the National Accounts organization
by providing aftermarket parts and service on a local basis. Dealers receive a
commission for the support they provide in connection with National Accounts
sales and for the preparation and delivery of lift trucks to customer locations.
In addition to selling new lift trucks, the National Accounts organization
markets services including full maintenance leases and total fleet management.
CUSTOMERS
NMHG Wholesale's customer base is diverse and fragmented, including, among
others, food distributors, trucking and automotive companies, lumber, metal
products, rental, paper and building materials suppliers, warehouses, light and
heavy manufacturers, retailers and container handling companies.
AFTERMARKET PARTS
NMHG Wholesale offers a line of aftermarket parts to service its large
installed base of lift trucks currently in use in the industry. NMHG Wholesale
offers online technical reference databases to obtain the required aftermarket
parts for a job and an aftermarket parts ordering system. Aftermarket parts
sales represented approximately 19% of NMHG Wholesale's annual revenues in each
of 2002, 2001 and 2000.
NMHG Wholesale sells Hyster and Yale branded aftermarket parts to dealers
for Hyster and Yale lift trucks. NMHG Wholesale also sells aftermarket parts
under the UNISOURCE(TM), MULTIQUIP(TM) and PREMIER(TM) brands to Hyster and Yale
dealers for the service of competitor lift trucks.
FINANCING OF SALES
NMHG Wholesale is engaged in a joint venture with General Electric Capital
Corporation ("GECC") to provide dealer and customer financing of new lift trucks
in the United States. NMHG owns 20% of the joint venture entity, NMHG Financial
Services, Inc. ("NFS"), and receives fees and remarketing profits under an
agreement that expires in 2003. NMHG accounts for its ownership of NFS using the
equity method of accounting.
In addition, NMHG Wholesale has also entered into an International
Operating Agreement with GECC under which GECC provides leasing and financing
services to Hyster and Yale dealers and their customers outside of the United
States. GECC pays NMHG a referral fee once certain financial thresholds are
reached. This agreement expires in 2003.
Under the agreements with NFS and with GECC pursuant to the International
Operating Agreement, NMHG's dealers and certain customers are extended credit
for the purchase of lift trucks to be placed in the dealer's floor plan
inventory or the financing of lift trucks that are sold or leased to customers.
For some of these arrangements, NMHG provides residual value guarantees or
standby recourse or repurchase obligations to NFS or to GECC. In substantially
all of these transactions, NMHG maintains perfected security interests in the
lift trucks financed, so that in the event of a default, NMHG has the ability to
foreclose on the leased property and sell it through the Hyster or Yale dealer
network. Furthermore, NMHG has established reserves for exposures under these
agreements. NMHG expects to renew or replace these agreements at the end of
2003.
5
BACKLOG
As of December 31, 2002, NMHG Wholesale's backlog of unfilled orders
placed with its manufacturing and assembly operations for new lift trucks was
approximately 18,800 units, or $340 million, of which substantially all is
expected to be filled during fiscal 2003. This compares to the backlog as of
December 31, 2001 of approximately 15,100 units, or $266 million. Backlog
represents unfilled lift truck orders to NMHG Wholesale's manufacturing and
assembly facilities from dealers, National Accounts customers and contracts with
the United States government.
KEY SUPPLIERS
In 2002, no single supplier accounted for more than 7% of NMHG Wholesale's
purchases. NMHG Wholesale believes there are competitive alternatives to all
suppliers.
COMPETITION
Competition in the lift truck industry is based primarily on strength and
quality of dealers, brand loyalty, customer service, availability of products
and aftermarket parts, comprehensive product line offering, product performance,
product quality and features and the cost of ownership over the life of the lift
truck. NMHG's management believes that it is competitive in all of these areas.
The lift truck industry also competes with alternative methods of
materials handling, including conveyor systems and automated guided vehicle
systems.
NMHG's aftermarket parts offerings compete with parts manufactured by
other lift truck manufacturers as well as companies that focus solely on the
sale of generic parts.
PATENTS, TRADEMARKS AND LICENSES
NMHG Wholesale is not materially dependent upon patents or patent
protection. NMHG Wholesale is the owner of the Hyster trademark. NMHG uses the
Yale trademark on a perpetual royalty-free basis in connection with the
manufacture and sale of lift trucks and related components. NMHG believes that
the Hyster and Yale trademarks are material to its business.
2. NMHG RETAIL
GENERAL
From time to time, NMHG, through NMHG Retail, has acquired, on an interim
basis, certain independent Hyster, Yale and competitor dealers and rental
companies to strengthen or protect Hyster's or Yale's presence in select
territories. NMHG's long-term strategy is to identify strategic buyers for owned
dealers that represent "best-in-class" dealers to support the Hyster and Yale
brands. In early 2003, NMHG sold its sole company owned retail dealership in
North America to MH Logistics Corporation, which already owned three Hyster
dealerships.
As of December 31, 2002, NMHG Retail had eight dealerships and rental
companies in Europe and nine dealerships and rental companies in Asia-Pacific.
COMPANY OPERATIONS
An NMHG Retail dealership is authorized to sell and rent either Hyster or
Yale brand materials handling equipment. These dealerships will typically also
sell allied lines of equipment from other manufacturers pursuant to dealer
agreements. Allied equipment includes such items as sweepers, aerial work
platforms, personnel carts, rough terrain forklifts and other equipment as well
as racking and shelving. The number and type of products available will vary
from dealership to dealership. A source of revenue for dealerships is the sale
of parts and service for equipment sold by the dealership. Service is performed
both in-shop and on-site. In addition to the outright sale of new and used
equipment, dealerships provide equipment for lease and for short- or long-term
rental.
NMHG Retail dealerships are granted a primary geographic territory by NMHG
Wholesale in which they operate. NMHG Retail operations are conducted at branch
facilities located in major cities within NMHG Retail's assigned area of
operations.
COMPETITION
The materials handling equipment sales and rental industry is highly
fragmented and competitive. NMHG Retail's competitors include dealers owned by
original equipment manufacturers, original equipment manufacturer direct sales
efforts, independently owned competitive dealerships and forklift rental
outlets, independent parts operations, independent service shops and, to a
lesser extent, independent Hyster or Yale dealers. The forklift truck industry
also competes with alternative methods of materials handling, including conveyor
systems, automated guided vehicle systems and manual labor.
6
CUSTOMERS
NMHG Retail's customer base is highly diversified and ranges from Fortune
100 companies to small businesses in a substantial number of manufacturing and
service industries. No single customer accounted for more than 10% of NMHG
Retail's revenues during 2002. NMHG Retail's customer base varies widely by
branch and is determined by several factors, including the equipment mix and
marketing focus of the particular branch and the business composition of the
local economy.
FINANCING OF SALES
NMHG Retail dealerships have a preferred relationship with GECC. NMHG
Retail dealerships may obtain wholesale and retail financing for the sale and
leasing of equipment through GECC. This affords these dealerships with a wide
variety of financial products at competitive rates. See also "1. NMHG Wholesale
- - Financing of Sales" above.
RESEARCH AND DEVELOPMENT
NMHG's research and development capability is organized around four major
engineering centers, all coordinated on a global basis from NMHG's Portland,
Oregon headquarters. Comparable products are designed for each brand
concurrently and generally each center is focused on the global requirements for
a single product line. NMHG's counterbalanced development center, which has
global design responsibility for several classes of lift trucks primarily used
in industrial applications, is located in Portland, Oregon. NMHG's big truck
development center is located in Nijmegen, The Netherlands, adjacent to a
dedicated global big truck assembly facility. Big trucks are primarily used in
handling shipping containers and in specialized heavy lifting applications.
Warehouse trucks, which are primarily used in distribution applications, are
designed based on regional differences in stacking and storage practices. As a
result, NMHG designs warehouse equipment for sale in the Americas market in
Greenville, North Carolina adjacent to the Americas assembly facility for
warehouse equipment. NMHG designs warehouse equipment for the European market in
Masate, Italy.
NMHG's engineering centers utilize a three-dimensional CAD/CAM system and
are electronically connected to one another, to all of NMHG's manufacturing and
assembly facilities and to some suppliers. This allows for collaboration in
technical engineering designs and collaboration with suppliers. Additionally,
NMHG solicits customer feedback throughout the design phase to improve product
development efforts. NMHG invested $43.7 million, $44.7 million and $43.9
million on product design and development activities in 2002, 2001 and 2000,
respectively.
SUMITOMO-NACCO JOINT VENTURE
NMHG has a 50% ownership interest in Sumitomo-NACCO Materials Handling
Group ("S-N"), a limited liability company that was formed in 1970 to
manufacture and distribute lift trucks in Japan. Sumitomo Heavy Industries, Inc.
owns the remaining 50% interest in S-N. Each shareholder of S-N is entitled to
appoint directors representing 50% of S-N's board of directors. All matters
related to policies and programs of operation, manufacturing and sales
activities require mutual agreement between NMHG and Sumitomo Heavy Industries,
Inc. prior to a vote of S-N's board of directors. As a result, NMHG accounts for
its ownership in S-N using the equity method of accounting. NMHG purchases
Hyster and Yale branded lift trucks and related components and aftermarket parts
from S-N under normal trade terms for sale outside of Japan.
EMPLOYEES
As of February 28, 2003, NMHG had approximately 7,000 employees,
approximately 5,950 of whom were employed by the wholesale operations and
approximately 1,050 of whom were employed by owned dealers. A majority of the
employees in the Danville, Illinois parts depot operations (approximately 135
employees) are unionized, as are tool room employees (approximately 15
employees) located in Portland, Oregon. NMHG's contracts with the Danville and
Portland unions each expire in 2003. Negotiations with respect to these
contracts have not yet commenced. Employees at the facilities in Berea,
Kentucky; Sulligent, Alabama; and Greenville and Lenoir, North Carolina are not
represented by unions.
In Europe, some employees in the Craigavon, Northern Ireland and Irvine,
Scotland facilities are unionized. Employees in the Nijmegen, The Netherlands
facility are not represented by unions. The employees in Nijmegen have organized
a works council, as required by Dutch law, which performs a consultative role on
employment matters. In Mexico, shop employees are unionized. All of the European
employees are part of European Works Council that performs a consultative role
on business and employment matters.
NMHG believes its current labor relations with both union and non-union
employees are generally satisfactory. However, there can be no assurances that
NMHG will be able to successfully renegotiate its union contracts without work
stoppages or on acceptable terms.
7
ENVIRONMENTAL MATTERS
NMHG's manufacturing operations are subject to laws and regulations
relating to the protection of the environment, including those governing the
management and disposal of hazardous substances. NMHG Retail's operations are
particularly affected by laws and regulations relating to the disposal of
cleaning solvents and wastewater and the use of and disposal of petroleum
products from underground and above-ground storage tanks. NMHG's policies stress
compliance and NMHG believes it is currently in substantial compliance with
existing environmental laws. If NMHG fails to comply with these laws or its
environmental permits, then it could incur substantial costs, including cleanup
costs, fines and civil or criminal sanctions. In addition, future changes to
environmental laws could require NMHG to incur significant additional expense or
restrict operations. Based on current information, management does not expect
compliance with environmental requirements to have a material adverse effect on
NMHG's financial condition or results of operations.
In addition, NMHG's products may be subject to laws and regulations
relating to the protection of the environment, including those governing vehicle
exhaust. Regulatory agencies in the United States and Europe have issued or
proposed various regulations and directives designed to reduce emissions from
spark ignited engines and diesel engines used in off-road vehicles, such as
industrial lift trucks. These regulations will require NMHG and other lift truck
manufacturers to incur costs to modify designs and manufacturing processes, and
to perform additional testing and reporting. While there can be no assurance,
NMHG believes that the impact of expenditures to comply with these requirements
will not have a material adverse effect on its business.
NMHG is investigating or remediating historical contamination caused by
its operations or those of businesses it acquired at some current and former
sites. NMHG has also been named as a potentially responsible party for cleanup
costs under the so-called Superfund law at several third-party sites where NMHG
(or its predecessors) disposed of wastes in the past. Under Superfund and often
under similar state laws, the entire cost of cleanup can be imposed on any one
of the statutorily liable parties, without regard to fault. While NMHG is not
currently aware that any material outstanding claims or obligations exist with
regard to these sites, the discovery of additional contamination at these or
other sites could result in significant cleanup costs.
In connection with any acquisition made by NMHG, NMHG could under some
circumstances be held financially liable for or suffer other adverse effects due
to environmental violations or contamination caused by a prior owner of the
business. In addition, under some of the agreements through which NMHG has sold
businesses or assets, NMHG has retained responsibility for certain contingent
environmental liabilities arising from pre-closing operations. These liabilities
may not arise, if at all, until years later.
GOVERNMENT AND TRADE REGULATIONS
Since June 1988, Japanese-built internal combustion engine lift trucks
imported into the United States, with lifting capacities between 2,000 and
15,000 pounds, including finished and unfinished lift trucks, chassis, frames
and frames assembled with one or more component parts, have been subject to an
anti-dumping duty order. Anti-dumping duty rates in effect through 2002 range
from 7.39% to 56.81% depending on manufacturer or importer. The anti-dumping
duty rate applicable to imports from S-N is 51.33%. NMHG does not currently
import for sale in the United States any lift trucks or components subject to
the anti-dumping duty order. This anti-dumping duty order will remain in effect
until the Japanese manufacturers and importers satisfy the U.S. Department of
Commerce that they have not individually sold merchandise subject to the order
in the United States below fair market value for at least three consecutive
years, or unless the Commerce Department or the U.S. International Trade
Commission finds that changed circumstances exist sufficient to warrant the
retirement of the order. All of NMHG's major Japanese competitors have either
built or acquired manufacturing or assembly facilities over the past decade in
the United States and any products manufactured at these facilities are not
subject to the anti-dumping duty order. The legislation implementing the Uruguay
round of GATT negotiations passed in 1994 provided for the anti-dumping order to
be reviewed for possible retirement in 2000. NMHG opposed retirement of the
order and the 2000 review did not result in retirement of the anti-dumping duty.
The anti-dumping order will again be reviewed for possible retirement in 2005.
There are no formal restraints on foreign lift truck manufacturers in the
European Union. Several Japanese manufacturers have established manufacturing or
assembly facilities within the European Union.
C. NACCO HOUSEWARES GROUP
GENERAL
NACCO Housewares Group consists of HB-PS and KCI. HB-PS is a leading
manufacturer, marketer and distributor of small electric motor and heat-driven
household appliances as well as commercial products for restaurants, bars and
hotels. HB-PS' products are marketed primarily to retail merchants and wholesale
distributors. KCI is a national specialty retailer of brand-name kitchenware,
small electrical appliances and related accessories that operated 173 retail
stores as of December 31, 2002. Stores are located primarily in factory outlet
complexes that feature merchandise of highly recognizable name-brand
manufacturers, including HB-PS.
8
SALES AND MARKETING
HB-PS manufactures, markets and distributes a wide range of small electric
household appliances, including motor-driven appliances such as blenders,
mixers, can openers and food processors, and heat-driven appliances such as
coffeemakers, irons, toasters, slow cookers, indoor grills and toaster ovens.
HB-PS also manufactures and markets a line of humidifiers, air purifiers and
odor eliminators. In addition, HB-PS makes commercial products for restaurants,
bars and hotels. HB-PS generally markets its "better" and "best" segments under
the Hamilton Beach(R) brand and uses the Proctor-Silex(R) brand for the "good"
and "better" segments. HB-PS also markets a home odor elimination product under
the TrueAir(TM) brand name. In addition, HB-PS supplies Wal*Mart with GE-branded
kitchen electric and garment-care appliances under Wal*Mart's license agreement
with General Electric Company. HB-PS markets its products primarily in North
America, but also sells products in Latin America, Asia-Pacific and Europe.
Sales are generated predominantly by a network of inside sales employees to mass
merchandisers, national department stores, variety store chains, drug store
chains, specialty home retailers and other retail outlets. Principal customers
during 2002 included Wal*Mart, Kmart, Target, Canadian Tire, Family Dollar,
Sears, Bed, Bath & Beyond, Dollar General, Home Depot and Zellers. Sales to one
of HB-PS' customers exceeded 10 percent of Housewares' revenues in each of the
years 2002, 2001 and 2000. The loss of this customer would be material to
Housewares. Sales promotion activities are primarily focused on cooperative
advertising.
Because of the seasonal nature of the markets for small electric
appliances, HB-PS' management believes that backlog is not a meaningful
indicator of performance and is not a significant indicator of annual sales. As
of December 31, 2002, backlog for HB-PS was approximately $8.7 million. This
compares with the backlog as of December 31, 2001 of approximately $3.2 million.
This backlog represents customer orders, which may be canceled at any time prior
to shipment.
HB-PS' warranty program to the consumer consists generally of a limited
warranty lasting for varying periods of up to three years for electric
appliances. Under its warranty program, HB-PS may repair or replace, at its
option, those products found to contain manufacturing defects.
Revenues and operating profit for Housewares are traditionally greater in
the second half of the year as sales of small electric appliances to retailers
and consumers increase significantly with the fall holiday selling season.
Because of the seasonality of purchases of its products, HB-PS incurs
substantial short-term debt to finance inventories and accounts receivable in
anticipation of the fall holiday selling season.
PRODUCT DESIGN AND DEVELOPMENT
Housewares spent $7.0 million in 2002, $7.3 million in 2001 and $8.0
million in 2000 on product design and development activities. All of these
expenditures were made by HB-PS.
RAW MATERIALS
The principal raw materials used to manufacture and distribute HB-PS'
products are plastic, glass, steel and packaging materials. HB-PS' management
believes that adequate quantities of raw materials are available from various
suppliers.
COMPETITION
The small electric household appliance industry is highly competitive.
Based on publicly available information about the industry, HB-PS' management
believes it is one of the largest full-line manufacturers and marketers of small
electric kitchen appliances in North America based on key product categories.
As retailers generally purchase a limited selection of small electric
appliances, HB-PS competes with other suppliers for retail shelf space and
focuses its primary marketing efforts on retailers rather than consumers. Since
1996, HB-PS has also conducted consumer advertising for the Hamilton Beach
brand. In 2002, this advertising focused on the Hamilton Beach and TrueAir
brands. HB-PS' management believes that the principal areas of competition with
respect to its products are quality, price, product design, product features,
merchandising, promotion and warranty. HB-PS' management believes that it is
competitive in all of these areas.
As the outlet channel of the retail industry is approaching maturity, the
management of KCI continues to explore alternate areas of growth and
diversification. For the past several years, KCI has been testing alternative
store formats both within the outlet industry and the more traditional retail
environments. Because not all of these formats have met KCI's rigorous financial
performance standards, KCI continues to explore alternate channels of
distribution, including distribution through the Internet.
9
GOVERNMENT REGULATION
HB-PS, in common with other manufacturers, is subject to numerous Federal
and state health, safety and environmental regulations. HB-PS' management
believes that the impact of expenditures to comply with such laws will not have
a material adverse effect on HB-PS. HB-PS' products are subject to testing or
regulation by Underwriters' Laboratories, the Canadian Standards Association and
various entities in foreign countries that review product design.
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
HB-PS holds patents and trademarks registered in the United States and
foreign countries for various products. HB-PS' management believes that its
business is not dependent upon any individual patent, trademark, copyright or
license, but that the Hamilton Beach and Proctor-Silex trademarks are material
to its business.
EMPLOYEES
As of February 28, 2003, Housewares' work force consisted of approximately
3,300 employees, most of whom are not represented by unions. In Canada,
approximately 16 hourly employees at HB-PS' Picton, Ontario distribution
facility are unionized. These employees are represented by an employee
association which performs a consultative role on employment matters. On
February 1, 2003, a collective bargaining agreement, which expires on January
31, 2005, was executed for HB-PS' Saltillo, Mexico manufacturing facility. Under
this agreement, a new wage agreement must be in place by January 31, 2004. As of
February 28, 2003, there were approximately 1,180 employees subject to the terms
of the Saltillo agreement. The management of HB-PS and KCI believe their current
labor relations with both union and non-union employees are satisfactory.
However, there can be no assurances that HB-PS will be able to successfully
renegotiate its union contracts without work stoppages or on acceptable terms. A
prolonged work stoppage at a unionized facility could materially adversely
affect Housewares' business and results of operations.
ITEM 2. PROPERTIES
A. NACCO
NACCO currently leases its corporate headquarters office space in Mayfield
Heights, Ohio.
B. NACOAL
NACoal currently leases its corporate headquarters office space in Dallas,
Texas. NACoal's proven and probable coal reserves and deposits (owned in fee or
held under leases which generally remain in effect until exhaustion of the
reserves if mining is in progress) are estimated at approximately 2.5 billion
tons, all of which are lignite deposits, except for approximately 110 million
tons of bituminous coal. Reserves are estimates of quantities of coal, made by
NACoal's geological and engineering staff, that are considered mineable in the
future using existing operating methods. Developed reserves are those which have
been allocated to mines which are in operation; all other reserves are
classified as undeveloped. Information concerning mine type, reserve data and
coal quality characteristics for NACoal's properties are set forth on the table
on page 3 under "Item 1. Business -- A. North American Coal -- Sales, Marketing
and Operations."
10
C. NMHG
1. NMHG WHOLESALE
The following table presents the principal assembly, manufacturing,
distribution and office facilities that NMHG owns or leases for use in the
wholesale operations:
- ------------------------------------------------------------------------------------------------------------------
OWNED/
REGION FACILITY LOCATION LEASED FUNCTION(S)
- ------------------ ----------------------- ------------- ------------------------------------------------------
AMERICAS Berea, Kentucky Owned Assembly of lift trucks
Danville, Illinois Owned Americas parts distribution center
Greenville, Owned Divisional headquarters and marketing and sales
North Carolina operations for Hyster and Yale in Americas; Americas
warehouse development center; assembly of lift trucks
Lenoir, Owned Manufacture and assembly of component parts for lift
North Carolina trucks
Portland, Oregon Owned Counterbalanced development center for design and
testing of lift trucks, prototype equipment and
component parts
Portland, Oregon Leased Manufacture of production tooling and prototype units
Portland, Oregon Leased Global headquarters
Ramos Arizpe, Mexico Owned Manufacture of component parts for lift trucks
Assembly of lift trucks and marketing operations for
Sao Paolo, Brazil Owned Brazil
Sulligent, Alabama Owned Manufacture of component parts for lift trucks
- ------------------------------------------------------------------------------------------------------------------
EUROPE Craigavon, Owned Manufacture of lift trucks; cylinder and transmission
Northern Ireland assembly; mast fabrication and assembly
for Europe
Fleet, England Leased Hyster and Yale marketing and sales operations in
Europe
Irvine, Scotland Owned Divisional headquarters; assembly of lift trucks
mast manufacturing and assembly
Modena, Italy Leased Assembly of lift trucks
Masate, Italy Leased Assembly of lift trucks; European warehouse
development center
Nijmegen, Big trucks development center; manufacture and
The Netherlands Owned assembly of big trucks and component parts; European
parts distribution center
- ------------------------------------------------------------------------------------------------------------------
ASIA Shanghai, China Owned (1) Assembly of lift trucks by Shanghai Hyster joint
venture
Sydney, Australia Leased Divisional headquarters and sales and marketing for
Asia-Pacific; distribution of aftermarket parts
- ------------------------------------------------------------------------------------------------------------------
(1) This facility is owned by Shanghai Hyster Forklift Ltd., NMHG's Chinese
joint venture company.
S-N's operations are supported by two facilities. S-N's headquarters are
located in Obu, Japan at a facility owned by S-N. The Obu facility also has
assembly and distribution capabilities. In Cavite, the Philippines, S-N owns a
facility for the manufacture of frames for S-N products.
11
2. NMHG RETAIL
NMHG's 17 owned dealerships operate from 51 locations. Of these locations, 23
are in Europe and 28 are in Asia-Pacific, as shown below:
EUROPE ASIA-PACIFIC
------ -------------
France (15) Australia (27)
Germany (3) Singapore (1)
The Netherlands (1)
United Kingdom (4)
Dealership locations generally include facilities for displaying
equipment, storing rental equipment, servicing equipment, aftermarket parts
storage and sales and administrative offices. NMHG owns four of these locations
and leases 47 locations. Some of the leases were entered into or assumed in
connection with acquisitions and many of the lessors under these leases are
former owners of businesses that NMHG acquired.
NMHG Retail geographic headquarters are shared with NMHG Wholesale in
Fleet, England and Sydney, Australia.
D. NACCO HOUSEWARES GROUP
The following table presents the principal manufacturing, distribution and
office facilities owned or leased by HB-PS:
- ------------------------------------------------------------------------------------------------------------------------
FACILITY LOCATION OWNED/ FUNCTION(S)
LEASED
- -------------------------------------- ----------- --------------------------------------------------------------------
El Paso, Texas Leased Distribution center
Glen Allen, Virginia Leased Corporate headquarters
Juarez, Chihuahua, Mexico Leased Manufacturing and assembly of retail products
Memphis, Tennessee Leased Distribution center
Picton, Ontario, Canada Leased Distribution center
Southern Pines, North Carolina Leased Assembly of commercial products; service center for customer
returns; catalog sales center; parts distribution center
Toronto, Ontario, Canada Leased Proctor-Silex Canada sales and administration headquarters
Washington, North Carolina Leased Customer service center
Saltillo, Coahuila, Mexico Owned Manufacture and assembly of retail products
- ------------------------------------------------------------------------------------------------------------------------
Sales offices are also leased in several cities in the United States,
Canada and Mexico.
KCI currently leases its corporate headquarters building, a
warehouse/distribution facility and a retail store in Chillicothe, Ohio. KCI
leases the remainder of its retail stores. A typical store is approximately
3,000 square feet.
12
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to any material
pending legal proceeding other than ordinary routine litigation incidental to
its respective business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders of the Company.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The information under this Item is furnished pursuant to Instruction 3 to
Item 401(b) of Regulation S-K.
There exists no arrangement or understanding between any executive officer
and any other person pursuant to which such executive officer was elected. Each
executive officer serves until his successor is elected and qualified.
The tables on the following pages set forth the name, age, current
position and principal occupation and employment during the past five years of
the Company's executive officers.
13
EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE CURRENT POSITION OTHER POSITIONS
- ---- --- ---------------- ---------------
Alfred M. Rankin, Jr. 61 Chairman, President and Chief Executive
Officer of NACCO (since prior to 1998)
Charles A. Bittenbender 53 Vice President, General Counsel and
Secretary of NACCO (since prior to 1998)
Kenneth C. Schilling 43 Vice President and Controller of NACCO
(since prior to 1998)
Vice President - Corporate Development
J.C. Butler, Jr. 42 and Treasurer of NACCO (since prior to
1998)
Lauren E. Miller 48 Vice President - Consulting Services of
NACCO (since prior to 1998)
Constantine E. Tsipis 44 Assistant General Counsel and Assistant From prior to 1998 to May 2000, Assistant
Secretary of NACCO (since May 2000) General Counsel of NACCO.
14
PRINCIPAL OFFICERS OF THE COMPANY'S SUBSIDIARIES
A. NACOAL
NAME AGE CURRENT POSITION OTHER POSITIONS
- ---- --- ---------------- ---------------
Clifford R. Miercort 63 President and Chief Executive Officer
of NACoal (since prior to 1998)
Charles B. Friley 61 Senior Vice President - Finance and From prior to 1998 to August 1999, Vice
Chief Financial Officer of NACoal President and Chief Financial Officer of
(since August 1999) NACoal.
Robert L. Benson 55 Vice President - Eastern and Southern From prior to 1998 to September 2001,
Operations of NACoal (since September Operations Manager, NACoal.
2001); General Manager of Mississippi
Lignite Mining Company (a subsidiary of
NACoal) (since prior to 1998)
Thomas A. Koza 56 Vice President - Law and Administration
and Secretary of NACoal (since prior to
1998)
Clark A. Moseley 51 Vice President - Business Development From prior to 1998 to January 2002, Vice
and Engineering of NACoal (since President - Engineering of NACoal.
January 2002)
Bob D. Carlton 46 Controller of NACoal (since August From prior to 1998 to June 2001, Tax
2002) and Director of Tax of NACoal Manager of NACoal.
(since June 2001)
K. Donald Grischow 55 Treasurer of NACoal (since prior to From prior to 1998 to August 2002,
1998) Controller of NACoal.
15
PRINCIPAL OFFICERS OF THE COMPANY'S SUBSIDIARIES
B. NMHG
NAME AGE CURRENT POSITION OTHER POSITIONS
- ---- --- ---------------- ---------------
Reginald R. Eklund 62 President and Chief Executive Officer
of NMHG (since prior to 1998)
Michael P. Brogan 53 Senior Vice President, Product From May 1999 to June 2000, Vice
Development and Procurement of NMHG President, Warehouse Product Strategy of
(since June 2000) NMHG. From prior to 1998 to May 1999,
Managing Director of NACCO Materials
Handling S.R.L. (Italy) (a subsidiary of
NMHG Wholesale).
Richard H. Close 44 Vice President of NMHG; Managing From March 1999 to July 2001, Managing
Director, NMHG Europe, Africa and Director of Lex Industrial Machinery (a
Middle East (since August 2001) provider of industrial machinery
management solutions). From prior to 1998
to March 1999, Franchise Director of Lex
Retail Group (a provider of vehicle
management solutions).
Gregory J. Dawe 54 Vice President, Manufacturing & Quality From prior to 1998 to January 2002, Vice
Strategy of NMHG (since January 2002) President, Manufacturing, Americas of NMHG.
Daniel P. Gerrone 53 Controller of NMHG (since August 2002) From January 2000 to August 2002,
Director, Accounting of NMHG. From May
1999 to January 2000, Senior Analyst,
Portland General Electric Company (an
electric utility company). From prior to
1998 to May 1999, Director of Financial
Reporting and Budgeting, Pacific Gas
Transmission Company (a natural gas
transmission company).
Ron J. Leptich 59 Vice President, Engineering and Big
Trucks of NMHG (since prior to 1998)
Geoffrey D. Lewis 45 Vice President, Corporate Development, From prior to 1998 to June 1999, Vice
General Counsel and Secretary of NMHG President, General Counsel and Secretary
(since June 1999) of NMHG.
Jeffrey C. Mattern 50 Treasurer of NMHG (since prior to 1998)
Frank G. Muller 61 Executive Vice President and Chief From prior to 1998 to July 2002, Vice
Operating Officer of NMHG (since July President of NMHG; President, Americas of
2002) NMHG.
Victoria L. Rickey 50 Vice President, Chief Strategy Officer From prior to 1998 to July 2001, Vice
of NMHG (since July 2001) President of NMHG; Managing Director, NMHG
Europe, Africa and Middle East.
Michael K. Smith 58 Vice President, Finance & Information From prior to 1998 to July 2002, Vice
Systems and Chief Financial Officer of President, Finance & Information Systems,
NMHG (since July 2002) Americas of NMHG.
Colin Wilson 48 Vice President of NMHG; President, From prior to 1998 to July 2002, Vice
Americas of NMHG (since July 2002) President, Marketing, Americas of NMHG.
16
PRINCIPAL OFFICERS OF THE COMPANY'S SUBSIDIARIES
C. NACCO HOUSEWARES GROUP
1. HB-PS
NAME AGE CURRENT POSITION OTHER POSITIONS
- ---- --- ---------------- ---------------
Michael J. Morecroft 61 President and Chief Executive Officer From prior to 1998 to January 2001, Senior
of HB-PS (since January 2001) Vice President - Engineering/Product
Development of HB-PS.
David S. Baran 41 Vice President - Manufacturing of HB-PS From June 2001 to August 2001, General
(since August 2001) Manager, Juarez Operations of HB-PS. From
January 2000 to June 2001, Director of
Operations, Danaher Corporation (designer,
manufacturer and marketer of industrial and
consumer products). From prior to 1998 to
December 1999, Plant Manager, GE Industrial
Systems (supplier of products and service
solutions for residential, commercial,
industrial, institutional and utility
applications).
Keith B. Burns 46 Vice President - Engineering and New From April 1999 to March 2001, Vice
Product Development of HB-PS (since President, Purchasing of HB-PS. From
March 2001) November 1998 to April 1999, Director of
Product Engineering of HB-PS. From prior to
1998 to October 1998, Manager, Product
Engineering of HB-PS.
Kathleen L. Diller 51 Vice President, General Counsel and From May 1998 to August 2001, Assistant
Secretary of HB-PS (since August 2001) General Counsel and Assistant Secretary,
Cooper Tire & Rubber Company (developer,
manufacturer and marketer of primarily
rubber-based products for the transportation
industry). From prior to 1998 to April
1998, Senior Division Counsel, Owens Corning
(manufacturer of building materials systems
and composites systems).
Charles B. Hoyt 55 Senior Vice President - Finance and
Chief Financial Officer of HB-PS (since
prior to 1998)
Paul C. Smith 56 Senior Vice President - Sales of HB-PS
(since prior to 1998)
James H. Taylor 45 Vice President and Treasurer of HB-PS
(since prior to 1998)
Gregory H. Trepp 41 Vice President - Marketing of HB-PS From August 1999 to July 2002, Vice
(since July 2002) President - Product Management of HB-PS.
From prior to 1998 to July 1999, Director of
Marketing of HB-PS.
2. KCI
NAME AGE CURRENT POSITION OTHER POSITIONS
- ---- --- ---------------- ---------------
Randolph J. Gawelek 55 President and Chief Executive Officer From March 1999 to August 1999, President,
of KCI (since August 1999) Secretary and Treasurer of KCI. From
December 1998 to March 1999, Executive Vice
President, Secretary and Treasurer of KCI.
From prior to 1998 to December 1998,
Executive Vice President and Secretary of
KCI.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS
NACCO Industries, Inc. Class A common stock is traded on the New York
Stock Exchange under the ticker symbol NC. Because of transfer restrictions, no
trading market has developed, or is expected to develop, for the Company's Class
B common stock. The Class B common stock is convertible into Class A common
stock on a one-for-one basis. The high and low market prices for the Class A
common stock and dividends per share for both classes of common stock for each
quarter during the past two years are presented in the table below:
2002
--------------------------------------------------------
SALES PRICE
-------------------------------------- CASH
HIGH LOW DIVIDEND
------------------- ----------------- ---------------
FIRST QUARTER $67.50 $52.78 23.50(CENT)
SECOND QUARTER $76.20 $56.95 24.50(CENT)
THIRD QUARTER $60.36 $38.55 24.50(CENT)
FOURTH QUARTER $49.56 $36.39 24.50(CENT)
2001
--------------------------------------------------------
Sales Price
-------------------------------------- Cash
High Low Dividend
------------------- ----------------- ---------------
First quarter $71.00 $42.50 22.50(cent)
Second quarter $79.10 $60.59 23.50(cent)
Third quarter $82.80 $44.25 23.50(cent)
Fourth quarter $65.00 $45.25 23.50(cent)
At December 31, 2002, there were approximately 400 Class A common
stockholders of record and 300 Class B common stockholders of record. See Note
21 to the Consolidated Financial Statements contained in Part IV hereof for a
discussion of the amount of NACCO's investment in subsidiaries that was
restricted at December 31, 2002.
18
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31
-----------------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
(In millions, except per share and employee data)
OPERATING STATEMENT DATA:
Revenues $ 2,548.1 $ 2,637.9 $ 2,871.3 $ 2,635.9 $ 2,569.3
Goodwill amortization $ -- $ 15.9 $ 15.7 $ 15.2 $ 14.7
Operating profit $ 131.8 $ 5.7 $ 117.9 $ 131.3 $ 198.1
Operating profit excluding goodwill
amortization(1) $ 131.8 $ 21.6 $ 133.6 $ 146.5 $ 212.8
Income (loss) before extraordinary
gain (loss) and cumulative effect
of accounting changes $ 49.6 $ (34.7) $ 37.8 $ 54.3 $ 102.3
Extraordinary gain (loss), net-of-tax(2) (7.2) -- 29.9 -- --
Cumulative effect of accounting
changes, net-of-tax (3) -- (1.3) -- (1.2) --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 42.4 $ (36.0) $ 67.7 $ 53.1 $ 102.3
============ ============ ============ ============ ============
Net income (loss) excluding goodwill
amortization(1) $ 42.4 $ (20.1) $ 83.4 $ 68.3 $ 117.0
============ ============ ============ ============ ============
Basic earnings per share:
Income (loss) before extraordinary
gain (loss) and cumulative effect
of accounting changes $ 6.05 $ (4.24) $ 4.63 $ 6.67 $ 12.56
Extraordinary gain (loss), net-of-tax (.88) -- 3.66 -- --
Cumulative effect of accounting
changes, net-of-tax -- (.16) -- (.15) --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 5.17 $ (4.40) $ 8.29 $ 6.52 $ 12.56
============ ============ ============ ============ ============
Basic earnings per share excluding
goodwill amortization:(1)
Net income (loss) $ 5.17 $ (4.40) $ 8.29 $ 6.52 $ 12.56
Goodwill amortization -- 1.95 1.92 1.86 1.80
------------ ------------ ------------ ------------ ------------
Net income (loss) excluding goodwill
amortization $ 5.17 $ (2.45) $ 10.21 $ 8.38 $ 14.36
============ ============ ============ ============ ============
Diluted earnings per share:
Income (loss) before extraordinary
gain (loss) and cumulative effect
of accounting changes $ 6.05 $ (4.24) $ 4.63 $ 6.66 $ 12.53
Extraordinary gain (loss), net-of-tax (.88) -- 3.66 -- --
Cumulative effect of accounting
changes, net-of-tax -- (.16) -- (.15) --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 5.17 $ (4.40) $ 8.29 $ 6.51 $ 12.53
============ ============ ============ ============ ============
Diluted earnings per share excluding
goodwill amortization:(1)
Net income (loss) $ 5.17 $ (4.40) $ 8.29 $ 6.51 $ 12.53
Goodwill amortization -- 1.95 1.92 1.86 1.80
------------ ------------ ------------ ------------ ------------
Net income (loss) excluding goodwill
amortization $ 5.17 $ (2.45) $ 10.21 $ 8.37 $ 14.33
============ ============ ============ ============ ============
19
ITEM 6. SELECTED FINANCIAL DATA - CONTINUED
Year Ended December 31
------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
(In millions, except per share and employee data)
BALANCE SHEET DATA AT DECEMBER 31:
Total assets $ 2,123.9 $ 2,161.9 $ 2,193.9 $ 2,013.0 $ 1,898.3
Long-term debt $ 406.5 $ 248.1 $ 450.0 $ 326.3 $ 256.4
Stockholders' equity $ 559.4 $ 529.3 $ 606.4 $ 562.2 $ 518.3
CASH FLOW DATA:
Provided by operating activities $ 173.9 $ 136.0 $ 133.0 $ 129.1 $ 144.3
Used for investing activities $ (19.6) $ (95.1) $ (234.2) $ (161.4) $ (121.8)
Provided by (used for) financing
activities $ (166.4) $ (1.6) $ 98.3 $ 35.3 $ (12.1)
OTHER DATA:
Per share data:
Cash dividends $ .970 $ .930 $ .890 $ .850 $ .810
Market value at December 31 $ 43.77 $ 56.79 $ 43.69 $ 55.56 $ 92.00
Stockholders' equity at December 31 $ 68.21 $ 64.58 $ 74.21 $ 68.92 $ 63.83
Actual shares outstanding at
December 31 8.201 8.196 8.171 8.157 8.120
Average shares outstanding 8.198 8.190 8.167 8.150 8.147
Total employees at December 31 12,200 13,500 17,200 16,000 14,100
(1) On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets."
Beginning January 1, 2002, the Company discontinued amortization of its
goodwill in accordance with this Statement.
(2) An extraordinary loss was recognized in 2002 as a result of an increase to
Bellaire Corporation's ("Bellaire") estimated closed mine obligations
relating to amounts owed to the United Mine Workers of America Combined
Benefit Fund ("UMWA") arising as a result of the Coal Industry Retiree
Health Benefit Act of 1992 (the "Coal Act"). An extraordinary gain was
recognized in 2000 as a result of a reduction to Bellaire's estimated
closed mine obligations relating to amounts owed to UMWA arising as a
result of the Coal Act. See also discussion in "NACCO & Other" in
Management's Discussion and Analysis in this Form 10-K.
(3) Cumulative effects of changes in accounting were recognized in 2001 as a
result of the adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and for a change in calculating
pension costs. See discussion in Note 2 to the Consolidated Financial
Statements of this Form 10-K.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
NACCO Industries, Inc. ("NACCO," the parent company) and its wholly owned
subsidiaries (collectively, the "Company") operate in three distinct industries:
lignite mining, lift trucks and housewares. Results of operations and financial
condition are discussed separately by segment, which corresponds with the
industry groupings, except that the Company manages its lift truck operations as
two reportable segments: wholesale manufacturing and retail distribution.
Results by segment are also summarized in Note 19 to the Consolidated Financial
Statements.
The North American Coal Corporation ("NACoal") mines and markets lignite
primarily as fuel for power providers. NMHG Holding Co. ("NMHG Parent"), through
its wholly owned subsidiaries, NACCO Materials Handling Group, Inc. ("NMHG
Wholesale") and NMHG Distribution Co. ("NMHG Retail") (collectively "NMHG")
designs, engineers, manufactures, sells, services and leases a full line of lift
trucks and service parts marketed worldwide under the Hyster(R) and Yale(R)
brand names. NMHG Wholesale includes the manufacture and sale of lift trucks and
related service parts, primarily to independent and wholly owned Hyster and Yale
retail dealerships and rental companies. NMHG Retail includes the sale, leasing
and service of Hyster and Yale lift trucks and related service parts by wholly
owned retail dealerships and rental companies. NACCO Housewares Group
("Housewares") consists of Hamilton BeachoProctor-Silex, Inc. ("HB-PS"), a
leading manufacturer, marketer and distributor of small electric motor and
heat-driven household 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities (if any). On an ongoing basis,
the Company evaluates its estimates, including those related to product
discounts and returns, bad debts, inventories, income taxes, warranty
obligations, product liabilities, restructuring, closed-mine obligations,
pensions and other post-retirement benefits, and contingencies and litigation.
The Company bases its estimates on historical experience, actuarial valuations
and various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from those estimates.
The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements.
PRODUCT LIABILITIES: The Company provides for the estimated cost of
personal and property damage relating to the Company's products. Reserves are
made for estimates of the costs for known claims and estimates of the costs of
incidents that have occurred but for which a claim has not yet been reported to
the Company, in excess of available insurance coverage. While the Company
engages in extensive product quality reviews and customer education programs,
the Company's product liability provision is affected by the number and
magnitude of claims of alleged product-related damage and the cost to defend
those claims. In addition, the provision for product liabilities is also
affected by changes in assumptions for medical costs, inflation rates, trends in
damages awarded by juries and estimates of the number of claims that have been
incurred but not yet reported. Changes to the estimate of any of these factors
could result in a material change to the Company's product liability provision
causing a related increase or decrease in reported net operating results in the
period of change in the estimate.
CLOSED-MINE OBLIGATIONS: The Company's wholly owned subsidiary, Bellaire
Corporation ("Bellaire"), is a non-operating subsidiary with legacy liabilities
relating to closed mining operations, primarily former Eastern U.S. underground
mining operations. These legacy liabilities include obligations for Black Lung
and other retiree medical benefits, environmental clean-up and obligations to
the United Mine Workers of America Combined Benefit Fund arising as a result of
the Coal Industry Retiree Health Benefit Act of 1992. Provisions made by
Bellaire for these liabilities include estimates of the number of beneficiaries
assigned to Bellaire, medical cost trend rates, inflation rates,
actuarially-determined mortality tables, cost of ongoing environmental clean-up,
discount factors and legal costs to defend claims. In addition, these
liabilities can be influenced by judicial proceedings, legislative actions and
changes in regulations made by government agencies. The Company continually
monitors the regulatory climate which could influence these liabilities as well
as the assumptions used to develop accruals for these liabilities. Changes in
any of these factors could materially change the Company's estimates for these
closed-mine obligations causing a related increase or decrease in reported net
operating results in the period of change in the estimate. See Note 3 and Note 4
to the Consolidated Financial Statements for further discussion of closed-mine
obligations.
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
GOODWILL: In accordance with Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets," the Company is
required to test goodwill for impairment at least annually. Changes in
management's judgments and estimates could significantly affect the Company's
analysis of the impairment of goodwill. To test goodwill for impairment, the
Company is required to estimate the fair value of each of its reporting units.
Since quoted market prices in an active market are not available for the
Company's reporting units, the Company uses other valuation techniques. The
Company has developed a model to estimate the fair value of the reporting units,
primarily incorporating a discounted cash flow valuation technique. This model
incorporates the Company's estimates of future cash flows, allocations of
certain assets and cash flows among reporting units, future growth rates and
management's judgment regarding the applicable discount rates to use to discount
those estimated cash flows. Changes to these judgments and estimates could
result in a significantly different estimate of the fair value of the reporting
units which could result in an impairment of goodwill.
REVENUE RECOGNITION: Revenues are generally recognized when title
transfers or risk of loss passes as customer orders are completed and shipped.
Under its mining contracts, the Company recognizes revenue as the coal is
delivered. Reserves for discounts, returns and product warranties are maintained
for anticipated future claims. The accounting policies used to develop these
product discounts, returns and warranties include:
PRODUCT DISCOUNTS: The Company records estimated reductions to revenues
for customer programs and incentive offerings including special pricing
agreements, price competition, promotions and other volume-based
incentives. If market conditions were to decline or if competition was to
increase, the Company may take actions to increase customer incentive
offerings possibly resulting in an incremental reduction of revenues at
the time the incentive is offered.
PRODUCT RETURNS: Products generally are not sold with the right of return.
However, based on the Company's historical experience, a portion of
products sold are estimated to be returned due to reasons such as buyer
remorse, duplicate gifts received, product failure and excess inventory
stocked by the customer which, subject to certain terms and conditions,
the Company will agree to accept. The Company records estimated reductions
to revenues at the time of sale based on this historical experience and
the limited right of return provided to certain customers. If future
trends were to change significantly from those experienced in the past,
incremental reductions to revenues may result based on this new
experience.
PRODUCT WARRANTIES: The Company provides for the estimated cost of product
warranties at the time revenues are recognized. While the Company engages
in extensive product quality programs and processes, including actively
monitoring and evaluating the quality of its component suppliers, the
Company's warranty obligation is affected by product failure rates, labor
costs and replacement component costs incurred in correcting a product
failure. Should actual product failure rates, labor costs or replacement
component costs differ from the Company's estimates, revisions to the
estimated warranty liability would be required which would affect net
income.
ALLOWANCES FOR DOUBTFUL ACCOUNTS: The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. These allowances are based on both recent
trends of certain customers estimated to be a greater credit risk as well as
general trends of the entire customer pool. If the financial condition of the
Company's customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.
INVENTORY RESERVES: The Company writes down its inventory to the lower of
cost or market, which includes an estimate for obsolescence or excess inventory
based upon assumptions about future demand and market conditions. If actual
market conditions are less favorable than those projected by management,
additional inventory write-downs may be required. Upon a subsequent sale or
disposal of the impaired inventory, the corresponding reserve for impaired value
is relieved to ensure that the cost basis of the inventory reflects any
write-downs.
DEFERRED TAX VALUATION ALLOWANCES: The Company records a valuation
allowance to reduce its deferred tax assets to the amount that is more likely
than not to be realized. While the Company has considered future taxable income
and ongoing prudent and feasible tax planning strategies in assessing the need
for the valuation allowance, in the event the Company were to determine that it
would be able to realize its deferred tax assets in the future in excess of its
net recorded amount (including the valuation allowance), an adjustment to the
deferred tax asset would increase income in the period such determination was
made. Conversely, should the Company determine that it would not be able to
realize all or part of its net deferred tax asset in the future, an adjustment
to the deferred tax asset would be expensed in the period such determination was
made.
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
FINANCIAL SUMMARY
Selected consolidated operating results of the Company were as follows:
2002 2001 2000
-------- -------- --------
CONSOLIDATED OPERATING RESULTS:
Income (loss) before extraordinary gain (loss) and
cumulative effect of accounting changes $ 49.6 $ (34.7) $ 37.8
Extraordinary gain (loss), net-of-tax(1) (7.2) -- 29.9
Cumulative effect of accounting changes, net-of-tax(2) -- (1.3) --
-------- -------- --------
Net income (loss) $ 42.4 $ (36.0) $ 67.7
======== ======== ========
EARNINGS PER SHARE:
Income (loss) before extraordinary gain (loss) and
cumulative effect of accounting changes $ 6.05 $ (4.24) $ 4.63
Extraordinary gain (loss), net-of-tax(1) (.88) -- 3.66
Cumulative effect of accounting changes, net-of-tax(2) -- (.16) --
-------- -------- --------
Net income (loss) $ 5.17 $ (4.40) $ 8.29
======== ======== ========
(1) An extraordinary loss was recognized in 2002 as a result of an increase to
Bellaire's estimated closed mine obligations relating to amounts owed to
the United Mine Workers of America Combined Benefit Fund ("UMWA") arising
as a result of the Coal Industry Retiree Health Benefit Act of 1992 (the
"Coal Act"). An extraordinary gain was recognized in 2000 as a result of a
reduction to Bellaire's estimated closed mine obligations relating to
amounts owed to UMWA arising as a result of the Coal Act. See also
discussion in "NACCO & Other."
(2) Cumulative effects of changes in accounting were recognized in 2001 as a
result of the adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and for a change in calculating
pension costs. See discussion in Note 2 to the Consolidated Financial
Statements.
The following schedule identifies the components of the changes in
consolidated revenues, operating profit (loss) and income (loss) before
extraordinary loss and cumulative effect of accounting changes for 2002
compared with 2001:
Income (loss) before
Operating extraordinary loss and
Profit cumulative effect of
Revenues (Loss) accounting changes
------------ ------------- ----------------------
2001 $ 2,637.9 $ 5.7 $ (34.7)
Increase (decrease) in 2002
NACoal 16.0 (11.8) (6.0)
NMHG Wholesale (47.1) 47.6 34.3
NMHG Retail (36.9) 36.2 26.1
Housewares (21.8) 49.3 30.0
NACCO & Other --- 4.8 (.1)
------------ ------------- ---------------
2002 $ 2,548.1 $ 131.8 $ 49.6
============ ============= ===============
Following is a discussion of operating results by segment, including those
items that materially affect the year-to-year comparison within each of the
segment discussions.
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
THE NORTH AMERICAN COAL CORPORATION
NACoal mines and markets lignite 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."
FINANCIAL REVIEW
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 these project mines, 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 three mines, operating results for NACoal are best
analyzed in terms of lignite tons sold, income before taxes and net income.
MLMC was notified by its customer that the customer's power plant had
reached the Commercial Operations Date ("COD"), as defined in the lignite sales
agreement, during the first quarter of 2002. Because of a delay in the COD, MLMC
received liquidated damages payments, as provided in the lignite sales
agreement, beginning on January 1, 2001 and continuing into the first quarter of
2002. In addition, MLMC received a final liquidated damages settlement of $2.5
million in the fourth quarter of 2002. MLMC does not anticipate receiving
additional liquidated damages payments or related settlements from its customer
relating to the delay in COD. Although MLMC had delivered nominal quantities of
lignite in 2001 and during the first quarter of 2002, in the second quarter of
2002 MLMC began delivery of lignite to its customer in quantities that, on an
annual basis, approximate the anticipated annual full production level of 3.6
million tons.
Lignite tons sold by NACoal's operating lignite mines were as follows for
the year ended December 31:
2002 2001 2000
------------ ------------- ------------
Coteau 15.8 15.7 16.2
Falkirk 7.6 7.7 7.7
Sabine 4.0 3.2 3.5
San Miguel 3.3 3.4 3.4
MLMC 2.9 .5 ---
Red River .6 .9 .8
------------ ------------- ------------
Total lignite 34.2 31.4 31.6
============ ============= ============
The Florida dragline operations mined 10.6 million, 8.7 million and 7.9
million cubic yards of limerock for the years ended December 31, 2002, 2001 and
2000, respectively.
Total coal reserves declined to 2.5 billion at December 31, 2002 and 2.6
billion at December 31, 2001 from 2.8 billion at December 31, 2000 primarily due
to the expiration of non-renewable coal leases in undeveloped areas and due to
tons mined.
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
Revenues, income before taxes, income tax provision (benefit) and net
income were as follows for the year ended December 31:
2002 2001 2000
--------- --------- ---------
Revenues
Project mining subsidiaries $ 263.1 $ 260.9 $ 250.5
Other mining operations 77.2 47.6 36.8
--------- --------- ---------
340.3 308.5 287.3
Liquidated damages payments recorded by MLMC 5.8 20.5 --
Arbitration award received by San Miguel -- 1.1 --
Royalties and other 3.2 3.2 1.9
--------- --------- ---------
$ 349.3 $ 333.3 $ 289.2
========= ========= =========
Income before taxes
Project mining subsidiaries $ 26.1 $ 25.8 $ 25.5
Other mining operations(1) 14.2 23.9 (1.6)
--------- --------- ---------
Total income from operating mines 40.3 49.7 23.9
Royalty income and other income (expense), net (12.1) (9.3) (4.0)
Other operating expenses (6.4) (5.8) (7.4)
--------- --------- ---------
Income before tax provision (benefit) 21.8 34.6 12.5
Income tax provision (benefit) 2.2 9.0 (.1)
--------- --------- ---------
Net income $ 19.6 $ 25.6 $ 12.6
========= ========= =========
Effective tax rate 10.1% 26.0% (.7)%
(1) Income before taxes for the Other mining operations includes the effect of
liquidated damages and related settlements at MLMC and the San Miguel 2001
arbitration award.
2002 COMPARED WITH 2001
Revenues for 2002 increased to $349.3 million, an increase of 4.8% from
$333.3 million in 2001. Increased revenues in 2002 as compared with 2001 are
primarily due to an increase in tons sold at MLMC due to the commencement of
commercial operations of the customer's power plant in 2002 and increased tons
sold at Sabine, partially offset by (i) a $14.7 million decrease in liquidated
damages payments and related settlements received by MLMC, (ii) a decrease in
pass-through costs billed to the project mining subsidiaries' customers and
(iii) a decrease in tons sold at Red River. As provided in the lignite sales
agreement with its customer, MLMC received liquidated damages payments and
related settlements during 2001 and 2002 due to a delay in the COD of its
customer's power plant. MLMC was notified by its customer that the customer's
power plant had reached the COD during the first quarter of 2002. As such, MLMC
does not anticipate further liquidated damages payments or related settlements
in 2003 or beyond.
Income before taxes decreased to $21.8 million in 2002 from $34.6 million
in 2001. This decrease is primarily due to (i) increased operating costs at MLMC
primarily due to the significant increase in production and delivery of lignite
to the customer during 2002 as compared with lower operating costs recognized
when receiving liquidated damages payments during 2001, (ii) lower tons sold at
Red River and (iii) a $3.0 million charge for the write-off of an investment in
undeveloped reserves that are no longer expected to be developed. These
decreases were partially offset by a $1.4 million gain on the sale of
undeveloped Eastern coal reserves in 2002 that were not aligned with NACoal's
development strategies.
Net income in 2002 decreased to $19.6 million from $25.6 million in 2001
as a result of the factors affecting income before taxes, partially offset by a
decrease in the effective tax rate. The decrease in the effective tax rate for
2002 as compared with 2001 is primarily due to an adjustment of $2.0 million in
2002 for the favorable resolution of certain tax issues that were provided for
in prior years and for other tax matters and due to a greater proportion of
income from operations in 2002 eligible to record a benefit from percentage
depletion.
2001 COMPARED WITH 2000
Revenues for 2001 increased to $333.3 million, up 15.2% from $289.2
million in 2000. Revenues increased in 2001 as compared with 2000 primarily due
to (i) $20.5 million of contractual liquidated damages payments recorded by MLMC
due to a delay of the commercial operation of the customer's power plant, (ii)
increased revenues from project mines, (iii) initial lignite sales at MLMC and
(iv) a slight increase in tons sold at Red River. Net tonnage volume decreased
at the project mining subsidiaries due to a customer's plant outage at Falkirk
and reduced customer requirements at Coteau and Sabine. Although tonnage volume
decreased, revenues from the project mining subsidiaries increased primarily as
a result of an increase in pass-through costs at Sabine.
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
Income before taxes increased to $34.6 million in 2001 from $12.5 million
in 2000. This increase was primarily due to (i) the contractual liquidated
damages payments recorded by MLMC, (ii) initial lignite sales at MLMC and (iii)
increased tonnage volume at Red River. These increases were partially offset by
higher interest expense. Net income in 2001 increased to $25.6 million from
$12.6 million in 2000 as a result of these factors, partially offset by an
increase in the 2001 effective tax rate as compared with 2000. The effective tax
rate increase in 2001 as compared with 2000 was primarily due to a greater
proportion of income from operations that, at the time, were not eligible to
record a permanent tax benefit from percentage depletion. The effective tax rate
in 2000 reflects an income tax benefit on pre-tax income primarily due to both
the increased effect of percentage depletion and a nonrecurring adjustment for
the resolution of certain tax issues provided for in prior years.
LIQUIDITY AND CAPITAL RESOURCES
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 December 31, 2002 (the "NACoal Facility"). The NACoal Facility
requires annual term loan principal repayments of $15.0 million, with a final
term loan principal repayment of $55.0 million in October 2005. The revolving
credit facility of $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. The NACoal Facility establishes financial targets which must be
satisfied before NACoal can make certain payments and dividends to NACCO or make
significant investments. See further discussion of the terms of the NACoal
Facility in Note 10 to the Consolidated Financial Statements. NACoal had $53.1
million of its $60.0 million revolving credit facility available at December 31,
2002.
Following is a table which summarizes the contractual obligations of
NACoal, excluding the obligations of the project mining subsidiaries. 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 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. As such, these contractual obligations,
which are discussed in further detail in Note 12 to the Consolidated Financial
Statements, have been excluded from the table below.
PAYMENTS DUE BY PERIOD
NACOAL, EXCLUDING PROJECT MINES, --------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL 2003 2004 2005 2006 2007 THEREAFTER
- -------------------------------------- ------ ------ ------ ------ ------ ------ ----------
NACoal Facility $ 92.0 $ 16.9 $ 15.1 $ 60.0 $ -- $ -- $ --
Off-balance-sheet operating leases 86.2 13.1 12.0 12.0 11.5 11.5 26.1
------ ------ ------ ------ ------ ------ ------
Total contractual cash obligations $178.2 $ 30.0 $ 27.1 $ 72.0 $ 11.5 $ 11.5 $ 26.1
====== ====== ====== ====== ====== ====== ======
An event of default, as defined in the NACoal Facility agreement and in
NACoal's operating lease agreements, could cause an acceleration of the payment
schedule. No such event of default has occurred or is anticipated to occur.
NACoal believes that funds available under its revolving credit agreement,
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.
Following is a table which summarizes actual and planned capital
expenditures:
PLANNED ACTUAL ACTUAL
CAPITAL EXPENDITURES 2003 2002 2001
- --------------------------------------------- -------- -------- --------
NACoal, excluding project mining subsidiaries $ 9.5 $ 7.8 $ 18.9
Project mining subsidiaries 27.1 25.4 18.3
-------- -------- --------
Total NACoal $ 36.6 $ 33.2 $ 37.2
======== ======== ========
Capital expenditures for NACoal, excluding the project mining
subsidiaries, decreased in 2002 as compared with 2001 primarily due to reduced
mine development activities at MLMC in 2002. Capital expenditures at the project
mining subsidiaries, which are funded by the project mining subsidiaries'
customers, increased in 2002 as compared with 2001 primarily due to the
acquisition of new mining equipment.
26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
NACoal's capital structure, excluding the project mining subsidiaries, is
presented below:
December 31
---------------------
2002 2001
------- -------
Investment in project mining subsidiaries $ 4.9 $ 4.9
Other net tangible assets 93.2 127.6
Coal supply agreements, net 82.8 85.2
------- -------
Net assets 180.9 217.7
Advances from NACCO (25.7) (12.3)
Other debt (92.0) (156.5)
------- -------
Total debt (117.7) (168.8)
------- -------
Stockholder's equity $ 63.2 $ 48.9
======= =======
Debt to total capitalization 65% 78%
The decrease in other net tangible assets of $34.4 million and the
decrease in total debt of $51.1 million is primarily due to the 2002 refinancing
of a lease covering several large pieces of equipment at MLMC which was
classified as a capital lease at December 31, 2001, and, as a result of the
refinancing, now qualifies as an operating lease. As a result, the December 31,
2001 net asset value of $25.5 million and the present value of the lease
obligation of $25.5 million at December 31, 2001 are not included on the balance
sheet at December 31, 2002. The decrease in the other net tangible assets is
also due to a $7.0 million increase in the deferred tax liability primarily due
to mine development and project costs that are eligible to be deducted for taxes
at an accelerated rate as compared with the depreciation rate used for book
purposes. The decline in total debt in 2002 as compared with 2001 also resulted
from improved cash flows from the operations at MLMC. The increase in
stockholder's equity is due to $19.6 million of net income for 2002 partially
offset by dividends paid to NACCO and an increase in accumulated other
comprehensive loss relating to a decline in the fair market value of interest
rate swap agreements.
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
NACCO MATERIALS HANDLING GROUP
NMHG, through NMHG Wholesale and NMHG Retail, designs, engineers,
manufactures, sells, services and leases a full line of lift trucks and service
parts marketed worldwide under the Hyster and Yale brand names. NMHG Retail
includes the elimination of intercompany revenues and profits resulting from
sales by NMHG Wholesale to NMHG Retail.
FINANCIAL REVIEW
The segment and geographic results of operations for NMHG were as follows
for the year ended December 31:
2002 2001 2000
--------- --------- ---------
Revenues
Wholesale
Americas $ 958.3 $ 1,031.1 $ 1,291.6
Europe, Africa and Middle East 385.8 363.9 394.6
Asia-Pacific 72.1 68.3 63.8
--------- --------- ---------
1,416.2 1,463.3 1,750.0
--------- --------- ---------
Retail (net of eliminations)
Americas 26.2 30.9 33.1
Europe, Africa and Middle East 66.2 106.8 97.3
Asia-Pacific 79.8 71.4 51.7
--------- --------- ---------
172.2 209.1 182.1
--------- --------- ---------
NMHG Consolidated $ 1,588.4 $ 1,672.4 $ 1,932.1
========= ========= =========
Operating profit (loss)
Wholesale
Americas $ 51.3 $ 16.8 $ 85.9
Europe, Africa and Middle East (2.8) (13.7) 2.3
Asia-Pacific .4 (1.8) (2.3)
--------- --------- ---------
48.9 1.3 85.9
--------- --------- ---------
Retail (net of eliminations)
Americas (2.7) (2.4) (.9)
Europe, Africa and Middle East .4 (34.8) (15.3)
Asia-Pacific (.9) (2.2) .9
--------- --------- ---------
(3.2) (39.4) (15.3)
--------- --------- ---------
NMHG Consolidated $ 45.7 $ (38.1) $ 70.6
========= ========= =========
Operating profit (loss) excluding
goodwill amortization
Wholesale
Americas $ 51.3 $ 24.6 $ 93.8
Europe, Africa and Middle East (2.8) (10.4) 5.7
Asia-Pacific .4 (1.5) (2.0)
--------- --------- ---------
48.9 12.7 97.5
--------- --------- ---------
Retail (net of eliminations)
Americas (2.7) (2.1) (.8)
Europe, Africa and Middle East .4 (34.4) (14.7)
Asia-Pacific (.9) (1.4) 1.2
--------- --------- ---------
(3.2) (37.9) (14.3)
--------- --------- ---------
NMHG Consolidated $ 45.7 $ (25.2) $ 83.2
========= ========= =========
Interest expense
Wholesale $ (25.9) $ (12.9) $ (13.4)
Retail (net of eliminations) (8.0) (10.2) (7.8)
--------- --------- ---------
NMHG Consolidated $ (33.9) $ (23.1) $ (21.2)
========= ========= =========
Other-net
Wholesale $ (3.5) $ (2.6) $ (12.0)
Retail (net of eliminations) 1.5 .4 .2
--------- --------- ---------
NMHG Consolidated $ (2.0) $ (2.2) $ (11.8)
========= ========= =========
Net income (loss)
Wholesale $ 21.5 $ (14.1) $ 37.0
Retail (net of eliminations) (9.2) (35.3) (15.7)
--------- --------- ---------
NMHG Consolidated $ 12.3 $ (49.4) $ 21.3
========= ========= =========
28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
2002 2001 2000
----------- ----------- -----------
Effective tax rate
Wholesale (4.1%) 4.2% 40.7%
Retail (net of eliminations) 5.1% 28.3% 31.4%
NMHG Consolidated (13.3%) 22.9% 46.3%
For 2002, the effective tax rate for NMHG Wholesale and NMHG Consolidated
includes the effect of certain favorable tax adjustments including a $4.2
million settlement from a transfer pricing tax audit, a $1.9 million tax benefit
related to the recognition of previously generated losses in China and the
resolution of certain other tax issues provided for in prior years. The effect
of these items resulted in a net tax benefit on pre-tax income in 2002. The
effective tax rate for NMHG Wholesale in 2001 includes the effect of
nondeductible goodwill amortization, an increase in the valuation allowance
provided for certain deferred tax assets and state income tax adjustments.
The effective tax rate benefit on pre-tax losses at NMHG Retail declined
in 2002 as compared with 2001 and 2000 primarily due to an increase in 2002 in
the valuation allowance provided for certain deferred tax assets.
A detail of Other-net is as follows for the year ended December 31:
2002 2001 2000
--------- --------- ---------
Other-net
NMHG Wholesale
Interest income $ 3.3 $ 3.4 $ 2.2
U.S. customs award 2.0 -- --
Foreign currency exchange gain .8 .4 .4
Equity in earnings (loss) of
unconsolidated affiliates .5 2.6 (.2)
Insurance recovery -- 8.0 --
Loss on interest rate swap agreements (5.7) (1.4) --
Charges from NACCO (2.3) (6.8) (7.4)
Discount on the sale of accounts receivable (.5) (4.7) (5.5)
Other (1.6) (4.1) (1.5)
--------- --------- ---------
$ (3.5) $ (2.6) $ (12.0)
--------- --------- ---------
NMHG Retail
Interest income $ .1 $ .2 $ .1
Other 1.4 .2 .1
--------- --------- ---------
$ 1.5 $ .4 $ .2
--------- --------- ---------
NMHG Consolidated $ (2.0) $ (2.2) $ (11.8)
========= ========= =========
Other-net in 2002 includes income of $2.0 million for an anti-dumping
settlement awarded by U.S. customs to NMHG during 2002. Equity in the earnings
(loss) of unconsolidated affiliates declined in 2002 as compared with 2001
primarily resulting from a $2.4 million write-down for an other than temporary
decline in the value of an investment in a non-consolidated retail dealership.
The change in the equity in the earnings (loss) of unconsolidated affiliates in
2001 as compared with 2000 is primarily due to the change in earnings from
Sumitomo-NACCO Materials Handling Group ("S-N"), a 50 percent-owned joint
venture with Sumitomo Heavy Industries, Ltd. in Japan. The insurance recovery of
$8.0 million recognized in 2001 relates to a recovery from flood damages
incurred in September 2000 at S-N.
The increase in the loss on interest rate swap agreements to $5.7 million
in 2002 as compared with $1.4 million in 2001 is primarily due to the
recognition of the ineffective portion of interest rate swap agreements which no
longer qualified for hedge accounting as a result of the refinancing of NMHG's
debt in May 2002. All of NMHG's interest rate swap agreements were terminated
prior to December 31, 2002. See "Liquidity and Capital Resources." Discounts on
the sale of receivables decreased in 2002 to $0.5 million from $4.7 million in
2001 and $5.5 million in 2000 due to the December 2001 termination in Americas
and the May 2002 termination in Europe of programs to sell accounts receivable.
See "NACCO and Other" in this Management's Discussion and Analysis for a
discussion of the charges from NACCO.
29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
NMHG WHOLESALE
2002 COMPARED WITH 2001
Revenues decreased 3.2% to $1,416.2 million in 2002 from $1,463.3 million
in 2001. The decline in revenues was primarily driven by decreased unit volume
in the first half of 2002 that was partially offset by increased unit volume in
the second half of 2002, as compared with volumes in the same periods of 2001.
Unit shipments declined 6.5% to 64,437 units in 2002 as compared with 68,929
units in 2001 primarily as a result of the low levels of unit shipments during
the first half of 2002. Lift truck shipments in the second half of 2002
increased 15.3% to 33,331 units compared with 28,903 units in the second half of
2001. The decline in revenues from unit volume for the full year, however, was
partially offset by the favorable effect of currency movements in Europe and a
shift in mix to higher-priced lift trucks. While revenues declined in 2002,
bookings have increased steadily from the low levels in mid-2001, reflecting an
increase from the severe decline in the lift truck segment of the broader
capital goods market in North America in 2001.
Despite the volume decline, operating profit increased to $48.9 million in
2002 from $1.3 million in 2001. Results in 2002 include a restructuring charge
of $12.3 million, which is discussed in further detail below. Results in 2001
included $12.0 million of expenses incurred during 2001 related to the Danville
plant closure announced in 2000 and a restructuring charge of $4.5 million
recognized in 2001 for cost reductions in Europe. In addition, 2001 includes
goodwill amortization expense of $11.4 million, which is no longer required
beginning in 2002 as a result of the adoption of SFAS No. 142, "Goodwill and
Other Intangible Assets." The adoption of the Statement is discussed further in
Note 2 and Note 9 to the Consolidated Financial Statements. Excluding these
non-comparable items, the increase in operating profit was primarily driven by a
shift in mix to higher-margin lift trucks and the positive impact on the cost of
operations from improvement programs initiated in 2001, including the completion
of the Danville, Illinois, plant closure in the fourth quarter of 2001 and the
benefits of procurement, restructuring and cost control programs. The impact of
these factors was partially offset by reduced unit volume.
Net income increased to $21.5 million in 2002 from a net loss of $14.1
million in 2001 as a result of the factors affecting operating profit and due to
certain favorable tax adjustments including a $4.2 million settlement from a
transfer pricing tax audit and a $1.9 million tax benefit related to the
recognition of previously generated losses in China. The positive effect of
these factors was partially offset by (i) increased interest expense, including
the amortization of deferred financing fees, (ii) the negative effect of
interest rate swap agreements and (iii) a charge for the impairment of certain
investments in unconsolidated affiliates. The increase in interest expense, the
negative effect of interest rate swap agreements and the amortization of
deferred financing fees relate to the refinancing of NMHG's debt during the
second quarter of 2002, which is discussed further in "Liquidity and Capital
Resources."
Also affecting the year over year comparability of net income is a pre-tax
insurance recovery of $8.0 million ($5.0 million after-tax) included in other
income in 2001 relating to flood damage in September 2000 at S-N and a $1.3
million after-tax charge in 2001 for the cumulative effect of accounting changes
for derivatives and pension costs.
The worldwide backlog level increased to 18,800 units at December 31, 2002
from 15,100 units at December 31, 2001 and from 18,700 units at September 30,
2002 primarily due to increased demand for lift trucks in the Americas.
2002 RESTRUCTURING PLAN
In 2002, management committed to the restructuring of certain operations
in Americas and Europe. As such, NMHG Wholesale recognized a restructuring
charge of $12.5 million pre-tax ($8.0 million after-tax), of which $3.8 million
relates to a non-cash asset impairment charge and $8.7 million relates to
severance and other employee benefits to be paid to approximately 615
manufacturing and administrative employees. Severance payments are expected to
begin in 2003 and continue through 2005. As announced in December 2002, NMHG
Wholesale will phase out its Lenoir, North Carolina, lift truck component
facility and restructure other manufacturing and administrative operations,
primarily its Irvine, Scotland, lift truck assembly and component facility.
These actions are designed to essentially complete the restructuring of NMHG
Wholesale's global manufacturing facility structure. Previously announced
programs such as Demand Flow Technology(TM), selected component outsourcing and
innovative lift truck designs have enabled NMHG to maintain substantially
unchanged lift truck production capacity in fewer facilities and at a reduced
cost.
The Lenoir component facility is expected to be phased out over a 12- to
15-month period, beginning December 31, 2002. The Lenoir plant's lift truck
component operations, including mast and cylinder manufacturing, will be
consolidated into plants in Sulligent, Alabama; Berea, Kentucky; and Greenville,
North Carolina. The Irvine assembly and component facility is expected to be
restructured to an appropriately sized operation. The restructured facility is
expected to manufacture three- and four-wheel electric rider lift trucks and
mast components for the European market. Other lift truck components currently
manufactured in Irvine will be outsourced to independent suppliers.
30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
In 2003, NMHG expects to recognize pre-tax costs, net of certain benefits,
of approximately $14.0 million related to this restructuring program. However,
total costs of this restructuring program incurred in 2003 and beyond are
expected to be substantially mitigated by government incentives. Initial net
benefits from this restructuring program are expected to be realized in 2004
with a full twelve months of estimated annual pre-tax benefits of approximately
$12.3 million expected beginning in 2006. Although a majority of the projected
savings is the result of a reduction in fixed factory costs, the overall benefit
estimates could vary depending on unit volumes and the resulting impact on
manufacturing efficiencies. In addition, outlays for capital expenditures,
primarily for new tooling and equipment, of approximately $7.3 million are
expected in 2003.
2001 COMPARED WITH 2000
Revenues decreased 16.4% to $1,463.3 million in 2001 from $1,750.0 million
in 2000. A steep drop in the lift truck segment of the broader capital goods
market in North America resulted in an 18.7% reduction in worldwide lift truck
shipments at NMHG Wholesale. A total of 68,929 units were shipped in 2001
compared with 84,825 units shipped in 2000. The rate of monthly retail orders in
the U.S. and Canada declined approximately 50% from the peak month in 2000 as
compared with the lowest month in 2001. NMHG Wholesale's revenues also declined
due to lower parts sales resulting from reduced lift truck utilization which is
typical during a capital goods recession. The decrease in revenues, which was
primarily driven by unit volume, was partially offset by a shift in mix to
higher-priced lift trucks.
Operating profit decreased to $1.3 million for 2001 from $85.9 million for
2000. The decrease in operating profit was largely due to reduced unit and parts
volume and resulting reductions in the absorption of manufacturing overhead
costs and related manufacturing inefficiencies. Additionally, operating profit
was adversely affected by $12.0 million of expenses incurred during 2001 related
to the Danville plant closure announced in 2000 and a restructuring charge of
$4.5 million recognized in 2001 for cost reductions in Europe. These 2001
charges compare with a restructuring charge of $13.9 million recognized in 2000
for the Danville plant closure. See below for a further discussion of these
restructuring charges. The decrease in operating profit is also attributable to
write-downs of inventory taken in 2001 primarily due to an increase in the
estimate of obsolete and excess inventory on hand. The decline in operating
profit was offset somewhat by favorable foreign currency effects, lower
incentive compensation costs and an increase in the average sales price per
unit.
NMHG Wholesale recorded a net loss for 2001 of $14.1 million as compared
with net income of $37.0 million for 2000. The decline in net operating results
was due to the factors affecting operating profit, the effect of nondeductible
goodwill amortization and an increase in the valuation allowance on the tax
provision and due to a $1.3 million after-tax charge for the cumulative effect
of accounting changes in 2001. See Note 2 to the Consolidated Financial
Statements for a discussion of these accounting changes. The decline in
operating results for 2001 as compared with 2000 was offset somewhat by
insurance proceeds resulting in income of $5.0 million after-tax recognized in
2001 relating to flood damage in September 2000 at a facility owned by S-N.
2001 AND 2000 RESTRUCTURING PLANS
In 2001, management committed to the restructuring of certain wholesale
operations in Europe. As such, NMHG Wholesale recognized a restructuring charge
of approximately $4.5 million pre-tax for severance and other employee benefits
to be paid to approximately 285 manufacturing and administrative personnel in
Europe. As of December 31, 2002, approximately $3.4 million has been paid to
approximately 245 employees and $0.2 million of the amount accrued at December
31, 2001 was reversed in 2002 leaving an ending accrual balance of $1.1 million
at December 31, 2002.
Additional pre-tax costs of $0.2 million were recognized in 2002 for the
NMHG Wholesale European restructuring plan for costs not eligible to be accrued
as of December 31, 2001. As a result of the reduced headcount in Europe, NMHG
Wholesale realized pre-tax cost savings primarily from reduced employee wages
and benefits of $7.1 million in 2002 and estimates annual pre-tax cost saving of
$8.6 million beginning in 2003. However, additional costs of approximately $1.1
million are expected to be recognized in 2003 relating to this program. Although
a majority of the projected savings is the result of a reduction in fixed
factory costs, the overall benefit estimates could vary depending on unit
volumes and the resulting impact on manufacturing efficiencies.
In 2000, the Board of Directors approved management's plan to transfer
manufacturing activities from NMHG's Danville, Illinois, assembly plant to its
other global manufacturing plants. The adoption of this plan resulted in $11.7
million of costs accrued in 2000, relating to retirement costs, medical costs
and employee severance benefits. In addition, an impairment charge of $2.2
million was recognized in 2000 as a result of the anticipated disposition of
certain assets at an amount below net book value. During 2001, payments for
severance and other benefits of $1.6 million were made to approximately 350
employees. In addition, the accrual for severance was reduced by $0.4 million.
Approximately $12.0 million of pre-tax costs associated with the Danville
phase-out, which were not eligible for accrual as of December 31, 2000, were
expensed during 2001.
31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
In 2002, final severance payments of $2.1 million were made to
approximately 215 employees of the Danville, Illinois, assembly plant. Also in
2002, NMHG Wholesale recognized a charge of approximately $2.0 million, which
had not previously been accrued, related primarily to the costs of the idle
Danville facility. Cost savings primarily from reduced employee wages and
benefits of approximately $10.9 million pre-tax were realized in 2002 related to
this program. Cost savings primarily from reduced employee wages and benefits
are estimated to be $11.4 million pre-tax, net of idle facility costs, in 2003
and $13.4 million pre-tax annually thereafter, as a result of anticipated
improved manufacturing efficiencies and reduced fixed factory overhead. Although
a significant portion of the projected savings is the result of a reduction in
fixed factory costs, the overall benefit estimates could vary depending on unit
volumes and the resulting impact on manufacturing efficiencies. See also
discussion in Note 3 to the Consolidated Financial Statements.
NMHG RETAIL (NET OF ELIMINATIONS)
2002 COMPARED WITH 2001
Revenues decreased 17.6% to $172.2 million in 2002 from $209.1 million in
2001. Revenues declined primarily due to the sale of certain European retail
dealerships in the fourth quarter of 2001 (the "sold operations"), which
generated revenues of $26.4 million, net of intercompany eliminations, in 2001.
The decline in revenues is also attributable to reduced market demand in the
Americas and in Europe, especially in the territories in which NMHG's owned
retail dealerships operate.
Operating loss in 2002 was $3.2 million compared with $39.4 million in
2001. Operating results improved primarily due to (i) several non-cash charges
recognized in 2001, primarily in Europe, including a $4.7 million restructuring
charge for downsizing retail operations in Europe and non-cash charges of
approximately $7.1 million to establish full accounting consistency among owned
dealers on a global basis, to cause those dealers previously reporting on a
one-month lag to report on months consistent with the rest of NMHG and to reduce
asset values and increase reserves reflective of the weakened capital goods
market, (ii) lower operating costs in Europe resulting from restructuring
programs implemented in 2001 as discussed below, (iii) the elimination of $9.5
million of operating losses incurred by the sold operations in 2001 and (iv) the
elimination of goodwill amortization of $1.5 million as a result of the adoption
of SFAS No. 142. Net loss improved to $9.2 million in 2002 compared with $35.3
million in 2001 primarily due to the factors affecting operating loss, partially
offset by a decrease in the effective tax rate benefit on the losses in 2002, as
discussed above.
On January 3, 2003, NMHG sold substantially all of the assets and
liabilities of its wholly owned dealer in the U.S., which comprises the Americas
component of NMHG Retail. The loss recognized in 2002 as a result of the
write-down to fair value, less cost to sell, of the disposed net assets was not
material to the operating results of the Company. Furthermore, the Company does
not expect any significant additional loss to be recognized in 2003 as a result
of this transaction. Revenues and operating loss from the NMHG Retail-Americas
operation in 2002 were $26.2 million and $2.7 million, respectively, net of
eliminations from transactions with NMHG Wholesale. As a result of the sale of
this business, these revenues and losses are not expected to continue in 2003.
However, NMHG Wholesale is expected to sell lift trucks and service parts to the
new independent owner of this retail dealership.
2001 COMPARED WITH 2000
Revenues increased 14.8% to $209.1 million for 2001 from $182.1 million
for 2000 largely as a result of the effect of a full year of revenues in 2001
from dealerships acquired in Asia-Pacific in the fourth quarter of 2000. This
revenue growth was partially offset by lower parts and service revenues and
unfavorable pricing and product mix.
Operating loss in 2001 was $39.4 million compared with $15.3 million in
2000. The increase in operating loss was primarily due to several unusual
adjustments in 2001. The majority of these unusual adjustments were recognized
in Europe, which accounted for a significant portion of NMHG Retail's 2001
operating loss. The 2001 operating loss includes a charge of $10.4 million for a
loss on the sale of certain wholly owned dealers and related wind-down costs.
See also Note 5 to the Consolidated Financial Statements for a discussion of
this transaction. The 2001 operating loss also includes a $4.7 million
restructuring charge for downsizing to match then current levels of demand at
retail operations in Europe that NMHG Retail had acquired over several prior
years. In addition, the 2001 operating loss includes charges of approximately
$7.1 million to reduce asset values and increase reserves reflective of the
weakened capital goods markets, establish full accounting consistency among
retail operations on a global basis and to cause those dealers previously
reporting on a one-month lag to report on months consistent with the rest of
NMHG.
Net loss was $35.3 million for 2001 compared with $15.7 million for 2000,
primarily due to the factors affecting operating loss combined with an increase
in interest expense allocated to NMHG Retail.
32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
2001 RESTRUCTURING PLAN
In 2001, as previously discussed, management committed to the
restructuring of certain retail operations in Europe. As such, NMHG Retail
recognized a restructuring charge of approximately $4.7 million pre-tax, of
which $0.4 million relates to lease termination costs and $4.3 million relates
to severance and other employee benefits to be paid to approximately 140 service
technicians, salesmen and administrative personnel at wholly owned dealers in
Europe. In 2001, $0.4 million was paid to approximately 40 employees.
In 2002, severance payments of $2.5 million were made to approximately 70
employees. A majority of the headcount reductions were made by the end of the
first half of 2002. Cost savings primarily from reduced employee wages, employee
benefits and lease costs of approximately $2.9 million pre-tax were realized in
2002 related to this program. Cost savings primarily from reduced employee
wages, employee benefits and lease costs are estimated to be $2.9 million
pre-tax annually beginning in 2003. Estimated benefits could be reduced by
additional severance payments, if any, made to employees above the statutory or
contractually required amount that was accrued in 2001.
LIQUIDITY AND CAPITAL RESOURCES
On May 9, 2002, NMHG replaced its primary financing agreement, an
unsecured floating-rate revolving line of credit with availability of up to
$350.0 million, certain other lines of credit with availability of $28.6 million
and a program to sell accounts receivable in Europe, with the proceeds from the
sale of $250.0 million of 10% unsecured Senior Notes due 2009 and borrowings
under a secured, floating-rate revolving credit facility which expires in May
2005. The proceeds from the Senior Notes were reduced by an original issue
discount of $3.1 million.
The $250.0 million of 10% Senior Notes mature on May 15, 2009. The Senior
Notes are senior unsecured obligations of NMHG Holding Co. and are guaranteed by
substantially all of NMHG's domestic subsidiaries. NMHG Holding Co. has the
option to redeem all or a portion of the Senior Notes on or after May 15, 2006
at the redemption prices set forth in the Indenture governing the Senior Notes.
Availability under the new revolving credit facility is up to $175.0
million and is governed by a borrowing base derived from advance rates against
the inventory and accounts receivable of the borrowers, as defined in the new
revolving credit facility. Adjustments to reserves booked against these assets,
including inventory reserves, will change the eligible borrowing base and
thereby impact the liquidity provided by the facility. The borrowers include
NMHG Holding Co. and certain domestic and foreign subsidiaries of NMHG Holding
Co. Borrowings bear interest at a floating rate, which can be either a base rate
or LIBOR, as defined, plus an applicable margin. The current applicable margins,
effective December 31, 2002, for base rate loans and LIBOR loans were 2.0% and
3.0%, respectively. The new revolving credit facility also requires the payment
of a fee of 0.5% per annum on the unused commitment. The margins and unused
commitment fee are subject to quarterly adjustment based on a leverage ratio.
At December 31, 2002, the borrowing base under the new revolving credit
facility was $112.7 million, which has been reduced by the commitments or
availability under certain foreign credit facilities and an excess availability
requirement of $15.0 million. Borrowings outstanding under this facility were
$5.2 million at December 31, 2002. Therefore, at December 31, 2002, the excess
availability under the new revolving credit facility was $107.5 million.
The domestic floating rate of interest applicable to this facility on
December 31, 2002 was 6.25%, including the applicable floating rate margin. The
new revolving credit facility includes a subfacility for foreign borrowers which
can be denominated in British pounds sterling or euros. Included in the
borrowing capacity is a $15.0 million overdraft facility available to foreign
borrowers. At December 31, 2002, there were no borrowings outstanding under
these foreign subfacilities. The new revolving credit facility is guaranteed by
certain domestic and foreign subsidiaries of NMHG Holding Co. and is secured by
substantially all of the assets, other than property, plant and equipment, of
the borrowers and guarantors, both domestic and foreign, under the facility.
The terms of the new revolving credit facility provide that availability
is reduced by the commitments or availability under a foreign credit facility of
the borrowers and certain foreign working capital facilities. A foreign credit
facility commitment of approximately U.S. $18.9 million on December 31, 2002,
denominated in Australian dollars, reduced the amount of availability under the
new revolving credit facility. In addition, availability under the new revolving
credit facility was reduced by $5.5 million for a working capital facility in
China and by $3.7 million for other letters of credit. If the commitments or
availability under these facilities are increased, availability under the new
revolving credit facility will be reduced. The $112.7 million of borrowing base
capacity under the new revolving credit facility at December 31, 2002 reflected
reductions for these foreign credit facilities. See Note 10 to the Consolidated
Financial Statements for further discussion of NMHG's additional borrowings.
Both the new revolving credit facility and terms of the Senior Notes
include restrictive covenants which, among other things, limit the payment of
dividends to NACCO. The new revolving credit facility also requires NMHG to meet
certain financial tests, including, but not limited to, minimum excess
availability, maximum capital
33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
expenditures, maximum leverage ratio and minimum fixed charge coverage ratio
tests. The borrowers must maintain aggregate excess availability under the new
revolving credit facility of at least $15.0 million.
NMHG paid financing fees of approximately $15.7 million related to this
refinancing. These fees were deferred and are being amortized as interest
expense in the statement of operations over the respective terms of the new
financing facilities.
As a result of the refinancing of NMHG's floating-rate revolving credit
facility, NMHG terminated all of its interest rate swap agreements. NMHG
terminated interest rate swap agreements with a total notional amount of $285.0
million and a total net payable balance of $11.5 million at the respective dates
of termination. Prior to the refinancing, however, certain of these interest
rate swap agreements qualified for hedge accounting treatment in accordance with
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended. As such, the mark-to-market effect of these interest rate swap
agreements was previously recognized as a component of other comprehensive
income (loss) ("OCL") in stockholder's equity.
Prior to the cessation of hedge accounting resulting from the May 9, 2002
refinancing, the balance in OCL for NMHG's interest rate swap agreements that
qualified for hedge accounting was a pre-tax loss of $4.2 million ($2.6 million
after-tax). This balance is being amortized into the statement of operations
over the original remaining lives of the terminated interest rate swap
agreements in accordance with the provisions in SFAS No. 133, as amended. The
amount of amortization of accumulated other comprehensive income included in the
statement of operations on the line "losses on interest rate swap agreements"
during 2002 was a pre-tax expense of $2.5 million.
The mark-to-market effect of the interest rate swap agreements that was
included in the statement of operations because these derivatives did not
qualify for hedge accounting treatment during 2002 was an expense of $3.2
million and is included on the line, "losses on interest rate swap agreements."
CONTRACTUAL OBLIGATIONS, CONTINGENT LIABILITIES AND COMMITMENTS
Following is a table which summarizes the contractual obligations of NMHG:
PAYMENTS DUE BY PERIOD
--------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL 2003 2004 2005 2006 2007 THEREAFTER
- ---------------------------------- -------- -------- -------- -------- -------- -------- ----------
NMHG senior notes(1) (2) $ 250.0 $ -- $ -- $ -- $ -- $ -- $ 250.0
NMHG revolving credit
facilities(2) (3) 31.3 26.1 -- 5.2 -- -- --
Term loans(2) 18.1 6.1 6.3 5.7 -- -- --
Capital lease obligations including
principal and interest(2) 30.9 14.9 8.7 5.2 2.0 .1 --
Off-balance-sheet operating
lease obligations(2) 118.6 40.7 30.4 21.4 14.1 7.7 4.3
Unconditional purchase obligations 3.9 .8 .6 .9 .2 1.4 --
-------- -------- -------- -------- -------- -------- --------
Total contractual cash obligations $ 452.8 $ 88.6 $ 46.0 $ 38.4 $ 16.3 $ 9.2 $ 254.3
======== ======== ======== ======== ======== ======== ========
(1) The face value of the Senior Notes due in 2009 is $250.0 million. The
initial proceeds from the Senior Notes received in 2002 were reduced by an
original issue discount of $3.1 million. The unamortized balance of this
discount at December 31, 2002 is $2.9 million. Therefore, the amount
recognized as Senior Notes in the Consolidated Balance Sheet at December
31, 2002 is $247.1 million.
(2) An event of default, as defined in the Indenture governing NMHG's Senior
Notes, in NMHG's revolving credit facilities, in NMHG's term loan
agreements and in NMHG's operating and capital lease agreements, could
cause an acceleration of the payment schedule. No such event of default
has occurred or is anticipated to occur under these agreements.
(3) Note that, contractually, all amounts outstanding under NMHG's new
revolving credit facility are due in 2005 and have been reflected as such
in the above table. However, the Company has classified the balance
outstanding under this facility, $5.2 million at December 31, 2002, as a
current obligation since that is the amount expected to be repaid in 2003.
34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
In addition, NMHG has the following commitments, stated at the maximum
undiscounted potential liability, at December 31, 2002:
Total
-------------
Standby recourse obligations $ 149.4
Guarantees or repurchase obligations 4.2
-------------
Total commercial commitments $ 153.6
=============
Guarantees and standby recourse or repurchase obligations primarily
represent contingent liabilities assumed by NMHG to support financing agreements
made between NMHG's customers and third-party finance companies for the
customer's purchase of lift trucks from NMHG. These contingent liabilities may
take the form of guarantees of residual values or standby recourse or repurchase
obligations. For these transactions, NMHG generally retains a perfected security
interest in the lift truck, such that NMHG would take possession of the lift
truck in the event that NMHG would become liable under the terms of the
guarantees or standby recourse or repurchase obligations. Generally, these
commitments are due upon demand in the event of default by the customer. The
security interest is by and large expected to equal or exceed the amount of the
commitment. To the extent that NMHG would be required to provide funding as a
result of these commitments, NMHG believes that the value of its perfected
security interest and amounts available under existing credit facilities are
adequate to meet these commitments in the foreseeable future.
The amount of the standby recourse or repurchase obligations increase and
decrease over time as obligations under existing arrangements expire and new
obligations arise in the ordinary course of business. Losses anticipated under
the terms of the guarantees or standby recourse or repurchase obligations are
not significant and have been reserved for in the Consolidated Financial
Statements. See also "Related Party Transactions."
CAPITAL EXPENDITURES
NMHG Wholesale anticipates spending approximately $33.8 million for
property, plant and equipment in 2003, compared with capital expenditures of
$12.1 million in 2002 and $46.6 million in 2001. NMHG Retail anticipates
spending approximately $2.5 million for property, plant and equipment in 2003,
compared with capital expenditures of $4.0 million in 2002 and $6.9 million in
2001. Capital expenditures for 2002 are significantly lower as compared with
planned expenditures for 2003 and actual expenditures for 2001 primarily due to
the timing of projects at NMHG Wholesale. Capital expenditures in 2001 included
spending for the implementation of a new accounting system and for new equipment
and tooling resulting from moving production from the Danville, Illinois,
facility, which was closed in 2001, to other facilities in Americas and Europe.
NMHG's planned expenditures in 2003 include tooling for a significant new
product launch, approximately $7.3 million for new equipment and tooling
resulting from the 2002 manufacturing restructuring program in Americas and
Europe, investments in manufacturing equipment, and retail lease and rental
fleet. The principal sources of financing for these capital expenditures are
expected to be internally generated funds and facility borrowings.
CAPITAL STRUCTURE
NMHG's capital structure is presented below:
December 31
---------------------
2002 2001
------- -------
Total net tangible assets $ 362.8 $ 402.5
Goodwill and other intangibles at cost 487.7 491.2
------- -------
Net assets before amortization of intangibles 850.5 893.7
Accumulated goodwill and other intangibles amortization (142.3) (147.0)
Advances from NACCO -- (8.0)
Other debt (324.8) (354.4)
Minority interest (1.1) (2.3)
------- -------
Stockholder's equity $ 382.3 $ 382.0
======= =======
Debt to total capitalization 46% 48%
The decrease in total net tangible assets of $39.7 million is primarily
due to a $4.7 million decrease in cash and cash equivalents, a $28.6 million
decrease in property, plant and equipment, a $7.9 million decrease in inventory
and a $37.9 million increase in certain long-term liabilities, somewhat offset
by a $20.6 million increase in total net receivables, an $8.9 million decrease
in net derivative liabilities and a $5.2 million increase in net deferred tax
assets. Property, plant and equipment decreased as a result of depreciation
expense that was partially offset by
35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
capital expenditures and due to certain asset impairment charges, primarily
resulting from the 2002 NMHG Wholesale manufacturing restructuring program
discussed above. The decrease in inventory is primarily due to NMHG Retail's
transfer of new and used units, that were previously in inventory, to rental
fleet in 2002. Long-term liabilities increased primarily due to an increase in
the accrued pension obligation resulting from an update in the assumptions used
to actuarially calculate this liability. Total net receivables increased
primarily due to the second quarter 2002 termination of an agreement to sell
European accounts receivable as part of NMHG's debt refinancing. The decrease in
net derivative liabilities is due to the termination of all of NMHG's interest
rate swap agreements during 2002 as a result of the refinancing of NMHG's debt.
Stockholder's equity increased $0.3 million in 2002 as a result of net
income of $12.3 million, a $16.6 million favorable adjustment to the foreign
currency cumulative translation balance and a $3.5 million decrease in the
deferred loss on derivatives, which were almost entirely offset by a dividend to
NACCO of $15.0 million and an increase to the minimum pension liability
adjustment of $17.1 million.
RELATED PARTY TRANSACTIONS
NMHG has a 20% ownership interest in NMHG Financial Services, Inc.
("NFS"), a joint venture with GE Capital Corporation, formed primarily for the
purpose of providing financial services to independent and wholly owned Hyster
and Yale lift truck dealers in the United States and national account customers
in the United States. NMHG's ownership percentage in NFS is accounted for using
the equity method of accounting.
Generally, NMHG sells lift trucks through its independent dealer network
or directly to customers. These dealers and customers may enter into a financing
transaction with NFS or another unrelated third-party. NFS provides debt
financing to dealers and lease financing to both dealers and customers. NFS'
total purchases of Hyster and Yale lift trucks from dealers, customers and
directly from NMHG, such that NFS could provide lease financing to dealers and
customers, for the years ended December 31, 2002, 2001 and 2000 were $194.5
million, $251.2 million and $190.8 million, respectively. Of this amount, $32.2
million, $40.5 million and $23.3 million for the years ended December 31, 2002,
2001 and 2000, respectively, was invoiced directly from NMHG to NFS so that the
dealer or customer could obtain operating lease financing from NFS. Amounts
receivable from NFS at December 31, 2002 and 2001 were immaterial.
On occasion, the credit quality of the customer or concentration issues
within GE Capital Corporation necessitate providing standby recourse or
repurchase obligations or a guarantee of the residual value of the lift trucks
purchased by customers and financed through NFS. At December 31, 2002,
approximately $120.7 million of the Company's total guarantees, recourse or
repurchase obligations related to transactions with NFS. NMHG has reserved for
losses under the terms of the guarantees or standby recourse or repurchase
obligations in its consolidated financial statements. Historically, NMHG has not
had significant losses in respect of these obligations. In 2002, four customers
for which NMHG provided a guarantee or had standby recourse or repurchase
obligations defaulted under their obligations to NFS. NMHG exercised its rights
in the lift truck purchased for each of these customer defaults. In each of the
years 2002, 2001 and 2000, the net losses resulting from customer defaults did
not have a material impact on NMHG's results of operations or financial
position.
In addition to providing financing to NMHG's dealers, NFS provides
operating lease financing to NMHG. Operating lease obligations primarily relate
to specific sale-leaseback-sublease transactions for certain NMHG customers
whereby NMHG sells lift trucks to NFS, NMHG leases these lift trucks back under
an operating lease agreement and NMHG subleases those lift trucks to customers
under an operating lease agreement. Total obligations to NFS under the operating
lease agreements were $10.0 million and $15.3 million at December 31, 2002 and
2001, respectively.
In addition, NMHG is reimbursed for certain services, primarily
administrative functions, provided to NFS. The amount of NMHG's expenses
reimbursable by NFS were $1.7 million, $1.8 million and $1.5 million in 2002,
2001 and 2000, respectively.
NMHG has a 50% ownership interest in S-N, a limited liability company
which was formed in 1970 to manufacture and distribute lift trucks in Japan.
Sumitomo Heavy Industries, Ltd. owns the remaining 50% interest in S-N. Each
shareholder of S-N is entitled to appoint directors representing 50% of the vote
of S-N's board of directors. All matters related to policies and programs of
operation, manufacturing and sales activities require mutual agreement between
NMHG and Sumitomo Heavy Industries, Ltd. prior to a vote of S-N's board of
directors. As a result, NMHG accounts for its ownership in S-N using the equity
method of accounting. NMHG purchases, under normal trade terms, Hyster and Yale
branded lift trucks and related component and aftermarket parts from S-N for
sale outside of Japan. In 2002, 2001 and 2000, purchases from S-N were $65.7
million, $63.7 million and $90.5 million, respectively. Amounts payable to S-N
at December 31, 2002 and 2001 were $17.5 million and $16.1 million,
respectively.
36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
NACCO HOUSEWARES GROUP
The Housewares segment of the Company includes HB-PS, a leading
manufacturer, marketer and distributor of small electric motor and heat-driven
household appliances as well as commercial products for restaurants, bars and
hotels, and KCI, a national specialty retailer of brand-name kitchenware, small
electrical appliances and related accessories. Because the housewares business
is seasonal, a majority of revenues and operating profit occurs in the second
half of the year when sales of small electric appliances to retailers and
consumers increase significantly for the fall holiday selling season.
FINANCIAL REVIEW
The results of operations for Housewares were as follows for the year
ended December 31:
2002 2001 2000
------- ------- -------
Revenues $ 610.3 $ 632.1 $ 649.9
Operating profit (loss) $ 40.9 $ (8.4) $ 27.4
Operating profit (loss) excluding
goodwill amortization $ 40.9 $ (5.4) $ 30.5
Interest expense $ (8.1) $ (7.7) $ (8.6)
Other-net $ (2.8) $ (.1) $ (2.6)
Net income (loss) $ 17.8 $ (12.2) $ 8.8
Effective tax rate 40.7% 24.7% 45.7%
The effective tax rate benefit in 2001 was reduced by unfavorable
non-deductible goodwill amortization and other unfavorable non-deductible
expenses, which reduced the amount of the tax benefit on the 2001 pre-tax loss.
2002 COMPARED WITH 2001
Housewares' revenues decreased 3.4% to $610.3 million in 2002 from $632.1
million in 2001. The decline in revenues was primarily due to lower unit volume
at HB-PS as a result of HB-PS' strategic decision to withdraw from selected
low-margin, opening-price-point business and lower sales of TrueAir(TM) home
health products. The decline in revenues from these factors was partially offset
by increased sales of General Electric-branded products to Wal*Mart and
increased revenues at KCI. Revenue growth at KCI was primarily due to higher
overall consumer spending in outlet malls and from decreased competition
following the bankruptcy of a major competitor. For 2002, KCI revenues were also
positively affected by increases in comparable stores' average sales transaction
values and the total number of sales transactions per store, compared with 2001.
KCI had 173 stores at December 31, 2002 compared with 168 stores at December 31,
2001.
In 2002, Housewares recognized operating profit of $40.9 million compared
with an operating loss of $8.4 million in 2001. Results in 2001 include a $13.3
million charge for restructuring. Improved operating profit resulted primarily
from improved manufacturing and distribution efficiencies and general cost
reductions at HB-PS as a result of the restructuring activities initiated in
2001, lower advertising expenditures at HB-PS, increased sales volume at KCI,
the favorable resolution of certain product liability claims at HB-PS and, as a
result of the adoption of SFAS No. 142 in 2002, the elimination of $3.0 million
of goodwill amortization expense recognized by Housewares in 2001. These
improvements were partially offset by a decrease in HB-PS' average sales price
of products.
Net income of $17.8 million in 2002 improved as compared with a net loss
of $12.2 million in 2001 due to the factors affecting operating profit,
partially offset by unfavorable foreign currency movements from transactions
denominated in the Mexican peso and a loss from interest rate swap agreements of
$0.8 million. See further discussion in "Liquidity and Capital Resources."
On January 22, 2002, one of HB-PS' largest customers, Kmart, filed a
voluntary petition for reorganization under Chapter 11 of the United States
Bankruptcy Code, which allows Kmart to reorganize and seek protection from its
creditors. As a result, HB-PS recognized a charge of $3.7 million in 2001 and an
additional charge of $3.6 million in 2002 related to the write-down of
receivables due from this customer. In 2002, 2001 and 2000, sales to this
customer represented approximately 7.5%, 7.2% and 9.2%, respectively, of
Housewares revenues. HB-PS expects to continue to ship products to this customer
in 2003. However, revenues from this customer could decline significantly if
Kmart is unable to emerge successfully from bankruptcy protection. Additionally,
this customer's decisions regarding the number of retail store closings and the
level of promotions of HB-PS' products could also affect HB-PS' sales to this
customer.
37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
2001 COMPARED WITH 2000
Housewares' revenues decreased to $632.1 million in 2001, down 2.7% from
$649.9 million in 2000. Revenues declined primarily due to reduced unit volume
and sale mix at HB-PS, primarily driven by the weak retail environment in 2001
and reduced sales of opening-price-point products. Decreased unit pricing
primarily resulting from increased competition also caused revenues to decline
as compared with the prior year. The decline in Housewares' revenues was
partially offset by increased sales of General Electric-branded products to
Wal*Mart and the introduction of TrueAir home odor eliminators at HB-PS, and
increased revenues at KCI primarily driven by an increase in the number of
stores (168 at December 31, 2001 compared with 157 at December 31, 2000).
Housewares recorded an operating loss of $8.4 million in 2001 compared
with operating profit of $27.4 million in 2000. The decline in operating profit
resulted primarily from restructuring charges, described below, of $13.3 million
recognized in 2001 and a $4.0 million charge in 2001 for the write-off of
receivables from customers that filed voluntary petitions for reorganization
under Chapter 11 of the United States Bankruptcy Code, including Kmart.
Excluding these items, operating results decreased as a result of (i) a decrease
in the average sales price, (ii) increased advertising costs incurred to support
the TrueAir product introduction, (iii) a shift in mix to lower-margin units and
(iv) unfavorable manufacturing overhead costs, partially offset by favorable
material costs at HB-PS and improved operating profit at KCI.
Net loss was $12.2 million for 2001 as compared with net income of $8.8
million for 2000 primarily due to the factors affecting operating profit.
RESTRUCTURING PLANS
In 2001, the Board of Directors approved management's plan to restructure
HB-PS' manufacturing activities in Mexico. This restructuring plan included
outsourcing of certain of the company's products and consolidating production of
three of the company's Mexican manufacturing plants into one plant. As a result
of this plan, HB-PS recognized a charge of $12.5 million of which $5.0 million
relates to the impairment of fixed assets, $3.3 million relates to equipment and
building lease impairment and clean-up costs, $2.9 million relates to severance
benefits to be paid to approximately 925 manufacturing personnel, $0.6 million
relates to the impairment of inventory and $0.7 million is for other related
costs. The estimated cash outflows required for this plan are expected to be
almost entirely offset by cash inflows from the anticipated sale of fixed assets
and tax benefits associated with the plan. As of December 31, 2001, no severance
payments had been made.
In 2002, HB-PS began to consolidate and to outsource certain of its
Mexican manufacturing activities related to this restructuring program and made
severance payments of $2.9 million to approximately 850 manufacturing personnel
at HB-PS' facilities in Mexico. Also in 2002, HB-PS completed the disposition of
impaired assets. Lease payments on idle facilities are expected to be completed
in 2003. In addition, manufacturing inefficiencies of approximately $1.3 million
and severance payments of approximately $0.5 million that had not previously
been accrued were expensed in 2002. Cost savings primarily from reduced employee
wages, employee benefits and lease costs related to this plan were approximately
$8.4 million pre-tax in 2002 and are estimated to be $9.4 million pre-tax in
2003 and $10.3 million pre-tax annually, beginning in 2004. Although a
significant portion of the projected savings is the result of a reduction in
fixed factory costs, the overall benefit estimates could vary depending on unit
volumes and the resulting savings from the outsourcing of certain products.
Also in 2001, HB-PS recognized a charge of $0.8 million relating to
severance benefits to be paid to personnel in all functional areas located at
the company's headquarters. This restructuring plan was initiated primarily as a
cost-cutting measure in response to reduced overall consumer demand caused by
the 2001 U.S. economic slowdown. Headcount was reduced by 36, or approximately
10% of the total corporate personnel. As of December 31, 2002, payments of $0.8
million were made. The full benefit from this restructuring of $2.7 million
pre-tax was realized in 2002.
38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
LIQUIDITY AND CAPITAL RESOURCES
On December 17, 2002, HB-PS replaced its primary financing agreement,
which was a secured floating-rate revolving line of credit with availability of
up to $150.0 million and certain other lines of credit with availability of up
to $15.0 million, with borrowings under a new senior secured, floating-rate
revolving credit facility which expires in December 2005.
The new revolving credit facility provides 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. 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 December
31, 2002, for base rate loans and LIBOR loans were 1.50% and 2.75%,
respectively. The new revolving credit facility also requires the payment of a
fee of 0.5% per annum on the unused commitment. The margins and unused
commitment fee are subject to quarterly adjustment based on a leverage ratio.
The new revolving credit facility is secured by substantially all of HB-PS'
assets.
At December 31, 2002, the borrowing base under the new revolving credit
facility was $85.1 million, which had been reduced for reserves and the excess
availability requirement of $10.0 million. Borrowings outstanding under this
facility were $56.9 million at December 31, 2002. Therefore, at December 31,
2002, the excess availability under the new revolving credit facility was $28.2
million. The floating rate of interest applicable to this facility on December
31, 2002 was 4.40%, including the applicable floating rate margin.
The new revolving credit facility includes restrictive covenants that,
among other things, set limitations on additional indebtedness, investments,
asset sales, capital expenditures and the payment of dividends to NACCO. The new
revolving credit facility also requires HB-PS to meet certain financial tests,
including, but not limited to maximum leverage and minimum fixed charge coverage
ratio tests.
HB-PS incurred fees and expenses of approximately $2.0 million related to
this refinancing. These fees were deferred and are being amortized as interest
expense in the Consolidated Statement of Operations and Comprehensive Income
(Loss) over the term of the new revolving credit facility.
As a result of a decrease in the forecasted amount of anticipated future
interest payments due to a decrease in expected funding requirements, HB-PS
terminated interest rate swap agreements with a total notional amount of $45.0
million and a total net payable balance of $2.2 million, including accrued
interest, at the date of termination in December 2002. Prior to their
termination, these interest rate swap agreements qualified for hedge accounting
treatment in accordance with SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended. As such, the mark-to-market of
these interest rate swap agreements was previously recognized as a component of
OCL.
As a result of a decrease in the forecasted amount of anticipated future
interest payments due to a decrease in expected funding requirements, $0.8
million that was previously deferred as a component of OCL for interest rate
swap agreements was recognized in the statement of operations on the line
"losses on interest rate swap agreements" in December 2002. This
reclassification from OCL to the statement of operations relates primarily to a
portion of the previous deferrals of the mark-to-market effect on the terminated
interest rate swap agreements. At December 31, 2002, $1.0 million of the OCL
balance relates to the terminated interest rate swap agreements and is expected
to be amortized into the statement of operations over the original remaining
lives of the terminated interest rate swap agreements in accordance with the
provisions in SFAS No. 133, as amended. The remaining interest rate swap
agreements that were held by HB-PS on December 31, 2002 are expected to continue
to be effective as hedges of the new floating-rate revolving credit facility.
Effective May 29, 2002, KCI entered into a three year financing
arrangement that 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. The KCI Facility includes
restrictive covenants that, among other things, limit capital expenditures and
require that borrowings do not exceed $6.5 million for 30 consecutive days
during January and February. The KCI Facility also requires KCI to maintain
certain debt and interest coverage ratios and maintain a minimum level of
tangible net worth, as defined. This financing replaces KCI's previous source of
financing, which was intercompany borrowings from HB-PS or the parent company.
At December 31, 2002, the borrowing base as defined in the agreement was $11.4
million. Borrowings outstanding at December 31, 2002 were $0.7 million at an
effective interest rate of LIBOR plus 1.35%, or 2.82%.
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.
39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
Following is a table which summarizes the contractual obligations of
Housewares:
PAYMENTS DUE BY PERIOD
---------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL 2003 2004 2005 2006 2007 THEREAFTER
- ------------------------------------ -------- -------- -------- -------- -------- -------- ----------
Revolving credit facilities $ 57.6 $ -- $ -- $ 57.6 $ -- $ -- $ --
Capital lease obligations including
principal and interest .6 -- -- -- -- .1 .5
Off-balance-sheet operating leases 61.8 14.1 12.9 9.7 8.0 5.9 11.2
-------- -------- -------- -------- -------- -------- --------
Total contractual cash obligations $ 120.0 $ 14.1 $ 12.9 $ 67.3 $ 8.0 $ 6.0 $ 11.7
======== ======== ======== ======== ======== ======== ========
An event of default, as defined in the HB-PS Facility and KCI Facility
agreements and in Housewares' operating and capital lease agreements, could
cause an acceleration of the payment schedule. No such event of default has
occurred or is anticipated to occur under these agreements.
Housewares anticipates spending approximately $14.1 million for property,
plant and equipment in 2003, compared with capital expenditures of $5.3 million
in 2002 and $13.4 million in 2001. Capital expenditures for 2002 are
significantly lower as compared with planned expenditures for 2003 and actual
expenditures for 2001 primarily due to the timing of projects at HB-PS,
especially tooling for new product launches. Planned expenditures for 2003
include enhancements to information systems, tooling for new products and
machinery and equipment, which are intended to reduce manufacturing costs and
increase manufacturing efficiency. These expenditures are expected to be funded
from internally generated funds and bank borrowings.
Housewares' capital structure is presented below:
December 31
-------------------------
2002 2001
--------- ---------
Total net tangible assets $ 128.1 $ 168.7
Goodwill at cost 123.5 123.5
--------- ---------
Net assets before goodwill amortization 251.6 292.2
Accumulated goodwill amortization (39.8) (39.8)
Advances from NACCO -- (3.0)
Other debt (57.9) (103.8)
--------- ---------
Stockholder's equity $ 153.9 $ 145.6
========= =========
Debt to total capitalization 27% 42%
The decline in total net tangible assets of $40.6 million since December
31, 2001 is primarily due to a $5.1 million decrease in cash and cash
equivalents, a $10.8 million decrease in current and long-term receivables, an
$11.5 million decrease in property, plant and equipment, a $5.1 million decrease
in net deferred tax assets, a $4.7 million increase in net derivative
liabilities due to unfavorable mark-to-market adjustments and a $17.0 million
increase in accounts payable, partially offset by a $13.4 million increase in
inventories. The decline in current and long-term receivables is primarily due
to shorter payment terms provided to certain customers and due to a $3.6 million
write-down in the second quarter of 2002 of pre-bankruptcy receivables from
Kmart. The increase in inventory is primarily due to a build of inventory in the
fourth quarter of 2002 in an anticipation of increased sales volume. Accounts
payable increased more than the growth in inventory primarily due to an increase
in payment terms provided by certain suppliers. Net deferred tax assets declined
primarily due to the 2002 recognition for tax purposes of expenses relating to
restructuring reserves made in 2001.
Debt and advances from NACCO declined primarily as a result of the
decrease in net tangible assets and due to improved cash flows from operations.
The increase in stockholder's equity at December 31, 2002 compared with December
31, 2001 is due to $17.8 million of net income in 2002, partially offset by a
$3.4 million increase in the accumulated other comprehensive loss relating to an
unfavorable mark-to-market of derivatives, a $2.6 million increase in the
accumulated other comprehensive loss relating to a minimum pension liability
adjustment and $3.5 million of dividends paid to NACCO.
40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
NACCO AND OTHER
FINANCIAL REVIEW
NACCO and Other includes the parent company operations and Bellaire
Corporation ("Bellaire"), a non-operating subsidiary of NACCO. Although
Bellaire's operations are immaterial, it has significant long-term liabilities
related to closed mines, primarily from former Eastern U.S. underground coal
mining activities. The post-2003 annual after-tax cash outflows related to
Bellaire's obligations are expected to be approximately $2.5 million. After-tax
cash outflows for 2003 are expected to be greater than the long-term average due
to additional cash payments expected to be made to UMWA as a result of the U.S.
Supreme Court ruling discussed below.
The results of operations at NACCO and Other were as follows for the year
ended December 31:
2002 2001 2000
--------- --------- ---------
Revenues $ .1 $ .1 $ .1
Operating loss $ (4.9) $ (9.7) $ (11.7)
Other income, net $ 3.0 $ 9.3 $ 4.4
Extraordinary gain (loss), net-of-tax $ (7.2) $ -- $ 29.9
Net income (loss) $ (7.3) $ -- $ 25.0
In 2002, NACCO and Other includes an extraordinary loss of $7.2 million,
net of $3.9 million in taxes, related to an estimated increase in Bellaire's
obligation to UMWA. In 2000, NACCO and Other includes an extraordinary gain of
$29.9 million, net of $16.1 million in taxes, related to an estimated decrease
in Bellaire's obligation to UMWA. This obligation was initially recognized by
Bellaire as an extraordinary charge in 1992 to accrue for the estimated costs
associated with the Coal Act. See additional discussion in Note 4 to the
Consolidated Financial Statements. The decrease to the Company's estimate of the
UMWA obligation in 2000 was made, in part, because of a U.S. District Court's
ruling that was upheld by the U.S. Court of Appeals for the Sixth Circuit in
2000 which invalidated the Social Security Administration's ("SSA") assignment
of certain retired coal miners to Bellaire. This ruling reduced the Company's
estimate of the total beneficiaries assigned to Bellaire as part of the Coal
Act. During 2002, the U.S. Supreme Court decided to review circuit court rulings
whose decisions in this matter were in conflict. The U.S Court of Appeals for
the Sixth Circuit ruled that the SSA assignments were invalid; while the U.S.
Court of Appeals for the Fourth Circuit ruled that the SSA assignments were
valid.
On January 15, 2003, the U.S. Supreme Court decided that the initial
assignments made after October 1, 1993 are valid despite their untimeliness. As
a result, the Company increased its estimate of the number of beneficiaries
assigned to Bellaire. However, the effect of the assignment of additional
beneficiaries from this decision is offset somewhat by a favorable decision from
the U.S. Supreme Court in 2002 that the SSA's assignment of certain retired coal
miners to companies defined as "successors in interest to a signatory operator
no longer in business" was not permitted under the Coal Act. This decision
resulted in a reduction to the estimate of the number of beneficiaries assigned
to Bellaire. Changes to the Company's estimate of (i) the number of
beneficiaries as a result of these court decisions, (ii) future medical
inflation rates and (iii) the amount that will be required to be paid to UMWA
for premium payments related to late assignments for the period 1993 through
2002, resulted in an extraordinary charge of $7.2 million, net of $3.9 million
of tax, to increase the estimated obligation to UMWA at December 31, 2002.
Also in 2000, Bellaire recognized a $5.6 million increase to its closed
mine reserves, with a corresponding decrease in other income (expense), net,
related primarily to Black Lung and other retiree medical benefits, and to
environmental obligations arising from former Eastern U.S. underground mining
operations. See additional discussion in Note 3 to the Consolidated Financial
Statements.
41
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
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 statement of
operations by the segments, however, changed in the first quarter of 2002 to
reflect a portion of the fees in selling, general and administrative expenses
and a portion of the fees in other-net, as directed by the parent company for
purposes of internal analysis. Following is a table for comparison of parent
company fees for the year ended December 31:
2002 2001 2000
---------- ---------- ----------
NACCO fees included in selling, general and
administrative expenses
NMHG Wholesale $ 4.7 $ -- $ --
Housewares 1.9 -- --
NACoal .7 -- --
---------- ---------- ----------
$ 7.3 $ -- $ --
========== ========== ==========
NACCO fees included in other-net, income (expense)
NMHG Wholesale $ 2.3 $ 6.8 $ 6.6
Housewares .9 2.6 2.5
NACoal .4 1.1 1.0
---------- ---------- ----------
$ 3.6 $ 10.5 $ 10.1
========== ========== ==========
Total NACCO fees charged to segments
NMHG Wholesale $ 7.0 $ 6.8 $ 6.6
Housewares 2.8 2.6 2.5
NACoal 1.1 1.1 1.0
---------- ---------- ----------
$ 10.9 $ 10.5 $ 10.1
========== ========== ==========
LIQUIDITY AND CAPITAL RESOURCES
Although NACCO's subsidiaries have entered into substantial borrowing
agreements, NACCO has not guaranteed any borrowings of its subsidiaries.
The borrowing agreements at NACoal, NMHG and Housewares allow for the
payment to NACCO of dividends and advances 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 credit facilities,
anticipated funds 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's consolidated capital structure is presented below:
December 31
-----------------------
2002 2001
-------- --------
Total net tangible assets $ 570.8 $ 676.2
Coal supply agreements and other intangibles, net 85.0 85.2
Goodwill at cost 609.0 614.7
-------- --------
Net assets before amortization of intangibles 1,264.8 1,376.1
Accumulated amortization of intangibles (181.6) (186.8)
Total debt, excluding current and long-term portion of
obligations of project mining subsidiaries (474.7) (614.7)
Closed mine obligations (Bellaire), including
UMWA, net-of-tax (48.0) (41.9)
Minority interest (1.1) (3.4)
-------- --------
Stockholders' equity $ 559.4 $ 529.3
======== ========
Debt to total capitalization 46% 54%
42
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
RECENTLY ISSUED ACCOUNTING STANDARDS
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 provides accounting requirements for
retirement obligations associated with tangible long-lived assets, including:
(i) the timing of liability recognition; (ii) initial measurement of the
liability; (iii) allocation of asset retirement cost to expense; (iv) subsequent
measurement of the liability; and (v) financial statement disclosures. SFAS No.
143 requires that an asset's retirement cost should be capitalized as part of
the cost of the related long-lived asset and subsequently allocated to expense
using a systematic and rational method. This standard becomes effective for
fiscal years beginning after June 15, 2002. The Company will adopt the Statement
effective January 1, 2003. The transition adjustment resulting from the adoption
of SFAS No. 143 will be reported as a cumulative effect of a change in
accounting principle. Although the adoption of this Statement is not expected to
have a material affect on the results of operations in 2003, the balance sheet
is expected to change significantly in 2003 due to both an increase in the asset
and the liability related to mine-closing costs at NACoal. Furthermore, future
operating results are expected to be reduced as a result of the depreciation of
the asset related to mine-closing costs and due to the annual accretion of the
discounted liability.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 requires gains and losses on extinguishments of debt
to be reclassified as income or loss from continuing operations rather than as
extraordinary items as previously required by SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt." SFAS No. 145 also amends SFAS No. 13 to
require certain modifications to capital leases to be treated as sale-leaseback
transactions and modifies the accounting for subleases when the original lessee
remains a secondary obligor, or guarantor. SFAS No.145 also rescinded SFAS No.
44, which addressed the accounting for intangible assets of motor carriers and
made numerous technical corrections.
The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 are
effective for fiscal years beginning after May 15, 2002, with restatement of
prior periods for any gain or loss on the extinguishment of debt that was
classified as an extraordinary item in prior periods, as necessary. The
remaining provisions of SFAS No. 145 are effective for transactions and
reporting subsequent to May 15, 2002. The adoption of SFAS No. 145 did not have
a material impact to the Company's financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities." SFAS No. 146 is effective for exit or disposal activities
initiated after December 31, 2002. SFAS No. 146 requires that liabilities for
one-time termination benefits that will be incurred over future service periods
should be measured at the fair value as of the termination date and recognized
over the future service period. This Statement also requires that liabilities
associated with disposal activities should be recorded when incurred. These
liabilities should be adjusted for subsequent changes resulting from revisions
to either the timing or amount of estimated cash flows, discounted at the
original credit-adjusted risk-free rate. Interest on the liability would be
accreted and charged to expense as an operating item. Subsequent to its
adoption, the new Statement may effect the periods in which costs are recognized
for workforce reductions or facility closures, although the ultimate amount of
costs recognized will be the same as per current accounting guidance.
In November 2002, the FASB issued Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 requires guarantors
to recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee for those guarantees
initiated or modified after December 31, 2002. However, certain guarantees,
including product warranties and guarantees between parties under common control
(i.e., parent and subsidiary), are not required to be recognized at fair value
at inception. FIN No. 45 also requires additional disclosures of guarantees,
including product warranties and guarantees between parties under common
control, beginning with interim or annual periods ending after December 15,
2002. Guarantees initiated prior to December 31, 2002 are not recognized as a
liability measured at fair value per this Interpretation, but are subject to the
disclosure requirements. The Company has made the required disclosures in the
Consolidated Financial Statements. As required, the Company will recognize
guarantees included within the scope of this Interpretation and initiated after
December 31, 2002 as liabilities measured at fair value. Although the impact of
this Interpretation is dependent upon the level of guarantees issued by the
Company in the future and the future market volatility on which the fair value
of those guarantees would be based, the Company does not expect the adoption of
the fair value provisions of this Interpretation to have a material impact on
the Company's financial position or results of operations.
In November 2002, the Emerging Issues Task Force reached a consensus on
Issue 00-21 ("EITF 00-21"), "Accounting for Revenue Arrangements with Multiple
Deliverables." EITF 00-21 addresses how to account for arrangements that may
involve the delivery or performance of multiple products, services, and/or
rights to use assets. The final consensus will be applicable to agreements
entered into in fiscal years beginning after June 15, 2003 with early adoption
permitted. Additionally, companies will be permitted to apply the consensus
guidance to all existing arrangements as the cumulative effect of a change in
accounting principle in accordance with APB Opinion No. 20, "Accounting
Changes." In accordance with the model developed by the Task Force, revenue
arrangements with multiple deliverables should be divided into separate units of
accounting if the deliverables in the arrangement meet certain criteria. Revenue
is then allocated to the separate units based on either the relative fair value
method or the
43
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
residual method, as applicable. The Company will adopt EITF 00-21 effective
January 1, 2004, as required, and has not yet determined what impact, if any,
the adoption of this Statement will have on either its financial position or
results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting For
Stock-Based Compensation - Transition and Disclosure, an Amendment of FASB
Statement No. 123." This Statement amends FASB Statement No. 123, "Accounting
for Stock-Based Compensation," to provide alternative methods of transition for
an entity that voluntarily changes to the fair value based method of accounting
for stock-based employee compensation. It also amends the disclosure provisions
of that Statement to require prominent disclosure about the effects on reported
net income of an entity's accounting policy decisions with respect to
stock-based employee compensation. Finally, this Statement amends APB Opinion
No. 28, "Interim Financial Reporting," to require disclosure about those effects
in interim financial information. At December 31, 2002, the Company does not
have any stock options outstanding under its 1975 and 1981 stock options plans,
as amended. Furthermore, as of December 31, 2002, the Company does not intend to
issue additional stock options in the foreseeable future. As a result, the
adoption of this Statement will not have any affect on the Company's financial
statements or disclosures unless and until such time the Company issues stock
options.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." FIN No. 46 clarifies the application of Accounting
Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements" for
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN No. 46 requires that variable interest entities,
as defined, should be consolidated by the primary beneficiary, which is defined
as the entity that is expected to absorb the majority of the expected losses,
receive a majority of the expected gains, or both. The Interpretation requires
that companies disclose certain information about a variable interest entity
created prior to February 1, 2003 if it is reasonably possible that the
enterprise will be required to consolidate that entity. The Company is currently
evaluating its affiliated entities, however, at this time, the Company does not
believe that it is reasonably possible that any entity it is affiliated with but
does not currently consolidate will meet the definition of a variable interest
entity.
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. In the case that any of the Company's subsidiaries would meet the
definition of a variable interest entity, the Company will evaluate its ability
to continue to consolidate or its need to deconsolidate that entity in
accordance with the requirements of this Interpretation. The application of this
Interpretation is required on July 1, 2003 for entities created prior to
February 1, 2003. The application of this Interpretation is required immediately
for any variable interest entities created subsequent to January 31, 2003. At
this time, the Company has not yet determined what impact, if any, the adoption
of this Interpretation will have on either its financial position or results of
operations.
EFFECTS OF FOREIGN CURRENCY AND INFLATION
NMHG and HB-PS operate internationally and enter into transactions
denominated in foreign currencies. As a result, the Company is subject to the
variability that arises from exchange rate movements. The effects of foreign
currency on operating results at NMHG and HB-PS were discussed previously. The
Company's use of foreign currency derivative contracts is discussed under the
heading, "Quantitative and Qualitative Disclosures about Market Risk."
The Company believes that overall inflation has not materially affected
its results of operations in 2002, 2001 and 2000 and does not expect overall
inflation to be a significant factor in 2003.
ENVIRONMENTAL MATTERS
The Company's manufacturing operations, like those of other companies
engaged in similar businesses, involve the use, disposal and cleanup of
substances regulated under environmental protection laws. The Company's NACoal
and Bellaire subsidiaries are affected by the regulations of agencies under
which it operates, particularly the Federal Office of Surface Mining, the United
States Environmental Protection Agency and associated state regulatory
authorities. In addition, NACoal and Bellaire closely monitor proposed
legislation concerning the Clean Air Act Amendments of 1990, reauthorization of
the Resource Conservation and Recovery Act, the Clean Water Act, the Endangered
Species Act and other regulatory actions.
Compliance with these increasingly stringent standards could result in
higher expenditures for both capital improvements and operating costs. The
Company's policies stress environmental responsibility and compliance with these
regulations. Based on current information, management does not expect compliance
with these regulations to have a material adverse effect on the Company's
financial condition or results of operations.
44
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
OUTLOOK
NACOAL
NACoal anticipates lignite coal deliveries in 2003 to increase, compared
with 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 and related settlements, are not expected to
be repeated in 2003. Furthermore, the adoption of SFAS No. 143, which was
effective January 1, 2003 and requires a change in the timing of the recognition
of mine-closing costs, is expected to reduce future operating results somewhat
as compared with operating results in 2002. NACoal expects to continue working
on developing new domestic mining projects.
NMHG WHOLESALE
In 2003, NMHG Wholesale anticipates a modest strengthening of the Americas
lift truck market, a relatively flat European lift truck market and a slight
improvement in the Asia-Pacific lift truck market. The war and continuing
economic uncertainty in the U.S. and Europe could affect overall shipments in
2003. As compared with exchange rates in effect during 2002, adverse currency
effects could also reduce NMHG Wholesale's 2003 results. Backlog in 2003 is
anticipated to remain at approximately fourth quarter 2002 levels.
NMHG Wholesale expects to incur additional costs for product development
in 2003 as it moves toward the initial introduction of newly redesigned
1.0-to-8.0-ton internal combustion engine lift trucks planned for the fourth
quarter of 2004. Furthermore, in 2003 NMHG Wholesale expects to incur additional
costs related to the Lenoir, North Carolina, and Irvine, Scotland, manufacturing
restructuring program announced in December 2002. Total costs of the
restructuring program to be incurred in 2003 and beyond are expected to be
substantially mitigated by future government incentives. NMHG Wholesale expects
to realize initial net benefits from this manufacturing restructuring program in
2004 with a full 12-months of estimated annual benefits beginning in 2006.
Furthermore, NMHG Wholesale expects additional employee costs in 2003, as
compensation and benefits return to more normal levels. NMHG Wholesale expects
income taxes to be at more normal levels in 2003, as one-time tax benefits
received in 2002 are not expected to recur.
NMHG RETAIL
NMHG Retail's operations remaining following the sale of its wholly owned
U.S. dealer in January 2003 achieved profitability in the fourth quarter of
2002. NMHG Retail expects to continue its programs to improve the performance of
its wholly owned dealerships in 2003 as part of its program to reach at least
break-even results.
HOUSEWARES
HB-PS expects that programs begun in 2002 and new strategic programs
planned for 2003 designed to reduce operating costs and improve manufacturing
and distribution efficiencies will improve operating margins in 2003. However,
revenues in 2003 may be affected by a decline in consumer confidence, which
drives retail spending. Further, revenues in 2003 could be affected by Kmart's
announced decision to close an additional 316 stores, although HB-PS believes
this could be offset by incremental sales to other customers, to other
distribution channels and of innovative new products. In 2003, HB-PS will
continue to focus on further improving its working capital efficiency.
In 2003, KCI will continue programs designed to enhance operating results
including improving its merchandise mix, closing non-performing stores,
prudently opening additional Kitchen Collection(TM) and Gadgets & More(TM)
stores, expanding its offering of Hamilton Beach and Proctor-Silex-branded
products and aggressively managing its costs. However, KCI believes it will be
very difficult to equal or exceed in 2003 the exceptional performance
experienced in 2002.
NACCO CONSOLIDATED
The Company expects generally improved market prospects for its businesses
in 2003. However, the Company expects significantly increased investments in new
product development, increased costs related to the restructuring program
announced in the fourth quarter of 2002 and more normal tax provisions at NMHG;
a continued sluggish consumer retail environment at Housewares; and a more
normal tax provision at NACoal and lower profits at MLMC reflecting the first
full year of normal operations and no liquidated damages payments. Cash flows
before financing activities, excluding project mines, in 2003 is expected to be
substantial, although lower than 2002 levels. In summary, the Company expects
that the programs now in place at all of its subsidiaries will continue to
mature in 2003 and will position them for substantially improved results in 2004
through 2006, especially if markets improve. However, this outlook could be
dampened by the war and continuing economic uncertainty in the United States and
Europe.
45
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share, Unit, Store and
Percentage Data)
Although the adoption of SFAS No. 143, which was effective January 1, 2003
and requires a change in the recognition of mine-closing costs, is expected to
result in a cumulative effect of a change in accounting loss at NACoal, the
adoption of this pronouncement is expected to result in a cumulative effect of a
change in accounting gain at Bellaire (part of "NACCO and Other"), such that the
adoption of this new pronouncement is not expected to have a material effect on
the consolidated operating results of Company in 2003.
The statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere throughout this
Annual Report that are not historical facts are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements are
made subject to certain risks and uncertainties which could cause actual results
to differ materially from those presented in these forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date hereof. Such risks and uncertainties
with respect to each subsidiary's operations include without limitation:
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 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.
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, (11) the impact of the
euro, including increased competition, foreign currency exchange movements
and/or changes in operating costs and (12) the uncertain impact on the economy
or the public's confidence in general from terrorist activities and the war.
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 or key component parts, (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 war.
46
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
On May 9, 2002, NMHG refinanced a majority of its floating-rate debt
financing with the issuance of Senior Notes at a fixed rate of interest. As a
result of this refinancing during 2002, NMHG terminated all of its interest rate
swap agreements. The combined notional amount and fair market value of the
interest rate swap agreements terminated was $285.0 million and a payable of
$11.5 million, respectively, on the respective dates of termination. A small
portion of NMHG's financing, however, requires interest payments based on
floating interest rates. Also in 2002, HB-PS terminated certain interest rate
swap agreements with a combined notional amount of $45.0 million and a net
payable balance of $2.2 million on the date of termination. See additional
discussion of these transactions in Management's Discussion and Analysis of
Financial Condition and Results of Operations.
In addition to the fixed-rate debt financing at NMHG, the Company's
subsidiaries, NACoal, NMHG, HB-PS and KCI, have entered into certain financing
arrangements that require interest payments based on floating interest rates. As
such, the Company's financial results are subject to changes in the market rate
of interest. To reduce the exposure to changes in the market rate of interest,
the Company has entered into interest rate swap agreements for a significant
portion of its floating rate financing arrangements. The Company does not enter
into interest rate swap agreements for trading purposes. Terms of the interest
rate swap agreements require the subsidiaries to receive a variable interest
rate and pay a fixed interest rate. See also Note 2 and Note 11 to the
Consolidated Financial Statements.
For purposes of specific risk analysis, the Company uses sensitivity
analysis to measure the potential loss in fair value of financial instruments
sensitive to changes in interest rates. The Company assumes that a loss in fair
value is an increase to its liabilities. The fair market value, based on a
market quote, of the Company's fixed rate debt, which was issued in 2002, was
$255.0 million at December 31, 2002. Assuming a hypothetical 10% decrease in the
effective interest yield on this fixed rate debt, the fair market value of this
liability would increase by $17.4 million as compared with the fair market value
of this liability at December 31, 2002. The fair market value of the Company's
interest rate swap agreements, excluding interest rate swap agreements held by
the project mining subsidiaries, was a liability of $18.2 million at December
31, 2002 and $22.1 million at December 31, 2001. A hypothetical 10% decrease in
interest rates as of December 31, 2002 and 2001, would cause an increase in the
fair market value of interest rate swap agreements' liability amount by $1.4 and
$4.1 million, respectively, as compared with their fair market value, which is a
liability, at December 31, 2002 and 2001, respectively. Changes in the fair
market value of the project mining subsidiaries' interest rate swap agreements
do not affect the Company's results of operations or financial condition because
the cost of interest, which includes the effect of interest rate swap
agreements, is included in the cost of coal passed through to the customer.
FOREIGN CURRENCY EXCHANGE RATE RISK
NMHG and HB-PS operate internationally and enter into transactions
denominated in foreign currencies. As such, their financial results are subject
to the variability that arises from exchange rate movements. NMHG and HB-PS use
forward foreign currency exchange contracts to partially reduce risks related to
transactions denominated in foreign currencies and not for trading purposes.
These contracts mature within one year and require the companies to buy or sell
Japanese yen, Australian dollars, Canadian dollars, Mexican pesos, British
pounds sterling or euros for the functional currency in which the applicable
subsidiary operates at rates agreed to at the inception of the contracts. The
fair market value of these contracts was a net asset of $3.3 million and a net
liability of $0.7 million at December 31, 2002 and 2001, respectively. See also
Note 2 and Note 11 to the Consolidated Financial Statements.
For purposes of specific risk analysis, the Company uses sensitivity
analysis to measure the potential loss in fair value of financial instruments
sensitive to changes in foreign currency exchange rates. The Company assumes
that a loss in fair value is either a decrease to its assets or an increase to
its liabilities. Assuming a hypothetical 10% strengthening of the U.S. dollar as
compared with other foreign currencies at December 31, 2002 and 2001, the fair
market value of foreign currency-sensitive financial instruments, which
primarily represents forward foreign currency exchange contracts, would decline
by $3.9 million and $3.7 million, respectively, as compared with their fair
market value at December 31, 2002 and 2001, respectively. It is important to
note that the loss in fair market value indicated in this sensitivity analysis
would be somewhat offset by changes in the fair market value of the underlying
receivables, payables and net investments in foreign subsidiaries.
COMMODITY PRICE RISK
The Company uses certain commodities, including steel, resins, linerboard
and diesel fuel, in the normal course of its manufacturing and mining processes.
As such, the cost of operations is subject to variability as the market for
these commodities change. The Company monitors this risk and, from time to time,
enters into derivative contracts to hedge this risk. The Company does not
currently have any such derivative contracts outstanding, nor does the Company
have any significant purchase obligations to obtain fixed quantities of
commodities in the future.
47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is set forth in the Financial
Statements and Supplementary Data contained in Part IV hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Disclosure required by this Item 9 was previously reported in the
Company's Current Report on Form 8-K filed on May 10, 2002.
There were no disagreements with accountants on accounting and financial
disclosure for the two-year period ended December 31, 2002.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors of the Company will be set forth in
the 2003 Proxy Statement under the heading "Business to be Transacted - 1.
Election of Directors," which information is incorporated herein by reference.
The information set forth in the 2003 Proxy Statement under the subheadings "--
Report of the Audit Review Committee," "-- Report of the Compensation Committee
on Executive Compensation" and "-- Stock Price Performance Presentation" is not
incorporated herein by reference. Information with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 by the Company's Directors,
executive officers, and holders of more than ten percent of the Company's equity
securities will be set forth in the 2003 Proxy Statement under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance," which information is
incorporated herein by reference. Information regarding the executive officers
of the Company is included in this Annual Report on Form 10-K as Item 4A of Part
I as permitted by Instruction 3 to Item 401(b) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation will be set forth in
the 2003 Proxy Statement under the heading "Business to be Transacted - 1.
Election of Directors" under the subheadings "-- Compensation of Directors," "--
Compensation of Executive Officers," "-- Stock Option Grants," "-- Long-Term
Incentive Plans," "--Compensation Committee Interlocks and Insider
Participation" and "-- Pension Plans," which information is incorporated herein
by reference. The information set forth in the 2003 Proxy Statement under the
subheadings "-- Report of the Audit Review Committee," "-- Report of the
Compensation Committee on Executive Compensation" and "-- Stock Price
Performance Presentation" is not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information with respect to security ownership of certain beneficial
owners and management will be set forth in the 2003 Proxy Statement under the
heading "Business to be Transacted -- Election of Directors -- Beneficial
Ownership of Class A Common and Class B Common," which information is
incorporated herein by reference.
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES
NUMBER OF SECURITIES REMAINING AVAILABLE FOR
TO BE ISSUED WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
UPON EXERCISE OF EXERCISE PRICE OF EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
------------- ------------------- ------------------- ------------------------
(A) (B) (C)
Equity compensation
plans approved by
security holders........ 0 N/A 434,540
Equity compensation
plans not approved
by security holders...... 0 N/A 0
Total....... 0 N/A 434,540
48
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions
will be set forth in the 2003 Proxy Statement under the heading "Business to be
Transacted - 1. Election of Directors -- Compensation Committee Interlocks and
Insider Participation," which information is incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES: The Company maintains a
set of disclosure controls and procedures designed to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms. Within the 90-day period prior to the filing of this report, an
evaluation was carried out under the supervision and with the participation of
the Company's management, including the Principal Executive Officer and the
Principal Financial Officer, of the effectiveness of the Company's disclosure
controls and procedures. Based on that evaluation, these officers have concluded
that the Company's disclosure controls and procedures are effective.
CHANGES IN INTERNAL CONTROLS: Subsequent to the date of their evaluation,
there have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls, including any
corrective action with regard to significant deficiencies and material
weaknesses.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) The response to Item 15(a)(1) and (2) is set forth
beginning at page F-1 of this Annual Report on Form 10-K.
(a) (3) Listing of Exhibits -- See the exhibit index beginning at page X-1
of this Annual Report on Form 10-K.
(b) The Company filed a Current Report on Form 8-K on November 13, 2002
(Item 9).
(c) The response to Item 15(c) is set forth beginning at page X-1 of this
Annual Report on Form 10-K.
(d) Financial Statement Schedules -- The response to Item 15(d) is set
forth beginning at page F-43 of this Annual Report on Form 10-K.
49
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
NACCO Industries, Inc.
By: /s/ Kenneth C. Schilling
-----------------------------
Kenneth C. Schilling
Vice President and Controller
(principal financial
and accounting officer)
March 27, 2003
50
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Alfred M. Rankin, Jr. Chairman, President and March 27, 2003
- -------------------------- Chief Executive Officer (principal
Alfred M. Rankin, Jr. executive officer), Director
/s/ Kenneth C. Schilling Vice President and Controller March 27, 2003
- -------------------------- (principal financial and accounting
Kenneth C. Schilling officer)
* Owsley Brown II Director March 27, 2003
- --------------------------
Owsley Brown II
* Robert M. Gates Director March 27, 2003
- --------------------------
Robert M. Gates
* Leon J. Hendrix, Jr. Director March 27, 2003
- --------------------------
Leon J. Hendrix, Jr.
* David H. Hoag Director March 27, 2003
- --------------------------
David H. Hoag
* Dennis W. LaBarre Director March 27, 2003
- --------------------------
Dennis W. LaBarre
* Richard de J. Osborne Director March 27, 2003
- --------------------------
Richard de J. Osborne
* Ian M. Ross Director March 27, 2003
- --------------------------
Ian M. Ross
* Michael E. Shannon Director March 27, 2003
- --------------------------
Michael E. Shannon
* Britton T. Taplin Director March 27, 2003
- --------------------------
Britton T. Taplin
* David F. Taplin Director March 27, 2003
- --------------------------
David F. Taplin
* John F. Turben Director March 27, 2003
- --------------------------
John F. Turben
*Kenneth C. Schilling, by signing his name hereto, does hereby sign this
Annual Report on Form 10-K on behalf of each of the above named and designated
directors of the Company pursuant to a Power of Attorney executed by such
persons and filed with the Securities and Exchange Commission.
/s/ Kenneth C. Schilling March 27, 2003
- --------------------------------------
Kenneth C. Schilling, Attorney-in-Fact
51
CERTIFICATIONS
I, Alfred M. Rankin, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of NACCO Industries,
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
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 annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Alfred M. Rankin
-----------------------------------------
Alfred M. Rankin, Jr.
Chairman, President and Chief Executive Officer
Date: March 27, 2003 (Principal Executive Officer)
52
I, Kenneth C. Schilling, certify that:
1. I have reviewed this annual report on Form 10-K of NACCO Industries,
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
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 annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Kenneth C. Schilling
----------------------------------------
Kenneth C. Schilling
Vice President and Controller
Date: March 27, 2003 (Principal Financial Officer)
53
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 15(a)(1) AND (2), AND ITEM 15(d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 2002
NACCO INDUSTRIES, INC.
MAYFIELD HEIGHTS, OHIO
F-1
FORM 10-K
ITEM 15(a)(1) AND (2)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of NACCO Industries, Inc.
and Subsidiaries are incorporated by reference in Item 8:
Report of Ernst & Young, Independent Auditors--Year ended December 31,
2002.
Report of Arthur Andersen, Independent Public Accountants--Year ended
December 31, 2001 and 2000.
Consolidated Statements of Operations and Comprehensive Income
(Loss)--Year ended December 31, 2002, 2001 and 2000.
Consolidated Balance Sheets--December 31, 2002 and December 31, 2001.
Consolidated Statements of Cash Flows--Year ended December 31, 2002, 2001
and 2000.
Consolidated Statements of Stockholders' Equity--Year ended December 31,
2002, 2001 and 2000.
Notes to Consolidated Financial Statements.
NACCO Industries, Inc. Report of Management.
The following consolidated financial statement schedules of NACCO
Industries, Inc. and Subsidiaries are included in Item 15(d):
Schedule I -- Condensed Financial Information of the Parent
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
F-2
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of NACCO Industries, Inc.
We have audited the accompanying Consolidated Balance Sheet of NACCO
Industries, Inc. and Subsidiaries (collectively "the Company") as of December
31, 2002, and the related Consolidated Statements of Operations and
Comprehensive Income (Loss), Stockholders' Equity and Cash Flows for the year
then ended. Our audit also included the financial statement schedules for the
year ended December 31, 2002 listed in Item 15(a). These financial statements
and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audit. The Consolidated Financial Statements and
schedules of the Company as of December 31, 2001, and for each of the years in
the two year period ended December 31, 2001, were audited by other auditors, who
have ceased operations and whose report dated February 12, 2002 expressed an
unqualified opinion before the additional disclosures described below and in
Note 9.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 2002 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of NACCO Industries, Inc. and Subsidiaries at December 31, 2002, and
the consolidated results of their operations and their cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the financial statement schedules for the
year ended December 31, 2002, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
As explained in Note 2 and Note 9 to the Consolidated Financial
Statements, effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
("SFAS No. 142").
As discussed above, the consolidated financial statements of the Company
as of December 31, 2001, and for each of the years in the two year period ended
December 31, 2001, were audited by other auditors who have ceased operations.
However, the Company has added certain disclosures to those financial statements
to comply with the adoption requirements of new accounting pronouncements. As
described in Note 9, the 2001 and 2000 consolidated financial statements have
been revised to include the transitional and other disclosures required by SFAS
No. 142, which was adopted by the Company effective January 1, 2002. Our audit
procedures with respect to the disclosures in Note 9 relating to 2001 and 2000
included (a) agreeing the previously reported income (loss) before extraordinary
gain (loss) and cumulative effect of accounting changes, reported net income
(loss), and the related earnings (loss) per share amounts to the previously
issued consolidated financial statements and the adjustments to these amounts
representing amortization expense (including any related tax effects) recognized
in those periods related to goodwill as a result of initially applying SFAS No.
142 to the Company's underlying records obtained from management, and (b)
testing the mathematical accuracy of the reconciliation of reported income
(loss) before extraordinary gain (loss) and cumulative effect of accounting
changes, reported net income (loss) and reported earnings (loss) per share to
adjusted income (loss) before extraordinary gain (loss) and cumulative effect of
accounting changes, adjusted net income (loss), and the related earnings (loss)
per share amounts, respectively. Additionally, our procedures with respect to
the disclosures in Note 9 regarding 2001 included (a) agreeing the gross
carrying amount and accumulated amortization of coal supply agreements to the
Company's underlying records obtained from management, (b) testing the
mathematical accuracy of the reconciliation of coal supply agreements to the
2001 Consolidated Balance Sheet and (c) agreeing 2001 amortization expense for
coal supply agreements to the Company's underlying records obtained from
management. In our opinion, the disclosures for 2001 in Note 9 are appropriate.
However, we were not engaged to audit, review, or apply any procedures to the
2001 and 2000 consolidated financial statements of the Company other than with
respect to such disclosures and, accordingly, we do not express an opinion or
any other form of assurance on the 2001 and 2000 consolidated financial
statements taken as a whole.
/s/ Ernst & Young LLP
Cleveland, Ohio,
February 11, 2003
F-3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of NACCO Industries, Inc.
We have audited the accompanying Consolidated Balance Sheets of NACCO
Industries, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the
related Consolidated Statements of Operations and Comprehensive Income (Loss),
Stockholders' Equity and Cash Flows for each of the three years in the period
ended December 31, 2001. These financial statements and the schedules referred
to below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NACCO Industries, Inc. and
Subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
As explained in Note 2 to the Consolidated Financial Statements, effective
January 1, 2001, the Company changed its method of accounting for derivative
instruments and hedging activities and the Company changed its method of
accounting for certain pension liabilities. As explained in Note 2 to the
Consolidated Financial Statements, effective January 1, 1999, the Company
changed its method of accounting for start-up activities.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in Item 14(a)(1) and
(2) and Item 14(d) of Form 10-K are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Cleveland, Ohio,
February 12, 2002
This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with NACCO Industries, Inc.'s filing on Form 10-K for the year ended
December 31, 2001. This audit report has not been reissued by Arthur Andersen
LLP in connection with this filing on Form 10-K. See Exhibit 23(ii) for further
discussion. The reference to Item 14(a)(1) and (2) and Item 14(d) of Form 10-K
for 2001 has been changed to Item 15(a)(1) and (2) and Item 15(d) for 2002. The
Consolidated Balance Sheet as of December 31, 2000, referred to above, is not
included in this filing on Form 10-K.
F-4
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended December 31
---------------------------------------
2002 2001 2000
--------- --------- ---------
(In millions, except per share data)
Net sales $ 2,537.6 $ 2,613.1 $ 2,869.4
Other revenues 10.5 24.8 1.9
--------- --------- ---------
REVENUES 2,548.1 2,637.9 2,871.3
Cost of sales 2,047.8 2,203.4 2,355.1
--------- --------- ---------
GROSS PROFIT 500.3 434.5 516.2
Selling, general and administrative expenses 355.0 381.0 367.0
Amortization of goodwill -- 15.9 15.7
Restructuring charges 12.3 21.5 15.6
Loss on sale of dealers 1.2 10.4 --
--------- --------- ---------
OPERATING PROFIT 131.8 5.7 117.9
Other income (expense)
Interest expense (69.3) (56.9) (47.1)
Losses on interest rate swap agreements (6.5) (1.4) --
Closed mine obligations (1.3) (1.3) (5.6)
Insurance recovery -- 8.0 --
Income (loss) from unconsolidated affiliates .5 2.6 (.2)
Other-net 4.5 (2.1) (5.0)
--------- --------- ---------
(72.1) (51.1) (57.9)
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST,
EXTRAORDINARY GAIN (LOSS) AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGES 59.7 (45.4) 60.0
Income tax provision (benefit) 11.3 (9.9) 22.3
--------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST, EXTRAORDINARY GAIN
(LOSS) AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 48.4 (35.5) 37.7
Minority interest income 1.2 .8 .1
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN (LOSS) AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES 49.6 (34.7) 37.8
Extraordinary gain (loss), net of ($3.9) tax benefit in 2002 and
$16.1 tax expense in 2000 (7.2) -- 29.9
--------- --------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGES 42.4 (34.7) 67.7
Cumulative effect of accounting changes, net of ($0.8) tax benefit -- (1.3) --
--------- --------- ---------
NET INCOME (LOSS) 42.4 (36.0) 67.7
--------- --------- ---------
Other comprehensive income (loss)
Foreign currency translation adjustment 16.6 (9.4) (15.8)
Cumulative effect of change in accounting for derivatives
and hedging, net of ($2.0) tax benefit in 2001 -- (3.4) --
Reclassification of hedging activities into earnings, net of
$3.7 tax expense in 2002 and $1.5 tax expense in 2001 6.2 2.6 --
Current period cash flow hedging activity, net of
($4.5) tax benefit in 2002 and ($6.5) tax benefit in 2001 (7.7) (11.0) --
Minimum pension liability adjustment, net of ($13.2)
tax benefit in 2002; ($8.1) tax benefit in 2001; ($1.0)
tax benefit in 2000 (19.7) (13.4) (1.4)
--------- --------- ---------
(4.6) (34.6) (17.2)
--------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $ 37.8 $ (70.6) $ 50.5
========= ========= =========
EARNINGS PER SHARE:
Income (Loss) Before Extraordinary Gain (Loss) and Cumulative
Effect of Accounting Changes $ 6.05 $ (4.24) $ 4.63
Extraordinary gain (loss), net-of-tax (.88) -- 3.66
Cumulative effect of accounting changes, net-of-tax -- (.16) --
--------- --------- ---------
Net Income (Loss) $ 5.17 $ (4.40) $ 8.29
========= ========= =========
See Notes to Consolidated Financial Statements.
F-5
CONSOLIDATED BALANCE SHEETS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
December 31
----------------------
2002 2001
-------- --------
(In millions, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 64.1 $ 71.9
Accounts receivable, net of allowances of $14.2 in 2002 and
$15.6 in 2001 278.8 264.5
Inventories 357.0 360.6
Deferred income taxes 29.0 40.2
Prepaid expenses and other 54.1 32.8
-------- --------
TOTAL CURRENT ASSETS 783.0 770.0
PROPERTY, PLANT AND EQUIPMENT, NET 658.0 732.0
GOODWILL 427.4 427.9
COAL SUPPLY AGREEMENTS AND OTHER INTANGIBLES, NET 85.0 85.2
OTHER NON-CURRENT ASSETS 170.5 146.8
-------- --------
TOTAL ASSETS $2,123.9 $2,161.9
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 257.2 $ 235.3
Revolving credit agreements 33.2 59.7
Revolving credit agreement refinanced in May 2002 -- 265.0
Current maturities of long-term debt 35.0 41.9
Current obligations of project mining subsidiaries 35.0 37.9
Accrued payroll 45.9 38.5
Accrued warranty obligations 23.3 26.6
Other current liabilities 166.6 161.5
-------- --------
TOTAL CURRENT LIABILITIES 596.2 866.4
LONG-TERM DEBT - not guaranteed by the parent company 406.5 248.1
OBLIGATIONS OF PROJECT MINING SUBSIDIARIES -
not guaranteed by the parent company or its NACoal subsidiary 275.1 271.3
SELF-INSURANCE LIABILITIES AND OTHER 285.6 243.4
MINORITY INTEREST 1.1 3.4
STOCKHOLDERS' EQUITY
Common stock:
Class A, par value $1 per share, 6,576,936 shares
outstanding (2001 - 6,559,925 shares outstanding) 6.6 6.5
Class B, par value $1 per share, convertible
into Class A on a one-for-one basis,
1,623,651 shares outstanding
(2001 - 1,635,720 shares outstanding) 1.6 1.6
Capital in excess of par value 4.9 4.7
Retained earnings 605.7 571.3
Accumulated other comprehensive loss:
Foreign currency translation adjustment (11.6) (28.2)
Deferred loss on cash flow hedging (13.3) (8.4)
Cumulative effect of change in accounting for derivatives and hedging -- (3.4)
Minimum pension liability adjustment (34.5) (14.8)
-------- --------
559.4 529.3
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,123.9 $2,161.9
======== ========
See Notes to Consolidated Financial Statements.
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended December 31
------------------------------------------
2002 2001 2000
---------- ---------- ----------
(In millions)
OPERATING ACTIVITIES
Net income (loss) $ 42.4 $ (36.0) $ 67.7
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization 92.7 117.6 106.1
Deferred income taxes 17.8 (5.0) (12.5)
Restructuring charges 12.3 21.5 15.6
Minority interest income (1.2) (.8) (.1)
Extraordinary loss (gain) 7.2 -- (29.9)
Cumulative effect of accounting changes -- 1.3 --
Loss (gain) on sale of assets (1.5) 10.5 1.4
Other non-cash items (4.8) .7 (1.3)
Working capital changes, excluding the effect of business acquisitions:
Accounts receivable 18.4 42.7 (24.9)
Inventories (2.6) 41.4 (26.0)
Other current assets (4.7) (11.7) 1.2
Accounts payable and other current liabilities (2.1) (46.2) 35.7
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 173.9 136.0 133.0
---------- ---------- ----------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (55.5) (104.8) (93.3)
Proceeds from the sale of property, plant and equipment 34.4 17.9 15.3
Acquisitions of businesses, net of cash acquired -- (3.9) (145.3)
Investments in unconsolidated affiliates -- (.3) (10.3)
Proceeds from unconsolidated affiliates 2.3 -- --
Other-net (.8) (4.0) (.6)
---------- ---------- ----------
NET CASH USED FOR INVESTING ACTIVITIES (19.6) (95.1) (234.2)
---------- ---------- ----------
FINANCING ACTIVITIES
Additions to long-term debt and revolving credit agreements 343.3 68.9 186.0
Reductions of long-term debt and revolving credit agreements (457.7) (43.8) (61.7)
Additions to obligations of project mining subsidiaries 44.0 76.4 53.7
Reductions of obligations of project mining subsidiaries (70.4) (95.0) (70.3)
Financing fees paid (18.0) (1.0) (1.8)
Cash dividends paid (8.0) (7.6) (7.2)
Other-net .4 .5 (.4)
---------- ---------- ----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (166.4) (1.6) 98.3
---------- ---------- ----------
Effect of exchange rate changes on cash 4.3 (1.1) .4
---------- ---------- ----------
CASH AND CASH EQUIVALENTS
Increase (decrease) for the year (7.8) 38.2 (2.5)
Balance at the beginning of the year 71.9 33.7 36.2
---------- ---------- ----------
BALANCE AT THE END OF THE YEAR $ 64.1 $ 71.9 $ 33.7
========== ========== ==========
See Notes to Consolidated Financial Statements.
F-7
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended December 31
----------------------------------
2002 2001 2000
---------- ---------- ----------
(In millions, except per share data)
CLASS A COMMON STOCK
Beginning balance $ 6.5 $ 6.5 $ 6.5
Shares issued under stock compensation plans .1 -- --
---------- ---------- ----------
6.6 6.5 6.5
---------- ---------- ----------
CLASS B COMMON STOCK 1.6 1.6 1.6
---------- ---------- ----------
CAPITAL IN EXCESS OF PAR VALUE
Beginning balance 4.7 3.6 2.7
Shares issued under stock compensation plans .2 1.1 .9
---------- ---------- ----------
4.9 4.7 3.6
---------- ---------- ----------
RETAINED EARNINGS
Beginning balance 571.3 614.9 554.4
Net income (loss) 42.4 (36.0) 67.7
Cash dividends on Class A and Class B common stock:
2002: $0.970 per share (8.0) -- --
2001: $0.930 per share -- (7.6) --
2000: $0.890 per share -- -- (7.2)
---------- ---------- ----------
605.7 571.3 614.9
---------- ---------- ----------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Beginning balance (54.8) (20.2) (3.0)
Foreign currency translation adjustment 16.6 (9.4) (15.8)
Cumulative effect of change in accounting for derivatives and
hedging 3.4 (3.4) --
Reclassification from cumulative effect of change in accounting
for derivatives and hedging to deferred loss on cash flow
hedging (3.4) -- --
Reclassification of hedging activity into earnings 6.2 2.6 --
Current period cash flow hedge activity (7.7) (11.0) --
Minimum pension liability adjustment (19.7) (13.4) (1.4)
---------- ---------- ----------
(59.4) (54.8) (20.2)
---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY $ 559.4 $ 529.3 $ 606.4
========== ========== ==========
See Notes to Consolidated Financial Statements.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NOTE 1--PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS
The Consolidated Financial Statements include the accounts of NACCO Industries,
Inc. ("NACCO," the parent company) and its wholly owned subsidiaries (NACCO
Industries, Inc. and Subsidiaries -- the "Company"). Intercompany accounts and
transactions are eliminated. The Company's subsidiaries operate in three
principal industries: lignite mining, lift trucks and housewares. 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.
The North American Coal Corporation ("NACoal") mines and markets lignite
primarily as fuel for power generation by electric utilities. 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 full
line of lift trucks and service parts marketed worldwide 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. The sale of service parts represents
approximately 18%, 18% and 17% of the total NMHG revenues as reported for 2002,
2001 and 2000, respectively. NACCO Housewares Group ("Housewares") consists of
Hamilton BeachoProctor-Silex, Inc. ("HB-PS"), a leading manufacturer, marketer
and distributor of small electric motor and heat-driven household 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.
During the period of ownership, the Company applied the equity method of
accounting for NMHG's 25% ownership in QFS Holdings (Queensland) Pty Limited
("QFS"), a forklift parts depot located in Australia, which was purchased in May
2000 and sold in December 2002. Investments in Sumitomo NACCO Materials Handling
Company, Ltd. ("SN"), a 50% owned joint venture, and NMHG Financial Services,
Inc. ("NFS"), a 20% owned joint venture, are also accounted for by the equity
method. SN operates manufacturing facilities in Japan and the Philippines from
which NMHG purchases certain components and internal combustion engine and
electric forklift trucks. Sumitomo Heavy Industries, Inc. owns the remaining 50%
interest in SN. Each shareholder of SN is entitled to appoint directors
representing 50% of SN's board of directors. All matters related to policies and
programs of operation, manufacturing and sales activities require mutual
agreement between the Company and Sumitomo Heavy Industries, Inc. prior to a
vote of SN's board of directors. NFS is a joint venture with GE Capital
Corporation, formed primarily for the purpose of providing financial services to
independent and wholly owned Hyster and Yale lift truck dealers and national
account customers in the United States. The Company's percentage share of the
net income or loss from its equity investments is reported on the line Income
(loss) from unconsolidated affiliates in the Other income (expense) portion of
the Consolidated Statements of Operations and Comprehensive Income (Loss).
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities (if any) at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash in banks and
highly liquid investments with original maturities of three months or less.
ACCOUNTS RECEIVABLE, NET OF ALLOWANCES: Allowances are maintained against
accounts receivable for doubtful accounts, product returns and product
discounts. Allowances for doubtful accounts are maintained for estimated losses
resulting from the inability of customers to make required payments. These
allowances are based on both recent trends of certain customers estimated to be
a greater credit risk as well as general trends of the entire customer pool. See
also the Company's revenue recognition policy regarding allowances for product
returns and product discounts.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined under the last-in, first-out (LIFO) method for manufactured
inventories in the United States and for certain retail inventories. The
weighted average method is used for coal inventory. The first-in, first-out
(FIFO) method is used with respect to all other inventories. Reserves are
maintained for estimated obsolescence or excess inventory equal to the
difference between the cost of inventory and the estimated market value based
upon assumptions about future demand and market conditions. Upon a subsequent
sale or disposal of the impaired inventory, the corresponding reserve for
impaired value is relieved to ensure that the cost basis of the inventory
reflects any write-downs.
PROPERTY, PLANT AND EQUIPMENT, NET: Property, plant and equipment are recorded
at cost. Depreciation, depletion and amortization are provided in amounts
sufficient to amortize the cost of the assets, including assets recorded under
capital leases, over their estimated useful lives using the straight-line
method. Buildings are depreciated using a 40-year life or, at NACoal, over the
life of the mines, which range from 9 to 43 years. Estimated lives for machinery
and equipment range from 3 to 12 years and for land and building improvements
from 5 to 40 years. The units-of-production method is used to amortize certain
coal-related assets based on estimated recoverable tonnages. Repairs and
maintenance costs are generally expensed when incurred.
GOODWILL: Goodwill represents the excess purchase price paid over the fair value
of the net assets acquired. Effective January 1, 2002 the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets." Under SFAS No. 142, goodwill and intangible assets
that have indefinite lives are no longer subject to amortization but rather are
subject to periodic impairment testing. Accordingly, the Company ceased
amortization of all goodwill upon adoption. Prior to adoption, goodwill was
amortized on a straight-line basis generally over a 40-year period. Accumulated
amortization of goodwill was $181.6 million and $186.8 million at December 31,
2002 and 2001, respectively.
SFAS No. 142 also requires that goodwill be tested for impairment at least
annually. Impairment exists when the carrying amount of goodwill exceeds its
fair value. The Company performed the impairment tests upon the adoption of SFAS
No. 142 effective January 1, 2002, and again as of May 1, 2002, using a model
developed by the Company which incorporates estimates of future cash flows,
allocations of certain assets and cash flows among reporting units, and future
growth rates and management judgment regarding the applicable discount rates to
discount those estimated cash flows. The results of this testing indicated that,
on those dates, goodwill was not impaired. The Company plans to continue
impairment tests annually on May 1st. In addition, goodwill will be tested as
necessary if changes in circumstances or the occurrence of certain events
indicate potential impairment.
Prior to the adoption of SFAS No. 142, the Company evaluated whether events and
circumstances had occurred subsequent to its acquisitions that indicated whether
the remaining estimated useful life of goodwill would have warranted revision or
that the remaining balance of goodwill would not have been recoverable. When
factors indicated that goodwill should have been evaluated for possible
impairment, and at least annually, the Company used an estimate of its
discounted cash flows generated from operations in measuring whether the
goodwill was impaired.
COAL SUPPLY AGREEMENTS AND OTHER INTANGIBLES, NET: The coal supply agreements
represent the appraised value of long-term supply agreements with customers,
which were acquired during the 2000 acquisition of certain coal businesses.
These intangible assets are being amortized based on units of production over
the remaining lives of the applicable coal supply agreements, which are from 8
to 29 years. The Company's other intangible assets consist primarily of customer
relationship intangibles and are being amortized over their estimated useful
lives, which range from 2 to 12 years.
SELF-INSURANCE LIABILITIES: The Company is generally self-insured for product
liability, environmental liability, medical and workers' compensation claims,
certain closed mine liabilities and obligations to the United Mine Workers of
America Combined Benefit Fund ("UMWA") arising as a result of the Coal Industry
Retiree Health Benefit Act of 1992 ("Coal Act"). For product liability,
catastrophic coverage is retained for potentially significant individual claims.
An estimated provision for claims reported and for claims incurred but not yet
reported under the self-insurance programs is recorded and revised periodically
based on industry trends, historical experience and management judgment. In
addition, industry trends are considered within management's judgment for
valuing claims. Changes in assumptions for such matters as legal judgments and
settlements, legal defense costs, inflation rates, medical costs and actual
experience could cause estimates to change in the near term.
REVENUE RECOGNITION: Revenues are generally recognized when title transfers or
risk of loss passes as customer orders are completed and shipped. Under its
mining contracts, the Company recognizes revenue as the coal is delivered.
Products generally are not sold with the right of return. However, based on the
Company's historical experience, a portion of products sold are estimated to be
returned for reasons such as buyer remorse, product failure and excess inventory
stocked by the Company's customers, which, subject to certain terms and
conditions, the Company will agree to accept. The Company records estimated
reductions to revenues and a corresponding allowance against accounts receivable
at the time of the sale based upon this historical experience and the limited
right of return provided to the Company's customers. The Company also records
estimated reductions to revenues for customer programs and incentive offerings,
including special pricing agreements, price competition, promotions
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
and other volume-based incentives. Additionally, the Company provides for the
estimated cost of product warranties at the time revenues are recognized.
ADVERTISING COSTS: Advertising costs are expensed as incurred and amounted to
$23.2 million, $28.6 million and $24.3 million in 2002, 2001 and 2000,
respectively.
PRODUCT DEVELOPMENT COSTS: Expenses associated with the development of new
products and changes to existing products are charged to expense as incurred.
These costs amounted to $50.7 million, $52.0 million and $51.8 million in 2002,
2001 and 2000, respectively.
FOREIGN CURRENCY: Assets and liabilities of foreign operations are translated
into U.S. dollars at the fiscal year-end exchange rate. The related translation
adjustments are recorded as a separate component of stockholders' equity, except
for the Company's Mexican operations. The U.S. dollar is considered the
functional currency for the Company's Mexican operations and, therefore, the
effect of translating assets and liabilities from the Mexican peso to the U.S
dollar is recorded in the Consolidated Statements of Operations and
Comprehensive Income (Loss). Revenues and expenses of all foreign operations are
translated using the monthly average exchange rates prevailing during the year.
FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS: Financial
instruments held by the Company include cash and cash equivalents, accounts
receivable, accounts payable, revolving credit agreements, long-term debt,
interest rate swap agreements and forward foreign currency exchange contracts.
The Company does not hold or issue financial instruments or derivative financial
instruments for trading purposes.
The Company uses forward foreign currency exchange contracts to partially reduce
risks related to transactions denominated in foreign currencies. These contracts
hedge primarily firm commitments and, to a lesser degree, forecasted
transactions relating to cash flows associated with sales and purchases
denominated in currencies other than the subsidiaries' functional currencies.
Changes in the fair value of forward foreign currency exchange contracts that
are effective as hedges are recorded in accumulated other comprehensive loss
("OCL"). Deferred gains or losses are reclassified from OCL to the Consolidated
Statement of Operations and Comprehensive Income (Loss) in the same period as
the gains or losses from the underlying transactions are recorded and are
generally recognized in cost of sales.
The Company uses interest rate swap agreements to partially reduce risks related
to floating rate financing agreements which 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 LIBOR (London Interbank Offered Rate). Changes in the
fair value of interest rate swap agreements that are effective as hedges are
recorded in OCL. Deferred gains or losses are reclassified from OCL to the
Consolidated Statement of Operations and Comprehensive Income (Loss) in the same
period as the gains or losses from the underlying transactions are recorded and
are generally recognized in interest expense.
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 as defined in SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
Cash flows from hedging activities are reported in the Consolidated Statements
of Cash Flows in the same classification as the hedged item, generally as a
component of cash flows from operations.
NEW ACCOUNTING STANDARDS: In October 2001, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets." SFAS No. 144 addresses the financial accounting and
reporting for the impairment or disposal of long-lived assets. This statement
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," for the disposal of
a segment of a business, as previously defined in that Opinion. SFAS No. 144
provides a single accounting model, based on the framework established in SFAS
No. 121, for long-lived assets to be disposed of by sale. Many of the provisions
of SFAS No. 121 are retained, however, SFAS No. 144 clarifies some of the
implementation issues related to SFAS No. 121. SFAS No. 144 also broadens the
presentation of discontinued operations to include more disposal transactions.
This Statement is effective for fiscal years beginning after December 15, 2001,
with early adoption encouraged. The Company adopted this Statement effective
January 1, 2002, as required. In accordance with this Statement, the Company
measures impairment when events or circumstances indicate an asset's carrying
value may not be recoverable. The estimate of an asset's fair value used in the
measuring for impairment is based on the best available evidence at the time,
which may include broker quotes, values of similar transactions and/or
discounting the probability-weighted future cash flows expected to be
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
generated by the asset. The adoption of this Statement did not have a material
effect on the Company's 2002 financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS No. 145 requires gains and losses on extinguishments of debt to be
reclassified as income or loss from continuing operations rather than as
extraordinary items as previously required by SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt." SFAS No. 145 also amends SFAS No. 13 to
require certain modifications to capital leases to be treated as sale-leaseback
transactions and modifies the accounting for subleases when the original lessee
remains a secondary obligor, or guarantor. SFAS No.145 also rescinded SFAS No.
44, which addressed the accounting for intangible assets of motor carriers and
made numerous technical corrections.
The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 are
effective for fiscal years beginning after May 15, 2002, with restatement of
prior periods for any gain or loss on the extinguishment of debt that was
classified as an extraordinary item in prior periods, as necessary. The
remaining provisions of SFAS No. 145 are effective for transactions and
reporting subsequent to May 15, 2002. The adoption of SFAS No. 145 did not have
a material impact to the Company's financial position or results of operations.
On January 1, 2001, the Company adopted SFAS No. 133, as amended by SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities." This Statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires companies to
recognize all derivatives on the balance sheet as assets and liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives are accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting.
As a result of the adoption of SFAS No. 133, the Company recognized a cumulative
effect of a change in accounting charge to the Consolidated Statement of
Operations and Comprehensive Income (Loss) for the year ended December 31, 2001
of $0.9 million, net of $0.5 million of tax benefit, relating primarily to
certain interest rate swap agreements held by NMHG Wholesale which did not
qualify for hedge accounting treatment at January 1, 2001. In addition,
effective January 1, 2001, the Company recognized a cumulative effect of a
change in accounting charge in OCL in the Consolidated Balance Sheet at December
31, 2001 of $3.4 million, net of $2.0 million of tax benefit, relating to net
deferred losses on derivative instruments that qualified for hedge accounting
treatment under SFAS No. 133.
On January 1, 2001, the Company recognized a cumulative effect of a change in
accounting charge of $0.4 million, net of $0.3 million tax benefit, relating to
a change in the method of calculating pension costs for the defined benefit
pension plan in the United Kingdom. Prior to January 1, 2001, actuarially
determined net gains and losses of the United Kingdom plan were recognized in
full as a component of net pension cost in the year incurred. However,
actuarially determined net gains and losses of all other defined benefit pension
plans of the Company are amortized and included as a component of net pension
cost over the next four years. Both of these methods are permissible pursuant to
SFAS No. 87, "Employers' Accounting for Pensions." However, effective January 1,
2001, the Company changed the method of recognition of actuarially determined
net gains and losses of the United Kingdom plan to conform with the methodology
utilized by all other defined benefit plans of the Company. This change in
accounting was made to achieve consistency of application of this accounting
principle among all members of the consolidated group, which the Company
believes is the preferred application of accounting principles generally
accepted in the United States.
In September 2000, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue Number 00-10, "Accounting for Shipping and Handling Fees and Costs"
("EITF 00-10"), which requires shipping and handling amounts billed to a
customer to be classified as revenue. In addition, the EITF's preference is to
classify shipping and handling costs as "cost of sales."
For certain shipping and handling fees, the Company previously netted the charge
to the customer with the cost incurred within its Consolidated Statements of
Operations and Comprehensive Income (Loss) on the line cost of sales. In 2000,
the Company changed its method of reporting to comply with EITF 00-10. Shipping
and handling costs billed to customers are recognized as revenues and shipping
and handling costs incurred by the Company are included in cost of sales.
ACCOUNTING STANDARDS NOT YET ADOPTED: In August 2001, the FASB issued SFAS No.
143, "Accounting for Asset Retirement Obligations." SFAS No. 143 provides
accounting requirements for retirement obligations associated with tangible
long-lived assets, including: (i) the timing of liability recognition; (ii)
initial measurement of the liability; (iii) allocation of asset retirement cost
to expense; (iv) subsequent measurement of the liability; and (v) financial
statement disclosures. SFAS No. 143 requires that an asset's retirement cost
should be capitalized as part of the cost of the related long-lived asset and
subsequently allocated to expense using a systematic and rational method. This
standard becomes effective for fiscal years beginning after June 15, 2002. The
Company will adopt the Statement effective January 1, 2003. The transition
adjustment resulting from the adoption of SFAS No. 143
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
will be reported as a cumulative effect of a change in accounting principle.
Although the adoption of this Statement is not expected to have a material
affect on the results of operations in 2003, the balance sheet is expected to
change significantly in 2003 due to both an increase in the asset and the
liability related to mine-closing costs at NACoal. Furthermore, future operating
results are expected to be reduced as a result of the depreciation of the asset
related to mine-closing costs and due to the annual accretion of the discounted
liability.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities." SFAS No. 146 is effective for exit or disposal activities initiated
after December 31, 2002. SFAS No. 146 requires that liabilities for one-time
termination benefits that will be incurred over future service periods should be
measured at the fair value as of the termination date and recognized over the
future service period. This Statement also requires that liabilities associated
with disposal activities should be recorded when incurred. These liabilities
should be adjusted for subsequent changes resulting from revisions to either the
timing or amount of estimated cash flows, discounted at the original
credit-adjusted risk-free rate. Interest on the liability would be accreted and
charged to expense as an operating item. Subsequent to its adoption, the new
Statement may effect the periods in which costs are recognized for workforce
reductions or facility closures, although the ultimate amount of costs
recognized will be the same as per current accounting guidance.
In November 2002, the FASB issued Interpretation ("FIN") No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN No. 45 requires guarantors to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee for those guarantees
initiated or modified after December 31, 2002. However, certain guarantees,
including product warranties and guarantees between parties under common control
(i.e., parent and subsidiary), are not required to be recognized at fair value
at inception. FIN No. 45 also requires additional disclosures of guarantees,
including product warranties and guarantees between parties under common
control, beginning with interim or annual periods ending after December 15,
2002. Guarantees initiated prior to December 31, 2002 are not recognized as a
liability measured at fair value per this Interpretation, but are subject to the
disclosure requirements. The Company has made the required disclosures in these
financial statements. As required, the Company will recognize guarantees
included within the scope of this Interpretation and initiated after December
31, 2002 as liabilities measured at fair value. Although the impact of this
Interpretation is dependent upon the level of guarantees issued by the Company
in the future and the future market volatility on which the fair value of those
guarantees would be based, the Company does not expect the adoption of the fair
value provisions of this Interpretation to have a material impact on the
Company's financial position or results of operations.
In November 2002, the Emerging Issues Task Force reached a consensus on Issue
00-21 ("EITF 00-21"), "Accounting for Revenue Arrangements with Multiple
Deliverables." EITF 00-21 addresses how to account for arrangements that may
involve the delivery or performance of multiple products, services, and/or
rights to use assets. The final consensus will be applicable to agreements
entered into in fiscal years beginning after June 15, 2003 with early adoption
permitted. Additionally, companies will be permitted to apply the consensus
guidance to all existing arrangements as the cumulative effect of a change in
accounting principle in accordance with APB Opinion No. 20, "Accounting
Changes." In accordance with the model developed by the Task Force, revenue
arrangements with multiple deliverables should be divided into separate units of
accounting if the deliverables in the arrangement meet certain criteria. Revenue
is then allocated to the separate units based on either the relative fair value
method or the residual method, as applicable. The Company will adopt EITF 00-21
effective January 1, 2004, as required, and has not yet determined what impact,
if any, the adoption of this Statement will have on either its financial
position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting For Stock-Based
Compensation - Transition and Disclosure, an Amendment of FASB Statement No.
123." This Statement amends FASB Statement No. 123,"Accounting for Stock-Based
Compensation," to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
employee compensation. It also amends the disclosure provisions of that
Statement to require prominent disclosure about the effects on reported net
income of an entity's accounting policy decisions with respect to stock-based
employee compensation. Finally, this Statement amends APB Opinion No. 28,
"Interim Financial Reporting," to require disclosure about those effects in
interim financial information. At December 31, 2002, the Company does not have
any stock options outstanding under its 1975 and 1981 stock options plans, as
amended. Furthermore, as of December 31, 2002, the Company does not intend to
issue additional stock options in the foreseeable future. As a result, the
adoption of this Statement will not have any affect on the Company's financial
statements or disclosures unless and until such time the Company issues stock
options.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities." FIN No. 46 clarifies the application of Accounting Research Bulletin
("ARB") No. 51, "Consolidated Financial Statements" for certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. FIN No. 46 requires that variable interest entities, as defined,
should be consolidated by the primary beneficiary, which is defined as the
entity that is expected to absorb the majority of the expected losses, receive a
majority of the expected gains, or both. The Interpretation requires that
companies disclose certain information
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
about a variable interest entity created prior to February 1, 2003 if it is
reasonably possible that the enterprise will be required to consolidate that
entity. The Company is currently evaluating its affiliated entities, however, at
this time, the Company does not believe that it is reasonably possible that any
entity it is affiliated with but does not currently consolidate will meet the
definition of a variable interest entity.
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. In the case that any of the Company's subsidiaries would meet the
definition of a variable interest entity, the Company will evaluate its ability
to continue to consolidate or its need to deconsolidate that entity in
accordance with the requirements of this Interpretation. The application of this
Interpretation is required on July 1, 2003 for entities created prior to
February 1, 2003. The application of this Interpretation is required immediately
for any variable interest entities created subsequent to January 31, 2003. At
this time, the Company has not yet determined what impact, if any, the adoption
of this Interpretation will have on either its financial position or results of
operations.
RECLASSIFICATIONS: Certain amounts in the prior periods' Consolidated Financial
Statements have been reclassified to conform to the current period's
presentation.
NOTE 3--RESTRUCTURING AND OTHER TRANSACTIONS
RESTRUCTURING CHARGES
NMHG 2002 RESTRUCTURING PROGRAM
As announced in December 2002, NMHG Wholesale will phase out its Lenoir, North
Carolina, lift truck component facility and restructure other manufacturing and
administrative operations, primarily its Irvine, Scotland, lift truck assembly
and component facility. As such, NMHG Wholesale recognized a restructuring
charge of approximately $12.5 million pre-tax, classified in the 2002
Consolidated Statement of Operations and Comprehensive Income (Loss) on the line
restructuring charges. Of this amount, $3.8 million relates to a non-cash asset
impairment charge for building, machinery and tooling, which was determined
based on current market values for similar assets and broker quotes as compared
to the net book value of these assets; and $8.7 million relates to severance and
other employee benefits to be paid to approximately 615 manufacturing and
administrative employees. No payments were made as of December 31, 2002.
Payments are expected to begin in 2003 and continue through 2005.
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, classified in the 2001 Consolidated Statement of Operations and
Comprehensive Income (Loss) on the line restructuring charges, for severance and
other employee benefits to be paid to approximately 285 direct and indirect
factory labor and administrative personnel in Europe. Payments of $2.1 million
to approximately 95 employees and $1.3 million to approximately 150 employees
were made in 2002 and 2001, respectively, and $0.2 million of the amount accrued
at December 31, 2001 was reversed in 2002. 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. During 2001, severance payments of $0.4 million
were made to approximately 40 employees. In 2002, severance payments of $2.5
million were made to approximately 70 employees. A majority of the headcount
reductions were made by the end of 2002.
NMHG 2000 RESTRUCTURING PROGRAM
During 2000, NMHG made the determination that the consolidation of the Americas'
truck assembly activities offered significant opportunity to reduce structure
costs while further optimizing the use of NMHG's global manufacturing capacity.
Accordingly, a decision was made to phase out certain manufacturing activities
in the Danville, Illinois, assembly plant. In December 2000, the Board of
Directors approved management's plan to transfer manufacturing activities from
NMHG's Danville plant to its other global manufacturing plants. The adoption of
this plan resulted in a charge to operations of approximately $13.9 million
recognized in the 2000 Consolidated Statement of Operations and Comprehensive
Income (Loss) on the line restructuring charges. This charge was comprised of a
$7.6 million curtailment loss for pension and other post-retirement benefits,
$4.0 million for employee severance to be paid to approximately 425
manufacturing and office personnel, $2.2 million of asset impairment charges and
$0.1 million for other costs.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
As noted above, in connection with the phase-out of activities at the Danville,
Illinois, assembly plant, NMHG recognized an impairment charge of $2.2 million
in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." Fair market value used in
determining this impairment charge was estimated using current market values for
similar assets.
Final severance payments for the Danville restructuring program were made in
2002. During 2002 and 2001, respectively, payments of $2.1 million to
approximately 215 employees and $1.6 million to approximately 350 employees were
made. Approximately $2.0 million and $12.0 million of pre-tax costs associated
with the Danville phase-out, which were not eligible for accrual as of December
31, 2000, were expensed during 2002 and 2001, respectively, and classified as
cost of sales in the 2002 and 2001 Consolidated Statements of Operations and
Comprehensive Income (Loss). In addition, the accrual for restructuring was
reduced by $0.4 million in 2001. Included in the table on page F-16 is $7.6
million for curtailment losses relating to pension and other post-retirement
benefits which will not be paid until employees reach retirement age.
HOUSEWARES 2001 RESTRUCTURING PROGRAMS
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. As a result of this plan, HB-PS recognized
a charge of $12.5 million of which $5.0 million relates to the impairment of
fixed assets, $3.3 million relates to equipment and building lease impairment
and clean-up costs, $2.9 million relates to severance benefits to be paid to
approximately 925 manufacturing personnel, $0.6 million relates to the
impairment of inventory and $0.7 million is for other related costs. In the 2001
Consolidated Statement of Operations and Comprehensive Income (Loss), $11.9
million is classified on the line restructuring charges and $0.6 million, which
relates to the inventory write-down, is included in cost of sales.
As noted above, in connection with the restructuring of the manufacturing
operations in Mexico, HB-PS recognized an impairment charge of $5.0 million in
accordance with SFAS No. 121. Fair market value used in determining this
impairment charge was estimated using market values for similar assets.
During 2002, HB-PS began to consolidate and to outsource certain of its Mexican
manufacturing activities related to this restructuring program and made final
severance payments of $2.9 million to approximately 850 manufacturing personnel
at HB-PS' facilities in Mexico. Also in 2002, HB-PS completed the disposition of
impaired assets. Lease payments on idle facilities are expected to be completed
in 2003. In addition, manufacturing inefficiencies of approximately $1.3 million
and severance payments of approximately $0.5 million that had not previously
been accrued and are not included in the table below were expensed during 2002.
Also in 2001, HB-PS recognized a charge of $0.8 million, classified on the line
restructuring charges in the 2001 Consolidated Statement of Operations and
Comprehensive Income (Loss), relating to severance benefits to be paid to
personnel located at the company's headquarters and affecting all functional
areas of the business. This restructuring plan was initiated primarily as a
cost-cutting measure in response to reduced overall consumer demand caused by
the 2001 economic slowdown. Headcount was reduced by 36, or approximately 10% of
the total corporate personnel. During 2002, final severance payments related to
the headquarters plan were made.
HOUSEWARES 2000 RESTRUCTURING PROGRAM
In 2000, HB-PS recognized an accrual for employee severance and related costs of
$0.5 million for 40 manufacturing employees, in connection with transitioning
activities to HB-PS' Mexican facilities. Also in 2000, HB-PS recognized an
impairment charge of $1.2 million in accordance with SFAS No. 121 related to
certain assets that were disposed as a result of the transitioning of activities
from manufacturing facilities in the United States to manufacturing facilities
in Mexico.
During 2001 and 2000, final payments of $0.7 million and $2.5 million,
respectively, were made related to restructuring plans in existence at December
31, 2000.
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
The changes to the Company's restructuring accruals are as follows:
CURTAILMENT
LOSSES -
PENSION AND
OTHER
ASSET LEASE POST-RETIREMENT
SEVERANCE IMPAIRMENT IMPAIRMENT BENEFITS OTHER TOTAL
--------- ---------- ---------- -------- -------- --------
NMHG WHOLESALE
Balance at December 31, 1999 $ -- $ -- $ -- $ -- $ -- $ --
Provision 4.0 2.2 -- 7.6 .1 13.9
Payments -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Balance at December 31, 2000 4.0 2.2 -- 7.6 .1 13.9
Provision (reversal), net 4.2 -- -- -- (.1) 4.1
Payments/assets disposed (2.9) (2.2) -- -- -- (5.1)
-------- -------- -------- -------- -------- --------
Balance at December 31, 2001 5.3 -- -- 7.6 -- 12.9
Foreign currency effect .6 -- -- -- -- .6
Provision (reversal), net 7.6 3.8 -- -- 0.9 12.3
Payments (4.2) -- -- -- -- (4.2)
-------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 2002 $ 9.3 $ 3.8 $ -- $ 7.6 $ 0.9 $ 21.6
======== ======== ======== ======== ======== ========
NMHG RETAIL
Balance at December 31, 2000 $ -- $ -- $ -- $ -- $ -- $ --
Provision 4.3 -- .4 -- -- 4.7
Payments (.4) -- -- -- -- (.4)
-------- -------- -------- -------- -------- --------
Balance at December 31, 2001 3.9 -- .4 -- -- 4.3
Foreign currency effect .1 -- -- -- -- .1
Payments (2.5) -- (.3) -- -- (2.8)
-------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 2002 $ 1.5 $ -- $ .1 $ -- $ -- $ 1.6
======== ======== ======== ======== ======== ========
HOUSEWARES
Balance at December 31, 1999 $ 2.7 $ -- $ -- $ -- $ -- $ 2.7
Provision .5 1.2 -- -- -- 1.7
Payments (2.5) -- -- -- -- (2.5)
-------- -------- -------- -------- -------- --------
Balance at December 31, 2000 .7 1.2 -- -- -- 1.9
Provision 3.7 5.0 3.3 -- .7 12.7
Payments (1.0) (1.2) -- -- -- (2.2)
-------- -------- -------- -------- -------- --------
Balance at December 31, 2001 3.4 5.0 3.3 -- .7 12.4
Payments/assets disposed (3.4) (5.0) (2.1) -- (.3) (10.8)
-------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 2002 $ -- $ -- $ 1.2 $ -- $ .4 $ 1.6
======== ======== ======== ======== ======== ========
OTHER TRANSACTIONS
NACOAL: In 2002, NACoal recognized a charge of $3.0 million, included in
selling, general and administrative expenses in the accompanying Consolidated
Statements of Operations and Comprehensive Income (Loss), for the write-off of
previously capitalized development costs and other assets acquired for a
domestic mine development project. In 2002, NACoal determined that it would
cease development of this project. In 2000, NACoal recognized a charge of $2.4
million, included in selling, general and administrative expenses in the
accompanying Consolidated Statements of Operations and Comprehensive Income
(Loss), for the write-off of previously capitalized development costs incurred
for a power plant and mine development project in Turkey. In 2000, NACoal
determined that it would cease development of this project.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NMHG: In 2001, NMHG recognized income of $8.0 million classified in other income
(expense) in the Consolidated Statements of Operations and Comprehensive Income
(Loss) resulting from the receipt of insurance proceeds relating to flood damage
in September 2000 at NMHG's Sumitomo-NACCO joint venture in Japan.
NACCO & OTHER: In addition to the extraordinary loss recognized in 2002 and the
extraordinary gain recognized in 2000, as described in Note 4, Bellaire
Corporation ("Bellaire," a wholly owned non-operating subsidiary of NACCO)
recognized charges in 2002, 2001 and 2000 of $1.3 million, $1.3 million and $5.6
million, respectively, included in the accompanying Consolidated Statements of
Operations and Comprehensive Income (Loss) as closed mine obligations, which is
part of other income (expense). These charges relate primarily to an increase in
liabilities for Black Lung and other retiree medical benefits, and to
environmental obligations arising from former Eastern U.S. underground mining
operations. The Company periodically reviews its assumptions used to estimate
these reserves. Revisions made to the Company's estimate of environmental
clean-up costs, mortality tables used for Black Lung liabilities, discount rates
and changes in the expected health care costs resulted in an increase to the
estimated reserve for these obligations. See also Note 4 and Note 14.
NOTE 4--EXTRAORDINARY GAIN (LOSS)
The extraordinary gain of $29.9 million recognized in 2000, net of $16.1 million
in taxes, relates to a reduction in the accrual for obligations to UMWA. The
obligation to UMWA was initially recognized by Bellaire as an extraordinary
charge in 1992 to accrue for the estimated costs associated with the Coal Act,
which is discussed in more detail in Note 14. In 2000, the U.S. Court of Appeals
for the Sixth Circuit upheld an Opinion by the U.S. District Court in Columbus,
Ohio, which ruled that late assignments of beneficiaries made to Bellaire were
not allowed as a matter of law. As a result of this event and changes to certain
other assumptions, such as the number of beneficiaries and expected health care
costs, an extraordinary gain of $29.9 million was recognized in 2000, net of
$16.1 million in taxes for the reduction in the estimated obligation to UMWA as
of December 31, 2000.
During 2002, the U.S. Supreme Court decided to review circuit court rulings
whose decisions in matters relating to the Coal Act were in conflict. The U.S.
Court of Appeals for the Sixth Circuit ruled that the late assignments of
beneficiaries made by the Social Security Administration ("SSA") were invalid;
while the U.S. Court of Appeals for the Fourth Circuit ruled that the SSA's late
assignments of beneficiaries were valid.
On January 15, 2003, the U.S. Supreme Court decided that the SSA's late
assignments of beneficiaries, made after October 1, 1993, are valid despite
their untimeliness. As a result, the Company increased its estimate of the
number of beneficiaries assigned to Bellaire. However, the effect of the
assignment of additional beneficiaries from this decision is offset somewhat by
a favorable decision from the U.S. Supreme Court in 2002 that assignment of
certain retired coal miners to companies defined as "successors in interest to a
signatory operator no longer in business" was not permitted under the Coal Act.
This decision resulted in a reduction to the estimate of the number of
beneficiaries assigned to Bellaire. Changes to the Company's estimate of (i) the
number of beneficiaries as a result of these court decisions, (ii) future
medical inflation rates and (iii) the amount that will be required to be paid to
UMWA for premium payments related to late assignments for the period 1993
through 2002, resulted in an extraordinary charge of $7.2 million, net of $3.9
million of tax, to increase the estimated obligation to UMWA at December 31,
2002.
Management believes that the estimated future cost of this obligation has been
adequately accrued. See also Note 3 for a discussion of changes to other closed
mine reserves.
NOTE 5--ACQUISITIONS AND DISPOSITIONS
NACOAL: On October 11, 2000, NACoal acquired certain assets from Phillips Coal
Company, including its 75% joint venture interest in Mississippi Lignite Mining
Company ("MLMC"), its 50% joint venture interest in Red River Mining Company
("Red River"), the related lignite reserves under committed contracts at MLMC
and Red River and 560 million tons of undeveloped lignite reserves in Texas,
Mississippi and Tennessee. The purchase price for the assets acquired was $128.7
million and was financed with a five-year, $175.0 million credit facility that
included a $60.0 million revolving line of credit and a $115.0 million term
loan. As a result of the acquisition, NACoal owns 100% of both MLMC and Red
River.
The acquisition was accounted for using the purchase method of accounting and,
accordingly, the results of operations for the fully consolidated businesses
acquired are included in the accompanying financial statements beginning on
October 11, 2000. The purchase price allocation, based on independent
third-party appraisals, resulted in the allocation of $85.8 million to the value
of the existing long-term coal supply agreements with the customers ("coal
supply agreements"). These identifiable intangible assets are amortized over
units of production based on the estimated recoverable tonnages at each
respective mine. No goodwill was recognized as a result of this transaction.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NMHG: During 2001 and 2000, NMHG acquired either 100% of the stock or
substantially all of the assets of several forklift truck retail dealerships and
forklift truck rental businesses. The dealerships acquired were either existing
independent Hyster or Yale dealerships or were converted to Hyster or Yale
dealerships at the time of acquisition. The combined purchase prices of the
businesses acquired during 2001 and 2000 were approximately $3.9 million and
$16.6 million, respectively. Funds for the purchases were provided by either
borrowings advanced to NMHG Retail by NMHG Wholesale under previously existing
NMHG Wholesale facilities or by internally generated cash flows.
These acquisitions were accounted for as purchases and, accordingly, the results
of operations of the acquired businesses are included in the accompanying
financial statements from their respective dates of acquisition.
In 2001, NMHG sold certain of its wholly owned dealers, which were included in
the segment NMHG Retail. This transaction resulted in initial proceeds of
approximately $8.0 million and a preliminary charge for the loss on the sale of
assets and related wind-down costs of $10.4 million, of which approximately $2.1
million related to recognition in the Consolidated Statement of Operations and
Comprehensive Income (Loss) of amounts previously reported in cumulative
translation adjustment. During 2002, revisions to the purchase price, as
provided in the agreement to sell these dealers, and an increase to certain
wind-down costs, resulted in an additional loss of $0.6 million. The agreement
to sell these dealers includes certain contingent obligations, which could
result in the future recognition of additional losses if events and
circumstances change. However, the Company believes that its reserves for these
contingent obligations, recognized in the Consolidated Balance Sheet at December
31, 2002, are adequate. Revenues for these sold dealers for each of the years
ended December 31, 2001 and 2000 were $45.1 million and $46.8 million,
respectively. Net losses for these sold dealers for each of the years ended
December 31, 2001 and 2000 were $18.2 million and $5.5 million, respectively.
On January 3, 2003, NMHG sold substantially all of the assets and liabilities of
its wholly owned dealer in the U.S, which was included in the segment NMHG
Retail. In accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," the assets and liabilities sold (the "disposal
group") have been reclassified as held for sale in the Consolidated Balance
Sheet at December 31, 2002 and written down in 2002 to fair value, less cost to
sell. The assets and liabilities held for sale are included in the Consolidated
Balance Sheet at December 31, 2002 in the captions, "prepaid expenses and other"
and "other current liabilities," respectively, and are not material. The loss
recognized in 2002 as a result of the write-down to fair value, less cost to
sell, of the disposal group was not material to the operating results of the
Company. The Company does not expect any significant additional loss to be
recognized in 2003 as a result of this transaction.
As a result of the acquisitions by NACoal and NMHG, certain liabilities were
assumed as follows:
2001 2000
------- -------
Fair value of assets acquired $ 4.2 $ 179.8
Cash paid for the net assets, net of cash acquired (3.9) (145.3)
------- -------
Liabilities assumed $ .3 $ 34.5
======= =======
On a pro forma basis, as if the businesses had been acquired on January 1, 2001
and 2000, respectively, revenues, net income (loss) and earnings per share would
not differ materially from the amounts reported in the accompanying consolidated
financial statements for 2001 and 2000.
NOTE 6--ACCOUNTS RECEIVABLE SECURITIZATION
On May 9, 2002 NMHG Wholesale terminated agreements with financial institutions
outside of the United States (the "Foreign Program") which allowed for the sale,
without recourse, of undivided interests in revolving pools of its foreign trade
accounts receivable. On December 5, 2001, NMHG Wholesale's domestic accounts
receivable securitization program (the "U.S. Program") was terminated. Prior to
their terminations, the transfer of receivables pursuant to the U.S. and Foreign
Programs were accounted for as a sale in accordance with SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities - a Replacement of FASB Statement No. 125." The U.S. Program's
agreement to sell an undivided percentage ownership interest in certain eligible
accounts receivable provided for recourse in the limited circumstance in which
NMHG granted a discount, credit or other adjustment to its customer in
resolution of disputes regarding the value of goods underlying the account
receivable sold. In that case, a compensating adjustment would have been made to
the counterparty.
As a result of the termination of both the U.S. and Foreign Programs, NMHG
Wholesale will rely on its debt agreements, as discussed in Note 10, to finance
accounts receivable that otherwise would have been sold under the U.S. and
Foreign Programs. On December 5, 2001, additional borrowings of $33.4 million
were used to finance the outstanding balance of accounts receivable sold
pursuant to the U.S. Program. The balance of accounts receivable sold at
December 31, 2001 was $27.7 million. Beginning on March 31, 2002, accounts
receivable sold of $20.8
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
million were effectively replaced with debt financing, such that there were no
accounts receivable sold on the Foreign Program's termination date of May 9,
2002. As a result of the termination of the U.S. and Foreign Programs, an
increase in interest expense arising from increased outstanding borrowings is
expected to be offset by a decrease in the cost of the Programs, which is
classified in the Consolidated Statements of Operations and Comprehensive Income
(Loss) as other-net.
Gross proceeds of $88.0 million, $855.7 million, and $858.2 million were
received during 2002, 2001 and 2000, respectively, pursuant to the U.S. and
Foreign Programs. The discount and other transaction gains and losses are
included in other-net in the Consolidated Statements of Operations and
Comprehensive Income (Loss) and totaled $0.5 million, $4.7 million and $5.5
million in 2002, 2001 and 2000, respectively.
NOTE 7--INVENTORIES
Inventories are summarized as follows:
December 31
--------------------------
2002 2001
---------- ----------
Manufactured inventories:
Finished goods and service parts -
NMHG Wholesale $ 99.9 $ 99.6
Housewares 66.8 54.0
---------- ----------
166.7 153.6
Raw materials and work in process -
NMHG Wholesale 110.3 111.4
Housewares 6.5 10.5
---------- ----------
116.8 121.9
---------- ----------
Total manufactured inventories 283.5 275.5
Retail inventories:
NMHG Retail 23.4 35.8
Housewares 21.4 17.6
---------- ----------
Total retail inventories 44.8 53.4
---------- ----------
Total inventories at FIFO 328.3 328.9
Coal - NACoal 14.5 17.5
Mining supplies - NACoal 22.3 23.8
---------- ----------
Total inventories at weighted average 36.8 41.3
LIFO reserve:
NMHG (11.6) (12.3)
Housewares 3.5 2.7
---------- ----------
(8.1) (9.6)
---------- ----------
$ 357.0 $ 360.6
========== ==========
The cost of certain manufactured and retail inventories, including service
parts, has been determined using the LIFO method. At December 31, 2002 and 2001,
59% and 60% of total inventories, respectively, were determined using the LIFO
method. Housewares' LIFO inventory value exceeds its FIFO value primarily due to
price deflation experienced by HB-PS.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NOTE 8--PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net includes the following:
December 31
-------------------------
2002 2001
---------- ----------
Coal lands and real estate:
NACoal $ 28.3 $ 30.9
Project mining subsidiaries (Note 12) 83.8 83.6
NMHG 13.5 15.8
Housewares 1.8 1.8
NACCO and Other .1 .1
---------- ----------
127.5 132.2
---------- ----------
Plant and equipment:
NACoal 117.6 137.8
Project mining subsidiaries (Note 12) 494.6 500.8
NMHG Wholesale 409.4 413.2
NMHG Retail 101.6 109.1
Housewares 129.2 175.1
NACCO and Other 5.4 4.6
---------- ----------
1,257.8 1,340.6
---------- ----------
Property, plant and equipment, at cost 1,385.3 1,472.8
Less allowances for depreciation, depletion and amortization 727.3 740.8
---------- ----------
$ 658.0 $ 732.0
========== ==========
Total depreciation, depletion and amortization expense on property, plant and
equipment was $89.9 million, $100.6 million and $90.3 million during 2002, 2001
and 2000, respectively.
Proven and probable coal reserves approximated 2.5 billion and 2.6 billion tons
at December 31, 2002 and 2001, respectively.
NOTE 9--GOODWILL AND INTANGIBLE ASSETS
As discussed further in Note 2, on January 1, 2002, the Company adopted SFAS No.
142, "Goodwill and Other Intangible Assets." In accordance with this Statement,
the Company discontinued amortization of its goodwill effective January 1, 2002.
The amortization periods of the Company's other intangible assets were not
revised as a result of the adoption of this Statement. Adjusted net income
(loss) and earnings (loss) per share, assuming the adoption of this Statement in
prior years, is as follows:
Year ended December 31
-----------------------------------------
2002 2001 2000
---------- ---------- ----------
Reported income (loss) before extraordinary gain
(loss) and cumulative effect of accounting
changes $ 49.6 $ (34.7) $ 37.8
Add back: goodwill amortization, net of tax -- 15.9 15.7
---------- ---------- ----------
Adjusted income (loss) before extraordinary gain
(loss) and cumulative effect of accounting
changes $ 49.6 $ (18.8) $ 53.5
========== ========== ==========
Reported net income (loss) $ 42.4 $ (36.0) $ 67.7
Add back: goodwill amortization, net of tax -- 15.9 15.7
---------- ---------- ----------
Adjusted net income (loss) $ 42.4 $ (20.1) $ 83.4
========== ========== ==========
Reported earnings (loss) per share $ 5.17 $ (4.40) $ 8.29
Add back: goodwill amortization, net of tax -- 1.95 1.92
---------- ---------- ----------
Adjusted earnings (loss) per share $ 5.17 $ (2.45) $ 10.21
========== ========== ==========
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
The process to test goodwill for impairment included an allocation of goodwill
among the Company's reporting units. As a result of this allocation process,
$40.3 million of goodwill that was previously reported in the Company's
reportable segment, NMHG Retail, was reallocated to NMHG Wholesale. This
reallocation was primarily based on an analysis of the synergy benefits that
arose as a result of the acquisitions of the retail dealerships.
Following is a summary of the changes in goodwill during the year ended December
31, 2002:
CARRYING AMOUNT OF GOODWILL
------------------------------------------------------
NMHG NMHG NACCO
WHOLESALE RETAIL HOUSEWARES CONSOLIDATED
--------- --------- ---------- ------------
Balance at December 31, 2001 $ 304.6 $ 39.6 $ 83.7 $ 427.9
Reclassification to other intangibles -- (1.8) -- (1.8)
Reallocation between segments 40.3 (40.3) -- --
Impairment of investment (1.6) -- -- (1.6)
Foreign currency translation .4 2.5 -- 2.9
--------- --------- --------- ---------
BALANCE AT DECEMBER 31, 2002 $ 343.7 $ -- $ 83.7 $ 427.4
========= ========= ========= =========
During 2002, $1.8 million that was previously preliminarily classified as
goodwill relating to an acquisition of a retail dealership in 2001 was
reclassified to other intangibles upon finalization of the purchase price
allocation.
During 2002, NMHG Wholesale recognized an impairment charge of $1.6 million
relating to the goodwill associated with the 2000 acquisition of a 25% interest
in QFS. Prior to its sale in December 2002, this investment was accounted for
using the equity method. As such, the impairment of the goodwill relating to
this investment was recognized in accordance with APB Opinion No. 18, "The
Equity Method of Accounting for Investments in Common Stock," as an other than
temporary impairment in the value of the investment. The impairment charge is
recognized in the 2002 Consolidated Statement of Operations and Comprehensive
Income (Loss) on the line "income (loss) from unconsolidated affiliates."
The balance of other intangible assets, which continue to be subject to
amortization, is as follows:
OTHER INTANGIBLES
--------------------------------------------
GROSS CARRYING ACCUMULATED NET
AMOUNT AMORTIZATION BALANCE
-------------- ------------ ----------
BALANCE AT DECEMBER 31, 2002
Coal supply agreements $ 85.8 $ (3.0) $ 82.8
Other intangibles 2.8 (.6) 2.2
---------- ---------- ----------
$ 88.6 $ (3.6) $ 85.0
========== ========== ==========
Balance at December 31, 2001
Coal supply agreements $ 85.8 $ (.6) $ 85.2
Other intangibles -- -- --
---------- ---------- ----------
$ 85.8 $ (.6) $ 85.2
========== ========== ==========
Amortization expense was $2.8 million, $0.6 million, and $0.1 million in 2002,
2001 and 2000, respectively. Expected annual amortization expense of other
intangible assets for the next five years is as follows: $3.5 million in 2003,
$3.5 million in 2004, $3.3 million in 2005, $3.3 million in 2006 and $3.3
million in 2007. The weighted-average amortization period for the coal supply
agreements is 24 years and the weighted-average amortization period for other
intangible assets is 10 years.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NOTE 10--CURRENT AND LONG-TERM FINANCING
Financing arrangements are obtained and maintained at the subsidiary level.
NACCO has not guaranteed any borrowings of its subsidiaries.
The following table summarizes the Company's available and outstanding
borrowings under revolving credit agreements and long-term debt, excluding
obligations of project mining subsidiaries. See Note 12 for a discussion of
obligations of the project mining subsidiaries.
December 31
-------------------------
2002 2001
---------- ----------
Total outstanding borrowings:
Revolving credit agreements:
NACoal $ 6.9 $ 31.0
NMHG 31.3 301.2
Housewares 57.6 103.5
---------- ----------
95.8 435.7
---------- ----------
Capital lease obligations and other term loans:
NACoal 85.1 125.5
NMHG 46.4 53.2
Housewares .3 .3
---------- ----------
131.8 179.0
---------- ----------
Senior Notes - NMHG 247.1 --
---------- ----------
Total debt outstanding $ 474.7 $ 614.7
========== ==========
Current portion of borrowings outstanding:
NACoal $ 16.9 $ 16.4
NMHG 51.3 326.7
Housewares -- 23.5
---------- ----------
$ 68.2 $ 366.6
========== ==========
Long-term portion of borrowings outstanding:
NACoal $ 75.1 $ 140.1
NMHG 273.5 27.7
Housewares 57.9 80.3
---------- ----------
$ 406.5 $ 248.1
========== ==========
December 31
-------------------------
2002 2001
---------- ----------
Total available borrowings, net of limitations,
under revolving credit agreements:
NACoal $ 60.0 $ 60.0
NMHG 155.6 450.5
Housewares 96.5 188.7
---------- ----------
$ 312.1 $ 699.2
========== ==========
Unused revolving credit agreements:
NACoal $ 53.1 $ 29.0
NMHG 124.3 149.3
Housewares 38.9 85.2
---------- ----------
$ 216.3 $ 263.5
========== ==========
Weighted average stated interest rate on
total borrowings:
NACoal 3.8% 4.3%
NMHG 9.2% 2.8%
Housewares 4.4% 2.6%
Weighted average effective interest rate on total
borrowings (including interest rate swap
agreements):
NACoal 6.2% 6.2%
NMHG 9.2% 5.8%
Housewares 7.2% 5.7%
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Annual maturities of total debt, excluding capital leases and obligations of
project mining subsidiaries, are as follows: $54.4 million in 2003, $21.3
million in 2004, $123.4 million in 2005 and $250.0 million subsequent to 2007.
The 2005 maturities include $5.2 million due in 2005 under NMHG's new revolving
credit facility, which is included in the current revolving credit agreements in
the accompanying Consolidated Balance Sheet at December 31, 2002 due to NMHG's
expectation of repaying this balance within the next 12 months. Interest paid on
total debt was $48.9 million, $46.0 million and $31.1 million during 2002, 2001
and 2000, respectively. Interest capitalized was $0.1 million, $4.4 million and
$3.8 million in 2002, 2001 and 2000, respectively.
NACOAL: NACoal's non-project mine financing needs are provided by an unsecured
revolving line of credit of up to $60.0 million and an unsecured term loan with
a principal balance of $85.0 million at December 31, 2002 (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 credit facility of $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. The
NACoal Facility currently provides for, at NACoal's option, Euro-Dollar Loans
which bear interest at LIBOR plus a margin based on the level of Debt to EBITDA
ratio achieved and Base Rate Advances which bear interest at Base Rates, as
defined. A facility fee, which is determined based on the level of Debt to
EBITDA ratio achieved, is also applied to the aggregate revolving line of
credit. At December 31, 2002, term loan borrowings outstanding bore interest at
LIBOR plus 2.25% and revolving credit borrowings outstanding bore interest at
LIBOR plus 1.85%. At December 31, 2002, the revolving credit facility fee was
0.40%.
The NACoal Facility contains certain covenants and restrictions. These covenants
require, among other things, NACoal to maintain certain debt to EBITDA and fixed
charge coverage ratios and limit loans, dividends and advances to NACCO. At
December 31, 2002, NACoal was in compliance with the covenants in the NACoal
Facility.
NMHG: On May 9, 2002, NMHG replaced its primary financing agreement, an
unsecured floating-rate revolving line of credit with availability of up to
$350.0 million, certain other lines of credit with availability of $28.6 million
and a program to sell accounts receivable in Europe, with the proceeds from the
sale of $250.0 million of unsecured 10% Senior Notes due 2009 and borrowings
under a secured, floating-rate revolving credit facility which expires in May
2005. The proceeds from the Senior Notes were reduced by an original issue
discount of $3.1 million resulting in an effective interest rate of 10.1%.
Availability under the new revolving credit facility is up to $175.0 million and
is governed by a borrowing base derived from advance rates against the inventory
and accounts receivable of the borrowers, as defined in the new revolving credit
facility. Adjustments to reserves booked against these assets, including
inventory reserves, will change the eligible borrowing base and thereby impact
the liquidity provided by the facility. The borrowers include NMHG Holding Co.
and certain domestic and foreign subsidiaries of NMHG Holding Co. Borrowings
bear interest at a floating rate, which can be either a base rate or LIBOR, as
defined, plus an applicable margin. The current applicable margins, effective
December 31, 2002, for base rate loans and LIBOR loans were 2.0% and 3.0%,
respectively. The new revolving credit facility also requires the payment of a
fee of 0.5% per annum on the unused commitment. The margins and unused
commitment fee are subject to quarterly adjustment based on a leverage ratio.
At December 31, 2002, the borrowing base under the new revolving credit facility
was $112.7 million, which has been reduced by the commitments or availability
under certain foreign credit facilities and an excess availability requirement
of $15.0 million. Borrowings outstanding under this facility were $5.2 million
at December 31, 2002. Therefore, at December 31, 2002, the excess availability
under the new revolving credit facility was $107.5 million.
The domestic floating rate of interest applicable to this facility on December
31, 2002 was 6.25%, including the applicable floating rate margin. The new
revolving credit facility includes a subfacility for foreign borrowers which can
be denominated in British pounds sterling or euros. Included in the borrowing
capacity is a $15.0 million overdraft facility available to foreign borrowers.
At December 31, 2002, there were no borrowings outstanding under these foreign
subfacilities. The new revolving credit facility is guaranteed by certain
domestic and foreign subsidiaries of NMHG Holding Co. and is secured by
substantially all of the assets, other than property, plant and equipment, of
the borrowers and guarantors, both domestic and foreign, under the facility.
The terms of the new revolving credit facility provide that availability is
reduced by the commitments or availability under a foreign credit facility of
the borrowers and certain foreign working capital facilities. A foreign credit
facility commitment of approximately U.S. $18.9 million on December 31, 2002,
denominated in Australian dollars, reduced the amount of availability under the
new revolving credit facility. In addition, availability under the new revolving
credit facility was reduced by $5.5 million for a working capital facility in
China and by $3.7 million for other letters of credit. If the commitments or
availability under these facilities are increased, availability under the new
revolving credit facility will be reduced. The $112.7 million of borrowing base
capacity under the new revolving credit facility at December 31, 2002 reflected
reductions for these foreign credit facilities.
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
The $250.0 million of 10% Senior Notes mature on May 15, 2009. The Senior Notes
are senior unsecured obligations of NMHG Holding Co. and are guaranteed by
substantially all of NMHG's domestic subsidiaries. NMHG Holding Co. has the
option to redeem all or a portion of the Senior Notes on or after May 15, 2006
at the redemption prices set forth in the Indenture governing the Senior Notes.
Both the new revolving credit facility and terms of the Senior Notes include
restrictive covenants which, among other things, limit the payment of dividends
to NACCO. The new revolving credit facility also requires NMHG to meet certain
financial tests, including, but not limited to, minimum excess availability,
maximum capital expenditures, maximum leverage ratio and minimum fixed charge
coverage ratio tests. The borrowers must maintain aggregate excess availability
under the new revolving credit facility of at least $15.0 million. At December
31, 2002, NMHG was in compliance with all covenants.
NMHG paid financing fees of approximately $15.7 million related to this
refinancing. These fees were deferred and are being amortized as interest
expense in the Consolidated Statement of Operations and Comprehensive Income
(Loss) over the respective terms of the new financing facilities.
HOUSEWARES: On December 17, 2002, HB-PS replaced its primary financing
agreement, a secured floating-rate revolving line of credit with availability of
up to $150.0 million and certain other lines of credit with availability of up
to $15.0 million, with borrowings under a new senior secured, floating-rate
revolving credit facility (the "HB-PS Facility") which expires in December 2005.
The HB-PS Facility provides 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 HB-PS Facility. 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 December 31, 2002, for base
rate loans and LIBOR loans were 1.50% and 2.75%, respectively. The HB-PS
Facility also requires a fee of 0.50% per annum on the unused commitment. The
margins and unused commitment fee are subject to quarterly adjustment based on a
leverage ratio. The HB-PS Facility is secured by substantially all of HB-PS'
assets.
At December 31, 2002, the borrowing base under the HB-PS Facility was $85.1
million, which had been reduced for reserves and the excess availability
requirement of $10.0 million. Borrowings outstanding under this facility were
$56.9 million at December 31, 2002. Therefore, at December 31, 2002, the excess
availability under the HB-PS Facility was $28.2 million. The floating rate of
interest applicable to the HB-PS Facility on December 31, 2002 was 4.40%,
including the applicable floating rate margin.
The HB-PS Facility includes restrictive covenants that, among other things, set
limitations on additional indebtedness, investments, asset sales, capital
expenditures and the payment of dividends to NACCO. The HB-PS Facility also
requires HB-PS to meet certain financial tests, including, but not limited to
maximum leverage and minimum fixed charge coverage ratio tests. At December 31,
2002, HB-PS was in compliance with the covenants in the HB-PS Facility.
HB-PS incurred fees and expenses of approximately $2.0 million related to this
refinancing. These fees were deferred and are being amortized as interest
expense in the Consolidated Statement of Operations and Comprehensive Income
(Loss) over the term of the HB-PS Facility.
Effective May 29, 2002, KCI entered into a three year financing arrangement that
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. This financing replaces KCI's previous source of
financing, which was intercompany borrowings from HB-PS or the parent company.
At December 31, 2002, the borrowing base as defined in the agreement was $11.4
million. Borrowings outstanding at December 31, 2002 were $0.7 million at an
effective interest rate of LIBOR plus 1.35%, or 2.82%. The KCI Facility requires
a fee of 0.25% per annum on the unused availability. The KCI Facility includes
restrictive covenants that, among other things, limit capital expenditures and
require that borrowings do not exceed $6.5 million for 30 consecutive days
during January and February. The KCI Facility also requires KCI to maintain
certain debt and interest coverage ratios and maintain a minimum level of
tangible net worth, as defined. At December 31, 2002, KCI was in compliance with
the covenants in the KCI Facility.
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NOTE 11--FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value due to the short-term maturities of
these instruments. The fair values of revolving credit agreements and long-term
debt were determined using current rates offered for similar obligations. At
December 31, 2002, the fair market value of revolving credit agreements and
long-term debt was $454.0 million as compared with the book value of $446.2
million. At December 31, 2001, the fair market value of revolving credit
agreements and long-term debt was $544.9 million as compared with the book value
of $551.8 million.
The current and long-term obligations of project mining subsidiaries include
notes payable to banks and customer advances. The fair market value of these
financial instruments was $145.3 million as compared with the book value of
$182.2 million at December 31, 2002. At December 31, 2001, the fair market value
of these financial instruments was $154.5 million as compared with the book
value of $193.3 million. The fair values of obligations of project mining
subsidiaries were determined using the present value of the future cash flows,
discounted at current market rates.
Financial instruments that potentially subject the Company to concentration of
credit risk consist principally of accounts receivable and derivatives. The
large number of customers comprising the Company's customer base and their
dispersion across many different industries and geographies mitigates
concentration of credit risk on accounts receivable. However, HB-PS maintains
significant accounts receivable balances with several large retail customers. At
December 31, 2002 and 2001, receivables from HB-PS' five largest customers
represented 12.6% and 15.3%, respectively, of the Company's net accounts
receivable. To further reduce credit risk associated with accounts receivable,
the Company performs periodic credit evaluations of its customers, but does not
generally require advance payments or collateral. The Company enters into
derivative contracts with high-quality financial institutions and limits the
amount of credit exposure to any one institution.
DERIVATIVE FINANCIAL INSTRUMENTS
FOREIGN CURRENCY DERIVATIVES: NMHG and HB-PS held forward foreign currency
exchange contracts with total notional amounts of $107.5 million and $6.1
million, respectively, at December 31, 2002, primarily denominated in euros,
British pounds sterling, Japanese yen and Canadian dollars. NMHG and HB-PS held
forward foreign currency exchange contracts with total notional amounts of
$101.6 million and $3.8 million, respectively, at December 31, 2001, primarily
denominated in euros, British pounds sterling, Japanese yen and Canadian
dollars. The fair market value of these contracts was estimated based on quoted
market prices and approximated a net asset of $3.3 million and a net liability
of $0.7 million at December 31, 2002 and 2001, respectively.
For the years ended December 31, 2002 and 2001, there was no ineffectiveness of
forward foreign currency exchange contracts that would have resulted in
recognition in the Consolidated Statement of Operations and Comprehensive Income
(Loss). Forward foreign currency exchange contracts are used to hedge
transactions expected to occur within the next 12 months. Based on market
valuations at December 31, 2002, the amount of net deferred gain included in OCL
at December 31, 2002 of $0.6 million is expected to be reclassified into the
Consolidated Statement of Operations and Comprehensive Income (Loss) over the
next 12 months, as those transactions occur.
INTEREST RATE DERIVATIVES: The following table summarizes the notional amounts,
related rates (including applicable margins) and remaining terms on interest
rate swap agreements active at December 31:
Notional Amount Average Fixed Rate
------------------------ ---------------------------- Remaining Term at
2002 2001 2002 2001 December 31, 2002
----------- ----------- ------------ -------------- -----------------------------------------------
NACoal $ 102.6 $ 132.7 8.4% 8.1% Various, extending to June 2008
NMHG $ --- $ 225.0 --- 5.8% N/A
Housewares $ 35.0 $ 75.0 6.2% 6.3% Various, extending to April 2005
The fair market value of all interest rate swap agreements, which was based on
quotes obtained from the Company's counterparties, was a net payable of $19.7
million and $23.2 million at December 31, 2002 and 2001, respectively. The
mark-to-market effect of interest rate swap agreements that are considered
effective as hedges in accordance with SFAS No. 133 has been included in OCL.
Based upon market valuations at December 31, 2002, approximately $6.4 million of
the net deferred loss in OCL is expected to be reclassified into the
Consolidated Statement of Operations and Comprehensive Income (Loss) over the
next 12 months, as cash flow payments are made in accordance with the interest
rate swap agreements.
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NACOAL: At NACoal, interest rate swap agreements with a total notional amount of
$17.6 million and $22.7 million at December 31, 2002 and 2001, respectively,
hedge notes payable held by the project mining subsidiaries (see Note 12).
Maturities of these interest rate swap agreements correspond with the maturities
of the hedged obligation. The related obligation is included in current and
long-term obligations of project mining subsidiaries in the Consolidated Balance
Sheets. The net interest expense paid or received is included in the cost of
coal and passed through to the utility customers. The remaining NACoal interest
rate swap agreements hedge the NACoal Facility as discussed in Note 10.
NMHG: As a result of the refinancing of NMHG's floating-rate revolving credit
facility in 2002, NMHG terminated all of its interest rate swap agreements in
2002. In addition to its active swaps, NMHG had certain interest rate swap
agreements with dates that began subsequent to December 31, 2001
("delayed-start" agreements). These interest rate swap agreements were intended
to replace agreements that were active as of December 31, 2001, but expired in
the near term. The notional amount of these delayed-start agreements was $110.0
million at December 31, 2001. In 2002, NMHG terminated all active and
delayed-start interest rate swap agreements which had a total notional amount of
$285.0 million and a total net payable balance of $11.5 million at the
respective dates of termination. Prior to the refinancing, however, certain of
these interest rate swap agreements qualified for hedge accounting treatment in
accordance with SFAS No. 133. As such, the mark-to-market effect of these
interest rate swap agreements was previously recognized in OCL.
Prior to the cessation of hedge accounting resulting from the May 9, 2002
refinancing, the balance in OCL for NMHG's interest rate swap agreements that
qualified for hedge accounting was a pre-tax loss of $4.2 million ($2.6 million
after-tax). This balance is being amortized into the Consolidated Statement of
Operations and Comprehensive Income (Loss) over the original remaining lives of
the terminated interest rate swap agreements in accordance with the provisions
of SFAS No. 133, as amended. The amount of amortization of accumulated other
comprehensive income included in the Consolidated Statement of Operations and
Comprehensive Income (Loss) on the line "losses on interest rate swap
agreements" during 2002 was a pre-tax expense of $2.5 million.
The mark-to-market effect of the interest rate swap agreements that was included
in the Consolidated Statement of Operations and Comprehensive Income (Loss)
because these derivatives did not qualify for hedge accounting treatment was a
pre-tax expense of $3.2 million and $1.4 million for the years ended December
31, 2002 and 2001, respectively. These charges are included on the line, "losses
on interest rate swap agreements" in the Consolidated Statement of Operations
and Comprehensive Income (Loss).
HOUSEWARES: As a result of a decrease in the forecasted amount of anticipated
future interest payments due to a decrease in expected funding requirements,
HB-PS terminated interest rate swap agreements with a total notional amount of
$45.0 million and a total net payable balance, including accrued interest, of
$2.2 million at the date of termination in December 2002. Prior to their
termination, these interest rate swap agreements qualified for hedge accounting
treatment in accordance with SFAS No. 133. As such, the mark-to-market effect of
these interest rate swap agreements was previously recognized in OCL.
As a result of a decrease in the forecasted amount of anticipated future
interest payments due to a decrease in expected funding requirements, $0.8
million that was previously deferred in OCL was recognized in the Consolidated
Statement of Operations and Comprehensive Income (Loss) on the line "losses on
interest rate swap agreements" in 2002. This reclassification from OCL to the
Consolidated Statement of Operations and Comprehensive Income (Loss) relates to
a portion of the previous deferrals of the mark-to-market effect on the
terminated interest rate swap agreements. At December 31, 2002, $1.0 million of
the OCL balance relates to terminated interest rate swap agreements and is
expected to be amortized into the Consolidated Statement of Operations and
Comprehensive Income (Loss) over the original remaining lives of the terminated
interest rate swap agreements in accordance with the provisions in SFAS No. 133,
as amended. The remaining interest rate swap agreements that were held by HB-PS
on December 31, 2002 are expected to continue to be effective as hedges of the
new floating-rate revolving credit facility.
In addition to the active interest rate swap agreements outstanding at December
31, 2002, with a notional amount of $35.0 million, HB-PS has delayed-start
interest rate swap agreements with a total notional amount of $70.0 million that
become active subsequent to December 31, 2002 and are designed to replace
existing interest rate swap agreements at their expiration. These delayed-start
interest rate swap agreements extend to April 2008. The total notional amount of
both active and delayed-start interest rate swap agreements at December 31, 2002
is $105.0 million. The mark-to-market effect of these interest rate swap
agreements is included in the Consolidated Balance Sheets.
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NOTE 12--OBLIGATIONS OF PROJECT MINING SUBSIDIARIES
Three of NACoal's subsidiaries (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 included in the Company's Consolidated Balance
Sheets do not affect the short-term or long-term liquidity of the Company and
are without recourse to NACCO and its NACoal subsidiary.
Obligations of the project mining subsidiaries, less current maturities, consist
of the following:
December 31
---------------------
2002 2001
--------- ---------
Capitalized lease obligations $ 106.7 $ 96.2
Advances from customers 130.8 139.9
Notes payable with interest rates ranging
from 1.7% to 7.0% in 2002 and 2.2% to 6.5% in 2001 37.6 35.2
--------- ---------
$ 275.1 $ 271.3
========= =========
Advances from customers are used to develop, operate and provide for the ongoing
working capital needs of certain project mining subsidiaries. The customers have
established a repayment schedule for only a portion, or $10.5 million, of the
total advances. In addition, portions of the advances are non-interest-bearing.
The annual maturities of advances from customers and notes payable are as
follows: $13.8 million in 2003, $9.1 million in 2004, $9.1 million in 2005, $9.1
million in 2006, $13.0 million in 2007 and $128.1 million thereafter.
Interest paid was $16.1 million, $16.5 million and $17.1 million during 2002,
2001 and 2000, respectively. The cost of coal, which is passed through to the
utility customers, includes interest expense.
The project mining subsidiaries lease certain mining equipment under
noncancellable capital and operating leases which expire at various dates
through 2014. Future minimum capital and operating lease payments at December
31, 2002, are:
Capital Operating
Leases Leases
---------- ----------
2003 $ 29.3 $ 4.5
2004 23.8 4.5
2005 23.1 4.5
2006 17.7 2.5
2007 15.4 .3
Subsequent to 2007 61.0 --
---------- ----------
Total minimum lease payments 170.3 $ 16.3
==========
Amounts representing interest 42.4
----------
Present value of net minimum lease payments 127.9
Current maturities 21.2
----------
Long-term capital lease obligation $ 106.7
==========
Interest expense and amortization in excess of annual lease payments are
deferred and recognized in years when annual lease payments exceed interest
expense and amortization.
Project mining assets recorded under capital leases are included in property,
plant and equipment and consist of the following:
December 31
-------------------------
2002 2001
---------- ----------
Plant and equipment $ 226.7 $ 212.5
Less accumulated amortization 135.3 135.0
---------- ----------
$ 91.4 $ 77.5
========== ==========
During 2002, 2001 and 2000, the project mining subsidiaries incurred capital
lease obligations of $28.3 million, $8.3 million and $11.6 million,
respectively, in connection with lease agreements to acquire plant and
equipment.
The above obligations are secured by substantially all of the owned assets of
the respective project mining subsidiary and the assignment of all rights under
its coal sales agreement.
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NOTE 13--LEASING ARRANGEMENTS
The Company leases certain office, manufacturing and warehouse facilities,
retail stores and machinery and equipment under noncancellable capital and
operating leases that expire at various dates through 2021. NMHG Retail also
leases certain forklift trucks that are held for sale or sublease to customers.
Many leases include renewal and/or purchase options.
Future minimum capital and operating lease payments, excluding project mining
subsidiaries (see Note 12), at December 31, 2002, are:
Capital Operating
Leases Leases
---------- ----------
2003 $ 14.9 $ 69.1
2004 8.7 55.8
2005 5.2 43.7
2006 2.0 34.2
2007 .2 25.7
Subsequent to 2007 .5 42.8
---------- ----------
Total minimum lease payments 31.5 $ 271.3
==========
Amounts representing interest 2.9
----------
Present value of net minimum lease payments 28.6
Current maturities 13.9
----------
Long-term capital lease obligation $ 14.7
==========
Aggregate future minimum rentals to be received under noncancellable subleases
of forklift trucks as of December 31, 2002 are $148.9 million. Rental expense
for all operating leases, excluding project mining subsidiaries, was $71.8
million, $57.5 million and $44.2 million for 2002, 2001 and 2000 respectively.
The Company also recognized $62.0 million, $45.5 million and $10.4 million for
2002, 2001 and 2000 respectively in rental income on subleases of equipment
under operating leases in which it was the lessee. These subleases were
primarily related to lift trucks, in which NMHG derives revenues in the ordinary
course of business under rental agreements with its customers. The sublease
rental income for these lift trucks is included in net sales and the related
rent expense is included in cost of sales in the Consolidated Statement of
Operations and Comprehensive Income (Loss) for each period.
Assets recorded under capital leases are included in property, plant and
equipment and consist of the following (excluding assets of project mining
subsidiaries as indicated in Note 12):
December 31
-------------------------
2002 2001
---------- ----------
Plant and equipment $ 76.2 $ 94.1
Less accumulated amortization 38.6 31.1
---------- ----------
$ 37.6 $ 63.0
========== ==========
During 2002, 2001 and 2000, capital lease obligations, excluding project mining
subsidiaries, of $15.6 million, $30.8 million and $22.3 million, respectively,
were incurred in connection with lease agreements to acquire plant and
equipment.
NOTE 14--SELF-INSURANCE LIABILITIES AND OTHER
Self-insurance liabilities and other consists of the following:
December 31
-------------------------
2002 2001
---------- ----------
Undiscounted UMWA obligation $ 40.3 $ 36.0
Present value of other closed mine obligations 24.4 24.4
Pension and other post-retirement benefits 94.1 58.2
Other 126.8 124.8
---------- ----------
$ 285.6 $ 243.4
========== ==========
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
The UMWA obligation and the other closed mine obligations relate to Bellaire's
former Eastern U.S. underground mining operations and the Indian Head Mine,
which ceased operations in 1992. The obligation to UMWA resulted from the Coal
Act, which requires Bellaire to incur additional costs for the medical expenses
of certain United Mine Worker retirees. Annual cash payments of approximately
$2.5 million, declining steadily over time to approximately $0.1 million, are
expected to be made through 2050. The Company has recorded this obligation on an
undiscounted basis. The other closed mine obligations include reserves for land
reclamation and site treatment at certain closed eastern underground and western
surface mines, as well as reserves for retiree medical benefit costs, workers'
compensation and Black Lung benefit costs. See Note 18 for further discussion
regarding obligations for pension and other post-retirement benefits. Other
includes product liability reserves, incentive compensation obligations,
extended warranty obligations and other miscellaneous long-term liabilities.
NOTE 15--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 are incidental to the ordinary course of business of the Company.
Management believes that it has meritorious defenses and will vigorously defend
itself in these actions. Any costs that management estimates will be paid as a
result of these claims are accrued when the liability is considered probable and
the amount can be reasonably estimated. Although the ultimate disposition of
these proceedings is not presently determinable, management believes, after
consultation with its legal counsel, that the likelihood is remote that material
costs will be incurred in excess of accruals already recognized.
Under various financing arrangements for certain customers, including
independently owned retail dealerships, NMHG provides guarantees of the residual
values of 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 December 31, 2002 and 2001 were $153.6
million and $158.7 million, respectively. Losses anticipated under the terms of
the guarantees, recourse or repurchase obligations are not significant and have
been reserved for in the accompanying Consolidated Financial Statements.
Generally, NMHG retains a security interest in the related assets financed such
that, in the event that NMHG would become obligated under the terms of the
recourse or repurchase obligations, NMHG would take title to the assets
financed. The fair value of collateral held at December 31, 2002 was
approximately $157.5 million, based on Company estimates. See also Note 22 for a
discussion of the amount of these guarantees provided to related parties.
NMHG provides a standard warranty on its forklift trucks, generally for six to
twelve months or 1,000 to 2,000 hours. In addition, NMHG sells extended warranty
agreements which provide additional warranty up to three to five years or up to
3,600 to 10,000 hours. The specific terms and conditions of those warranties
vary depending upon the product sold and the country in which NMHG does
business. 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. In addition, 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, in accordance with FASB Technical Bulletin
90-1, "Accounting for Separately Priced Extended Warranty and Product
Maintenance Contracts." Factors that affect the Company's warranty liability
include the number of units sold, historical and anticipated rates of warranty
claims and the cost per claim. The Company periodically assesses the adequacy of
its recorded warranty liabilities and adjusts the amounts as necessary.
Changes in the Company's current and long-term warranty obligations, including
deferred revenue on extended warranty contracts, during the year are as follows:
Balance at December 31, 2001 $ 46.9
Warranties issued 33.4
Settlements made (36.4)
-------------
BALANCE AT DECEMBER 31, 2002 $ 43.9
=============
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NOTE 16--COMMON STOCK AND EARNINGS PER SHARE
NACCO Industries, Inc. Class A common stock is traded on the New York Stock
Exchange under the ticker symbol NC. Because of transfer restrictions, no
trading market has developed, or is expected to develop, for the Company's Class
B common stock. The Class A common stock has one vote per share and the Class B
common stock has 10 votes per share. The total number of authorized shares of
Class A common stock and Class B common stock at December 31, 2002 was
25,000,000 shares and 6,756,176 shares, respectively. Treasury shares of Class A
common stock totaling 1,583,255 and 1,588,197 at December 31, 2002 and 2001,
respectively, have been deducted from shares issued.
STOCK OPTIONS: The 1975 and 1981 stock option plans, as amended, provide for the
granting to officers and other key employees of options to purchase Class A
common stock and Class B common stock of the Company at a price not less than
the market value of such stock at the date of grant. Options become exercisable
over a four-year period and expire ten years from the date of the grant. During
the three-year period ending December 31, 2002, there were 80,701 shares of
Class A common stock and 80,100 shares of Class B common stock available for
grant. However, no options were granted during the three-year period ending
December 31, 2002 and no options remain outstanding at the end of each of the
three years ended December 31, 2002, 2001 and 2000. At present, the Company does
not intend to issue additional stock options.
EARNINGS PER SHARE: For purposes of calculating earnings per share, no
adjustments have been made to the reported amounts of net income (loss). The
weighted average number of shares outstanding used to calculate basic earnings
per share were 8.198 million, 8.190 million and 8.167 million for the years
ended December 31, 2002, 2001 and 2000, respectively. The Company did not have
any common stock equivalents during the years ended December 31, 2002, 2001 and
2000.
NOTE 17--INCOME TAXES
The components of income (loss) before income taxes and provision for income
taxes for the year ended December 31 are as follows:
2002 2001 2000
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES,
MINORITY INTEREST, EXTRAORDINARY GAIN (LOSS)
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES
Domestic $ 47.4 $ (11.9) $ 59.9
Foreign 12.3 (33.5) .1
---------- ---------- ----------
$ 59.7 $ (45.4) $ 60.0
========== ========== ==========
INCOME TAX PROVISION (BENEFIT)
Current tax provision (benefit):
Federal $ (15.2) $ (10.7) $ 27.3
State (.9) (.3) 5.7
Foreign 9.6 4.9 4.5
---------- ---------- ----------
Total current (6.5) (6.1) 37.5
---------- ---------- ----------
Deferred tax provision (benefit):
Federal 18.8 9.1 (6.6)
State .5 (1.8) (2.4)
Foreign (1.1) (17.2) (3.6)
---------- ---------- ----------
Total deferred 18.2 (9.9) (12.6)
---------- ---------- ----------
Increase (decrease) in valuation allowance (0.4) 6.1 (2.6)
---------- ---------- ----------
$ 11.3 $ (9.9) $ 22.3
========== ========== ==========
Substantially all of the Company's interest expense and goodwill amortization
expense in 2001 and 2000 has been allocated to domestic income (loss) before
income taxes.
The Company made income tax payments of $10.3 million, $23.5 million and $36.6
million during 2002, 2001 and 2000, respectively. During the same period, income
tax refunds totaled $16.4 million, $8.5 million and $2.5 million, respectively.
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
A reconciliation of the federal statutory and effective income tax for the year
ended December 31 is as follows:
2002 2001 2000
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
INTEREST, EXTRAORDINARY GAIN (LOSS) AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES: $ 59.7 $ (45.4) $ 60.0
========== ========== ==========
Statutory taxes at 35.0% $ 20.9 $ (15.9) $ 21.0
Foreign statutory rate differences .6 .7 .8
Amortization of goodwill -- 5.3 5.2
Percentage depletion (4.5) (3.8) (3.3)
Tax controversy resolution (3.9) -- --
Export benefits (.5) (.5) (1.0)
Valuation allowance (.4) 6.1 (2.6)
State income taxes (.2) (1.2) 2.0
Other-net (.7) (.6) .2
---------- ---------- ----------
Income tax provision (benefit) $ 11.3 $ (9.9) $ 22.3
========== ========== ==========
Effective rate 18.9% 21.8% 37.2%
========== ========== ==========
The Company does not provide for deferred taxes on certain unremitted foreign
earnings. Management has decided that earnings of foreign subsidiaries have been
and will be indefinitely reinvested in foreign operations and, therefore, the
recording of deferred tax liabilities for unremitted foreign earnings is not
required. As of December 31, 2002, the cumulative unremitted earnings of the
Company's foreign subsidiaries are $191.9 million. It is impracticable to
determine the amount of unrecognized deferred taxes with respect to these
earnings; however, foreign tax credits would be available to partially reduce
U.S. income taxes in the event of a distribution.
A detailed summary of the total deferred tax assets and liabilities in the
Company's Consolidated Balance Sheets resulting from differences in the book and
tax basis of assets and liabilities follows:
December 31
-----------------------
2002 2001
---------- ----------
DEFERRED TAX ASSETS
Accrued expenses and reserves $ 85.6 $ 92.4
Accrued pension benefits 30.3 21.9
Other employee benefits 21.6 19.3
Tax attribute carryforwards 20.9 18.5
Reserve for UMWA 16.7 13.6
---------- ----------
Total deferred tax assets 175.1 165.7
Less: Valuation allowance (11.9) (12.3)
---------- ----------
163.2 153.4
---------- ----------
DEFERRED TAX LIABILITIES
Depreciation and depletion 48.9 43.9
Inventories 16.6 14.5
Partnership investment 15.9 11.6
Other 15.1 17.1
---------- ----------
Total deferred tax liabilities 96.5 87.1
---------- ----------
Net deferred tax asset $ 66.7 $ 66.3
========== ==========
The Company periodically reviews the need for a valuation allowance against
deferred tax assets and recognizes these assets to the extent that realization
is more likely than not. Based on a review of earnings history and trends,
forecasted earnings and expiration of carryforwards, the Company believes that
the valuation allowance provided is appropriate. At December 31, 2002, the
Company had $9.4 million of net operating loss carryforwards which expire, if
unused, in years 2003 through 2022 and $10.2 million which are not subject to
expiration. Additionally, at December 31, 2001, the Company had $0.8 million in
foreign tax credit carryforwards and $0.5 million in charitable contribution
carryforwards which will expire if unused by 2003 and 2007, respectively.
The tax returns of the Company and certain of its subsidiaries are being
examined by various taxing authorities. The Company has not been informed of any
material assessment resulting from these examinations and will vigorously
contest any material assessment. Management believes that any potential
adjustment would not materially affect the Company's financial condition or
results of operations.
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NOTE 18--RETIREMENT BENEFIT PLANS
DEFINED BENEFIT PLANS: The Company maintains various defined benefit pension
plans covering most of its employees. These plans 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,
investment contracts and government and corporate bonds.
In 1996, pension benefits were frozen for employees covered under NMHG's and
HB-PS' United States plans, except for those NMHG employees participating in
collective bargaining agreements. As a result, in the United States only NACoal
employees and certain NMHG employees covered under collective bargaining
agreements will earn retirement benefits under defined benefit pension plans.
Other employees of the Company, including NMHG and HB-PS employees whose pension
benefits were frozen as of December 31, 1996, will receive retirement benefits
under defined contribution retirement plans.
In 2002, certain of NACoal's project mining subsidiaries offered a voluntary
early retirement program which provided supplemental retirement benefits
pursuant to the defined benefit plan and supplemental health care benefits
pursuant to other post-retirement benefit plans to those employees accepting the
offer. As a result, the Company recognized an expense of $1.7 million in 2002
for these termination benefits.
In 2000, as a result of management's decision to phase out certain manufacturing
activities in the NMHG Danville, Illinois, assembly plant, the Company
recognized a curtailment loss of $7.6 million pursuant to defined benefit
pension and other post-retirement benefit plans. See also Note 3.
Set forth below is a detail of the net periodic pension (income) expense and the
assumptions used in accounting for the United States and the United Kingdom
defined benefit plans for the years ended December 31:
2002 2001 2000
----------- ----------- -----------
UNITED STATES PLANS
Service cost $ 2.9 $ 2.6 $ 3.0
Interest cost 11.2 11.4 10.3
Expected return on plan assets (13.3) (13.9) (12.6)
Amortization of transition asset (.1) (.1) (.4)
Amortization of prior service cost .3 .4 .4
Recognized actuarial (gain) loss (.9) (1.9) (1.3)
Termination benefits 1.0 -- --
Curtailment loss -- -- 5.1
----------- ----------- -----------
Net periodic pension (income) expense $ 1.1 $ (1.5) $ 4.5
=========== =========== ===========
Assumptions:
Weighted average discount rates 6.75% 7.50% 8.00%
Rate of increase in compensation levels 3.75% 3.75% 4.25%
Expected long-term rate of return on assets 9.00% 9.00% 9.00%
UNITED KINGDOM PLAN
Service cost $ 1.8 $ 2.0 $ 2.0
Interest cost 3.7 3.2 3.0
Expected return on plan assets (5.6) (5.2) (4.3)
Amortization of transition asset (.1) (.1) (.1)
Amortization of prior service cost .1 .1 .1
Recognized actuarial (gain) loss .1 (.5) (.4)
----------- ----------- -----------
Net periodic pension (income) expense $ -- $ (.5) $ .3
=========== =========== ===========
Assumptions:
Weighted average discount rates 5.75% 6.25% 6.75%
Rate of increase in compensation levels 3.50% 3.75% 4.25%
Expected long-term rate of return on assets 9.00% 9.00% 9.00%
F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
The following sets forth the changes in the benefit obligation and the plan
assets during the year and reconciles the funded status of the defined benefit
plans with the amounts recognized in the Consolidated Balance Sheets at December
31:
2002 2001
---------------------------- ---------------------------
UNITED UNITED United United
STATES KINGDOM States Kingdom
PLANS PLAN Plans Plan
----------- ----------- ----------- -----------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 150.8 $ 57.6 $ 143.8 $ 49.7
Service cost 2.9 1.8 2.6 2.0
Interest cost 11.2 3.7 11.4 3.2
Actuarial (gain) loss 20.4 3.9 1.6 5.5
Benefits paid (9.4) (2.8) (8.6) (1.4)
Plan amendments 1.0 -- -- --
Foreign currency exchange rate changes -- 6.7 -- (1.4)
----------- ----------- ----------- -----------
Benefit obligation at end of year $ 176.9 $ 70.9 $ 150.8 $ 57.6
----------- ----------- ----------- -----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 131.6 $ 49.9 $ 163.1 $ 65.2
Actual return on plan assets (6.5) (8.6) (23.1) (14.0)
Employer contributions 1.4 1.8 .2 1.5
Employee contributions -- .5 -- .5
Benefits paid (9.4) (2.8) (8.6) (1.4)
Foreign currency exchange rate changes -- 4.7 -- (1.9)
----------- ----------- ----------- -----------
Fair value of plan assets at end of year $ 117.1 $ 45.5 $ 131.6 $ 49.9
----------- ----------- ----------- -----------
NET AMOUNT RECOGNIZED
Obligation in excess of plan assets $ (59.8) $ (25.4) $ (19.2) $ (7.7)
Unrecognized prior service cost .3 .6 .6 .7
Unrecognized actuarial (gain) loss 39.9 40.1 (1.2) 19.1
Unrecognized net transition asset -- (.2) (.1) (.2)
Contributions in fourth quarter -- .2 -- .3
----------- ----------- ----------- -----------
Net amount recognized $ (19.6) $ 15.3 $ (19.9) $ 12.2
=========== =========== =========== ===========
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE
SHEETS CONSIST OF:
Prepaid benefit cost $ -- $ -- $ 2.7 $ --
Accrued benefit liability (41.7) (21.8) (29.7) (5.6)
Intangible asset .3 .6 .3 .7
Accumulated other comprehensive loss 13.4 22.6 4.2 10.6
Deferred tax asset 8.4 13.9 2.6 6.5
----------- ----------- ----------- -----------
Net amount recognized $ (19.6) $ 15.3 $ (19.9) $ 12.2
=========== =========== =========== ===========
During 2002, 2001 and 2000, other comprehensive loss in the Consolidated
Statements of Operations and Other Comprehensive Income (Loss) includes $19.7
million, $13.4 million and $1.4 million, respectively, net of tax, resulting
from changes in the minimum pension liability adjustments, which were determined
in accordance with SFAS No. 87, "Employers' Accounting for Pensions." The
minimum pension liability adjustment, which is a component of accumulated other
comprehensive income (loss) in the stockholders' equity section of the
Consolidated Balance Sheet, represents the net loss not yet recognized as net
periodic pension cost determined by an actuarial calculation of the funded
status of the pension plan at the end of each measurement period.
The increase in the 2002 accrued benefit liability as compared with the 2001
accrued benefit liability is due to both a decrease in discount rates, which
increased the benefit obligation in 2002, and a decrease in the fair value of
the plans' assets in 2002.
POST-RETIREMENT HEALTH CARE AND LIFE INSURANCE: The Company also maintains
health care and life insurance plans which provide benefits to eligible retired
employees. The assumed health care cost trend rate for measuring the
post-retirement benefit cost was 9.0% in 2002 and 10.0% in 2001, gradually
reducing to 5.0% through years 2010 and after. If the assumed health care cost
trend rate were increased by one percentage point, the effect would be to
increase the accumulated post-retirement benefit obligation by approximately
$2.9 million. If the assumed health care cost trend rate were decreased by one
percentage point, the effect would be to decrease the accumulated
post-retirement benefit obligation by approximately $2.4 million.
F-33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
Set forth below is a detail of the net periodic expense and the assumptions used
in accounting for the post-retirement health care and life insurance plans for
the year ended December 31:
2002 2001 2000
---------- ---------- ----------
Service cost $ .7 $ .6 $ .7
Interest cost 2.1 2.0 1.8
Expected return on plan assets (.8) (.8) (.7)
Recognized actuarial (gain) loss (1.1) (.6) 1.1
Termination benefits .7 -- --
Curtailment loss -- -- 2.5
---------- ---------- ----------
Net periodic expense $ 1.6 $ 1.2 $ 5.4
========== ========== ==========
Assumptions:
Weighted average discount rates 6.75% 7.50% 8.00%
Expected long-term rate of return on assets 9.00% 9.00% 9.00%
The following sets forth the changes in benefit obligations and plan assets
during the year and reconciles the funded status of the post-retirement health
care and life insurance plans with the amounts recognized in the Consolidated
Balance Sheets at December 31:
2002 2001
---------- ----------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 28.6 $ 26.2
Service cost .7 .6
Interest cost 2.1 2.0
Actuarial (gain) loss -- 2.3
Termination benefits 1.0 --
Curtailment loss (.2) --
Benefits paid (2.9) (2.5)
---------- ----------
Benefit obligation at end of year $ 29.3 $ 28.6
========== ==========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 8.2 $ 8.7
Actual return on plan assets (0.5) (.5)
Employer contributions .3 .7
Benefits paid (.8) (.7)
---------- ----------
Fair value of plan assets at end of year $ 7.2 $ 8.2
========== ==========
NET AMOUNT RECOGNIZED
Obligation in excess of plan assets $ (22.1) $ (20.4)
Unrecognized prior service cost -- --
Unrecognized actuarial (gain) loss (.7) (3.1)
---------- ----------
Net amount recognized $ (22.8) $ (23.5)
========== ==========
ACCRUED BENEFIT LIABILITY RECOGNIZED IN THE
CONSOLIDATED BALANCE SHEETS $ (22.8) $ (23.5)
========== ==========
DEFINED CONTRIBUTION PLANS: NACCO and its subsidiaries have defined contribution
(401(k)) plans for substantially all U.S. employees and similar plans for
employees outside of the U.S. For NACCO and those subsidiaries, the applicable
company matches employee contributions based on plan provisions. In addition,
NACCO and certain other subsidiaries have defined contribution retirement plans
whereby the applicable company's contribution to participants is determined
annually based on a formula which includes the effect of actual compared to
targeted operating results and the age and compensation of the participants.
Total costs, including Company contributions, for these plans were $11.7
million, $19.0 million and $20.7 million in 2002, 2001 and 2000, respectively.
The decrease in 2002 was primarily the result of suspending 401(k)
employer-match contributions at certain companies for a portion of 2002.
F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NOTE 19--BUSINESS SEGMENTS
Financial information for each of NACCO's reportable segments, as defined by
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is presented in the following table. See Note 1 for a discussion
of the Company's operating segments and product lines. NACCO's non-operating
segment, NACCO and Other, includes the accounts of the parent company and
Bellaire. Additional information regarding project mining subsidiaries has also
been provided.
The accounting policies of the segments are the same as those described in Note
2. NMHG Wholesale derives a portion of its revenues from transactions with NMHG
Retail. The amount of these revenues, which are based on current market prices
on similar third-party transactions, are indicated in the following table on the
line "NMHG Eliminations" in the revenues section. No other intersegment sales
transactions occur. Other intersegment transactions are recognized based on
similar third-party transactions; that is, at current market prices.
NACCO charges fees to its operating subsidiaries for services provided by the
corporate headquarters. Total 2002, 2001 and 2000 pre-tax fees were $10.9
million, $10.5 million and $10.1 million, respectively.
2002 2001 2000
---------- ---------- ----------
REVENUES FROM EXTERNAL CUSTOMERS
NMHG Wholesale $ 1,416.2 $ 1,463.3 $ 1,750.0
NMHG Retail 241.0 298.8 280.3
NMHG Eliminations (68.8) (89.7) (98.2)
---------- ---------- ----------
NMHG Consolidated 1,588.4 1,672.4 1,932.1
NACoal 349.3 333.3 289.2
Housewares 610.3 632.1 649.9
NACCO and Other .1 .1 .1
---------- ---------- ----------
$ 2,548.1 $ 2,637.9 $ 2,871.3
========== ========== ==========
GROSS PROFIT
NMHG Wholesale $ 241.7 $ 189.9 $ 292.9
NMHG Retail 49.9 54.8 54.1
NMHG Eliminations 2.1 4.9 .5
---------- ---------- ----------
NMHG Consolidated 293.7 249.6 347.5
NACoal 67.2 75.1 49.0
Housewares 139.5 110.0 119.8
NACCO and Other (.1) (.2) (.1)
---------- ---------- ----------
$ 500.3 $ 434.5 $ 516.2
========== ========== ==========
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
NMHG Wholesale $ 180.5 $ 173.1 $ 181.5
NMHG Retail 55.8 84.7 69.8
NMHG Eliminations (1.8) (2.2) (.9)
---------- ---------- ----------
NMHG Consolidated 234.5 255.6 250.4
NACoal 17.1 13.2 17.4
Housewares 98.6 102.7 87.6
NACCO and Other 4.8 9.5 11.6
---------- ---------- ----------
$ 355.0 $ 381.0 $ 367.0
========== ========== ==========
AMORTIZATION OF GOODWILL
NMHG Wholesale $ -- $ 11.4 $ 11.6
NMHG Retail -- 1.5 1.0
---------- ---------- ----------
NMHG Consolidated -- 12.9 12.6
Housewares -- 3.0 3.1
---------- ---------- ----------
$ -- $ 15.9 $ 15.7
========== ========== ==========
OPERATING PROFIT (LOSS)
NMHG Wholesale $ 48.9 $ 1.3 $ 85.9
NMHG Retail (7.1) (46.5) (16.7)
NMHG Eliminations 3.9 7.1 1.4
---------- ---------- ----------
NMHG Consolidated 45.7 (38.1) 70.6
NACoal 50.1 61.9 31.6
Housewares 40.9 (8.4) 27.4
NACCO and Other (4.9) (9.7) (11.7)
---------- ---------- ----------
$ 131.8 $ 5.7 $ 117.9
========== ========== ==========
F-35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
2002 2001 2000
---------- ---------- ----------
OPERATING PROFIT (LOSS) EXCLUDING GOODWILL AMORTIZATION
NMHG Wholesale $ 48.9 $ 12.7 $ 97.5
NMHG Retail (7.1) (45.0) (15.7)
NMHG Eliminations 3.9 7.1 1.4
---------- ---------- ----------
NMHG Consolidated 45.7 (25.2) 83.2
NACoal 50.1 61.9 31.6
Housewares 40.9 (5.4) 30.5
NACCO and Other (4.9) (9.7) (11.7)
---------- ---------- ----------
$ 131.8 $ 21.6 $ 133.6
========== ========== ==========
INTEREST EXPENSE
NMHG Wholesale $ (25.9) $ (12.9) $ (13.4)
NMHG Retail (3.1) (5.0) (4.6)
NMHG Eliminations (4.9) (5.2) (3.2)
---------- ---------- ----------
NMHG Consolidated (33.9) (23.1) (21.2)
NACoal (11.1) (10.0) (.7)
Housewares (8.1) (7.7) (8.6)
NACCO and Other -- (.2) (.2)
Eliminations .5 .5 .5
---------- ---------- ----------
(52.6) (40.5) (30.2)
Project mining subsidiaries (16.7) (16.4) (16.9)
---------- ---------- ----------
$ (69.3) $ (56.9) $ (47.1)
========== ========== ==========
INTEREST INCOME
NMHG Wholesale $ 3.3 $ 3.4 $ 2.2
NMHG Retail .1 .2 .1
NMHG Eliminations -- -- --
---------- ---------- ----------
NMHG Consolidated 3.4 3.6 2.3
NACoal .1 .4 .7
Housewares -- -- --
NACCO and Other .8 .3 --
Eliminations (.5) (.5) (.5)
---------- ---------- ----------
$ 3.8 $ 3.8 $ 2.5
========== ========== ==========
OTHER-NET, INCOME (EXPENSE) - (EXCLUDING INTEREST INCOME)
NMHG Wholesale $ (6.8) $ (6.0) $ (14.2)
NMHG Retail 1.4 .2 .2
NMHG Eliminations -- -- (.1)
---------- ---------- ----------
NMHG Consolidated (5.4) (5.8) (14.1)
NACoal (.6) (1.3) (1.2)
Housewares (2.8) (.1) (2.6)
NACCO and Other 2.2 9.2 4.6
---------- ---------- ----------
$ (6.6) $ 2.0 $ (13.3)
========== ========== ==========
INCOME TAX PROVISION (BENEFIT)
NMHG Wholesale $ (.8) $ (.6) $ 24.6
NMHG Retail (.2) (14.6) (6.7)
NMHG Eliminations (.3) .7 (.5)
---------- ---------- ----------
NMHG Consolidated (1.3) (14.5) 17.4
NACoal 2.2 9.0 (.1)
Housewares 12.2 (4.0) 7.4
NACCO and Other (1.8) (.4) (2.4)
---------- ---------- ----------
$ 11.3 $ (9.9) $ 22.3
========== ========== ==========
NET INCOME (LOSS)
NMHG Wholesale $ 21.5 $ (14.1) $ 37.0
NMHG Retail (8.5) (36.5) (14.3)
NMHG Eliminations (.7) 1.2 (1.4)
---------- ---------- ----------
NMHG Consolidated 12.3 (49.4) 21.3
NACoal 19.6 25.6 12.6
Housewares 17.8 (12.2) 8.8
NACCO and Other (7.3) -- 25.0
---------- ---------- ----------
$ 42.4 $ (36.0) $ 67.7
========== ========== ==========
F-36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
2002 2001 2000
---------- ---------- ----------
TOTAL ASSETS
NMHG Wholesale $ 1,070.7 $ 1,164.9 $ 1,167.2
NMHG Retail 187.7 215.6 232.8
NMHG Eliminations (54.9) (175.4) (158.3)
---------- ---------- ----------
NMHG Consolidated 1,203.5 1,205.1 1,241.7
NACoal 224.2 250.3 204.1
Housewares 331.5 347.5 366.4
NACCO and Other 75.5 60.4 41.8
---------- ---------- ----------
1,834.7 1,863.3 1,854.0
Project mining subsidiaries 381.2 383.1 389.9
---------- ---------- ----------
2,215.9 2,246.4 2,243.9
Consolidating eliminations (92.0) (84.5) (50.0)
---------- ---------- ----------
$ 2,123.9 $ 2,161.9 $ 2,193.9
========== ========== ==========
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE
NMHG Wholesale $ 29.4 $ 47.0 $ 40.6
NMHG Retail 11.1 13.4 14.0
---------- ---------- ----------
NMHG Consolidated 40.5 60.4 54.6
NACoal 8.5 5.1 3.2
Housewares 13.9 21.2 19.3
NACCO and Other .1 .3 .3
---------- ---------- ----------
63.0 87.0 77.4
Project mining subsidiaries 29.7 30.6 28.7
---------- ---------- ----------
$ 92.7 $ 117.6 $ 106.1
========== ========== ==========
CAPITAL EXPENDITURES
NMHG Wholesale $ 12.1 $ 46.6 $ 43.3
NMHG Retail 4.0 6.9 8.5
---------- ---------- ----------
NMHG Consolidated 16.1 53.5 51.8
NACoal 7.8 18.9 3.9
Housewares 5.3 13.4 22.0
NACCO and Other .9 .7 .3
---------- ---------- ----------
30.1 86.5 78.0
Project mining subsidiaries 25.4 18.3 15.3
---------- ---------- ----------
$ 55.5 $ 104.8 $ 93.3
========== ========== ==========
DATA BY GEOGRAPHIC AREA
No single country outside of the United States comprised 10% or more of the
Company's revenues from unaffiliated customers. The Other category below
includes Canada, Mexico, South America and Asia-Pacific. In addition, no single
customer comprised 10% or more of the Company's revenues from unaffiliated
customers. However, Housewares and NACoal each derive sales from a single
customer which exceeds 10% of the respective segment's revenues. The loss of
that operating segment's customer would be material to that operating segment.
Europe,
United Africa and
States Middle East Other Consolidated
---------------- ---------------- ---------------- ----------------
2002
- ----------------------------------------------
REVENUES FROM UNAFFILIATED CUSTOMERS, BASED ON
THE CUSTOMERS' LOCATION $ 1,744.2 $ 454.4 $ 349.5 $ 2,548.1
================ ================ ================ ================
LONG-LIVED ASSETS $ 1,072.4 $ 116.1 $ 96.6 $ 1,285.1
================ ================ ================ ================
2001
- ----------------------------------------------
Revenues from unaffiliated customers, based on
the customers' location $ 1,814.2 $ 474.1 $ 349.6 $ 2,637.9
================ ================ ================ ================
Long-lived assets $ 1,028.5 $ 184.8 $ 127.5 $ 1,340.8
================ ================ ================ ================
2000
- ----------------------------------------------
Revenues from unaffiliated customers, based on
the customers' location $ 2,272.6 $ 373.9 $ 224.8 $ 2,871.3
================ ================ ================ ================
Long-lived assets $ 1,018.0 $ 199.1 $ 131.3 $ 1,348.4
================ ================ ================ ================
F-37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NOTE 20--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
A summary of the unaudited quarterly results of operations for the year ended
December 31 is as follows:
2002
----------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
REVENUES
NACoal $ 83.1 $ 86.3 $ 90.1 $ 89.8
NMHG Wholesale 327.7 347.2 342.3 399.0
NMHG Retail (including eliminations) 44.1 41.5 43.3 43.3
Housewares 121.6 134.5 148.4 205.8
NACCO and Other -- .1 -- --
---------- ---------- ---------- ----------
576.5 609.6 624.1 737.9
---------- ---------- ---------- ----------
GROSS PROFIT 100.4 113.8 121.9 164.2
---------- ---------- ---------- ----------
OPERATING PROFIT (LOSS)
NACoal 15.0 12.4 12.1 10.6
NMHG Wholesale 7.0 13.8 13.5 14.6
NMHG Retail (including eliminations) .2 (2.8) .2 (.8)
Housewares (2.6) 3.2 10.5 29.8
NACCO and Other (.8) (1.0) (1.0) (2.1)
---------- ---------- ---------- ----------
18.8 25.6 35.3 52.1
---------- ---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY LOSS 6.3 2.8 8.0 32.5
Extraordinary loss -- -- -- (7.2)
---------- ---------- ---------- ----------
NET INCOME $ 6.3 $ 2.8 $ 8.0 $ 25.3
========== ========== ========== ==========
EARNINGS PER SHARE
Income before extraordinary loss $ .77 $ .34 $ .98 $ 3.97
Extraordinary loss -- -- -- (.88)
---------- ---------- ---------- ----------
NET INCOME $ .77 $ .34 $ .98 $ 3.09
========== ========== ========== ==========
The significant increase in operating results in the fourth quarter of 2002 as
compared with the prior quarters of 2002 is primarily due to the seasonal nature
of the Housewares business. Also, the results of NMHG Wholesale in the fourth
quarter of 2002 include income of $4.2 million related to the settlement of a
transfer pricing audit. See Note 4 for discussion of the extraordinary loss
recognized in the fourth quarter of 2002.
F-38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
2001
----------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
REVENUES
NACoal $ 83.3 $ 83.1 $ 82.4 $ 84.5
NMHG Wholesale 442.9 392.0 314.4 314.0
NMHG Retail (including eliminations) 52.7 52.7 45.7 58.0
Housewares 138.3 140.1 155.0 198.7
NACCO and Other -- .1 -- --
---------- ---------- ---------- ----------
717.2 668.0 597.5 655.2
---------- ---------- ---------- ----------
GROSS PROFIT 130.3 116.3 87.2 100.7
---------- ---------- ---------- ----------
OPERATING PROFIT (LOSS)
NACoal 16.9 14.8 16.1 14.1
NMHG Wholesale 25.8 7.8 (18.5) (13.8)
NMHG Retail (including eliminations) (3.4) (2.8) (15.9) (17.3)
Housewares (3.0) 1.2 3.2 (9.8)
NACCO and Other (3.2) (2.9) (2.4) (1.2)
---------- ---------- ---------- ----------
33.1 18.1 (17.5) (28.0)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES 14.4 6.1 (27.5) (27.7)
Cumulative effect of accounting changes (1.3) -- -- --
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 13.1 $ 6.1 $ (27.5) $ (27.7)
========== ========== ========== ==========
EARNINGS PER SHARE
Income (loss) before cumulative effect of
accounting changes $ 1.76 $ .74 $ (3.36) $ (3.38)
Cumulative effect of accounting changes (.16) -- -- --
---------- ---------- ---------- ----------
Net income (loss) $ 1.60 $ .74 $ (3.36) $ (3.38)
========== ========== ========== ==========
Operating results in the fourth quarter of 2001 include a restructuring charge
of $13.3 million recognized by Housewares and a loss on the sale of dealers of
$10.4 million recognized by NMHG Retail.
F-39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
NOTE 21--PARENT COMPANY CONDENSED BALANCE SHEETS
The condensed balance sheets of NACCO, the parent company, at December 31 are as
follows:
2002 2001
---------- ----------
ASSETS
Current assets $ 15.9 $ 12.0
Notes receivable from subsidiaries 25.7 23.3
Investment in subsidiaries
NMHG 382.3 382.0
Housewares 153.9 145.6
NACoal 63.2 48.9
Bellaire (2.9) 2.6
---------- ----------
596.5 579.1
Property, plant and equipment, net .5 .3
Deferred income taxes 1.1 .3
Other non-current assets 1.8 .4
---------- ----------
Total Assets $ 641.5 $ 615.4
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 5.5 $ 3.9
Current intercompany accounts payable, net 25.9 31.3
Note payable to Bellaire 45.5 46.0
Deferred income taxes and other 5.2 4.9
Stockholders' equity 559.4 529.3
---------- ----------
Total Liabilities and Stockholders' Equity $ 641.5 $ 615.4
========== ==========
The credit agreements at NACoal, NMHG and Housewares allow the transfer of
assets to NACCO under certain circumstances. The amount of NACCO's investment in
NACoal, NMHG and Housewares that was restricted at December 31, 2002 totals
approximately $581.0 million. The amount of unrestricted cash available to NACCO
included in Investment in subsidiaries was $13.7 million at December 31, 2002.
Dividends, advances and management fees from its subsidiaries are the primary
sources of cash for NACCO.
NOTE 22--RELATED PARTY TRANSACTIONS
NMHG has a 20% ownership interest in NMHG Financial Services, Inc. ("NFS"), a
joint venture with GE Capital Corporation, formed primarily for the purpose of
providing financial services to independent and wholly owned Hyster and Yale
lift truck dealers and national account customers in the United States. NMHG's
ownership in NFS is accounted for using the equity method of accounting.
Generally, NMHG sells lift trucks through its independent dealer network or
directly to customers. These dealers and customers may enter into a financing
transaction with NFS or another unrelated third-party. NFS provides debt
financing to dealers and lease financing to both dealers and customers. NFS'
total purchases of Hyster and Yale lift trucks from dealers, customers and
directly from NMHG, such that NFS could provide lease financing to dealers and
customers, for the years ended December 31, 2002, 2001 and 2000 were $194.5
million, $251.2 million and $190.8 million, respectively. Of this amount, $32.2
million, $40.5 million and $23.3 million for the years ended December 31, 2002,
2001 and 2000, respectively, was invoiced directly from NMHG to NFS so that the
dealer or customer could obtain operating lease financing from NFS. Amounts
receivable from NFS at December 31, 2002 and 2001 were immaterial.
On occasion, the credit quality of the customer or concentration issues within
GE Capital Corporation necessitate providing standby recourse or repurchase
obligations or a guarantee of the residual value of the lift trucks purchased by
customers and financed through NFS. At December 31, 2002, approximately $120.7
million of the Company's total guarantees, recourse or repurchase obligations
related to transactions with NFS. NMHG has reserved for losses under the terms
of the guarantees or standby recourse or repurchase obligations in its
consolidated financial statements. Historically, NMHG has not had significant
losses in respect of these obligations. In 2002, four customers for which NMHG
provided a guarantee or had standby recourse or repurchase obligations defaulted
under their obligations to NFS. NMHG exercised its rights in the lift truck
purchased for each of these customer defaults. In each of the years 2002, 2001
and 2000, the net losses resulting from customer defaults did not have a
material impact on NMHG's results of operations or financial position.
F-40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Millions, Except Per Share and Percentage Data)
In addition to providing financing to NMHG's dealers, NFS provides operating
lease financing to NMHG. Operating lease obligations primarily relate to
specific sale-leaseback-sublease transactions for certain NMHG customers whereby
NMHG sells lift trucks to NFS, NMHG leases these lift trucks back under an
operating lease agreement and NMHG subleases those lift trucks to customers
under an operating lease agreement. Total obligations to NFS under the operating
lease agreements were $10.0 million and $15.3 million at December 31, 2002 and
2001, respectively.
In addition, NMHG is reimbursed for certain services, primarily administrative
functions, provided to NFS. The amount of NMHG's expenses reimbursable by NFS
were $1.7 million, $1.8 million and $1.5 million in 2002, 2001 and 2000,
respectively.
NMHG has a 50% ownership interest in SN, a limited liability company which was
formed primarily for the manufacture and distribution of Sumitomo-Yale branded
lift trucks in Japan and the export of Hyster and Yale branded lift trucks and
related components and service parts outside of Japan. NMHG purchases products
from SN under normal trade terms. In 2002, 2001 and 2000, purchases from SN were
$65.7 million, $63.7 million and $90.5 million, respectively. Amounts payable to
SN at December 31, 2002 and 2001 were $17.5 million and $16.1 million,
respectively.
Legal services rendered by Jones Day approximated $6.1 million, $3.0 million and
$6.0 million for the years ended December 31, 2002, 2001 and 2000, respectively.
A director of the Company is also a partner at this firm.
F-41
NACCO INDUSTRIES, INC. REPORT OF MANAGEMENT
To the Stockholders of NACCO Industries, Inc.
The management of NACCO Industries, Inc. is responsible for the
preparation, content and integrity of the financial statements and related
information contained within this report. The accompanying financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States and include amounts that are based on informed judgments
and estimates.
The Company's code of conduct, communicated throughout the organization,
requires adherence to high ethical standards in the conduct of the Company's
business.
NACCO Industries, Inc. and each of its subsidiaries maintain a system of
internal controls designed to provide reasonable assurance as to the protection
of assets and the integrity of the financial statements. These systems are
augmented by the selection of qualified financial management personnel. In
addition, an internal audit function periodically assesses the internal
controls.
Ernst & Young LLP, independent auditors, audited NACCO Industries, Inc.
and its subsidiaries' financial statements for the year ended December 31, 2002.
Arthur Andersen, LLP, independent certified public accountants, audited NACCO
Industries, Inc. and its subsidiaries' financial statements for the years ended
December 31, 2001 and 2000. Those audits were conducted in accordance with
auditing standards generally accepted in the United States and provide an
objective and independent assessment that helps ensure fair presentation of the
Company's operating results and financial position. The independent auditors
have access to all financial records and related data of the Company, as well as
to the minutes of stockholders' and directors' meetings.
The Audit Review Committee of the Board of Directors, composed of
independent directors, meets regularly with the independent auditors and
internal auditors to review the scope of their audit reports and to discuss any
action to be taken. The independent auditors and the internal auditors have free
and direct access to the Audit Review Committee. The Audit Review Committee also
reviews the financial reporting process and accounting policies of NACCO
Industries, Inc. and each of its subsidiaries.
/s/ Alfred M. Rankin, Jr. /s/ Kenneth C. Schilling
--------------------------------- ------------------------------
Alfred M. Rankin, Jr. Kenneth C. Schilling
Chairman, President and Vice President and Controller
Chief Executive Officer
F-42
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED BALANCE SHEETS
December 31
------------------------
2002 2001
--------- ---------
(In millions)
Current assets $ 15.9 $ 12.0
Notes receivable from subsidiaries 25.7 23.3
Investment in subsidiaries
NMHG 382.3 382.0
Housewares 153.9 145.6
NACoal 63.2 48.9
Bellaire (2.9) 2.6
--------- ---------
596.5 579.1
Property, plant and equipment, net .5 .3
Deferred income taxes 1.1 .3
Other non-current assets 1.8 .4
--------- ---------
Total Assets $ 641.5 $ 615.4
========= =========
Current liabilities $ 5.5 $ 3.9
Current intercompany accounts payable, net 25.9 31.3
Note payable to Bellaire 45.5 46.0
Deferred income taxes and other 5.2 4.9
Stockholders' equity 559.4 529.3
--------- ---------
Total Liabilities and Stockholders' Equity $ 641.5 $ 615.4
========= =========
See Notes to Parent Company Financial Statements.
F-43
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY STATEMENTS OF OPERATIONS
Year ended December 31
------------------------------------------
2002 2001 2000
---------- ---------- ----------
(In millions)
Income (expense):
Intercompany interest expense $ (2.4) $ (2.1) $ (.2)
Other - net 3.5 10.5 10.1
---------- ---------- ----------
1.1 8.4 9.9
Administrative and general expenses 4.7 9.4 11.6
---------- ---------- ----------
Loss before income taxes (3.6) (1.0) (1.7)
Income tax benefit (1.9) (.7) (.6)
---------- ---------- ----------
Net loss before extraordinary gain and
equity in earnings (loss) of subsidiaries (1.7) (.3) (1.1)
Extraordinary gain, net-of-tax -- -- 21.0
---------- ---------- ----------
Net income (loss) before equity in earnings (loss)
of subsidiaries (1.7) (.3) 19.9
Equity in earnings (loss) of subsidiaries 44.1 (35.7) 47.8
---------- ---------- ----------
Net income (loss) $ 42.4 $ (36.0) $ 67.7
========== ========== ==========
See Notes to Parent Company Financial Statements.
F-44
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY STATEMENTS OF CASH FLOWS
Year Ended December 31
--------------------------------------------
2002 2001 2000
---------- ---------- ----------
(In millions)
OPERATING ACTIVITIES
Net income (loss) $ 42.4 $ (36.0) $ 67.7
Equity in (earnings) loss of subsidiaries (44.1) 35.7 (47.8)
---------- ---------- ----------
Parent company only net income (loss) (1.7) (.3) 19.9
Extraordinary gain, net-of-tax -- -- (21.0)
Deferred income taxes (.8) .8 .7
Income taxes net of intercompany tax payments (.1) (3.2) 1.0
Working capital changes (2.1) (14.1) .8
Changes in current intercompany amounts (5.5) 27.5 4.2
Changes in reserve for future interest on UMWA obligation -- -- (1.6)
Treasury stock issued under stock compensation plans .3 1.1 .9
Other non-cash items (1.0) .1 (.8)
---------- ---------- ----------
Net cash provided by (used for) operating activities (10.9) 11.9 4.1
INVESTING ACTIVITIES
Dividends received from subsidiaries 22.2 18.0 19.7
Changes in advances (to) from subsidiaries (2.5) (17.8) (18.1)
Notes payable to Bellaire (.5) (4.3) .4
Expenditures for property, plant and equipment (.3) (.2) (.3)
Proceeds from the sale of property, plant and equipment -- -- 1.4
---------- ---------- ----------
Net cash provided by (used for) investing activities 18.9 (4.3) 3.1
FINANCING ACTIVITIES
Cash dividends paid (8.0) (7.6) (7.2)
---------- ---------- ----------
Net cash used for financing activities (8.0) (7.6) (7.2)
---------- ---------- ----------
CASH AND CASH EQUIVALENTS
Increase (decrease) for the period -- -- --
Balance at the beginning of the period -- -- --
---------- ---------- ----------
Balance at the end of the period $ -- $ -- $ --
========== ========== ==========
See Notes to Parent Company Financial Statements.
F-45
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
The notes to Consolidated Financial Statements, incorporated in Item 15 of this
Form 10-K, are hereby incorporated by reference into these Notes to Parent
Company Financial Statements.
NOTE A - LONG-TERM OBLIGATIONS AND GUARANTEES
NACCO Industries, Inc. ("NACCO," the parent company) is a holding company which
owns four operating segments. It is NACCO's policy not to guarantee the debt of
such subsidiaries.
NOTE B - UNRESTRICTED CASH
The amount of unrestricted cash available to NACCO, included in Investment in
subsidiaries was $13.7 million at December 31, 2002.
NOTE C - EXTRAORDINARY GAIN
A portion of the 2000 extraordinary gain relating to the reversal of the accrual
for the obligation to the United Mine Workers of America Combined Benefit Fund
arising as a result of the Coal Industry Retiree Health Benefit Act of 1992 as
discussed in Note 4 to the Consolidated Financial Statements was recorded on the
books of the parent company. The amount recorded by the parent company of $21.0
million, net of $11.3 million in taxes, combined with the amount recorded by
Bellaire Corporation of $8.9 million, net of $4.8 million in taxes, equals the
total extraordinary gain of $29.9 million, net of $16.1 million in taxes
recognized by the Company in 2000.
NOTE D - RECLASSIFICATION
Certain reclassifications have been made to the parent company's prior years'
cash flow statements to conform to the current year's presentation.
F-46
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
COL A. COL B. COL C. COL D. COL E.
Additions (D)
-----------------------------
Description Balance at Charged to Charged to Balance at
Beginning of Costs and Other Accounts Deductions End of
Period Expenses --Describe --Describe Period
- --------------------------------------- ------------- -------------- -------------- ------------ -------------
(In millions)
2002
RESERVES DEDUCTED FROM ASSET
ACCOUNTS:
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 9.4 $ 7.2 $ (.3)(C) $ 6.3(A) $ 10.0
ALLOWANCE FOR DISCOUNTS,
ADJUSTMENTS AND RETURNS 6.2 9.8 -- 11.8(B) 4.2
RESERVE FOR LOSSES ON INVENTORY 27.2 3.3 $ .2(C) 11.9(A) 18.8
2001
Reserves deducted from asset accounts:
Allowance for doubtful accounts $ 8.6 $ 4.1 $ .1(C) $ 3.4(A) $ 9.4
Allowance for discounts,
adjustments and returns 8.2 15.8 -- 17.8(B) 6.2
Reserve for losses on inventory 22.0 10.6 -- 5.4(A) 27.2
2000
Reserves deducted from asset accounts:
Allowance for doubtful accounts $ 7.4 $ 1.7 $ .2(C) $ .7(A) $ 8.6
Allowance for discounts,
adjustments and returns 9.3 21.6 -- 22.7(B) 8.2
Reserve for losses on inventory 22.9 3.9 .8(C) 5.6(A) 22.0
(A) Write-offs, net of recoveries.
(B) Payments.
(C) Subsidiary's foreign currency translation adjustments and other.
(D) Balances which are not required to be presented and those which are
immaterial have been omitted.
F-47
EXHIBIT INDEX
(3) Articles of Incorporation and By-laws.
(i) Restated Certificate of Incorporation of the Company is
incorporated by reference to Exhibit 3(i) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1992, Commission File Number 1-9172.
(ii) Restated By-laws of the Company are incorporated by reference to
Exhibit 3(ii) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, Commission File Number 1-9172.
(4) Instruments defining the rights of security holders, including indentures.
(i) The Company by this filing agrees, upon request, to file with the
Securities and Exchange Commission the instruments defining the rights of
holders of Long-Term debt of the Company and its subsidiaries where the total
amount of securities authorized thereunder does not exceed 10% of the total
assets of the Company and its subsidiaries on a consolidated basis.
(ii) The Mortgage and Security Agreement, dated April 8, 1976, between
The Falkirk Mining Company (as Mortgagor) and Cooperative Power Association and
United Power Association (collectively as Mortgagee) is incorporated by
reference to Exhibit 4(ii) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, Commission File Number 1-9172.
(iii) Amendment No. 1 to the Mortgage and Security Agreement, dated as
of December 15, 1993, between Falkirk Mining Company (as Mortgagor) and
Cooperative Power Association and United Power Association (collectively as
Mortgagee) is incorporated by reference to Exhibit 4(iii) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997,
Commission File Number 1-9172.
(iv) Stockholders' Agreement, dated as of March 15, 1990, among the
signatories thereto, the Company and Ameritrust Company National Association, as
depository, is incorporated herein by reference to Exhibit 2 to the Schedule 13D
filed on March 29, 1990 with respect to the Class B Common Stock, par value
$1.00 per share, of NACCO Industries, Inc.
(v) Amendment to Stockholders' Agreement, dated as of April 6, 1990,
among the signatories thereto, the Company and Ameritrust Company National
Association, as depository, is incorporated herein by reference to Exhibit 4 to
Amendment No. 1 to the Schedule 13D filed on April 11, 1990 with respect to the
Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc.
(vi) Amendment to Stockholders' Agreement, dated as of April 6, 1990,
among the signatories thereto, the Company and Ameritrust Company National
Association, as depository, is incorporated herein by reference to Exhibit 5 to
Amendment No. 1 to the Schedule 13D filed on April 11, 1990 with respect to the
Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc.
(vii) Amendment to Stockholders' Agreement, dated as of November 17,
1990, among the signatories thereto, the Company, and Ameritrust Company
National Association, as depository, is incorporated herein by reference to
Amendment No. 2 to the Schedule 13D filed on March 18, 1991 with respect to the
Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc.
(viii) Amendment to Stockholders' Agreement, dated as of November 14,
1996, among the signatories thereto, the Company, the New Participating
Stockholders (as defined therein) and Key Bank, N.A. (successor to Ameritrust
Company National Association), as depository, is incorporated herein by
reference to Amendment No. 3 to the Schedule 13D filed on November 26, 1996,
with respect to the Class B Common Stock, par value $1.00 per share, of NACCO
Industries, Inc.
(ix) Amendment to Stockholders' Agreement, dated as of November 14,
1996, among the signatories thereto, the Company, the New Participating
Stockholders (as defined therein) and Key Bank, N.A. (successor to Ameritrust
Company National Association), as depository, is incorporated herein by
reference to Amendment No. 3 to the Schedule 13D filed on November 26, 1996,
with respect to the Class B Common Stock, par value $1.00 per share, of NACCO
Industries, Inc.
(x) Amendment to Stockholders' Agreement, dated as of April 9, 1998, by
and among KeyCorp Shareholder Services, Inc., the Company, the Participating
Stockholders (as defined therein) and the New Participating Stockholders (as
defined therein) is incorporated by reference to Amendment No. 6 to the Schedule
13D filed on March 25, 1999, with respect to the Class B Common Stock, par value
$1.00 per share, of NACCO Industries, Inc.
(xi) Amendment to Stockholders' Agreement, dated as of December 26,
1998, by and among KeyCorp Shareholder Services, Inc., the Company, the
Participating Stockholders (as defined therein) and the New Participating
Stockholders (as defined therein) is incorporated by reference to Amendment No.
6 to the Schedule 13D filed on March 25, 1999, with respect to the Class B
Common Stock, par value $1.00 per share, of NACCO Industries, Inc.
(xii) Amendment to Stockholders' Agreement, dated as of November 30,
1999, by and among First Chicago Trust Company of New York, the Company and the
Participating Stockholders (as defined therein) is incorporated by reference to
Amendment No. 7 to the Schedule 13D filed on March 30, 2000, with respect to the
Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc.
X-1
(xiii) Amendment to Stockholders' Agreement, dated as of November 30,
1999, by and among First Chicago Trust Company of New York, the Company and the
Participating Stockholders (as defined therein) is incorporated by reference to
Amendment No. 7 to the Schedule 13D filed on March 30, 2000, with respect to the
Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc.
(xiv) Amendment to Stockholders' Agreement, dated as of March 30, 2000,
by and among First Chicago Trust Company of New York, the Company, the
Participating Stockholders (as defined therein) and the New Participating
Stockholders (as defined therein) is incorporated by reference to Amendment No.
7 to the Schedule 13D filed on March 30, 2000, with respect to the Class B
Common Stock, par value $1.00 per share, of NACCO Industries, Inc.
(xv) Amendment to Stockholders' Agreement, dated as of October 31,
2000, by and among First Chicago Trust Company of New York, the Company and the
Participating Stockholders (as defined therein) is incorporated by reference to
Amendment No. 8 to the Schedule 13D filed on February 14, 2001, with respect to
the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc.
(xvi) Amendment to Stockholders' Agreement, dated as of October 31,
2000, by and among National City Bank (Cleveland), the Company, the
Participating Stockholders (as defined therein) and the New Participating
Stockholders (as defined therein) is incorporated by reference to Amendment No.
8 to the Schedule 13D filed on February 14, 2001, with respect to the Class B
Common Stock, par value $1.00 per share, of NACCO Industries, Inc.
(xvii) Amendment to Stockholders' Agreement, dated as of February 14,
2001, by and among National City Bank (Cleveland), the Company, the
Participating Stockholders (as defined therein) and the New Participating
Stockholders (as defined therein) is incorporated by reference to Amendment No.
8 to the Schedule 13D filed on February 14, 2001, with respect to the Class B
Common Stock, par value $1.00 per share, of NACCO Industries, Inc.
(xviii) Amendment to Stockholders' Agreement, dated as of December 26,
2001, by and among National City Bank (Cleveland), the Company, the
Participating Stockholders (as defined therein) and the New Participating
Stockholder (as defined therein) is incorporated by reference to Amendment No. 9
to the Schedule 13D filed on February 14, 2002, with respect to the Class B
Common Stock, par value $1.00 per share, of NACCO Industries, Inc.
(xix) Amendment to Stockholders' Agreement, dated as of February 11,
2002, by and among National City Bank (Cleveland), the Company, the
Participating Stockholders (as defined therein) and the New Participating
Stockholder (as defined therein) is incorporated by reference to Amendment No. 9
to the Schedule 13D filed on February 14, 2002, with respect to the Class B
Common Stock, par value $1.00 per share, of NACCO Industries, Inc.
(xx) Indenture, dated as of May 9, 2002, by and among NMHG Holding Co.,
the Subsidiary Guarantors named therein and U.S. Bank National Association, as
Trustee (including the form of 10% senior note due 2009) is incorporated by
reference to Exhibit 4.2 to the Company's Registration Statement on Form S-4
filed on May 28, 2002 (Registration Number 333-89248).
(xxi) Amendment to Stockholders' Agreement, dated as of October 24,
2002, by and among National City Bank (Cleveland), the Company, the
Participating Stockholders (as defined therein) and the New Participating
Stockholder (as defined therein) is incorporated by reference to Amendment No.
10 to the Schedule 13D filed on February 14, 2003, with respect to the Class B
Common Stock, par value $1.00 per share, of NACCO Industries, Inc.
(xxii) Amendment to Stockholders' Agreement, dated as of December 30,
2002, by and among National City Bank (Cleveland), the Company, the
Participating Stockholders (as defined therein) and the New Participating
Stockholder (as defined therein) is incorporated by reference to Amendment No.
10 to the Schedule 13D filed on February 14, 2003, with respect to the Class B
Common Stock, par value $1.00 per share, of NACCO Industries, Inc.
(10) Material contracts.
*(i) The NACCO Industries, Inc. 1975 Stock Option Plan (as amended and
restated as of July 17, 1986) is incorporated herein by reference to Exhibit
10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, Commission File Number 1-9172.
*(ii) Form of Incentive Stock Option Agreement for incentive stock
options granted before 1987 under The NACCO Industries, Inc. 1975 Stock Option
Plan (as amended and restated as of July 17, 1986) is incorporated herein by
reference to Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, Commission File Number 1-9172.
*(iii) Form of Incentive Stock Option Agreement for incentive stock
options granted after 1986 under The NACCO Industries, Inc. 1975 Stock Option
Plan (as amended and restated as of July 17, 1986) is incorporated herein by
reference to Exhibit 10(iii) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, Commission File Number 1-9172.
*(iv) Form of Non-Qualified Stock Option Agreement under The NACCO
Industries, Inc., 1975 Stock Option Plan (as amended and restated as of July 17,
1986) is incorporated herein by reference to Exhibit 10(iv) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1991,
Commission File Number 1-9172.
*(v) The NACCO Industries, Inc. 1981 Stock Option Plan (as amended and
restated as of July 17, 1986) is incorporated herein by reference to Exhibit
10(v) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, Commission File Number 1-9172.
X-2
*(vi) Form of Non-Qualified Stock Option Agreement under The NACCO
Industries, Inc. 1981 Stock Option Plan (as amended and restated as of July 17,
1986) is incorporated herein by reference to Exhibit 10(vi) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1991,
Commission File Number 1-9172.
*(vii) Form of Incentive Stock Option Agreement for incentive stock
options granted before 1987 under The NACCO Industries, Inc. 1981 Stock Option
Plan (as amended and restated as of July 17, 1986) is incorporated herein by
reference to Exhibit 10(vii) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, Commission File Number 1-9172.
*(viii) Form of Incentive Stock Option Agreement for incentive stock
options granted after 1986 under The NACCO Industries, Inc. 1981 Stock Option
Plan (as amended and restated as of July 17, 1986) is incorporated herein by
reference to Exhibit 10(viii) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991, Commission File Number 1-9172.
*(ix) The Retirement Benefit Plan for Alfred M. Rankin, Jr., effective
as of January 1, 1994 is incorporated herein by reference to Exhibit 10 (ix) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994, Commission File Number 1-9172.
*(x) Amendment No. 1, dated as of March 15, 1995, to the Retirement
Benefit Plan for Alfred M. Rankin, Jr. is incorporated herein by reference to
Exhibit 10 (x) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, Commission File Number 1-9172.
*(xi) Instrument of Adoption and Merger for NACCO Industries, Inc. for
the NACCO Materials Handling Group, Inc. Unfunded Benefit Plan (As Amended and
Restated Effective October 1, 1994) dated December 30, 1994, is incorporated
herein by reference to Exhibit 10(xxii) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, Commission File Number 1-9172.
*(xii) Instrument of Withdrawal and Transfer of Liabilities from The
North American Coal Corporation Deferred Compensation Plan for Management
Employees, effective as of December 31, 1994, is incorporated herein by
reference to Exhibit 10(xxiii) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, Commission File Number 1-9172.
*(xiii) NACCO Industries, Inc. 2002 Annual Incentive Compensation Plan,
effective as of January 1, 2002, is incorporated herein by reference to Exhibit
10(xx) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, Commission File Number 1-9172.
*(xiv) NACCO Industries, Inc. Supplemental Annual Incentive
Compensation Plan, effective as of January 1, 2001, is incorporated herein by
reference to Exhibit 10(xiv) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001, Commission File Number 1-9172.
*(xv) NACCO Industries, Inc. Executive Long-Term Incentive Compensation
Plan, effective as of January 1, 2001, is incorporated herein by reference to
Exhibit 10(xv) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001, Commission File Number 1-9172.
(xvi) Assumption Agreement, made as of December 20, 1991, between the
Company and Citicorp North America, Inc., as agent is incorporated herein by
reference to Exhibit 10(xciii) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991, Commission File Number 1-9172.
*(xvii) Amendment No. 1 to the NACCO Industries, Inc. Supplemental
Annual Incentive Compensation Plan, effective as of January 1, 2002, is attached
hereto as Exhibit 10(xvii).
*(xviii) NACCO Industries, Inc. Non-Employee Directors' Equity
Compensation Plan, effective January 1, 1992, is incorporated by reference to
Exhibit 10(cxi) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, Commission File Number 1-9172.
*(xix) Amendment No. 2, dated June 30, 1995, to the Retirement Benefit
Plan for Alfred M. Rankin, Jr. (as amended and restated effective January 1,
1994) is incorporated herein by reference to Exhibit 10 (clxxi) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, Commission
File Number 1-9172.
*(xx) NACCO Industries, Inc. 2003 Annual Incentive Compensation Plan,
effective as of January 1, 2003, is attached hereto as Exhibit 10(xx).
*(xxi) Amendment No. 3, dated as of September 13, 1999, to the
Retirement Benefit Plan for Alfred M. Rankin, Jr. (as amended and restated
effective January 1, 1994) is incorporated herein by reference to Exhibit
10(xxi) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, Commission File Number 1-9172.
*(xxii) Amendment No. 4, dated as of June 23, 2000, to the Retirement
Benefit Plan for Alfred M. Rankin, Jr. (as amended and restated effective
January 1, 1994) is incorporated herein by reference to Exhibit 10(xxii) to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2000, Commission File Number 1-9172.
X-3
*(xxiii) The NACCO Industries, Inc. Unfunded Benefit Plan (effective
September 1, 2000) is incorporated herein by reference to Exhibit 10(xxiii) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2000, Commission File Number 1-9172.
*(xxiv) Amendment No. 1, dated as of September 25, 2001, to the NACCO
Industries, Inc. Unfunded Benefit Plan (effective September 1, 2000) is
incorporated herein by reference to Exhibit 10(xxiv) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2001, Commission File
Number 1-9172.
*(xxv) Amendment No. 2, dated as of December 21, 2001, to the NACCO
Industries, Inc. Unfunded Benefit Plan (effective September 1, 2000) is
incorporated herein by reference to Exhibit 10(xxv) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2001, Commission File
Number 1-9172.
*(xxvi) Amendment No. 1 to the NACCO Industries, Inc. 2002 Annual
Incentive Compensation Plan, effective January 1, 2002, is attached hereto as
Exhibit 10(xxvi).
*(xxvii) Amendment No. 1 to the NACCO Industries, Inc. Executive
Long-Term Incentive Compensation Plan, effective as of January 1, 2002, is
attached hereto as Exhibit 10(xxvii).
(xxviii) - (xxx) Intentionally left blank.
*(xxxi) The North American Coal Annual Incentive Plan, effective as of
January 1, 2002, is incorporated herein by reference to Exhibit 10(xlv) to the
Company's Annual Report on Form 10-K for the year ended December 31, 2001,
Commission File Number 1-9172.
*(xxxii) Instrument of Merger, Amendment and Transfer of Sponsorship of
Benefit Plans, effective as of August 31, 1994, is incorporated herein by
reference to Exhibit 10(xxviii) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, Commission File Number 1-9172.
(xxxiii) Credit Agreement, dated as of September 27, 1991, among The
North American Coal Corporation, Citibank, N.A., Ameritrust Company National
Association and Morgan Guaranty Trust Company of New York, as agent is
incorporated herein by reference to Exhibit 10(xcii) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File
Number 1-9172.
(xxxiv) Subordination Agreement, dated September 27, 1991, among The
North American Coal Corporation, the Company and Morgan Guaranty Trust Company
of New York, as agent, is incorporated herein by reference to Exhibit 10(xciv)
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1991, Commission File Number 1-9172.
*(xxxv) The North American Coal Corporation Deferred Compensation Plan
for Management Employees (as amended and restated effective November 1, 2001) is
incorporated herein by reference to Exhibit 10(xxxv) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2001, Commission File
Number 1-9172.
*(xxxvi) Amendment No. 1, dated as of December 21, 2001, to The North
American Coal Corporation Deferred Compensation Plan for Management Employees
(as amended and restated effective November 1, 2001) is incorporated herein by
reference to Exhibit 10(xxxvi) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, Commission File Number 1-9172.
(xxxvii) Purchase and Sale Agreement, dated October 11, 2000, by and
among Phillips Petroleum Company, Phillips Coal Company, The North American Coal
Corporation, Oxbow Property Company L.L.C. and Red Hills Property Company L.L.C.
is incorporated herein by reference to Exhibit 10(xxxvii) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2000,
Commission File Number 1-9172.
(xxxviii) Amendment No. 1 to the Credit Agreement, dated as of July 28,
1993, among The North American Coal Corporation and the banks listed on the
signatory pages and Morgan Guaranty Trust Company of New York, as Agent, is
incorporated herein by reference to Exhibit 10(cxxxxiii) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, Commission File
Number 1-9172.
(xxxix) Amendment No. 2 to the Credit Agreement, dated as of September,
1995, among The North American Coal Corporation and the banks listed on the
signatory pages and Morgan Guaranty Trust Company of New York, as Agent, is
incorporated herein by reference to Exhibit 10(xxxix) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, Commission File
Number 1-9172.
*(xl) The North American Coal Corporation Supplemental Retirement
Benefit Plan, as amended and restated effective September 1, 1994, is
incorporated by reference to Exhibit 10 (clxv) to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994, Commission File Number 1-
9172.
(xli) Intentionally left blank.
*(xlii) Amendment No. 1, dated December 1, 1995, to The North American
Coal Corporation Supplemental Retirement Benefit Plan (as amended and restated
effective September 1, 1994), effective as of December 31, 1994, is incorporated
herein by reference to Exhibit 10 (xlii) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, Commission File Number 1-9172.
X-4
(xliii) Amendment No. 3 to the Credit Agreement, dated as of September
16, 1996, among The North American Coal Corporation and the banks listed on the
signatory pages and Morgan Guaranty Trust Company of New York, as Agent, is
incorporated herein by reference to Exhibit 10(xliii) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, Commission File
Number 1-9172.
(xliv) Intentionally left blank.
*(xlv) The North American Coal 2003 Incentive Compensation Plan,
effective as of January 1, 2003, is attached hereto as Exhibit 10(xlv).
(xlvi) Waiver Agreement, dated November 15, 1996, by and among Morgan
Guaranty Trust Company, Citibank, N.A., Wells Fargo (Texas), N.A., Key Bank
National Association and The North American Coal Corporation is incorporated
herein by reference to Exhibit 10(xlvi) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996, Commission File Number 1-9172.
(xlvii) Amendment No. 4 to the Credit Agreement, dated as of July 29,
1997, among The North American Coal Corporation, the banks listed on the
signatory pages and Morgan Guaranty Trust Company of New York, as Agent, is
incorporated herein by reference to Exhibit 10(xlvii) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, Commission File
Number 1-9172.
(xlviii) Assignment and Assumption Agreement, dated as of August 22,
1997, among The North American Coal Corporation, the banks listed on the
signatory pages and Morgan Guaranty Trust Company of New York, as Agent, is
incorporated herein by reference to Exhibit 10(xlviii) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, Commission File
Number 1-9172.
(xlix) Intentionally left blank.
*(l) Amendment No. 2, dated October 1, 1998, to The North American Coal
Corporation Supplemental Retirement Benefit Plan (as amended and restated
effective September 1, 1994), effective as of July 15, 1998, is incorporated
herein by reference to Exhibit 10(l) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, Commission File Number 1-9172.
*(li) Amendment No. 3, dated October 30, 1998, to The North American
Coal Corporation Supplemental Retirement Benefit Plan (as amended and restated
effective September 1, 1994), effective as of July 15, 1998, is incorporated
herein by reference to Exhibit 10(li) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998, Commission File Number 1-9172.
*(lii) Amendment No. 4, dated December 8, 1999, to The North American
Coal Corporation Supplemental Retirement Benefit Plan (as amended and restated
effective September 1, 1994), effective as of January 1, 2000, is incorporated
herein by reference to Exhibit 10(lii) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999, Commission File Number 1-9172.
*(liii) The North American Coal Corporation Value Appreciation Plan For
Years 2000 to 2009, effective as of January 1, 2000, is incorporated herein by
reference to Exhibit 10(liii) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000, Commission File Number 1-9172.
(liv) Credit Agreement, dated as of October 11, 2000, by and among The
North American Coal Corporation, the Initial Lenders named therein, Salomon
Smith Barney Inc., as Lead Arranger and Book Manager, Keybank National
Association, as Syndication Agent, and Citibank N.A., as Agent, is incorporated
herein by reference to Exhibit 10(liv) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2000, Commission File Number 1-9172.
(lv) Letter Amendment, dated as of November 20, 2001, to the Credit
Agreement, dated as of October 11, 2000, by and among The North American Coal
Corporation, the Lenders named therein, and Citibank N.A., as Agent, is
incorporated herein by reference to Exhibit 10(lv) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2001, Commission File
Number 1-9172.
(lvi) Agreement and Plan of Merger, dated as of April 7, 1989, among
NACCO Industries, Inc., Yale Materials Handling Corporation, Acquisition I, Esco
Corporation, Hyster Company and Newesco, is incorporated herein by reference to
Exhibit 2.1 to Hyster-Yale Materials Handling, Inc.'s Registration Statement on
Form S-1 filed May 17, 1989 (Registration Statement Number 33-28812).
(lvii) Agreement and Plan of Merger, dated as of April 7, 1989, among
NACCO Industries, Inc., Yale Materials Handling Corporation, Acquisition II,
Hyster Company and Newesco, is incorporated herein by reference to Exhibit 2.2
to Hyster-Yale Materials Handling, Inc.'s Registration Statement on Form S-1
filed May 17, 1989 (Registration Statement Number 33-28812).
*(lviii) NACCO Materials Handling Group, Inc. Annual Incentive
Compensation Plan for 2002 is incorporated herein by reference to Exhibit
10(lxiii) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, Commission File Number 1-9172.
X-5
(lix) Credit Agreement, dated as of May 9, 2002, among NMHG Holding
Co., NACCO Materials Handling Group, Inc., NMHG Distribution Co., NACCO
Materials Handling Limited, NACCO Materials Handling B.V., the financial
institutions from time to time a party thereto as Lenders, the financial
institutions from time to time a party thereto as Issuing Bank, Citicorp North
America, Inc., as administrative agent for the Lenders and the Issuing Bank
thereunder and Credit Suisse First Boston as joint arrangers and joint
bookrunners and CSFB as syndication agent is incorporated by reference to
Exhibit 10.1 to the NMHG Holding Co.'s Registration Statement on Form S-4 filed
on May 28, 2002 (Registration Statement Number 333-89248).
(lx) Operating Agreement, dated July 31, 1979, among Eaton Corporation
and Sumitomo Heavy Industries, Ltd. is incorporated by reference to Exhibit 10.2
to the Company's Registration Statement on Form S-4 filed on May 28, 2002
(Registration Statement Number 333-89248).
(lxi) Agreement and Plan of Merger, dated as of December 20, 1993,
between Hyster Company, an Oregon corporation, and Hyster Company, a Delaware
corporation, is incorporated herein by reference to Exhibit 10(lxxviii) to
Hyster-Yale Annual Report on Form 10-K for the fiscal year ended December 31,
1993, Commission File Number 33-28812.
*(lxii) Agreement and Plan of Merger, dated as of December 20, 1993,
between Yale Materials Handling Corporation, a Delaware corporation, Hyster
Company, a Delaware corporation, and Hyster-Yale Materials Handling, Inc., a
Delaware corporation, is incorporated herein by reference to Exhibit 10(lxxix)
to Hyster-Yale Annual Report on Form 10-K for the fiscal year ended December 31,
1993, Commission File Number 33-28812.
*(lxiii) NACCO Materials Handling Group, Inc. 2003 Annual Incentive
Compensation Plan, effective as of January 1, 2003, is attached hereto as
Exhibit 10(lxiii).
*(lxiv) NACCO Materials Handling Group, Inc. Senior Executive Long-Term
Incentive Compensation Plan, effective as of January 1, 2000, is incorporated
herein by reference to Exhibit 10(lxiv) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2000, Commission File Number 1-9172.
*(lxv) NACCO Materials Handling Group, Inc. Long-Term Incentive
Compensation Plan, effective as of January 1, 2000, is incorporated by reference
to Exhibit 10(lxv) to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000, Commission File Number 1-9172.
*(lxvi) Amendment No. 1, dated as of June 8, 2001, to the NACCO
Materials Handling Group, Inc. Senior Executive Long-Term Incentive Compensation
Plan (effective as of January 1, 2000) is incorporated herein by reference to
Exhibit 10(lxvi) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001, Commission File Number 1-9172.
*(lxvii) Amendment No. 1, dated as of June 8, 2001, to the NACCO
Materials Handling Group, Inc. Long-Term Incentive Compensation Plan (effective
as of January 1, 2000) is incorporated herein by reference to Exhibit 10(lxvii)
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2001, Commission File Number 1-9172.
*(lxviii) Amendment No. 1, dated as of February 19, 2001, to the NACCO
Materials Handling Group, Inc. Unfunded Benefit Plan (as amended and restated
effective September 1, 2000) is incorporated herein by reference to Exhibit
10(lxviii) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, Commission File Number 1-9172.
(lxix) Amendment, dated as of January 1, 1994, to the Third Amendment
and Restated Operating Agreement dated as of November 7, 1991, between NACCO
Materials Handling Group and AT&T Commercial Finance Corporation is incorporated
herein by reference to Exhibit 10(c) to the Hyster-Yale Quarterly Report on Form
10-Q for the quarter ended September 30, 1994, Commission File Number 33-28812.
(lxx) Equity joint venture contract, dated November 27, 1997, between
Shanghai Perfect Jinqiao United Development Company Ltd., People's Republic of
China, NACCO Materials Handling Group, Inc., USA, and Sumitomo-Yale Company
Ltd., Japan is incorporated by reference to Exhibit 10.3 to NMHG Holding Co.'s
Registration Statement on Form S-4 filed on May 28, 2002 (Registration Statement
Number 333-89248).
*(lxxi) Amendment No. 2 to the NACCO Materials Handling Group, Inc.
Senior Executive Long-Term Incentive Compensation Plan (effective as of January
1, 2000) is attached hereto as Exhibit 10(lxxi).
(lxxii) Recourse and Indemnity Agreement, dated October 21, 1998,
between General Electric Capital Corp., NMHG Financial Services, Inc. and NACCO
Materials Handling Group, Inc. is incorporated by reference to Exhibit 10.4 to
NMHG Holding Co.'s Registration Statement on Form S-4 filed on May 28, 2002
(Registration Statement Number 333-89248).
*(lxxiii) NACCO Materials Handling Group, Inc. Unfunded Benefit Plan
(as amended and restated effective as of September 1, 2000) is incorporated
herein by reference to Exhibit 10(lxxiii) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2000, Commission File Number 1-9172.
*(lxxiv) Amendment No. 2 to the NACCO Materials Handling Group, Inc.
Long-Term Incentive Compensation Plan (effective as of January 1, 2000) is
attached hereto as Exhibit 10(lxxiv).
X-6
(lxxv) Restated and Amended Joint Venture and Shareholders Agreement,
dated April 15, 1998, between General Electric Capital Corp. and NACCO Materials
Handling Group, Inc. is incorporated by reference to Exhibit 10.5 to NMHG
Holding Co.'s Registration Statement on Form S-4 filed on May 28, 2002
(Registration Statement Number 333-89248).
(lxxvi) Amendment No. 1 to the Restated and Amended Joint Venture and
Shareholders Agreement between General Electric Capital Corporation and NACCO
Materials Handling Group, Inc., dated as of October 21, 1998 is incorporated by
reference to Exhibit 10.6 to NMHG Holding Co.'s Registration Statement on Form
S-4 filed on May 28, 2002 (Registration Statement Number 333-89248).
(lxxvii) International Operating Agreement, dated April 15, 1998,
between NACCO Materials Handling Group, Inc. and General Electric Capital Corp.
(the "International Operating Agreement") is incorporated by reference to
Exhibit 10.7 to NMHG Holding Co.'s Registration Statement on Form S-4 filed on
May 28, 2002 (Registration Statement Number 333-89248).
(lxxviii) Amendment No. 1 to the International Operating Agreement,
dated as of October 21, 1998 is incorporated by reference to Exhibit 10.8 to
NMHG Holding Co.'s Registration Statement on Form S-4 filed on May 28, 2002
(Registration Statement Number 333-89248).
*(lxxix) Amendment No. 2, dated as of August 6, 2001, to the NACCO
Materials Handling Group, Inc. Unfunded Benefit Plan (as amended and restated
effective September 1, 2000) is incorporated herein by reference to Exhibit
10(lxxix) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, Commission File Number 1-9172.
*(lxxx) Amendment No. 3, dated as of June 8, 2001, to the NACCO
Materials Handling Group, Inc. Unfunded Benefit Plan (as amended and restated
effective September 1, 2000) is incorporated herein by reference to Exhibit
10(lxxx) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, Commission File Number 1-9172.
*(lxxxi) Amendment No. 4, dated as of November 1, 2001, to the NACCO
Materials Handling Group, Inc. Unfunded Benefit Plan (as amended and restated
effective September 1, 2000) is incorporated herein by reference to Exhibit
10(lxxxi) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, Commission File Number 1-9172.
*(lxxxii) Amendment No. 5, dated as of December 21, 2001, to the NACCO
Materials Handling Group, Inc. Unfunded Benefit Plan (as amended and restated
effective September 1, 2000) is incorporated herein by reference to Exhibit
10(lxxxii) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, Commission File Number 1-9172.
*(lxxxiii) Amendment No. 6, dated as of January 31, 2003, to the NACCO
Materials Handling Group, Inc. Unfunded Benefit Plan (as amended and restated
effective September 1, 2000) is attached hereto as Exhibit 10(lxxxiii).
*(lxxxiv) The NACCO Materials Handling Group, Inc. Excess Pension Plan
for UK Transferees (Effective as of October 1, 2002) is attached hereto as
Exhibit 10(lxxxiv).
(lxxxv) Amendment No. 2 to the International Operating Agreement, dated
as of December 1, 1999, is incorporated by reference to Exhibit 10.9 to NMHG
Holding Co.'s Registration Statement on Form S-4 filed on May 28, 2002
(Registration Statement Number 333-89248).
(lxxxvi) Amendment No. 3 to the International Operating Agreement,
dated as of May 1, 2000, is incorporated by reference to Exhibit 10.10 to the
Company's Registration Statement on Form S-4 filed on May 28, 2002 (Registration
Statement Number 333-89248).
(lxxxvii) Letter agreement, dated November 22, 2000, between General
Electric Capital Corporation and NACCO Materials Handling Group, Inc. amending
the International Operating Agreement is incorporated by reference to Exhibit
10.11 to the Company's Registration Statement on Form S-4 filed on May 28, 2002
(Registration Statement Number 333-89248).
(lxxxviii) A$ Facility Agreement, dated November 22, 2000, between GE
Capital Australia and National Fleet Network Pty Limited is incorporated by
reference to Exhibit 10.12 to the Company's Registration Statement on Form S-4
filed on May 28, 2002 (Registration Statement Number 333-89248).
(lxxxix) Loan Agreement, dated as of June 28, 1996, between NACCO
Materials Handling Group, Inc. and NACCO Industries, Inc. is incorporated by
reference to Exhibit 10.13 to the Company's Registration Statement on Form S-4
filed on May 28, 2002 (Registration Statement Number 333-89248).
(xc) Business Sale Agreement, dated November 10, 2000, between Brambles
Australia Limited, ACN 094 802 141 Pty Limited and NACCO Materials Handling
Group, Inc. is incorporated by reference to Exhibit 10.14 to the Company's
Registration Statement on Form S-4 filed on May 28, 2002 (Registration Statement
Number 333-89248).
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(xci) First Amendment, dated as of June 28, 2002, to the Credit
Agreement dated as of May 9, 2002, among NMHG Holding Co., NACCO Materials
Handling Group, Inc. NMHG Distribution Co., NACCO Materials Handling Limited,
NACCO Materials Handling B.V., the financial institutions from time to time a
party thereto as Lenders, the financial institutions from time to time a party
thereto as Issuing Bank, Citicorp North America, Inc., as administrative agent
for the Lenders and the Issuing Bank thereunder and Credit Suisse First Boston
as joint arrangers and joint bookrunners and CSFB as syndication agent is
attached hereto as Exhibit 10(xci).
(xcii) Agreement of Merger, dated as of January 20, 1988, among NACCO
Industries, Inc., Housewares Holding Company, WE-PS Merger, Inc. and
WearEver-ProctorSilex, Inc., is incorporated herein by reference to pages 8
through 97 of Exhibit 2 to the Company's Current Report on Form 8-K, dated
February 1, 1988, Commission File Number 1-9172.
(xciii) Shareholders Agreement, dated January 20, 1988, among NACCO
Industries, Inc. and the shareholders named therein is incorporated herein by
reference to pages 98 through 108 of Exhibit 2 to the Company's Current Report
on Form 8-K, dated February 1, 1988, Commission File Number 1-9172.
(xciv) Credit Agreement, dated as of December 17, 2002, among Hamilton
Beach/Proctor-Silex, Inc. and Proctor-Silex Canada, Inc., as Borrowers, each of
the Financial Institutions initially a signatory, as Lenders, Wachovia National
Association, as Administrative Agent, ABN Amro Bank N.V., Canadian Branch, as
Canadian Agent, Key Bank, National Association, as Syndication Agent, Fleet
Capital Corporation, as Documentation Agent, LaSalle Business Credit, Inc., as
Documentation Agent, and National City Commercial Finance, Inc., as
Documentation Agent is attached hereto as Exhibit 10(xciv).
(xcv) Security Agreement, dated as of December 17, 2002, between
Hamilton Beach/Proctor-Silex, Inc. and Wachovia National Association, as
Administrative Agent is attached hereto as Exhibit 10 (xcv).
(xcvi) Security Agreement, dated as of December 17, 2002, between
Proctor-Silex Canada, Inc., Wachovia National Association, as Administrative
Agent, and ABN Amro Bank N.V., Canadian Branch, as Canadian Agent is attached
hereto as Exhibit 10(xcvi).
(xcvii) Guaranty Agreement, dated as of December 17, 2002, executed by
Hamilton Beach/Proctor-Silex, Inc. in favor of Wachovia National Association, as
Administrative Agent, and ABN Amro Bank N.V., Canadian Branch, as Canadian
Agent, and the Lenders, for the benefit of Proctor-Silex Canada, Inc. is
attached hereto as Exhibit 10(xcvii).
(xcviii) Pledge Agreement, dated as of December 17, 2002, by and among
HB-PS Holding Company, Inc. and Wachovia National Association, as Administrative
Agent (100% of stock of Hamilton Beach/Proctor-Silex, Inc.) is attached hereto
as Exhibit 10(xcviii).
(xcix) Pledge Agreement, dated as of December 17, 2002, by and among
Hamilton Beach/Proctor-Silex, Inc. and Wachovia National Association, as
Administrative Agent (65% of stock of each of Proctor-Silex Canada, Inc., Grupo
HB/PS, S.A. de C.V., Hamilton Beach/Proctor-Silex de Mexico, S.A. de C.V., and
Proctor-Silex, S.A. de C.V. and 100% of Altoona Services, Inc.) is attached
hereto as Exhibit 10(xcix).
(c) - (civ) Intentionally left blank.
*(cv) The Hamilton Beach/Proctor-Silex, Inc. 2002 Annual Incentive
Compensation Plan is incorporated herein by reference to Exhibit 10(cxx) to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001, Commission File Number 1-9172.
*(cvi) Hamilton Beach/Proctor-Silex, Inc. Long-Term Incentive
Compensation Plan, effective January 1, 1993, is incorporated by reference to
Exhibit 10(cxxiv) to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992, Commission File Number 1-9172.
(cvii) - (cxix) Intentionally left blank.
*(cxx) The Hamilton Beach/Proctor-Silex, Inc. 2003 Annual Incentive
Compensation Plan, effective as of January 1, 2003, is attached hereto as
Exhibit 10(cxx).
*(cxxi) Amendment No. 1, dated December 12, 1999, to the Hamilton
Beach/Proctor-Silex, Inc. Long-Term Incentive Compensation Plan is incorporated
herein by reference to Exhibit 10(cxxiv) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999, Commission File Number 1-9172.
(cxxii) - (cxxvi) Intentionally left blank.
*(cxxvii) The Hamilton Beach/Proctor-Silex, Inc. Unfunded Benefit Plan
(As Amended and Restated Effective October 1, 2001) is incorporated herein by
reference to Exhibit 10(cxxvii) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, Commission File Number 1-9172.
*(cxxviii) Amendment No. 1, dated as of December 21, 2001, to the
Hamilton Beach/Proctor-Silex, Inc. Unfunded Benefit Plan (As Amended and
Restated Effective October 1, 2001) is incorporated herein by reference to
Exhibit 10(cxxviii) to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2001, Commission File Number 1-9172.
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*(cxxix) Amendment No. 3, dated as of August 29, 2002, to the Hamilton
Beach/Proctor-Silex, Inc. Long-Term Incentive Compensation Plan is attached
hereto as Exhibit 10(cxxix).
*(cxxx) Amendment No. 4, dated as of December 18, 2002, to the Hamilton
Beach/Proctor-Silex, Inc. Long-Term Incentive Compensation Plan is attached
hereto as Exhibit 10(cxxx).
*(cxxxi) Hamilton Beach/Proctor-Silex, Inc. Senior Executive Long-Term
Incentive Compensation Plan is attached hereto as Exhibit 10(cxxxi).
*(cxxxii) Hamilton Beach/Proctor-Silex, Inc. Long-Term Incentive
Compensation Plan, effective January 1, 2003, is attached hereto as Exhibit
10(cxxxii).
(21) Subsidiaries. A list of the subsidiaries of the Company is attached
hereto as Exhibit 21.
(23) Consents of experts and counsel.
(i) The consent of Ernst & Young LLP, independent auditors, is attached
hereto as Exhibit 23(i).
(ii) Information regarding the consent of Arthur Andersen LLP is attached
hereto as Exhibit 23(ii).
(24) Powers of Attorney.
(i) A copy of a power of attorney for Owsley Brown II is attached hereto as
Exhibit 24(i).
(ii) A copy of a power of attorney for Robert M. Gates is attached hereto as
Exhibit 24(ii).
(iii) A copy of a power of attorney for Leon J. Hendrix, Jr. is attached
hereto as Exhibit 24(iii).
(iv) A copy of a power of attorney for David H. Hoag is attached hereto as
Exhibit 24(iv).
(v) A copy of a power of attorney for Dennis W. LaBarre is attached hereto
as Exhibit 24(v).
(vi) A copy of a power of attorney for Richard de J. Osborne is attached
hereto as Exhibit 24(vi).
(vii) A copy of a power of attorney for Ian M. Ross is attached hereto as
Exhibit 24(vii).
(viii) A copy of a power of attorney for Michael E. Shannon is attached hereto
as Exhibit 24(viii).
(ix) A copy of a power of attorney for Britton T. Taplin is attached hereto
as Exhibit 24(ix).
(x) A copy of a power of attorney for David F. Taplin is attached hereto as
Exhibit 24(x).
(xi) A copy of a power of attorney for John F. Turben is attached hereto as
Exhibit 24(xi).
(99) Other exhibits not required to otherwise be filed.**
(i) Unaudited Consolidating Statement of Operations and Comprehensive
Income (Loss) of NACCO Industries, Inc. for the Year Ended December
31, 2002 is attached hereto as Exhibit 99(i).
(ii) Unaudited Consolidating Balance Sheet of NACCO Industries, Inc. as of
December 31, 2002 is attached hereto as Exhibit 99(ii).
(iii) Unaudited Consolidating Statement of Cash Flows of NACCO Industries,
Inc. for the Year Ended December 31, 2002 is attached hereto as
Exhibit 99(iii).
(iv) Unaudited Consolidating Statement of Stockholders' Equity of NACCO
Industries, Inc. for the Year Ended December 31, 2002 is attached
hereto as Exhibit 99(iv).
*Management contract or compensation plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of this Annual Report on Form 10-K.
**Consolidating Financial Statements of NACCO Industries, Inc. are not
required disclosures and are included only for informational purposes. These
statements have not been audited by independent auditors and are presented only
for purposes of additional analysis and not as a presentation of the financial
results or position of each component of the consolidated group, and should be
read accordingly.
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