-----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, CD/dH0UftavwLZIlAPyxOxCPbg6aY2gTfpM3hOVDBz2ogfMeJ21hjdGoNaJnmd+e sxHivBFdZbFffkfLplUSmg== 0000789933-98-000012.txt : 19980817 0000789933-98-000012.hdr.sgml : 19980817 ACCESSION NUMBER: 0000789933-98-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NYSE 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: SEC FILE NUMBER: 001-09172 FILM NUMBER: 98689486 BUSINESS ADDRESS: STREET 1: 5875 LANDERBROOK DR CITY: MAYFIELD HTS STATE: OH ZIP: 44124-4017 BUSINESS PHONE: 2164499600 10-Q 1 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, 1998 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-9172 NACCO Industries, Inc. (Exact name of registrant as specified in its charter) DELAWARE 34-1505819 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5875 LANDERBROOK DRIVE, MAYFIELD HEIGHTS, OHIO 44124 (Address of principal executive offices) Zip code Registrant's telephone number, including area code (440) 449-9600 Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the last 90 days. YES X NO ____ Number of shares of Class A Common Stock outstanding at July 31, 1998: 6,503,669 Number of shares of Class B Common Stock outstanding at July 31, 1998: 1,660,355 NACCO INDUSTRIES, INC. TABLE OF CONTENTS Part I. FINANCIAL INFORMATION Item 1 Financial Statements Condensed Consolidated Balance Sheets - June 30, 1998 (Unaudited) and December 31, 1997 Unaudited Condensed Consolidated Statements of Income for the Three Months Ended and Six Months Ended June 30, 1998 and 1997 Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997 Notes to Unaudited Condensed Consolidated Financial Statements Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operation Part II. OTHER INFORMATION Item 1 Legal Proceedings Item 2 Change in Securities and Use of Proceeds Item 3 Defaults Upon Senior Securities Item 4 Submission of Matters to a Vote of Security Holders Item 5 Other Information Item 6 Exhibits and Reports on Form 8-K Signature Exhibit Index PART I Item 1 - Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited) (Audited) JUNE 30 DECEMBER 31 1998 1997 ------- ----------- (In millions) ASSETS Current Assets Cash and cash equivalents $ 25.6 $ 24.1 Accounts receivable, net 263.0 240.8 Inventories 351.7 302.9 Prepaid expenses and other 37.6 31.8 ------------ ------------ 677.9 599.6 Property, Plant and Equipment, Net 544.1 541.7 Deferred Charges Goodwill, net 441.7 449.3 Deferred costs and other 65.9 63.5 Deferred income taxes 21.9 24.1 ------------ ------------ 529.5 536.9 Other Assets 60.1 50.9 ------------ ------------ Total Assets $ 1,811.6 $ 1,729.1 ============ ============
See notes to unaudited condensed consolidated financial statements. CONDENSED CONSOLIDATED BALANCE SHEETS NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited) (Audited) JUNE 30 DECEMBER 31 1998 1997 ------- ----------- (In millions) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 248.6 $ 244.7 Revolving credit agreements 47.0 23.5 Current maturities of long-term debt 22.9 18.9 Income taxes 3.0 12.8 Accrued payroll 31.3 36.4 Other current liabilities 175.9 170.2 ------------ ------------ 528.7 506.5 Long-term Debt- not guaranteed by the parent company 239.7 230.2 Obligations of Project Mining Subsidiaries - not guaranteed by the parent company or its North American Coal subsidiary 325.5 328.0 Self-insurance Reserves and Other 227.9 222.7 Minority Interest 17.9 16.6 Stockholders' Equity Common stock: Class A, par value $1 per share, 6,502,222 shares outstanding (1997 - 6,477,414 shares outstanding) 6.5 6.5 Class B, par value $1 per share, convertible into Class A on a one-for-one basis, 1,661,802 shares outstanding (1997 - 1,676,146 shares outstanding) 1.7 1.7 Capital in excess of par value .9 .1 Retained earnings 460.0 412.9 Foreign currency translation adjustment and other 2.8 3.9 ------------ ------------ 471.9 425.1 ------------ ------------ Total Liabilities and Stockholders' Equity $ 1,811.6 $ 1,729.1 ============ ============
See notes to unaudited condensed consolidated financial statements. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited) (Unaudited) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------ ---------------- 1998 1997 1998 1997 ----------- ----------- ------------- ------------- (In millions, except per share data) Revenues $ 614.2 $ 541.1 $ 1,213.5 $ 1,020.8 Cost of sales 494.0 440.7 974.2 838.3 ----------- ----------- ------------- ------------- Gross Profit 120.2 100.4 239.3 182.5 Selling, general and administrative expenses 69.5 62.6 135.8 124.8 Amortization of goodwill 3.7 4.0 7.4 7.9 ----------- ----------- ------------- ------------- Operating Profit 47.0 33.8 96.1 49.8 Other income (expense) Interest expense (8.2) (9.3) (16.3) (19.3) Other - net 4.2 2.0 3.4 1.2 ----------- ----------- ------------- ------------- (4.0) (7.3) (12.9) (18.1) ----------- ----------- ------------- ------------- Income Before Income Taxes and Minority Interest 43.0 26.5 83.2 31.7 Provision for income taxes 16.1 11.3 31.7 13.6 ----------- ----------- ------------- ------------- Income Before Minority Interest 26.9 15.2 51.5 18.1 Minority interest (.6) (.3) (1.1) (.4) ----------- ----------- ------------- ------------- Net Income $ 26.3 $ 14.9 $ 50.4 $ 17.7 =========== =========== ============= ============= Comprehensive income $ 26.8 $ 14.7 $ 49.3 $ 11.0 =========== =========== ============= ============= Net income per share: basic $ 3.22 $ 1.82 $ 6.18 $ 2.16 =========== =========== ============= ============= Net income per share: diluted $ 3.21 $ 1.82 $ 6.16 $ 2.16 =========== =========== ============= ============= Dividends per share $ .205 $ .195 $ .400 $ .3825 =========== =========== ============= =============
See notes to unaudited condensed consolidated financial statements. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited) SIX MONTHS ENDED JUNE 30 1998 1997 ------- -------- (In millions) Operating Activities Net income $ 50.4 $ 17.7 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 42.4 43.6 Deferred income taxes (2.5) (4.8) Other non-cash items 3.8 .3 Working Capital Changes: Accounts receivable (21.1) 28.8 Inventories (49.6) (15.8) Other current assets 4.6 3.3 Accounts payable and other liabilities (3.2) 30.4 ------- -------- Net cash provided by operating activities 24.8 103.5 Investing Activities Expenditures for property, plant and equipment (41.1) (23.0) Proceeds from the sale of assets 1.8 2.0 Investments in unconsolidated affiliates (7.6) (1.4) Acquisitions of businesses -- (12.2) Other - net (.3) .6 ------- -------- Net cash used for investing activities (47.2) (34.0) Financing Activities Additions to long-term debt and revolving credit agreements 57.0 31.3 Reductions of long-term debt and revolving credit agreements (22.0) (96.6) Additions to obligations of project mining subsidiaries 41.2 26.3 Reductions of obligations of project mining subsidiaries (41.7) (41.6) Financing of other short-term obligations (7.0) 1.4 Cash dividends paid (3.3) (3.1) Other - net -- (2.6) ------- -------- Net cash provided by (used for) financing activities 24.2 (84.9) Effect of exchange rate changes on cash (.3) (1.1) ------- -------- Cash and Cash Equivalents Increase (decrease) for the period 1.5 (16.5) Balance at the beginning of the period 24.1 47.8 ------- -------- Balance at the end of the period $ 25.6 $ 31.3 ======= ========
See notes to unaudited condensed consolidated financial statements. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions) Note 1 - Basis of Presentation NACCO Industries, Inc. ("NACCO") is a holding company with four operating subsidiaries: NACCO Materials Handling Group, Inc. ("NMHG"), Hamilton Beach/Proctor-Silex, Inc. ("HB/PS"), The North American Coal Corporation ("NACoal"), and The Kitchen Collection, Inc. ("KCI"). See a discussion of reportable segments in Note 2, below. The accompanying unaudited condensed consolidated financial statements include the accounts of NACCO and its majority owned subsidiaries ("NACCO Industries, Inc. and Subsidiaries," or the "Company"). Intercompany accounts have been eliminated. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company as of June 30, 1998 and the results of its operations for the three and six month periods and cash flows for the six month periods ended June 30, 1998 and 1997 have been included. Operating results for the six month period ended June 30, 1998 are not necessarily indicative of the results that may be expected for the remainder of the year ended December 31, 1998. 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, 1997. Certain amounts in the prior periods' unaudited condensed consolidated financial statements have been reclassified to conform to the current period's presentation. Note 2 - Segment Reporting In the second quarter of 1998, management made the determination that two of NACCO's subsidiaries, HB/PS and KCI, would work more closely together under common management to identify and maximize the benefits of such a relationship. Operating as "The Housewares Group" ("Housewares"), financial results of HB/PS and KCI will be evaluated by management as a combined operating unit. Due to this change in the management of these companies and in accordance with Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information," operating results of these two subsidiaries will be combined as Housewares for purposes of segment reporting. The composition of NACCO's other reportable segments, NMHG, NACoal and NACCO and Other, remains consistent with prior periods' segment reporting. SFAS No. 131, issued in June 1997, establishes standards for segment reporting and identifies the interim and annual disclosure requirements for those segments. Interim disclosures required by SFAS No. 131 are included in Management's Discussion and Analysis of Financial Condition and Results of Operations, beginning on page 10 of this Form 10-Q. Segment information for 1997 has been restated to reflect the combination of HB/PS and KCI as one reportable segment, Housewares. This change in the composition of the Company's reportable segments will be included in subsequent periodic reports. Any additional annual disclosures required by SFAS No. 131 will be reflected in the Company's 1998 Annual Report on Form 10-K. Note 3 - Comprehensive Income Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which requires disclosure of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is defined as changes in stockholders' equity from nonowner sources and, for the Company, includes net income, changes in the foreign currency translation adjustment and changes in the minimum pension liability adjustment. Note 4 - Earnings per Share Earnings per share is calculated in accordance with the provisions of SFAS No. 128, "Earnings per Share." For purposes of calculating the basic and diluted earnings per share, no adjustments have been made to the reported amounts of net income. The share amounts used are as follows:
(Weighted Average Shares) Three Months Six Months Ended Ended June 30 June 30 ------------ ---------- 1998 1997 1998 1997 ---- ---- ---- ----- Basic common shares 8.164 8.183 8.161 8.187 Dilutive stock options .020 .010 .020 .010 ----- ----- ----- ----- Diluted common shares 8.184 8.193 8.181 8.197 ===== ===== ===== =====
Note 5 - Inventories Inventories are summarized as follows:
June 30 December 31 1998 1997 -------- -------- (Unaudited) (Audited) Manufacturing inventories: Finished goods and service parts- NMHG $ 89.6 $ 86.9 Housewares 62.3 31.8 -------- -------- 151.9 118.7 -------- -------- Raw materials and work in process- NMHG 141.7 135.6 Housewares 20.3 15.1 -------- -------- 162.0 150.7 -------- -------- LIFO reserve- NMHG (13.1) (13.4) Housewares .8 1.1 -------- -------- (12.3) (12.3) -------- -------- Total manufacturing inventories 301.6 257.1 Coal - NACoal 11.3 10.7 Mining supplies - NACoal 19.2 19.2 Retail inventories - Housewares 19.6 15.9 -------- -------- $ 351.7 $ 302.9 ======== ========
The cost of manufacturing inventories has been determined by the last-in, first-out (LIFO) method for 70 percent of such inventories as of June 30, 1998 and December 31, 1997. Note 6 - Restructuring Accrual In the second quarter of 1998, HB/PS recorded a pre-tax charge of $3.1 million to recognize severance payments to be made to approximately 450 manufacturing employees in connection with the transitioning of activities to HB/PS's Saltillo, Mexico facility. No payments related to this accrual have been made as of June 30, 1998. However, all severance payments related to this accrual are expected to be made by June 30, 1999. In the fourth quarter of 1997, NMHG approved and began implementation of a plan to restructure certain activities. As such, NMHG recognized an accrual for lease termination costs and for severance payments to be made to certain NMHG employees. Severance payments were made to approximately 50 NMHG employees during the first six months of 1998. Restructuring activities have proceeded as anticipated. No material expenses were recognized during the first six months of 1998 as a result of NMHG's restructuring plan. The changes to NMHG's restructuring accrual as announced in the fourth quarter of 1997 and to HB/PS's restructuring accrual as announced in the second quarter of 1998 are as follows:
HB/PS NMHG ----- ---- Employee Employee Severance Severance Other --------- --------- ----- Balance at December 31, 1997 ............. $ -- $ 5.9 $ 1.0 Payments ................................. -- (.9) (.1) Additional provision ..................... 3.1 -- -- ------ ------ ------ Balance at June 30, 1998 ................. $ 3.1 $ 5.0 $ .9 ====== ====== ======
Note 7 - Accounting Standards Not Yet Adopted In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires companies to recognize all derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. This Statement is effective for fiscal years beginning after June 15, 1999. The Company will adopt this Statement on January 1, 2000 and is in the process of determining the effect that adoption will have on its financial statements. In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which is effective for the Company as of January 1, 1999. This SOP requires capitalization of certain development costs of software to be used internally. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities," which is effective for the Company as of January 1, 1999. This SOP requires start-up and organization costs to be expensed as incurred and also requires previously deferred start-up costs to be recognized as a cumulative effect adjustment in the statement of income upon adoption. These SOPs, which the Company plans to adopt as of January 1, 1999, are not expected to have a material effect on the Company's financial statements. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Per Share Data) FINANCIAL SUMMARY - ----------------- NACCO's operations and financial condition are best discussed in terms of its reportable segments, which function in distinct business environments. See Note 2 to the condensed consolidated financial statements for a discussion of NACCO's change in reportable segments and restatement of 1997 segment information.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------ ---------------- 1998 1997 1998 1997 -------- ---------- ---------- ---------- REVENUES NMHG $ 437.2 $ 377.4 $ 869.1 $ 709.7 Housewares 112.9 101.3 211.9 190.2 NACoal 64.0 62.4 132.4 120.8 NACCO and Other .1 -- .1 .1 -------- ---------- ---------- ---------- $ 614.2 $ 541.1 $ 1,213.5 $ 1,020.8 ======== ========== ========== ========== GROSS PROFIT NMHG $ 87.2 $ 68.5 $ 174.7 $ 124.2 Housewares 21.5 19.9 39.4 35.0 NACoal 11.5 12.0 25.3 23.3 NACCO and Other -- -- (.1) -- -------- ---------- ---------- ---------- $ 120.2 $ 100.4 $ 239.3 $ 182.5 ======== ========== ========== ========== SELLING, GENERAL AND ADMINISTRATIVE EXPENSES NMHG $ 45.6 $ 40.9 $ 88.9 $ 81.5 Housewares 18.3 17.1 36.1 34.3 NACoal 2.9 2.6 5.8 4.9 NACCO and Other 2.7 2.0 5.0 4.1 -------- ---------- ---------- ---------- $ 69.5 $ 62.6 $ 135.8 $ 124.8 ======== ========== ========== ========== AMORTIZATION OF GOODWILL NMHG $ 2.9 $ 2.9 $ 5.8 $ 5.8 Housewares .8 1.1 1.6 2.1 -------- ---------- ---------- ---------- $ 3.7 $ 4.0 $ 7.4 $ 7.9 ======== ========== ========== ========== OPERATING PROFIT (LOSS) NMHG $ 38.7 $ 24.7 $ 80.0 $ 36.9 Housewares 2.4 1.7 1.7 (1.4) NACoal 8.6 9.4 19.5 18.4 NACCO and Other (2.7) (2.0) (5.1) (4.1) -------- ---------- ---------- ---------- $ 47.0 $ 33.8 $ 96.1 $ 49.8 ======== ========== ========== ========== OPERATING PROFIT (LOSS) EXCLUDING GOODWILL AMORTIZATION NMHG $ 41.6 $ 27.6 $ 85.8 $ 42.7 Housewares 3.2 2.8 3.3 .7 NACoal 8.6 9.4 19.5 18.4 NACCO and Other (2.7) (2.0) (5.1) (4.1) -------- ---------- ---------- ---------- $ 50.7 $ 37.8 $ 103.5 $ 57.7 ======== ========== ========== ==========
FINANCIAL SUMMARY - continued THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ---------------- ---------------- 1998 1997 1998 1997 ------- ------- ------- ------- INTEREST EXPENSE NMHG $ (3.0) $ (3.8) $ (6.4) $ (8.5) Housewares (1.8) (1.8) (3.2) (3.4) NACoal (.2) (.5) (.4) (1.0) NACCO and Other (.2) (.6) (.5) (1.2) Eliminations .2 .6 .5 1.2 ------- ------- ------- ------- (5.0) (6.1) (10.0) (12.9) Project mining subsidiaries (3.2) (3.2) (6.3) (6.4) ------- ------- ------- ------- $ (8.2) $ (9.3) $ (16.3) $ (19.3) ======= ======= ======= ======= INTEREST INCOME NMHG $ .4 $ 1.4 $ .8 $ 1.6 Housewares -- -- -- -- NACoal .1 .5 .3 1.1 NACCO and Other -- -- -- -- Eliminations (.2) (.6) (.5) (1.2) ------- ------- ------- ------- $ .3 $ 1.3 $ .6 $ 1.5 Project mining subsidiaries .3 .3 .6 .5 ------- ------- ------- ------- $ .6 $ 1.6 $ 1.2 $ 2.0 ======= ======= ======= ======= OTHER-NET, INCOME (EXPENSE) NMHG $ 3.4 $ .6 $ 2.1 $ (.5) Housewares .1 -- (.2) -- NACoal -- (.4) (.4) (.6) NACCO and Other .1 .2 .7 .3 Eliminations -- -- -- -- ------- ------- ------- ------- $ 3.6 $ .4 $ 2.2 $ (.8) ======= ======= ======= ======= PROVISION FOR INCOME TAXES NMHG $ 14.9 $ 10.4 $ 29.6 $ 13.7 Housewares .3 -- (.8) (2.1) NACoal 1.6 2.4 3.8 4.4 NACCO and Other (.7) (1.5) (.9) (2.4) ------- ------- ------- ------- $ 16.1 $ 11.3 $ 31.7 $ 13.6 ======= ======= ======= ======= NET INCOME (LOSS) NMHG $ 24.6 $ 12.2 $ 46.9 $ 15.7 Housewares .4 -- (.9) (2.7) NACoal 4.0 3.8 9.5 7.7 NACCO and Other (2.1) (.8) (4.0) (2.6) Minority interest (.6) (.3) (1.1) (.4) ------- ------- ------- ------- $ 26.3 $ 14.9 $ 50.4 $ 17.7 ======= ======= ======= =======
FINANCIAL SUMMARY - continued
SIX MONTHS ENDED JUNE 30 --------------- 1998 1997 ------- ------- DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE NMHG $ 17.8 $ 17.0 Housewares 8.5 10.5 NACoal 1.5 1.1 NACCO and Other .2 .1 ------- ------- 28.0 28.7 Project mining subsidiaries 14.4 14.9 ------- ------- $ 42.4 $ 43.6 ======= ======= CAPITAL EXPENDITURES NMHG $ 24.9 $ 8.5 Housewares 9.5 9.6 NACoal 1.8 1.7 NACCO and Other -- .1 ------- ------- 36.2 19.9 Project mining subsidiaries 4.9 3.1 ------- ------- $ 41.1 $ 23.0 ======= =======
JUNE 30 DECEMBER 31 1998 1997 ---------- ---------- TOTAL ASSETS NMHG $ 1,018.7 $ 942.4 Housewares 333.9 315.7 NACoal 42.3 51.5 NACCO and Other 45.0 59.4 ---------- ---------- 1,439.9 1,369.0 Project mining subsidiaries 419.9 423.4 ---------- ---------- 1,859.8 1,792.4 Consolidating eliminations (48.2) (63.3) ---------- ---------- $ 1,811.6 $ 1,729.1 ========== ==========
NACCO MATERIALS HANDLING GROUP, INC. - ------------------------------------ NMHG, 98 percent-owned by NACCO, designs, manufactures and markets forklift trucks and related service parts under the Hyster(R) and Yale(R) brand names. FINANCIAL REVIEW The results of operations for NMHG were as follows for the three and six months ended June 30:
Three Months Six Months ------------ ---------- 1998 1997 1998 1997 -------- -------- -------- -------- Revenues Americas $ 307.2 $ 249.1 $ 616.4 $ 469.2 Europe, Africa and Middle East 115.4 108.8 222.1 202.5 Asia-Pacific 14.6 19.5 30.6 38.0 -------- -------- -------- -------- $ 437.2 $ 377.4 $ 869.1 $ 709.7 ======== ======== ======== ======== Operating profit (loss) Americas $ 29.6 $ 17.7 $ 61.7 $ 27.7 Europe, Africa and Middle East 9.6 7.9 18.5 11.1 Asia-Pacific (.5) (.9) (.2) (1.9) -------- -------- -------- -------- $ 38.7 $ 24.7 $ 80.0 $ 36.9 ======== ======== ======== ======== Operating profit (loss) excluding goodwill amortization Americas $ 31.6 $ 19.7 $ 65.6 $ 31.7 Europe, Africa and Middle East 10.4 8.7 20.2 12.8 Asia-Pacific (.4) (.8) -- (1.8) -------- -------- -------- -------- $ 41.6 $ 27.6 $ 85.8 $ 42.7 ======== ======== ======== ======== Net income $ 24.6 $ 12.2 $ 46.9 $ 15.7 ======== ======== ======== ========
NACCO MATERIALS HANDLING GROUP, INC. - continued FINANCIAL REVIEW - continued Second Quarter of 1998 Compared with Second Quarter of 1997 The following schedule identifies the components of the changes in revenues, operating profit and net income for the second quarter of 1998 compared with the second quarter of 1997:
Operating Net Revenues Profit Income -------- ------- ------- 1997 $ 377.4 $ 24.7 $ 12.2 Increase (decrease) in 1998 from: Unit volume 57.1 10.3 6.7 Sales mix 5.9 4.1 2.7 Average sales price .1 .1 -- Service parts 3.3 (.1) (.1) Foreign currency (6.6) (2.1) (1.9) Manufacturing cost -- 6.6 4.2 Other operating expense -- (4.9) (3.1) Other income and expense -- -- 1.4 Differences between effective and statutory tax rates -- -- 2.5 -------- ------- ------- 1998 $ 437.2 $ 38.7 $ 24.6 ======== ======= =======
Operating results at NMHG improved primarily due to a 20 percent increase in NMHG's worldwide unit volume to 20,334 units sold in the second quarter of 1998 compared with 16,905 units sold in the second quarter of 1997. Increased demand in the North American market significantly contributed to this unit volume growth. European unit volume also increased during the second quarter of 1998 due to stronger demand in countries with improved economies. Asia-Pacific experienced a slight decline in unit volume due to the continuing weak economies in that region. NMHG's worldwide backlog at the end of the second quarter of 1998 was 20,800 units, compared with 20,300 units at the end of the second quarter of 1997 and 22,700 units at the end of the first quarter of 1998. The decrease in the backlog in the second quarter of 1998 compared with the first quarter of 1998 reflects a decrease in bookings combined with a slight increase in unit shipments. See "Outlook." Foreign currency fluctuations negatively affected operating results due to the strengthening of the British pound sterling against other European currencies, which caused price and margin pressure on pound sterling-based lift trucks. The decrease to operating profit caused by the stronger pound sterling was partially offset by the reduced cost of Japanese yen-based materials caused by the weakening of the yen against the U.S. dollar and the pound sterling. Reduced manufacturing costs as a result of product re-engineering and increased overhead absorption from unit volume growth also contributed to improved operating results. Other operating expenses increased due to increased engineering, marketing and incentive compensation expense. These increased operating expenses were slightly offset by savings from attrition due to restructuring activities implemented since the fourth quarter of 1997. NMHG's restructuring plan, which began in the fourth quarter of 1997, continued during the second quarter of 1998, as anticipated. In the second quarter of 1998, NMHG received a non-recurring legal settlement of $4.6 million, which has been included in Other income and expense. NACCO MATERIALS HANDLING GROUP, INC. - continued FINANCIAL REVIEW - continued First Six Months of 1998 Compared with First Six Months of 1997 The following schedule identifies the components of the changes in revenues, operating profit and net income for the first six months of 1998 compared with the first six months of 1997:
Operating Net Revenues Profit Income -------- ------- ------- 1997 $ 709.7 $ 36.9 $ 15.7 Increase (decrease) in 1998 from: Unit volume 148.7 24.4 15.8 Sales mix 13.0 10.8 7.0 Average sales price .9 .9 .6 Service parts 13.1 1.8 1.1 Foreign currency (16.3) (6.8) (4.4) Manufacturing cost -- 20.3 13.2 Other operating expense -- (8.3) (5.4) Other income and expense -- -- 2.3 Differences between effective and statutory tax rates -- -- 1.0 -------- ------- ------- 1998 $ 869.1 $ 80.0 $ 46.9 ======== ======= =======
Operating results at NMHG for the first six months of 1998 improved primarily due to a 28 percent increase in NMHG's worldwide unit volume to 40,091 units sold in the first half of 1998 compared with 31,434 units sold in the first half of 1997. Increased demand in the North American market significantly contributed to this unit volume growth. European unit volume also increased due to stronger demand in countries with improved economies, while Asia-Pacific experienced a slight decline in unit volume due to the continuing weak economies in that region. Worldwide sales mix also contributed to operating results due to increased sales of higher margin lift trucks. Worldwide parts sales improved primarily due to the success of ongoing promotional programs implemented in the North American market. Foreign currency negatively affected operating results due to the strengthening of the British pound sterling against other European currencies, which caused price and margin pressure on pound sterling-based lift trucks. The decrease to operating profit caused by the stronger pound sterling was partially offset by the reduced cost of Japanese yen-based materials caused by the weakening of the yen against the U.S. dollar and the pound sterling. Reduced manufacturing costs as a result of product re-engineering and increased overhead absorption from unit volume growth also contributed to improved operating results. Other operating expenses increased during the first half of 1998 due to increased engineering, marketing and incentive compensation expense. These increased operating expenses were slightly offset by savings from attrition due to restructuring activities implemented since the fourth quarter of 1997. NACCO MATERIALS HANDLING GROUP, INC. - continued FINANCIAL REVIEW - continued Other Income and Expense and Income Taxes The components of other income (expense) and the effective tax rate for the three and six months ended June 30 are as follows:
Three Months Six Months ------------ ---------- 1998 1997 1998 1997 ------- ------- ------- ------- Interest expense $ (3.0) $ (3.8) $ (6.4) $ (8.5) Other-net 3.8 2.0 2.9 1.1 ------- ------- ------- ------- $ .8 $ (1.8) $ (3.5) $ (7.4) ======= ======= ======= ======= Effective tax rate 37.7% 46.7% 38.7% 47.0%
For the three and six month periods ended 1998, interest expense declined compared with the same periods of 1997 due to decreased debt levels and reduced interest rates. Other-net improved due to a $4.6 million non-recurring legal settlement received in the second quarter of 1998, partially offset by decreased earnings of unconsolidated affiliates. The decrease in the effective tax rate primarily results from a determination made in the fourth quarter of 1997 to reinvest earnings of foreign operations in such foreign operations for the foreseeable future. Accordingly, NMHG did not provide for taxes on unremitted foreign earnings during the first half of 1998. Also contributing to the decrease in the effective tax rate is the effect of a constant level of nondeductible goodwill amortization on a higher comparable level of pre-tax income. LIQUIDITY AND CAPITAL RESOURCES Expenditures for property, plant and equipment were $24.9 million during the first six months of 1998. It is estimated that NMHG's capital expenditures for the remainder of 1998 will be approximately $39.8 million. These planned expenditures relate to the relocation and centralization of NMHG's marketing and engineering organizations and to investments in manufacturing facilities, including plant expansions in Mexico and China, worldwide information systems and tooling for new products. The principal sources of financing for these capital expenditures are internally generated funds and bank borrowings. At June 30, 1998, NMHG had available $205.3 million of its $350.0 million revolving credit facility. The expiration date of the NMHG facility, currently June 2002, may be extended, on an annual basis, for one additional year upon the mutual consent of NMHG and the bank group. In addition, the NMHG facility has performance-based pricing that sets interest rates based upon the achievement of certain financial performance targets. NMHG also has separate facilities totaling $42.8 million, of which $27.3 million was available at June 30, 1998. NMHG 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. NACCO MATERIALS HANDLING GROUP, INC. - continued LIQUIDITY AND CAPITAL RESOURCES - continued NMHG's capital structure is presented below:
JUNE 30 DECEMBER 31 1998 1997 -------- -------- Total net tangible assets $ 246.3 $ 188.3 Advances to parent company 13.0 -- Goodwill at cost 447.7 447.8 -------- -------- Total assets before goodwill amortization 707.0 636.1 Accumulated goodwill amortization (100.4) (94.4) Total debt (175.6) (156.8) -------- -------- Stockholders' equity $ 431.0 $ 384.9 ======== ======== Debt to total capitalization 29% 29%
The increase in net tangible assets of $58.0 million primarily results from a $44.2 million increase in accounts receivable, a $9.0 million increase in inventory and a $10.1 million increase in net property, plant and equipment, partially offset by a $5.1 million increase in other current liabilities. The increases in accounts receivable, inventory and other current liabilities reflect an increase in sales volume toward the end of the second quarter of 1998 compared with sales volume toward the end of the fourth quarter of 1997, as well as a slight increase in the aging of receivables, a reduction in receivable factoring and a slight increase in the number of days supply of inventory on hand. Cash and cash equivalents were comparable to year-end, as cash generated from operations and increased borrowings were used to finance expenditures for property, plant and equipment. THE HOUSEWARES GROUP -------------------- Beginning with this Report on Form 10-Q for the second quarter of 1998, the results of HB/PS and KCI are being reported on a combined basis as The Housewares Group. This reporting change better reflects the closer working relationship between these two subsidiaries supported by a common management and designed to maximize their available opportunities. See Note 2 to the condensed consolidated financial statements for a discussion of NACCO's change in reportable segments and restatement of 1997 segment information. HB/PS, wholly owned by NACCO, is a leading manufacturer of small electric appliances. KCI is a national specialty retailer of kitchenware, tableware, small electric appliances and related accessories. Because the Housewares business is seasonal, a majority of revenues and operating profit occurs in the second half of the year when sales of small electric appliances to retailers and consumers increase significantly for the fall holiday selling season. FINANCIAL REVIEW The results of operations for The Housewares Group were as follows for the three and six months ended June 30:
Three Months Six Months ------------ ---------- 1998 1997 1998 1997 -------- -------- -------- -------- Revenues $ 112.9 $ 101.3 $ 211.9 $ 190.2 Operating profit (loss) $ 2.4 $ 1.7 $ 1.7 $ (1.4) Operating profit excluding goodwill amortization $ 3.2 $ 2.8 $ 3.3 $ .7 Net income (loss) $ .4 $ -- $ (.9) $ (2.7)
Second Quarter of 1998 Compared with Second Quarter of 1997 The following schedule identifies the components of the changes in revenues, operating profit and net income for the second quarter of 1998 compared with the second quarter of 1997:
Operating Net Revenues Profit Income -------- ------ ------ 1997 $ 101.3 $ 1.7 $ -- Increase (decrease) in 1998 from: Unit volume and sales mix 12.0 3.6 2.3 Average sales price (.2) (.2) (.1) Retail sales (.2) (.2) (.1) Manufacturing cost -- (1.2) (.8) Other operating expense -- (1.3) (.8) Differences between effective and statutory tax rates -- -- (.1) -------- ------ ----- $ 112.9 $ 2.4 $ .4 1998 ======== ======= ======
THE HOUSEWARES GROUP - continued FINANCIAL REVIEW - continued Operating results at Housewares improved primarily due to improved operating results at HB/PS. Unit volume at HB/PS increased 11 percent to 7.8 million units sold in the second quarter of 1998 from 7.0 million units sold in the second quarter of 1997. Increased demand from key mass merchants, specifically for irons, blenders, toasters and indoor grills, significantly contributed to this unit volume growth. Manufacturing costs at HB/PS increased from the prior year primarily due to a $3.1 million restructuring accrual recognized in the second quarter of 1998 to accrue for costs related to transferring activities to the manufacturing facility in Saltillo, Mexico. This increase was partially offset by reduced costs of products manufactured in Mexican plants during the second quarter of 1998 and by increased overhead absorption from unit volume growth. Operating and other expenses increased primarily due to annual wage increases and costs of additional advertising activities at HB/PS. Revenues and net income from KCI were comparable to the prior year period. KCI operated 145 stores at June 30, 1998 and June 30, 1997. First Six Months of 1998 Compared with First Six Months of 1997 The following schedule identifies the components of the changes in revenues, operating profit (loss) and net loss for the first six months of 1998 compared with the first six months of 1997:
Operating Profit Net Revenues (Loss) Loss -------- ------ ---- 1997 $ 190.2 $ (1.4) $ (2.7) Increase (decrease) in 1998 from: Unit volume and sales mix 23.2 7.0 4.6 Average sales price (1.3) (1.3) (.8) Retail sales (.2) -- -- Manufacturing cost -- (.3) (.2) Other operating expense -- (2.3) (1.5) Differences between effective and statutory tax rates -- -- (.3) --------- -------- ------ 1998 $ 211.9 $ 1.7 $ (.9) ======== ======= ========
Operating results at Housewares improved primarily due to improved operating results at HB/PS. Unit volume at HB/PS increased 16 percent to 14.9 million units sold in the first half of 1998 from 12.9 million units sold in the first half of 1997. Increased demand from key mass merchants, specifically for blenders, toasters, irons and indoor grills, significantly contributed to this unit volume growth. The positive impact from this increased unit volume was partially offset by a decline in the average sales price of irons, toasters, can openers and blenders due to competition, especially from Chinese imports. Increased manufacturing and operating costs for the first six months of 1998 as compared with 1997 resulted from the same factors affecting the second quarter, discussed previously. Revenues and net income from KCI were comparable to the prior year period. THE HOUSEWARES GROUP - continued FINANCIAL REVIEW - continued Other Income and Expense and Income Taxes The components of other income (expense) and the effective tax rate for the three and six months ended June 30 are as follows:
Three Months Six Months ------------ ---------- 1998 1997 1998 1997 ------- ------- ------- ------- Interest expense $ (1.8) $ (1.8) $ (3.2) $ (3.4) Other-net .1 -- (.2) -- ------- ------- ------- ------- $ (1.7) $ (1.8) $ (3.4) $ (3.4) ======= ======= ======= ======= Effective tax rate 45.9% 40.0% 44.6% 43.9%
LIQUIDITY AND CAPITAL RESOURCES Housewares' expenditures for property, plant and equipment were $9.5 million during the first six months of 1998 and are estimated to be $12.1 million for the remainder of 1998. The primary purpose of these capital expenditures is to reduce manufacturing costs and increase efficiency and to purchase tooling for new and existing products. These expenditures are funded primarily from internally generated funds and short-term borrowings. HB/PS's credit agreement provides for a revolving credit facility ("HB/PS Facility") that permits advances up to $160.0 million and is secured by substantially all of HB/PS's assets. At June 30, 1998, HB/PS had $63.6 million available under this facility, which expires in May 2003. The HB/PS facility provides lower interest rates if HB/PS achieves a certain interest coverage ratio and allows for interest rates quoted under a competitive bid option. At June 30, 1998, HB/PS also had $12.8 million available under separate facilities. In June 1998, the HB/PS Facility was amended to allow advances of up to $10.0 million from HB/PS to KCI. At June 30, 1998, HB/PS had advances outstanding to KCI of $2.7 million. Also during the second quarter of 1998, KCI reduced the availability under its revolving credit facility from $5.0 million to $3.0 million. At June 30, 1998, KCI had available $2.9 million of this $3.0 million facility. Subsequent to June 30, 1998, KCI further reduced the availability under its revolving credit facility to approximately $0.1 million. This availability covers the amount of outstanding letters of credit. The revolving credit facility will be terminated when these letters of credit expire during the third quarter of 1998. Changes to the KCI facility were made in accordance with provisions in the existing credit agreement. Beginning in the third quarter of 1998, KCI's cash requirements will be financed through advances from HB/PS. 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. THE HOUSEWARES GROUP - continued LIQUIDITY AND CAPITAL RESOURCES - continued Housewares' capital structure is presented below:
JUNE 30 DECEMBER 31 1998 1997 ------- ----------- Total net tangible assets $ 158.9 $ 127.8 Goodwill at cost 123.5 123.5 -------- -------- Total assets before goodwill amortization 282.4 251.3 Accumulated goodwill amortization (29.1) (27.6) Total debt (117.9) (85.8) -------- -------- Stockholder's equity $ 135.4 $ 137.9 ======== ======== Debt to total capitalization 47% 38%
Because of the seasonal nature of the Housewares business, inventory, accounts payable and debt levels of this segment reach seasonal peaks in the second and third quarters. THE NORTH AMERICAN COAL CORPORATION - ----------------------------------- NACoal mines and markets lignite for use primarily as fuel for power generation by electric utilities. The lignite is surface mined in North Dakota, Texas and Louisiana. Total coal reserves approximate 2.0 billion tons, with 1.2 billion tons committed to electric utility customers pursuant to long-term contracts. NACoal operates five lignite mines, including three project mining subsidiaries ("Coteau," "Falkirk" and "Sabine"), a NACoal division ("San Miguel") and a joint venture ("Red River"). NACoal also provides dragline mining services ("Florida dragline operations") for a limerock quarry near Miami, Florida. The operating results for the Florida dragline operations are included in Other mining operations. During 1997, the Mississippi Lignite Mining Company was formed as a joint venture between NACoal and Phillips Coal Company. The new company, in which NACoal has a 25 percent interest, will develop the Red Hills lignite mine near Ackerman, Mississippi. Development of the mine site has begun and will continue through 1999, with initial lignite production scheduled for the year 2000. The mine is expected to produce approximately 3.0 million tons of lignite annually. FINANCIAL REVIEW NACoal's three project mining subsidiaries (Coteau, Falkirk and Sabine), which represent a significant portion of NACoal's operations, mine lignite for utility customers pursuant to long-term contracts at a price based on actual cost plus an agreed pretax profit per ton. Due to the cost-plus nature of these contracts, revenues and operating profits are impacted by increases and decreases in operating costs, as well as by tons sold. Net income of these project mines, however, is not significantly affected by changes in such operating costs, which include costs of operations, interest expense and certain other items. Because of the nature of the contracts at these mines, operating results are best analyzed in terms of lignite tons sold, income before taxes and net income. 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 ------------ ---------- 1998 1997 1998 1997 ---- ---- ---- ---- Coteau Properties 3.8 3.8 8.0 7.7 Falkirk Mining 1.1 1.6 3.1 3.1 Red River Mining .3 .3 .5 .5 Sabine Mining .9 .9 1.4 1.8 San Miguel 1.0 -- 1.8 -- --- --- ---- ---- Total Lignite 7.1 6.6 14.8 13.1 === === ==== ====
The Florida dragline operations delivered 2.1 and 4.0 million cubic yards of limerock in the three and six months ended June 30, 1998, respectively. This compares to 1.8 and 3.6 million cubic yards delivered during the three and six months ended June 30, 1997, respectively. THE NORTH AMERICAN COAL CORPORATION - continued FINANCIAL REVIEW - continued Revenues, income before taxes, provision for taxes and net income were as follows for the three and six months ended June 30:
THREE MONTHS SIX MONTHS ------------ ---------- 1998 1997 1998 1997 ------- -------- -------- -------- Revenues Project mines $ 52.8 $ 55.8 $ 109.8 $ 108.6 Other mining operations 9.7 5.0 19.1 9.6 ------- -------- -------- -------- 62.5 60.8 128.9 118.2 Royalties and other 1.5 1.6 3.5 2.6 ------- -------- -------- -------- $ 64.0 $ 62.4 $ 132.4 $ 120.8 ======= ======== ======== ======== Income before taxes Project mines $ 5.0 $ 5.5 $ 11.4 $ 11.2 Other mining operations 1.4 .9 2.8 1.6 ------- -------- -------- -------- Total from operating mines 6.4 6.4 14.2 12.8 Royalties and other income, net 1.2 1.4 3.0 2.2 Other operating expenses (2.0) (1.6) (3.9) (2.9) ------- -------- -------- -------- 5.6 6.2 13.3 12.1 Provision for taxes 1.6 2.4 3.8 4.4 ------- -------- -------- -------- Net income $ 4.0 $ 3.8 $ 9.5 $ 7.7 ======= ======== ======== ========
Second Quarter of 1998 Compared with Second Quarter of 1997 The following schedule identifies the components of the changes in revenues, income before taxes and net income for the three months ended June 30:
Income Before Net Revenues Taxes Income -------- ----- ------ 1997 $ 62.4 $ 6.2 $ 3.8 Increase (decrease) in 1998 from: Project mines Tonnage volume (3.4) (.6) (.4) Agreed profit per ton .1 .1 .1 Pass-through costs .3 -- -- Other mining operations Tonnage volume 4.6 4.6 3.0 Average selling price .1 .1 -- Operating costs -- (4.3) (2.8) Other expense -- .1 .1 -------- ------- ------- Changes from operating mines 1.7 -- -- Royalties and other income, net (.1) (.2) (.1) Other operating expenses -- (.4) (.2) Differences between effective and statutory tax rates -- -- .5 -------- ------- ------- 1998 $ 64.0 $ 5.6 $ 4.0 ======== ======= =======
THE NORTH AMERICAN COAL CORPORATION - continued FINANCIAL REVIEW - continued At the project mines, decreased tons sold at Falkirk due to a customer's planned power plant outage resulted in decreased revenues and net income. At the other mining operations, operating results benefited from the results of the San Miguel lignite mining operation. NACoal began providing mining services at San Miguel Electric Cooperative, Inc.'s lignite mine in July 1997. Decreased royalty income and increased operating costs due to ongoing growth initiatives negatively affected second quarter 1998 net income, as compared with the second quarter of 1997. First Six Months of 1998 Compared with First Six Months of 1997 The following schedule identifies the components of the changes in revenues, income before taxes and net income for the six months ended June 30:
Income Before Net Revenues Taxes Income --------- -------- ------- 1997 $ 120.8 $ 12.1 $ 7.7 Increase (decrease) in 1998 from: Project mines Tonnage volume (2.6) (.1) -- Agreed profit per ton .5 .3 .2 Pass-through costs 3.3 -- -- Other mining operations Tonnage volume 9.5 9.2 5.9 Operating costs -- (8.3) (5.4) Other expense -- .3 .2 --------- -------- ------- Changes from operating mines 10.7 1.4 .9 Royalties and other income, net .9 .8 .5 Other operating expenses -- (1.0) (.7) Differences between effective and statutory tax rates -- -- 1.1 --------- -------- ------- 1998 $ 132.4 $ 13.3 $ 9.5 ========= ======== =======
At the project mines, operating profit improved due to increased tons sold at Coteau and a project mine incentive payment. The benefit from these factors was partially offset by decreased tons sold at Sabine due to a customer's planned power plant outage. Results from Other mining operations improved due to the addition of the San Miguel lignite mining operation and increased volume at both Red River and the Florida dragline operations. Increased royalty income also contributed to operating results, whereas increased operating costs due to ongoing growth initiatives negatively affected net income for the first half of 1998 as compared with the first half of 1997. THE NORTH AMERICAN COAL CORPORATION - continued FINANCIAL REVIEW - continued Other Income and Expense and Income Taxes The components of other income (expense) and the effective tax rate for the three and six months ended June 30 are as follows:
Three Months Six Months ------------ ---------- 1998 1997 1998 1997 ------- ------- ------- ------- Interest expense Project mining subsidiaries $ (3.2) $ (3.2) $ (6.3) $ (6.4) Other mining operations (.2) (.5) (.4) (1.0) ------- ------- ------- ------- $ (3.4) $ (3.7) $ (6.7) $ (7.4) ======= ======= ======= ======= Other-net Project mining subsidiaries $ .7 $ .5 $ .8 $ .9 Other mining operations (.3) (.1) (.3) .1 ------- ------- ------- ------- $ .4 $ .4 $ .5 $ 1.0 ======= ======= ======= ======= Effective tax rate 27.7% 36.2% 28.3% 35.4%
The decrease in the effective tax rate results from additional percentage depletion eligible to reduce NACoal's effective tax. LIQUIDITY AND CAPITAL RESOURCES Expenditures for property, plant and equipment were $6.7 million during the first six months of 1998. It is estimated that NACoal's capital expenditures for the remainder of 1998 will be $21.2 million, of which $19.3 million relates to the development, establishment and improvement of the project mining subsidiaries' mines and are financed or guaranteed by the utility customers. Also during the first six months of 1998, NACoal invested $5.8 million in a joint venture with Phillips Coal Company to develop a new lignite mine in Mississippi. During the remainder of 1998, NACoal anticipates investing an additional $5.6 million in this joint venture. NACoal has in place a $50.0 million revolving credit facility. The expiration date of this facility, which currently is September 2002, can be extended one additional year, on an annual basis, upon the mutual consent of NACoal and the bank group. All of NACoal's $50.0 million revolving credit facility was available at June 30, 1998. 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 equal to their earnings. THE NORTH AMERICAN COAL CORPORATION - continued LIQUIDITY AND CAPITAL RESOURCES - continued NACoal's capital structure, excluding the project mining subsidiaries, is presented below:
JUNE 30 DECEMBER 31 1998 1997 ------- ------- Investment in project mining subsidiaries $ 2.3 $ 4.3 Other net tangible assets 10.0 3.4 ------- ------- Total tangible assets 12.3 7.7 Advances to parent company 3.6 21.9 Debt related to parent advances (.8) (14.4) Other debt -- (.1) ------- ------- Total debt (.8) (14.5) ------- ------- Stockholder's equity $ 15.1 $ 15.1 ======= ======= Debt to total capitalization 5% 49%
The increase in Other net tangible assets is primarily due to capital investments in the Mississippi lignite mining operation, a joint venture with Phillips Coal Company scheduled to begin production in the year 2000. Advances to parent company and Debt related to parent advances declined in the second quarter as a result of repayments made by NACCO. NACCO AND OTHER FINANCIAL REVIEW NACCO and Other includes the parent company operations and Bellaire Corporation ("Bellaire"), a non-operating subsidiary of NACCO. While Bellaire's results are immaterial, it has significant long-term liabilities related to closed mines, primarily from former eastern U.S. underground coal-mining activities. Cash payments related to Bellaire's obligations, net of internally generated cash, are funded by NACCO and are anticipated to be $1.3 million for the remainder of 1998. The results of operations at NACCO and Other were as follows for the three and six months ended June 30:
Three Months Six Months ------------ ---------- 1998 1997 1998 1997 ------ ------ ------ ------ Revenues $ .1 $ -- $ .1 $ .1 Operating loss $ (2.7) $ (2.0) $ (5.1) $ (4.1) Other income (expense), net $ .1 $ .2 $ .7 $ .3 Net loss $ (2.1) $ (.8) $ (4.0) $ (2.6)
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, HB/PS and KCI allow for the payment to NACCO of dividends and advances under certain circumstances. There are no restrictions on the transfer of assets from NACoal. Dividends and advances from its subsidiaries are the primary sources of cash for NACCO. NACCO's consolidated capital structure is presented below:
JUNE 30 DECEMBER 31 1998 1997 -------- -------- Total net tangible assets $ 416.7 $ 328.4 Goodwill at cost 571.2 571.3 -------- -------- Total assets before goodwill amortization 987.9 899.7 Accumulated goodwill amortization (129.5) (122.0) Total debt, excluding current and long-term portion of obligations of project mining subsidiaries (291.6) (257.0) Closed mine obligations, (Bellaire), including the United Mine Worker retirees' medical fund, net-of-tax (77.0) (79.0) Minority interest (17.9) (16.6) -------- -------- Stockholders' equity $ 471.9 $ 425.1 ======== ======== Debt to total capitalization 37% 37%
NACCO AND OTHER - continued FINANCIAL REVIEW - continued The Company believes it can adequately meet all of its current and long-term commitments and operating needs. This outlook stems from amounts available under revolving credit facilities and the utility customers' funding of the project mining subsidiaries. INTEREST RATE PROTECTION NMHG, HB/PS, NACoal and KCI have entered into interest rate swap agreements for portions of their floating rate debt. These interest rate swaps provide protection against significant increases in interest rates and have terms ranging from one to six years, with the counterparty's option to extend a small portion of these contracts to eight years. The Company evaluates its exposure to floating rate debt on an ongoing basis. EFFECTS OF FOREIGN CURRENCY NMHG and HB/PS operate internationally and enter into transactions denominated in foreign currencies. As such, their financial results are subject to the transaction exposures that arise from exchange rate movements between the dates foreign currency transactions are committed and the dates they are consummated. The effects of foreign currency fluctuations on revenues, operating income and net income at NMHG are disclosed above. At HB/PS, foreign currency effects had an immaterial impact on operating results between comparable periods of 1998 and 1997. NMHG and HB/PS use forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies. These contracts usually have maturities of one to twelve months and generally require the companies to buy or sell Japanese yen, Australian dollars, Canadian dollars or various European currencies for the functional currency in which the applicable subsidiary operates at rates agreed to at the inception of the contracts. YEAR 2000 The Company has developed an action plan and identified the resources needed to convert the majority of its computer systems and software applications to achieve a year 2000 date conversion with no effect on customers or disruption to business operations. Implementation of the plan has begun, and the Company anticipates completion of testing of mission critical systems by the end of 1998. The Company estimates that the cost to complete these efforts, which primarily includes the purchase of software upgrades under normal maintenance agreements with third party vendors, will not be material and will be expended primarily in 1998. The Company is currently evaluating its computer-controlled machinery and equipment for year 2000 compliance. Although the Company does not anticipate the cost or failure to convert this machinery and equipment to be material to the Company's operating results, the ultimate impact is unknown. In addition, the Company has discussed with its vendors and customers the need to be year 2000 compliant. Although the Company has no reason to believe that its vendors and customers will not be compliant by the year 2000, the Company is unable to determine the extent to which year 2000 issues will effect its vendors and customers. The Company continues to discuss with its vendors and customers the need for implementing procedures to address this issue. EURO CURRENCY CONVERSION On January 1, 1999, the European Economic Union will begin a process that is expected to ultimately result in conversion of the existing currencies to a single currency, the "Euro." The Company is evaluating and implementing programs to address the conversion to the Euro. OUTLOOK NMHG: Although industry lift truck bookings in the Americas are expected to decline moderately in the second half of 1998, the rate of unit shipments is expected to remain stable due to high backlog levels. In Europe, improving economic conditions and stronger demand for lift trucks are expected to result in increased unit shipments and higher backlogs in the second half of 1998. Industry shipments in the Asia-Pacific region are expected to decline because of continuing weak economies throughout this region. NMHG's worldwide unit shipments are typically constrained in the third quarter by traditional summer plant holidays. NMHG's cost reduction programs, including Value Improvement, Demand Flow Technology and infrastructure reorganization, are expected to continue having an increasing positive impact in 1998 and 1999. Housewares: The Housewares Group expects to benefit from increased cost-savings in the second half of 1998 from HB/PS's Saltillo, Mexico, plant as production capacity continues to grow, with most of the full potential impact expected to be realized in 1999. A closer working relationship between HB/PS and KCI is expected to lead to enhanced opportunities for these companies. NACoal: NACoal's mining operations are expected to continue to provide a steady volume of lignite deliveries during the remainder of 1998. NACoal will have a full year of lignite deliveries from its San Miguel mine in 1998, compared with six months of operations in 1997. NACoal expects royalty income to decline moderately in the second half of 1998. 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 that could cause actual results to differ materially from those presented in those 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 forklift trucks and related service parts on a worldwide basis, (2) changes in sales prices, (3) delays in delivery or increased costs of raw materials or sourced products and labor, (4) delays in manufacturing and delivery schedules, (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 operations and/or sells products, (6) product liability or other litigation, warranty claims or other returns of products and (7) delays or increased costs of employee relocations and/or in the execution of the restructuring program. OUTLOOK - continued Housewares: (1) delays or increased costs in the start-up of operations in Saltillo and/or in the execution of the restructuring program, (2) bankruptcy of or loss of major retail customers, (3) changes in the sales price, product mix or levels of consumer purchases of kitchenware and small electric appliances, (4) exchange rate fluctuations, changes in 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, (5) product liability or other litigation, warranty claims or other returns of products and (6) weather conditions that would affect the number of customers visiting KCI stores. NACoal: (1) weather conditions and other events that would change the level of customers' fuel requirements and (2) equipment problems that could affect lignite deliveries to customers. Part II Item 1 Legal Proceedings None Item 2 Change 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 13, 1998, with the results indicated: Outstanding Shares Entitled to Vote Number of Votes Class A Common 6,495,254 Class B Common 16,679,630 ---------- 23,174,884 ========== Item A. Election of ten directors for the ensuing year. Votes Director Nominee For Withheld Total ---------------------- ---------- ------ ----------- Owsley Brown II 19,658,094 14,091 19,672,185 Robert M. Gates 19,656,474 15,711 19,672,185 Leon J. Hendrix, Jr. 19,654,194 17,991 19,672,185 Dennis W. LaBarre 19,655,558 16,627 19,672,185 Alfred M. Rankin, Jr. 19,655,944 16,241 19,672,185 Ian M. Ross 19,652,474 19,711 19,672,185 John C. Sawhill 19,657,944 14,241 19,672,185 Britton T. Taplin 19,658,094 14,091 19,672,185 David F. Taplin 19,658,094 14,091 19,672,185 John F. Turben 19,656,474 15,711 19,672,185 Item B. Confirming the appointment of Arthur Andersen LLP as the independent certified public accountants of the Company for the current fiscal year. For Against Abstain Total ------------- ----------- ----------- ------------ 19,659,313 2,572 10,300 19,672,185 Item 5 Other Information None Item 6 Exhibits and Reports on Form 8-K (a) Exhibits. See Exhibit Index on page 33 of this quarterly report on Form 10-Q. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the second quarter of 1998. 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 14, 1998 /s/ Kenneth C. Schilling ------------------------------ -------------------------------------- Kenneth C. Schilling Vice President and Controller (Principal Financial and Accounting Officer) Exhibit Index Exhibit Number* Description of Exhibits (10) Material Contracts (cxxii) Amendment No. 5 dated as of June 10, 1998 to the Second Amended and Restated Credit Agreement dated as of October 11, 1990, amended and restated as of April 18, 1995, among Hamilton Beach/Proctor Silex, Inc., Proctor-Silex Canada Inc., Proctor-Silex S.A. de C.V., as Obligors, the Banks signatory thereto and the Chase Manhattan Bank NA, as U.S. Agent, and The Chase Manhattan Bank of Canada, as Canadian agent, is attached hereto as Exhibit 10(cxxii). (27) Financial Data Schedule *Numbered in accordance with Item 601 of Regulation S-K. EX-10 2 Exhibit 10 (cxxii) AMENDMENT NO. 5 TO CREDIT AGREEMENT AMENDMENT NO. 5 dated as of June 10, 1998 to the SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of October 11, 1990 and amended and restated as of April 18, 1995 among Hamilton Beach/Proctor-Silex, Inc. (the "Company"), Proctor-Silex Canada Inc. ("PSC") and Proctor-Silex S.A. de C.V. ("PSM", and together with the Company and PSC, the "Obligors"); each of the Banks signatory thereto; and The Chase Manhattan Bank (successor by merger of The Chase Manhattan Bank (National Association)), as U.S. Agent (in such capacity, the "U.S. Agent") and The Chase Manhattan Bank of Canada, as Canadian Agent (in such capacity, the "Canadian Agent", and together with the U.S. Agent, the "Agents"). The Obligors, the Banks and the Agents are parties to the Second Amended and Restated Credit Agreement referred to above, as amended and modified by (i) Amendment No. 1 dated as of March 29, 1996, (ii) Amendment No. 2 dated as of October 4, 1996, (iii) Amendment No. 3 dated as of April 14, 1997 and (iv) Amendment No. 4 dated as of April 22, 1998 (as so amended and modified and in effect on the date hereof, the "Credit Agreement"). The Obligors, the Banks and the Agents wish to amend the Credit Agreement in certain respects and, accordingly, the parties hereto agree as follows: Section 1. Definitions. Except as otherwise defined in this Amendment No. 5, terms defined in the Credit Agreement are used herein as defined therein. Section 2. Amendments. Subject to the satisfaction of the conditions precedent specified in Section 4 below, but effective as of the date hereof, the Credit Agreement shall be amended as follows: 2.01 Definitions. Section 1.01 of the Credit Agreement shall be amended by adding (to the extent not already included in said Section 1.01) or amending (to the extent already included in said Section 1.01) the following definitions to read in their entirety as follows: "Kitchen Advances" shall mean advances made to Kitchen Collection, Inc. by the Company. "Interest Expense" shall mean, for any period, for the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP, the sum of (i) all interest accrued during such period on Indebtedness of the Company and its Subsidiaries (whether or not paid during such period) plus (ii) the net amounts payable by the Company and its Subsidiaries (or minus the net amounts receivable by the Company and its Subsidiaries) under Interest Rate Protection Agreements (whether or not actually paid or received in such period); provided that "Interest Expense" shall exclude to the extent otherwise included (a) accrued facility fees payable under Section 2.04(a) hereof and accrued letter of credit fees payable under Section 2.01(II)(a)(4) hereof, in each case for the period of determination, and (b) all interest accrued during such period on Loans made hereunder to the extent the proceeds of such Loans are used to fund Kitchen Advances permitted under Section 9.17(h) hereof. "Total Debt" shall mean, as to any Person, Indebtedness that, in accordance with GAAP, is required to be reflected as a liability on the balance sheet of such Person; provided that, for the purposes of calculating the Leverage Ratio, Indebtedness of the Company incurred pursuant to Loans made hereunder shall not be included in "Total Debt" to the extent the proceeds of such Loans are used to fund Kitchen Advances permitted under Section 9.17(h) hereof. 2.02 Reconciliation Statement. (a) Section 1.02(a) of the Credit Agreement shall be amended by deleting in its entirety the proviso contained in the second sentence thereof. (b) Section 9.01 of the Credit Agreement shall be amended by (i) deleting the parenthetical contained in clause (1)(ii) of the paragraph immediately following clause (l) thereof, and (ii) amending Clause (1)(B) of such paragraph to read in its entirety as follows: "[Intentionally Omitted]". 2.03 Kitchen Advances. Section 9.17 of the Credit Agreement shall be amended by amending clause (h) thereof to read in its entirety as follows: "(h) so long as Kitchen Collection, Inc. is an Affiliate of the Company, the Company may make Kitchen Advances in an aggregate amount of up to but not exceeding $10,000,000 at any one time outstanding;" 2.04 Schedules and Exhibits. Schedule L of the Credit Agreement shall be deleted in its entirety and the reference to Schedule L in the Schedules and Exhibits shall be amended to read in its entirety as follows: "Schedule L - [Intentionally Omitted]". Section 3. Representations and Warranties. The Company represents and warrants to the Banks that on and as of the date hereof (and, in the case of clauses (b), (c) and (d) of this Section 3, upon giving effect to the amendments set forth in Section 2 hereof): (a) (i) the execution and delivery by the Obligors of this Amendment No. 5, and the performance by the Obligors of their obligations under the Credit Agreement, as amended hereby, have been duly authorized by all necessary corporate action of the Obligors, and will not violate any provision of law, or any Obligor's charter or by-laws, or result in a breach of or constitute a default or require a consent under any indenture or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any Obligor or any of its Property may be bound or affected, and (ii) each of this Amendment No. 5 and the Credit Agreement, as amended hereby, constitutes the legal, valid and binding obligation of the Obligors, in each case enforceable against the Obligors in accordance with its terms; (b) no Default has occurred and is continuing, and the representations and warranties set forth in Section 8 of the Credit Agreement are true and complete on the date hereof (or if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); (c) no Property encumbered by any of the Mortgages or any of the Canadian Security Documents will be released from any provision of such Mortgage or Canadian Security Document, and no Mortgage or Canadian Security Document will be invalidated or otherwise impaired; and (d) none of Housewares Holding Company, Precis [521] Ltd., HB/PS Holding Company, Inc., NACCO Industries, Inc., Glen Dimplex or Glen Electric, Ltd. will be released from their obligations under their respective Supplemental Agreement or Supplemental Security Agreement, and no Supplemental Agreement or Supplemental Security Agreement will be invalidated or otherwise impaired. It shall be an Event of Default for all purposes under the Credit Agreement, as amended hereby, if any representation or warranty made by the Company in this Amendment No. 5 shall prove to have been false or misleading as of the time made or furnished in any material respect. Section 4. Conditions Precedent. The amendments to the Credit Agreement set forth in said Section 2 shall become effective, as of the date hereof, upon the receipt by the Agents of this Amendment No. 5, duly executed and delivered by the Obligors, the Majority Banks and the Agents. Section 5. Miscellaneous. Except as amended by this Amendment No. 5, the Credit Agreement shall remain unchanged and in full force and effect. Reference in the Credit Agreement to "this Agreement" or words of similar import shall be deemed to be references to the Credit Agreement as amended hereby. This Amendment No. 5 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment No. 5 by signing any such counterpart. This Amendment No. 5 shall be governed by, and construed in accordance with, the law of the State of New York. This Amendment No. 5 shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5 to be duly executed and delivered as of the day and year first above written. OBLIGORS HAMILTON BEACH/PROCTOR-SILEX, INC. By /s/James H. Taylor Title: Vice President - Treasurer PROCTOR-SILEX CANADA INC. By /s/James H. Taylor Title: Vice President - Treasurer PROCTOR-SILEX S.A. de C.V. By /s/James H. Taylor Title: Vice President - Treasurer BANKS THE CHASE MANHATTAN BANK, individually and as U.S. Agent By /s/Lenard Weiner Title: Managing Director THE CHASE MANHATTAN BANK OF CANADA, individually and as Canadian Agent By /s/Christine Chan Title: Vice President By /s/Ed Sustar Title: Vice President - Treasurer FIRST CHICAGO NBD By /s/William J. McCaffrey Title: Vice President THE BANK OF NOVA SCOTIA By /s/M.D. Smith Title: Agent ISTITUTO BANCARIO SAN PAOLO DI TORINO SPA By /s/Luca Sacchi Title: Vice President By /s/Carlo Persico Title: Vice President - Treasurer CREDIT AGRICOLE INDOSUEZ By /s/David Bouhl Title: First Vice President By /s/Dean Balice Title: Senior Vice President CRESTAR BANK By /s/Christopher Werner Title: Vice President KEYBANK NATIONAL ASSOCIATION By /s/Marianne Meil Title: Vice President EX-27 3 ARTICLE 5 FDS FOR 2ND QUARTER 10-Q
5 1,000,000 6-mos Dec-31-1998 Jan-01-1998 Jun-30-1998 26 0 263 0 352 678 544 514 1,812 529 0 0 0 8 464 1,812 1,214 1,214 974 974 0 0 16 83 32 50 0 0 0 50 6.18 6.16
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