-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nj3EjS2PrBAUw2UaBDDolnlBstp4Reb6LEBj04Dsi8aHa+Mm1HH6Aqeza3/QTy7f 2M966RPst7fl4amM6QGGEg== 0000789933-03-000082.txt : 20030813 0000789933-03-000082.hdr.sgml : 20030813 20030813124211 ACCESSION NUMBER: 0000789933-03-000082 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NACCO INDUSTRIES INC CENTRAL INDEX KEY: 0000789933 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL TRUCKS TRACTORS TRAILERS & STACKERS [3537] IRS NUMBER: 341505819 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09172 FILM NUMBER: 03839893 BUSINESS ADDRESS: STREET 1: 5875 LANDERBROOK DR CITY: MAYFIELD HEIGHTS STATE: OH ZIP: 44124-4017 BUSINESS PHONE: 4404499668 MAIL ADDRESS: STREET 1: 5875 LANDERBRROK DR CITY: MAYFIELD HEIGHTS STATE: OH ZIP: 44124 10-Q 1 form10q2q_081303.txt 2 QTR 10Q 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 June 30, 2003 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number 1-9172 NACCO Industries, Inc. - -------------------------------------------------------------------------------- (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 44124-4017 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (440) 449-9600 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) N/A - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ____ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES X NO ____ Number of shares of Class A Common Stock outstanding at July 31, 2003 6,581,499 Number of shares of Class B Common Stock outstanding at July 31, 2003 1,623,110 NACCO INDUSTRIES, INC.
TABLE OF CONTENTS Part I. FINANCIAL INFORMATION Item 1 Financial Statements Page Number ------ -------------------- ----------- Unaudited Condensed Consolidated Balance Sheets - 3 June 30, 2003 and December 31, 2002 Unaudited Condensed Consolidated Statements of Income for 4 the Three Months and Six Months Ended June 30, 2003 and 2002 Unaudited Condensed Consolidated Statements of Cash Flows 5 for the Six Months Ended June 30, 2003 and 2002 Unaudited Condensed Consolidated Statements of Changes 6 in Stockholders' Equity for the Six Months Ended June 30, 2003 and 2002 Notes to Unaudited Condensed Consolidated Financial 7-17 Statements Item 2 Management's Discussion and Analysis of Financial 18-35 ------ ------------------------------------------------ Condition and Results of Operations ----------------------------------- Item 3 Quantitative and Qualitative Disclosures About Market Risk 35 ------ --------------------------------------------------------- Item 4 Controls and Procedures 35 ------ ----------------------- Part II. OTHER INFORMATION Item 1 Legal Proceedings 36 ------ ----------------- Item 2 Changes in Securities and Use of Proceeds 36 ------ ----------------------------------------- Item 3 Defaults Upon Senior Securities 36 ------ ------------------------------ Item 4 Submission of Matters to a Vote of Security Holders 36 ------ --------------------------------------------------- Item 5 Other Information ------ ----------------- 36 Item 6 Exhibits and Reports on Form 8-K 36 ------ -------------------------------- Signature 37 Exhibit Index 38
2 PART I FINANCIAL INFORMATION Item 1. Financial Statements UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS NACCO INDUSTRIES, INC. AND SUBSIDIARIES
JUNE 30 DECEMBER 31 2003 2002 ---------- ---------- (In millions, except share data) ASSETS Current Assets Cash and cash equivalents $ 43.6 $ 64.1 Accounts receivable, net 289.4 278.8 Inventories 396.1 357.0 Deferred income taxes 30.6 29.0 Prepaid expenses and other 51.2 54.1 ---------- ---------- Total Current Assets 810.9 783.0 Property, Plant and Equipment, Net 670.7 658.0 Goodwill 431.2 427.4 Coal Supply Agreements and Other Intangibles, Net 83.3 85.0 Other Non-current Assets 184.8 170.5 ---------- ---------- Total Assets $ 2,180.9 $ 2,123.9 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 266.8 $ 257.2 Revolving credit agreements 32.0 33.2 Current maturities of long-term debt 37.3 35.0 Current obligations of project mining subsidiaries 34.5 35.0 Other current liabilities 229.4 235.8 ---------- ---------- Total Current Liabilities 600.0 596.2 Long-term Debt - not guaranteed by the parent company 411.5 406.5 Obligations of Project Mining Subsidiaries - not guaranteed by the parent company or its North American Coal subsidiary 268.1 275.1 Self-insurance Liabilities and Other 315.0 285.6 Minority Interest .7 1.1 Stockholders' Equity Common stock: Class A, par value $1 per share, 6,581,399 shares outstanding (2002 - 6,576,936 shares outstanding) 6.6 6.6 Class B, par value $1 per share, convertible into Class A on a one-for-one basis, 1,623,210 shares outstanding (2002 - 1,623,651 shares outstanding) 1.6 1.6 Capital in excess of par value 5.1 4.9 Retained earnings 615.3 605.7 Accumulated other comprehensive income (loss): Foreign currency translation adjustment 5.6 (11.6) Deferred loss on cash flow hedging (14.1) (13.3) Minimum pension liability adjustment (34.5) (34.5) ---------- ---------- 585.6 559.4 ---------- ---------- Total Liabilities and Stockholders' Equity $ 2,180.9 $ 2,123.9 ========== ==========
See notes to unaudited condensed consolidated financial statements. 3 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME NACCO INDUSTRIES, INC. AND SUBSIDIARIES
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------- ----------------------------- 2003 2002 2003 2002 ---------- ---------- ------------ ------------ (In millions, except per share data) Net sales $ 633.0 $ 607.3 $ 1,250.4 $ 1,179.0 Other revenues 4.5 2.3 7.0 7.1 ---------- ---------- ------------ ------------ Revenues 637.5 609.6 1,257.4 1,186.1 Cost of sales 520.6 495.8 1,027.7 971.9 ---------- ---------- ------------ ------------ Gross Profit 116.9 113.8 229.7 214.2 Selling, general and administrative expenses 87.3 88.2 179.5 169.8 ---------- ---------- ------------ ------------ Operating Profit 29.6 25.6 50.2 44.4 Other income (expense) Interest expense (16.8) (17.2) (33.6) (31.7) Loss on interest rate swap agreements (.3) (3.1) (.7) (2.8) Income from unconsolidated affiliates 1.0 .1 1.7 1.1 Other - net --- (1.7) (.3) (1.3) ---------- ---------- ------------ ------------ (16.1) (21.9) (32.9) (34.7) ---------- ---------- ------------ ------------ Income Before Income Taxes, Minority Interest and Cumulative Effect of Accounting Change 13.5 3.7 17.3 9.7 Provision for income taxes 4.1 1.2 5.3 1.1 ---------- ---------- ------------ ------------ Income Before Minority Interest and Cumulative Effect of Accounting Change 9.4 2.5 12.0 8.6 Minority interest income .2 .3 .5 .5 ---------- ---------- ------------ ------------ Income Before Cumulative Effect of Accounting Change 9.6 2.8 12.5 9.1 Cumulative effect of accounting change (net of $0.7 tax expense) --- --- --- --- ---------- ---------- ------------ ------------ Net Income $ 9.6 $ 2.8 $ 13.7 $ 9.1 ========== ========== ============ ============ Comprehensive Income $ 23.8 $ 10.3 $ 30.1 $ 22.2 ========== ========== ============ ============ Earnings per Share: Income Before Cumulative Effect of Accounting Change $ 1.17 $ .34 $ 1.52 $ 1.11 Cumulative effect of accounting change (net-of-tax) --- --- .15 --- ---------- ---------- ------------ ------------ Net Income $ 1.17 $ .34 $ 1.67 $ 1.11 ========== ========== ============ ============ Dividends per share $ .255 $ .245 $ .500 $ .480 ========== ========== ============ ============ Weighted average shares outstanding 8.204 8.197 8.203 8.196 ========== ========== ============ ============
See notes to unaudited condensed consolidated financial statements. 4 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NACCO INDUSTRIES, INC. AND SUBSIDIARIES
SIX MONTHS ENDED JUNE 30 ---------------- 2003 2002 ------- -------- (In millions) Operating Activities Net income $ 13.7 $ 9.1 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 45.8 46.7 Deferred income taxes 5.0 11.0 Minority interest (.5) (.5) Cumulative effect of accounting change (net-of-tax) (1.2) --- Other non-cash items 3.1 3.8 Working capital changes Accounts receivable (5.5) (15.7) Inventories (28.2) (6.6) Other current assets (17.6) (.2) Accounts payable and other liabilities (2.3) 23.2 ------- -------- Net cash provided by operating activities 12.3 70.8 Investing Activities Expenditures for property, plant and equipment (40.1) (20.6) Proceeds from the sale of assets 14.4 2.9 Proceeds from unconsolidated affiliates --- .7 Other - net (.3) (1.1) ------- -------- Net cash used for investing activities (26.0) (18.1) Financing Activities Additions to long-term debt and revolving credit agreements 42.2 299.3 Reductions of long-term debt and revolving credit agreements (36.8) (338.1) Additions to obligations of project mining subsidiaries .7 35.4 Reductions of obligations of project mining subsidiaries (9.0) (42.2) Cash dividends paid (4.1) (3.9) Financing fees paid (.2) (14.0) Other - net --- (.2) ------- -------- Net cash used for financing activities (7.2) (63.7) Effect of exchange rate changes on cash .4 2.5 ------- -------- Cash and Cash Equivalents Decrease for the period (20.5) (8.5) Balance at the beginning of the period 64.1 71.9 ------- -------- Balance at the end of the period $ 43.6 $ 63.4 ======= ========
See notes to unaudited condensed consolidated financial statements. 5 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY NACCO INDUSTRIES, INC. AND SUBSIDIARIES
SIX MONTHS ENDED JUNE 30 ------------------------ 2003 2002 -------- -------- (In millions, except per share data) Class A Common Stock Beginning balance $ 6.6 $ 6.5 Shares issued under stock compensation plans --- .1 -------- -------- 6.6 6.6 -------- -------- Class B Common Stock 1.6 1.6 -------- -------- Capital in Excess of Par Value Beginning balance 4.9 4.7 Shares issued under stock compensation plans .2 .1 -------- -------- 5.1 4.8 -------- -------- Retained Earnings Beginning balance 605.7 571.3 Net income 13.7 9.1 Cash dividends on Class A and Class B common stock: 2003 $0.500 per share (4.1) --- 2002 $0.480 per share --- (3.9) -------- -------- 615.3 576.5 -------- -------- Accumulated Other Comprehensive Income (Loss) Beginning balance (59.4) (54.8) Foreign currency translation adjustment 17.2 11.8 Reclassification of hedging activity into earnings 2.9 4.7 Current period cash flow hedging activity (3.7) (3.4) -------- -------- (43.0) (41.7) -------- -------- Total Stockholders' Equity $ 585.6 $ 547.8 ======== ========
See notes to unaudited condensed consolidated financial statements. 6 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES JUNE 30, 2003 (Tabular Amounts in Millions) Note 1 - Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of NACCO Industries, Inc. ("NACCO," the parent company) and its wholly owned subsidiaries ("NACCO Industries, Inc. and Subsidiaries," or the "Company"). Intercompany accounts and transactions have been eliminated. The Company's subsidiaries operate in three principal industries: lift trucks, housewares and lignite mining. The Company manages its subsidiaries primarily by industry; however, the Company manages its lift truck operations as two reportable segments: wholesale manufacturing and retail distribution. NMHG Holding Co., through its wholly owned subsidiaries, NACCO Materials Handling Group, Inc. ("NMHG Wholesale") and NMHG Distribution Co. ("NMHG Retail") (collectively "NMHG") designs, engineers, manufactures, sells, services and leases a comprehensive line of lift trucks and aftermarket parts and service marketed globally under the Hyster(R) and Yale(R) brand names. NMHG Wholesale includes the manufacture and sale of lift trucks and related service parts, primarily to independent and wholly owned Hyster and Yale retail dealerships. NMHG Retail includes the sale, leasing and service of Hyster and Yale lift trucks and related service parts by wholly owned retail dealerships and rental companies. NACCO Housewares Group ("Housewares") consists of Hamilton Beach/Proctor-Silex, Inc. ("HB/PS"), a leading manufacturer, marketer and distributor of small electric motor and heat-driven appliances as well as commercial products for restaurants, bars and hotels, and The Kitchen Collection, Inc. ("KCI"), a national specialty retailer of brand-name kitchenware, small electrical appliances and related accessories. The North American Coal Corporation ("NACoal") mines and markets lignite primarily as fuel for power providers. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company as of June 30, 2003 and the results of its operations for the three and six month periods ended June 30, 2003 and 2002 and the results of its cash flows and changes in stockholders equity for the six month periods ended June 30, 2003 and 2002 have been included. The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information or notes required by accounting principles generally accepted in the United States for complete financial statements. Operating results for the three and six month periods ended June 30, 2003 are not necessarily indicative of the results that may be expected for the remainder of the year ending December 31, 2003. Because the housewares business is seasonal, a majority of revenues and operating profit occurs in the second half of the calendar year when sales of small electric appliances to retailers and consumers increase significantly for the fall holiday selling season. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002. Certain amounts in the prior period's Unaudited Condensed Consolidated Statement of Cash Flows have been reclassified to conform to the current period's presentation. 7 < Note 2 - Inventories Inventories are summarized as follows:
JUNE 30 DECEMBER 31 2003 2002 -------- -------- Manufactured inventories: Finished goods and service parts - NMHG Wholesale $ 112.1 $ 99.9 Housewares 75.4 66.8 -------- -------- 187.5 166.7 Raw materials and work in process - NMHG Wholesale 121.2 110.3 Housewares 6.8 6.5 -------- -------- 128.0 116.8 -------- -------- Total manufactured inventories 315.5 283.5 Retail inventories: NMHG Retail 30.2 23.4 Housewares 20.9 21.4 -------- -------- Total retail inventories 51.1 44.8 Total inventories at FIFO 366.6 328.3 Coal - NACoal 15.5 14.5 Mining supplies - NACoal 22.9 22.3 -------- -------- Total inventories at weighted average 38.4 36.8 LIFO reserve - NMHG (13.6) (11.6) Housewares 4.7 3.5 -------- -------- (8.9) (8.1) -------- -------- $ 396.1 $ 357.0 ======== ========
The cost of certain manufactured and retail inventories, including service parts, has been determined using the LIFO method. At June 30, 2003 and December 31, 2002, 59% of total inventories were determined using the LIFO method. An actual valuation of inventory under the LIFO method can be made only at the end of the year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Because these estimates are subject to change and may be different than the actual inventory levels and costs at year-end, interim results are subject to the final year-end LIFO inventory valuation. Housewares' LIFO inventory value exceeds its FIFO value primarily due to price deflation experienced by HB/PS. 8 Note 3 - Restructuring Charges The changes to the Company's restructuring accruals since December 31, 2002 are as follows:
Asset Lease Severance Impairment Impairment Other Total --------- ---------- ---------- ----- ----- NMHG Wholesale Balance at December 31, 2002 $ 9.3 $ 3.8 $ --- $ .9 $ 14.0(a) Foreign currency effect .2 --- --- --- .2 Reversal (.3) --- --- --- (.3) Payments (1.6) --- --- --- (1.6) ------------------------------------------------- Balance at June 30, 2003 $ 7.6 $ 3.8 $ --- $ .9 $ 12.3 ================================================= NMHG Retail Balance at December 31, 2002 $ 1.5 $ --- $ .1 $ --- $ 1.6 Reversal (.4) --- --- --- (.4) Payments (.3) --- (.1) --- (.4) ------------------------------------------------- Balance at June 30, 2003 $ .8 $ --- $ --- $ --- $ .8 ================================================= Housewares Balance at December 31, 2002 $ --- $ --- $ 1.2 $ .4 $ 1.6 Payments --- --- (.5) (.1) (.6) ------------------------------------------------- Balance at June 30, 2003 $ --- $ --- $ .7 $ .3 $ 1.0 =================================================
(a) The December 31, 2002 balance indicated in the table above does not include $7.6 million in curtailment losses relating to pension and other post-retirement benefits which will not be paid until employees reach retirement age. These amounts were accrued in the fiscal year ended December 31, 2000 as part of the restructuring of the Danville, Illinois assembly plant. Final severance payments for the Danville restructuring plan were made in 2002. NMHG 2002 Restructuring Program As announced in December 2002, NMHG Wholesale is phasing out its Lenoir, North Carolina, lift truck component facility and restructuring other manufacturing and administrative operations, primarily its Irvine, Scotland, lift truck assembly and component facility. During the fourth quarter of 2002, NMHG Wholesale recognized a restructuring charge of approximately $12.5 million pre-tax. Of this amount, $3.8 million relates to a non-cash asset impairment charge for building, machinery and tooling, which was determined based on the then current market values for similar assets and broker quotes as compared to the net book value of these assets; and $8.7 million relates to severance and other employee benefits to be paid to approximately 615 manufacturing and administrative employees. Payments began during the second quarter of 2003. As of June 30, 2003, payments of $0.7 million were made to approximately 100 employees. Payments are expected to continue through 2005. In addition, $0.3 million of the amount accrued at December 31, 2002 was reversed in the first half of 2003. Approximately $2.5 million of pre-tax costs which were not eligible for accrual in December 2002 and are not shown in the table above, primarily related to manufacturing inefficiencies, were expensed in the first half of 2003. Of the $2.5 million additional costs incurred during 2003, $2.3 million is classified as cost of sales and $0.2 million is classified as selling, general, and administrative expenses in the Unaudited Condensed Consolidated Statement of Income for the six months ended June 30, 2003. NMHG 2001 Restructuring Programs During 2001, management committed to the restructuring of certain operations in Europe for both the Wholesale and Retail segments of the business. As such, NMHG Wholesale recognized a restructuring charge of approximately $4.5 million pre-tax for severance and other employee benefits to be paid to approximately 285 direct and indirect factory labor and administrative personnel in Europe. As of December 31, 2002, payments of $3.4 million to approximately 245 employees had been made and $0.2 million of the amount originally accrued was reversed in 2002. Although the majority of the headcount reductions were made by the end of 2002, payments of $0.9 million to 16 employees were made during the first six months of 2003. 9 NMHG Retail recognized a restructuring charge of approximately $4.7 million pre-tax in 2001, of which $0.4 million related to lease termination costs and $4.3 million related to severance and other employee benefits to be paid to approximately 140 service technicians, salesmen and administrative personnel at wholly owned dealers in Europe. As of December 31, 2002, severance payments of $2.8 million had been made to approximately 110 employees. Although the majority of the headcount reductions were made by the end of 2002, during the first half of 2003, severance payments of $0.3 million were made to six employees. In addition, $0.4 million of the amount accrued at December 31, 2002 was reversed in the first six months of 2003. Housewares: In 2001, the Board of Directors approved management's plan to restructure HB/PS' manufacturing activities in Mexico by outsourcing certain of the company's products and consolidating production from three of the company's Mexican manufacturing plants in the Juarez area into one plant. This restructuring was substantially completed during 2002. However, lease payments on idle facilities are expected to continue through 2003. Note 4 - Accounting Changes Accounting for Asset Retirement Obligations On January 1, 2003, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 provides accounting requirements for retirement obligations associated with tangible long-lived assets, including: (i) the timing of liability recognition; (ii) initial measurement of the liability; (iii) allocation of asset retirement cost to expense; (iv) subsequent measurement of the liability; and (v) financial statement disclosures. SFAS No. 143 requires that an asset's retirement cost should be capitalized as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational method. A cumulative effect of a change in accounting principle ("CECAP") adjustment of $1.2 million, net of a tax expense of $0.7 million, to increase net income has been recognized in the accompanying Unaudited Condensed Consolidated Statement of Income for the six months ended June 30, 2003, as a result of the adoption of SFAS No. 143 on January 1, 2003. This adjustment consists of a CECAP adjustment to decrease net income by $1.3 million, net of a tax benefit of $0.7 million, recorded by NACoal and a CECAP adjustment to increase net income by $2.5 million, net of $1.4 million tax expense, recorded by Bellaire Corporation ("Bellaire"). Bellaire's results are included in the non-operating segment "NACCO & Other." Bellaire is a non-operating subsidiary of the Company with legacy liabilities relating to closed mining operations, primarily former Eastern U.S. underground mining operations. These legacy liabilities include obligations for water treatment and other environmental remediation which arose as part of the normal course of closing these underground mining operations. Prior to the adoption of SFAS No. 143, an accrual for these legacy liabilities was estimated and discounted using an applicable risk-free rate of return. As of January 1, 2003, these obligations have been remeasured to their estimated fair market value and discounted using a credit-adjusted risk-free rate, as required per SFAS No. 143. This change in the measurement of these liabilities as required per SFAS No. 143 resulted in a CECAP adjustment to increase net income, primarily as a result of the change in the discount rate used to measure these liabilities. As a result, future accretion expense is expected to increase as compared with the Company's previous methodology for measuring this obligation. Since Bellaire's properties are no longer active operations, no associated asset was capitalized as a result of the adoption of SFAS No. 143. NACoal's asset retirement obligations are for costs to close its surface mines and reclaim the land it has disturbed as a result of its normal mining activities. As a result of the adoption of SFAS No. 143, NACoal has estimated these costs and recognized that liability and associated assets in accordance with the Statement. The associated assets established in connection with the implementation of SFAS No. 143 are recorded in property, plant and equipment in the accompanying Unaudited Condensed Consolidated Balance Sheet at June 30, 2003. Prior to the adoption of SFAS No. 143, NACoal's accounting policy was to accrue for mine-closing costs over the five-year period prior to the closing of the mine. Since none of NACoal's mines were forecasted to be closed within the next five years, NACoal did not have an accrual recognized for asset retirement obligations prior to the adoption of this Statement. For NACoal and Bellaire, there are no assets legally restricted for purposes of settling the asset retirement obligations. The asset retirement obligations for the project mining subsidiaries will be funded by the 10 respective project mining subsidiaries' customer. NACoal's non-project mining operations and Bellaire's asset retirement obligation will be funded out of general corporate funds. A reconciliation of the beginning and ending aggregate carrying amount of the asset retirement obligation is as follows:
NACoal NACoal Project Non-Project NACoal NACCO Mines Mines Consolidated Bellaire Consolidated -------- ----------- ------------ ------------ ------------- Balance at December 31, 2002 $ --- $ --- $ --- $ 15.9 $ 15.9 Increase (decrease) to liabilities recorded as a result of the adoption of SFAS No. 143 40.8 3.5 44.3 (3.9) 40.4 Liabilities settled during the period --- --- --- (.2) (.2) Accretion expense 1.4 .2 1.6 .5 2.1 ------- -------- --------- -------- ------- Balance at June 30, 2003 $ 42.2 $ 3.7 $ 45.9 $ 12.3 $ 58.2 ======= ======== ========= ======== =======
Assuming the adoption of SFAS No. 143 in the prior year, the December 31, 2002 liabilities recorded on the balance sheet for the project mines, non-project mines and Bellaire would have been $40.8 million, $3.5 million and $12.0 million, respectively. The effect of adopting SFAS No. 143 was to decrease income before the cumulative effect of accounting change and net income by $0.1 million in both the three and six months ended June 30, 2003, respectively. The effect on earnings per share was a decrease of $0.01 and $0.02 in the three and six months ended June 30, 2003, respectively. Additional pro forma information, assuming the adoption of this Statement in the prior year, is as follows:
THREE SIX MONTHS MONTHS ENDED ENDED JUNE 30, 2002 JUNE 30, 2002 ------------- ------------- (in millions) Reported net income $ 2.8 $ 9.1 Deduct additional expense assuming the adoption of SFAS No. 143 on 12/31/01 .1 .1 -------- -------- Adjusted net income $ 2.7 $ 9.0 ======== ======== (in dollars) Reported earnings per share $ .34 $ 1.11 Deduct additional expense per share assuming the adoption of SFAS No. 143 on 12/31/01 .01 .01 -------- -------- Adjusted earnings per share $ .33 $ 1.10 ======== ========
Accounting for Guarantees In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 requires guarantors to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee for those guarantees initiated or modified after December 31, 2002. However, certain guarantees, including product warranties and guarantees between parties under common control (i.e., parent and subsidiary), are not required to be recognized at fair value at inception. FIN No. 45 also requires additional disclosures of guarantees, including product warranties and guarantees between parties under common control, beginning with interim or annual periods ending after December 15, 2002. Guarantees initiated prior to December 31, 2002 are not recognized as a liability measured at fair value per this Interpretation, but are subject to the disclosure requirements. The Company has made the required disclosures in these financial statements. Also, the Company has recognized guarantees included within the scope of this Interpretation and initiated after December 31, 2002 as liabilities measured at fair value. The adoption of the fair value provisions of this Interpretation did not have a material impact on the Company's financial position or results of operations for the three or six months ended June 30, 2003. 11 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 June 30, 2003 and December 31, 2002 were $168.2 million and $153.6 million, respectively. Losses anticipated under the terms of the guarantees, recourse or repurchase obligations, which are not significant, have been reserved for in the accompanying Unaudited Condensed Consolidated Financial Statements. Generally, NMHG retains a security interest in the related assets financed such that, in the event that NMHG would become obligated under the terms of the recourse or repurchase obligations, NMHG would take title to the assets financed. The fair value of collateral held at June 30, 2003 was approximately $180.7 million, based on Company estimates. NMHG has a 20% ownership interest in NMHG Financial Services, Inc. ("NFS"), a joint venture with GE Capital Corporation ("GECC"), formed primarily for the purpose of providing financial services to 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. On occasion, the credit quality of the customer or concentration issues within GECC 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 June 30, 2003, $122.2 million of the $168.2 million of guarantees discussed above related to transactions with NFS. In addition, in connection with the formation of the current joint venture agreement that expires in April 2004, NMHG also provides a guarantee to GECC for 20% of NFS' debt with GECC, such that NMHG would become liable under the terms of NFS' debt agreements with GECC in the case of default by NFS. At June 30, 2003, the amount of NFS' debt guaranteed by NMHG was $101.2 million. NFS has not defaulted under the terms of this debt financing in the past and NMHG does not expect NFS to default in the foreseeable future. NMHG provides a standard warranty on its lift trucks, generally for six to twelve months or 1,000 to 2,000 hours. In addition, NMHG sells extended warranty agreements which provide additional warranty up to three to five years or up to 3,600 to 10,000 hours. The specific terms and conditions of those warranties vary depending upon the product sold and the country in which NMHG does business. Revenue received for the sale of extended warranty contracts is deferred and recognized in the same manner as the costs are incurred to perform under the warranty contracts, in accordance with FASB Technical Bulletin 90-1, "Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts." HB/PS provides a standard warranty to consumers for all of its products. The specific terms and conditions of those warranties vary depending upon the product brand. In general, if a product is returned under warranty, a refund is provided to the consumer by HB/PS' customer, the retailer. Generally, the retailer returns those products to HB/PS for a credit. The Company estimates the costs that may be incurred under its warranty programs, both standard and extended, and records a liability for such costs at the time product revenue is recognized. Factors that affect the Company's warranty liability include the number of units sold, historical and anticipated rates of warranty claims and the cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Changes in the Company's current and long-term warranty obligations, including deferred revenue on extended warranty contracts, during the six months ended June 30, 2003 are as follows: Balance at December 31, 2002 $ 43.9 Warranties issued 18.1 Settlements made (17.6) Changes in estimates (2.2) Foreign currency effect .2 ---------- Balance at June 30, 2003 $ 42.4 ========== The Company's periodic review of the estimates used to calculate its warranty obligations resulted in an adjustment of $2.2 million recognized in the six months ended June 30, 2003 to reduce the estimated required accrual at June 30, 2003. This adjustment is not necessarily indicative of future trends or adjustments that may be required to adjust the warranty accrual during the remainder of 2003. 12 Note 5 - Accounting Standards Not Yet Adopted In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." FIN No. 46 clarifies the application of Accounting Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements" for certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 requires that variable interest entities, as defined, should be consolidated by the primary beneficiary, which is defined as the entity that is expected to absorb the majority of the expected losses, receive a majority of the expected gains, or both. The Company will adopt this Interpretation for the reporting period beginning on July 1, 2003, as required. The Company has determined that three of NACoal's wholly owned subsidiaries, the "project mining subsidiaries" meet the definition of a variable interest entity pursuant to FIN No. 46. Although NACoal owns 100% of the equity interest of the project mining subsidiaries, the Company has concluded that NACoal is not the primary beneficiary and thus, must deconsolidate these entities. The project mining subsidiaries operate lignite mines under long-term contracts with various utility customers to sell lignite at a price based on actual cost plus an agreed pre-tax profit per ton. The utility customers have arranged and guaranteed the financing for the development and operation of the project mining subsidiaries. The obligations of these project mining subsidiaries are currently included in the Company's consolidated balance sheets, but do not affect the short-term or long-term liquidity of the Company and are without recourse to NACCO and NACoal. These entities are capitalized primarily with debt financing; the equity investment in these entities at June 30, 2003 was $5.0 million, which supports total assets of $418.7 million at June 30, 2003. NACoal owns 100% of the stock and manages the daily operations of these entities. As a result of the deconsolidation of these entities, the financial statement presentation of the Company will change significantly. As of July 1, 2003, the Company will account for its 100% ownership investment in these entities using the equity method of accounting. This change in accounting, however, will not affect the reported net earnings of the Company. The Company's risk of loss relating to these entities is limited to its invested capital, which was $5.0 million at June 30, 2003. Selected financial information for the project mining subsidiaries is as follows: AS OF AND AS OF AND FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, 2003 DECEMBER 31, 2002 ------------------- ------------------ Revenues $ 130.5 $ 263.1 Net income $ 13.0 $ 24.7 Total assets $ 418.7 $ 381.2 Stockholder's equity $ 5.0 $ 4.9 In addition, NMHG does have an interest in a variable interest entity, NFS. The Company, however, has concluded that NMHG is not the primary beneficiary and the Company does not consider NMHG's variable interest to be significant. NMHG will continue to use the equity method to account for its 20% interest in NFS. The Company continues to review two other entities with which NMHG is affiliated to determine if they meet the definition of a variable interest entity. The Company expects to have its analysis complete and adopt FIN No. 46 during the third quarter of 2003. On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This Statement amends and clarifies accounting for derivatives and hedging based on decisions made: (a) previously as part of the Derivative Implementation Group process, (b) in connection with other FASB projects and (c) regarding other issues raised, including the characteristics of a derivative that contains a financing component. This Statement is effective for contracts entered into or modified after June 30, 2003 and should be applied prospectively, with the exception of certain transactions. The Company has not yet determined what impact, if any, the adoption of this Statement will have on its results of operations or financial position. On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This Statement provides guidance on how an entity classifies and measures certain financial instruments with characteristics of both liabilities and equity. This Statement is 13 effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. This Statement requires the recognition of a cumulative effect of a change in accounting transition adjustment for financial instruments existing at adoption date. The Company has not yet determined what impact, if any, the adoption of this Statement will have on its results of operations or financial position. Note 6 - Current and Long-term Financing In April 2003, NACoal refinanced $15.8 million of equipment previously financed under operating leases with collateralized debt. The equipment consisted of mining equipment, such as trucks, bulldozers, graders and a backhoe. These April 2003 purchases were financed with three collateralized notes payable that expire, in accordance with their respective terms, in either 2007 or 2008 and require monthly principal and interest payments at a weighted-average fixed interest rate of 5.46%. Note 7 - Contingent Obligation As a result of the Coal Industry Retiree Health Benefit Act of 1992, the Company's non-operating subsidiary, Bellaire Corporation ("Bellaire"), is obligated to the United Mine Workers of America Combined Benefit Fund (the "Fund") for the medical expenses of certain United Mine Worker retirees. As a result, the Company established an estimate of this obligation in 1992 and has continued to revise this estimate as new facts arise. See additional discussion in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002, on pages F-10, F-17, F-28 and F-29. Revisions to this liability are recognized in the statement of operations as an extraordinary item pursuant to the requirement of EITF 92-13, "Accounting for Estimated Payments in Connection with the Coal Industry Retiree Health Benefit Act of 1992." On July 15, 2003, the Fund filed suit against 214 companies, including Bellaire, seeking an increase in premiums paid to the Fund. If the Fund prevails, the Company's estimate of this accrual could increase within an estimated range of $0 to $6.2 million pre-tax. Since the outcome of this proceeding is uncertain, the Company has not revised its accrual. 14 Note 8 - Segment Information Financial information for each of the Company's reportable segments, as defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," is presented in the following table. 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.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ----------------------- ------------------------- 2003 2002 2003 2002 -------- ---------- ---------- ---------- REVENUES FROM EXTERNAL CUSTOMERS NMHG Wholesale $ 389.2 $ 347.2 $ 771.8 $ 674.9 NMHG Retail 57.5 58.6 111.4 114.8 NMHG Eliminations (18.3) (17.1) (35.8) (29.2) -------- ---------- ---------- ---------- NMHG Consolidated 428.4 388.7 847.4 760.5 Housewares 118.3 134.5 234.3 256.1 NACoal 90.7 86.3 175.6 169.4 NACCO and Other .1 .1 .1 .1 -------- ---------- ---------- ---------- $ 637.5 $ 609.6 $ 1,257.4 $ 1,186.1 ======== ========== ========== ========== GROSS PROFIT NMHG Wholesale $ 64.3 $ 57.6 $ 128.4 $ 106.4 NMHG Retail 11.5 10.6 21.8 22.9 NMHG Eliminations (.3) .3 .1 .9 -------- ---------- ---------- ---------- NMHG Consolidated 75.5 68.5 150.3 130.2 Housewares 26.9 29.5 48.4 49.8 NACoal 14.4 15.7 31.0 34.2 NACCO and Other .1 .1 --- --- -------- ---------- ---------- ---------- $ 116.9 $ 113.8 $ 229.7 $ 214.2 ======== ========== ========== ========== SELLING, GENERAL AND ADMINISTRATIVE EXPENSES NMHG Wholesale $ 48.8 $ 43.8 $ 99.2 $ 85.6 NMHG Retail 11.2 14.0 22.9 27.0 NMHG Eliminations (.1) (.3) (.1) (.6) -------- ---------- ---------- ---------- NMHG Consolidated 59.9 57.5 122.0 112.0 Housewares 22.5 26.3 47.8 49.2 NACoal 4.8 3.3 9.6 6.8 NACCO and Other .1 1.1 .1 1.8 -------- ---------- ---------- ---------- $ 87.3 $ 88.2 $ 179.5 $ 169.8 ======== ========== ========== ==========
15
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------ ------------------ 2003 2002 2003 2002 ------- ------- ------- ------- OPERATING PROFIT (LOSS) NMHG Wholesale $ 15.5 $ 13.8 $ 29.2 $ 20.8 NMHG Retail .3 (3.4) (1.1) (4.1) NMHG Eliminations (.2) .6 .2 1.5 ------- ------- ------- ------- NMHG Consolidated 15.6 11.0 28.3 18.2 Housewares 4.4 3.2 .6 .6 NACoal 9.6 12.4 21.4 27.4 NACCO and Other --- (1.0) (.1) (1.8) ------- ------- ------- ------- $ 29.6 $ 25.6 $ 50.2 $ 44.4 ======= ======= ======= ======= INTEREST EXPENSE NMHG Wholesale $ (7.3) $ (6.6) $ (14.5) $ (10.2) NMHG Retail (.9) (.9) (1.8) (1.7) NMHG Eliminations (.5) (1.1) (1.0) (2.2) ------- ------- ------- ------- NMHG Consolidated (8.7) (8.6) (17.3) (14.1) Housewares (1.7) (1.9) (3.3) (3.8) NACoal (2.4) (2.7) (4.7) (5.9) NACCO and Other --- --- (.3) --- Eliminations .1 .1 .2 .2 ------- ------- ------- ------- (12.7) (13.1) (25.4) (23.6) Project mining subsidiaries (4.1) (4.1) (8.2) (8.1) ------- ------- ------- ------- $ (16.8) $ (17.2) $ (33.6) $ (31.7) ======= ======= ======= ======= INTEREST INCOME NMHG Wholesale $ .7 $ .6 $ 1.2 $ 1.2 NMHG Retail --- --- .1 --- ------- ------- ------- ------- NMHG Consolidated .7 .6 1.3 1.2 NACoal .1 .1 .3 .1 NACCO and Other .1 .1 .2 .2 Eliminations (.1) (.1) (.2) (.2) ------- ------- ------- ------- $ .8 $ .7 $ 1.6 $ 1.3 ======= ======= ======= ======= OTHER-NET, INCOME (EXPENSE) NMHG Wholesale $ .3 $ (4.2) $ --- $ (3.3) NMHG Retail .4 (1.0) .6 (1.0) ------- ------- ------- ------- NMHG Consolidated .7 (5.2) .6 (4.3) Housewares (.1) (.7) (.4) (.8) NACoal --- (.1) (.1) (.3) NACCO and Other (.7) .6 (1.0) 1.1 ------- ------- ------- ------- $ (.1) $ (5.4) $ (.9) $ (4.3) ======= ======= ======= ======= INCOME TAX PROVISION (BENEFIT) NMHG Wholesale $ 3.1 $ 1.4 $ 5.4 $ .9 NMHG Retail --- (1.9) (.7) (2.2) NMHG Eliminations (.3) (.2) (.3) (.3) ------- ------- ------- ------- NMHG Consolidated 2.8 (.7) 4.4 (1.6) Housewares 1.1 .2 (1.2) (1.6) NACoal --- 1.4 .9 2.6 NACCO and Other .2 .3 1.2 1.7 ------- ------- ------- ------- $ 4.1 $ 1.2 $ 5.3 $ 1.1 ======= ======= ======= =======
16
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------- ------------------- 2003 2002 2003 2002 ------- ------- ------- ------- NET INCOME (LOSS) NMHG Wholesale $ 6.3 $ 2.5 $ 11.0 $ 8.1 NMHG Retail (.2) (3.4) (1.5) (4.6) NMHG Eliminations (.4) (.3) (.5) (.4) ------- ------- ------- ------- NMHG Consolidated 5.7 (1.2) 9.0 3.1 Housewares 1.5 .4 (1.9) (2.4) NACoal 3.2 4.2 6.5 10.6 NACCO and Other (.8) (.6) .1 (2.2) ------- ------- ------- ------- $ 9.6 $ 2.8 $ 13.7 $ 9.1 ======= ======= ======= ======= DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE NMHG Wholesale $ 6.6 $ 7.6 $ 13.2 $ 15.2 NMHG Retail 2.4 2.5 4.3 5.5 ------- ------- ------- ------- NMHG Consolidated 9.0 10.1 17.5 20.7 Housewares 3.2 2.9 6.4 7.1 NACoal 2.9 2.0 5.4 4.1 NACCO and Other --- --- .1 --- ------- ------- ------- ------- 15.1 15.0 29.4 31.9 Project mining subsidiaries 8.2 7.1 16.4 14.8 ------- ------- ------- ------- $ 23.3 $ 22.1 $ 45.8 $ 46.7 ======= ======= ======= ======= CAPITAL EXPENDITURES NMHG Wholesale $ 5.6 $ 2.4 $ 8.4 $ 7.8 NMHG Retail 1.7 .5 2.4 1.3 ------- ------- ------- ------- NMHG Consolidated 7.3 2.9 10.8 9.1 Housewares 1.9 1.5 3.3 2.5 NACoal 19.0 1.9 20.7 3.1 NACCO and Other --- .3 --- .7 ------- ------- ------- ------- 28.2 6.6 34.8 15.4 Project mining subsidiaries 2.4 3.6 5.3 5.2 ------- ------- ------- ------- $ 30.6 $ 10.2 $ 40.1 $ 20.6 ======= ======= ======= =======
JUNE 30 DECEMBER 31 2003 2002 ---------- ---------- TOTAL ASSETS NMHG Wholesale $ 1,117.7 $ 1,070.7 NMHG Retail 172.0 187.7 NMHG Parent/Eliminations (81.2) (54.9) ---------- ---------- NMHG Consolidated 1,208.5 1,203.5 Housewares 328.1 331.5 NACoal 240.4 224.2 NACCO and Other 81.4 75.5 ---------- ---------- 1,858.4 1,834.7 Project mining subsidiaries 418.7 381.2 ---------- ---------- 2,277.1 2,215.9 Consolidating Eliminations (96.2) (92.0) ---------- ---------- $ 2,180.9 $ 2,123.9 ========== ==========
17 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions) ========================================== Critical Accounting Policies and Estimates ========================================== Please refer to the discussion of the Company's Critical Accounting Policies and Estimates as disclosed on pages 21 and 22 in the Company's Form 10-K for the fiscal year ended December 31, 2002. ================= FINANCIAL SUMMARY ================= The parent company charges fees to its operating subsidiaries for services provided by the corporate headquarters. These services represent most of the parent company's operating expenses. The classification in the income statement by the segments, however, has changed to reflect all of the fees in selling, general and administrative expenses, as directed by the parent company for purposes of internal analysis. Following is a table for comparison of parent company fees year over year:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 --------------- ----------------- 2003 2002 2003 2002 ------ ------ ------ ------ NACCO fees included in selling, general and administrative expenses NMHG Wholesale $ 2.1 $ 1.1 $ 4.1 $ 2.3 Housewares .8 .5 1.6 1.0 NACoal .3 .2 .6 .3 ------ ------ ------ ------ $ 3.2 $ 1.8 $ 6.3 $ 3.6 ====== ====== ====== ====== NACCO fees included in other-net, income (expense) NMHG Wholesale $ --- $ .6 $ --- $ 1.2 Housewares --- .2 --- .4 NACoal --- .1 --- .2 ------ ------ ------ ------ $ --- $ .9 $ --- $ 1.8 ====== ====== ====== ====== Total NACCO fees charged to segments NMHG Wholesale $ 2.1 $ 1.7 $ 4.1 $ 3.5 Housewares .8 .7 1.6 1.4 NACoal .3 .3 .6 .5 ------ ------ ------ ------ $ 3.2 $ 2.7 $ 6.3 $ 5.4 ====== ====== ====== ======
18 ================ NMHG HOLDING CO. ================ NMHG designs, engineers, manufactures, sells, services and leases a comprehensive line of lift trucks and service parts marketed worldwide under the Hyster(R) and Yale(R) brand names. FINANCIAL REVIEW The segment and geographic results of operations for NMHG were as follows for the three months and six months ended June 30:
THREE MONTHS SIX MONTHS --------------------- --------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Revenues Wholesale Americas $ 251.7 $ 237.6 $ 507.9 $ 465.9 Europe, Africa and Middle East 111.5 92.2 214.2 176.8 Asia-Pacific 26.0 17.4 49.7 32.2 -------- -------- -------- -------- 389.2 347.2 771.8 674.9 -------- -------- -------- -------- Retail (net of eliminations) Americas .5 6.4 1.2 14.0 Europe, Africa and Middle East 19.9 16.2 37.4 32.3 Asia-Pacific 18.8 18.9 37.0 39.3 -------- -------- -------- -------- 39.2 41.5 75.6 85.6 -------- -------- -------- -------- NMHG Consolidated $ 428.4 $ 388.7 $ 847.4 $ 760.5 ======== ======== ======== ======== Operating profit (loss) Wholesale Americas $ 13.0 $ 12.2 $ 26.2 $ 22.0 Europe, Africa and Middle East 1.6 1.8 2.1 (1.0) Asia-Pacific .9 (.2) .9 (.2) -------- -------- -------- -------- 15.5 13.8 29.2 20.8 -------- -------- -------- -------- Retail (net of eliminations) Americas (.1) (.4) .1 (.2) Europe, Africa and Middle East (.8) .7 (2.3) 1.0 Asia-Pacific 1.0 (3.1) 1.3 (3.4) -------- -------- -------- -------- .1 (2.8) (.9) (2.6) -------- -------- -------- -------- NMHG Consolidated $ 15.6 $ 11.0 $ 28.3 $ 18.2 ======== ======== ======== ======== Interest expense Wholesale $ (7.3) $ (6.6) $ (14.5) $ (10.2) Retail (net of eliminations) (1.4) (2.0) (2.8) (3.9) -------- -------- -------- -------- NMHG Consolidated $ (8.7) $ (8.6) $ (17.3) $ (14.1) ======== ======== ======== ======== Other-net Wholesale $ 1.0 $ (3.6) $ 1.2 $ (2.1) Retail (net of eliminations) .4 (1.0) .7 (1.0) -------- -------- -------- -------- NMHG Consolidated $ 1.4 $ (4.6) $ 1.9 $ (3.1) ======== ======== ======== ======== Net income (loss) Wholesale $ 6.3 $ 2.5 $ 11.0 $ 8.1 Retail (net of eliminations) (.6) (3.7) (2.0) (5.0) -------- -------- -------- -------- NMHG Consolidated $ 5.7 $ (1.2) $ 9.0 $ 3.1 ======== ======== ======== ========
19 NMHG HOLDING CO. - continued FINANCIAL REVIEW - continued
THREE MONTHS SIX MONTHS --------------- ----------------- 2003 2002 2003 2002 ---- ---- ---- ---- Effective tax rate Wholesale 33.7% 38.9% 34.0% 10.6% Retail (net of eliminations) 33.3% 36.2% 33.3% 33.3% NMHG Consolidated 33.7% 31.8% 34.1% (a)
(a) The effective tax rate for the six months ended June 30, 2002 for NMHG Consolidated is not meaningful. See below. The effective tax rate for the six months ended June 30, 2002 is 10.6% for NMHG Wholesale and is not meaningful for NMHG Consolidated due to a $1.9 million tax benefit recognized in the first quarter of 2002 related to the recognition of previously generated losses in China, combined with a relatively low level of pre-tax income. These factors resulted in a net tax benefit generated on pre-tax income for NMHG Consolidated. Second Quarter of 2003 Compared with Second Quarter of 2002 NMHG Wholesale: Revenues increased to $389.2 million in the second quarter of 2003, up 12.1% from $347.2 million in the second quarter of 2002. The increase in revenues was largely due to increased unit volume worldwide, a shift in mix to higher-priced lift trucks and favorable foreign currency movements. Lift truck shipments increased 5.1% to 16,961 units in the second quarter of 2003 from 16,135 units in the second quarter of 2002. Operating profit increased to $15.5 million in the second quarter of 2003 from $13.8 million in the second quarter of 2002. Operating profit improved primarily due to (i) a favorable shift in mix to higher-margin lift trucks, (ii) a $1.6 million favorable adjustment related to favorable product liability experience and (iii) a $1.1 million gain on the sale of idle property recorded in the second quarter of 2003. In addition, operating profit in 2002 included an impairment loss of approximately $0.8 million, included in selling, general and administrative expenses in the accompanying statement of income, on certain property, consisting primarily of land, owned in South America due to an estimated decline in value based on broker quotes. These increases in operating profit were partially offset by (i) unfavorable foreign currency effects largely as a result of the weakening U.S. dollar against the euro, (ii) increased product development expenses and (iii) additional expenses, which were not eligible for accrual in 2002, related to the previously announced phase-out of the Lenoir, North Carolina lift truck component facility. See additional discussion of the NMHG Wholesale restructuring programs under the heading "NMHG Restructuring Plans" in this Form 10-Q. The increase in operating profit was also partially offset by a change in classification of management fees charged to NMHG Wholesale by NACCO. In the first quarter of 2003, the parent company began classifying all management fees charged to NMHG Wholesale and the other segments as selling, general and administrative expenses for purposes of internal analysis. In comparison, in the three and six months ended June 30, 2002, a portion of the fees, $0.6 million and $1.2 million, respectively, for NMHG Wholesale, were recorded as a component of other income (expense). Net income increased to $6.3 million in the second quarter of 2003 from $2.5 million in the second quarter of 2002 primarily as a result of the factors affecting operating profit plus increased income from unconsolidated affiliates and certain favorable foreign currency transactions. Also affecting the comparability of net income is a decrease in the loss on interest rate swap agreements: the second quarter of 2002 net income includes a pre-tax expense of $3.1 million related to (i) the mark-to-market of interest rate swap agreements that no longer qualified for hedge accounting due to the refinancing of NMHG's debt and (ii) the recognition of previously deferred losses on these interest rate swap agreements. 20 NMHG HOLDING CO. - continued FINANCIAL REVIEW - continued The worldwide backlog level increased to 19,400 units at June 30, 2003 from 17,500 units at June 30, 2002 and 17,300 units at the end of the first quarter of 2003 primarily due to an increase in demand. NMHG Retail (net of eliminations): Revenues decreased to $39.2 million in the second quarter of 2003 from $41.5 million in the second quarter of 2002. This decrease is primarily due to the January 3, 2003 sale of NMHG Retail's only wholly owned U.S. dealer. NMHG Retail-Americas revenues were $0.5 million in the second quarter of 2003 compared with $6.4 million in the second quarter of 2002. This decrease in Americas revenues was partially offset by an increase in revenues due to favorable foreign currency effects. NMHG Retail generated an operating profit of $0.1 million in the second quarter of 2003 compared with an operating loss of $2.8 million in the second quarter of 2002, which was primarily the result of stronger operating results in Asia-Pacific. NMHG Retail's net loss improved to $0.6 million from a net loss of $3.7 million in the second quarter of 2002 due to the factors affecting operating profit and a decrease in interest expense allocated to NMHG Retail and favorable foreign currency movements included in other-net expenses. First Six Months of 2003 Compared with First Six Months of 2002 NMHG Wholesale: Revenues increased to $771.8 million in the first six months of 2003 from $674.9 million in the first six months of 2002. The increase in revenues was primarily the result of increased unit volume, favorable foreign currency movements and, to a lesser degree, a favorable shift in mix to higher-priced lift trucks. Unit shipments increased 10.6% to 34,413 units in the first six months of 2003 as compared with 31,106 in the first six months of 2002. Operating profit increased to $29.2 million in the first half of 2003 from $20.8 million in the first half of 2002. The increase in operating profit was primarily the result of a favorable shift in mix to higher-margin lift trucks and increased volume, partially offset by increased product development and marketing expenses and unfavorable foreign currency effects largely as a result of the weakening U.S. dollar against the euro. Also affecting the year over year comparability is the change in classification of the management fee charged to NMHG Wholesale from NACCO. See discussion of this change in classification in the second quarter operating results, above. Net income increased to $11.0 million in the first six months of 2003 from $8.1 million in the first six months of 2002 as a result of the factors affecting operating profit and additional income from unconsolidated affiliates and a decrease in the loss on interest rate swap agreements. These factors were partially offset by an increase in interest expense, including the amortization of deferred financing fees. NMHG Retail (net of eliminations): Revenues decreased to $75.6 million in the first six months of 2003 from $85.6 million in the first six months of 2002. This decrease is primarily due to the January 3, 2003 sale of NMHG Retail's only wholly owned U.S. dealer, partially offset by an increase in units sold in Europe. NMHG Retail-Americas revenues were $1.2 million in the first six months of 2003 compared with $14.0 million in the first six months of 2002. NMHG Retail generated an operating loss of $0.9 million in the first six months of 2003 compared with an operating loss of $2.6 million in the first six months of 2002, primarily as a result of stronger operating results in Asia-Pacific. NMHG Retail's net loss improved to $2.0 million in the six months ended June 30, 2003 from a net loss of $5.0 million in the first six months of 2002 due to the factors affecting operating profit and a decrease in interest expense allocated to NMHG Retail and favorable foreign currency movements included in other-net expenses. 21 NMHG HOLDING CO. - continued FINANCIAL REVIEW - continued NMHG Restructuring Plans NMHG 2002 Restructuring Program As announced in December 2002, NMHG Wholesale is phasing out its Lenoir, North Carolina, lift truck component facility and restructuring other manufacturing and administrative operations, primarily its Irvine, Scotland, lift truck assembly and component facility. During the fourth quarter of 2002, NMHG Wholesale recognized a restructuring charge of approximately $12.5 million pre-tax. Of this amount, $3.8 million relates to a non-cash asset impairment charge for building, machinery and tooling, which was determined based on the then current market values for similar assets and broker quotes as compared to the net book value of these assets; and $8.7 million relates to severance and other employee benefits to be paid to approximately 615 manufacturing and administrative employees. Payments began during the second quarter of 2003. As of June 30, 2003, payments of $0.7 million were made to approximately 100 employees. Payments are expected to continue through 2005. In addition, $0.3 million of the amount accrued at December 31, 2002 was reversed in the first half of 2003. Approximately $2.5 million of pre-tax costs primarily related to manufacturing inefficiencies, which were not eligible for accrual in December 2002, were expensed in the first six months of 2003. Of the additional costs incurred during 2003, $2.3 million is classified as cost of sales and the remaining $0.2 million is classified as selling, general and administrative expenses in the Unaudited Condensed Consolidated Statement of Income for the six months ended June 30, 2003. Additional costs for severance and manufacturing inefficiencies are expected to be approximately $8.1 million for the remainder of 2003, $8.5 million in 2004 and $5.7 million in 2005. Initial net benefits from this restructuring program are expected to be realized in 2004 with a full twelve months of estimated annual pre-tax benefits of approximately $14.3 million expected beginning in 2005. 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 $4.3 million are expected for the remainder of 2003. This restructuring program will allow the Company to re-focus its product line manufacturing activities, including the manufacture of new product lines in Europe. As a result, the Company expects to receive government grants during 2003 through 2005 totaling approximately $6.5 million over that three-year period. Of this total amount, $1.1 million is expected to be received in 2003. 22 NMHG HOLDING CO. - continued FINANCIAL REVIEW - continued NMHG 2001 Restructuring Programs During 2001, management committed to the restructuring of certain operations in Europe for both the Wholesale and Retail segments of the business. As such, NMHG Wholesale recognized a restructuring charge of approximately $4.5 million pre-tax for severance and other employee benefits to be paid to approximately 285 direct and indirect factory labor and administrative personnel in Europe. As of December 31, 2002, payments of $3.4 million to approximately 245 employees had been made and $0.2 million of the amount originally accrued was reversed in 2002. Payments of $0.9 million to 16 employees were made during the first six months of 2003. The majority of the headcount reductions were made by the end of 2002. As a result of the reduced headcount in Europe, NMHG Wholesale realized pre-tax cost savings primarily from reduced employee wages and benefits of $4.6 million for the first six months of 2003 and estimates pre-tax savings of $4.6 million for the remainder of 2003. Annual pre-tax cost saving of $9.2 million are expected to continue subsequent to 2003 as a result of this program. Although a majority of the projected savings is the result of a reduction in fixed factory costs, the overall benefit estimates could vary depending on unit volumes and the resulting impact on manufacturing efficiencies or due to changes in foreign currency rates. NMHG Retail recognized a restructuring charge of approximately $4.7 million pre-tax in 2001, of which $0.4 million related to lease termination costs and $4.3 million related to severance and other employee benefits to be paid to approximately 140 service technicians, salesmen and administrative personnel at wholly owned dealers in Europe. As of December 31, 2002, severance payments, net of currency effects, of $2.8 million had been made to approximately 110 employees. During the first six months of 2003, severance payments of $0.3 million were made to six employees. In addition, $0.4 million of the amount accrued at December 31, 2002 was reversed in the first six months of 2003. The majority of the headcount reductions were made by the end of 2002. Cost savings primarily from reduced employee wages, employee benefits and lease costs of approximately $1.6 million pre-tax were realized in the first six months of 2003 and are expected to be approximately $1.6 million for the remainder of 2003 related to this program. Annual pre-tax cost saving of $3.1 million are expected to continue subsequent to 2003 as a result of this program. Estimated benefits could be reduced by additional severance payments, if any, made to employees above the statutory or contractually required amount that was accrued in 2001 or due to changes in foreign currency rates. LIQUIDITY AND CAPITAL RESOURCES Expenditures for property, plant and equipment were $8.4 million for NMHG Wholesale and $2.4 million for NMHG Retail during the first six months of 2003. These capital expenditures include tooling for new products, machinery, equipment and lease and rental fleet. It is estimated that NMHG's capital expenditures for the remainder of 2003 will be approximately $20.8 million for NMHG Wholesale and $0.8 million for NMHG Retail. Planned expenditures for the remainder of 2003 include tooling for new products, capital expenditures arising as a result of the manufacturing restructuring programs, replacement of machinery and equipment and additions to retail lease and rental fleet. The principal sources of financing for these capital expenditures will be internally generated funds and bank borrowings. Since December 31, 2002, there have been no significant changes in the total amount of NMHG's contractual obligations or commercial commitments, or the timing of cash flows in accordance with those obligations, as reported in the Company's 10-K for the year ended December 31, 2002. During 2002, NMHG issued $250.0 million of 10% unsecured Senior Notes that mature on May 15, 2009. The Senior Notes are senior unsecured obligations of NMHG Holding Co. and are guaranteed by substantially all of NMHG's domestic subsidiaries. NMHG Holding Co. has the option to redeem all or a portion of the Senior Notes on or after May 15, 2006 at the redemption prices set forth in the Indenture governing the Senior Notes. The proceeds from the Senior Notes were reduced by an original issue discount of $3.1 million. 23 NMHG HOLDING CO. - continued LIQUIDITY AND CAPITAL RESOURCES - continued Additionally, NMHG has a secured, floating-rate revolving credit facility which expires in May 2005. Availability under the revolving credit facility is up to $175.0 million and is governed by a borrowing base derived from advance rates against the inventory and accounts receivable of the borrowers, as defined in the revolving credit facility. Adjustments to reserves booked against these assets, including inventory reserves, will change the eligible borrowing base and thereby impact the liquidity provided by the facility. At June 30, 2003, the borrowing base under the revolving credit facility was $105.3 million, which reflects reductions for the commitments or availability under certain foreign credit facilities and for an excess availability requirement of $15.0 million. Borrowings outstanding under this facility were $2.0 million at June 30, 2003. Therefore, at June 30, 2003, the excess availability under the revolving credit facility was $103.3 million. The floating rate of interest applicable to this facility on June 30, 2003 was 5.875%, including the applicable floating rate margin. In addition to the amount outstanding under the Senior Notes and the revolving credit facility, NMHG had borrowings of approximately $33.0 million outstanding at June 30, 2003 under various foreign working capital facilities and other domestic term loans. NMHG believes that funds available under the revolving credit facility, other available lines of credit and operating cash flows are sufficient to finance all of its operating needs and commitments arising during the foreseeable future. NMHG's capital structure is presented below:
JUNE 30 DECEMBER 31 2003 2002 -------- -------- Total net tangible assets $ 361.2 $ 362.8 Goodwill and other intangibles at cost 494.7 487.7 -------- -------- Net assets before amortization of intangibles 855.9 850.5 Accumulated goodwill and other intangibles amortization (145.6) (142.3) Total debt (307.0) (324.8) Minority interest (.7) (1.1) -------- -------- Stockholder's equity $ 402.6 $ 382.3 ======== ======== Debt to total capitalization 43% 46%
The decrease in total net tangible assets of $1.6 million is in part due to a $26.2 million decrease in cash, an $8.6 million decrease in net assets as a result of the sale of NMHG Retail's wholly owned U.S. dealership on January 3, 2003, an $11.9 million increase in trade and intercompany accounts payable and a $9.1 million increase in other current liabilities. These decreases were partially offset by increases of $24.1 million in trade and intercompany accounts receivable and a $27.9 million increase in inventory. Stockholder's equity at June 30, 2003 increased $20.3 million as a result of net income of $9.0 million and a favorable foreign currency translation adjustment of $16.4 million partially offset by a dividend to NACCO of $5.0 million and an unfavorable adjustment to the deferred loss on hedges of $0.1 million. 24 ====================== NACCO HOUSEWARES GROUP ====================== 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 three and six months ended June 30: THREE MONTHS SIX MONTHS ---------------------- ----------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Revenues $ 118.3 $ 134.5 $ 234.3 $ 256.1 Operating profit $ 4.4 $ 3.2 $ .6 $ .6 Interest expense $ (1.7) $ (1.9) $ (3.3) $ (3.8) Other-net $ (.1) $ (.7) $ (.4) $ (.8) Net income (loss) $ 1.5 $ .4 $ (1.9) $ (2.4) Effective tax rate 42.3% 33.3% 38.7% 40.0% Second Quarter of 2003 Compared with Second Quarter of 2002 Housewares' revenues decreased to $118.3 million in the second quarter of 2003 from $134.5 million in the second quarter of 2002 primarily due to reduced consumer spending as a result of the weak retail environment in the U.S. and Canada. HB/PS was also affected by certain retail customers' inventory reduction programs as a result of the weak economy. The decline in revenues at HB/PS was partially offset by a shift in mix to higher price-point products and increased volume of home health products. In addition, revenues at KCI declined as a result of reduced customer visits due to the weak economy, partially offset by an increase in the number of stores from 170 at June 30, 2002 to 178 at June 30, 2003. Although the total store transactions declined at KCI, the average sales transaction increased slightly. Operating profit in the seasonally weak second quarter increased to $4.4 million in the second quarter of 2003 compared with $3.2 million in the second quarter of 2002, primarily as a result of a $3.6 million charge in the second quarter of 2002 related to the partial write-down of pre-bankruptcy receivables from Kmart. Excluding this charge, operating profit decreased $2.4 million in the second quarter of 2003 as compared with the second quarter of 2002. This decrease resulted from declines in the average sales price, reduced unit volumes and resulting reductions in the absorption of manufacturing overhead costs. These declines were partially offset by lower manufacturing costs. Net income of $1.5 million for the second quarter of 2003 improved as compared with net income of $0.4 million for the second quarter of 2002 primarily due to the factors affecting operating profit. 25 NACCO HOUSEWARES GROUP - continued FINANCIAL REVIEW - continued First Six Months of 2003 Compared with First Six Months of 2002 Housewares' revenues decreased to $234.3 million in the first six months of 2003, down 8.5% from $256.1 million in the first six months of 2002. The decline in revenues resulted from the same factors affecting the second quarter discussed above. Operating profit of $0.6 million for the period ended June 30, 2003 was unchanged from the operating profit for the period ended June 30, 2002. Operating results for the six months ended June 30, 2003 improved $2.3 million as a result of the year-over-year change in net charges to write-off Kmart pre-petition bankruptcy receivables. However, this benefit was completely offset by the effects of reduced unit volume. Net loss of $1.9 million for the first six months of 2003 decreased as compared with a net loss of $2.4 million for the first six months of 2002 primarily due to the factors affecting operating profit and a $0.5 million decrease in interest expense primarily due to decreased debt levels. LIQUIDITY AND CAPITAL RESOURCES Housewares' expenditures for property, plant and equipment were $3.3 million during the first six months of 2003 and are estimated to be $7.0 million for the remainder of 2003. These planned capital expenditures are primarily for tooling and equipment designed for new products, as well as tooling and equipment intended to reduce manufacturing costs and increase efficiency. These expenditures will be funded primarily from internally generated funds and bank borrowings. HB/PS' credit agreement provides for a revolving credit facility with availability of up to $140.0 million, which is governed by a borrowing base derived from advance rates against the inventory, accounts receivable and certain trademarks of HB/PS. A portion of the availability can be denominated in Canadian dollars to provide funding to HB/PS' Canadian subsidiary. The borrowing base is reduced by specific reserves for inventory, accounts receivable, obligations outstanding under letters of credit and interest rate derivatives, among others, and an excess availability requirement of $10.0 million. Adjustments to reserves booked against inventory and accounts receivable will change the eligible borrowing base and thereby impact the liquidity provided by the facility. 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 June 30, 2003, for base rate loans and LIBOR loans were 0.50% and 1.75%, respectively. This is a decline from the applicable margins effective as of December 31, 2002, which were 1.50% and 2.75%, respectively. The revolving credit facility also requires the payment of a fee on the unused commitment. The unused commitment fee has declined from 0.50% per annum at December 31, 2002 to 0.375% per annum at June 30, 2003. The margins and unused commitment fee are subject to quarterly adjustment based on a leverage ratio. The revolving credit facility is secured by substantially all of HB/PS' assets. The facility expires in December 2005. At June 30, 2003, the borrowing base under the revolving credit facility was $81.4 million, which reflects reductions for reserves and the excess availability requirement of $10.0 million. Borrowings outstanding under this facility were $60.1 million at June 30, 2003. Therefore, at June 30, 2003, the excess availability under the revolving credit facility was $21.3 million. The floating rate of interest applicable to this facility on June 30, 2003 was 3.34%, including the applicable floating rate margin. 26 NACCO HOUSEWARES GROUP - continued LIQUIDITY AND CAPITAL RESOURCES - continued KCI's credit agreement provides for a secured, floating-rate revolving line of credit (the "KCI Facility") with availability up to $15.0 million, based on a formula using KCI's eligible inventory, as defined. At June 30, 2003, the borrowing base as defined in the agreement was $10.2 million. Borrowings outstanding at June 30, 2003 were $8.3 million at an effective interest rate of LIBOR plus 1.35%, or 2.38%. Since December 31, 2002, there have been no significant changes in the total amount of Housewares' contractual obligations or commercial commitments, or the timing of cash flows in accordance with those obligations, as reported in the Company's 10-K for the year ended December 31, 2002. Housewares believes that funds available under its credit facilities and operating cash flows are sufficient to finance all of its operating needs and commitments arising during the foreseeable future. Housewares' capital structure is presented below:
JUNE 30 DECEMBER 31 2003 2002 -------- -------- Total net tangible assets $ 134.7 $ 127.6 Goodwill and other intangibles at cost 124.1 124.1 -------- -------- Net assets before goodwill amortization 258.8 251.7 Accumulated goodwill and other intangibles amortization (40.0) (39.9) Total debt (68.7) (57.9) -------- -------- Stockholder's equity $ 150.1 $ 153.9 ======== ======== Debt to total capitalization 31% 27%
Total net tangible assets increased $7.1 million primarily due to a $9.6 million increase in inventory, an $8.7 decrease in other current liabilities and a $4.8 million decrease in trade and intercompany accounts payable, partially offset by a $12.4 million decrease in accounts receivable and a $3.6 million decrease in property, plant, and equipment. Inventory increased primarily due to the seasonality of the Housewares business. Other current liabilities declined primarily due to the payment of payroll and incentive compensation in the first quarter of 2003 relating to amounts accrued at December 31, 2002. Accounts receivable declined primarily as a result of lower sales in the second quarter of 2003 as compared with sales in the seasonally higher fourth quarter of 2002. 27 =================================== THE NORTH AMERICAN COAL CORPORATION =================================== NACoal mines and markets lignite for use primarily as fuel for power providers. The lignite is surface mined in North Dakota, Texas, Louisiana and Mississippi. Total coal reserves approximate 2.5 billion tons, with 1.3 billion tons committed to customers pursuant to long-term contracts. NACoal operates six wholly owned lignite mines: The Coteau Properties Company ("Coteau"), The Falkirk Mining Company ("Falkirk"), The Sabine Mining Company ("Sabine"), San Miguel Lignite Mine ("San Miguel"), Red River Mining Company ("Red River") and Mississippi Lignite Mining Company ("MLMC"). NACoal also provides dragline mining services ("Florida dragline operations") for a limerock quarry near Miami, Florida. The operating results of Coteau, Falkirk and Sabine are included in "project mining subsidiaries." The operating results of all other operations are included in "other mining operations." NACoal's subsidiaries, Coteau, Falkirk and Sabine, are termed "project mining subsidiaries" because they mine lignite for utility customers pursuant to long-term contracts at a price based on actual cost plus an agreed pre-tax profit per ton. Due to the cost-plus nature of these contracts, revenues and operating profits are affected by increases and decreases in operating costs, as well as by tons sold. Net income of the project mining subsidiaries, however, is not significantly affected by changes in such operating costs, which include costs of operations, interest expense and certain other items. Because of the nature of the contracts at these mines and because the operating results of the project mining subsidiaries represent a substantial portion of NACoal's revenues and profits, operating results are best analyzed in terms of lignite tons sold, income before taxes and net income. FINANCIAL REVIEW Lignite tons sold by NACoal's operating lignite mines were as follows for the three and six months ended June 30:
THREE MONTHS SIX MONTHS ------------------------ ------------------------ 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Coteau 3.4 3.4 7.7 7.5 Falkirk 1.9 1.5 3.9 3.4 Sabine 1.1 .9 2.1 2.0 San Miguel .8 .8 1.5 1.6 MLMC .8 .9 1.8 1.2 Red River .1 .2 .3 .3 ----------- ----------- ----------- ----------- Total lignite 8.1 7.7 17.3 16.0 =========== =========== =========== ===========
The Florida dragline operations delivered 2.4 million and 5.2 million cubic yards of limerock in the three and six months ended June 30, 2003, respectively. This compares with 2.8 million and 5.2 million cubic yards of limerock in the three and six months ended June 30, 2002, respectively. 28 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 six months ended June 30:
THREE MONTHS SIX MONTHS -------------------- --------------------- 2003 2002 2003 2002 ------- -------- -------- -------- Revenues Project mining subsidiaries $ 68.7 $ 63.8 $ 130.5 $ 128.2 Other mining operations 21.4 21.8 44.0 36.2 ------- -------- -------- -------- 90.1 85.6 174.5 164.4 Liquidated damage payments recorded by MLMC --- --- --- 3.3 Royalties and other .6 .7 1.1 1.7 ------- -------- -------- -------- $ 90.7 $ 86.3 $ 175.6 $ 169.4 ======= ======== ======== ======== Income before taxes Project mining subsidiaries $ 6.9 $ 6.1 $ 14.4 $ 13.5 Other mining operations .9 2.5 2.9 6.8 ------- -------- -------- -------- Total from operating mines 7.8 8.6 17.3 20.3 Royalties and other expenses, net (2.1) (1.1) (3.7) (3.6) Other operating expenses (2.5) (1.9) (4.8) (3.5) ------- -------- -------- -------- Income before tax provision 3.2 5.6 8.8 13.2 Provision for taxes --- 1.4 1.0 2.6 ------- -------- -------- -------- Income before cumulative effect of accounting change 3.2 4.2 7.8 10.6 Cumulative effect of accounting change, net-of tax --- --- (1.3) --- ------- -------- -------- -------- Net income $ 3.2 $ 4.2 $ 6.5 $ 10.6 ======= ======== ======== ======== Effective tax rate(a) (b) 25.0% 10.3% 19.7%
(a) The effective tax rate for NACoal is lower than the statutory federal tax rate of 35% primarily due to the benefit received from percentage depletion. (b) The effective tax rate for the three months ended June 30, 2003 for NACoal is not meaningful. Second Quarter of 2003 Compared with Second Quarter of 2002 Revenues in the second quarter of 2003 increased to $90.7 million, up 5.1% from $86.3 million in the second quarter of 2002. Increased revenues in the second quarter of 2003 as compared with the second quarter of 2002 is primarily due to an increase in tons sold at Falkirk and Sabine, partially offset by a slight decrease in tonnage volume at Mississippi, decreased cubic yards delivered at the Florida dragline operations and a decrease in pass-through costs billed to the project mining subsidiaries' customers. Income before taxes decreased to $3.2 million in the second quarter of 2003 from $5.6 million in the second quarter of 2002. This decrease is primarily due to (i) a $1.4 million gain recorded in the second quarter of 2002 for the sale of undeveloped Eastern coal reserves that were not aligned with NACoal's development strategies, (ii) lower volumes at MLMC due to reduced customer requirements and (iii) increased operating costs at MLMC and San Miguel. These decreases were partially offset by the favorable effect of increased volume at Falkirk and due to decreased interest expense as a result of lower debt levels. Net income in the second quarter of 2003 decreased to $3.2 million from $4.2 million in the second quarter of 2002 as a result of these factors and a lower effective tax rate. The decrease in the effective tax rate for the three and six months ended June 30, 2003 as compared with the three and six months ended June 30, 2002, is primarily due to a greater proportion of income from operations eligible to record a benefit from percentage depletion when compared to losses at operations not eligible for percentage depletion. In addition, the second quarter of 2003 includes a favorable tax adjustment related to the revision of the full year estimated effective tax rate. 29 THE NORTH AMERICAN COAL CORPORATION - continued FINANCIAL REVIEW - continued First Six Months of 2003 Compared with First Six Months of 2002 Revenues in the first six months of 2003 increased to $175.6 million, up 3.7% from $169.4 million in the first six months of 2002. Increased revenues in the first six months of 2003 as compared with the first six months of 2002 is primarily due to a full six months of commercial operations of the customer's power plant in 2003 at MLMC and an increase in tons sold by the project mines, partially offset by (i) a decrease in pass-through costs billed to the project mining subsidiaries' customers, (ii) a decrease in liquidated damages payments which were received by MLMC in the first half of 2002 due to the delay of commercial operations of the customer's power plant and (iii) a decrease in royalty income. Income before taxes decreased to $8.8 million in the first six months of 2003 from $13.2 million in the first six months of 2002. This decrease is primarily due to (i) unfavorable operating results at MLMC as a result of increased operating costs from the significant increase in production and delivery of lignite to the customer during the first six months of 2003 as compared with operating costs incurred when receiving liquidated damages payments during the first six months of 2002, (ii) increased maintenance costs at San Miguel and (iii) a $1.4 million gain on the sale of undeveloped Eastern coal reserves recognized in the first six months of 2002. Net income in the second half of 2003 decreased to $6.5 million from $10.6 million in the second half of 2002 as a result of these factors and due to a $1.3 million after-tax charge for the cumulative effect of a change in accounting related to the adoption of SFAS No. 143. See Note 4 to the Unaudited Condensed Consolidated Financial Statements for a discussion related to the adoption of SFAS No. 143. LIQUIDITY AND CAPITAL RESOURCES Expenditures for property, plant and equipment were $26.0 million during the first six months of 2003. In April 2003, $15.8 million of equipment previously financed under operating leases was refinanced with collateralized debt. The equipment consisted of mining equipment, such as trucks, bulldozers, graders and a backhoe. These April 2003 purchases were financed with three collateralized notes payable that expire, in accordance with their respective terms, in either 2007 or 2008 and require monthly principal and interest payments at a weighted-average fixed interest rate of 5.46%. NACoal estimates that its capital expenditures for the remainder of 2003 will be $20.1 million, of which $15.5 million relates to the development, establishment and improvement of the project mining subsidiaries' mines and will be financed or guaranteed by the utility customers. In addition to the new collateralized debt discussed above, 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 June 30, 2003 (the "NACoal Facility"). The NACoal Facility requires annual term loan repayments of $15.0 million, with a final term loan repayment of $55.0 million in October 2005. The revolving line of credit of up to $60.0 million is available until the facility's expiration in October 2005. The NACoal Facility has performance-based pricing which sets interest rates based upon achieving various levels of Debt to EBITDA ratios, as defined therein. The margins and commitment fee are subject to quarterly adjustment based on the level of debt to EBITDA. At June 30, 2003, the stated interest rate, including the applicable margin, for the revolving line of credit and for the term loan was LIBOR plus 1.45% and LIBOR plus 1.75%, respectively. The applicable margins at June 30, 2003 have declined from those in effect at December 31, 2002 of 1.85% and 2.25%, respectively. The revolving credit facility fee has also declined from 0.40% at December 31, 2002 to 0.30% at June 30, 2003. At June 30, 2003, NACoal had borrowings outstanding under its revolving line of credit of $5.0 million, leaving $55.0 million available. 30 THE NORTH AMERICAN COAL CORPORATION - continued LIQUIDITY AND CAPITAL RESOURCES - continued Since December 31, 2002, there have been no significant changes in the total amount of NACoal's contractual obligations or commercial commitments, or the timing of cash flows in accordance with those obligations as reported in the Company's 10-K for the year ended December 31, 2002. The financing of the project mining subsidiaries, which is either provided or guaranteed by the utility customers, includes long-term equipment leases, notes payable and non-interest-bearing advances from customers. The obligations of the project mining subsidiaries do not affect the short-term or long-term liquidity of NACoal and are without recourse to NACCO or NACoal. These arrangements allow the project mining subsidiaries to pay dividends to NACoal in amounts based on their earnings. NACoal believes that funds available under its revolving line of credit, operating cash flows and financing provided by the project mining subsidiaries' customers are sufficient to finance all of its term loan principal repayments and its operating needs and commitments arising during the foreseeable future. NACoal's capital structure, excluding the project mining subsidiaries, is presented below:
JUNE 30 DECEMBER 31 2003 2002 -------- -------- Investment in project mining subsidiaries $ 5.0 $ 4.9 Other net tangible assets 109.7 93.2 Coal supply agreements, net 81.3 82.8 -------- -------- Net assets 196.0 180.9 Advances from NACCO (24.4) (25.7) Other debt (105.1) (92.0) -------- -------- Total debt (129.5) (117.7) -------- -------- Stockholder's equity $ 66.5 $ 63.2 ======== ======== Debt to total capitalization 66% 65 %
The increase in other net tangible assets and debt is primarily due to the April 2003 $15.8 million refinancing of several equipment operating leases at MLMC with collateralized debt. As a result of the refinancing, these pieces of equipment are now included in property, plant and equipment on the balance sheet. Total contractual obligations of NACoal and the timing of payments did not change significantly as a result of this refinancing. The change in stockholder's equity is the result of net income of $6.5 million and a $0.8 million increase in accumulated other comprehensive income related to hedging activity, partially offset by $4.0 million in dividends paid to NACCO. 31 =============== 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. See additional discussion in Note 7 to the Unaudited Condensed Consolidated Financial Statements. Cash payments related to Bellaire's obligations, net of internally generated cash, are funded by NACCO and historically have not been material. The results of operations at NACCO and Other were as follows for the three and six months ended June 30: THREE MONTHS SIX MONTHS ---------------- ----------------- 2003 2002 2003 2002 ----- ------ ------ ------ Revenues $ .1 $ .1 $ .1 $ .1 Operating loss $ --- $ (1.0) $ (.1) $ (1.8) Other income (loss), net $ (.6) $ .7 $ (1.1) $ 1.3 Net income (loss) $ (.8) $ (.6) $ .1 $ (2.2) The change in operating loss and other income (loss) is primarily due to a change in the classification of certain of NACCO's fees charged to the operating segments. In 2002, $0.9 million and $1.8 million for the three and six months ended June 30, 2002, respectively, of income from fees charged to the operating segments was included in other income (loss). In 2003, all fees charged to the operating segments are included in operating loss. In addition, total fees charged to the operating segments increased by $0.5 million and $0.9 million in the three and six months ended June 30, 2003 as compared with the same periods of 2002. The increase in net income (loss) for the six months ended June 30, 2003 as compared with the six months ended June 30, 2002 is primarily due a $2.5 million after-tax cumulative effect benefit recorded by Bellaire for the adoption of SFAS No. 143 in the first quarter of 2003. See Note 4 to the Unaudited Condensed Consolidated Financial Statements for a discussion of the adoption of SFAS No. 143. LIQUIDITY AND CAPITAL RESOURCES Although NACCO's subsidiaries have entered into substantial borrowing agreements, NACCO has not guaranteed the long-term debt or any borrowings of its subsidiaries. The borrowing agreements at NMHG, Housewares and NACoal allow for the payment to NACCO of dividends 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 to be generated from operations and the utility customers' funding of the project mining subsidiaries are sufficient to finance all of its scheduled principal repayments, operating needs and commitments arising during the foreseeable future. 32 NACCO AND OTHER - continued FINANCIAL REVIEW - continued NACCO's consolidated capital structure is presented below:
JUNE 30 DECEMBER 31 2003 2002 ---------- ---------- Total net tangible assets $ 596.9 $ 570.8 Coal supply agreements and other intangibles, net 83.3 85.0 Goodwill at cost 615.5 609.0 ---------- ---------- Net assets before goodwill amortization 1,295.7 1,264.8 Accumulated goodwill amortization (184.3) (181.6) Total debt, excluding current and long-term portion of obligations of project mining subsidiaries (480.8) (474.7) Closed mine obligations (Bellaire), including the United Mine Worker retirees' medical fund, net-of-tax (44.3) (48.0) Minority interest (.7) (1.1) ---------- ---------- Stockholders' equity $ 585.6 $ 559.4 ========== ========== Debt to total capitalization 45% 46%
EFFECTS OF FOREIGN CURRENCY NMHG and Housewares operate internationally and enter into transactions denominated in foreign currencies. As such, the Company's financial results are subject to the variability that arises from exchange rate movements. The effects of foreign currency fluctuations on revenues, operating profit (loss) and net income (loss) at NMHG and Housewares have either been discussed above or were not material in the three and six months ended June 30, 2003 as compared with the three and six months ended June 30, 2002. See also Item 3, "Quantitative and Qualitative Disclosures About Market Risk." OUTLOOK NMHG Wholesale NMHG Wholesale expects overall lift truck shipments to increase moderately in the second half of 2003 compared with the second half of 2002. While global market prospects continue to be more uncertain than usual, lift truck markets in the Americas are anticipated to improve in the second half of 2003 while markets in Europe and Asia-Pacific are expected to remain relatively flat. NMHG Wholesale expects that results in the second half of 2003 will be affected by ongoing costs for a product development program that is expected to mature in 2004-2006 and additional costs related to the Lenoir, North Carolina, and Irvine, Scotland, manufacturing restructuring program announced in December 2002. NMHG Retail NMHG Retail expects to continue its programs to improve the performance of its wholly owned dealerships in 2003 as part of its objective to achieve and sustain at least break-even results. 33 OUTLOOK - continued Housewares Housewares is cautiously optimistic that the current weak retail environment will improve in the second half of 2003. HB/PS continues to implement programs, begun in earlier years, which are designed to reduce operating costs and enhance manufacturing and distribution efficiencies. Also, HB/PS believes that new product offerings, such as the Hamilton Beach(R) BrewStation(TM) coffeemaker, the Hamilton Beach(R) WaffleStix(TM) waffle baker and an expanded line of TrueAir(TM) home health products, will enhance revenues over the remainder of 2003. KCI expects to continue programs designed to enhance its operating results, including improving its merchandise mix, closing non-performing stores and prudently opening new stores, expanding the offerings of Hamilton Beach(R) and Proctor-Silex(R)-branded products and aggressively managing its costs. NACoal NACoal anticipates increased lignite coal deliveries in 2003, 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 payments and related settlements, are not expected to be repeated in 2003. Further, maintenance requirements and the adoption of SFAS No. 143 will continue to increase costs in 2003 compared to 2002. In the first quarter of 2003, NACoal reached an agreement on a new limerock mining contract which has minimum deliveries of 3.0 million cubic yards annually. This operation is expected to begin late in 2003. NACoal expects to continue its efforts to develop other new domestic mining projects. The statements contained in this Form 10-Q that are not historical facts are "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are made subject to certain risks and uncertainties which could cause actual results to differ materially from those presented in these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Such risks and uncertainties with respect to each subsidiary's operations include, without limitation: NMHG: (1) changes in demand for lift trucks and related aftermarket parts and service on a worldwide basis, especially in the U.S. where the Company derives a majority of its sales, (2) changes in sales prices, (3) delays in delivery or changes in costs of raw materials or sourced products and labor, (4) delays in manufacturing and delivery schedules, (5) exchange rate fluctuations, changes in foreign import tariffs and monetary policies and other changes in the regulatory climate in the foreign countries in which NMHG operates and/or sells products, (6) product liability or other litigation, warranty claims or returns of products, (7) delays in or increased costs of restructuring programs, (8) the effectiveness of the cost reduction programs implemented globally, including the successful implementation of procurement initiatives, (9) customer acceptance of, changes in costs of, or delays in the development of new products, (10) acquisitions and/or dispositions of dealerships by NMHG, and (11) the uncertain impact on the economy or the public's confidence in general from terrorist activities and the impact of the situation in Iraq. 34 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 impact of the situation in Iraq. NACoal: (1) weather conditions and other events that would change the level of customers' fuel requirements, (2) weather or equipment problems that could affect lignite deliveries to customers, (3) changes in maintenance, fuel or other similar costs, (4) costs to pursue and develop new mining opportunities and (5) changes in the U.S. economy, in U.S. regulatory requirements or in the power industry that would affect demand for NACoal's reserves. Item 3. Quantitative and Qualitative Disclosures About Market Risk See pages 47, F-11, F-25 and F-26 of the Company's Form 10-K for the fiscal year ended December 31, 2002, for a discussion of its derivative hedging policies and use of financial instruments. There have been no material changes in the Company's market risk exposures since December 31, 2002. Item 4. Controls and Procedures Evaluation of disclosure controls and procedures: The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. 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 as of the end of the period covered by this report. 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. 35 Part II OTHER INFORMATION Item 1. Legal Proceedings - None ----------------- Item 2. Changes in Securities and Use of Proceeds - None ----------------------------------------- Item 3. Defaults Upon Senior Securities - None ------------------------------- Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- The following matters were submitted to a vote of security holders at the Annual Meeting of Stockholders held May 14, 2003, with the results indicated: Outstanding Shares Entitled to Vote Number of Votes ------------------------------------ ----------------- Class A Common 6,578,328 Class B Common 16,234,100 ----------------- 22,812,428 ================= Item A. Election of twelve directors for the ensuing year. ------
Votes Votes Director Nominee For Withheld Total -------------------------- ----------------- --------------- ----------------- Owsley Brown II 21,743,815 54,349 21,798,164 Robert M. Gates 21,724,540 73,624 21,798,164 Leon J. Hendrix, Jr. 21,716,940 81,224 21,798,164 David H. Hoag 21,717,040 81,124 21,798,164 Dennis W. LaBarre 21,715,006 83,158 21,798,164 Richard de J. Osborne 20,824,281 973,883 21,798,164 Alfred M. Rankin, Jr. 21,716,820 81,344 21,798,164 Ian M. Ross 21,741,125 57,039 21,798,164 Michael E. Shannon 21,723,046 75,118 21,798,164 Britton T. Taplin 21,712,986 85,178 21,798,164 David F. Taplin 21,742,101 56,063 21,798,164 John F. Turben 21,743,995 54,169 21,798,164
Item B. Confirming the appointment of Ernst & Young LLP as ------ independent auditors of the Company for the current fiscal year. For Against Abstain Total ---------------------- -------------------- -------------------- --------------- 21,745,019 49,228 3,917 21,798,164
Item 5. Other Information - ------ ----------------- None Item 6. Exhibits and Reports on Form 8-K - ------ -------------------------------- (a) Exhibits. See Exhibit Index on page 38 of this quarterly report on Form 10-Q. (b) Reports on Form 8-K. Current Report on Form 8-K filed with the Commission on April 23, 2003 (Item 9) Current Report on Form 8-K filed with the Commission on May 8, 2003 (Item 5) 36 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 August 13, 2003 /s/ Kenneth C. Schilling ------------------------------ ---------------------------------- Kenneth C. Schilling Vice President and Controller (Authorized Officer and Principal Financial and Accounting Officer) 37 Exhibit Index - ------------- Exhibit Number* Description of Exhibits - ------- ----------------------- 31.1 Certification of Alfred M. Rankin pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act 31.2 Certification of Kenneth C. Schilling pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act 32 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by Alfred M. Rankin and Kenneth C. Schilling *Numbered in accordance with Item 601 of Regulation S-K. 38 EX-31 3 exh311_081303.txt EXHI 31.1 - 302 CERTIFICATION Exhibit 31.1 Certifications I, Alfred M. Rankin, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of NACCO Industries, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/ Alfred M. Rankin, Jr. - ---------------------- ------------------------------------ Alfred M. Rankin, Jr. Chairman, President and Chief Executive Officer (Principal Executive Officer) EX-31 4 exh312_081303.txt EXHIBIT 31.2 - 302 CERTIFICATION Exhibit 31.2 Certifications I, Kenneth C. Schilling, certify that: 1. I have reviewed this quarterly report on Form 10-Q of NACCO Industries, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/ Kenneth C. Schilling ------------------ ------------------------ Kenneth C. Schilling Vice President and Controller (Principal Financial Officer) EX-32 5 exh906_081303.txt EXHIBIT 32 - 906 CERTIFICATION Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of NACCO Industries, Inc. (the "Company") on Form 10-Q for the quarterly period ended June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. Date: August 13, 2003 /s/ Alfred M. Rankin, Jr. ------------------ ------------------------- Alfred M. Rankin, Jr. Chairman, President and Chief Executive Officer (Principal Executive Officer) Date: August 13, 2003 /s/ Kenneth C. Schilling ------------------ --------------------------- Kenneth C. Schilling Vice President and Controller (Principal Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----