-----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, Aok+wkSN4mghNnh4n03WrCcj0JTmPhxqZ+OLT6gcuFRTq/doQlbuYWjoSrRQHGHR e2hJrfiCHkK7KvhzMwS6Og== 0000789933-98-000013.txt : 19981116 0000789933-98-000013.hdr.sgml : 19981116 ACCESSION NUMBER: 0000789933-98-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 98747720 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 September 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 October 31, 1998: 6,465,560 Number of shares of Class B Common Stock outstanding at October 31, 1998: 1,652,349 NACCO INDUSTRIES, INC. TABLE OF CONTENTS Part I. FINANCIAL INFORMATION Item 1 Financial Statements Condensed Consolidated Balance Sheets - September 30, 1998 (Unaudited) and December 31, 1997 Unaudited Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 1998 and 1997 Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997 Notes to Unaudited Condensed Consolidated Financial Statements Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3 Quantitative and Qualitative Disclosures About Market Risk Part II. OTHER INFORMATION Item 1 Legal Proceedings Item 2 Changes in Securities and Use of Proceeds Item 3 Defaults Upon Senior Securities Item 4 Submission of Matters to a Vote of Security Holders Item 5 Other Information Item 6 Exhibits and Reports on Form 8-K Signature Exhibit Index PART I Item 1 - Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited) (Audited) SEPTEMBER 30 DECEMBER 31 1998 1997 ---------- ---------- ASSETS (In millions) Current Assets Cash and cash equivalents $ 17.5 $ 24.1 Accounts receivable, net 279.1 240.8 Inventories 387.2 302.9 Prepaid expenses and other 37.0 31.8 ---------- ---------- 720.8 599.6 Property, Plant and Equipment, Net 559.1 541.7 Deferred Charges Goodwill, net 438.3 449.3 Deferred costs and other 68.5 63.5 Deferred income taxes 26.6 24.1 ---------- ---------- 533.4 536.9 Other Assets 65.0 50.9 ---------- ---------- Total Assets $ 1,878.3 $ 1,729.1 ========== ==========
See notes to unaudited condensed consolidated financial statements. CONDENSED CONSOLIDATED BALANCE SHEETS NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited) (Audited) SEPTEMBER 30 DECEMBER 31 1998 1997 ---------- ---------- (In millions) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 244.6 $ 244.7 Revolving credit agreements 68.2 23.5 Current maturities of long-term debt 24.0 18.9 Income taxes 1.1 12.8 Accrued payroll 36.7 36.4 Other current liabilities 175.9 170.2 ---------- ---------- 550.5 506.5 Long-term Debt- not guaranteed by the parent company 259.3 230.2 Obligations of Project Mining Subsidiaries - not guaranteed by the parent company or its North American Coal subsidiary 325.6 328.0 Self-insurance Reserves and Other 233.1 222.7 Minority Interest 18.0 16.6 Stockholders' Equity Common stock: Class A, par value $1 per share, 6,464,160 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, 1,653,749 shares outstanding (1997 - 1,676,146 shares outstanding) 1.6 1.7 Capital in excess of par value .1 .1 Retained earnings 475.0 412.9 Foreign currency translation adjustment and other 8.6 3.9 ---------- ---------- 491.8 425.1 ---------- ---------- Total Liabilities and Stockholders' Equity $ 1,878.3 $ 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 NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------------- ----------------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- (In millions, except per share data) Revenues $ 583.7 $ 557.4 $ 1,797.2 $ 1,578.2 Cost of sales 465.5 451.6 1,439.7 1,289.9 ---------- ---------- ---------- ---------- Gross Profit 118.2 105.8 357.5 288.3 Selling, general and administrative expenses 71.1 64.3 206.9 189.1 Amortization of goodwill 3.8 4.0 11.2 11.9 ---------- ---------- ---------- ---------- Operating Profit 43.3 37.5 139.4 87.3 Other income (expense) Interest expense (8.9) (8.8) (25.2) (28.1) Other - net (1.5) (3.4) 1.9 (2.2) ---------- ---------- ---------- ---------- (10.4) (12.2) (23.3) (30.3) Income Before Income Taxes and Minority Interest 32.9 25.3 116.1 57.0 Provision for income taxes 12.2 10.6 43.9 24.2 ---------- ---------- ---------- ---------- Income Before Minority Interest 20.7 14.7 72.2 32.8 Minority interest (.3) (.2) (1.4) (.6) ---------- ---------- ---------- ---------- Net Income $ 20.4 $ 14.5 $ 70.8 $ 32.2 ========== ========== ========== ========== Comprehensive Income $ 26.2 $ 12.1 $ 75.5 $ 23.1 ========== ========== ========== ========== Net Income per share: basic $ 2.50 $ 1.78 $ 8.68 $ 3.94 ========== ========== ========== ========== Net Income per share: diluted $ 2.50 $ 1.78 $ 8.66 $ 3.93 ========== ========== ========== ========== Dividends per share $ .2050 $ .1950 $ .6050 $ .5775 ========== ========== ========== ==========
See notes to unaudited condensed consolidated financial statements. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited) NINE MONTHS ENDED SEPTEMBER 30 ----------------- 1998 1997 -------- -------- (In millions) Operating Activities Net income $ 70.8 $ 32.2 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 63.9 65.9 Deferred income taxes (7.2) (4.2) Other non-cash items 7.8 (.2) Working Capital Changes: Accounts receivable (34.6) (8.1) Inventories (81.6) (25.3) Other current assets (2.8) 3.3 Accounts payable and other liabilities 1.1 52.7 -------- -------- Net cash provided by operating activities 17.4 116.3 Investing Activities Expenditures for property, plant and equipment (72.7) (44.0) Proceeds from the sale of assets 2.9 2.9 Investments in unconsolidated affiliates (13.0) (1.7) Acquisitions of businesses -- (12.4) Other - net (1.0) 1.3 -------- -------- Net cash used for investing activities (83.8) (53.9) Financing Activities Additions to long-term debt and revolving credit agreements 100.1 49.0 Reductions of long-term debt and revolving credit agreements (22.7) (99.5) Additions to obligations of project mining subsidiaries 60.2 42.2 Reductions of obligations of project mining subsidiaries (61.0) (56.1) Financing of other short-term obligations (5.7) (.3) Cash dividends paid (4.9) (4.7) Other - net (6.5) (1.4) -------- -------- Net cash provided by (used for) financing activities 59.5 (70.8) Effect of exchange rate changes on cash .3 (2.1) -------- -------- Cash and Cash Equivalents Decrease for the period (6.6) (10.5) Balance at the beginning of the period 24.1 47.8 -------- -------- Balance at the end of the period $ 17.5 $ 37.3 ======== ========
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 NACCOIndustries, 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 September 30, 1998 and the results of its operations for the three and nine month periods and cash flows for the nine month periods ended September 30, 1998 and 1997 have been included. Operating results for the nine month period ended September 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 to identify and maximize the benefits of such a relationship. Operating as NACCO Housewares Group ("Housewares"), financial results of HB/PS and KCI will be evaluated by management as a combined operating unit. Because of this 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. 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 ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------- -------------- 1998 1997 1998 1997 ---- ---- ---- ---- Basic common shares 8.150 8.153 8.156 8.177 Dilutive stock options .019 .015 .019 .011 ===== ===== ===== ===== Diluted common shares 8.169 8.168 8.175 8.188 ===== ===== ===== =====
Note 5 - Inventories Inventories are summarized as follows:
SEPTEMBER 30 DECEMBER 31 1998 1997 -------- --------- (Unaudited) (Audited) Manufacturing inventories: Finished goods and service parts- NMHG $ 104.1 $ 86.9 Housewares 73.7 31.8 -------- -------- 177.8 118.7 -------- -------- Raw materials and work in process- NMHG 149.4 135.6 Housewares 22.1 15.1 -------- -------- 171.5 150.7 -------- -------- LIFO reserve- NMHG (12.6) (13.4) Housewares 1.1 1.1 -------- -------- (11.5) (12.3) -------- -------- Total manufacturing inventories 337.8 257.1 Coal - NACoal 11.0 10.7 Mining supplies - NACoal 19.1 19.2 Retail inventories - Housewares 19.3 15.9 -------- -------- $ 387.2 $ 302.9 ======== ========
The cost of manufacturing inventories has been determined by the last-in, first-out (LIFO) method for 71 percent and 70 percent of such inventories as of September 30, 1998 and December 31, 1997, respectively. 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 transitioning activities to HB/PS's Saltillo, Mexico facility. No significant payments related to this accrual have been made as of September 30, 1998. 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 severance payments to be made to certain NMHG employees and for lease termination costs. Severance payments were made to approximately 130 NMHG employees during the first nine months of 1998. In the third quarter of 1998, NMHG recognized a reduction to the accrual of approximately $1.5 million, as severance payments were less than previously anticipated. In addition, NMHG recognized an additional charge during the third quarter of 1998 of approximately $3.0 million, which is classified as Selling, general and administrative expenses in the accompanying Statement of Income, relating to increases in temporary labor, moving and training costs associated with the restructuring program. 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 First and second quarter payments -- (.9) (.1) First and second quarter provision 3.1 -- -- ----- ------ ----- Balance at June 30, 1998 $ 3.1 $ 5.0 $ .9 Third quarter payments -- (1.6) -- Third quarter provision (reversal) .1 (2.3) .8 ----- ------ ----- Balance at September 30, 1998 $ 3.2 $ 1.1 $ 1.7 ====== ====== ======
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 NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 -------------------- ---------------------- 1998 1997 1998 1997 -------- ---------- ---------- ---------- REVENUES NMHG $ 374.6 $ 352.3 $ 1,243.7 $ 1,062.0 Housewares 136.8 134.8 348.7 325.0 NACoal 72.3 70.2 204.7 191.0 NACCO and Other -- .1 .1 .2 -------- ---------- ---------- ---------- $ 583.7 $ 557.4 $ 1,797.2 $ 1,578.2 ======== ========== ========== ========== GROSS PROFIT NMHG $ 72.4 $ 61.3 $ 247.1 $ 185.6 Housewares 31.9 28.5 71.3 63.6 NACoal 14.0 16.0 39.3 39.2 NACCO and Other (.1) -- (.2) (.1) -------- ---------- ---------- ---------- $ 118.2 $ 105.8 $ 357.5 $ 288.3 ======== ========== ========== ========== SELLING, GENERAL AND ADMINISTRATIVE EXPENSES NMHG $ 45.8 $ 40.7 $ 134.7 $ 122.3 Housewares 19.5 18.7 55.6 53.1 NACoal 3.3 2.8 9.1 7.6 NACCO and Other 2.5 2.1 7.5 6.1 -------- ---------- ---------- ---------- $ 71.1 $ 64.3 $ 206.9 $ 189.1 ======== ========== ========== ========== AMORTIZATION OF GOODWILL NMHG $ 3.0 $ 3.0 $ 8.8 $ 8.8 Housewares .8 1.0 2.4 3.1 -------- ---------- ---------- ---------- $ 3.8 $ 4.0 $ 11.2 $ 11.9 ======== ========== ========== ========== OPERATING PROFIT (LOSS) NMHG $ 23.6 $ 17.6 $ 103.6 $ 54.5 Housewares 11.6 8.8 13.3 7.4 NACoal 10.7 13.2 30.2 31.6 NACCO and Other (2.6) (2.1) (7.7) (6.2) -------- ---------- ---------- ---------- $ 43.3 $ 37.5 $ 139.4 $ 87.3 ======== ========== ========== ========== OPERATING PROFIT (LOSS) EXCLUDING GOODWILL AMORTIZATION NMHG $ 26.6 $ 20.6 $ 112.4 $ 63.3 Housewares 12.4 9.8 15.7 10.5 NACoal 10.7 13.2 30.2 31.6 NACCO and Other (2.6) (2.1) (7.7) (6.2) -------- ---------- ---------- ---------- $ 47.1 $ 41.5 $ 150.6 $ 99.2 ======== ========== ========== ==========
FINANCIAL SUMMARY - continued
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ----------------- ------------------- 1998 1997 1998 1997 ------- ------- ------- ------- INTEREST EXPENSE NMHG $ (3.7) $ (3.1) $ (10.1) $ (11.6) Housewares (2.0) (1.9) (5.2) (5.3) NACoal (.1) (.6) (.5) (1.6) NACCO and Other (.2) (.6) (.7) (1.8) Eliminations .2 .6 .7 1.8 ------- ------- ------- ------- (5.8) (5.6) (15.8) (18.5) Project mining subsidiaries (3.1) (3.2) (9.4) (9.6) ----- ----- ----- ----- $ (8.9)$ (8.8) $ (25.2) $ (28.1) ======= ======= ======= ======= INTEREST INCOME NMHG $ .7 $ .3 $ 1.5 $ 1.9 NACoal --- .5 .3 1.6 Eliminations (.2) (.6) (.7) (1.8) ------- ------- ------- ------- .5 .2 1.1 1.7 Project mining subsidiaries .2 .3 .8 .8 ------- ------- ------- ------- $ .7 $ .5 $ 1.9 $ 2.5 ======= ======= ======= ======= OTHER-NET, INCOME (EXPENSE), EXCLUDING INTEREST INCOME NMHG $ (1.2) $ (1.8) $ .9 $ (2.3) Housewares (.1) (.1) (.3) (.1) NACoal (.8) (2.0) (1.2) (2.6) NACCO and Other (.1) --- .6 .3 ------- ------- ------- ------- $ (2.2) $ (3.9 $ --- $ (4.7) ======= ======= ======= ======= PROVISION FOR INCOME TAXES NMHG $ 7.5 $ 5.0 $ 37.1 $ 18.8 Housewares 4.2 3.1 3.4 1.0 NACoal 1.9 2.9 5.7 7.2 NACCO and Other (1.4) (.4) (2.3) (2.8) ------- ------- ------- ------- $ 12.2 $ 10.6 $ 43.9 $ 24.2 ======= ======= ======= ======= NET INCOME (LOSS) NMHG $ 11.9 $ 8.0 $ 58.8 $ 23.7 Housewares 5.3 3.7 4.4 1.0 NACoal 5.0 5.3 14.5 13.0 NACCO and Other (1.5) (2.3) (5.5) (4.9) Minority interest (.3) (.2) (1.4) (.6) ------- ------- ------- ------- $ 20.4 $ 14.5 $ 70.8 $ 32.2 ======= ======= ======= =======
FINANCIAL SUMMARY - continued
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 --------------- --------------- 1998 1997 1998 1997 ------- ------- ------- ------- DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE NMHG $ 8.9 $ 9.0 $ 26.7 $ 26.0 Housewares 4.2 5.0 12.7 15.5 NACoal .9 .6 2.4 1.7 NACCO and Other .1 .2 .3 .3 ------- ------- ------- ------- 14.1 14.8 42.1 43.5 Project mining subsidiaries 7.4 7.5 21.8 22.4 ------- ------- ------- ------- $ 21.5 $ 22.3 $ 63.9 $ 65.9 ======= ======= ======= ======= CAPITAL EXPENDITURES NMHG $ 17.7 $ 5.6 $ 42.6 $ 14.1 Housewares 4.0 3.8 13.5 13.4 NACoal .4 5.5 2.2 7.2 NACCO and Other -- -- -- .1 ------- ------- ------- ------- 22.1 14.9 58.3 34.8 Project mining subsidiaries 9.5 6.1 14.4 9.2 ------- ------- ------- ------- $ 31.6 $ 21.0 $ 72.7 $ 44.0 ======= ======= ======= =======
SEPTEMBER 30 DECEMBER 31 1998 1997 -------- -------- TOTAL ASSETS NMHG $1,047.0 $ 942.4 Housewares 368.4 315.7 NACoal 43.4 51.5 NACCO and Other 48.9 59.4 -------- -------- 1,507.7 1,369.0 Project mining subsidiaries 421.3 423.4 -------- -------- 1,929.0 1,792.4 Consolidating eliminations (50.7) (63.3) -------- -------- $1,878.3 $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 nine months ended September 30:
THREE MONTHS NINE MONTHS -------------------- ---------------------- 1998 1997 1998 1997 -------- ---------- ---------- ---------- Revenues Americas $ 261.2 $ 249.8 $ 877.6 $ 719.0 Europe, Africa and Middle East 102.5 83.5 324.6 286.0 Asia-Pacific 10.9 19.0 41.5 57.0 -------- ---------- ---------- ---------- $ 374.6 $ 352.3 $ 1,243.7 $ 1,062.0 ======== ========== ========== ========== Operating profit (loss) Americas $ 17.5 $ 14.7 $ 79.2 $ 42.5 Europe, Africa and Middle East 6.3 3.0 24.8 13.9 Asia-Pacific (.2) (.1) (.4) (1.9) -------- ---------- ---------- ---------- $ 23.6 $ 17.6 $ 103.6 $ 54.5 ======== ========== ========== ========== Operating profit (loss) excluding goodwill amortization Americas $ 19.6 $ 16.7 $ 85.1 $ 48.4 Europe, Africa and Middle East 7.2 3.9 27.5 16.6 Asia-Pacific (.2) -- (.2) (1.7) -------- ---------- ---------- ---------- $ 26.6 $ 20.6 $ 112.4 $ 63.3 ======== ========== ========== ========== Net income $ 11.9 $ 8.0 $ 58.8 $ 23.7 ======== ========== ========== ==========
NACCO MATERIALS HANDLING GROUP, INC. - continued FINANCIAL REVIEW - continued Third Quarter of 1998 Compared with Third Quarter of 1997 The following schedule identifies the components of the changes in revenues, operating profit and net income for the third quarter of 1998 compared with the third quarter of 1997:
Operating Net Revenues Profit Income -------- -------- --------- 1997 $ 352.3 $ 17.6 $ 8.0 Increase (decrease) in 1998 from: Unit volume 40.8 6.4 4.1 Sales mix (21.7) (1.0) (.7) Average sales price (.7) (.7) (.5) Service parts 6.5 2.2 1.4 Foreign currency (2.6) .3 .2 Manufacturing cost -- 4.2 2.7 Other operating expense -- (5.4) (3.4) Other income and expense -- -- 1.1 Differences between effective and statutory tax rates -- -- (1.0) -------- ------- ------- 1998 $ 374.6 $ 23.6 $ 11.9 ======== ======= =======
At NMHG, overall operating results during the third quarter of 1998 improved, compared with the same period in 1997, primarily due to increased unit volume and reduced manufacturing costs. Worldwide volume increased 14 percent to 17,759 units shipped during the third quarter of 1998 from 15,541 units shipped during the third quarter of 1997. Increased demand in the Americas and Europe, fueled by the strong economies in those regions, contributed to this volume growth. Unit shipments in Asia-Pacific, however, declined as a result of the continued weak economies in that region. Revenue growth from increased volume was partially offset by sales mix, as Demand Flow Technology ("DFT") implementation at several of NMHG's manufacturing plants temporarily restricted the company's ability to ship higher-priced trucks. While revenue from sales mix declined significantly, the rate of decline in operating profit and net income from sales mix was tempered by increased shipments of higher margin products. As a result of heightened levels of production and a slight reduction in Americas' incoming orders, the backlog declined to 18,800 units at September 30, 1998 as compared with 22,800 units at September 30, 1997 and 20,800 units at June 30, 1998. Manufacturing costs decreased in the third quarter of 1998, compared with the same period a year ago, due to reduced materials pricing and higher factory throughput resulting in increased overhead absorption. However, the benefit from these factors was somewhat offset by one-time charges associated with the implementation of DFT in several manufacturing plants. Other operating expenses increased during the third quarter of 1998 due to increased incentive compensation and costs to support sales volume growth, partially offset by employee attrition resulting from NMHG's restructuring program. NACCO MATERIALS HANDLING GROUP, INC. - continued FINANCIAL REVIEW - continued First Nine Months of 1998 Compared with First Nine Months of 1997 The following schedule identifies the components of the changes in revenues, operating profit and net income for the first nine months of 1998 compared with the first nine months of 1997:
Operating Net Revenues Profit Income -------- --------- ------ 1997 $ 1,062.0 $ 54.5 $ 23.7 Increase (decrease) in 1998 from: Unit volume 189.5 30.8 20.0 Sales mix (8.7) 9.8 6.4 Average sales price .2 .2 .1 Service parts 19.6 4.0 2.6 Foreign currency (18.9) (6.4) (4.2) Manufacturing cost -- 24.5 15.9 Other operating expense -- (13.8) (8.9) Other income and expense -- -- 1.6 Differences between effective and statutory tax rates -- -- 1.6 ---------- -------- ------- 1998 $ 1,243.7 $ 103.6 $ 58.8 ========== ======== =======
Operating results at NMHG for the first nine months of 1998 improved primarily due to a 23 percent increase in NMHG's worldwide unit volume to 57,850 units sold in the first nine months of 1998, compared with 46,975 units sold in the first nine months of 1997. The strong U.S. economy coupled with economic recovery in Europe fueled demand, resulting in increased volume. Unit volume in Asia-Pacific, however, declined due to the continuing weak economies in that region. Worldwide parts sales improved primarily due to successful 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 lift trucks denominated in the British pound sterling. 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 nine months of 1998 due to higher incentive compensation expense and other costs necessary to support sales volume growth. These increased operating expenses were slightly offset by savings from attrition of employees 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 nine months ended September 30 are as follows:
THREE MONTHS NINE MONTHS ------------ ----------- 1998 1997 1998 1997 ------- ------- ------- ------- Interest expense $ (3.7) $ (3.1) $ (10.1) $ (11.6) Other-net (.5) (1.5) 2.4 (.4) ------- ------- ------- ------- $ (4.2) $ (4.6) $ (7.7) $ (12.0) ======= ======= ======= ======= Effective tax rate 38.7% 37.5% 38.7% 44.1%
Interest expense for the three month period ended September 30, 1998 increased as compared with the same period last year primarily due to increased debt levels necessary to support increased working capital requirements and an intercompany loan to NACCO. Interest expense for the first nine months of 1998 declined as compared with the same period of 1997 due to decreased average debt levels and reduced interest rates. Other-net for the first nine months of 1998 improved due to a $4.6 million non-recurring legal settlement received in the second quarter of 1998, partially offset by losses on foreign currency transactions. The decrease in the effective tax rate for the nine months ended September 30, 1998 compared with the same period in 1997 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 nine months 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 $42.6 million during the first nine months of 1998. It is estimated that NMHG's capital expenditures for the remainder of 1998 will be approximately $33.1 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 September 30, 1998, NMHG had available $170.2 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 $43.5 million, of which $30.9 million was available at September 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:
SEPTEMBER 30 DECEMBER 31 1998 1997 -------- -------- Total net tangible assets $ 283.1 $ 188.3 Advances to parent company 16.0 -- Goodwill at cost 447.7 447.8 -------- -------- Total assets before goodwill amortization 746.8 636.1 Accumulated goodwill amortization (103.0) (94.4) Total debt (194.5) (156.8) -------- -------- Stockholders' equity $ 449.3 $ 384.9 ======== ========
Debt to total capitalization 30% 29% The increase in net tangible assets of $94.8 million primarily results from a $41.4 million increase in accounts receivable, a $31.8 million increase in inventory and a $23.4 million increase in net property, plant and equipment. The increase in accounts receivable reflects an increase in volume and a slight increase in the aging of receivables. Increased inventory reflects a build-up of inventory necessary to support increased sales volume, as well as an anticipated build-up of inventory due to the phase-in of DFT. NACCO HOUSEWARES GROUP ====================== In the second quarter of 1998, the Company began reporting the results of HB/PS and KCI on a combined basis as NACCO Housewares Group. This reporting change better reflects the closer working relationship between these two subsidiaries 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, wholly owned by NACCO, 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 NACCO Housewares Group were as follows for the three and nine months ended September 30:
THREE MONTHS NINE MONTHS ----------------- ----------------- 1998 1997 1998 1997 -------- -------- -------- -------- Revenues $ 136.8 $ 134.8 $ 348.7 $ 325.0 Operating profit $ 11.6 $ 8.8 $ 13.3 $ 7.4 Operating profit excluding goodwill amortization $ 12.4 $ 9.8 $ 15.7 $ 10.5 Net income $ 5.3 $ 3.7 $ 4.4 $ 1.0
Third Quarter of 1998 Compared with Third Quarter of 1997 The following schedule identifies the components of the changes in revenues, operating profit and net income for the third quarter of 1998 compared with the third quarter of 1997:
Operating Net Revenues Profit Income -------- ------- ------- 1997 $ 134.8 $ 8.8 $ 3.7 Increase (decrease) in 1998 from: Unit volume and sales mix 2.5 1.8 1.2 Average sales price (1.2) (1.2) (.8) Retail sales .7 .3 .2 Manufacturing cost -- 2.4 1.6 Other operating expense -- (.5) (.3) Differences between effective and statutory tax rates -- -- (.3) -------- ------- ------- 1998 $ 136.8 $ 11.6 $ 5.3 ======== ======= =======
NACCO HOUSEWARES GROUP - continued FINANCIAL REVIEW - continued Operating results at Housewares improved primarily due to improved operating results at HB/PS. A shift in HB/PS's sales mix to higher margin products, especially indoor grills, juice extractors, commercial irons and blenders, contributed favorably to net income. Unit volume also contributed slightly to the increase in revenue and net income, as units grew to 9.5 million units sold in the third quarter of 1998 from 9.4 million units sold in the third quarter of 1997. The average sales price continues to decline as competition, especially from Chinese imports, remains strong. Reduced manufacturing costs at HB/PS resulted from an increase in production at more cost-efficient Mexican plants. Revenues and net income from KCI were comparable to the prior year period. KCI operated 148 stores at September 30, 1998, compared with 144 stores on September 30, 1997. First Nine Months of 1998 Compared with First Nine Months of 1997 The following schedule identifies the components of the changes in revenues, operating profit and net income for the first nine months of 1998 compared with the first nine months of 1997:
Operating Net Revenues Profit Income -------- ------- ------ 1997 $ 325.0 $ 7.4 $ 1.0 Increase (decrease) in 1998 from: Unit volume and sales mix 25.8 7.8 5.1 Average sales price (2.6) (2.6) (1.7) Retail sales .5 .3 .2 Manufacturing cost -- 2.1 1.3 Other operating expense -- (1.7) (1.1) Differences between effective and statutory tax rates -- -- (.4) -------- ------- ------ 1998 $ 348.7 $ 13.3 $ 4.4 ======== ======= ======
Operating results at Housewares improved primarily due to improved operating results at HB/PS. Unit volume at HB/PS increased 9 percent to 24.4 million units sold in the first nine months of 1998 from 22.3 million units sold in the first nine months of 1997. Increased demand from key mass merchants, specifically for blenders, irons, indoor grills and toasters, significantly contributed to unit volume growth. A shift in sales mix to higher margin products contributed to net income, while continued price decreases due to competition from Chinese imports reduced net income. Manufacturing costs declined due to increased production at more cost-efficient Mexican plants and reduced materials costs. These reduced manufacturing expenses were partially offset by cost increases related to transferring activities to the manufacturing facility in Saltillo, Mexico, including a $3.1 million pre-tax restructuring accrual recognized in the second quarter of 1998. Operating costs for the first nine months of 1998 as compared with 1997 increased proportionately to support the increased level of sales. Revenues and net loss from KCI were comparable to the prior year period. NACCO 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 nine months ended September 30 are as follows:
THREE MONTHS NINE MONTHS ------------ ----------- 1998 1997 1998 1997 ------- ------- ------- ------- Interest expense $ (2.0) $ (1.9) $ (5.2) $ (5.3) Other-net (.1) (.1) (.3) (.1) ------- ------- ------- ------- $ (2.1) $ (2.0) $ (5.5) $ (5.4) ======= ======= ======= ======= Effective tax rate 43.5% 44.0% 43.3% 44.2%
LIQUIDITY AND CAPITAL RESOURCES Housewares' expenditures for property, plant and equipment were $13.5 million during the first nine months of 1998 and are estimated to be $6.0 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, is secured by substantially all of HB/PS's assets and expires in May 2003. This facility also provides lower interest rates if HB/PS achieves certain interest coverage ratios and allows for interest rates quoted under a competitive bid option. At September 30, 1998, HB/PS had $43.6 million available under the HB/PS Facility and $6.7 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. Subsequent to this amendment, KCI's cash requirements are financed through advances from HB/PS. Accordingly, in the third quarter of 1998, KCI terminated its external revolving credit facility. At September 30, 1998, HB/PS had advances outstanding to KCI of $6.0 million. 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. NACCO HOUSEWARES GROUP - continued LIQUIDITY AND CAPITAL RESOURCES - continued Housewares' capital structure is presented below:
SEPTEMBER 30 DECEMBER 31 1998 1997 -------- -------- Total net tangible assets $ 181.2 $ 127.8 Goodwill at cost 123.5 123.5 -------- -------- Total assets before goodwill amortization 304.7 251.3 Accumulated goodwill amortization (29.8) (27.6) Total debt (134.6) (85.8) -------- -------- Stockholder's equity $ 140.3 $ 137.9 ======== ======== Debt to total capitalization 49% 38%
Because of the seasonal nature of the Housewares business, inventory, accounts payable and debt levels of this segment routinely reach seasonal peaks during 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. See "OUTLOOK" for additional information. 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 nine months ended September 30:
THREE MONTHS NINE MONTHS ------------ ----------- 1998 1997 1998 1997 ---- ---- ---- ---- Coteau Properties 4.1 3.9 12.1 11.6 Falkirk Mining 1.9 1.7 5.0 4.8 Sabine Mining 1.2 1.2 2.6 3.0 Red River Mining .2 .3 .7 .8 San Miguel .8 1.0 2.6 1.0 --- --- ---- ---- Total Lignite 8.2 8.1 23.0 21.2 === === ==== ====
The Florida dragline operations delivered 2.1 and 6.1 million cubic yards of limerock in the three and nine months ended September 30, 1998, respectively. This compares to 2.0 and 5.6 million cubic yards delivered during the three and nine months ended September 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 nine months ended September 30:
THREE MONTHS NINE MONTHS ------------ ----------- 1998 1997 1998 1997 ------- -------- -------- -------- Revenues Project mines $ 61.3 $ 58.2 $ 171.1 $ 166.8 Other mining operations 9.8 10.3 28.9 20.1 ------- -------- -------- -------- 71.1 68.5 200.0 186.9 Royalties and other 1.2 1.7 4.7 4.1 ------- -------- -------- -------- $ 72.3 $ 70.2 $ 204.7 $ 191.0 ======= ======== ======== ======== Income before taxes Project mines $ 6.8 $ 6.3 $ 18.2 $ 17.4 Other mining operations 1.6 2.3 4.4 4.0 ------- -------- -------- -------- Total from operating mines 8.4 8.6 22.6 21.4 Royalties and other income, net .8 1.4 3.8 3.6 Other operating expenses (2.3) (1.8) (6.2) (4.8) ------- -------- -------- -------- 6.9 8.2 20.2 20.2 Provision for taxes 1.9 2.9 5.7 7.2 ------- -------- -------- -------- Net income $ 5.0 $ 5.3 $ 14.5 $ 13.0 ======= ======== ======== ========
Third Quarter of 1998 Compared with Third 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 September 30:
Income Before Net Revenues Taxes Income -------- ----- ------ 1997 $ 70.2 $ 8.2 $ 5.3 Increase (decrease) in 1998 from: Project mines Tonnage volume 2.3 .2 .1 Agreed profit per ton .3 .3 .2 Pass-through costs .5 -- -- Other mining operations Tonnage volume (1.1) (.4) (.2) Average selling price .6 .6 .4 Operating costs -- (1.2) (.8) Other expense -- .3 .2 ------- ------ ------ Changes from operating mines 2.6 (.2) (.1) Royalties and other income, net (.5) (.6) (.4) Other operating expenses -- (.5) (.3) Differences between effective and statutory tax rates -- -- .5 ------- ------ ------ 1998 $ 72.3 $ 6.9 $ 5.0 ======= ====== ======
THE NORTH AMERICAN COAL CORPORATION - continued FINANCIAL REVIEW - continued Overall, the financial results of operating mines at NACoal for the third quarter of 1998 are comparable to the same period a year ago. Improved operating results from project mines, primarily due to increased tonnage volume, were completely offset by reduced operating results from other mining operations, primarily due to decreased tonnage volume and increased operating costs. Increased operating costs due to ongoing growth initiatives and decreased royalty income contributed to the decline in net income. First Nine Months of 1998 Compared with First Nine Months of 1997 The following schedule identifies the components of the changes in revenues, income before taxes and net income for the nine months ended September 30:
Income Before Net Revenues Taxes Income -------- ------- ------- 1997 $ 191.0 $ 20.2 $ 13.0 Increase (decrease) in 1998 from: Project mines Tonnage volume .2 -- -- Agreed profit per ton .8 .8 .5 Pass-through costs 3.3 -- -- Other mining operations Tonnage volume 8.2 8.8 5.7 Average selling price .6 .6 .4 Operating costs -- (9.6) (6.2) Other expense -- .6 .4 -------- ------- ------- Changes from operating mines 13.1 1.2 .8 Royalties and other income, net .6 .2 .1 Other operating expenses -- (1.4) (.9) Differences between effective and statutory tax rates -- -- 1.5 -------- ------- ------- 1998 $ 204.7 $ 20.2 $ 14.5 ======== ======= =======
At the project mines, operating profit improved due to increased tons sold, primarily 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, which began operations in July 1997, partially offset by decreased volume at Red River. Favorable operating results from increased royalty income was offset by increased costs of ongoing growth initiatives. 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 nine months ended September 30 are as follows:
THREE MONTHS NINE MONTHS ------------ ----------- 1998 1997 1998 1997 ------- ------- ------- ------- Interest expense Project mining subsidiaries $ (3.1) $ (3.2) $ (9.4) $ (9.6) Other mining operations (.1) (.6) (.5) (1.6) ------- ------- ------- ------- $ (3.2) $ (3.8) $ (9.9) $ (11.2) ======= ======= ======= ======= Other-net Project mining subsidiaries $ .2 $ (.9) $ .8 $ -- Other mining operations (.8) (.3) (.9) (.2) ------- ------- ------- ------- $ (.6) $ (1.2) $ (.1) $ (.2) ======= ======= ======= ======= Effective tax rate 28.2% 35.5% 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 $16.6 million during the first nine months of 1998. It is estimated that NACoal's capital expenditures for the remainder of 1998 will be $8.3 million, of which $6.5 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 nine months of 1998, NACoal invested $8.8 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 $4.4 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. NACoal had $45.4 million of its revolving credit facility available at September 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:
SEPTEMBER 30 DECEMBER 31 1998 1997 ------- ------- Investment in project mining subsidiaries $ 2.7 $ 4.3 Other net tangible assets 13.6 3.4 ------- ------- Total tangible assets 16.3 7.7 Advances to parent company 3.4 21.9 Debt related to parent advances (3.4) (14.4) Other debt (1.2) (.1) ------- ------- Total debt (4.6) (14.5) ------- ------- Stockholder's equity $ 15.1 $ 15.1 ======= ======= Debt to total capitalization 23% 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 third 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 $0.9 million for the remainder of 1998. The results of operations at NACCO and Other were as follows for the three and nine months ended September 30:
THREE MONTHS NINE MONTHS ------------ ----------- 1998 1997 1998 1997 ------ ------ ------ ------ Revenues $ -- $ .1 $ .1 $ .2 Operating loss $ (2.6) $ (2.1) $ (7.7) $ (6.2) Other income (expense), net $ (.3) $ (.6) $ (.1) $ (1.5) Net loss $ (1.5) $ (2.3) $ (5.5) $ (4.9)
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, advances and management fees from its subsidiaries are the primary sources of cash for NACCO. NACCO's consolidated capital structure is presented below:
SEPTEMBER 30 DECEMBER 31 1998 1997 ---------- -------- Total net tangible assets $ 482.1 $ 328.4 Goodwill at cost 571.2 571.3 ---------- -------- Total assets before goodwill amortization 1,053.3 899.7 Accumulated goodwill amortization (132.8) (122.0) Total debt, excluding current and long-term portion of obligations of project mining subsidiaries (333.6) (257.0) Closed mine obligations (Bellaire), including the United Mine Worker retirees' medical fund, net-of-tax (77.1) (79.0) Minority interest (18.0) (16.6) ---------- -------- Stockholders' equity $ 491.8 $ 425.1 ========== ======== Debt to total capitalization 40% 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 ISSUE Year 2000 ("Y2K") issues exist because many information technology ("IT") and non-information technology ("non-IT") systems were designed to recognize years by reference to only the last two digits of the year. As a result, these systems assume the relevant year begins with "19." These systems could fail or produce erroneous information if they are not modified to recognize dates beginning with "20." State of Readiness Each of the Company's subsidiaries has developed a formal compliance plan to address the Y2K issue. The audit committee of the Board of Directors is periodically updated on the Company's progress in addressing the Y2K issue. In addition, NMHG and HB/PS have retained the services of Y2K consultants to review their respective compliance plans and identify areas where the plans may need improvement. The subsidiaries' compliance plans encompass the evaluation of IT systems and non-IT systems, as well as an assessment of third parties' compliance and the extent to which third party representations can be relied upon. Furthermore, the execution of the Company's compliance plans has been prioritized in terms of significance to the Company's ability to generate revenues, income and cash flows. The following discussion addresses IT and non-IT systems that may have a material effect on the Company's ability to generate revenues, income and cash flows. The compliance plans are categorized into one of four phases: (i) awareness, (ii) assessment, (iii) renovation, and (iv) validation and implementation (testing). YEAR 2000 ISSUE - continued IT Systems: The Company has completed its assessment of all of its IT systems and the renovation of substantially all of its IT systems. NMHG plans to complete renovation and testing of all IT systems by March 1999; HB/PS plans to complete renovation and testing of all IT systems by March 1999; and NACoal plans to complete renovation and testing of all IT systems by June 1999. Non-IT Systems: The Company's Y2K compliance plan also addresses non-IT systems with date-sensitive operating controls such as computer-controlled manufacturing and mining equipment, heating, ventilating and cooling systems, fire alarms, phone, voice mail, security and other similar systems. At NMHG, the assessment, renovation and testing of non-IT systems is targeted to be completed by July 1999. As of March 1998, all of HB/PS's computer-controlled manufacturing equipment was validated to be Y2K compliant. HB/PS plans to complete testing of its remaining non-IT systems by December 1998. At NACoal, critical computer-controlled equipment used to mine coal has been confirmed to be Y2K compliant. NACoal plans to test compliance of this critical equipment by December 1998. NACoal plans to assess its other non-IT systems by December 1998. Third Parties: The Company has contacted substantially all of its third-party, critical-component suppliers. At NMHG, supplier surveys have been returned and evaluated, indicating that approximately 70 percent of NMHG's critical suppliers will be Y2K compliant by December 1998, with the remainder targeting compliance by the end of 1999. At HB/PS, supplier surveys have been returned and evaluated, indicating that approximately 70 percent of HB/PS's critical suppliers are currently Y2K compliant or have a plan in place to be compliant by the end of 1999. The remainder of HB/PS's critical suppliers have not yet responded to the survey. The Company continues to pursue responses from those suppliers. HB/PS plans to perform tests of Y2K compliance of critical suppliers in July 1999. NACoal plans to complete the assessment of its vendors' readiness by December 1998. Most of NACoal's customers have indicated that they have a plan in place to be Y2K compliant by December 31, 1999. NACoal continues to monitor the status of its customers' Y2K compliance. In addition, the Company is in the process of contacting utility providers, financial institutions and customers to assess their Y2K readiness. Costs to Address Y2K Issues The Company received and implemented computer software upgrades, under normal maintenance agreements with third-party vendors, that enabled substantially all of the Company's IT systems to be Y2K compliant. As such, costs to address the Y2K issue have not been, and are not expected to be, material to the Company. Internal and external costs incurred to date have been approximately $3.2 million. The Company estimates an additional $2.1 million will be expended during the remainder of 1998 and 1999 relating to this issue. These costs have been and are expected to be funded by cash flows from operations. Contingency Plans Some contingency plans have been formalized, however other contingency plans continue to be formulated. Such contingency plans, both those formalized and those under discussion, include, if necessary, building a safety stock of critical components prior to January 1, 2000, requiring certain suppliers to maintain a safety stock or locating alternate suppliers that are Y2K compliant. The Company plans to replace, to the extent possible, those vendors who have not responded to surveys or have indicated "no plan in place," by September 1999. The Company plans to develop a risk assessment guide that will enable the Company to identify customers who may have cash flow troubles due to non-compliance. The Company may need to reduce the extension of credit, selling terms or amount of shipments to those customers. YEAR 2000 ISSUE - continued The Company's Y2K efforts are ongoing and its overall plan, as well as the consideration of contingency plans, will continue to evolve as new information becomes available. While the Company anticipates continuity of its business activities, that continuity will be dependent upon its ability, and the ability of third parties on which the Company relies, directly and indirectly, to be Y2K compliant. Risks of the Company's Y2K Issues Although the Company believes that it has formulated a compliance plan that will mitigate the risk that the Y2K issue will have a material adverse effect on the Company, the ultimate impact of this issue on the Company is uncertain. Suppliers' failure to deliver critical components, third-parties' failure to supply power and/or telecommunication systems to manufacturing plants or mines, or the Company's failure to complete, in a timely manner, the updating of computer-controlled manufacturing equipment could result in delayed delivery of products to customers, which could have a material adverse effect on earnings and cash flow. In addition, customers' non-compliance could result in the loss of customers or a customer's inability to purchase or pay for products, which could have a material adverse effect on earnings and cash flow. The Company has not yet finished its assessment, renovation and testing of all areas of Y2K compliance. Therefore, there can be no assurance that the Y2K issue will not have a material adverse effect on the Company's operations, results of operations or cash flows. See below under "OUTLOOK" for additional risks and uncertainties associated with Y2K compliance. EURO CONVERSION On January 1, 1999, eleven of the fifteen countries that are members of the European Union are scheduled to introduce a new currency unit called the "Euro," which will ultimately replace the national currencies of these eleven countries. The conversion rates between the Euro and the participating nations' currencies will be fixed irrevocably as of January 1, 1999, with the participating national currencies being removed from circulation between January 1, 2002 and June 30, 2002 and replaced by Euro notes and coinage. During the "transition period" from January 1, 1999 through December 31, 2001, public and private entities as well as individuals may pay for goods and services using either checks, drafts, or wire transfers denominated in Euro or the participating country's national currency. Under the regulations governing the transition to a single currency, there is a "no compulsion, no prohibition" rule which states that no one is obligated to use the Euro until the notes and coinage have been introduced on January 1, 2002. In keeping with this rule, by January 1, 1999 the Company expects to be able to (i) receive Euro denominated payments, (ii) invoice in Euro as requested by vendors and suppliers and (iii) perform appropriate conversion and rounding calculations. Full conversion of all affected country operations to the Euro is expected to be completed by the time national currencies are removed from circulation. The cost of software and business process conversion required to achieve such abilities is not expected to be material. However, there can be no assurance that the Company and its significant vendors and suppliers in the affected countries will be Euro compliant by January 1, 1999 or that any such failure to be Euro compliant will not have a material adverse effect on the Company's results of operations, financial condition or cash flows. EURO CONVERSION - continued The Company does not anticipate that the introduction and use of the Euro will materially affect the Company's foreign exchange and hedging activities or the Company's use of derivative instruments, or will have a material adverse effect on operating results or cash flows. However, the ultimate effect that the Euro will have on competition due to price transparency, foreign currency risk and third parties cannot yet be determined and may have an adverse effect, possibly material, on the Company's operations, financial condition or cash flows. The Company continues to monitor and assess the potential risks imposed by the Euro. OUTLOOK NMHG: Although industry lift truck bookings in the Americas are expected to decline moderately in the fourth quarter of 1998, the rate of unit shipments is expected to remain stable due to high backlog levels. In Europe, unit shipments are expected to remain at a level consistent with the previous three quarters in 1998. However, shipments are expected to out-pace orders, resulting in decreasing backlog levels. Industry shipments in the Asia-Pacific region are expected to decline because of continuing weak economies throughout this region. NMHG's cost reduction programs, including Value Improvement, DFT and infrastructure reorganization, are expected to continue having an increasing positive impact in 1998 and 1999. Housewares: HB/PS's new Saltillo facility is expected to continue to increase production in the fourth quarter of 1998 due to the transfer of additional toaster and motor assembly operations. Most of the cost-savings impact from Saltillo is expected to be realized in 1999. HB/PS expects competition from Chinese imports to remain strong. NACoal: NACoal's mining operations are expected to continue to provide a steady volume of lignite deliveries in the fourth quarter of 1998. NACoal's San Miguel mine will have a full year of lignite deliveries in 1998, compared with six months of operations in 1997. NACoal expects royalty income to decline moderately in the fourth quarter of 1998, compared with the fourth quarter of 1997. Development of the Red Hills lignite mine 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. 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 operates 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, (2) equipment problems that could affect lignite deliveries to customers and (3) delays and/or increased costs of construction of the Red Hills lignite mine. Y2K Compliance: (1) delays in the completion of the Company's Y2K compliance plan within the expected time frames disclosed above, (2) inability of the Company's suppliers or vendors (including utility providers and financial institutions) to be Y2K compliant when necessary, (3) inability of NACoal's customers to be Y2K compliant when necessary, (4) increased costs to address Y2K issues, (5) the Company's inability to replace vendors that are not, or that cannot give assurances that they will be, Y2K compliant, and (6) the Company's inability to formulate in a timely manner any required contingency plan that will solve or mitigate problems arising from any of the foregoing. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. Beginning with the Company's 1998 Annual Report on Form 10-K, this information will be disclosed, as required. Part II Item 1 Legal Proceedings None Item 2 Changes in Securities and Use of Proceeds None Item 3 Defaults Upon Senior Securities None Item 4 Submission of Matters to a Vote of Security Holders None Item 5 Other Information None Item 6 Exhibits and Reports on Form 8-K (a) Exhibits. See Exhibit Index on page 35 of this quarterly report on Form 10-Q. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the third quarter of 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 November 13, 1998 /s/ Kenneth C. Schilling ------------------------------ ---------------------------------- Kenneth C. Schilling Vice President and Controller Principal Financial and Accounting Officer) Exhibit Index Exhibit Number* Description of Exhibits (27) Financial Data Schedule *Numbered in accordance with Item 601 of Regulation S-K. EX-27 2 ARTICLE 5 FDS FOR 3RD QUARTER 10-Q
5 1,000,000 9-mos Dec-31-1998 Jan-01-1998 Sep-30-1998 18 0 279 0 387 721 559 530 1,878 551 0 0 0 8 484 1,878 1,797 1,797 1,440 1,440 0 0 25 116 44 71 0 0 0 71 8.68 8.66
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