SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9172
NACCO Industries, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 34-1505819
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5875 LANDERBROOK DRIVE, MAYFIELD HEIGHTS, OHIO 44124
(Address of principal executive offices) Zip code
Registrant's telephone number, including area code (440) 449-9600
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the last 90 days.
YES X NO
Number of shares of Class A Common Stock outstanding at October 31, 1997:
6,473,940
Number of shares of Class B Common Stock outstanding at October 31, 1997:
1,679,146
<PAGE>
NACCO INDUSTRIES, INC.
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance
Sheets - September 30, 1997 (Unaudited)
and December 31, 1996
Unaudited Condensed Consolidated
Statements of Income for the Three
Months Ended and Nine Months Ended
September 30, 1997 and 1996
Unaudited Condensed Consolidated
Statements of Cash Flows for the
Nine Months Ended September 30,
1997 and 1996
Notes to Unaudited Condensed
Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Part II. OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Change in Securities and Use
of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote
of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signature
Exhibit Index
<PAGE>
PART I
Item 1 - Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited) (Audited)
SEPTEMBER 30 DECEMBER 31
1997 1996
---------- ----------
<S> <C> <C>
ASSETS (In millions)
Current Assets
Cash and cash equivalents $ 37.3 $ 47.8
Accounts receivable, net 211.8 212.2
Inventories 327.8 309.6
Prepaid expenses and other 25.0 22.2
---------- ----------
601.9 591.8
Property, Plant and Equipment, Net 538.7 550.3
Deferred Charges
Goodwill, net 453.3 461.0
Deferred costs and other 62.3 59.6
Deferred income taxes 6.6 7.9
---------- ----------
522.2 528.5
Other Assets 46.3 37.5
---------- ----------
Total Assets $ 1,709.1 $ 1,708.1
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited) (Audited)
SEPTEMBER 30 DECEMBER 31
1997 1996
---------- ----------
(In millions)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 212.4 $ 186.3
Revolving credit agreements 77.3 45.8
Current maturities of long-term debt 21.1 21.4
Income taxes 12.3 5.9
Accrued payroll 30.3 30.8
Other current liabilities 139.5 125.8
---------- ----------
492.9 416.0
Long-term Debt- not guaranteed by
the parent company 247.9 333.3
Obligations of Project Mining Subsidiaries -
not guaranteed by the parent company or
its NACoal subsidiary 333.5 341.5
Self-insurance Reserves and Other 222.6 223.9
Minority Interest 16.3 14.1
Stockholders' Equity
Common stock:
Class A, par value $1 per share, 6,471,125
shares outstanding (1996 - 6,492,059
shares outstanding) 6.5 6.5
Class B, par value $1 per share, convertible
into Class A on a one-for-one basis,
1,681,961 shares outstanding
(1996 - 1,694,336 shares outstanding) 1.7 1.7
Capital in excess of par value .1 .1
Retained earnings 384.9 359.2
Foreign currency translation adjustment
and other 2.7 11.8
---------- ----------
395.9 379.3
---------- ----------
Total Liabilities and Stockholders' Equity $ 1,709.1 $ 1,708.1
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------ -----------------
1997 1996 1997 1996
----------- ----------- ------------- -------------
(In millions, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 557.4 $ 537.0 $ 1,578.2 $ 1,657.4
Cost of sales 451.6 438.3 1,289.9 1,344.3
----------- ----------- ------------- -------------
Gross Profit 105.8 98.7 288.3 313.1
Selling, general and administrative expenses 64.3 68.8 189.1 210.5
Amortization of goodwill 4.0 3.9 11.9 11.5
----------- ----------- ------------- -------------
Operating Profit 37.5 26.0 87.3 91.1
Other income (expense)
Interest expense (8.8) (11.4) (28.1) (34.8)
Other - net (3.4) (.2) (2.2) 3.3
----------- ----------- ------------- -------------
(12.2) (11.6) (30.3) (31.5)
----------- ----------- ------------- -------------
Income Before Income Taxes and
Minority Interest 25.3 14.4 57.0 59.6
Provision for income taxes 10.6 6.1 24.2 23.7
----------- ----------- ------------- -------------
Income Before Minority Interest 14.7 8.3 32.8 35.9
Minority interest (.2) (.7) (.6) (1.4)
----------- ----------- ------------- -------------
Net Income $ 14.5 $ 7.6 $ 32.2 $ 34.5
=========== =========== ============= =============
Weighted average common shares outstanding 8.153 8.985 8.177 8.981
=========== =========== ============= =============
Net Income per share $ 1.78 $ .85 $ 3.94 $ 3.84
=========== =========== ============= =============
Dividends per share $ .1950 $ .1875 $ .5775 $ .5550
=========== =========== ============= =============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30
-----------------
1997 1996
-------- -------
(In millions)
<S> <C> <C>
Operating Activities
Net income $ 32.2 $ 34.5
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Depreciation, depletion and amortization 65.9 63.1
Deferred income taxes (4.2) (6.1)
Other non-cash items (.2) (1.9)
Working Capital Changes:
Accounts receivable (8.1) 49.5
Inventories (25.3) 2.0
Other current assets 3.3 (1.2)
Accounts payable 31.2 (47.0)
Accrued income taxes 7.1 (8.1)
Other liabilities 14.1 3.9
-------- -------
Net cash provided by operating activities 116.0 88.7
Investing Activities
Expenditures for property, plant and equipment (44.0) (59.2)
Proceeds from the sale of assets 2.9 .9
Investments in unconsolidated affiliates (1.7) (1.8)
Acquisitions of businesses (12.4) (10.3)
Other - net 1.3 .3
-------- -------
Net cash used for investing activities (53.9) (70.1)
Financing Activities
Additions to long-term debt and
revolving credit agreements 49.0 59.5
Reductions of long-term and
revolving credit agreements (99.5) (66.7)
Additions to obligations of project mining
subsidiaries 42.2 53.0
Reductions of obligations of project mining
subsidiaries (56.1) (58.9)
Cash dividends paid (4.7) (5.0)
Capital grants .7 3.5
Other - net (2.1) (1.5)
-------- -------
Net cash used for financing activities (70.5) (16.1)
Effect of exchange rate changes on cash (2.1) (.7)
-------- -------
Cash and Cash Equivalents
(Decrease)increase for the period (10.5) 1.8
Balance at the beginning of the period 47.8 30.9
-------- -------
Balance at the end of the period $ 37.3 $ 32.7
======== =======
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Dollars in Millions)
Note 1 - Basis of Presentation
NACCO Industries, Inc. ("NACCO") is a holding company with four operating
subsidiaries: NACCO Materials Handling Group, Inc. ("NMHG"), Hamilton
Beach/Proctor-Silex, Inc. ("HB/PS"), The North American Coal Corporation
("NACoal") and The Kitchen Collection, Inc. ("KCI").
The accompanying unaudited condensed consolidated financial statements include
the accounts of NACCO and its majority owned subsidiaries (NACCO Industries,
Inc. and Subsidiaries - the "Company"). Intercompany accounts have been
eliminated.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the financial position of the Company as of September 30, 1997 and the results
of its operations for the three and nine month periods and cash flows for the
nine month periods ended September 30, 1997 and 1996 have been included.
Operating results for the nine month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the remainder of
the year ended December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
Certain amounts in the prior periods' unaudited condensed consolidated financial
statements have been reclassified to conform to the current period's
presentation.
Note 2 - Accounting Policies
Derivative Financial Instruments: NMHG and HB/PS operate internationally and
enter into transactions denominated in foreign currencies. As a result, the
Company is subject to the transaction exposures that arise from exchange rate
movements between the dates foreign currency transactions are recorded and the
dates they are consummated. 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 usually have
maturities of one to twelve months and generally require the companies to buy or
sell Japanese yen, Australian dollars, Canadian dollars or various European
currencies for the U.S. dollar at rates agreed to at the inception of the
contracts.
Generally, gains and losses from changes in the market value of these contracts
are recognized in Cost of sales and offset the foreign exchange gains and losses
on the underlying transaction. Gains and losses on contracts designated as
hedges of firm commitments denominated in foreign currencies are deferred and
included in the measurement of the related transaction.
NMHG, HB/PS, NACoal and KCI have entered into interest rate swap agreements for
portions of their floating rate revolving credit agreements. These interest rate
swap agreements allow the subsidiaries to enter into long-term financing
arrangements that have performance-based,
<PAGE>
Note 2 - Accounting Policies - continued
floating rates of interest, and then exchange them for fixed rates of interest,
as opposed to entering into higher cost fixed-rate credit arrangements. Terms of
the interest rate swap agreements range from six months to six and one-half
years, with the counterparty's option to extend certain contracts to eight and
one-half years, and generally require the subsidiaries to receive a variable
interest rate and pay a fixed interest rate. Variable rates for both the
floating rate financing and the interest rate swap agreements are predominately
linked to three month LIBOR (London Interbank Offered Rate). The common index
promotes effectiveness of the interest rate swap agreements as a hedging
instrument.
Amounts to be paid or received under the interest rate swap agreements are
accrued as interest rates change and are recognized over the life of the swap
agreement as an adjustment to Interest expense. The related amounts payable to,
or receivable from, the counterparties are included in Other current
liabilities. Changes in the market value of the interest rate swap agreements
are not recognized in net income. However, in the event of termination or
extinguishment of the underlying debt, changes in the market value of interest
rate swap agreements that could not be designated as hedges of other assets,
liabilities or anticipated transactions would be recognized in net income over
the remaining life of the contract or upon termination of the contract.
Note 3 - Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
-------- --------
(Unaudited) (Audited)
<S> <C> <C>
Manufacturing inventories:
Finished goods and service parts
NMHG $ 74.6 $ 113.6
HB/PS 57.0 34.1
-------- --------
131.6 147.7
-------- --------
Raw materials and work in process
NMHG 143.5 120.6
HB/PS 17.0 14.0
-------- --------
160.5 134.6
-------- --------
LIFO reserve
NMHG (13.4) (15.6)
HB/PS .1 .3
-------- --------
(13.3) (15.3)
-------- --------
Total manufacturing inventories 278.8 267.0
Coal - NACoal 10.8 8.3
Mining supplies - NACoal 18.7 18.9
Retail inventories - KCI 19.5 15.4
-------- --------
$ 327.8 $ 309.6
======== ========
</TABLE>
The cost of manufacturing inventories has been determined by the last-in,
first-out (LIFO) method for 68 percent and 62 percent of such inventories as of
September 30, 1997 and December 31, 1996, respectively.
<PAGE>
Note 4 - Long-Term Commitments
In the first quarter of 1997, NACoal entered into operating lease agreements to
lease certain machinery and equipment to be used in operating a mine for San
Miguel Electric Cooperative.
Mine services to San Miguel Electric Cooperative began in July 1997. Lease
expense of $0.7 million has been recognized for the nine month period ended
September 30, 1997. The total lease commitment, which began in July 1997 and
extends to December 2007, is estimated to be $34.0 million and will be paid as
follows: $1.4 million in 1997, $3.2 million each year in the period 1998 through
2001, $3.4 million in 2002 and $16.4 million payable over the remaining terms of
the operating lease agreements.
Note 5 - Accounting Standards Not Yet Adopted
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," establishing standards for computing and presenting earnings per share
("EPS"). SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997 and requires restatement of all prior period EPS
data presented. Earlier application is not permitted. The implementation of SFAS
No. 128 is not expected to have a material effect on the reported EPS of the
Company.
In June 1997, the FASB issued two new Statements: SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 130 requires all items recognized
as components of other comprehensive income to be reported in the financial
statements. SFAS No. 131 requires enterprises to report selected information
about operating segments and related disclosures about products and services,
geographic areas, and major customers. The Company will comply with the
provisions of these Statements, both of which become effective for fiscal years
beginning after December 15, 1997.
Note 6 - Accounts Receivable Securitization
On April 25, 1997, NMHG entered into a one year agreement to sell all of its
domestic accounts receivable, on a revolving basis, to Lift Truck Funding
Company, LLC ("LTF"), a wholly owned subsidiary of NMHG. LTF was formed prior to
the execution of this agreement for the purpose of buying and selling accounts
receivable and is designed to be bankruptcy remote.
Also, on April 25, 1997, NMHG and LTF entered into a one year agreement with a
financial institution whereby LTF can sell, on a revolving basis, an undivided
percentage ownership interest in certain eligible accounts receivable, as
defined, up to a maximum of $60.0 million. In accordance with this agreement, at
September 30, 1997, the balance of accounts receivable sold by LTF was $29.6
million, net of a discount. The proceeds from the sale of receivables were used
to retire debt outstanding under NMHG's revolving credit agreement. For the nine
months ended September 30, 1997, the net effect of the sale of receivables was
not material to the operating results of NACCO.
This two-step transaction is accounted for as a sale of receivables.
Accordingly, the Company's Condensed Consolidated Balance Sheet reflects the
portion of receivables transferred to the financial institution as a reduction
in Accounts receivable, net. The discount and any other transaction gains and
losses are included in Other - net in the Condensed Consolidated Statement of
Income. NMHG continues to service the receivables and maintains an allowance for
doubtful accounts based upon the expected collectibility of all consolidated
accounts receivable, including the portion of receivables sold by LTF.
<PAGE>
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Per Share Data)
==================
FINANCIAL SUMMARY
==================
NACCO's four operating subsidiaries function in distinct business environments,
and the results of operations and financial condition are best discussed at the
subsidiary level as presented below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
1997 1996 1997 1996
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
NMHG $ 352.3 $ 349.5 $ 1,062.0 $ 1,177.9
HB/PS 117.8 109.0 280.3 259.6
NACoal 70.2 61.2 191.0 177.0
KCI 19.6 19.5 50.8 47.0
NACCO and Other .1 -- .2 .2
Eliminations (2.6) (2.2) (6.1) (4.3)
-------- ---------- ---------- ----------
$ 557.4 $ 537.0 $ 1,578.2 $ 1,657.4
======== ========== ========== ==========
GROSS PROFIT
NMHG $ 61.3 $ 58.5 $ 185.6 $ 213.7
HB/PS 20.2 18.9 42.6 43.5
NACoal 16.0 13.0 39.2 35.9
KCI 8.3 8.3 21.0 20.0
NACCO and Other -- -- (.1) --
Eliminations -- -- -- --
-------- ---------- ---------- ----------
$ 105.8 $ 98.7 $ 288.3 $ 313.1
======== ========== ========== ==========
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
NMHG $ 40.7 $ 46.2 $ 122.3 $ 145.0
HB/PS 11.1 10.9 31.4 30.0
NACoal 2.8 2.5 7.6 7.8
KCI 7.6 7.3 21.7 20.7
NACCO and Other 2.1 1.9 6.1 7.0
Eliminations -- -- -- --
-------- ---------- ---------- ----------
$ 64.3 $ 68.8 $ 189.1 $ 210.5
======== ========== ========== ==========
AMORTIZATION OF GOODWILL
NMHG $ 3.0 $ 2.9 $ 8.8 $ 8.6
HB/PS 1.0 1.0 3.0 2.8
KCI -- -- .1 .1
-------- ---------- ---------- ----------
$ 4.0 $ 3.9 $ 11.9 $ 11.5
======== ========== ========== ==========
OPERATING PROFIT (LOSS)
NMHG $ 17.6 $ 9.4 $ 54.5 $ 60.1
HB/PS 8.1 7.0 8.2 10.7
NACoal 13.2 10.5 31.6 28.1
KCI .7 1.0 (.8) (.8)
NACCO and Other (2.1) (1.9) (6.2) (7.0)
-------- ---------- ---------- ----------
$ 37.5 $ 26.0 $ 87.3 $ 91.1
======== ========== ========== ==========
</TABLE>
<PAGE>
FINANCIAL SUMMARY - continued
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
OPERATING PROFIT (LOSS)
EXCLUDING GOODWILL AMORTIZATION
NMHG $ 20.6 $ 12.3 $ 63.3 $ 68.7
HB/PS 9.1 8.0 11.2 13.5
NACoal 13.2 10.5 31.6 28.1
KCI .7 1.0 (.7) (.7)
NACCO and Other (2.1) (1.9) (6.2) (7.0)
------- ------- -------- --------
$ 41.5 $ 29.9 $ 99.2 $ 102.6
======= ======= ======== ========
INTEREST EXPENSE
NMHG $ (3.1) $ (6.1) $ (11.6) $ (19.5)
HB/PS (1.8) (1.7) (5.0) (4.5)
NACoal (.6) (.1) (1.6) (.2)
KCI (.1) (.1) (.3) (.4)
NACCO and Other (.6) (.2) (1.8) (1.0)
Eliminations .6 .2 1.8 1.0
------- ------- -------- --------
(5.6) (8.0) (18.5) (24.6)
Project mining subsidiaries (3.2) (3.4) (9.6) (10.2)
------- ------- -------- --------
$ (8.8) $ (11.4) $ (28.1) $ (34.8)
======= ======= ======== ========
OTHER-NET, INCOME (EXPENSE)
NMHG $ (1.5) $ -- $ (.4) $ (.8)
HB/PS (.1) -- (.1) (.1)
NACoal (1.2) (.3) (.2) 4.0
NACCO and Other -- .3 .3 1.2
Eliminations (.6) (.2) (1.8) (1.0)
------- ------- -------- --------
$ (3.4) $ (.2) $ (2.2) $ 3.3
======= ======= ======== ========
PROVISION FOR INCOME TAXES
NMHG $ 5.0 $ 1.9 $ 18.8 $ 16.6
HB/PS 2.8 2.3 1.4 2.1
NACoal 2.9 2.3 7.2 7.2
KCI .3 .4 (.4) (.5)
NACCO and Other (.4) (.8) (2.8) (1.7)
------- ------- -------- --------
$ 10.6 $ 6.1 $ 24.2 $ 23.7
======= ======= ======== ========
NET INCOME (LOSS)
NMHG $ 8.0 $ 1.4 $ 23.7 $ 23.2
HB/PS 3.4 3.0 1.7 4.0
NACoal 5.3 4.4 13.0 14.5
KCI .3 .5 (.7) (.7)
NACCO and Other (2.3) (1.0) (4.9) (5.1)
Minority interest (.2) (.7) (.6) (1.4)
------- ------- -------- --------
$ 14.5 $ 7.6 $ 32.2 $ 34.5
======= ======= ======== ========
</TABLE>
<PAGE>
FINANCIAL SUMMARY - continued
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE
NMHG $ 9.0 $ 8.3 $ 26.0 $ 24.9
HB/PS 4.7 4.8 14.6 13.9
NACoal .6 .5 1.7 1.5
KCI .3 .3 .9 .8
NACCO and Other .2 .1 .3 .2
------- ------- ------- -------
14.8 14.0 43.5 41.3
Project mining subsidiaries 7.5 7.3 22.4 21.8
------- ------- ------- -------
$ 22.3 $ 21.3 $ 65.9 $ 63.1
======= ======= ======= =======
CAPITAL EXPENDITURES
NMHG $ 5.6 $ 7.9 $ 14.1 $ 33.9
HB/PS 3.8 5.1 13.0 9.0
NACoal 5.5 .1 7.2 .8
KCI -- .2 .4 .9
NACCO and Other -- (.1) .1 --
------- ------- ------- -------
14.9 13.2 34.8 44.6
Project mining subsidiaries 6.1 4.2 9.2 14.6
------- ------- ------- -------
$ 21.0 $ 17.4 $ 44.0 $ 59.2
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
---------- ----------
TOTAL ASSETS
<S> <C> <C>
NMHG $ 901.8 $ 950.9
HB/PS 323.8 271.8
NACoal 72.5 66.5
KCI 27.2 27.6
NACCO and Other 51.2 56.7
---------- ----------
1,376.5 1,373.5
Project mining subsidiaries 422.2 433.6
---------- ----------
1,798.7 1,807.1
Consolidating eliminations (89.6) (99.0)
---------- ----------
$ 1,709.1 $ 1,708.1
========== ==========
</TABLE>
<PAGE>
=====================================
NACCO MATERIALS HANDLING GROUP, INC.
=====================================
NMHG, 98 percent owned by NACCO, designs, manufactures and markets forklift
trucks and related service parts under the Hyster(R) and Yale(R) brand names.
FINANCIAL REVIEW
The results of operations for NMHG were as follows for the three and nine months
ended September 30:
<TABLE>
<CAPTION>
Three Months Nine Months
------------ -----------
1997 1996 1997 1996
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Americas $ 249.8 $ 229.1 $ 719.0 $ 770.8
Europe, Africa and Middle East 83.5 98.6 286.0 333.3
Asia-Pacific 19.0 21.8 57.0 73.8
-------- ---------- ---------- ----------
$ 352.3 $ 349.5 $ 1,062.0 $ 1,177.9
======== ========== ========== ==========
Operating profit
Americas $ 14.7 $ 4.5 $ 42.5 $ 35.1
Europe, Africa and Middle East 3.0 6.4 13.9 28.0
Asia-Pacific (.1) (1.5) (1.9) (3.0)
-------- ---------- ---------- ----------
$ 17.6 $ 9.4 $ 54.5 $ 60.1
======== ========== ========== ==========
Operating profit excluding
goodwill amortization
Americas $ 16.7 $ 6.5 $ 48.4 $ 41.1
Europe, Africa and Middle East 3.9 7.2 16.6 30.5
Asia-Pacific -- (1.4) (1.7) (2.9)
-------- ---------- ---------- ----------
$ 20.6 $ 12.3 $ 63.3 $ 68.7
======== ========== ========== ==========
Net income $ 8.0 $ 1.4 $ 23.7 $ 23.2
======== ========== ========== ==========
</TABLE>
<PAGE>
NACCO MATERIALS HANDLING GROUP, INC. - continued
FINANCIAL REVIEW - continued
Third Quarter of 1997 Compared With Third Quarter of 1996
The following schedule identifies the components of the changes in revenues,
operating profit and net income for the third quarter of 1997 compared with the
third quarter of 1996:
<TABLE>
<CAPTION>
Operating Net
Revenues Profit Income
-------- ------- ------
<S> <C> <C> <C>
1996 $ 349.5 $ 9.4 $ 1.4
Increase (decrease) in 1997 from:
Unit volume (2.4) (2.5) (1.6)
Sales mix 9.8 5.0 3.3
Average sales price 1.4 1.4 .9
Service parts 3.2 .9 .6
Foreign currency (9.2) (1.7) (1.1)
Manufacturing cost -- 7.5 4.9
Other operating expense -- (2.4) (1.5)
Other income and expense -- -- (.1)
Differences between effective
and statutory tax rates -- -- 1.2
-------- ------- ------
1997 $ 352.3 $ 17.6 $ 8.0
======== ======= ======
</TABLE>
In the third quarter of 1997, revenues from unit volume declined. However, the
number of units sold increased compared with the same period of 1996. Worldwide
shipments of lift trucks to dealers in the third quarter, which is traditionally
affected by summer vacation plant closings, totaled 15,541 units, compared with
15,212 units shipped in the third quarter a year ago. Revenues from increased
unit volume in the Americas of 5.8%, or 611 trucks, were offset by decreased
unit volume in Europe of 5.3%, or 207 trucks, and in Asia-Pacific of 10.7%, or
75 trucks. These changes reflect stronger demand in the Americas, a weak German
mark as compared with other European currencies and continued competitive
pressures from Japanese and Korean manufacturers. The backlog continued to build
in the third quarter of 1997 to 22,800 units from 20,300 units at the end of the
second quarter of 1997 as a result of increased demand in the Americas, coupled
with lower production rates in Europe due to summer vacation plant closings.
Sales mix favorably affected net income due to a shift to higher margin products
in both the Americas and Europe. Revenues from service parts continued to
increase due to lift truck population growth, special marketing programs and
price increases of such parts. Improved revenues, operating profit and net
income from sales mix and service parts were significantly offset by the effects
of foreign currency. The strengthening of the pound sterling against other
European currencies caused price and margin pressures on sterling-based lift
trucks, which reduced sales and margins. The pound sterling impact on operating
profit was partially offset by reduced cost of yen-based materials caused by the
weakening of the yen against the U.S. dollar.
Manufacturing costs decreased as a result of reduced material costs in both the
Americas and Europe, the success of ongoing cost reduction programs, increased
factory throughput and improved worldwide manufacturing efficiency.
<PAGE>
NACCO MATERIALS HANDLING GROUP, INC. - continued
FINANCIAL REVIEW - continued
First Nine Months of 1997 Compared With First Nine Months of 1996
The following schedule identifies the components of the changes in revenues,
operating profit and net income for the first nine months of 1997 compared with
the first nine months of 1996:
<TABLE>
<CAPTION>
Operating Net
Revenues Profit Income
-------- ------- ------
<S> <C> <C> <C>
1996 $ 1,177.9 $ 60.1 $ 23.2
Increase (Decrease) in 1997 from:
Unit volume (129.3) (23.6) (15.3)
Sales mix 20.2 10.6 6.9
Average sales price .5 .5 .3
Service parts 10.0 4.0 2.6
Foreign currency (17.3) (2.0) (1.2)
Manufacturing cost -- 5.4 3.5
Other operating expense -- (.5) (.3)
Other income and expense -- -- 5.2
Differences between effective
and statutory tax rates -- -- (1.2)
---------- ------- -------
1997 $ 1,062.0 $ 54.5 $ 23.7
========== ======= =======
</TABLE>
Unit volumes for the first nine months of 1997 declined 10.2% in the Americas,
12.5% in Europe and 20.3% in Asia-Pacific compared with the same period in 1996.
The year-to-year comparability of revenues from unit volume was affected by the
timing of demand and the consequent change in production rates. Demand for
forklift trucks during the fourth quarter of 1996 and the first quarter of 1997
decreased as compared to the same periods in the previous year. Thus, production
rates, especially during the first quarter of 1997, declined in response to the
decrease in demand. In contrast, revenues increased during the first nine months
of 1996 due to strong demand in the fourth quarter of 1995, continuing into the
first half of 1996. This enabled production and shipment rates to build during
the first half of 1996, as compared with the same period of 1997. Also
contributing to the decrease in revenues from unit volume was a slight reduction
in the European market size and a decrease in Asia-Pacific's market share due to
increased competition in that region. The variances in sales mix, service parts
and foreign currency resulted from the same factors affecting the third quarter.
Manufacturing costs declined from 1996 levels due to decreased material costs in
both the Americas and Europe and reduced overhead expenses resulting from
ongoing cost reduction programs. The change in other income and expense
primarily reflects lower interest expense due to reduced borrowing levels.
<PAGE>
NACCO MATERIALS HANDLING GROUP, INC.- continued
FINANCIAL REVIEW - continued
Other Income and Expense and Income Taxes
Below is a detail of other income (expense) for the three and nine months ended
September 30:
<TABLE>
<CAPTION>
Three Months Nine Months
------------ -----------
1997 1996 1997 1996
------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest expense $ (3.1) $ (6.1) $ (11.6) $ (19.5)
Other-net (1.5) -- (.4) (.8)
------- -------- -------- --------
$ (4.6) $ (6.1) $ (12.0) $ (20.3)
======= ======== ======== ========
Effective tax rate 37.5% 57.9% 44.1% 41.8%
</TABLE>
In the second quarter of 1997, NMHG used the proceeds from the sale of certain
accounts receivable to reduce the level of borrowings resulting in a decline in
interest expense for both the three month and nine month periods ended September
30, 1997.
NMHG's higher effective tax rate for the third quarter of 1996 as compared with
1997 was due to the effect of nondeductible goodwill amortization on lower
comparative levels of pre-tax income. The increase in the effective tax rate for
the nine month period ended September 30, 1997 as compared to the same period of
1996 resulted primarily from a non-recurring favorable income tax adjustment
recognized in 1996 due to the resolution of tax issues from prior years.
LIQUIDITY AND CAPITAL RESOURCES
Expenditures for property, plant and equipment were $14.1 million during the
first nine months of 1997. It is estimated that NMHG's capital expenditures for
the remainder of 1997 will be approximately $23.5 million. Planned expenditures
relate to the replacement of aging assets, the centralization of NMHG's
marketing organization, and the investment in manufacturing facilities,
information systems and tooling for new products. The principal sources of
financing for these capital expenditures are internally generated funds, bank
borrowings and government assistance grants.
In the second quarter of 1997, NMHG entered into an agreement with a financial
institution to sell an undivided percentage ownership interest in certain
eligible domestic accounts receivable, on a revolving basis, up to a maximum of
$60.0 million. The expiration date of this agreement, which is currently April
1998, may be extended for one year periods through April 2001 upon the mutual
consent of both parties. As of September 30, 1997, $29.6 million of NMHG's trade
receivables were sold in accordance with this agreement and are reflected in the
Condensed Consolidated Balance Sheet as a reduction of Accounts receivable, net.
The proceeds from the sale of receivables were used to reduce the level of
borrowings under NMHG's revolving credit agreement. The discount and other
transaction losses were not material and have been reflected in Other - net in
the Condensed Consolidated Statement of Income. In conjunction with this
transaction, NMHG's revolving credit agreement was amended to provide that the
total credit availability of $350 million is reduced by the amount of
receivables sold.
As of September 30, 1997, $76.2 million of trade accounts receivable have been
sold in accordance with the agreement discussed above combined with pre-existing
agreements to sell European trade accounts receivable. This compares with $56.2
million of trade receivables sold as of September 30, 1996.
<PAGE>
NACCO MATERIALS HANDLING GROUP, INC.- continued
LIQUIDITY AND CAPITAL RESOURCES - continued
NMHG believes it can meet all of its current and long-term commitments and
operating needs from operating cash flows and funds available under revolving
credit agreements. At September 30, 1997, NMHG had available $195.4 million of
its $350.0 million revolving credit facility. The expiration date of this
revolving credit agreement, which is currently June 2002, may be extended, on an
annual basis, for one additional year upon the mutual consent of NMHG and the
bank group. In addition, the NMHG facility has performance-based pricing which
sets interest rates based upon the achievement of certain financial performance
targets. NMHG also has separate credit facilities totaling $36.6 million, of
which $31.2 million was available at September 30, 1997.
NMHG's capital structure is presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
-------- --------
<S> <C> <C>
Total net tangible assets $ 193.2 $ 267.9
Goodwill at cost 447.8 443.6
-------- --------
Total assets before goodwill amortization 641.0 711.5
Accumulated goodwill amortization (91.6) (82.8)
Total debt (165.2) (258.9)
-------- --------
Stockholders' equity $ 384.2 $ 369.8
======== ========
Debt to total capitalization 30% 41%
</TABLE>
The decrease in net tangible assets of $74.7 million primarily results from a
$13.0 million decline in cash and cash equivalents, a $21.1 million decrease in
accounts receivable, a $14.0 million reduction of inventory, a $13.3 million
increase in accounts payable and a $10.0 million increase in other current
liabilities.
The decrease in cash and cash equivalents results from the paydown of $91.4
million of debt and the expenditure of $25.1 million for capital improvements
and a business acquisition, partially offset by cash of $103.5 million provided
by operations. The decrease in accounts receivable results from the sale of
receivables, as previously discussed. The decline in inventory reflects a 13 day
reduction in the number of days supply on hand and the increase in accounts
payable reflects an increase in the volume of inventory purchases. Other current
liabilities have increased primarily due to increased employee wages and
benefits.
<PAGE>
====================================
HAMILTON BEACH/PROCTOR-SILEX, INC.
====================================
HB/PS, wholly owned by NACCO, is a leading manufacturer of small electric
appliances. 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 increase significantly for the fall holiday
selling season.
FINANCIAL REVIEW
The results of operations for HB/PS were as follows for the three and nine
months ended September 30:
<TABLE>
<CAPTION>
Three Months Nine Months
------------ -----------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 117.8 $ 109.0 $ 280.3 $ 259.6
Operating profit $ 8.1 $ 7.0 $ 8.2 $ 10.7
Operating profit excluding
goodwill amortization $ 9.1 $ 8.0 $ 11.2 $ 13.5
Net income $ 3.4 $ 3.0 $ 1.7 $ 4.0
</TABLE>
Third Quarter of 1997 Compared With Third Quarter of 1996
The following schedule identifies the components of the changes in revenues,
operating profit and net income for the third quarter of 1997 compared with the
third quarter of 1996:
<TABLE>
<CAPTION>
Operating Net
Revenues Profit Income
-------- ------ ------
<S> <C> <C> <C>
1996 $ 109.0 $ 7.0 $ 3.0
Increase (decrease) in 1997 from:
Unit volume and sales mix 12.1 3.8 2.5
Average sales price (3.3) (3.3) (2.2)
Manufacturing cost -- .9 .6
Other operating expense -- (.3) (.2)
Other income and expense -- -- (.1)
Differences between effective
and statutory tax rates -- -- (.2)
-------- ------ ------
1997 $ 117.8 $ 8.1 $ 3.4
======== ====== ======
</TABLE>
Revenues from increased volume of 9.4 million units for the three months ended
September 30, 1997 compared with 8.3 million units for the three months ended
September 30, 1996 were driven by increased sales of toasters, blenders, hand
mixers and commercial products, partially offset by decreased sales of toaster
ovens, breadmakers and coffeemakers. This volume increase primarily resulted
from increased market share and additional business with key mass merchants. The
increase in revenues, operating profit and net income from this additional
volume was partially offset by price decreases, especially for irons, toasters
and coffeemakers. These price decreases were necessary due to increased
competition, primarily from Chinese imports. Manufacturing costs declined due to
a decrease of material and labor costs for certain models of toasters and
blenders, combined with an overall shift in the mix of products sold to lower
cost models. These decreases were partially offset by ongoing start-up costs
incurred for the Saltillo, Mexico plant.
<PAGE>
HAMILTON BEACH/PROCTOR-SILEX, INC. - continued
FINANCIAL REVIEW - continued
First Nine Months of 1997 Compared With First Nine Months of 1996
The following schedule identifies the components of the changes in revenues,
operating profit and net income for the first nine months of 1997 compared with
the first nine months of 1996:
<TABLE>
<CAPTION>
Operating Net
Revenues Profit Income
-------- ------- ------
<S> <C> <C> <C>
1996 $ 259.6 $ 10.7 $ 4.0
Increase (decrease) in 1997 from:
Unit volume and sales mix 29.5 8.8 5.7
Average sales price (8.8) (8.8) (5.7)
Manufacturing cost -- (.9) (.6)
Other operating expense -- (1.6) (1.0)
Other income and expense -- -- (.4)
Differences between effective
and statutory tax rates -- -- (.3)
-------- ------- ------
1997 $ 280.3 $ 8.2 $ 1.7
======== ======= ======
</TABLE>
Revenues from increased volume of 22.3 million units for the nine months ended
September 30, 1997 compared with 19.8 million units for the nine months ended
September 30, 1996 were driven by increased sales of toasters, blenders,
commercial products and hand mixers, partially offset by decreased sales of
toaster ovens and can openers. These volume increases primarily resulted from
increased market share and additional business with key mass merchants. The
increase in operating profit and net income from this volume growth was entirely
offset by price decreases primarily on irons, toasters and coffeemakers which
were necessary to compete with Chinese imports and others. Manufacturing costs
and other expenses increased due to start-up costs of the Saltillo facility,
expenses resulting from a reduction of manufacturing activities in the United
States and increased interest expense due to higher debt levels.
<PAGE>
HAMILTON BEACH/PROCTOR-SILEX, INC. - continued
FINANCIAL REVIEW - continued
Other Income and Expense and Income Taxes
Below is a detail of other income (expense)for the three and nine months ended
September 30:
<TABLE>
<CAPTION>
Three Months Nine Months
------------ -----------
1997 1996 1997 1996
------- --------- ------- -------
<S> <C> <C> <C> <C>
Interest expense $ (1.8) $ (1.7) $ (5.0) $ (4.5)
Other-net (.1) -- (.1) (.1)
------- --------- ------- -------
$ (1.9) $ (1.7) $ (5.1) $ (4.6)
======= ========= ======= =======
Effective tax rate 44.3% 44.8% 44.5% 34.9%
</TABLE>
HB/PS's effective tax rate for the first nine months of 1996 was favorably
affected by the recognition in the first quarter of 1996 of income tax
adjustments relating to the resolution of tax issues from prior years.
LIQUIDITY AND CAPITAL RESOURCES
Expenditures for property, plant and equipment were $13.0 million during the
first nine months of 1997 and are estimated to be $5.9 million for the remainder
of 1997. The primary purpose of these expenditures is to reduce manufacturing
costs and increase efficiency and to purchase tooling for new and existing
products. These expenditures are funded primarily from internally generated
funds and short-term borrowings.
HB/PS's credit agreement provides for a revolving credit facility that permits
advances up to $160.0 million and is secured by substantially all of HB/PS's
assets. At September 30, 1997, HB/PS had $47.2 million available under this
facility, which expires in May 2002. The HB/PS facility provides lower interest
rates if HB/PS achieves a certain interest coverage ratio and allows for
interest rates quoted under a competitive bid option. At September 30, 1997,
HB/PS also had $14.4 million available under separate facilities.
HB/PS's capital structure is presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
-------- --------
<S> <C> <C>
Total net tangible assets $ 153.0 $ 111.1
Goodwill at cost 118.9 118.9
-------- --------
Total assets before goodwill
amortization 271.9 230.0
Accumulated goodwill amortization (25.5) (22.5)
Total debt (126.8) (89.7)
-------- --------
Stockholder's equity $ 119.6 $ 117.8
======== ========
Debt to total capitalization 51% 43%
</TABLE>
Because of the seasonal nature of the housewares business, HB/PS's inventory and
debt levels reach seasonal peaks in the second and third quarters.
<PAGE>
====================================
THE NORTH AMERICAN COAL CORPORATION
====================================
NACoal mines and markets lignite for use primarily as fuel for power generation
by electric utilities. The lignite is surface mined in North Dakota, Texas and
Louisiana. Total coal reserves approximate 2.1 billion tons with 1.2 billion
tons committed to electric utility customers pursuant to long-term contracts.
NACoal operates five lignite mines, including three project mining subsidiaries
(Coteau, Falkirk and Sabine), a NACoal division (San Miguel) and a joint venture
with Phillips Coal Company (Red River).
NACoal signed a contract to mine lignite for San Miguel Electric Cooperative on
January 22, 1997. The contract requires NACoal to deliver lignite tons at a
specified fixed price over the next 10 years, expiring on December 31, 2007.
NACoal expects to deliver approximately 1.8 million tons during the second half
of 1997 and 3.0 million tons annually through 2007. Operations by NACoal as the
new mine operator at the San Miguel lignite mining operation began as scheduled
on July 1, 1997. The transition to NACoal as the new mine operator has proceeded
as expected and the volume of lignite deliveries to date have been slightly
greater than anticipated.
NACoal also provides dragline mining services ("Florida dragline operations")
for a limerock quarry near Miami, Florida. The operating results for the Florida
dragline operations are included in other mining operations.
FINANCIAL REVIEW
NACoal's three project mining subsidiaries (Coteau, Falkirk and Sabine), which
represent a significant portion of NACoal's operations, mine lignite for utility
customers pursuant to long-term contracts at a price based on actual cost plus
an agreed pretax 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 and significance of the contracts at these mines, operating
results are best analyzed in terms of income before taxes and net income.
Lignite tons sold by NACoal's five operating lignite mines were as follows for
the three and nine months ended September 30:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
------------ -----------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Coteau Properties 3.9 3.8 11.6 11.4
Falkirk Mining 1.7 1.9 4.8 5.3
Sabine Mining 1.2 1.1 3.0 2.9
San Miguel Mining 1.0 -- 1.0 --
Red River Mining .3 .3 .8 .6
--- --- ---- ----
8.1 7.1 21.2 20.2
=== === ==== ====
</TABLE>
The Florida dragline operations mined 2.0 and 5.6 million cubic yards of
limerock in the three and nine months ended September 30, 1997, respectively.
This compares with 2.2 and 5.6 million cubic yards mined during the three and
nine months ended September 30, 1996, respectively.
<PAGE>
THE NORTH AMERICAN COAL CORPORATION - continued
FINANCIAL REVIEW - continued
Revenues, income before taxes, provision for taxes and net income were as
follows for the three and nine months ended September 30:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
1997 1996 1997 1996
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Project mines $ 58.2 $ 54.6 $ 166.8 $ 161.3
Other mining operations 10.3 5.5 20.1 13.1
------- -------- -------- --------
68.5 60.1 186.9 174.4
Royalties and other 1.7 1.1 4.1 2.6
------- -------- -------- --------
$ 70.2 $ 61.2 $ 191.0 $ 177.0
======= ======== ======== ========
Income before taxes
Project mines $ 6.3 $ 6.4 $ 17.4 $ 17.9
Other mining operations 2.3 1.0 4.0 2.1
------- -------- -------- --------
Total from operating mines 8.6 7.4 21.4 20.0
Royalty and other income, net 1.4 .6 3.6 6.2
Other operating expenses (1.8) (1.3) (4.8) (4.5)
------- -------- -------- --------
8.2 6.7 20.2 21.7
Provision for taxes 2.9 2.3 7.2 7.2
------- -------- -------- --------
Net income $ 5.3 $ 4.4 $ 13.0 $ 14.5
======= ======== ======== ========
</TABLE>
Third Quarter of 1997 Compared with Third Quarter of 1996
The following schedule identifies the components of the changes in revenues,
income before taxes and net income for the third quarter of 1997 compared with
the third quarter of 1996:
<TABLE>
<CAPTION>
Income
Before Net
Revenues Taxes Income
------- ------ ------
<S> <C> <C> <C>
1996 $ 61.2 $ 6.7 $ 4.4
Increase (decrease) in 1997 from:
Project mines
Tonnage volume (.1) (.1) (.1)
Pass-through costs 3.7 -- --
Other mining operations
Tonnage volume 5.0 4.5 2.9
Average selling price (.2) (.2) (.1)
Operating costs -- (2.7) (1.7)
Other -- (.3) (.2)
------- ------ ------
Changes from operating mines 8.4 1.2 .8
Royalties and other .6 .8 .5
Other operating expenses -- (.5) (.3)
Differences between effective and
statutory tax rates -- -- (.1)
------- ------ ------
1997 $ 70.2 $ 8.2 $ 5.3
======= ====== ======
</TABLE>
Operating results at the project mining subsidiaries, driven by customer demand,
were comparable to the prior year, as increased tons delivered by Coteau and
Sabine were offset by decreased tonnage deliveries at Falkirk. Increased
revenues, income before taxes and net income from other mining operations
primarily resulted from the San Miguel mining operation, over which NACoal
assumed operating responsibility on July 1, 1997.
<PAGE>
THE NORTH AMERICAN COAL CORPORATION - continued
FINANCIAL REVIEW - continued
First Nine Months of 1997 Compared with First Nine Months of 1996
The following schedule identifies the components of the changes in revenues,
income before taxes and net income for the first nine months ended of 1997
compared with the first nine months of 1996:
<TABLE>
<CAPTION>
Income
Before Net
Revenues Taxes Income
-------- ------- -------
<S> <C> <C> <C>
1996 $ 177.0 $ 21.7 $ 14.5
Increase (decrease) in 1997 from:
Project mines
Tonnage volume (1.2) (.5) (.3)
Pass-through costs 6.7 -- --
Other mining operations
Tonnage volume 8.0 5.3 3.5
Average selling price (1.0) (1.0) (.6)
Operating costs -- (1.8) (1.2)
Other -- (.6) (.4)
-------- ------- -------
Changes from operating mines 12.5 1.4 1.0
Escrow payments -- (4.2) (2.7)
Royalties and other 1.5 1.6 1.0
Other operating expenses -- (.3) (.2)
Differences between effective and
statutory tax rates -- -- (.6)
-------- ------- -------
1997 $ 191.0 $ 20.2 $ 13.0
======== ======= =======
</TABLE>
At the project mines, slight volume increases at Coteau and Sabine were offset
by a volume decline at Falkirk due to adverse weather conditions during the
first quarter of 1997 and a customer's power plant outage in the first half of
1997. Increased revenues, income before taxes and net income from other mining
operations primarily resulted from the San Miguel lignite mining operation, over
which NACoal assumed mining responsibility on July 1, 1997. However, increased
tonnage volume at the Red River mine also contributed favorably to net income.
Net income decreased in 1997 as compared with the same period of 1996 due to the
receipt in the second quarter of 1996 of a nonrecurring escrow payment related
to the sale of a previously owned eastern U.S. underground mine.
<PAGE>
THE NORTH AMERICAN COAL CORPORATION - continued
FINANCIAL REVIEW - continued
Other Income and Expense and Income Taxes
Items of other income (expense)for the three and nine months ended September 30:
Three Months Nine Months
------------ -----------
1997 1996 1997 1996
------- ------- ------- -------
Interest expense
Project mining subsidiaries $ (3.2) $ (3.4) $ (9.6) $ (10.2)
Other mining operations (.6) (.1) (1.6) (.2)
------- ------- ------- -------
$ (3.8) $ (3.5) $ (11.2) $ (10.4)
======= ======= ======= =======
Other-net
Project mining subsidiaries $ (.9) $ .2 $ -- $ .7
Other mining operations (.3) (.5) (.2) 3.3
------- ------- ------- -------
$ (1.2) $ (.3) $ (.2) $ 4.0
======= ======= ======= =======
Effective tax rate 35.5% 33.8% 35.4% 33.1%
The decrease in other-net for the nine month period relates to the previously
discussed nonrecurring escrow payment received in the second quarter of 1996.
The increase in NACoal's effective tax rate in 1997 compared with 1996 results
from a lower level of pre-tax income from mining activities which generate
percentage depletion eligible to reduce NACoal's effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Expenditures for property, plant and equipment were $16.4 million during the
first nine months of 1997. It is estimated that NACoal's capital expenditures
for the remainder of 1997 will be approximately $8.0 million, of which $5.7
million relates to the development, establishment and improvement of the project
mining subsidiaries mines which are financed or guaranteed by the utility
customers.
NACoal has in place a $50.0 million revolving credit facility. The expiration
date of this facility, which currently is September 2001, can be extended one
additional year, on an annual basis, upon the mutual consent of NACoal and the
bank group. NACoal had $19.0 million of its revolving credit facility available
at September 30, 1997. A portion of the outstanding balance is attributable to
funds loaned to NACCO to partially finance NACCO's Class A common stock
repurchase program.
The financing of the project mining subsidiaries, which is either provided or
guaranteed by the utility customers, is comprised of long-term equipment leases,
notes payable and non-interest-bearing advances from customers. The obligations
of the project mining subsidiaries do not impact the short- or long-term
liquidity of NACoal and are without recourse to NACCO or NACoal. These
arrangements allow the project mining subsidiaries to pay dividends to NACCO in
amounts equal to their retained earnings.
<PAGE>
THE NORTH AMERICAN COAL CORPORATION - continued
LIQUIDITY AND CAPITAL RESOURCES - continued
NACoal's capital structure, excluding the project mining subsidiaries, is
presented below:
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
------- -------
<S> <C> <C>
Investment in project mining subsidiaries $ 2.3 $ 3.3
Other net tangible assets 5.7 (.8)
------- -------
Total tangible assets 8.0 2.5
Advances to parent company 40.3 41.9
Debt related to parent advances (33.1) (29.0)
Other debt (.1) (.3)
------- -------
Total debt (33.2) (29.3)
------- -------
Stockholder's equity $ 15.1 $ 15.1
======= =======
Debt to total capitalization 69% 66%
</TABLE>
The increase in other net tangible assets is primarily due to capital
expenditures incurred to develop the Red River mine and the San Miguel lignite
mining operation.
<PAGE>
============================
THE KITCHEN COLLECTION, INC.
============================
KCI is a national specialty retailer of kitchenware, tableware, small electric
appliances and related accessories. The specialty retail business is seasonal
with the majority of its revenues and operating profit generated in the fourth
quarter during the holiday selling season.
FINANCIAL REVIEW
Third Quarter of 1997 Compared With Third Quarter of 1996
The following schedule identifies the components of the changes in revenues,
operating profit and net income for the third quarter of 1997 compared with the
third quarter of 1996:
<TABLE>
<CAPTION>
Operating Net
Revenues Profit Income
------- ------ -----
<S> <C> <C> <C>
1996 $ 19.5 $ 1.0 $ .5
Increase (decrease) in 1997 from:
Stores opened in 1997 .5 .1 --
Stores opened in 1996 (.2) (.2) (.1)
Comparable stores (.2) (.1) --
Other -- (.1) (.1)
------- ------ -----
1997 $ 19.6 $ .7 $ .3
======= ====== =====
</TABLE>
First Nine Months of 1997 Compared with First Nine Months of 1996:
The following schedule identifies the components of the changes in revenues,
operating loss and net loss for the first nine months of 1997 compared
with the first nine months of 1996:
<TABLE>
<CAPTION>
Operating Net
Revenues Loss Income
-------- ------ ------
<S> <C> <C> <C>
1996 $ 47.0 $ (.8) $ (.7)
Increase (decrease) in 1997 from:
Stores opened in 1997 .8 .1 --
Stores opened in 1996 1.1 (.2) (.1)
Comparable stores 1.9 .8 .5
Other -- (.7) (.4)
------- -------- -------
1997 $ 50.8 $ (.8) $ (.7)
======= ======== =======
</TABLE>
<PAGE>
THE KITCHEN COLLECTION, INC. - continued
FINANCIAL REVIEW - continued
KCI operated 144 stores at September 30, 1997 compared with 141 stores at
September 30, 1996. For the nine months ended September 30, 1997, revenues from
new and comparable stores have increased over 1996 due to an increase in both
the amount of the average sales transaction and the number of sales
transactions. This year-to-date improvement has been realized even though the
number of sales transactions in the third quarter decreased. The year-to-date
increase in the average sales transaction can be attributed to a management
incentive program, an increase in the retail prices of select products and
improved sales of KCI's gadget category. Overall margins were negatively
affected by price discounting and supplier cost increases. The unfavorable other
variance primarily results from increased payroll and lease costs.
Provision for Income Taxes
KCI's effective tax rate for the three months ended September 30, 1997 and 1996
was 42.1 percent and 42.3 percent, respectively. KCI's effective tax rate for
the nine months ended September 30, 1997 and 1996 was 41.9 percent.
LIQUIDITY AND CAPITAL RESOURCES
Expenditures for property, plant and equipment were $0.4 million during the
first nine months of 1997. Estimated capital expenditures for the remainder of
1997 are $0.2 million. These expenditures relate primarily to new store openings
and improvements to existing facilities. The principal source of funds for these
capital expenditures is short term borrowings. At September 30, 1997, KCI had
all of its $5.0 million line of credit available. KCI's revolving credit
facility has performance-based pricing which provides for reduced interest rates
based on the achievement of certain financial performance measures. The
expiration date of KCI's revolving credit facility is May 2000 and may be
extended, on an annual basis, for one additional year upon the mutual consent of
KCI and the bank group.
KCI's capital structure is presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
------- -------
<S> <C> <C>
Total net tangible assets $ 13.0 $ 14.6
Goodwill at cost 4.6 4.6
------- -------
Total assets before goodwill amortization 17.6 19.2
Accumulated goodwill amortization (1.0) (.9)
Revolving credit agreement -- --
Term note payable (5.0) (5.0)
------- -------
Stockholder's equity $ 11.6 $ 13.3
======= =======
Debt to total capitalization 30% 27%
</TABLE>
Because of the seasonal nature of the retail industry, KCI's inventory and
accounts payable levels reach their seasonal peaks in the third quarter.
<PAGE>
=================
NACCO AND OTHER
=================
FINANCIAL REVIEW
NACCO and Other includes the parent company operations and Bellaire Corporation
("Bellaire"), a non-operating subsidiary of NACCO. While Bellaire's results are
immaterial, it has significant long-term liabilities related to closed mines,
primarily from former eastern U.S. underground coal-mining activities. Cash
payments related to Bellaire's obligations, net of internally generated cash,
are funded by NACCO and are anticipated to be $1.0 million for the remainder of
1997.
The results of operations at NACCO and Other were as follows for the three and
nine months ended September 30:
<TABLE>
<CAPTION>
Three Months Nine Months
------------ -----------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $ .1 $ -- $ .2 $ .2
Operating loss $ (2.1) $ (1.9) $ (6.2) $ (7.0)
Other income (expense), net $ (.6) $ .1 $ (1.5) $ .2
Net loss $ (2.3) $ (1.0) $ (4.9) $ (5.1)
</TABLE>
In the third quarter of 1997, an unfavorable consolidating tax adjustment
increased the net loss as compared with the same period of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Although NACCO's subsidiaries have entered into substantial borrowing
agreements, NACCO has not guaranteed the long-term debt or any borrowings of its
subsidiaries.
The borrowing agreements at HB/PS and KCI allow for the payment to NACCO of
dividends and advances under certain circumstances. During the first nine months
of 1997, the borrowing agreement at NMHG restricted dividends or advances that
could be paid to NMHG stockholders to an aggregate of up to $25.0 million. The
NMHG borrowing agreement provides for the release of this covenant restriction
if NMHG meets or exceeds specified financial ratios for two consecutive
quarters. As of September 30, 1997, NMHG has achieved the financial ratios
necessary to release this restriction, as well as certain other covenant
restrictions provided within NMHG's borrowing agreement. In addition, there are
no restrictions on dividends or advances from NACoal to NACCO. Dividends and
advances from subsidiaries are the primary sources of cash for NACCO.
The Company believes it can adequately meet all of its current and long-term
commitments and operating needs. This outlook stems from amounts available under
the subsidiaries' revolving credit facilities and the utility customers' funding
of the project mining subsidiaries.
<PAGE>
NACCO AND OTHER - continued
LIQUIDITY AND CAPITAL RESOURCES - continued
NACCO'S consolidated capital structure is presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
-------- --------
<S> <C> <C>
Total net tangible assets $ 369.2 $ 397.7
Goodwill at cost 571.4 567.2
-------- --------
Total assets before goodwill amortization 940.6 964.9
Accumulated goodwill amortization (118.1) (106.2)
Total debt, excluding current and long-term portion
of obligations of project mining subsidiaries (330.3) (382.8)
Closed mine obligations, (Bellaire), including
UMWA, net-of-tax (80.0) (82.5)
Minority interest (16.3) (14.1)
-------- --------
Stockholder's equity $ 395.9 $ 379.3
======== ========
Debt to total capitalization 44% 49%
</TABLE>
INTEREST RATE PROTECTION
NMHG, HB/PS, NACoal and KCI have entered into interest rate swap agreements for
portions of their floating rate debt. These interest rate swaps provide
protection against significant increases in interest rates and have terms
ranging from six months to six and one-half years, with the counterparty's
option to extend certain contracts to eight and one-half years. The Company
evaluates its exposure to floating rate debt on an ongoing basis.
EFFECTS OF FOREIGN CURRENCY
NMHG and HB/PS operate internationally and enter into transactions denominated
in foreign currencies. As a result, the Company is subject to the transaction
exposures that arise from exchange rate movements between the dates foreign
currency transactions are recorded and the dates they are consummated. The
effects of foreign currency on revenues, operating income and net income at NMHG
are disclosed above. At HB/PS, foreign currency effects had an immaterial impact
on operating results between comparable periods of 1997 and 1996.
NMHG and HB/PS use forward foreign currency exchange contracts to partially
reduce risks related to transactions denominated in foreign currencies. These
contracts usually have maturities of one to twelve months and generally require
the companies to buy or sell Japanese yen, Australian dollars, Canadian dollars
or various European currencies for the U.S. dollar at rates agreed to at the
inception of the contracts.
<PAGE>
OUTLOOK
Based on the increase in NMHG's worldwide backlog to 22,800 units at the end of
the third quarter of 1997, compared with 12,700 units at the end of the third
quarter of 1996 and 20,300 units at the end of the second quarter of 1997, lift
truck shipments are anticipated to remain strong in the fourth quarter.
Worldwide manufacturing efficiency and the benefits of ongoing cost reduction
programs are expected to continue in the fourth quarter.
HB/PS's new Saltillo facility is expected to continue to increase production
capacity in the fourth quarter of 1997 and in 1998. At the end of the third
quarter of 1997, the facility was manufacturing selected lines of blenders and
toasters. HB/PS anticipates that the Saltillo facility, which is targeted to
become fully operational by the end of 1998, will provide significant cost
benefits over time.
NACoal expects its overall customer lignite requirements at its operating mines
to remain firm in the fourth quarter of 1997. Increased lignite shipments from
NACoal's new San Miguel lignite mining operation will help offset reduced tons
sold at one of NACoal's project mining subsidiaries in North Dakota as a result
of a customer's power plant outage and adverse weather conditions during the
first half of 1997.
KCI has closed three Hearthstone(TM) stores. The remaining seven Hearthstone
stores will be closed or converted to the existing Kitchen Collection(R) store
format by year end 1997. The phase out of the Hearthstone factory outlet stores
is expected to have a beneficial impact on KCI's earnings. Two new medium market
Kitchen Collection stores are scheduled to open in November 1997.
The statements contained in this Form 10-Q that are not historical facts are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are made subject to certain risks and uncertainties
which could cause actual results to differ materially from those presented in
those forward-looking statements. Such risks and uncertainties with respect to
each subsidiary's operations include, without limitation:
NMHG: (1) changes in demand for forklift trucks on a worldwide basis, (2)
changes in sales prices, (3) delays in delivery or increased costs of raw
materials or sourced products and labor, (4) delays in manufacturing and
delivery schedules and (5) exchange rate fluctuations, changes in foreign import
tariffs and monetary policies and other changes in the regulatory climate in the
countries in which NMHG operates and/or sells products.
HB/PS: (1) delays or increased costs in the start-up of operations in Saltillo,
(2) bankruptcy of or loss of major retail customers, (3) changes in sales
prices, product mix or levels of consumer purchasing of small electronic
appliances and (4) exchange rate fluctuations, changes in foreign import tariffs
and monetary policies and other changes in the regulatory climate in the
countries in which HB/PS operates and/or sells products.
NACoal: (1) weather conditions and other events that would change the level of
customers' fuel requirements and (2) weather or equipment problems that could
affect lignite deliveries to customers.
KCI: (1) weather conditions which would affect the number of customers visiting
the stores, (2) changes in sales prices, product mix or level of consumer
purchasing of kitchenware and small electric appliances and (3) delays in the
opening of proposed new stores.
<PAGE>
Part II
Item 1 Legal Proceedings
None
Item 2 Change in Securities and Use of Proceeds
Not applicable
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits. See Exhibit Index of this quarterly
report on Form 10-Q.
(b) Reports on Form 8-K. The Company did not file any reports on
Form 8-K during the third quarter of 1997.
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NACCO Industries, Inc.
------------------------------------------
(Registrant)
Date November 14, 1997 /s/ Kenneth C. Schilling
-------------------------- ------------------------------------------
Kenneth C. Schilling
Vice President and Controller
(Principal Financial and Accounting Officer)
<PAGE>
Exhibit Index
Exhibit
Number* Description of Exhibit
(11) Computation of Earnings Per Common Share
(27) Financial Data Schedule
*Numbered in accordance with Item 601 of Regulation S-K.
Exhibit 11
NACCO Industries, Inc. And Subsidiaries
Form 10-Q
Computation of Earnings per Share
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
1997 1996 1997 1996
--------- -------- --------- ---------
(Amounts in millions, except per share data)
<S> <C> <C> <C> <C>
Net income $ 14.5 $ 7.6 $ 32.2 $ 34.5
========= ======== ========= =========
Per share amounts reported
to stockholders - Note 1: $ 1.78 $ 0.85 $ 3.94 $ 3.84
========= ======== ========= =========
Primary:
Weighted average shares outstanding 8.153 8.985 8.177 8.981
Dilutive stock options - Note 2 .015 .009 .011 .011
--------- -------- --------- ---------
Totals 8.168 8.994 8.188 8.992
========= ======== ========= =========
Net income per share $ 1.78 $ 0.85 $ 3.93 $ 3.84
========= ======== ========= =========
Fully diluted:
Weighted average shares outstanding 8.153 8.985 8.177 8.981
Dilutive stock options - Note 2 .019 .009 .019 .011
--------- -------- --------- ---------
Totals 8.172 8.994 8.196 8.992
========= ======== ========= =========
Net income per share $ 1.77 $ 0.85 $ 3.93 $ 3.84
========= ======== ========= =========
</TABLE>
Note 1 - Per share earnings have been computed and reported to the
stockholders pursuant to APB Opinion No. 15, which provides that "any
reduction of less than 3% in the aggregate need not be considered as dilution
in the computation and presentation of earnings per share data."
Note 2 - Dilutive stock options are calculated based on the treasury stock
method. For primary per share earnings the average market price is used. For
fully diluted per share earnings the period-end market price, if higher than
the average market price, is used.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 37
<SECURITIES> 0
<RECEIVABLES> 212
<ALLOWANCES> 0
<INVENTORY> 328
<CURRENT-ASSETS> 602
<PP&E> 539
<DEPRECIATION> 477
<TOTAL-ASSETS> 1,709
<CURRENT-LIABILITIES> 493
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 388
<TOTAL-LIABILITY-AND-EQUITY> 1,709
<SALES> 1,578
<TOTAL-REVENUES> 1,578
<CGS> 1,268
<TOTAL-COSTS> 1,268
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 56
<INCOME-TAX> 24
<INCOME-CONTINUING> 32
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32
<EPS-PRIMARY> 3.93
<EPS-DILUTED> 3.93
</TABLE>
