-----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, FN5KHhW8U6CovMNWnQTuZ5fYKm2cHE+CfV1Q4QK9qgvXfm6008SA+zRT1I+pbqXx zcv17Kk/tvwAbfIMjwGB1A== 0000950152-97-002258.txt : 19970328 0000950152-97-002258.hdr.sgml : 19970328 ACCESSION NUMBER: 0000950152-97-002258 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NONE 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09172 FILM NUMBER: 97564954 BUSINESS ADDRESS: STREET 1: 5875 LANDERBROOK DR CITY: MAYFIELD HTS STATE: OH ZIP: 44124-4017 BUSINESS PHONE: 2164499600 10-K 1 NACCO INDUSTRIES, INC. 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 Commission File No. 1-9172 NACCO INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 34-1505819 -------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 5875 Landerbrook Drive Mayfield Heights, Ohio 44124-4017 ---------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (216) 449-9600 Securities Registered Pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- Class A Common Stock, New York Stock Exchange Par Value $1.00 Per Share Securities Registered Pursuant to Section 12(g) of the Act: Class B Common Stock, Par Value $1.00 Per Share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirement for the past 90 days. YES X NO --- --- Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of Class A Common Stock and Class B Common Stock held by non-affiliates as of February 28, 1997: $281,774,337 Number of shares of Class A Common Stock outstanding at February 28, 1997: 6,511,054 Number of shares of Class B Common Stock outstanding at February 28, 1997: 1,692,326 DOCUMENTS INCORPORATED BY REFERENCE (a) The Company's Proxy Statement for its 1997 annual meeting of stockholders is incorporated herein by reference in Part III. 2 ITEM 1. BUSINESS GENERAL NACCO Industries, Inc. ("NACCO" or the "Company") is a holding company which owns four principal operating subsidiaries: (a) NACCO MATERIALS HANDLING GROUP. The Company owns approximately 98% of the outstanding capital stock of Hyster-Yale Materials Handling, Inc. ("Hyster-Yale"), which is the parent company of NACCO Materials Handling Group, Inc. (For convenience of reference NACCO Materials Handling Group, Inc. and Hyster-Yale hereinafter referred to as "NMHG"). NMHG markets two full lines of forklift trucks and related service parts under the Hyster(R) and Yale(R) brand names. NMHG accounted for 69% and 55% of NACCO's revenues and operating profits, respectively, in 1996. (b) HAMILTON BEACH-PROCTOR-SILEX. The Company's wholly owned subsidiary, Hamilton Beach-Procter-Silex, Inc. ("Hamilton Beach-Procter-Silex"),is one of the nation's leading manufacturers and marketers of small electric kitchen appliances. Hamilton Beach-Procter-Silex accounted for 17% and 19% of NACCO's revenues and operating profits, respectively, in 1996. (c) NORTH AMERICAN COAL. The Company's wholly owned subsidiary, The North American Coal Corporation, and its affiliated coal companies (collectively, "North American Coal"), mine and market lignite for use primarily as fuel for power generation by electric utilities. North American Coal also provides dragline mining services for a limerock quarry near Miami, Florida. North American Coal accounted for 11% and 31% of NACCO's revenues and operating profits, respectively, in 1996. (d) KITCHEN COLLECTION. The Company's wholly owned subsidiary, The Kitchen Collection, Inc. ("Kitchen Collection"), is a national specialty retailer of kitchenware, small electric appliances and related accessories. Kitchen Collection accounted for 3% and 2% of NACCO's revenues and operating profits, respectively, in 1996. Additional information relating to financial and operating data on a segment basis (including NACCO and Other, which reduced operating profits by 7% in 1996) is set forth in Management's Discussion and Analysis of Results of Operations and Financial Condition, including Notes thereto, on pages 21 through 40 contained in Part II hereof and in Note 16 to the Consolidated Financial Statements on pages F-22 through F-25 contained in Part IV hereof. NACCO was incorporated as a Delaware corporation in 1986 in connection with the formation of a holding company structure for a predecessor corporation organized in 1913. SIGNIFICANT EVENTS In April 1996, Hamilton Beach-Procter-Silex announced plans to build a new facility in Mexico to increase manufacturing capacity for new and existing products. Construction on the new facility located in the Satillo/Monterey area began in May 1996 and the facility is scheduled to begin production during the second quarter of 1997. The new facility is expected to allow Hamilton Beach-Procter-Silex to compete more effectively with low-cost Chinese manufacturers. On July 31, 1996, NMHG completed the acquisition of ORMIC, S.p.a. ("Ormic"), an Italian manufacturer of warehouse equipment, with approximately $36 million in sales. In combination with the 1995 acquisition of DECA, S.r.l. ("DECA"), another Italian warehouse equipment company, this provides NMHG with a strong base of product to serve the large European warehouse equipment market. On October 18, 1996, the Company's wholly owned subsidiary, Housewares Holding Company, Inc. ("Houseware Holding"), purchased the 20 percent indirect minority ownership interest in Hamilton Beach-Procter-Silex from Glen Dimplex, an unlimited corporation incorporated in the Republic of Ireland, for $33.6 million. The Shareholders Agreement between the Company and Glen Dimplex provided Glen Dimplex with certain rights to dispose of it's interest in Hamilton Beach-Procter-Silex, including the right, at its sole option, to offer its interest to Housewares Holding at a purchase price determined pursuant to the Shareholders Agreement. As a result of this purchase, the Company now owns 100 percent of Hamilton Beach-Procter-Silex. This purchase was funded by borrowings under the Hamilton Beach-Procter-Silex credit facility, which was increased to $160 million to accommodate the purchase. On November 15, 1996, the Company announced a 1.5 million share repurchase program. The first portion of the repurchase program consisted of a "Dutch auction" issuer tender offer to purchase up to 800,000 shares of Class A common stock at a purchase price of not less than $43.50 and not greater than $50.00 per share. On December 23, 1996, the Company repurchased 800,000 shares at $50.00 per share, which represented approximately 11 percent of the outstanding Class A common stock. As a second phase of the repurchase program, the Company is further authorized to purchase an additional 700,000 shares of Class A common stock pursuant to an open market purchase program during the next two fiscal years. If fully implemented, the 2 3 shares purchased through the repurchase program would constitute approximately 21 percent of the outstanding Class A common stock prior to the initiation of the repurchase program. In December 1996, North American Coal was the successful bidder for two long-term coal mining projects, the San Miguel Lignite Project in south Texas and Phillips Coal Company's Lignite Project in Mississippi. North American Coal will provide mining services to the San Miguel Electric Cooperative, under a contract for 10 1/2 years, beginning in the third quarter of 1997. In addition, North American Coal was chosen by Phillips Coal Company to be its 25% joint venture partner to develop a new lignite mine. The joint venture agreement and the 30 year lignite sales contract between the joint venture and the power facility are currently being finalized. Commencement of the commercial operation of the facility is scheduled for the year 2000. Effective March 4, 1997, Frank B. O'Brien resigned as Senior Vice President - Corporate Development and Chief Financial Officer of the Company. BUSINESS SEGMENT INFORMATION A. NACCO MATERIALS HANDLING GROUP NMHG is one of the leading worldwide designers, manufacturers and marketers of forklift trucks which comprise the largest segment of the materials handling equipment industry. NMHG accounted for 55% and 43% of NACCO's assets and liabilities, respectively, as of December 31, 1996, while its operations accounted for 69% and 55% of NACCO's revenues and operating profits, respectively, in 1996. THE INDUSTRY Forklift trucks are used in a wide variety of business applications including manufacturing and warehousing. The materials handling industry, especially in industrialized nations, is generally a mature industry, which has historically been cyclical. Fluctuations in the rate of orders for forklift trucks reflect the capital investment decisions of the customers, which in turn depend upon the general level of economic activity in the various industries served by such customers. Since 1991, the worldwide market for forklift trucks has gradually increased to approximately 450,000 units. During this time, however, individual geographic markets have been subject to cyclicality. The North American market for forklift trucks peaked in 1995 and began a cyclical downturn in 1996. The European market reversed a declining trend in 1994, peaked in 1995 and exhibited a slight decline in 1996. The Japanese market reversed a declining trend in 1994 and has since exhibited modest growth. The market in Asia-Pacific (outside of Japan) continued steady growth in 1996. COMPANY OPERATIONS NMHG maintains product differentiation between Hyster(R) and Yale(R) brands of forklift trucks and distributes its products through separate worldwide dealer networks. Nevertheless, opportunities have been identified and addressed to improve the company's results by integrating overlapping operations and taking advantage of economies of scale in design, manufacturing and purchasing. NMHG provides all design, manufacturing and administrative functions. Products are marketed and sold through two separate dealer networks which retain the Hyster and Yale identities. In Japan, NMHG has a 50% owned joint venture with Sumitomo Heavy Industries Ltd. which is generally known as Sumitomo-NACCO Materials Handling Group ("S-N"). S-N performs certain design activities and produces lift trucks and components which it markets in Japan and which are exported for sale by NMHG and its affiliates in the U.S., Europe and Asia-Pacific. NMHG continued to expand its presence in the European market through the acquisition of Ormic, an Italian manufacturer of warehouse equipment. In combination with the 1995 acquisition of DECA, another Italian warehouse equipment company, NMHG can now provide a full line of Hyster and Yale warehouse equipment for the European market. PRODUCT LINES NMHG manufactures a wide range of forklift trucks under both the Hyster(R) and Yale(R) brand names. The principal categories of forklift trucks include electric rider, electric narrow-aisle and electric motorized hand forklift trucks primarily for indoor use and internal combustion engine ("ICE") forklift trucks for indoor or outdoor use. Forklift truck sales accounted for approximately 84%, 85% and 82% of NMHG's net sales in 1996, 1995 and 1994, respectively. NMHG also derives significant revenues from the sale of service parts for its products. Profit margins on service parts are greater than those on forklift trucks. The large population of Hyster and Yale forklift trucks now in service provides a market for service parts. In addition to parts for its own forklift trucks, NMHG has a program in North America (termed UNISOURCE(TM)) and in Europe (termed MULTIQUIP(TM)) designed to supply Hyster dealers with replacement parts for most competing brands of forklift trucks. NMHG has a similar program (termed PREMIER(TM)) for its Yale dealers in the Americas and Europe. Accordingly, NMHG dealers can offer their mixed fleet customers a "one stop" supply source. Certain of these parts are manufactured by and 3 4 purchased from third party component makers. NMHG also manufactures some of these parts through reverse-engineering of its competitors' parts. Service parts accounted for approximately 16%, 15% and 18% of NMHG net sales in 1996, 1995 and 1994, respectively. For further information on geographic regions see Note 16 to the Consolidated Financial Statements on pages F-22 through F-25 contained in Part IV hereof. COMPETITION The forklift truck industry is highly competitive. The worldwide competitive structure of the industry is fragmented by product line and country; however, the three largest manufacturers have a significantly greater market position on a unit volume basis than the other manufacturers. The principal methods of competition among forklift truck manufacturers are product performance, price, service and distribution networks. The forklift truck industry competes with alternative methods of materials handling, including conveyor systems, automated guided vehicle systems and hand labor. Global competition is also affected by a number of other factors, including currency fluctuations, variations in labor costs and effective tax rates and the costs related to compliance with applicable regulations, including export restraints, antidumping provisions and environmental regulations. Although there is no official source for information on the subject, NACCO believes that NMHG is the leading manufacturer of forklift trucks in the world, based on number of lift trucks sold. NMHG's position is strongest in North America, where it believes it is the leader in unit sales of electric rider and ICE forklift trucks and has a significant share of unit sales of electric narrow-aisle and electric motorized hand forklift trucks. Although the European market is fragmented and competitive positions vary from country to country, NMHG believes that it has a significant share of unit sales of electric rider and ICE forklift trucks in Western Europe. Although NMHG's current market share in the Asia-Pacific and Japanese markets is lower than in other geographic areas, these markets have been targeted for additional market share growth. The Japanese market reversed a declining trend in 1994 and has since exhibited modest growth. The market in Asia-Pacific (outside of Japan) continued a steady growth in 1996. TRADE RESTRICTIONS A. UNITED STATES Since June 1988, Japanese-built ICE forklift trucks imported into the U.S., with lifting capacities between 2,000 and 15,000 pounds, including finished and unfinished forklift trucks, chassis, frames and frames assembled with one or more component parts, have been subject to an antidumping duty order. Antidumping duty rates in effect through 1996 range from 4.48% to 56.81% depending on manufacturer or importer. The antidumping duty rate applicable to imports from S-N is 51.33%, and is likely to continue unchanged for the foreseeable future, unless S-N and NMHG decide to participate in proceedings to have it reduced. NMHG does not currently import for sale in the United States any forklift trucks or components subject to the antidumping duty order. This antidumping duty order will remain in effect until the Japanese manufacturers and importers satisfy the U.S. Department of Commerce (the "Commerce Department") that they have not individually sold merchandise subject to the order in the United States below foreign market value for at least three consecutive years, or unless the Commerce Department or the U.S. International Trade Commission finds that changed circumstances exist sufficient to warrant the revocation of the order. The legislation implementing the Uruguay round of GATT negotiations passed in 1994 provides that the antidumping order will be reviewed for possible revocation in 2000. All of NMHG's major Japanese competitors have either built or acquired manufacturing or assembly facilities in the United States. NMHG cannot predict with any certainty if there has been or will be any negative effects to it resulting from the Japanese sourcing of their forklift products in the United States. B. EUROPE From 1986 through 1994, Japanese forklift truck manufacturers were subject to informal export restraints on Japanese-manufactured electric rider, electric narrow-aisle and ICE forklift trucks shipped to Europe. These informal restraints terminated in 1995. Several Japanese manufacturers have announced either that they have established, or intend to establish, manufacturing or assembly facilities within the European Community. The company also cannot predict with any certainty if there has been or will be any negative effects to NMHG resulting from the Japanese sourcing of their forklift products in Europe. PRODUCT DESIGN AND DEVELOPMENT NMHG spent $23.3 million, $24.2 million and $23.2 million on product design and development activities in 1996, 1995 and 1994, respectively. The Hyster(R) and Yale(R) products are differentiated for the specific needs of their respective customer bases. NMHG continues to pursue opportunities to improve product costs by engineering new Hyster(R) and Yale(R) brand products with component commonality. Certain product design and development activities with respect to ICE forklift trucks and some components are performed in Japan by S-N. S-N spent approximately $4.2 million, $3.8 million and $4.5 million on product design and development in 1996, 1995 and 1994, respectively. 4 5 BACKLOG As of December 31, 1996, NMHG's backlog of unfilled orders for forklift trucks was approximately 11,700 units, or $219 million, of which substantially all is expected to be filled during fiscal 1997. This compares to the backlog as of December 31, 1995 of approximately 21,200 units, or $385 million. A softening of demand for forklift trucks in 1996 caused backlog levels to decline as dealers sought to reduce inventory. Backlog represents unit orders to NMHG's manufacturing plants from independent dealerships, retail customers and contracts with the U.S. Government. Although these orders are believed to be firm, such orders may be subject to cancellation or modification. SOURCES NMHG has adopted a strategy of obtaining its raw materials and principal components on a global basis from competitively priced sources. NMHG is dependent on a limited number of suppliers for certain of its critical components, including diesel and gasoline engines and cast-iron counterweights used on certain forklift trucks. There would be a material adverse effect on NMHG if it were unable to obtain all or a significant portion of such components, or if the cost of such components was to increase significantly under circumstances which prevented NMHG from passing on such increases to its customers. DISTRIBUTION The Hyster(R) and Yale(R) brand products are distributed through separate highly developed worldwide dealer networks. In addition, the company has an internal sales force for each brand to sell directly to major customers. In Japan, forklift truck products are distributed by S-N. In 1995, Yale reached agreement with Jungheinrich Aktiengesellschaft ("Jungheinrich"), a German manufacturer of forklift trucks, to terminate Jungheinrich's distribution of Yale brand products in Germany and Austria at the end of 1996. By mid-1997, NMHG will cease to provide to Jungheinrich certain ICE and electric-powered products for sale in other major European countries under the Jungheinrich brand name. Yale is establishing a new distribution network in Germany and has begun appointing German dealers. The company's management does not believe that the termination of its relationship with Jungheinrich will have a materially adverse effect on NMHG. FINANCING OF SALES Hyster U.S. dealer and direct sales of Hyster products in the U.S. are supported by leasing and financing services provided by Hyster Credit Company, a division of AT&T Commercial Finance Corporation, pursuant to an operating agreement which expires in 2000. NMHG is a 20% stockholder of Yale Financial Services, Inc., a subsidiary of General Electric Capital Corporation, which offers U.S. dealers of Yale products wholesale and retail financing and leasing services for its forklift trucks. Such retail financing and leasing services are also available to Yale national account customers. EMPLOYEES As of February 28, 1997, NMHG had approximately 6,350 employees. Employees in the Danville, Illinois manufacturing and parts depot operations are unionized, as are tool room employees located in Portland, Oregon. A three-year contract for the Danville union employees expires in June 1997. A three-year contract with the Portland tool room union expires in October 1997. Employees at the facilities in Berea, Kentucky; Sulligent, Alabama; and Greenville and Lenoir, North Carolina are not represented by unions. In Europe, shop employees in the Craigavon, Northern Ireland facility are unionized. Employees in the Irvine, Scotland and Nijmegen, The Netherlands facilities are not represented by unions. The employees in Nijmegen have organized a works council, as required by Dutch law, which performs a consultative role on employment matters. NMHG's management believes its current labor relations with both union and non-union employees are generally satisfactory and that it will be able to renew the domestic union contracts in 1997 on acceptable terms. GOVERNMENT REGULATION NMHG's manufacturing facilities, in common with others in the industry, are subject to numerous laws and regulations designed to protect the environment, particularly with respect to disposal of plant waste. NMHG's products are also subject to various industry and governmental standards. NMHG's management believes that the impact of expenditures to comply with such requirements will not have a material adverse effect on NMHG. 5 6 PATENTS, TRADEMARKS AND LICENSES NMHG is not materially dependent upon patents or patent protection. NMHG is the owner of the Hyster(R) trademark, which is currently registered in approximately 55 countries. The Yale(R) trademark, which is used on a perpetual royalty-free basis by NMHG in connection with the manufacture and sale of forklift trucks and related components, is currently registered in approximately 150 countries. NMHG's management believes that its business is not dependent upon any individual trademark registration or license, but that the Hyster(R) and Yale(R) trademarks are material to its business. FOREIGN OPERATIONS For a description of net sales and other financial information by geographic region, see footnote 16 to the Company's Consolidated Financial Statements on pages F-22 through F-25 contained in Part IV hereof. B. HAMILTON BEACH-PROCTOR-SILEX GENERAL Hamilton Beach-Procter-Silex believes that it is the largest full-line manufacturer and marketer of small electric kitchen appliances in North America based on market share of key product categories. Hamilton Beach-Procter-Silex's products are marketed primarily to retail merchants and wholesale distributors. Hamilton Beach-Procter-Silex accounted for 16% and 11% of NACCO's assets and liabilities, respectively, as of December 31, 1996, while its operations accounted for 17% and 19% of NACCO's revenues and operating profits, respectively, in 1996. SALES AND MARKETING Hamilton Beach-Procter-Silex manufactures and markets a wide range of small electric kitchen appliances, including motor driven appliances such as blenders, food processors, mixers and electric knives, and heat-generating appliances such as toasters, irons, coffeemakers and toaster ovens. The company markets its "better"/"best" categories under the Hamilton Beach(R) brand and uses the Proctor-Silex(R) brand for the "good" and "better" categories. The company markets its products primarily in North America, but also sells products in South America, Latin America, Asia and Europe. Sales are generated predominantly by a network of inside sales employees to mass merchandisers, national department stores, catalog showrooms, warehouse membership clubs, variety store chains, drug store chains and other retail outlets. Principal customers include Wal-Mart, Kmart, Target, Canadian Tire, Caldor, Montgomery Ward, Zellers and SAM's Club. Sales promotional activities are primarily focused on cooperative advertising. Because of the seasonal nature of the markets for small electric appliances, Hamilton Beach-Procter-Silex's management believes that backlog is not a meaningful indicator of performance and is not a significant indicator of annual sales. Backlog of orders as of December 31, 1996 was approximately $8.4 million. This compares with the aggregate backlog as of December 31, 1995 of approximately $4.6 million. This backlog represents customer orders; customer orders may be canceled at any time prior to shipment. Hamilton Beach-Procter-Silex's warranty program to the consumer consists generally of a limited warranty lasting for two years for electric appliances. Under its warranty program, the company may repair or replace, at its option, those products found to contain manufacturing defects. Revenues and operating profit for Hamilton Beach-Procter-Silex are traditionally greater in the second half of the year as sales of small electric appliances increase significantly with the fall holiday selling season. Because of the seasonality of purchases of its products, Hamilton Beach-Procter-Silex incurs substantial short-term debt to finance inventories and accounts receivable. PRODUCT DESIGN AND DEVELOPMENT Hamilton Beach-Procter-Silex spent $3.7 million in 1996, $3.3 million in 1995 and $2.7 million in 1994 on product design and development activities. SOURCES The principal raw materials used to manufacture and distribute Hamilton Beach-Procter-Silex's products are steel, aluminum, plastics and packaging materials. The company's management believes that adequate quantities of raw materials are available from various suppliers. COMPETITION The small electric kitchen appliance industry is highly competitive. Based on publicly available information about the industry, Hamilton Beach-Procter-Silex's management believes it is the largest full-line manufacturer and marketer of small kitchen appliances in North America based on key product categories. As retailers generally purchase a limited selection of small electric appliances, Hamilton Beach-Procter-Silex competes with other suppliers for retail shelf space and focuses its primary marketing 6 7 efforts on retailers rather than consumers. In 1996, the company also initiated consumer advertising for the Hamilton Beach brand. The company's management believes that the principal areas of competition with respect to its products are quality, price, product design, product features, merchandising, promotion and warranty. Hamilton Beach-Procter-Silex's management believes that it is competitive in all of these areas. GOVERNMENT REGULATION Hamilton Beach-Procter-Silex, in common with other manufacturers, is subject to numerous Federal and state health, safety and environmental regulations. The company's management believes that the impact of expenditures to comply with such laws will not have a material adverse effect on Hamilton Beach-Procter-Silex. The company's products are subject to testing or regulation by Underwriters' Laboratories, the Canadian Standards Association and various entities in foreign countries which review product design. PATENTS, TRADEMARKS, COPYRIGHTS, AND LICENSES Hamilton Beach-Procter-Silex holds patents and trademarks registered in the United States and foreign countries for various products. The company's management believes that its business is not dependent upon any individual patent, trademark, copyright or license, but that the Hamilton Beach(R) and Proctor-Silex(R) trademarks are material to its business. EMPLOYEES As of February 28, 1997, Hamilton Beach-Procter-Silex's work force consisted of approximately 3,700 employees, none of which is currently represented by unions except for approximately 20 hourly employees at the Picton, Ontario facility. The Picton, Ontario employees are represented by an employee association which performs a consultative role on employment matters. On January 17, 1997, a collective bargaining agreement was executed for the Saltillo manufacturing facility currently under construction. The company expects to hire approximately 300 employees within the next six months who will be subject to the terms of this agreement C. NORTH AMERICAN COAL GENERAL North American Coal is engaged in the mining and marketing of lignite for use primarily as fuel for power generation by electric utilities. Substantially all of the sales by North American Coal are made through wholly owned project mining subsidiaries pursuant to long-term, cost plus a profit per ton contracts. The utility customers have arranged and guaranteed the financing of the development and operation of the project mining subsidiaries. There is no recourse to NACCO or North American Coal for the financing of these subsidiary mines. North American Coal also provides dragline mining services for a limerock quarry near Miami, Florida. At December 31, 1996, North American Coal's operating mines consisted of mines where the reserves were acquired and developed by North American Coal, except for the South Hallsville No. 1 Mine where reserves are owned by the customer. North American Coal also earns royalty income from the lease of various coal and gas properties. For further information as to the financing of the project mining subsidiaries, see Note 8 to the Consolidated Financial Statements on pages F-15 and F-16 contained in Part IV hereof. Project mining subsidiaries accounted for 22% and 30% of NACCO's assets and liabilities, respectively, as of December 31, 1996, while their operations accounted for 11% and 31% of NACCO's revenues and operating profits, respectively, in 1996. SALES, MARKETING AND OPERATIONS The principal customers of North American Coal are electric utilities and a synfuels plant. In 1996, sales to one customer, which supplies coal to four facilities, accounted for 57% of North American Coal's revenues compared with 46% and 45% in 1995 and 1994, respectively. The distribution of sales in the last five years has been as follows:
DISTRIBUTION ------------ TOTAL TONS SOLD ELECTRIC SYNFUELS (MILLIONS) UTILITIES PLANT ---------- --------- ----- 1996 27.6 77% 23% 1995 26.7 76% 24% 1994 27.2 76% 24% 1993 26.5 75% 25% 1992 24.5 74% 26%
7 8 The contracts under which the project mining subsidiaries were organized provide that, under certain conditions of default, the customer(s) involved may elect to acquire the assets (subject to the liabilities) or the capital stock of the subsidiary, for an amount effectively equal to book value. In one case, the customer may elect to acquire the stock of the subsidiary after a specified period of time without reference to default, in exchange for certain payments on coal thereafter mined. North American Coal does not know of any conditions of default that currently exist. The location, mine type, reserve data, ore characteristics, customer, sales tonnage and contract expiration date for the mines operated by North American Coal in 1996 were as follows: 8 9 DEVELOPED LIGNITE MINING OPERATIONS -----------------------------------
PROVEN AND PROBABLE RESERVES (MILLIONS OF TONS)(1) --------------------- Committed under Project Mining Subsidiares Mine Location Type of Mine Contract Uncommitted -------------------------- ---- -------- ------------ -------- ----------- The Coteau Properties Company Freedom Mine(2) Beulah, ND Surface Lignite 526.4 ---- The Falkirk Mining Company Falkirk Mine (2) Underwood, ND Surface Lignite 566.9 ---- The Sabine Mining Company South Hallsville Hallsville, TX Surface Lignite (4) (4) No. 1 Mine (2) Other ----- Red River Mining Company (5) Oxbow Mine Coushatta, LA Surface Lignite 8.7 (6) 15.9 ---- ---- Total Developed 1,102.0 15.9 Undeveloped Mining Operations ----------------------------- North Dakota ---- ---- ---- ---- 591.2 Texas ---- ---- ---- ---- 225.8 Eastern ---- ---- ---- 86.8 106.4 ---- ----- Total Undeveloped 86.8 923.4 Total Developed/ 1,188.8 939.3 Undeveloped Average Average Sulfur 1996 Sales BTUs Content Per Unit Tonnage Contract Project Mining Subsidiares Per Pound of Weight Customer(s) (Plant) (Millions) Expires -------------------------- --------- --------- ------------------- ---------- ------- The Coteau Properties Company 6,767 0.8% Dakota Coal Company 6.3 2007(3) (Great Plains Synfuels Plant) Dakota Coal Company 5.2 2007(3) (Antelope Valley Station) Dakota Coal Company 3.2 2007(3) (Leland Olds Station) Dakota Coal Company 0.9 1997 (Stanton Station of United Power Association) The Falkirk Mining Company 6,200 0.6% United Power Association/ 7.2 2020 Cooperative Power Association (Coal Creek Station) The Sabine Mining Company (4) (4) Southwestern Electric Power 4.0 2020 Company (Henry W. Pirkey Power Plant) Other ----- Red River Mining Company (5) 6,722 0.7% Central Louisiana Electric 0.8 (7) 2010 Company/ Southwestern Electric Power Company (Dolet Hills Power Plant) Undeveloped Mining Operations ----------------------------- North Dakota 6,428 0.7% ---- ---- ---- Texas 6,208 0.9% ---- ---- ---- Eastern 12,070 3.3% ---- ---- ----
(1) The projected extraction loss is approximately ten percent (10%) of the proven and probable reserves, except with respect to the reserves for the Eastern Undeveloped Mining Operations, in which case the extraction loss is approximately thirty percent (30%) of the proven and probable reserves. (2) The contracts for these mines require the customer to cover the cost of the ongoing replacement and upkeep of the plant and equipment of the mine. (3) Although the term of the existing coal sales agreement terminates in 2007, the term may be extended for six (6) additional periods of five years, or until 2037, at the option of The Coteau Properties Company. (4) The reserves of the South Hallsville No. 1 Mine are owned and controlled by the customer and, therefore, have not been listed in the table. (5) Joint venture with Phillips Coal Company. (6) These amounts represent the total (100%) of the joint venture reserves. (7) These amounts represent the total (100%) of the 1996 joint venture tonnage. 9 10 Under terms of a lignite mining agreement entered into in 1985 with Houston Lighting & Power Company ("HL&P") (as successor to Utility Fuels, Inc.), a subsidiary of Houston Industries Incorporated, North American Coal was retained to design, develop, construct and operate the proposed Trinity Mine in the Malakoff-Cayuga reserves near Malakoff, Texas. The Trinity Mine was expected to produce from 4.5 to 6.5 million tons of lignite annually. After several delays, however, the proposed Malakoff Generating Station was canceled in July 1994. North American Coal and its wholly owned subsidiary, North American Coal Royalty Company ("Royalty Company"), have received certain management fees, minimum royalties and other payments in connection with the future development of the Trinity Mine project. In December 1992 the Lignite Lease and Sublease Agreement under which the minimum royalties were received was amended. The parties agreed that, in light of the delayed development of this mining project, effective January 1, 1993 HL&P was no longer obligated to pay minimum royalties to Royalty Company. Termination of this obligation reduces North American Coal's annual net income approximately $2.4 million, after tax. Under the original agreement, these minimum royalty payments would have terminated at the end of 2005. Under the lignite mining agreement with HL&P, North American Coal had been receiving annual management fees. HL&P accelerated payment of the final management fee of $2.6 million, after-tax, into 1995. In December 1995, HL&P also terminated the lignite mining agreement and North American Coal will no longer receive such management fees. Termination of this obligation reduces North American Coal's annual net income approximately $5.3 million, after-tax compared with 1995 levels. GOVERNMENT REGULATION North American Coal, in common with other coal producers, continues to be subject to Federal and state health, safety and environmental regulations. The 1997 expenditures which will be required for compliance with the provisions of governmental regulations, including mined land reclamation and other air and water pollution abatement requirements, are estimated at $1.8 million for certain closed mines and are included in the caption "Self-Insurance Reserves and Other" in NACCO's Consolidated Financial Statements in this Annual Report on Form 10-K. The active operations are required to make certain additional capital expenditures to comply with such governmental regulations, which expenditures will be recovered under the terms of the coal sales agreements with the utility customers. North American Coal's management believes that the Clean Air Act Amendments, which became effective in 1990, will not have a material adverse effect on its current operations, because substantially all of the power generating facilities operated or supplied by North American Coal's customers meet or exceed the requirements of the Clean Air Act. The Federal Energy Regulatory Commission ("FERC") issued Order 636, effective in May 1992, which requires gas pipeline companies to separate or "unbundle" their gas sales and gas transportation functions. Effectively, order 636 forced pipelines to abandon their traditional merchant function meaning that the nation's natural gas pipeline companies, including the four which purchase gas produced by the Great Plains Synfuels Plant ("the Synfuels Plant"), which is supplied by the company's Coteau mining subsidiary, have much less need for gas supply under contract and are actively seeking to restructure or terminate many supply contracts. In 1994, the four pipeline companies that purchase gas from the Synfuels Plant each reached a tentative settlement agreement with the plant's operator, Dakota Gasification Company ("DGC"), and the U.S. Department of Energy ("DOE") over the dispute regarding the pipeline companies' gas purchase contracts. The FERC approved these settlement agreements by order of December 18, 1996. No requests for a rehearing were filed meaning the order became final and unappealable. The settlements resolve all pricing disputes for past periods and establishes a new pricing formula for future gas sales. COMPETITION The coal industry competes with other sources of energy, particularly oil, gas, hydro-electric power and nuclear power. Among the factors that affect competition are the price and availability of oil and natural gas, environmental considerations, the time and expenditures required to develop new energy sources, the cost of transportation, the cost of compliance with governmental regulation of operations, the impact of Federal and State energy policies and the current trend toward deregulation of energy markets. The ability of North American Coal to market and develop its reserves will depend upon the interaction of these factors. There is no official source of information on the subject, but North American Coal believes that it is the eighth largest commercial coal producer in the United States. EMPLOYEES As of February 28, 1997, North American Coal had approximately 910 employees. 10 11 D. KITCHEN COLLECTION Kitchen Collection is a national specialty retailer of kitchenware, small electric appliances and related accessories which operated 144 retail stores as of February 28, 1997. Stores are located primarily in factory outlet complexes that feature merchandise of highly recognizable name-brand manufacturers. Kitchen Collection's product mix includes a broad line of appliances from leading manufacturers, including Hamilton Beach(R) and Proctor-Silex(R). As the outlet channel of the retail industry is approaching maturity, the management of Kitchen Collection continues to explore alternate areas of growth and diversification. Kitchen Collection has tested several store formats both within the outlet industry and the more traditional retail environments. Many of these formats have failed to meet the company's rigorous financial performance standards. Kitchen Collection continues to explore alternate channels of distribution, including distribution through the Internet. Kitchen Collection accounted for 1% of NACCO's assets and liabilities as of December 31, 1996, while its operations accounted for 3% and 2% of NACCO's revenues and operating profits, respectively, in 1996. ITEM 2. PROPERTIES A. NMHG The following table summarizes certain information with respect to the principal manufacturing, distribution and office facilities owned or leased by NMHG.
LOCATION OWNED LEASED FUNCTION/PRINCIPAL PRODUCTS - -------- ----- ------ --------------------------- Basingstoke, England X Hyster forklift truck marketing and sales operations for Europe, the Middle East and Africa Berea, Kentucky X Manufacture of forklift trucks Craigavon, Northern X Manufacture of forklift trucks Ireland Danville, Illinois X Manufacture of forklift trucks, components and service parts Danville, Illinois X Distribution of service parts for both Hyster and Yale forklift trucks Danville, Illinois X Hyster forklift truck marketing and sales operations for the Americas Flemington, X Yale forklift truck marketing New Jersey and sales operations for the Americas and certain NMHG engineering operations Greenville, North X Manufacture of forklift trucks Carolina and other staff operations for the Americas Irvine, Scotland X Manufacture of forklift trucks and other staff operations for the Europe Lenoir, North X Manufacture of component Carolina parts for forklift trucks Masate, Italy X Manufacture of forklift trucks Modena, Italy X Manufacture of forklift trucks Nijmegen, The X Manufacture of forklift Netherlands trucks and component parts; distribution of service parts for forklift trucks
11 12 Portland, Oregon X Technical center for testing of prototype equipment and component parts Portland, Oregon X NMHG corporate headquarters Portland, Oregon X Manufacture of production tooling and prototype units Sao Paulo, Brazil X Manufacture of forklift trucks; distribution of service parts for forklift trucks Sulligent, Alabama X Manufacture of component parts for forklift trucks Sydney, Australia X Assembly of forklift trucks; distribution of service parts for forklift trucks and staff operations for Asia- Pacific Wolverhampton, X Yale forklift truck England marketing and sales operations for Europe
B. HAMILTON BEACHPROCTOR-SILEX The following table summarizes certain information with respect to the principal manufacturing, distribution and office facilities owned or leased by Hamilton Beach-Proctor-Silex.
LOCATION OWNED LEASED FUNCTION/PRINCIPAL PRODUCTS - -------- ----- ------ --------------------------- Collierville, X Distribution center Tennessee El Paso, Texas X Distribution center Glen Allen, Virginia X Corporate headquarters Juarez, Chihuahua, X Assembly of heat driven products(two plants); Mexico plastic molding facility (one plant) Mt. Airy, North X Manufacture of heat driven products Carolina Picton, Ontario, X Distribution center Canada Southern Pines, X Manufacture of iron components; North Carolina service center for customer returns; catalog sales center; parts distribution center Toronto, Ontario, X Proctor-Silex, Canada sales Canada and administration headquarters Washington, North X Distribution and warranty center; Carolina manufacture of motor driven products; plastic molding facility Saltillo, Mexico X Manufacture of heat driven and motor products and plastic molding facility (operational second quarter of 1997)
12 13 Sales offices are also leased in several cities in the United States and Canada. C. NORTH AMERICAN COAL North American Coal's proven and probable coal reserves and deposits (owned in fee or held under leases which generally remain in effect until exhaustion of the reserves if mining is in progress) are estimated at approximately 2.1 billion tons, approximately 82% of which are lignite deposits in North Dakota. Reserves are estimates of quantities of coal, made by North American's geological and engineering staff, that are considered mineable in the future using existing operating methods. Developed reserves are those which have been allocated to mines which are in operation; all other reserves are classified as undeveloped. Information concerning mine type, reserve data and ore characteristics for North American Coal's properties are set forth on the table on page 9 under "Item 1. Business -- C. North American Coal -- Sales, Marketing and Operations." D. KITCHEN COLLECTION Kitchen Collection currently leases its corporate headquarters building, a warehouse/distribution facility and a retail store in Chillicothe, Ohio. The company also leases warehouse/distribution facilities in Chillicothe, Ohio and the remainder of its retail stores. A typical store is approximately 3,300 square feet. ITEM 3. LEGAL PROCEEDINGS Neither the Company nor any of its subsidiaries is a party to any material pending legal proceeding other than ordinary routine litigation incidental to its respective business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders of the Company. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The information under this Item is furnished pursuant to Instruction 3 to Items 401(b) of Regulation S-K. There exists no arrangement or understanding between any executive officer and any other person pursuant to which such executive officer was elected. Each executive officer serves until his successor is elected and qualified. The table on the following pages sets forth the name, age, current position and principal occupation and employment during the past five years of the Company's executive officers. 13 14
EXECUTIVE OFFICERS OF THE COMPANY NAME AGE CURRENT POSITION OTHER POSITIONS - ---- --- ---------------- --------------- Alfred M. Rankin, Jr. 55 Chairman, President, and From prior to 1992 to May 1994, Chief Executive Officer President and Chief of NACCO (since May 1994) Executive Officer of NACCO. Charles A. Bittenbender 47 Vice President, General Counsel and Secretary of NACCO (since prior to 1992) Kenneth C. Schilling 37 Controller of NACCO From July 1995 to May 1996, Manager (since June 1996) of Tax and Budgeting of NACCO. From prior to 1992 to May 1995, Manager of Tax of NACCO. J.C. Butler, Jr. 36 Manager of Corporate From May 1995 to May 1996, Manager Development and Treasurer of Corporate Development of NACCO. of NACCO (since June 1996) From prior to 1992 to 1995, Associate at McFarland Dewey & Co. (investment banking). Suzanne Schulze Taylor 34 Senior Attorney and Assistant From February 1994 to May 1996, Secretary of NACCO (since May Senior Attorney of NACCO. From 1996) prior to 1992 to February 1994, Associate at Jones, Day, Reavis & Pogue (law firm).
14 15 PRINCIPAL OFFICERS OF THE COMPANY'S SUBSIDIARIES A. NMHG
NAME AGE CURRENT POSITION OTHER POSITIONS - ---- --- ---------------- --------------- Reginald R. Eklund 56 President and Chief Executive From August 1993 to September 1993, Officer of NMHG (since Vice President of Hyster and Yale. September 1992) From September 1992 to August 1993, President and Chief Executive Officer of Hyster-Yale. From prior to 1992 to September 1992, President and Chief Operating Officer of NMHG. From prior to 1992 to August 1993, President and Chief Executive Officer of Yale. William C. Maxwell 50 Vice President, Finance and From March 1993 to August 1996, Vice Chief Financial Officer of NMHG President Finance - Europe of NMHG. (since August 1996) From prior to 1992 to February 1993, Director of Business Planning of NMHG. Julie C. Hui 40 Controller of NMHG (since From 1992 to January 1995, January 1995) Controller, Burr Brown Corporation (manufacturer of micro electronics and systems products). Geoffrey D. Lewis 39 Vice President, General From prior to 1992 to September 1995, Counsel and Secretary of Senior Vice President, General Counsel NMHG (since September 1995) and Corporate Secretary for American Health Properties, Inc. (health care facilities). Jeffrey C. Mattern 44 Treasurer of NMHG (since From August 1992, Treasurer of August 1992) Hyster and Yale. From prior to 1992 to July 1992, Assistant Treasurer for Harnischfeger Industries, Inc. (manufacturer of papermaking machinery, mining and materials handling equipment). Frank G. Muller 55 Vice President, President - From February 1993 to December Americas for NMHG (since May 1993, Vice President of Hyster and Yale. 1993) From May 1992 to May 1993, Vice President, Manufacturing, Americas for NMHG. From prior to 1992 to May 1992, Vice President, Manufacturing, Yale. Victoria L. Rickey 44 Vice President, Managing From 1993 to January 1995, Director, NMHG Europe (since Senior Vice President January 1995) International Business Group, J.I. Case (manufacturer of agricultural and construction equipment). From prior to 1992 to 1993, Vice President, Agricultural Equipment of J.I. Case. Graham D. Tribe 54 Vice President, Managing From prior to 1992 to May 1994, Director, NMHG Asia-Pacific Managing Director, Hyster (since May 1994) Australia Pty. Ltd.
15 16 PRINCIPAL OFFICERS OF THE COMPANY'S SUBSIDIARIES B. HAMILTON BEACHPROCTOR-SILEX
NAME AGE CURRENT POSITION OTHER POSITIONS - ---- --- ---------------- --------------- Richard E. Posey 50 President and Chief Executive Officer From January 1993 to June 1994, of Hamilton Beach-Procter-Silex (since Executive Vice President, Consumer September 1995) Products, North America, S.C. Johnson & Sons, Inc. (manufacturer of consumer products).From prior to 1992 to December 1992, Executive Vice President, Regional Director, Consumer Products, S.C. Johnson & Sons, Inc. Charles B. Hoyt 49 Senior Vice President - Finance From prior to 1992, Vice President - and Chief Financial Officer of Finance and Chief Financial Officer of Hamilton Beach-Procter-Silex Hamilton Beach-Procter-Silex. (since January 1997) Clark S. Leslie 63 Senior Vice President - Operations From March 1996 to December 1996, Vice of Hamilton Beach-Procter-Silex President - Operations of Hamilton Beach- (since January 1997) Proctor-Silex. From December 1993 to March 1996, General Manager, Washington, N.C. plant, Hamilton Beach-Procter-Silex. From prior to 1992 to December 1993, Senior Vice President of Operations, Esselt Pendaflex Corp. (manufacturer of office supplies). Michael J. Morecroft 54 Senior Vice President, Engineering/ From prior to 1992, Vice President. President, Product Development of Engineering/ Product Development of Hamilton Beach-Procter-Silex (since Hamilton Beach-Procter-Silex. January Hamilton 1997) Judith B. McBee 49 Senior Vice President - From October 1994 to December 1996, Marketing of Hamilton Beach- Executive Vice President - Marketing Proctor-Silex (since January 1997) of Hamilton Beach-Procter-Silex. From prior to 1992 to September 1994, Executive Vice President - Marketing/Sales of Hamilton Beach/Proctor Silex. Paul C. Smith 50 Senior Vice President - Sales From prior to 1992 to September of Hamilton Beach-Procter-Silex 1994, Vice President and General (since October 1994) Manager, Consumer Markets Division, Fuji Photo Film U.S.A. (manufacturer of photographic film). George P. Manson, Jr. 43 Vice President, General Counsel and From March 1995 to July 1996, Corporate Secretary of Hamilton Beach-Procter- Counsel of American Home Products Corp. Silex (since July 1996) (healthcare and consumer products manufacturer). From February 1994 to January 1995, Assistant General Counsel, A.T. Massey Coal Company (mining company). From prior to 1992 to December 1993, Corporate Counsel of American Home Products Corp. James H. Taylor 39 Vice President and Treasurer of Hamilton Beach-Procter-Silex (since prior to 1992)
16 17 PRINCIPAL OFFICERS OF THE COMPANY'S SUBSIDIARIES C. NORTH AMERICAN COAL
NAME AGE CURRENT POSITION OTHER POSITIONS - ---- --- ---------------- --------------- Clifford R. Miercort 57 President and Chief Executive Officer of North American Coal (since prior to 1992) Herschell A. Cashion 54 Senior Vice President - Business From prior to 1992 to August 1994, Development of North American Coal Vice President - Business (since August 1994) Development of North American Coal. Charles B. Friley 55 Vice President and Chief Financial From April 1992 to October 1994, Officer of North American Coal Senior Vice President of Phillips (since February 1995) Alaska Natural Gas Company. From prior to 1992 to April 1992, Vice President of Phillips 66 Natural Gas Company. Thomas A. Koza 50 Vice President - Law and Administration of North American Coal; Secretary of North American Coal (since prior to 1992) K. Donald Grischow 49 Controller and Treasurer of North American Coal (since prior to 1992)
17 18 PRINCIPAL OFFICERS OF THE COMPANY'S SUBSIDIARIES D. KITCHEN COLLECTION
NAME AGE CURRENT POSITION OTHER POSITIONS - ---- --- ---------------- --------------- Randall D. Lynch 49 President and Chief Executive Officer of Kitchen Collection (since prior to 1992) Randolph J. Gawelek 49 Executive Vice President and Secretary of Kitchen Collection (since prior to 1992)
18 19 PART II ITEM 5. MARKET FOR NACCO INDUSTRIES, INC. COMMON STOCK AND RELATED SECURITY HOLDERS' MATTERS NACCO Industries, Inc. Class A common stock is traded on the New York Stock Exchange under the ticker symbol NC. Because of transfer restrictions, no trading market has developed, or is expected to develop, for the Company's Class B common stock. The Class B common stock is convertible into Class A common stock on a one-for-one basis. The high and low market prices for the Class A common stock and dividends per share for both classes of stock for each quarter during the past two years are presented in the table below:
1996 -------------------------------------------- SALES PRICE ------------------- CASH HIGH LOW DIVIDEND ------ ------ ----------- First quarter $59.88 - $51.50 18.00(CENT) Second quarter $64.00 - $54.63 18.75(CENT) Third quarter $56.00 - $47.75 18.75(CENT) Fourth quarter $55.00 - $43.13 18.75(CENT) 1995 -------------------------------------------- Sales Price ------------------- Cash High Low Dividend ------ ------ ----------- First quarter $56.75 - $46.88 17.0(CENT) Second quarter $64.00 - $53.63 18.0(CENT) Third quarter $63.50 - $56.00 18.0(CENT) Fourth quarter $60.50 - $55.25 18.0(CENT)
At December 31, 1996, there were approximately 700 holders of record of Class A common stock and 500 holders of record of Class B common stock. On February 20, 1997, the Company issued 12,985 shares of Class A common stock to certain employees of the Company pursuant to the NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan (the "Plan") These shares are fully vested but are subject to a ten year restriction on transfer. The Plan is further described in footnote 1 to the table "Item 1. Election of Directors - Long-Term Incentive Plans" in the 1997 Proxy Statement. 19 20 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA NACCO Industries, Inc. and Subsidiaries
Year Ended December 31 ---------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- ---------- ---------- ----------- ---------- (In millions, except per share and employee data) Total revenues $ 2,273.2 $ 2,204.5 $ 1,864.9 $ 1,549.4 $ 1,483.8 Operating profit $ 131.2 $ 148.7 $ 129.6 $ 88.5 $ 100.8 Income before extraordinary items $ 50.6 $ 65.5 $ 45.3 $ 11.6 $ 22.9 Extraordinary items: Extraordinary gain, net-of-tax 32.3 Extraordinary charges, net-of-tax (3.4) (3.2) (3.3) (110.0) --------- ---------- ---------- ---------- ---------- Net income (loss) $ 50.6 $ 94.4 $ 42.1 $ 8.3 $ (87.1) ========= ========== ========== ========== ========== Total assets $ 1,708.1 $ 1,833.8 $ 1,694.3 $ 1,642.5 $ 1,684.9 Long-term debt $ 333.3 $ 320.2 $ 286.7 $ 357.8 $ 459.9 Stockholders' equity $ 379.3 $ 370.1 $ 279.4 $ 235.6 $ 238.3 Per share of stock: Income before extraordinary items $ 5.67 $ 7.31 $ 5.06 $ 1.30 $ 2.57 Extraordinary items: Extraordinary gain, net-of-tax 3.61 Extraordinary charges, net-of-tax (.38) (.36) (.37) (12.37) --------- ---------- ---------- ---------- ---------- Net income (loss) $ 5.67 $ 10.54 $ 4.70 $ 0.93 $ (9.80) ========= ========== ========== ========== ========== Cash dividends $ .743 $ .710 $ .675 $ .655 $ .635 Market value at December 31 $ 53.50 $ 55.50 $ 48.38 $ 51.50 $ 51.75 Stockholders' equity $ 46.34 $ 41.28 $ 31.21 $ 26.35 $ 26.67 Average shares outstanding 8.920 8.963 8.948 8.938 8.891 Total employees 11,800 12,300 11,100 10,900 10,500
20 21 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) FINANCIAL SUMMARY Income before extraordinary items for 1996 was $50.6 million, or $5.67 per share, compared with income before extraordinary items of $65.5 million, or $7.31 per share, in 1995 and $45.3 million, or $5.06 per share, in 1994. In 1995, an extraordinary gain of $32.3 million, net-of-tax, or $3.61 per share, was recognized as a result of an adjustment to the obligation to the United Mine Workers of America Combined Benefit Fund. Extraordinary charges of $3.4 million and $3.2 million net-of-tax, or $0.38 per share, and $0.36 per share, respectively, were recognized in 1995 and 1994 to reflect debt retirement and debt restructuring costs at NACCO Materials Handling Group, Inc. These extraordinary items are discussed in more detail in Note 3 to the consolidated financial statements on page F-11 and in this discussion and analysis on page 30 and page 37. Net income was $50.6 million, or $5.67 per share, in 1996, $94.4 million, or $10.54 per share, in 1995 and $42.1 million, or $4.70 per share, in 1994. The following schedule identifies the components of the changes in consolidated revenues, operating profit and net income for 1996 compared with 1995:
Operating Net Revenues Profit Income -------- ------ ------ 1995 $ 2,204.5 $ 148.7 $ 94.4 Increase (decrease) in 1996 from: NMHG 50.0 (10.9) (8.4) HB-PS 12.5 (.7) .2 NACoal 1.1 (5.5) (2.8) KCI 5.3 (.2) (.1) NACCO & Other (.2) (.2) (.6) Difference between effective and statutory tax rates (5.1) Minority interest 1.9 Extraordinary items (28.9) --------- ------- -------- 1996 $ 2,273.2 $ 131.2 $ 50.6 ========== ======= ========
SEGMENT INFORMATION NACCO Industries, Inc. ("NACCO," the parent company) has four operating subsidiaries (collectively, the "Company"): The North American Coal Corporation ("NACoal"), NACCO Materials Handling Group, Inc. ("NMHG"), Hamilton Beach-Proctor-Silex, Inc. ("HB-PS") and The Kitchen Collection, Inc. ("KCI"). These four subsidiaries function in distinct business environments, and the results of operations and financial condition are best discussed at the subsidiary level. Results by segment are summarized in Note 16 to the consolidated financial statements on pages F-22 to F-25 of this annual report. 21 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) THE NORTH AMERICAN COAL CORPORATION NACoal mines and markets lignite for use primarily as fuel for power generation by electric utilities. The lignite is surface-mined in North Dakota, Texas and Louisiana. Total coal reserves approximate 2.1 billion tons, with 1.2 billion tons committed to electric utility customers pursuant to long-term contracts. In November 1995, NACoal began providing dragline mining services ("Florida dragline operations") for a limerock quarry near Miami, Florida. The operating results for the Florida dragline operations are included in other mining operations. FINANCIAL REVIEW NACoal's three project mining subsidiaries (Coteau, Falkirk and Sabine) 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 income before taxes and net income. Lignite tons sold by NACoal's operating mines were as follows for the year ended December 31:
1996 1995 1994 -------- -------- ------- Coteau Properties 15.6 15.1 15.7 Falkirk Mining 7.2 7.1 7.3 Sabine Mining 4.0 3.7 3.4 Red River Mining .8 .8 .8 ------- ------- ------- Total lignite 27.6 26.7 27.2 ======= ======= =======
In its first full year of operations, the Florida dragline mined 7.4 million cubic yards of limerock. Revenues, income before taxes, provision for taxes and net income were as follows for the year ended December 31:
1996 1995 1994 ------- ------- -------- Revenues Project mines $ 227.8 $ 221.0 $ 226.6 Other mining operations 17.8 14.7 13.9 ------- ------- -------- 245.6 235.7 240.5 Royalties and other 3.5 12.3 9.7 ------- ------- -------- $ 249.1 $ 248.0 $ 250.2 ======= ======= ======== Income before taxes Project mines $ 25.7 $ 24.5 $ 23.6 Other mining operations 2.8 1.0 2.3 ------- ------- -------- Total from operating mines 28.5 25.5 25.9 Escrow payments 4.2 2.1 1.2 Royalty and other income, net 2.5 11.9 9.3 Headquarters expense (6.1) (6.1) (6.0) ------- ------- -------- 29.1 33.4 30.4 Provision for taxes 9.9 10.8 9.4 ------- ------- -------- Net income $ 19.2 $ 22.6 $ 21.0 ======= ======= ========
22 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) THE NORTH AMERICAN COAL CORPORATION - Continued FINANCIAL REVIEW - Continued 1996 COMPARED WITH 1995 The following schedule identifies the components of the changes in revenues, income before taxes and net income for 1996 compared with 1995:
Income Net Revenues Before Taxes Income -------- ------------ ------ 1995 $ 248.0 $ 33.4 $ 22.6 Increase (decrease) in 1996 from: Project mines Tonnage volume 9.0 .8 .6 Mix of tons sold (.2) (.2) (.1) Agreed profit per ton 1.8 .6 .4 Pass-through costs (3.8) -- -- Other mining operations Tonnage volume 2.9 3.5 2.3 Mix of tons sold .1 .1 .1 Average selling price .1 .1 .1 Operating costs -- (1.9) (1.3) -------- ------- ------- Changes from operating mines 9.9 3.0 2.1 Escrow payments -- 2.1 1.3 Royalties and other income, net (.6) (1.2) (.9) Management fees (8.2) (8.2) (5.3) Difference between effective and statutory tax rates -- -- (.6) -------- ------- ------- 1996 $ 249.1 $ 29.1 $ 19.2 ======== ======= =======
The favorable impact from tonnage volume at the project mines was due to increased volume at Coteau, Falkirk and Sabine as a result of increased customer demand. Because actual results exceeded benchmarks established in the long-term sales contracts, NACoal received profit incentive payments in the fourth quarter of 1996. These payments contributed to the increase in agreed profit per ton. In addition, the agreed profit per ton increased at Coteau due to an annual escalation of profit per ton as provided for in the long-term contract. The increase in tonnage volume and operating costs from other mining operations resulted from the Florida dragline's full year of operations in 1996 versus two months in 1995. 23 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) THE NORTH AMERICAN COAL CORPORATION - Continued The receipt in the second quarter of 1996 of the final escrow payment from the sale of a previously owned eastern U.S. underground mining property resulted in an increase in income before taxes. The decrease in royalties and other, net was due to reduced activity at former coal properties. The decrease in management fees results from the elimination of the management fee after the accelerated receipt of the final management fee in 1995 under a contract mining agreement between NACoal and a public utility company. 1995 COMPARED WITH 1994 The following schedule details the components of the changes in revenues, income before taxes and net income for 1995 compared with 1994:
Income Net Revenues Before Taxes Income -------- ------------ ------ 1994 $ 250.2 $ 30.4 $ 21.0 Increase (decrease) in 1995 from: Project mines Tonnage volume (2.3) (.4) (.3) Mix of tons sold .3 .3 .2 Agreed profit per ton 1.0 1.0 .6 Pass-through costs (4.6) -- -- Other mining operations Tonnage volume 1.8 .9 .6 Mix of tons sold 4.8 4.8 3.1 Average selling price (5.8) (5.8) (3.7) Operating costs -- (1.7) (1.1) Other income -- .5 .3 ------- ----- ------ Changes from operating mines (4.8) (.4) (.3) Escrow payments -- .9 .6 Royalties and other income, net 2.6 2.6 1.7 Headquarters expense -- (.1) (.1) Difference between effective and statutory tax rates -- -- (.3) -------- ------ ------- 1995 $ 248.0 $ 33.4 $ 22.6 ======= ====== ==+====
The level of customer fuel requirements produced lower demand at Coteau and Falkirk and higher demand at Sabine, resulting in a slight reduction in overall volume at the project mines in 1995. The favorable agreed profit per ton variance at the project mines was the result of the annual escalation in the agreed profit per ton as provided for in the long-term contracts with each mine's customer. Increased sales of base tons at Red River, which yield a higher price as specified in the supply contract, resulted in a favorable mix variance at the other mining operations. In addition, Red River signed a new agreement with its customer in 1995 that extends the contract term to 2010 in exchange for lower per-ton sales prices. This resulted in the unfavorable price variance from other mining operations. 24 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) THE NORTH AMERICAN COAL CORPORATION- Continued The increase in royalties and other income, net relates to the accelerated receipt of annual management fees under a contract mining agreement between NACoal and a public utility company. The utility company accelerated the final annual management fee payment of $2.6 million, after-tax, from 1996 into 1995. OTHER INCOME, EXPENSE AND INCOME TAXES Below is a detail of other income (expense) for the year ended December 31:
1996 1995 1994 ------- ------- ------- Interest expense Project mines $ (13.6) $ (14.0) $ (14.3) Other mining operations (.2) (1.3) (1.3) ------- ------- ------- $ (13.8) $ (15.3) $ (15.6) ======= ======= ======= Other-net Project mines $ (.1) $ 1.3 $ 1.2 Other mining operations 2.7 1.6 .7 ------- ------- ------- $ 2.6 $ 2.9 $ 1.9 ======= ======= ======= Effective tax rate 34.0% 32.4% 31.1%
The increase in other-net from other mining operations primarily relates to the receipt of the final escrow payment from the 1988 sale of a previously owned eastern underground mining property. The increase in the 1996 effective tax rate is due to the receipt of a nonrecurring tax refund in 1995. 1997 OUTLOOK In December 1996, NACoal was the successful bidder for two long-term coal mining projects, the San Miguel Lignite Project in south Texas and Phillips Coal Company's Lignite Project in Mississippi. NACoal will provide mining services to San Miguel Electric Cooperative, Inc.'s lignite mine in Texas under a contract for 10 1/2 years. NACoal expects to deliver approximately 1.8 million tons during the second half of 1997 and approximately 3.0 million tons annually through 2007. It is anticipated that NACoal's results of operations will begin to be positively impacted during the second half of 1997. Also in December 1996, NACoal was selected by Phillips Coal Company to be its 25% joint venture partner to develop a new lignite mine in Mississippi. This mine will supply a 440-megawatt power generation facility to be constructed and operated by CRSS, Inc. It is anticipated that the NACoal and Phillips Coal Company joint venture will deliver approximately 3.0 million tons of lignite annually to CRSS's facility. Mine development is in progress, and commercial operation of CRSS's facility is scheduled for the year 2000. NACoal and Phillips Coal Company are in the process of finalizing their joint venture agreement and also a lignite sales contract between the joint venture and CRSS, which will run for 30 years. Costs to develop the mine will be deferred until the commencement of commercial operations. NACoal's other lignite mines and the Florida dragline operations are expected to produce about the same number of total tons in 1997 as in 1996, as customer requirements appear level with the previous year. Sales contracts with customers at Coteau, Falkirk, Sabine and Red River extend to 2037, 2020, 2020 and 2010, respectively. 25 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) THE NORTH AMERICAN COAL CORPORATION - Continued FINANCIAL REVIEW - Continued NACoal is involved in ongoing initiatives to obtain additional mining contracts. However, the successful achievement of these contracts is uncertain at this time. Costs to pursue these contracts are not expected to be material in 1997. See discussion under the heading "CAUTIONARY STATEMENTS." LIQUIDITY AND CAPITAL RESOURCES NACoal has in place a $50.0 million revolving credit facility. The expiration date of this facility (which was extended to September 2001 during 1996) may be extended, on an annual basis, for one additional year upon the mutual consent of NACoal and the bank group. NACoal had $21.0 million of its revolving credit facility available at December 31, 1996. The outstanding balance of $29.0 million was loaned to the parent company to finance the stock repurchase program, as discussed in Note 13 to the consolidated financial statements on page F-18 of this annual report. The financing of the project mining subsidiaries, which is guaranteed by the utility customers, consists of long-term equipment leases, notes payable and non-interest-bearing advances from customers. The obligations of the project mining subsidiaries do not impact the short- or long-term liquidity of the company and are without recourse to NACCO or NACoal. These arrangements allow the project mining subsidiaries to pay dividends in amounts equal to their retained earnings. Expenditures for property, plant and equipment by the project mining subsidiaries and other mining operations were $19.5 million in 1996 and $22.5 million in 1995, and are anticipated to be approximately $31.4 million in 1997. These expenditures primarily relate to the development, establishment and improvement of the project mining subsidiaries' mines and are financed or guaranteed by the utility customers. The increase in 1997 expenditures primarily relates to costs incurred to build infrastructure, as two of the mines move into new phases of mine development. In addition, capital investments of approximately $26.0 million necessary to establish and develop the mine for the San Miguel Lignite Project are expected to be financed with operating lease agreements in 1997. 26 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) 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. In July 1996, NMHG acquired the warehouse equipment business of ORMIC S.p.a., located near Milan, Italy. ORMIC manufactures motorized hand trucks, order pickers and turret trucks. This acquisition, along with the 1995 acquisition of DECA S.r.l., another Italian warehouse equipment manufacturer, strengthened NMHG's presence in the European warehouse and distribution market. FINANCIAL REVIEW The results of operations for NMHG were as follows for the year ended December 31:
1996 1995 1994 -------- -------- -------- Revenues Americas $1,015.5 $1,002.7 $ 828.1 Europe, Africa and Middle East 451.8 422.3 289.7 Asia - Pacific 92.8 85.1 61.1 -------- -------- --------- $1,560.1 $1,510.1 $1 ,178.9 ======== ======== ========= Operating profit (loss) Americas $ 43.7 $ 48.8 $ 44.3 Europe, Africa and Middle East 32.5 34.4 15.1 Asia - Pacific (3.7) .2 5.2 -------- -------- --------- $ 72.5 $ 83.4 $ 64.6 ======== ======== ========= Operating profit (loss) excluding goodwill amortization Americas $ 51.6 $ 56.5 $ 52.2 Europe, Africa and Middle East 35.9 37.2 17.9 Asia - Pacific (3.5) .5 5.3 -------- -------- --------- $ 84.0 $ 94.2 $ 75.4 ======== ======== ========= Net income (loss) before extraordinary charges $ 26.4 $ 36.9 $ 18.7 Extraordinary charges, net-of-tax -- (3.4) (3.2) -------- -------- --------- Net income $ 26.4 $ 33.5 $ 15.5 ======== ======== =========
27 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) NACCO MATERIALS HANDLING GROUP, INC.--Continued FINANCIAL REVIEW--Continued 1996 COMPARED WITH 1995 The following schedule identifies the components of the changes in revenues, operating profit and net income for 1996 compared with 1995:
Operating Net Revenues Profit Income -------- -------- -------- 1995 $1,510.1 $ 83.4 $ 33.5 Increase (decrease) in 1996 from: Unit volume (14.4) (2.4) (1.6) Sales mix 43.4 5.9 3.8 Average sales price (4.0) (4.0) (2.6) Service parts 26.5 11.6 7.5 Foreign currency (1.5) 9.6 6.2 Manufacturing cost -- (19.7) (12.5) Other operating expense -- (11.9) (7.7) Other income and expense -- -- (1.5) Difference between effective and statutory tax rates -- -- (2.1) Extraordinary charges -- -- 3.4 -------- -------- -------- 1996 $1,560.1 $ 72.5 $ 26.4 ======== ======== ========
During 1996, the market size of forklift trucks declined approximately 3 percent on a worldwide basis. Nevertheless, NMHG obtained a slightly improved market share in 1996 over 1995. Unit volume in the Americas declined 5 percent to 47,628 units due to the decline in market size and dealer inventory reductions. This decline was partially offset by increased volume in Europe of 12 percent to 18,702 units and in Asia-Pacific of 7 percent to 3,059 units. Late 1995 and mid-1996 acquisitions of European warehouse equipment businesses principally contributed to the unit growth in Europe. Product sales mix favorably impacted revenues due to increased sales of higher value product. Intensified pricing pressures in the Americas due to decreased industry demand, slightly offset by price increases implemented in Europe, caused the unfavorable pricing impact. The improvement in service parts, concentrated in the Americas, resulted from NMHG's increasing lift truck population. Operating profit was positively affected by currency due to the strength of the U.S. dollar against the Japanese yen, as costs of Japanese sourced goods decreased. Manufacturing costs increased due to lower plant utilization and labor inefficiencies resulting from the decline in market demand. In addition, provisions to increase warranty and inventory reserves contributed to the increase in manufacturing costs. Other operating expenses increased due to higher marketing costs expended to generate sales volume and due to operating expenses of recently acquired businesses. 28 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) NACCO MATERIALS HANDLING GROUP, INC.--Continued FINANCIAL REVIEW--Continued 1995 COMPARED WITH 1994 The following schedule identifies the components of the changes in revenues, operating profit and net income for 1995 compared with 1994:
Operating Net Revenues Profit Income -------- ------ ------ 1994 $1,178.9 $ 64.6 $ 15.5 Increase (decrease) in 1995 from: Unit volume 235.0 43.0 28.0 Sales mix (7.1) (12.1) (7.9) Average sales price 57.6 57.6 37.4 Service parts 16.0 7.4 4.8 Foreign currency 26.6 (7.7) (5.0) DECA S.r.l. 3.1 .3 .2 Manufacturing cost -- (47.3) (29.1) Other operating expense -- (22.4) (14.6) Other income and expense -- -- .8 Difference between effective and statutory tax rates -- -- 3.6 Extraordinary charges -- -- (.2) -------- -------- -------- 1995 $1,510.1 $ 83.4 $ 33.5 ======== ======== ========
Unit volumes during 1995 increased 20 percent to 49,953 units in the Americas, 37 percent to 16,701 units in Europe and 54 percent to 2,859 units in Asia-Pacific when compared with 1994. The increased volumes resulted from growth in both market size and market share. The price increases announced in mid-1994 favorably impacted pricing during all of 1995, while the price increases announced in the spring of 1995 reached their full impact in the fourth quarter. These price increases were enacted to offset the raw material cost increases and currency impacts discussed below. The unfavorable sales mix resulted from a shift to certain lower-margin markets in Europe and lower-margin products in both the Americas and Europe. The strong markets in both the Americas and Europe, along with price increases in the Americas, resulted in improved results from sales of service parts. The favorable impact from currency on revenues was due to the strength of European currencies relative to the dollar. This favorable impact was offset by the strength of the yen relative to the dollar, resulting in an unfavorable impact on operating profit, particularly in the first nine months of 1995. The strong yen increased the cost of purchases sourced from Japan. During 1995, NMHG acquired DECA S.r.l., a manufacturer of European warehouse equipment located in Italy. DECA's contribution to 1995 operating results is shown separately in the above table. Increased raw materials prices and manufacturing inefficiencies caused by vendor parts shortages, the training of new employees and capacity constraints resulted in higher manufacturing costs in 1995. Increases in new product introduction and marketing programs, administrative costs and service parts distribution costs resulted in higher other operating expenses. 29 30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) NACCO MATERIALS HANDLING GROUP, INC.--Continued FINANCIAL REVIEW--Continued OTHER INCOME, EXPENSE AND INCOME TAXES Below is a detail of other income (expense) for the year ended December 31:
1996 1995 1994 ------- ------- ------- Interest expense $ (25.0) $ (25.9) $ (30.8) Other-net (1.5) .7 2.0 ------- ------- ------- $ (26.5) $ (25.2) $ (28.8) ======= ======= ======= Effective tax rate 42.5% 36.8% 47.7%
The debt restructurings carried out in 1994 through 1995 and equity infusions in 1994 reduced the level of high-cost debt. This resulted in lower overall effective interest rates that reduced interest expense in 1996 and 1995 compared with 1994. Other-net consists primarily of equity in the earnings of Sumitomo-NACCO ("S-N"), a 50 percent-owned joint venture, certain bank service fees and gains and losses on the sale of assets. In 1996, other-net included income of $1.5 million from S-N, compared with income of $2.2 million in 1995 and $0.5 million in 1994. The improved results at S-N in 1996 and 1995 as compared to 1994 were due to increasing sales volumes to NMHG and continuing manufacturing cost reductions. In 1994, other-net also included $3.2 million of employment grant income related to additional hiring at the Craigavon, Northern Ireland, facility. In 1995, NMHG reached agreements with various tax authorities resulting in non-recurring tax benefits which lowered the effective tax rate. EXTRAORDINARY CHARGES The extraordinary charges recognized in 1995 and 1994 relate to the write-off of premiums and unamortized financing fees. The 1995 extraordinary charge includes a $1.3 million charge in the first quarter for unamortized financing fees when NMHG's former revolving credit facility and senior term loan were replaced by a new long-term revolving credit facility. The retirement of $78.5 million and $70.0 million face-value Hyster-Yale 12 3/8% debentures in 1995 and 1994, respectively, resulted in charges of $2.1 million in the third quarter of 1995 and $3.2 million in 1994 due to the write-off of premiums and unamortized financing fees. These retirements were achieved using internally generated funds of NMHG and equity infusions from existing stockholders. 30 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) NACCO MATERIALS HANDLING GROUP, INC.--Continued BACKLOG NMHG's backlog of orders at December 31, 1996 was approximately 11,700 forklift truck units, compared with 21,200 units and 24,600 units at December 31, 1995 and 1994, respectively. This decrease reflects the impact of the decrease in market size, as discussed above. 1997 OUTLOOK The forklift truck industry has historically been cyclical, with industry demand fluctuating with the economic conditions in the various geographic markets in which the industry's customers operate. Based on external economic forecasts and recent factory order levels, management expects 1997 demand to decline in North America, while other world markets are expected to remain relatively stable. On a worldwide basis, the company anticipates an overall decline in demand for lift trucks. Consequently, NMHG anticipates a decrease in unit volume in 1997 as compared to 1996. Furthermore, the North American market decline may create pricing pressures and reduced plant utilization which could result in lower profitability. In 1997, NMHG will continue to strive for increased market share by focusing on certain key markets in Europe and Asia-Pacific. To moderate the effect from added pressure on margins that may result from a market decline, NMHG plans to focus on programs designed to enhance cost efficiency. One such program is Demand Flow Technology, which focuses on improving the manufacturing process. See discussion under the heading "CAUTIONARY STATEMENTS." LIQUIDITY AND CAPITAL RESOURCES NMHG had available $120.0 million of its $350.0 million revolving credit facility ("NMHG Facility") at December 31, 1996. The company entered into the NMHG Facility in 1995, to replace its former bank agreement and to refinance the majority of its previously held long-term debt. The expiration date of the NMHG Facility (which was extended to June 2001 during 1996) may be extended, on an annual basis, for one additional year upon the mutual consent of NMHG and the bank group. In addition, the NMHG Facility has performance-based pricing which sets interest rates based upon achievement of certain financial performance targets. NMHG has separate facilities totaling $35.7 million, of which $27.9 million was available at December 31, 1996. The company believes it can meet its current and long-term commitments and operating needs from operating cash flow and funds available under credit agreements. The company has agreements which allow for the sale, without recourse, of undivided interests in certain revolving pools of its trade accounts receivable. The maximum allowable amount of receivables to be sold was $75.6 million at December 31, 1996. As of December 31, 1996, $56.3 million of NMHG's trade receivables were sold and reflected as a reduction of receivables, net in the consolidated balance sheet. Expenditures for property, plant and equipment were $42.3 million in 1996 and $39.4 million in 1995, and are anticipated to be approximately $35.0 million in 1997. Planned expenditures relate to investments in manufacturing facilities, worldwide information systems and tooling for new products. Capital for these expenditures has been and is expected to be provided primarily by internally generated funds and short-term borrowings. 31 32 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) HAMILTON BEACH-PROCTOR-SILEX, INC. HB-PS, wholly owned by NACCO, is a leading manufacturer of small electric appliances. 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 increase significantly for the fall holiday selling season. On October 18, 1996, NACCO acquired the remaining 20 percent minority ownership interest in HB-PS for $33.6 million. As a result, NACCO now owns 100 percent of HB-PS, which was formed in 1990 when Proctor-Silex, Inc., which had been wholly owned by NACCO, was combined with Hamilton Beach Inc., which had been wholly owned by an Irish company. The 1996 acquisition of the minority interest was financed using borrowings under HB-PS's existing revolving credit facility, which was amended to provide borrowings up to $160.0 million. It was accounted for as a purchase. As such, the applicable goodwill was recognized and will be amortized over the remaining life of the goodwill acquired upon the formation of HB-PS. FINANCIAL REVIEW The results of operations for HB-PS were as follows for the year ended December 31:
1996 1995 1994 ------- ------- ------- Revenues $ 395.1 $ 381.4 $ 377.5 Operating profit $ 24.3 $ 25.0 $ 25.3 Operating profit excluding goodwill amortization $ 28.1 $ 27.8 $ 28.1 Net income $ 10.7 $ 11.8 $ 10.2 1996 COMPARED WITH 1995
The following schedule identifies the components of the changes in revenues, operating profit and net income for 1996 compared with 1995:
Operating Net Revenues Profit Income -------- ------ ------ 1995 $381.4 $ 25.0 $ 11.8 Increase (decrease) in 1996 from: Unit volume and sales mix 23.3 11.1 7.2 Average sales price (9.6) (9.6) (6.3) Manufacturing cost -- 5.1 3.3 Other operating expense -- (7.3) (4.7) Other income and expense -- -- .7 Difference between effective and statutory tax rates -- -- (1.3) ------ ------ ------ 1996 $395.1 $ 24.3 $ 10.7 ====== ====== ======
32 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) HAMILTON BEACH-PROCTOR-SILEX, INC.--Continued FINANCIAL REVIEW--Continued Unit volume and sales mix favorably impacted results due to a shift in the "better" and "best" categories from 46 percent of sales volume in 1995 to 49 percent of sales volume in 1996. Contributing to the favorable results were increased sales of blenders, coffeemakers, food processors and sandwich makers offset by reduced sales of toasters, irons and toaster ovens. In addition, unit volume was favorably impacted as a result of an increase in overall market share. The competitive pricing environment, due primarily to low-cost Chinese imports, continues to unfavorably affect operating results. Favorable materials pricing somewhat offset by higher overhead costs contributed to the reduction in manufacturing costs. The reduction in materials pricing includes the favorable effect of the 1995 acquisition of Plasticos Sotec de Mexico, S.A. de C.V. ("Sotec"), which supplies plastic parts to certain of HBPS's Mexican operations. Other operating expenses increased over 1995 due to additional marketing expenses relating to a national advertising campaign and additional amortization related to the 1995 acquisition of Sotec. 1995 COMPARED WITH 1994 The following schedule identifies the components of the changes in revenues, operating profit and net income for 1995 compared with 1994:
Operating Net Revenues Profit Income -------- ------ ------ 1994 $377.5 $ 25.3 $ 10.2 Increase (decrease) in 1995 from: Unit volume and sales mix 6.4 5.1 3.3 Average sales price (2.5) (2.5) (1.6) Manufacturing cost -- (.2) (.1) Other operating expense -- (2.7) (1.8) Other income and expense -- -- (.1) Difference between effective and statutory tax rates -- -- 1.9 ------ ------ ------ 1995 $381.4 $ 25.0 $ 11.8 ====== ====== ======
During 1995, the size of the domestic small electric appliance market declined approximately 4 percent. Nevertheless, HB-PS increased its market share from 27.8 percent in 1994 to 29.9 percent in 1995. Increased sales of can openers, irons, roaster ovens and coffeemakers, slightly offset by reduced sales of toasters, toaster ovens and blenders, resulted in overall higher volume. In 1995, approximately 46 percent of HB-PS's total sales volume was in the "better" and "best" product categories, compared with 43 percent in 1994. This favorable shift in sales mix resulted in improved margins on the incremental volumes in 1995. Reduced pricing on domestic products in the "better" and "best" categories was the primary cause of the unfavorable price variance. Increased selling and marketing costs as well as administrative costs caused the unfavorable impact from other operating expenses. 33 34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) HAMILTON BEACH - PROCTOR-SILEX, INC.--Continued FINANCIAL REVIEW--Continued OTHER INCOME, EXPENSE AND INCOME TAXES Below is a detail of other income (expense) for the year ended December 31:
1996 1995 1994 ------- ------- ------- Interest expense $ (6.6) $ (7.2) $ (7.5) Other-net (.3) (.8) (.3) ------- ------- ------- $ (6.9) $ (8.0) $ (7.8) ======= ======= ======= Effective tax rate 38.5% 31.0% 41.7%
Interest expense decreased in 1996 compared with 1995 and 1994 due to lower average borrowings and interest rates during 1996. The reduction in HB-PS's tax rate in 1995 is primarily due to the utilization of foreign tax credits resulting from the repatriation of foreign earnings previously taxed at a rate in excess of the U.S. statutory tax rate. 1997 OUTLOOK HB-PS expects 1997 to remain highly competitive with the overall industry growth projected to be less than 1%. However, planned introductions of new products in several categories should allow HB-PS to continue its market share growth. Growth is also expected from the significant emphasis being placed on HB-PS's commercial and international business units. In 1997, HB-PS plans to start up a new manufacturing facility in Saltillo, Mexico, which should improve HB-PS's cost position. HB-PS's national advertising program that began in 1996 is expected to continue in 1997, with continued emphasis on the Hamilton Beach brand name. See discussion under the heading "CAUTIONARY STATEMENTS." LIQUIDITY AND CAPITAL RESOURCES HB-PS's credit agreement provides for a revolving credit facility ("HB-PS Facility") that permits advances up to $160.0 million. At December 31, 1996, HB-PS had $72.1 million available under the HB-PS Facility. The expiration date of the HB-PS Facility (which was extended to May 1999 during 1996) may be extended, on an annual basis, for one additional year upon the mutual consent of HB-PS and the bank group. 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 December 31, 1996, HB-PS also had $23.9 million available under separate facilities. Expenditures for property, plant and equipment were $15.1 million in 1996, $9.7 million in 1995 and are anticipated to be approximately $19.0 million in 1997. These planned expenditures will be used primarily for the construction of a new facility in Mexico, to improve manufacturing efficiency and to acquire tooling for new and existing products. Capital for these expenditures has been and is expected to be provided primarily by internally generated funds and bank borrowings. 34 35 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) THE KITCHEN COLLECTION, INC. KCI is a national specialty retailer of kitchenware, tableware, small electric appliances and related accessories. The specialty retail business is seasonal, with the majority of its revenues and operating profit generated in the fourth quarter during the fall holiday selling season. FINANCIAL REVIEW The results of operations for KCI were as follows for the year ended December 31:
1996 1995 1994 ------- ------- ------- Number of stores 144 134 119 Revenues $ 74.9 $ 69.6 $ 63.9 Operating profit $ 3.1 $ 3.3 $ 5.4 Net income $ 1.5 $ 1.6 $ 3.1
1996 COMPARED WITH 1995 The following schedule identifies the components of the changes in revenues, operating profit and net income for 1996 compared with 1995:
Operating Net Revenues Profit Income -------- ------ ------ 1995 $ 69.6 $ 3.3 $ 1.6 Increase (decrease) in 1996 from: Stores opened in 1996 2.6 .1 -- Stores opened in 1995 3.1 .4 .2 Comparable stores (.4) -- -- Other -- (.7) (.3) -------- -------- ------- 1996 $ 74.9 $ 3.1 $ 1.5 ======== ======== =======
KCI had a net increase in new stores of 10, or approximately 8 percent, in 1996. The increased number of stores, along with a full year's operation of the 15 stores opened in 1995, resulted in increased revenues in 1996 compared with 1995. The results at comparable stores and the profitability at new stores were adversely affected by the continuing difficult factory outlet retail environment evidenced by lower levels of customer traffic in factory outlet malls. The unfavorable other variance is due to higher payroll and store rent costs. 35 36 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) THE KITCHEN COLLECTION--Continued FINANCIAL REVIEW--Continued 1995 COMPARED WITH 1994 The following schedule identifies the components of the changes in revenues, operating profit and net income for 1995 compared with 1994:
Operating Net Revenues Profit Income 1994 $ 63.9 $ 5.4 $ 3.1 Increase (decrease) in 1995 from: Stores opened in 1995 4.6 .2 .1 Stores opened in 1994 2.9 (.2) (.1) Comparable stores (1.8) (.9) (.5) Other -- (1.2) (1.0) -------- -------- ------- 1995 $ 69.6 $ 3.3 $ 1.6 ======== ======== =======
KCI had a net increase in new stores of 15, or approximately 13 percent, in 1995. The increased number of stores, along with a full year's operation of the 15 stores opened in 1994, resulted in increased revenues in 1995 compared with 1994. A difficult retailing environment in 1995 caused a decrease in customer traffic, resulting in reduced sales at comparable stores. In addition, margins were negatively impacted by this environment, along with an overall shift to lower margin products. The unfavorable variance in other was caused primarily by increased payroll related costs and store rent escalations. OTHER INCOME, EXPENSE AND INCOME TAXES Interest expense was $0.5 million, $0.5 million and $0.3 million in 1996, 1995 and 1994, respectively. KCI's effective tax rate was 42.7 percent, 41.9 percent and 40.0 percent in 1996, 1995 and 1994, respectively. 1997 OUTLOOK The retail factory outlet environment demands value pricing, a full selection of merchandise as well as efficient, courteous service. Meeting these demands puts pressure on earnings, as KCI strives to maintain low costs while providing high levels of service. Due to high levels of competition and increased employee costs, KCI does not anticipate 1997's sales growth, if any, to significantly benefit net income. To address these market conditions, KCI plans to emphasize more brand name values, offer programs that encourage repeat-customer sales and consider diversifying beyond the factory outlet malls. See discussion under the heading "CAUTIONARY STATEMENTS." LIQUIDITY AND CAPITAL RESOURCES KCI's credit agreement provides for a $5.0 million revolving credit facility ("KCI Facility"). The KCI Facility has performance-based pricing which provides for reduced interest rates based on the achievement of certain financial performance measures. At December 31, 1996, KCI had $5.0 million of its facility available. 36 37 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) THE KITCHEN COLLECTION--Continued FINANCIAL REVIEW--Continued LIQUIDITY AND CAPITAL RESOURCES--Continued Expenditures for property, plant and equipment were $1.1 million in 1996, $1.4 million in 1995 and are anticipated to be approximately $0.7 million in 1997. These expenditures are primarily for new store openings and improvements to existing facilities, and are funded by internally generated funds and short-term borrowings. 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 operations are minor, it has significant long-term liabilities related to closed mine activities, 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 amounted to $4.1 million during 1996, $3.4 million during 1995 and are anticipated to be $4.5 million in 1997. The results of operations at NACCO and Other were as follows for the year ended December 31:
1996 1995 1994 ------- ------- ------- Revenues $ .3 $ .5 $ .6 Operating loss $ (9.0) $ (8.8) $ (10.0) Other income (expense), net $ .2 $ .9 $ (.5) Loss before extraordinary items $ (5.8) $ (4.1) $ (5.2) Extraordinary gain, net-of-tax -- 32.3 -- ------- ------- ------- Net income (loss) $ (5.8) $ 28.2 $ (5.2) ======= ======= =======
The extraordinary gain in 1995 of $32.3 million, net of $19.8 million in taxes, relates to a downward revision in the obligation to the United Mine Workers of America Combined Benefit Fund ("UMWA"). This obligation was recognized by Bellaire as an extraordinary charge in 1992 to accrue for the estimated costs associated with the Coal Industry Retiree Health Benefit Act of 1992 ("Coal Act"). It is the Company's policy to periodically review the estimates and assumptions upon which various liability reserves are based. As a result of a review of the assumptions relating to the number of Company and industry covered beneficiaries ultimately assigned to Bellaire, and the trend of health care costs, the aggregate estimated costs associated with the Coal Act are expected to be lower than originally anticipated. Management believes that the liability, revised to $69.3 million, net of $33.3 million of deferred taxes, in 1995, more accurately represents the future cost of this obligation. 37 38 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) NACCO AND OTHER--Continued 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 seven years. The Company evaluates its exposure to floating rate debt on an ongoing basis. The notional amounts, fixed rates paid and remaining duration of these swaps for each subsidiary are included in Note 11 to the consolidated financial statements on page F-17 of this annual report. ENVIRONMENTAL MATTERS The Company's manufacturing operations, like those of other companies engaged in similar businesses, involve the use, disposal and cleanup of substances regulated under environmental protection laws. The Company's NACoal subsidiary is affected by the regulations of agencies under which it operates, particularly the Federal Office of Surface Mining, the United States Environmental Protection Agency and associated state regulatory authorities. In addition, NACoal is attentive to any changes which may arise due to proposed legislation concerning the Clean Air Act Amendments of 1990, reauthorization of the Resource Conservation and Recovery Act, the Clean Water Act, the Endangered Species Act and other regulatory actions. Compliance with these increasingly stringent standards results in higher expenditures for both capital improvements and operating costs. The Company's policies stress environmental responsibility and compliance with these regulations. Based on current information, management does not expect compliance with these regulations to have a material adverse effect on its financial condition or results of operations. NACCO has not yet adopted AICPA Statement of Position 96-1 ("SOP 96-1"), "Environmental Remediation Liabilities." SOP 96-1 provides guidance on the recognition and measurement of environmental remediation liabilities incurred as a result of threatened litigation or actual assessment. The Company does not expect the adoption of this statement, which is required in fiscal 1997, to have a material impact on its financial position or results of operations. LIQUIDITY AND CAPITAL RESOURCES Although the subsidiaries have entered into substantial debt agreements, NACCO has not guaranteed the long-term debt or any borrowings of its subsidiaries. The debt agreements of HB-PS and KCI allow for the payment of dividends to NACCO under certain circumstances. The revised credit agreement, entered into in 1995 by NMHG, allows the transfer of up to $25.0 million to NACCO. There have not yet been any such transfers. There are no restrictions on the transfer of assets from NACoal. Dividends and advances from NACoal, HB-PS and KCI are the primary source of cash for NACCO. The Company believes it can adequately meet all of its current and long-term commitments and operating needs. This outlook stems from amounts available under revolving credit facilities and the utility customers' funding of the project mining subsidiaries. 38 39 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) NACCO AND OTHER--Continued EFFECTS OF FOREIGN CURRENCY AND INFLATION NMHG and HB-PS operate internationally and enter into transactions denominated in foreign currencies. As a result, the Company is subject to the transaction exposures that arise from exchange rate movements between the dates foreign currency transactions are recorded and the dates they are consummated. The effects of foreign currency on revenues, operating income and net income at NMHG are discussed above. At HB-PS, foreign currency effects had an immaterial impact on operating results year over year. 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 company to buy or sell Japanese yen, Australian dollars, Canadian dollars or various European currencies for the U.S. dollar at rates agreed to at the inception of the contracts. Gains and losses from changes in the market value of these contracts are deferred and recognized as part of the transaction being hedged. The Company believes that inflation has not materially affected its results of operations in 1996 and does not expect inflation to be a significant item in 1997. CAUTIONARY STATEMENTS The statements contained in "Management's Discussion and Analysis of Results of Operations and Financial Condition" and elsewhere throughout this Form 10-K that are not historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are made subject to certain risks and uncertainties which could cause results to differ materially from those presented in those forward-looking statements. Such risks and uncertainties with respect to each subsidiary's operations include without limitation: NACOAL: (1) weather conditions or other events that would reduce the level of customers' fuel requirements, (2) transitional issues in assuming the management of the San Miguel Lignite project and (3) the uncertainty of receiving incentive payments under certain of its mining contracts comparable to the level of payments received in 1996. NMHG: (1) changes in sales price and demand for forklift trucks and related service parts, (2) delays in delivery or increased pricing of raw materials or sourced products and labor, scheduling and transportation difficulties, (3) product liability or other litigation, warranty claims or other returns of products, (4) exchange rate fluctuations, changes in the foreign import tariffs or monetary policies and other changes in the regulatory climate in the foreign countries in which NMHG operates and/or sells products. HB-PS: (1) delays or increased costs in the start-up of the operations in Saltillo, Mexico, (2) bankruptcy of or loss of major retail customers, (3) product liability and other litigation, (4) changes in the sales price, product mix or levels of consumer purchasing of small electric appliances and (5) exchange rate fluctuations, changes in foreign import tariffs or monetary policies and other changes in the regulatory climate in the foreign countries in which HB-PS operates and/or sells products. 39 40 MANAGEMENT'S DISCUSSION AND ANALYSIS FO RESULTS OF OPERATIONS AND FINANCIAL CONDITION NACCO INDUSTRIES, INC. AND SUBSIDIARIES--Continued (Tabular Amounts in Millions, Except Per Share, Unit, Store and Percentage Data) NACCO AND OTHER--Continued KCI: (1) weather conditions which would reduce the number of customers visiting the stores, (2) changes in the sales price, product mix or level of consumer purchasing of kitchenware and small electric appliances and (3) delays in delivery or increased pricing of sourced products. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item 8 is set forth at pages F-1 through F-34 of the Financial Statements and Supplementary Data contained in Part IV hereof. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to Directors of the Company is set forth in the 1997 Proxy Statement under the heading "Business to be Transacted -- 1. Election of Directors," and "Section 16(a) Beneficial Ownership Reporting Compliance," which information is incorporated herein by reference. Information regarding the executive officers of the Company is included as Item 4A of Part I as permitted by Instruction 3 to Item 401(b) of Regulation S-K. ITEM 11. EXECUTIVE COMPENSATION Information with respect to executive compensation is set forth in the 1997 Proxy Statement under the headings "Business to be Transacted -- 1. Election of Directors -- "Compensation of Executive Officers," which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information with respect to security ownership of certain beneficial owners and management is set forth in the 1997 Proxy Statement under the heading "Business to be Transacted -- 1. Election of Directors -- Beneficial Ownership of Class A Common and Class B Common," which information is incorporated herein by reference. 40 41 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information with respect to certain relationships and related transactions is set forth in the 1997 Proxy Statement under the heading "Business to be Transacted -- 1. Election of Directors -- Compensation Committee Interlocks and Insider Participation," which information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) and (2) The response to Item 14(a)(1) and (2) is set forth beginning at page F-1 of this Annual Report on Form 10-K included in Exhibit 13. (a) (3) Listing of Exhibits -- See the exhibit index beginning at page X-1 of this Annual Report on Form 10-K. (b) The Company has not filed any current reports on Form 8-K during the fourth quarter of 1996. (c) The response to Item 14(c) is set forth beginning at page X-1 of this Annual Report on Form 10-K. (d) Financial Statement Schedules -- The response to Item 14(d) is set forth beginning at page F-30 of this Annual Report on Form 10-K included in Exhibit 13. 41 42 SIGNATURES ---------- Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. NACCO Industries, Inc. By: /s/ Kenneth C. Schilling ------------------------------- Kenneth C. Schilling Controller (principal financial and accounting officer) March 27, 1997 42 43 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/Alfred M. Rankin, Jr. Chairman, President and March 27, 1997 - --------------------------- Chief Executive Officer Alfred M. Rankin, Jr. (principal executive officer), Director /s/Kenneth C. Schilling Controller (principal March 27, 1997 - --------------------------- financial and accounting Kenneth C. Schilling officer) * Owsley Brown II Director March 27, 1997 - -------------------------- Owsley Brown II * John J. Dwyer Director March 27, 1997 - -------------------------- John J. Dwyer * Robert M. Gates Director March 27, 1997 - -------------------------- Robert M. Gates * Leon J. Hendrix, Jr. Director March 27, 1997 - -------------------------- Leon J. Hendrix, Jr. * Dennis W. LaBarre Director March 27, 1997 - -------------------------- Dennis W. LaBarre * Ian M. Ross Director March 27, 1997 - -------------------------- Ian M. Ross * John C. Sawhill Director March 27, 1997 - -------------------------- John C. Sawhill * Britton T. Taplin Director March 27, 1997 - -------------------------- Britton T. Taplin * David F. Taplin Director March 27, 1997 - -------------------------- David F. Taplin *Kenneth C. Schilling, by signing his name hereto, does hereby sign this Annual Report on Form 10-K on behalf of each of the above named and designated officers and directors of the Company pursuant to a Power of Attorney executed by such persons and filed with the Securities and Exchange Commission. /s/ Kenneth C. Schilling - ------------------------ Kenneth C. Schilling, Attorney-in-Fact March 27, 1997
43 44 EXHIBIT INDEX (3) Articles of Incorporation and By-laws. (i) Restated Certificate of Incorporation of the Company is incorporated by reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Commission File Number 1-9172. (ii) Restated By-laws of the Company are incorporated by reference to Exhibit 3(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Commission File Number 1-9172. (4) Instruments defining the rights of security holders, including indentures. (i) The Company by this filing agrees, upon request, to file with the Securities and Exchange Commission the instruments defining the rights of holders of Long-Term debt of the Company and its subsidiaries where the total amount of securities authorized thereunder does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. (ii) The Mortgage and Security Agreement, dated April 8, 1976, between The Falkirk Mining Company (as Mortgagor) and Cooperative Power Association and United Power Association (collectively as Mortgagee) is incorporated by reference to Exhibit 4(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Commission File Number 1-9172. (iii) Intentionally left blank. (iv) Stockholders' Agreement, dated as of March 15, 1990, among the signatories thereto, the Company and Ameritrust Company National Association, as depository, is incorporated herein by reference to Exhibit 2 to the Schedule 13D filed on March 29, 1990 with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc. (v) Amendment to Stockholders' Agreement, dated as of April 6, 1990, among the signatories thereto, the Company and Ameritrust Company National Association, as depository, is incorporated herein by reference to Exhibit 4 to the Amendment No. 1 of the Schedule 13D filed on April 11, 1990 with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc. (vi) Amendment to Stockholders' Agreement, dated as of April 6, 1990, among the signatories thereto, the Company and Ameritrust Company National Association, as depository, is incorporated herein by reference to Exhibit 5 to the Amendment No. 1 of the Schedule 13D filed on April 11, 1990 with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc. (vii) Amendment to Stockholders' Agreement, dated as of November 17, 1990, among the signatories thereto, the Company and Ameritrust Company National Association, as depository, is incorporated herein by reference to the Amendment No. 2 of the Schedule 13D filed on March 18, 1991 with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc. (viii) Amendment to Stockholders' Agreement, dated November 14, 1996, adding CTR Family Associates, L.P. as a Participating Stockholder, among the signatures thereto, the Company and Key Bank, N.A. (successor to Ameritrust Company National Association), as depository, is incorporated herein by reference to Amendment No. 3 of the Schedule 13D filed on November 26, 1996, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc. (ix) Amendment to Stockholders' Agreement, dated as of November 14, 1996, adding Rankin Management, Inc. as a Participating Stockholder, among the signatories thereto, the Company and Key Bank, N.A. (successor to Ameritrust Company National Association), as depository, is incorporated herein by reference to Amendment X-1 45 No. 3 of the Schedule 13D filed on November 26, 1996, with respect to the Class B Common Stock, par value $1.00 per share, of NACCO Industries, Inc. (10) Material contracts. *(i) The NACCO Industries, Inc. 1975 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. *(ii) Form of Incentive Stock Option Agreement for incentive stock options granted before 1987 under The NACCO Industries, Inc. 1975 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. *(iii) Form of Incentive Stock Option Agreement for incentive stock options granted after 1986 under The NACCO Industries, Inc. 1975 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(iii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. *(iv) Form of Non-Qualified Stock Option Agreement under The NACCO Industries, Inc., 1975 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(iv) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. *(v) The NACCO Industries, Inc. 1981 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(v) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. *(vi) Form of Non-Qualified Stock Option Agreement under The NACCO Industries, Inc. 1981 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(vi) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. *(vii) Form of Incentive Stock Option Agreement for incentive stock options granted before 1987 under The NACCO Industries, Inc. 1981 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(vii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. *(viii) Form of Incentive Stock Option Agreement for incentive stock options granted after 1986 under The NACCO Industries, Inc. 1981 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(viii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. *(ix) The Retirement Benefit Plan for Alfred M. Rankin, Jr., effective as of January 1, 1994 is incorporated herein by reference to Exhibit 10 (ix) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. Commission File Number 1-9172. *(x) Amendment No. 1 to the Retirement Benefit Plan for Alfred M. Rankin, Jr., dated as of March 15, 1995, is incorporated herein by reference to Exhibit 10 (x) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. Commission File Number 1-9172. X-2 46 *(xi) Instrument of Adoption and Merger for NACCO Industries, Inc. for the NACCO Materials Handling Group, Inc. Unfunded Benefit Plan (As Amended and Restated Effective October 1, 1994) dated December 30, 1994, is incorporated herein by reference to Exhibit 10(xxii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. Commission File Number 1-9172. *(xii) Instrument of Withdrawal and Transfer of Liabilities from The North American Coal Corporation Deferred Compensation Plan for Management Employees, effective as of December 31, 1994, is incorporated herein by reference to Exhibit 10(xxiii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. Commission File Number 1-9172. *(xiii) NACCO Industries, Inc. Annual Incentive Compensation Plan, effective as of January 1, 1996, is incorporated herein by reference to as Exhibit 10(xiii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 Commission File Number 1-9172. *(xiv) NACCO Industries, Inc. Supplemental Annual Incentive Compensation Plan, effective as of January 1, 1996, is incorporated herein by reference to Exhibit 10(xiv) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 Commission File Number 1-9172.. *(xv) NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan, amended and restated as of January 1, 1996, is attached incorporated herein by reference to Exhibit 10(xv) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. Commission File Number 1-9172. (xvi) Assumption Agreement, made as of December 20, 1991, between the Company and Citicorp North America, Inc., as agent is incorporated herein by reference to Exhibit 10(xciii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. (xvii) intentionally left blank. *(xviii) NACCO Industries, Inc. Non-Employee Directors' Equity Compensation Plan, effective January 1, 1992, is incorporated by reference to Exhibit 10(cxi) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Commission File Number 1-9172. *(xix) Amendment No. 2 to the Retirement Benefit Plan for Alfred M. Rankin, Jr. (as amended and restated effective January 1, 1994) dated June 30, 1995 is incorporated herein by reference to Exhibit 10 (clxxi) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. Commission File Number 1-9172. *(xx) NACCO Industries, Inc. Annual Incentive Compensation Plan, effective as of January 1, 1997, is attached hereto as Exhibit 10(xx). *(xxi) NACCO Industries, Inc. Supplemental Annual Incentive Compensation Plan Guidelines, effective as of January 1, 1997, is attached hereto as Exhibit 10(xxi). (xxii) - (xxx) Intentionally left blank. *(xxxi) The North American Coal Annual Incentive Plan, effective as of January 1, 1996, is incorporated herein by reference to Exhibit 10(xxxi) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Commission File Number 1-9172. *(xxxii) Instrument of Merger, Amendment and Transfer of Sponsorship of Benefit Plans, effective as of August 31, 1994, is incorporated herein by reference to Exhibit 10(xxviii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. Commission File Number 1-9172. X-3 47 (xxxiii) Credit Agreement, dated as of September 27, 1991, among the North American Coal Corporation, Citibank, N.A., Ameritrust Company National Association and Morgan Guaranty Trust Company of New York, as agent is incorporated herein by reference to Exhibit 10(xcii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. (xxxiv) Subordination Agreement, dated September 27, 1991, among The North American Coal Corporation, the Company and Morgan Guaranty Trust Company of New York, as agent, is incorporated herein by reference to Exhibit 10(xciv) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. *(xxxv) The North American Coal Corporation Value Appreciation Plan, as amended on March 11, 1992 is incorporated herein by reference to Exhibit 10(xcviii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172. *(xxxvi) Amendment No. 1 to The North American Coal Corporation Value Appreciation Plan, dated as of December 14, 1994, is incorporated herein by reference to Exhibit 10(xcix) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. Commission File Number 1-9172. (xxxvii) Intentionally left blank. (xxxviii) Amendment No. 1 to the Credit Agreement dated as of July 28, 1993 among The North American Coal Corporation and the banks listed on the signatory pages and Morgan Trust Company of New York, as Agent is incorporated herein by reference to Exhibit 10(cxxxxiii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, Commission File Number 1-9172. (xxxix) Amendment No. 2 to the Credit Agreement dated as of September , 1995 among The North American Coal Corporation and the banks listed on the signatory pages and Morgan Trust Company of New York, as Agent is incorporated herein by reference to Exhibit 10(xxxix) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. Commission File Number 1-9172. *(xl) The North American Coal Corporation Supplemental Retirement Benefit Plan as amended and restated effective September 1, 1994 is incorporated by reference to Exhibit 10 (clxv) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, Commission File Number 1- 9172. *(xli) The North American Coal Corporation Deferred Compensation Plan for Management Employees (as amended and restated effective January 1, 1996), is incorporated herein by reference to Exhibit 10(xli) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 Commission File Number 1-9172. *(xlii) Amendment No. 1, dated December 1, 1995, to The North American Coal Corporation Supplemental Retirement Benefit Plan (as amended and restated effective September 1, 1994), effective as of December 31, 1994, is incorporated herein by reference to Exhibit 10 (xlii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. Commission file Number 1-9172. (xliii) Amendment No. 3 to the Credit Agreement dated as of September 16, 1996 among North American Coal Corporation and the banks listed on the signatory pages and Morgan Trust Company of New York, as Agent, is attached hereto as Exhibit 10 (xliii). *(xliv) Amendment No. 1, dated December 9, 1996, to The North American Coal Corporation Deferred Compensation Plan for Management Employees (as amended and restated effective January 1, 1996) is attached hereto as Exhibit 10(xliv). *(xlv) The North American Coal Annual Incentive Plan, effective as of January 1, 1997, is attached hereto as Exhibit 10(xlv). X-4 48 (xlvi) Waiver Agreement dated November 15, 1997 by and among Morgan Guaranty Trust Company, Citibank, N.A., Wells Fargo (Texas), N.A., Key Bank National Association and The North American Coal Corporation. (xlvii) - (liii) Intentionally left blank. *(liv) Amendment No. 1 to the Hyster-Yale Long-Term Incentive Compensation Plan, effective as of January 1, 1994, is incorporated herein by reference to Exhibit 10(lxxxviii) to the Hyster-Yale Annual Report on Form 10-K for the fiscal year ended December 31, 1994, Commission File Number 33-28812. (lv) Agreement and Plan of Merger, dated as of April 7, 1989, among NACCO Industries, Inc., Yale Materials Handling Corporation, Acquisition I, Esco Corporation, Hyster Company and Newesco, is incorporated herein by reference to Exhibit 2.1 to Hyster-Yale Materials Handling, Inc.'s Registration Statement on Form S-1 filed May 17, 1989 (Registration Statement Number 33-28812). (lvi) Agreement and Plan of Merger, dated as of April 7, 1989, among NACCO Industries, Inc., Yale Materials Handling Corporation, Acquisition II, Hyster Company and Newesco, is incorporated herein by reference to Exhibit 2.2 to Hyster-Yale Materials Handling, Inc.'s Registration Statement on Form S-1 filed May 17, 1989 (Registration Statement Number 33-28812). (lvii) Amendment to the Third Amended and Restated Operating Agreement, dated as of January 31, 1990, between Hyster Company and AT&T Commercial Finance Corporation is incorporated herein by reference to Exhibit 10(xlvii) to the Hyster-Yale Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 33-28812. *(lviii) NACCO Materials Handling Group, Inc. Annual Incentive Compensation Plan for 1996 is incorporated herein by reference to Exhibit 10(lviii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. Commission File Number 1-9172. *(lix) Hyster-Yale Materials Handling, Inc. Long-Term Incentive Compensation Plan, dated as of January 1, 1990, is incorporated herein by reference to Exhibit 10(lxxxix) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. (lx) Amendment to the Third Amended and Restated Operating Agreement, dated as of November 7, 1991, between Hyster Company and AT&T Commercial Finance Corporation is incorporated herein by reference to Exhibit 10(1) to the Hyster-Yale Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 33-28812. (lxi) Agreement and Plan of Merger dated as of December 20, 1993, between Hyster Company, an Oregon corporation, and Hyster Company, a Delaware corporation, is incorporated herein by reference to Exhibit 10(lxxviii) to Hyster-Yale Annual Report on Form 10-K for the fiscal year ended December 31, 1993, Commission File Number 33-28812. *(lxii) Agreement and Plan of Merger dated as of December 20, 1993, between Yale Materials Handling Corporation, a Delaware corporation, Hyster Company, a Delaware corporation, and Hyster-Yale Materials Handling, Inc., a Delaware corporation, is incorporated herein by reference to Exhibit 10(lxxix) to Hyster-Yale Annual Report on Form 10-K for the fiscal year ended December 31, 1993, Commission File Number 33-28812. *(lxiii) NACCO Materials Handling Group, Inc. Annual Incentive Plan, effective as of January 1, 1997, is attached hereto as Exhibit 10(lxiii). (lxiv) Intentionally left blank. (lxv) Intentionally left blank. X-5 49 *(lxvi) Amendment No. 3 to the Hyster-Yale Materials Handling, Inc. Long-Term Incentive Compensation Plan effective January 1, 1994 is incorporated herein by reference to Exhibit 10 (lxxxxv) to the Hyster-Yale Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, Commission File Number 33-28812. (lxvii) Amendment to the Third Amended and Restated Operating Agreement, dated as of January 31, 1990, between Hyster Company and PacifiCorp Credit, Inc. is incorporated herein by reference to Exhibit 10(xlvi) to the Hyster-Yale Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 33-28812. *(lxviii) Amendment No. 2 effective as of December 31, 1993 to the Hyster-Yale Materials Handling, Inc. Long-Term Incentive Compensation Plan is incorporated herein by reference to Exhibit 10 (lxxxxiii) of the Hyster-Yale Annual Report on Form 10-K for the fiscal year ended December 31, 1993, Commission File Number 33-28812. (lxix) Amendment dated as of January 1, 1994 to the Third Amendment and Restated Operating Agreement dated as of November 7, 1991, between NACCO Materials Handling Group and AT&T Commercial Finance Corporation is incorporated herein by reference to Exhibit 10(c) to the Hyster-Yale Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, Commission File Number 330-28812. *(lxx) The Yale Materials Handling Corporation Deferred Incentive Compensation Plan (also known as The Yale Materials Handling Corporation Short-Term Incentive Compensation Deferral Plan), dated March 1, 1984, is incorporated herein by reference to Exhibit 10(lxxi) to the Hyster-Yale Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Commission File Number 33-28812. (lxxi) Intentionally left blank. (lxxii) Credit Agreement between NACCO Materials Handling Group, Inc. and Morgan Guaranty Trust company of New York, as Agent, and the other banks listed thereto, dated February 28, 1995, is incorporated by reference herein to Exhibit 10 (lxxxvii) of the Hyster-Yale Annual Report on Form 10-K for the fiscal year ended December 31, 1994. Commission File number 33-28812. (lxxiii) Letter Agreement between Hyster-Yale Materials Handling Group, Inc., NACCO Materials Handling Group, Inc. and Citicorp North America, Inc. as Agent dated February 28, 1995 is incorporated by reference herein to Exhibit 10 (lxxxviii) of the Hyster-Yale Annual Report on Form 10-K for the fiscal year ended December 31, 1994. Commission File Number 33- 28812. *(lxxiv) The NACCO Materials Handling Group, Inc. Unfunded Benefit Plan (as amended and restated effective as of January 1, 1996) is incorporated by reference as Exhibit 10 (lxxiv) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. Commission File Number 1-9172. (lxxv) Amended and Restated Credit Agreement dated as of June 4, 1996 among NACCO Materials Handling Group, Inc., the Banks party thereto, the Co-Arrangers and Co-Agents listed on the signature page thereto and Morgan Guaranty Trust Company of New York, as Agent is incorporated by reference to Exhibit 10 (lxxv) to the Company's Quarterly Statement on Form 10-Q for the quarter ended June 30, 1996. Commission File Number 1-9172. (lxxvi) Amendment to Credit Agreement dated as of December 16, 1996 NACCO Materials Handling Group, Inc., the Banks party thereto, the Co-Arrangers and Co-Agents listed on the signature page thereto and Morgan Guaranty Trust Company of New York, as Agent is attached hereto as Exhibit 10 (lxxxvi). (lxxvii) - (lxxxv) Intentionally left blank. (lxxxvi) Agreement of Merger, dated as of January 20, 1988, among NACCO Industries, Inc., Housewares Holding Company, WE-PS Merger, Inc. and WearEver-ProctorSilex, Inc., is incorporated herein by reference to X-6 50 pages 8 through 97 of Exhibit 2 to the Company's Current Report on Form 8-K, dated February 1, 1988, Commission File Number 1-9172. (lxxxvii) Shareholders Agreement, dated January 20, 1988, among NACCO Industries, Inc. and the shareholders named therein is incorporated herein by reference to pages 98 through 108 of Exhibit 2 to the Company's Current Report on Form 8-K, dated February 1, 1988, Commission File Number 1-9172. *(lxxxviii) The Hamilton Beach/Proctor-Silex, Inc. Unfunded Benefit Plan (As Amended and Restated Effective as of January 1, 1996), is incorporated herein by reference Exhibit 10(lxxxviii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. Commission File Number 1-9172. *(lxxxix) The Hamilton Beach/Proctor-Silex, Inc. Unfunded Benefit Plan (As Amended and Restated Effective January 1, 1997) is attached hereto as Exhibit 10(lxxxix). (xc) - (xci) Intentionally left blank. (xcii) Pledge Agreement re: 66% Pledge of PSC Stock, dated as of October 11, 1990, between Hamilton Beach/Proctor-Silex and The Chase Manhattan Bank (National Association) is incorporated herein by reference to Exhibit 10(cx) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. (xciii) Pledge Agreement re: 66% Pledge of PSM Stock, dated as of October 11, 1990, between Hamilton Beach/Proctor-Silex and The Chase Manhattan Bank (National Association) is incorporated herein by reference to Exhibit 10(cxi) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. (xciv) Pledge Agreement re: 34% pledge of PSC Stock, dated as of October 11, 1990, between Hamilton Beach/Proctor-Silex and The Chase Manhattan Bank (National Association) is incorporated herein by reference to Exhibit 10(cxii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. (xcv) Pledge Agreement re: 33.2% Pledge of PSM Stock, dated as of October 11, 1990, between Hamilton Beach Proctor/Silex and The Chase Manhattan Bank (National Association) is incorporated herein by reference to Exhibit 10(cxiii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. (xcvi) Pledge Agreement, dated as of October 11, 1990, between Housewares Holding Company and The Chase Manhattan Bank (National Association) is incorporated herein by reference to Exhibit 10(cxiv) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. (xcvii) Pledge Agreement, dated as of October 11, 1990, between HB-PS Holding Company, Inc. and The Chase Manhattan Bank (National Association) is incorporated herein by reference to Exhibit 10(cxv) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. (xcviii) Security Agreement, dated as of October 11, 1990, between Hamilton Beach/Proctor-Silex and The Chase Manhattan Bank (National Association), as the United States agent, is incorporated herein by reference to Exhibit 10(cxvi) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. (xcix) Collateral Assignment of Patents and Trademarks and Security Agreement, dated as of October 11, 1990, between Hamilton Beach/Proctor-Silex and The Chase Manhattan Bank (National Association), as the X-7 51 United States agent, is incorporated herein by reference to Exhibit 10(cxvii) to the Company s Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. (c) NACCO Supplemental Agreement, dated as of October 11, 1990, between NACCO and The Chase Manhattan Bank (National Association), as the United States agent, is incorporated herein by reference to Exhibit 10(cxviii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. (ci) Housewares Supplemental Agreement, dated as of October 11, 1990, between Housewares Holding Company and The Chase Manhattan Bank (National Association), as the United States agent, is incorporated herein by reference to Exhibit 10(cxix) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. (cii) Holdings Supplemental Agreement, dated as of October 11, 1990, between HB-PS Holding Company, Inc. and The Chase Manhattan Bank (National Association), as the United States agent, is incorporated herein by reference to Exhibit 10(cxx) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. (ciii) Override Agreement, dated as of October 11, 1990, among the Company, Housewares Holding Company, Glen Dimplex, Precis [521] Ltd., Glen Electric, Ltd. and The Chase Manhattan Bank (National Association), as the United States agent, is incorporated herein by reference to Exhibit 10(cxxi) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. (civ) General Security Agreement, dated as of October 11, 1990, by Proctor-Silex Canada to and in favor of The Chase Manhattan Bank of Canada, as the Canadian agent, is incorporated herein by reference to Exhibit 10(cxxii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. *(cv) The Hamilton Beach/Proctor-Silex, Inc. 1996 Annual Incentive Compensation Plan is incorporated herein by reference to Exhibit 10(cv) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. Commission File Number 1-9172. *(cvi) Hamilton Beach/Proctor-Silex, Inc. Long-Term Incentive Compensation Plan, effective January 1, 1993, is incorporated by reference to Exhibit 10(cxxiv) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Commission File Number 1-9172. (cvii) First Amendment to the Housewares Supplemental Agreement, dated as of March 1, 1991, between Housewares Holding Company and The Chase Manhattan Bank (National Association), as the United States agent, is incorporated herein by reference to Exhibit 10(cxxv) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. (cviii) First Amendment to the Holdings Supplemental Agreement, dated as of March 1, 1991, between HB-PS Holding Company and The Chase Manhattan Bank (National Association), as the United States agent, is incorporated herein by reference to Exhibit 10(cxxvi) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. (cvix) Consent and Authorization with reference made to the Credit Agreement dated October 11, 1990, as amended among Hamilton Beach/Proctor-Silex, Inc., Proctor-Silex Canada, Inc., Proctor-Silex S.A. de C.V., the banks named on the signatory pages and The Chase Manhattan Bank is incorporated herein by reference to Exhibit (cxxxvii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, Commission File Number 1-9172. X-8 52 (cx) Amended and Restated Credit Agreement, dated as of May 10, 1994 among Hamilton Beach/Proctor-Silex, Inc., Proctor-Silex Canada, Inc., Proctor-Silex S.A. DE C.V., the banks named on the signatory pages and the Chase Manhattan Bank is incorporated herein by reference to as Exhibit 10 (cxxxviii) to the NACCO Industries, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, Commission File Number 1-9172. (cxi) Confirmation Agreement dated May 10, 1994 among Hamilton Beach/Proctor-Silex, Inc., Housewares Holding Company, Precis [521] Ltd., HB-PS Holding Company, Glen Dimplex, Glen Electric, Ltd., the banks named on the signatory pages, the Chase Manhattan Bank and the Chase Manhattan Bank of Canada is incorporated herein by reference to Exhibit 10 (cxxix) to the NACCO Industries, Inc. Quarterly Report on Form 10-Q for the quarter ended on June 30, 1994, Commission File Number 1-9172. (cxii) First Amendment to the NACCO Supplemental Agreement, dated as of March 1, 1991, between the Company and The Chase Manhattan Bank (National Association), as the United States agent, is incorporated herein by reference to Exhibit 10(cxxi) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File Number 1-9172. (cxiii) Waiver Agreement, dated January 16, 1996 among Hamilton Beach/Proctor-Silex, Inc., Proctor-Silex Canada, Inc., Proctor-Silex S.A. de C.V. the banks named on the signatory pages and Chase Manhattan Bank is incorporated herein by reference to Exhibit 10 (cxiii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. Commission File Number 1-9172. (cxiv) Amended and Restated Credit Agreement, dated as of April 18, 1995, among Hamilton Beach/Proctor-Silex, Inc., Proctor- Silex, Inc., Proctor-Silex S.A. de C.V., the banks named on the signatory pages and The Chase Manhattan Bank is incorporated herein by reference to Exhibit 10(cxiv) to the Company's Annual Report on From 10-K for the fiscal year ended December 31, 1995. Commission File Number 1-9172. (cxv) Amendment No. 1 dated as of March 29, 1996 to the Second Amended and Restated Credit Agreement, dated as of October 11, 1990, amended and restated as of April 18, 1995, among Hamilton BeachProctor-Silex, Inc. Proctor-Silex Canada, Inc., Proctor-Silex S.A de C.V., as Borrowers, the Banks signatory thereto and the Chase Manhattan Bank, N.A., as U.S. Agent, and The Chase Manhattan Bank of Canada, as Canadian Agent, is incorporated by reference herein to Exhibit 10 (xvii) on the Company's quarterly Statement on Form 10-Q for the quarter ended June 30, 1996. Commission File Number 1-9172. (cxvi) Amendment No. 2 dated as of October 4, 1996 to the Second Amended and Restated Credit Agreement, dated as of October 11, 1990, amended and restated as of April 15, 1995, among Hamilton Beach-Proctor-Silex, Inc., Proctor-Silex Canada, Inc., Proctor-Silex S.A. de C.V., as Borrowers, the Banks signatory thereto and the Chase Manhattan Bank, N.A., as U.S. Agent, and the Chase Manhattan Bank of Canada, as Canadian Agent is incorporated herein by reference to Exhibit (cxviii) to the Company's Quarterly Statement for the quarter ended September 30, 1996. Commission File Number 1-9172. *(cxvii) The Hamilton Beach-Proctor-Silex, Inc. 1997 Annual Incentive Plan is attached hereto as Exhibit 10 (cxvii). (cxviii) - (cxxviii) Intentionally left blank. (cxxix) Credit Agreement, effective as of May 31, 1995, by and between The Kitchen Collection, Inc. and Society National Bank, N.A., is incorporated herein by reference to Exhibit 10 (cxvi) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. Commission File Number 1-9172. (11) Statement re computation of per share earnings. The computation of earnings per share is attached hereto as Exhibit 11. (13) Consolidated Financial Statements for NACCO Industries, Inc. and subsidiaries for the year ended December 31, 1996 and Supplementary Data. X-9 53 (21) Subsidiaries. A list of the subsidiaries of the Company is attached hereto as Exhibit 21. (23) Consents of experts and counsel. (i) The consent of Arthur Andersen LLP, independent accountant, is attached hereto as Exhibit 23(i). (24) Powers of Attorney (i) A copy of a power of attorney for Owsley Brown II is attached hereto as Exhibit 24(i). (ii) A copy of a power of attorney for John J. Dwyer is attached hereto as Exhibit 24(ii). (iii) A copy of a power of attorney for Robert M. Gates is attached as Exhibit 24(iii). (iv) A copy of a power of attorney for Leon J. Hendrix, Jr. is attached hereto as Exhibit 24(iv). (v) A copy of a power of attorney for Dennis W. LaBarre is attached hereto as Exhibit 24(v). (vi) A copy of a power of attorney for Ian M. Ross is attached hereto as Exhibit 24 (vi). (vii) A copy of a power of attorney for John C. Sawhill is attached hereto as Exhibit 24(vii). (viii) A copy of a power of attorney for Britton T. Taplin is attached hereto as Exhibit 24 (viii). (xi) A copy of a power of attorney for David F. Taplin is attached hereto as Exhibit 24 (ix). (27) Financial Data Schedule -- filed electronically for SEC information purposes only. (99) Other exhibits not required to otherwise be filed.** (i) Audited Financial Statements for The North American Coal Corporation for the fiscal year ended December 31, 1996, are attached as Exhibit 99(i). (ii) Audited Financial Statements for Hamilton Beach/Proctor-Silex, Inc. for the fiscal year ended December 31, 1996, are attached as Exhibit 99(ii). (iii) Audited Financial Statements for The Kitchen Collection, Inc. for the fiscal year ended December 31, 1996, are attached as Exhibit 99(iii). (iv) Audited Financial Statements for NACCO Materials Handling Group, Inc. for the fiscal year ended December 31, 1996, are attached as Exhibit 99 (iv). *Management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of this Annual Report on Form 10-K. **Audited Financial Statements of subsidiary companies are not required disclosures and are included only for information. These statements do not reflect certain adjustments (including reclassifications and eliminations) that are required by GAAP in the preparation of NACCO Industries, Inc. and subsidiaries consolidated financial statements included in Part IV hereof, and should be read accordingly. X-10 EX-10.XX 2 EXHIBIT 10(XX) 1 Exhibit 10(xx) NACCO INDUSTRIES, INC. 1997 ANNUAL INCENTIVE COMPENSATION PLAN 1. PURPOSE OF THE PLAN ------------------- The purpose of the NACCO Industries, Inc. 1997 Annual Incentive Compensation Plan (the "Plan") is to further the profits and growth of NACCO Industries, Inc. (the "Company") by enabling the Company to attract and retain key employees of the Company by offering annual incentive compensation to those key employees who will be in a position to help the Company to meet its financial and business objectives. 2. DEFINITIONS ----------- (a) "Award" means cash paid to a Participant under the Plan for the Award Term in an amount determined in accordance with Section 4. (b) "Award Term" means the period from January 1, 1997 through December 31, 1997. (c) "Base Amount" means for any Participant a dollar amount, which shall be equal to the salary midpoint for the Salary Points assigned to the Participant by the Committee for the Award Term multiplied by 60% of the short-term incentive compensation target percent for those Salary Points. Attached hereto as EXHIBIT A is a schedule listing the Base Amount for each Participant for the Award Term. (d) "Committee" means the Nominating, Organization and Compensation Committee of the Company's Board of Directors or any other committee appointed by the Company's Board of Directors to administer this Plan in accordance with Section 3, so long as any such committee consists of not less than two directors of the Company and so long as each member of the Committee is not an employee of the Company or any of its subsidiaries. (e) "Participant" means any salaried employee of the Company who in the judgment of the Committee occupies a key position in which his efforts may significantly contribute to the profits or growth of the Company; provided, however, that the Committee may select any employee who is expected to contribute, or who has contributed, significantly to the Company's profitability to participate in the Plan and receive an Award hereunder; and further provided, however, that following the end of the Award Term the Committee may make one or more discretionary Awards to employees of the Company who are not Participants. Directors of the Company who are also employees of the Company are eligible 2 to participate in the Plan. Employees of the Company's subsidiaries shall not be eligible to participate in the Plan. The Committee shall have the power to add Participants at any later date in the Award Term if individuals subsequently become eligible to participate in the Plan. Each Participant shall be notified that he is eligible to receive an Award for such term and the amount of his Base Amount. If a Participant receives a change in Salary Points, salary midpoint and/or short-term incentive compensation target percent, such change and any resulting change in his Base Amount will be reflected on an amended EXHIBIT A. Unless otherwise determined by the Committee, a Participant must be both employed by the Company and a Participant on December 31 of the Award Term, and the amount of any Award to a Participant who was not also employed by the Company and a Participant on the first day of the Award Term shall be not more than the pro-rated amount based upon the number of days actually employed by the Company in the Award Term. Attached hereto as EXHIBIT A is a schedule listing the Participants for the Award Term. (f) "Salary Points" means the salary points assigned to a Participant by the Committee pursuant to the Hay salary point system, or any successor salary point system adopted by the Committee. 3. ADMINISTRATION -------------- This Plan shall be administered by the Committee. The Committee shall have complete authority to interpret all provisions of this Plan consistent with law, to prescribe the form of any instrument evidencing any Award granted or paid under this Plan, to adopt, amend and rescind general and special rules and regulations for its administration, and to make all other determinations necessary or advisable for the administration of this Plan. A majority of the Committee shall constitute a quorum, and the action of members of the Committee present at any meeting at which a quorum is present or acts unanimously approved in writing, shall be the act of the Committee. All acts and decisions of the Committee with respect to any questions arising in connection with the administration and interpretation of this Plan, including the severability of any or all of the provisions hereof, shall be conclusive, final and binding upon the Company and all present and former Participants, all other employees of the Company, and their respective descendants, successors and assigns. No member of the Committee shall be liable for any such act or decision made in good faith. 4. AWARDS ------ The Committee may, from time to time and upon such conditions as it may determine, authorize Awards for Participants, which Awards shall be not inconsistent with, and shall be subject to all of the requirements of, the following provisions: 2 3 (a) PERFORMANCE TARGETS. The Committee shall determine performance target descriptions, weightings and targets for the Award Term, which shall be attached hereto as EXHIBIT B. The Committee shall have the power to add, delete and amend target descriptions, weightings and targets during the Award Term, which shall be reflected on an amended EXHIBIT B. No performance targets used in this Plan shall be used in the Company's Supplemental Annual Incentive Compensation Plan in the same year. (b) AWARDS. Following the end of the Award Term, the Committee shall compare the actual performance against the performance targets for each of the performance target descriptions. Based thereupon, the Committee shall determine the total payout percentage under the Plan (the "Payout Percentage"). The Committee shall then determine the Award for each Participant, which shall be equal to the Participant's Base Amount, multiplied by the Payout Percentage, and further adjusted by such other factors, including an individual performance factor for each Participant, as the Committee shall determine are appropriate; provided, however, that no Award may be made to any Participant which exceeds 150% of his Base Amount. Promptly following the approval of the final Awards, the Company shall pay the amount of such Awards to the Participants in cash, subject to all withholdings and deductions pursuant to Section 5; provided, however, that no Award shall be payable to a Participant except as determined by the Committee. 5. WITHHOLDING TAXES ----------------- Any Award paid to a Participant under this Plan, shall be subject to standard federal, state and local income tax, social security and other standard withholdings and deductions. 6. AMENDMENT AND TERMINATION ------------------------- The Committee may alter or amend this Plan from time to time or terminate it in its entirety; provided, however, that no such action shall, without the consent of a Participant, affect the rights in an outstanding Award of such Participant. 7. GENERAL PROVISIONS (a) NO RIGHT OF EMPLOYMENT. Neither the adoption or operation of this Plan, nor any document describing or referring to this Plan, or any part thereof, shall confer upon any employee any right to continue in the employ of the Company, or shall in any way affect the right and power of the Company 3 4 to terminate the employment of any employee at any time with or without assigning a reason therefor to the same extent as the Company might have done if this Plan had not been adopted. (b) GOVERNING LAW. The provisions of this Plan shall be governed by and construed in accordance with the laws of the State of Delaware. (c) MISCELLANEOUS. Headings are given to the sections of this Plan solely as a convenience to facilitate reference. Such headings, numbering and paragraphing shall not in any case be deemed in any way material or relevant to the construction of this Plan or any provisions thereof. The use of the masculine gender shall also include within its meaning the feminine. The use of the singular shall also include within its meaning the plural, and vice versa. 8. EFFECTIVE DATE -------------- This Plan shall become effective as of January 1, 1997. 4 EX-10.XXI 3 EXHIBIT 10(XXI) 1 Exhibit 10(xxi) NACCO INDUSTRIES, INC. 1997 SUPPLEMENTAL ANNUAL INCENTIVE COMPENSATION PLAN GUIDELINES 1. GUIDELINES ---------- These 1997 Supplemental Annual Incentive Compensation Plan Guidelines ("Guidelines") have been approved by the Committee for the administration of the NACCO Industries, Inc. Supplemental Annual Incentive Compensation Plan (the "Plan") for Awards granted to Participants for the Award Term. 2. DEFINITIONS ----------- (a) "Adjusted ROE" means the Company's adjusted return on equity, calculated as follows: Net Income (before extraordinary items) + Amortization of Goodwill - -------------------------------------------------------------------------------- Weighted Average (Stockholders' Equity + Accumulated Amortization of Goodwill + UMWA Adjustment) where: (i) NET INCOME (BEFORE EXTRAORDINARY ITEMS) is defined as consolidated net income for the Company and its subsidiaries for the Award Term before extraordinary items, but including any extraordinary items related to refinancing (net of tax), as such terms are defined by general accepted accounting principles ("GAAP"). (ii) AMORTIZATION OF GOODWILL is defined as the consolidated amortization expense related to the intangible asset goodwill for the Company and its subsidiaries for the Award Term. (iii) WEIGHTED AVERAGE STOCKHOLDERS' EQUITY is calculated by adding the consolidated stockholders' equity for the Company, as defined by GAAP, at the beginning of the Award Term and the end of each month of the Award Term, and dividing by thirteen. (iv) WEIGHTED AVERAGE ACCUMULATED AMORTIZATION OF GOODWILL is calculated by adding consolidated accumulated amortization of goodwill, as defined by GAAP, at the beginning of the Award Term and the end of each month of the Award Term, and dividing by thirteen. 2 (v) WEIGHTED AVERAGE UMWA ADJUSTMENT is calculated by adding the balance in the Obligation to United Mine Workers of America Combined Benefit Fund, net of tax, for the Company at the beginning of the Award Term and the end of each month of the Award Term, and dividing by thirteen. (b) "Award" means cash paid to a Participant under the Plan for the Award Term. The amount of an Award shall be not greater than a Participant's Base Amount, multiplied by the ROE Factor. (c) "Award Term" means the period from January 1, 1997 through December 31, 1997. (d) "Base Amount" means for any Participant a dollar amount, which shall be equal to the salary midpoint for the Salary Points assigned to the Participant by the Committee for the Award Term multiplied by 40% of the short-term incentive compensation target percent for those Salary Points. Attached hereto as EXHIBIT A is a schedule listing the Base Amount for each Participant for the Award Term. (e) "Committee" means the Committee appointed under the terms of the Plan. (f) "Participant" means any salaried employee of the Company who in the judgment of the Committee occupies a key position in which his efforts may significantly contribute to the profits or growth of the Company. Directors of the Company who are also employees of the Company are eligible to participate in the Plan. Employees of the Company's subsidiaries shall not be eligible to participate in the Plan. A Participant must be both employed by the Company and a Participant on December 31 of the Award Term, and the amount of any Award to a Participant who was not also employed by the Company and a Participant on the first day of the Award Term shall be not more than the pro-rated amount based upon the number of days actually employed by the Company in the Award Term. Attached hereto as EXHIBIT A is a schedule listing the Participants for the Award Term. (g) "ROE Factor" means a percentage based on Adjusted ROE for the Award Term. Attached hereto as EXHIBIT B is a formula calculating the ROE Factor based on Adjusted ROE for the Award Term. (h) "Salary Points" means the salary points assigned to a Participant by the Committee pursuant to the Hay salary point system, or any successor salary point system adopted by the Committee. 2 3 3. AWARDS ------ 3.1 AWARDS ------ (a) PARTICIPANTS. EXHIBIT A lists the Participants and the Salary Points, the salary midpoint, the short-term incentive compensation percent and the Base Amount for each Participant for the Award Term. The Committee shall have the power to add Participants at any later date in the Award Term if individuals subsequently become eligible to participate in the Plan. Each Participant shall be notified that he is eligible to receive an Award for such term and the amount of his Base Amount. If a Participant, other than a Participant who is, or is determined by the Committee to be likely to become, a "covered employee" as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended, receives a change in Salary Points, salary midpoint and/or short-term incentive compensation target percent, such change and any resulting change in his Base Amount will be reflected on an amended EXHIBIT A. (b) Not later than the ninetieth day of the following calendar year, the Committee shall approve: (i) the ROE Factor for the Award Term and a preliminary calculation of the amount of each Award based upon the application of the ROE Factor to the Base Amount; and (ii) a final calculation of the amount of each Award to be paid to each Participant for the prior year, which amount shall be not greater than the amount determined in accordance with Section 3(b)(i). The Committee shall have the power to decrease, but not to increase, the amount of any Award below the amount determined in accordance with Section 3(b)(i). (c) Promptly following the approval of Awards for the Participants pursuant to Section 3(b)(ii), the Company shall pay the amount of such Awards to the Participants in cash, subject to all withholdings and deductions pursuant to Section 4; provided, however, that no Award shall be payable to a Participant except as determined by the Committee. (d) No Award may be paid for any year to a Participant in excess of $800,000. 4. WITHHOLDING TAXES ----------------- Any Award paid to a Participant under this Plan, shall be subject to standard federal, state and local income tax, social security and other standard withholdings and deductions. 3 4 5. AMENDMENT The Committee may alter or amend these Guidelines from time to time; provided, however, that no such action shall, without the consent of a Participant, affect the rights in an outstanding Award of such Participant; and further provided, however, that no amendment to these Guidelines may be made which would cause any amount paid to a Participant who is, or is determined to be likely to become, a "covered employee" to be includable as "applicable employee remuneration" of such Participant, as such terms are defined in Section 162(m) of the Internal Revenue Code of 1986, as amended. 4 EX-10.XLIII 4 EXHIBIT 10(XLIII) 1 Exhibit 10 (xliii) AMENDMENT NO. 3 TO CREDIT AGREEMENT Amendment, dated as of September 16, 1996 to the Credit Agreement dated as of September 27, 1991, as may be amended from time to time (the "Agreement") among The North American Coal Corporation (the "Borrower"), the Banks listed therein and Morgan Guaranty Trust Company of New York, as Agent (the "Agent"). The parties hereto desire to amend the Agreement subject to the terms and conditions of this Amendment, as hereinafter provided. Accordingly, the parties hereto agree as follows: 1. DEFINITIONS. Except as otherwise defined herein, capitalized terms used herein have the respective meanings assigned to them in the Agreement. 2. AMENDMENT: CHANGE TO DEFINITION OF TERMINATION DATE. The definition of "Termination Date" in Section 1.01 of the Agreement is hereby amended by deleting the date "September 27, 2001". 3. Agreement as Amended. Except as expressly amended hereby, the Agreement shall continue in full force and effect in accordance with the terms thereof. 4. Governing Law. This Amendment, and the Agreement as amended hereby, shall be construed in accordance with and governed by the laws of the State of New York. 5. Severability. In case any one or more of the provisions contained in this Amendment would be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 6. Counterparts; Effective Date. This amendment may be executed in any number of counterparts, each of which shall constitute an original but all of which when taken together shall constitute one and the same instrument. This Amendment shall become effective as of the date first above written upon receipt by the Bank of counterparts hereof executed by each of the parties hereto. 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized officers as of the day and year first above written. THE NORTH AMERICAN COAL CORPORATION By: /s/ Charles B. Friley -------------------------------------------------- Title: Vice President and Chief Financial Officer MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent and a Bank By: /s/ Patricia P. Lunka -------------------------------------------------- Title: Vice President CITIBANK, N.A. By: /s/ Marjorie Futornick -------------------------------------------------- Title: Vice President WELLS FARGO By: /s/ Ken Taylor -------------------------------------------------- Title: Assistant Vice President KEY BANK, N.A. By: /s/ Marianne Meil -------------------------------------------------- Title: Vice President EX-10.XLIV 5 EXHIBIT 10(XLIV) 1 Exhibit 10(xliv) AMENDMENT NO. 1 TO THE NORTH AMERICAN COAL CORPORATION DEFERRED COMPENSATION PLAN FOR MANAGEMENT EMPLOYEES (AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1996) The North American Coal Corporation hereby adopts this Amendment No. 1 to The North American Coal Corporation Deferred Compensation Plan for Management Employees (As Amended and Restated Effective January 1, 1996) (the "Plan"). The provisions of this Amendment shall be effective January 1, 1997. Words and phrases used herein with initial capital letters which are defined in the Plan are used herein as so defined. SECTION 1 Section 2.9(ii) of the Plan is hereby amended in its entirety to read as follows: "(ii) is in salary grade 14 or above" EXECUTED this 9th day of December, 1996. THE NORTH AMERICAN COAL CORPORATION By: /s/ Thomas A. Koza --------------------------------------------- Title: Vice President - Law and Administration, and Secretary EX-10.XLV 6 EXHIBIT 10(XLV) 1 Exhibit 10(xlv) THE NORTH AMERICAN COAL CORPORATION 1997 INCENTIVE COMPENSATION PLAN DECEMBER, 1996 2 1997 INCENTIVE COMPENSATION PLAN SUMMARY The Incentive Compensation Plan (Plan) offers a strongly competitive incentive opportunity to senior managers when all performance objectives under their control or influence are achieved. This is accomplished through a structure containing the following elements: - Each participant is assigned an individual incentive target, stated as a percentage of salary midpoint, that establishes the incentive amount they will receive when performance objectives are met. - The individual target amount is allocated among the following performance components: - North American Coal (NAC) corporate performance. - Bellaire Corporation cash flow. - Business unit results. - Individual achievement. - Percentage weightings are assigned to each component based on the participant's accountabilities and their impact on each component. - One or more performance objectives will be established at the beginning of the year for each performance component. - A performance range, which defines the acceptable level of results, from threshold to maximum, is created around each performance objective. - A payout range is defined which provides for incentive payments up to 150 percent of the incentive target, except to the extent the committee elects to increase the actual pool by up to 10%, as described below. - A performance/payout schedule combines the two ranges into a matrix that defines the level of payout that will result from each level of performance. - After audited financials are available, awards will be calculated based on actual results against the established objectives. - A final individual performance adjustment may be made, within a range of + or - 10 percent of the calculated award, based on a judgment of the participant's overall performance. 1 3 1997 INCENTIVE COMPENSATION PLAN This incentive compensation plan will allow management and the Board to establish, in advance, the performance expectations and related incentive potential that NAC's executives will work with for the year. At year-end, the structure channels judgment of the managements team's performance along predetermined lines that should convey a sense of fairness in the determination of rewards. PLAN STRUCTURE INDIVIDUAL INCENTIVE TARGETS ---------------------------- The fundamental building block of the proposed Plan structure is the individual incentive target. Each participant is assigned a target, stated as a percentage of base salary, which will be paid when all relevant performance objectives are achieved. The Plan provides for payments above or below the target to reflect acceptable variances from performance objectives. PERFORMANCE GOALS Four sets of goals are proposed: INTENTIONALLY LEFT BLANK INCENTIVE AWARD RANGE --------------------- Actual performance results attained probably will not be exactly equal to the established performance goals. Therefore, the Plan is designed to provide payouts ranging up to 150 percent of the target award if actual results fall within a predetermined range of acceptable performance. 2 4 1997 INCENTIVE COMPENSATION PLAN The award range is defined as follows:
% OF AWARD LEVEL TARGET DESCRIPTION Maximum 150% Highest level of incentive paid. Target 100% Competitive incentive opportunity for achieving all important goals. Threshold 50% Incentive paid when results meet minimum acceptable standards. Below threshold 0% Performance does not merit incentive payment.
COMPONENT WEIGHTINGS -------------------- Participants' potential incentive awards will be allocated between performance components based on their individual impact on results. The allocations allow for awards to be earned based on the achievement of the performance objectives over which each executive has the most control. Weightings will be stated as a percentage and total 100 percent for each participant. The weightings will be established each year to reflect current organizational accountabilities and the relative importance of the various performance components. Our recommended weightings are as follows: INTENTIONALLY LEFT BLANK When there is more than one goal for a performance component, further percentage weightings may be assigned, within the overall weightings, to reflect the relative priority of each goal. For 3 5 1997 INCENTIVE COMPENSATION PLAN example, if the individual component has a 40 percent weighting and there are five individual goals, each individual goal might be assigned a priority weighting of 20 percent. 4 6 1997 INCENTIVE COMPENSATION PLAN PERFORMANCE RANGE ----------------- A range of performance acceptable for incentive payment will be established around each performance objective. For quantitative goals, the range may be set as a percentage of the objective. For goals that cannot be quantified, the range will be defined in narrative form as clearly as possible. The following general definitions will apply. The percentage ranges indicated are only guidelines; specific percentage ranges or narrative descriptions should be determined for each goal in line with the definitions.
PERFORMANCE PERCENTAGE LEVEL GUIDELINE DEFINITION Threshold 75% Minimum acceptable results justifying payment of incentives. Objective 100% Results meet high performance demands justifying fully competitive rewards. Maximum 125% Highest foreseeable level of performance.
PERFORMANCE/PAYOUT SCHEDULE --------------------------- Combining the payout and performance ranges yields a performance/ payout schedule as in the following example:
PERFORMANCE DEFINITION RESULTS LEVELS PAYOUT Threshold Just bonusable 75% Threshold 50% Objective On plan 100% Target 100% Maximum Heavy stretch 125% Maximum 150%
This schedule is applied separately to the results of each established performance element to determine the incentive amount earned in accordance with assigned weightings. Performance that falls between the defined levels would result in proportionally adjusted payouts which may be calculated mathematically or determined judgmentally. CORPORATE PERFORMANCE THRESHOLD ------------------------------- No incentive awards will be earned under the Plan in any year unless the threshold level under the corporate performance component is achieved. Once the corporate performance threshold is 5 7 1997 INCENTIVE COMPENSATION PLAN attained, each performance objective is separate and distinct. This means that partial awards can be earned for the attainment of one performance objective even if another is not sufficient to generate a payout. INDIVIDUAL ADJUSTMENT FACTOR ---------------------------- Each individual award, as calculated above, may be adjusted upward or downward by as much as 10 percent of the total award based on managements' perceptions of each individual's overall performance. PARTIAL AWARDS -------------- Executives who are hired or promoted during the year to positions eligible for participation in the Plan may be included in the Plan on a pro ratio basis. COMMITTEE DISCRETION -------------------- It is the intent of the Plan that the total incentive compensation, as determined above, will be the final total corporate incentive compensation to be paid. However, the committee, in its sole discretion, may increase or decrease by up to ten percent the total incentive compensation or may approve an incentive compensation payment where there would normally be no payments due to corporate performance which is below the criteria established for the year. 1997 PERFORMANCE TARGETS See Plan Summary. 6 EX-10.XLVI 7 EXHIBIT 10(XLVI) 1 Exhibit 10(xlvi) November 15, 1996 The North American Coal Corporation 13140 Coit Road Suite 400 Dallas, Texas 75240 Dear Sirs: Reference is made to the Credit Agreement (the "Agreement") dated as of September 27, 1991, among The North American Coal Corporation (the "Company"), the banks listed therein and Morgan Guaranty Trust Company of New York, as Agent. The defined terms used herein shall have the respective meanings set forth in the Agreement. Pursuant to Section 5.11 of the Agreement, the Company is prohibited from using the proceeds of any Loan, directly or indirectly, for the purpose of buying or carrying "margin stock". The Company has requested that the Banks waive the provisions of such Section 5.11 to permit the Company to advance to NACCO the proceeds of Loans borrowed by the Company, to be used by NACCO to purchase its Class A common stock pursuant to a Dutch auction self-tender offer to be launched by NACCO on or about November 18, 1996 and in connection with a latter open market purchase program by NACCO. The Banks hereby consent to the use of proceeds described in the preceeding sentence and, solely to the extent necessary to permit the advances to NACCO referred to above, waive the provisions of Section 5.11 of the Agreement. The Company hereby represents and warrants that on the date hereof (i) there exists no default, nor any other event which upon notice or lapse of time or both would constitute a default, under the Agreement and (ii) the Company is in compliance with all of the terms and conditions of the Agreement. This waiver and consent shall be effective only in this specific instance and for the sole purposes described above and shall not be effective for any other purpose or in regard to any other transaction. 2 This waiver and consent shall become effective upon receipt by the Agent of a counterpart of this letter from the Required Bank bearing the signature of the Company. MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ John M. Mikolay --------------------------- Title: Vice President CITIBANK, N.A. By: /s/ Marjorie Futornick --------------------------- Title: Vice President WELLS FARGO BANK (TEXAS), N.A. By: --------------------------- Title: KEY BANK NATIONAL ASSOCIATION By: /s/ Marianne Meil --------------------------- Title: Vice President THE NORTH AMERICAN COAL CORPORATION By: /s/ Charles A. Bittenbender --------------------------- Title: Assistant Secretary EX-10.LXIII 8 EXHIBIT 10(LXIII) 1 Exhibit 10(lxiii) ANNUAL INCENTIVE COMPENSATION PLAN ---------------------------------- 1997 GENERAL - ------- NACCO Materials Handling Group, Inc., (the "Company") has established an Annual Incentive Compensation Plan ("Plan") as part of a competitive compensation program for the officers and key management employees of the Company and its Subsidiaries. PLAN OBJECTIVE - -------------- The Company desires to attract and retain talented employees to enable the Company to meet its financial and business objectives. The objective of the Plan is to provide an opportunity to earn annual incentive compensation to those employees whose performance has a significant impact on the Company's short-term and long-term profitability. ADMINISTRATION AND PARTICIPATION - -------------------------------- The Plan is administered by the Nominating, Organization and Compensation Committee of the Board of Directors of the Company (the "Committee"). The Committee: a. May amend, modify or discontinue the Plan. 1 2 b. Will approve participation in the Plan. Generally, participants will include all employees in NACCO Materials Handling Group salary grades 22 and above. However, the Committee may select any employee who has contributed significantly to the Company's profitability to participate in the Plan and receive an annual incentive compensation award. c. Will determine the annual performance criteria which generate the incentive compensation pool. d. Will determine the total amount of both the target and actual annual incentive compensation pool. e. Will approve individual incentive compensation awards to officers and employees in NACCO Materials Handling Group above salary grade 29. f. May delegate to the Chief Executive Officer of the Company the approval of incentive compensation awards to NACCO Materials Handling Group employees in salary grade 29 and below. g. May consider at the end of each year the award of a discretionary bonus amount to non-participants as an addition to the regular incentive compensation pool on a special one-time basis to motivate individuals not eligible to participate in the Plan. h. May approve a pro-rate incentive compensation award for participants in the Plan whose employment is terminated (1) due to death, disability, retirement or facility closure, such award to be determined pursuant to the provisions of subparagraphs (e) and (f) above, or (2) under other 2 3 circumstances at the recommendation of the Chief Executive Officer of the Company. DETERMINATION OF CORPORATE INCENTIVE COMPENSATION POOL - ------------------------------------------------------ Each participant in the Plan will have an individual target incentive compensation percentage which is determined by the participant's salary grade. This percentage is multiplied by the mid-point of the participant's salary grade to determine his individual target incentive compensation award. The total of the target incentive compensation awards of all participants equals the target corporate incentive compensation pool ("Target Pool"). The Target Pool is approved each year by the Committee. The actual corporate incentive compensation pool ("Actual Pool") is determined at the end of each year based on the Company's actual performance against specific criteria established in the beginning of the year by the Committee. The Target Pool is adjusted upwards or downwards by corporate performance adjustment factors to determine the Actual Pool. In no event will the Actual Pool exceed 150% of the Target Pool, except to the extent that the Committee elects to increase the Actual Pool by up to 110%, as described below. The Target and Actual Pools may consist of the sum of two or more subpools, provided the subpools have individual objectives. 3 4 It is the intent of the Plan that the Actual Pool, as determined above, will be the final total corporate incentive compensation pool. However, the Committee, in its sole discretion, may increase or decrease by up to 10% the Actual Pool or may approve an incentive compensation pool where there would normally be no pool due to Company performance which is below the criteria established for the year. The Actual and Target Pools exclude the Marketing Incentive Plan for regional parts, service, sales and national account managers. However, total compensation or employees covered by the Marketing Incentive Plan will be based on competitive levels. DETERMINATION OF INDIVIDUAL INCENTIVE COMPENSATION AWARDS - --------------------------------------------------------- Salary grades and the corresponding target incentive percentages for each participant in the Plan will be established at the beginning of each year and approved by the Committee. Individual target incentive compensation will then be adjusted by the appropriate pool or subpool factor. Such adjusted individual incentive compensation will then be further modified based on the team performance to which an individual belongs compared to the team goals for the year. The total of all individual incentive compensation awards must not exceed the Actual Pool for the Year. Attached are examples of actual pool and individual award calculations. 4 5 a. Example calculation for determination actual pool: INTENTIONALLY LEFT BLANK 5 6 b. Example calculation for determination of individual incentive compensation award: INTENTIONALLY LEFT BLANK 6 EX-10.LXXVI 9 EXHIBIT 10(LXXVI) 1 Exhibit 10 (lxxvi) AMENDMENT TO CREDIT AGREEMENT AMENDMENT dated as of December 16, 1996 to the Amended and Restated Credit Agreement dated as of June 4, 1996 (the "Credit Agreement") among NACCO Materials Handling Group, Inc. (the "Borrower"), the BANKS party thereto (the "Banks"), the Co-Arrangers and Co-Agents listed therein and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H : WHEREAS, the Borrower has asked the Banks to permit the Borrower to use the proceeds of loans made to it under the Credit Agreement to make loans and/or pay dividends for the purpose of enabling NACCO Industries, Inc. to purchase its own common stock; and WHEREAS, the undersigned Banks are willing to permit such use of proceeds, PROVIDED that, so long as Sections 5.14 and 5.15 of the Credit Agreement remain in effect, the sum of (i) the aggregate amount of Restricted Payments declared or made pursuant to Section 5.14(c) and (ii) the aggregate outstanding principal amount of loans made to NACCO Industries, Inc. pursuant to Section 5.15 to enable it to purchase its own common stock shall not exceed $25,000,000; NOW, THEREFORE, the undersigned parties agree as follows: Section 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Credit Agreement" and each other similar reference contained in the Credit Agreement shall, after this Amendment becomes effective, refer to the Credit Agreement as amended hereby. Section 2. Use of Proceeds. The last sentence of Section 5.8 of the Credit Agreement is amended to read as follows: None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any "margin stock" within the meaning of Regulation U; PROVIDED that the Borrower may use such proceeds to make loans and/or pay dividends for the purpose of enabling NACCO Industries, Inc. to purchase its own common stock. 2 Section 3. Restricted Payments. Section 5.14(c) of the Credit Agreement is amended to read as follows: (c) Restricted Payments not otherwise permitted pursuant to the preceding clauses (a) and (b); provided that the sum of (i) the aggregate amount of all Restricted Payments declared or made after September 30, 1994 pursuant to this clause (c) and (ii) the aggregate outstanding principal amount of all loans made by the Borrower and its Subsidiaries to Affiliates of the Borrower pursuant to Section 5.15(h) shall not at any time exceed $25,000,000. Section 4. Investments. Section 5.15 of the Credit Agreement is amended by deleting the word "and" at the end of clause (g), redesignating clause (h) as clause (i), changing the reference to "clause (h)" in clauses (e) and (g) to refer instead to "clause (i)", and adding the following new clause (h) immediately after clause (g): (h) loans to Affiliates of the Borrower; PROVIDED that the sum of (i) the aggregate amount of all Restricted Payments declared or made after September 30, 1994 pursuant to Section 5.14(c) and (ii) the aggregate outstanding principal amount of all loans made by the Borrower and its Subsidiaries to Affiliates of the Borrower pursuant to this clause (h) shall not at any time exceed $25,000,000; and Section 5. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. Section 6. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Section 7. Effectiveness. This Amendment shall become effective when the Agent shall have received from each of the Borrower and the Required Banks a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Agent) that such party has signed a counterpart hereof. IN WITNESS WHEREOF, the undersigned parties have caused this Amendment to be duly executed as of the date first above written. NACCO MATERIALS HANDLING GROUP, INC. By: /s/ Jeffrey Mattern ---------------------------- Name: Jeffrey Mattern Title: Vice President and Treasurer 2 3 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Patricia P. Lunka ---------------------------- Name: Patricia P. Lunka Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Richard E. Bryson ---------------------------- Name: Richard E. Bryson Title: Managing Director CITIBANK, N.A. By: /s/ Marjorie Futornick ---------------------------- Name: Marjorie Futornick Title: Vice President THE BANK OF NOVA SCOTIA By: /s/ A.S. Norsworthy ---------------------------- Name: A.S. Norsworthy Title: Sr. Team Leader-Loan Operations THE FIRST NATIONAL BANK OF CHICAGO By: /s/ L. Gene Beube ---------------------------- Name: L. Gene Beube Title: Senior Vice President THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By: /s/ Richard E. Stahl ---------------------------- Name: Richard E. Stahl Title: Sr. Vice President & Joint General Manager ROYAL BANK OF CANADA By: /s/ Preston D. Jones ---------------------------- Name: Preston D. Jones Title: Senior Manager Corporate Banking UNION BANK OF CALIFORNIA, N.A. By: /s/ Alison Amonette ---------------------------- Name: Alison Amonette Title: Vice President KEY BANK OF WASHINGTON By: /s/ James A. Taylor III ---------------------------- Name: James A. Taylor III Title: Commercial Banking Officer UNITED STATES NATIONAL BANK OF OREGON By: /s/ Chris J. Karlin ---------------------------- Name: Chris J. Karlin Title: Vice President WELLS FARGO BANK, N.A. By: /s/ ---------------------------- Name: Title: Vice President BANK OF SCOTLAND By: /s/ Annie Chin Tat ---------------------------- Name: Annie Chin Tat Title: Assistant Vice President THE CHASE MANHATTAN BANK (formerly known as Chemical Bank) By: /s/ Timothy J. Stearns ---------------------------- Name: Timothy J. Stearns Title: Credit Executive CAISSE NATIONALE DE CREDIT AGRICOLE By: /s/ David Bouhl, F.V.P. ---------------------------- Name: David Bouhl, F.V.P. Title: Head of Corporate Banking Chicago MELLON BANK, N.A. By: /s/ Mark E. Johnston ---------------------------- Name: Mark E. Johnston Title: AVP THE SUMITOMO BANK, LTD. By: /s/ John H. Kemper ---------------------------- Name: John H. Kemper Title: Senior Vice President ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A. By: /s/ Jim Girolam ---------------------------- Name: Jim Girolam Title: G. Manager, V.P. 3 EX-10.LXXXIX 10 EXHIBIT 10(LXXXIX) 1 Exhibit 10(lxxxix) THE HAMILTON BEACH/PROCTOR-SILEX, INC. UNFUNDED BENEFIT PLAN (As Amended and Restated Effective January 1, 1997) 2 HAMILTON BEACH/PROCTOR-SILEX, INC. UNFUNDED BENEFIT PLAN Hamilton Beach/Proctor-Silex, Inc. (the "Company") does hereby amend and completely restate the Hamilton Beach/Proctor-Silex, Inc. Unfunded Benefit Plan to read as follows, effective January 1, 1997. ARTICLE I PREFACE ------- SECTION 1.1. EFFECTIVE DATE. The original effective date of this Plan was March 10, 1993. The effective date of this amendment and restatement is January 1, 1997. SECTION 1.2. PURPOSE OF THE PLAN. The purpose of this Plan is to provide for certain Employees of the Company benefits they would have received (a) under the Cash Balance Plan but for (i) the dollar limitation on Compensation taken into account as a result of Section 401(a)(17) of the Code, and (ii) the limitations imposed under Section 415 of the Code, and/or (b) under the Savings Plan but for the limitations imposed under Section 402(g), 401(m), 401(a)(17), 401(k)(3) or 415 of the Code. SECTION 1.3. GOVERNING LAW. This Plan shall be regulated, construed and administered under the laws of the State of Ohio, except when preempted by federal law. SECTION 1.4. GENDER AND NUMBER. For purposes of interpreting the provisions of this Plan, the masculine gender shall be deemed to include the feminine, the feminine gender shall be deemed to include the masculine, and the singular shall include the plural unless otherwise clearly required by the context. SECTION 1.5. CONSTRUCTION OF PLAN. The Plan provides benefits for Employees who are Participants in two separate Qualified Plans. References throughout this Plan to a "Qualified Plan" shall be deemed to refer to the particular Qualified Plan in which the Participant participates. ARTICLE II DEFINITIONS ----------- Except as otherwise provided in this Plan, terms defined in the Qualified Plans as they may be amended from time to time shall have the same meanings when used herein, unless a different meaning is clearly required by the context of this Plan. In addition, the following words and phrases shall have the following respective meanings for purposes of this Plan. SECTION 2.1. ACCOUNT shall mean the record maintained in accordance with Section 3.5 by the Company as the sum of the Participant's Excess Profit Sharing Sub-Account, Excess 401(k) Sub-Account and Excess Matching Sub-Account. 3 SECTION 2.2. ADJUSTED ROE. (a) For purposes of this Section, the following terms shall have the following meanings: (i) "NET INCOME (BEFORE EXTRAORDINARY ITEMS)" is defined as consolidated net income, as defined by general accepted accounting principals ("GAAP"), for the Company for the subject year before extraordinary items, but including any extraordinary items related to refinancings (net of tax); (ii) "AMORTIZATION OF GOODWILL" is defined as the consolidated amortization expense related to the intangible asset goodwill for the Company for the subject year; (iii) "WEIGHTED AVERAGE STOCKHOLDERS' EQUITY" is calculated by adding the consolidated stockholders' equity for the Company, as defined by GAAP, at the beginning of the subject year and the end of each month of the subject year and dividing by thirteen; (iv) "WEIGHTED AVERAGE ACCUMULATED AMORTIZATION OF GOODWILL" is calculated by adding consolidated accumulated amortization of goodwill, as defined by GAAP, at the beginning of the subject year and the end of each month of the subject year and dividing by thirteen. (b) "Adjusted ROE" shall mean the average return on equity of the Company calculated for the applicable time period, based on A divided by B, where: A = Net Income (before extraordinary items) + Amortization of Goodwill; and B = Weighted Average (Shareholders' Equity + Accumulated Amortization of Goodwill) Adjusted ROE shall be determined at least annually by the Company. SECTION 2.3. BENEFICIARY shall mean the person or persons designated by the Participant as his Beneficiary under this Plan, in accordance with the provisions of Article VII hereof. SECTION 2.4. CASH BALANCE EMPLOYEE shall mean a participant in the Cash Balance Plan. SECTION 2.5. CASH BALANCE PLAN shall mean Part II of the Combined Defined Benefit Plan for NACCO Industries, Inc. and Its Subsidiaries (commonly known as the "Hamilton Beach/Proctor-Silex, Inc. Profit Sharing Retirement Plan") (or any successor thereto), as the same may be amended from time to time. Benefits under the Cash Balance Plan were permanently frozen effective for Plan Years beginning on or after January 1, 1997. 2 4 SECTION 2.6. COMPANY shall mean Hamilton Beach/Proctor-Silex, Inc. SECTION 2.7. COMPENSATION. For purposes of Sections 3.2 and 3.3 of the Plan, the term "Compensation" shall have the same meaning as under the Savings Plan, except that Compensation shall be deemed to include (a) the amount of compensation deferred by the Participant under Section 3.3 of this Plan and (b) amounts in excess of the limitation imposed by Code Section 401(a)(17). SECTION 2.8. EXCESS RETIREMENT BENEFIT shall mean an Excess Pension Benefit, an Excess Profit Sharing Benefit, an Excess 401(k) Benefit or an Excess Matching Benefit (as described in Article III) which is payable to or with respect to a Participant under this Plan. SECTION 2.9. FIXED INCOME FUND shall mean the Stable Asset Fund under the Savings Plan or any equivalent fixed income fund thereunder which is designated by the NACCO Retirement Funds Investment Committee as the successor to the Stable Asset Fund. SECTION 2.10. 401(k) EMPLOYEE shall mean a participant in the Savings Plan who is eligible for Before-Tax and Matching Employer Contributions thereunder. SECTION 2.11. INSOLVENT. For purposes of this Plan, the Company shall be considered Insolvent at such time as it (a) is unable to pay its debts as they mature, or (b) is subject to a pending voluntary or involuntary proceeding as a debtor under the United States Bankruptcy Code. SECTION 2.12. PARTICIPANT. For purposes of Section 3.1 of the Plan, the term "Participant" shall mean a Cash Balance Employee whose benefit under the Cash Balance Plan is limited by the application of Section 401(a)(17) or 415 of the Code. For purposes of Section 3.2 of the Plan, the term "Participant" shall mean a Profit Sharing Employee whose Post-1996 Profit Sharing Contributions are limited by the application of Section 401(a)(17) or 415 of the Code and who is classified in job grades 17 and above. For purposes of Section 3.3 of the Plan, the term "Participant" shall mean a 401(k) Employee (a) who is unable to make all of the Before-Tax Contributions that he has elected to make to the Savings Plan, or who is unable to receive the maximum amount of Post-1994 Matching Employer Contributions under the Savings Plan, because of the limitations imposed under Section 402(g), 401(a)(17), 401(k)(3) or 401(m) of the Code and (b) who is classified in job grades 17 and above. SECTION 2.13. PLAN shall mean the Hamilton Beach/Proctor-Silex, Inc. Unfunded Benefit Plan as herein set forth or as duly amended. SECTION 2.14. PLAN ADMINISTRATOR shall mean the Company. 3 5 SECTION 2.15. PLAN YEAR shall mean the calendar year. SECTION 2.16. PROFIT SHARING EMPLOYEE shall mean a participant in the Savings Plan who is eligible for Post-1996 Profit Sharing Contributions. SECTION 2.17. QUALIFIED PLAN shall mean (a) for Cash Balance Employees, the Cash Balance Plan, (b) for Profit Sharing Employees, the profit-sharing portion of the Savings Plan and (c) for 401(k) Employees, the Before-Tax Contributions and Matching Employer Contributions portion of the Savings Plan. SECTION 2.18. SAVINGS PLAN shall mean the Hamilton Beach/Proctor-Silex, Inc. Employees' Retirement Savings Plan (401(k)), as the same may be amended from time to time, or any successor thereto. SECTION 2.19. UNFORESEEABLE EMERGENCY shall mean an event which results (or will result) in severe financial hardship to the Participant as a consequence of an unexpected illness or accident or loss of the Participant's property due to casualty or other similar extraordinary or unforeseen circumstances out of the control of the Participant. SECTION 2.20. VALUATION DATE shall mean the last business day of each Plan Year. ARTICLE III EXCESS RETIREMENT BENEFITS -------------------------- SECTION 3.1. EXCESS PENSION BENEFITS. The Excess Pension Benefit payable to a Participant who is a Cash Balance Employee shall be a monthly benefit equal to the excess, if any, of (a) the amount of the monthly benefit that would be payable to such Participant under the Cash Balance Plan (in the form actually paid) if such Plan did not contain the limitations imposed under Sections 401(a)(17) and 415 of the Code and, effective as of January 1, 1995, the definition of Compensation under such Plan included any amounts deferred under Section 3.3 of this Plan, OVER (b) the amount of the monthly benefit that is actually payable to the Participant under the Cash Balance Plan. SECTION 3.2. EXCESS PROFIT SHARING BENEFITS. At the time described in Section 3.5(a), the Company shall credit to a Sub-Account (the "Excess Profit Sharing Sub-Account") established for each Participant who is a Profit Sharing Employee, an amount equal to the excess, if any, of (a) the amount of the Company's Post-1996 Profit Sharing Contribution which would have been made to the profit sharing portion of the Savings Plan on behalf of the Participant if (i) such Plan did not contain the limitations imposed under Sections 401(a)(17) and 415 of the Code and (ii) the term "Compensation" (as defined in Section 2.7 hereof) were used for purposes of determining the amount of profit sharing contributions under the Savings Plan, OVER (b) the amount of the 4 6 Company's Post-1996 Profit Sharing Contribution which is actually made to the Savings Plan on behalf of the Participant for such Plan Year. SECTION 3.3. EXCESS 401(K) BENEFITS. (a) AMOUNT OF EXCESS 401(K) BENEFITS. Each 401(k) Employee who is a Participant under the terms of this Plan, may, prior to the first day of any Plan Year, by completing a Notice of Election to Defer Compensation or other form approved by the Company ("Deferral Election Form"), direct the Company: (i) to reduce his Compensation (as that term is defined in Section 2.7 hereof) by the difference between (A) a certain percentage, in 1% increments, with a maximum of 15%, of his Compensation for the calendar year, and (B) the maximum Before-Tax Contributions actually permitted to be contributed for him to the Savings Plan by reason of the application of the limitations imposed under Sections 402(g), 401(a)(17), or 401(k)(3) of the Code; (ii) to credit the deferrals to the Sub-Account described in Section 3.5(a) at the times described therein. (b) DEFERRAL PERIOD. The deferral election described in Subsection (a) above shall also contain such Participant's election regarding the time of the commencement of payment of his Excess 401(k) Sub-Account. In the Deferral Election Form, such Participant may elect to commence payment of his Excess 401(k) Sub-Account on (i) the date on which he ceases to be an Employee of a Controlled Group Member, (ii) the date on which he attains an age specified in the Deferral Election Form, or (iii) the earlier or later of such dates. (c) EFFECT AND DURATION OF DEFERRAL ELECTION. Any direction by a 401(k) Employee who is a Participant in this Plan to make deferrals of Excess 401(k) Benefits hereunder shall be effective with respect to Compensation otherwise payable to the Participant, and the Participant shall not be eligible to receive such Excess 401(k) Benefits. Instead, such amounts shall be credited to the Participant's Sub-Account as provided in Section 3.5(a). Any directions made in accordance with Subsections (a) or (b) above shall be irrevocable and shall remain in effect for subsequent Plan Years unless for subsequent Plan Years the directions are changed or terminated by the Participant, on the appropriate form provided by the Plan Administrator, prior to the first day of such subsequent Plan Year. Notwithstanding the foregoing, a Participant's direction to make deferrals of Excess 401(k) Benefits shall automatically terminate on the earlier of the date on which (i) the Participant ceases employment with the Company, (ii) the Company is deemed Insolvent, (iii) the Participant is no longer eligible to make deferrals of Excess 401(k) Benefits hereunder, or (iv) the Plan is terminated. 5 7 (d) Notwithstanding the foregoing, any Participant whose eligibility to make Before-Tax Contributions to the Savings Plan has been suspended because he has taken a hardship withdrawal from the Savings Plan shall not be eligible to make deferrals of Excess 401(k) Benefits under this Plan for the period of his suspension from the Savings Plan. SECTION 3.4. EXCESS MATCHING BENEFITS. (a) IN GENERAL. A 401(k) Employee shall have credited to his Excess Matching Sub-Account an amount equal to the Post-1994 Matching Employer Contributions that he is prevented from receiving under the Savings Plan because of the limitations imposed under Code Sections 402(g), 401(a)(17), 401(k)(3) and 401(m) (collectively, the "Excess Matching Benefits"). (b) TIME OF PAYMENT. The Excess Matching Benefits shall be paid (or commence to be paid) at the time specified in the Deferral Election Form for the payment of the Excess 401(k) Benefits to which the Excess Matching Benefits relate. SECTION 3.5. PARTICIPANT'S ACCOUNTS. The Company shall establish and maintain on its books an Account for each Participant which shall contain the following entries: (a) Credits to an Excess Profit Sharing Sub-Account for the Excess Profit Sharing Benefits described in Section 3.2, which shall be credited to the Sub-Account at the time the Profit Sharing Contributions are otherwise credited to Participants' Accounts under the Savings Plan; (b) Credits to an Excess 401(k) Sub-Account for the Excess 401(k) Benefits described in Section 3.3, which shall be credited to the Sub-Account when a 401(k) Employee is prevented from making a Before-Tax Contribution under the Savings Plan; (c) Credits to an Excess Matching Sub-Account for the Excess Matching Benefits described in Section 3.4, which shall be credited to the Sub-Account when a 401(k) Employee is prevented from receiving Post-1994 Matching Employer Contributions under the Savings Plan; (d) Credits to such Sub-Accounts for the earnings described in Article IV, which shall continue until the vested portions of such Sub-Accounts have been distributed to the Participant or his Beneficiary; and (e) Debits for any distributions made from such Sub-Accounts. To the extent determined necessary by the Company, the Company may also establish a "notional account" in the name of each Cash Balance Employee to reflect the Excess Pension benefits payable to such Employees. 6 8 SECTION 3.6. EFFECT ON OTHER BENEFITS. Benefits payable to or with respect to a Participant under the Qualified Plans or any other Company-sponsored (qualified or nonqualified) plan, if any, are in addition to those provided under this Plan. ARTICLE IV EARNINGS -------- SECTION 4.1. FOR ACTIVE PROFIT SHARING EMPLOYEES. Except as provided in Section 4.3, at the end of each calendar month during a Plan Year, the Excess Profit Sharing Sub-Account of each Participant shall be credited with an amount determined by multiplying such Participant's average Excess Profit Sharing Sub-Account balance during such month by the blended rate earned during such month by the Fixed Income Fund under the Savings Plan. Notwithstanding the foregoing, in the event that the Adjusted ROE determined for such Plan Year exceeds the rate credited to the Participant's Excess Profit Sharing Sub-Account under the preceding sentence, such Sub-Account shall retroactively be credited with the difference between (a) the amount determined under the preceding sentence, and (b) the amount determined by multiplying the Participant's average Sub-Account balance during each month of such Plan Year by the Adjusted ROE determined for such Plan Year, compounded monthly. SECTION 4.2. FOR ACTIVE 401(K) EMPLOYEES. (a) For purposes of determining the earnings to be credited to 401(k) Employee's Account, such Account shall be divided into two additional Sub-Accounts, the "7% Sub-Account" and the "Additional Sub-Account." The 7% Sub-Account shall contain Excess 401(k) Benefits and Excess Matching Benefits attributable to amounts deferred by the 401(k) Employee of up to 7% of his Compensation, plus any earnings attributable thereto. The Additional Sub-Account shall contain the Excess 401(k) Benefits and Excess Matching Benefits attributable to amounts deferred by the 401(k) Employee in excess of 7% of his Compensation, plus any earnings attributable thereto. (b) Except as provided in Section 4.3, at the end of each calendar month during a Plan Year, the 7% Sub-Account of each 401(k) Employee shall be credited with an amount determined by multiplying such Participant's average 7% Sub-Account balance during such month by the blended rate earned during such month by the Fixed Income Fund. Notwithstanding the foregoing, in the event that the Adjusted ROE determined for such Plan Year exceeds the rate credited to the Participant's 7% Sub-Account under the preceding sentence, the Participant's 7% Sub-Account shall retroactively be credited with the difference between (i) the amount determined under the preceding sentence, and (ii) the amount determined by multiplying the Participant's average 7% Sub-Account balance during each month of such Plan Year by the Adjusted ROE determined for such Plan Year, compounded monthly. 7 9 (c) At the end of each calendar month during a Plan Year, the Additional Sub-Account of each Participant shall be credited with an amount determined by multiplying such Participant's average Additional Sub-Account balance during such month by the blended rate earned during such month by the Fixed Income Fund. SECTION 4.3. FOR TERMINATED EMPLOYEES. The Sub-Accounts of a Participant who has terminated employment with the Controlled Group shall be credited with earnings as described in Section 4.1 or 4.2, as modified by this Section 4.3, until the vested portion of each Sub-Account has been distributed in full. The Adjusted ROE calculation described in the second sentence of Section 4.1 and in the second sentence of Section 4.2(b) shall be made during the month in which the Participant terminates employment and shall be based on the year-to-date Adjusted ROE for the month ending prior to the date the Participant terminated employment, as calculated by the Company. For any subsequent month, the Adjusted ROE calculation described in the second sentence of Section 4.1 and in the second sentence of Section 4.2(b), shall not apply. The Fixed Income Fund calculation described in the first sentence of Section 4.1 and 4.2(a) and in Section 4.2(c) for the month in which the Participant receives a distribution from his Sub-Account shall be based on the blended rate earned during the preceding month by the Fixed Income Fund. SECTION 4.3. CHANGES IN EARNINGS ASSUMPTIONS. The Committee (as defined in Section 9.5) may change the earnings rate credited to Accounts hereunder at any time upon at least 30 days advance notice to Participants. SECTION 4.4. LIMITATION ON EARNINGS ASSUMPTION. Notwithstanding any provision of the Plan to the contrary, in no event will the earnings rate credited to Accounts hereunder exceed 14%. ARTICLE V VESTING ------- A Participant shall not become vested in his Excess Pension Benefit or Excess Profit Sharing Benefit until he becomes vested in the corresponding benefit under the applicable underlying Qualified Plan and the Excess Pension Benefit and/or Excess Profit Sharing Benefit of a Participant who is partially or fully vested under the applicable underlying Qualified Plan shall at all times be vested hereunder to the extent he is so vested. A Participant shall always be 100% vested in his Excess 401(k) Benefit and his Excess Matching Benefit hereunder. The non-vested portion of any Excess Retirement Benefit shall be forfeited and/or reinstated under this Plan in accordance with the vesting, forfeiture and service rules contained in the applicable underlying Qualified Plan. 8 10 ARTICLE VI DISTRIBUTION OF BENEFITS TO PARTICIPANTS ---------------------------------------- SECTION 6.1. TIME AND MANNER OF PAYMENT. (a) EXCESS PENSION BENEFITS. (i) TIMING. A Participant who is a Cash Balance Employee is required to elect the time and manner of payment of his benefits under the Cash Balance Plan before he will be eligible to receive payment of his Excess Pension Benefit hereunder. The Excess Pension Benefit payable to a Participant shall be paid at the same time or times and in the same manner as the benefits payable to the Participant under the Cash Balance Plan. (ii) FORM. Notwithstanding the foregoing, in the event that the monthly payments of the Excess Pension Benefits payable to a Participant hereunder following the Participant's termination of the employment with the Controlled Group amount to less than Fifty Dollars ($50) per month, such Excess Pension Benefits shall be paid in the form of a single lump sum payment. Such lump sum amount shall be equal to the Actuarial Equivalent present value of such Excess Pension Benefits. (b) EXCESS PROFIT SHARING BENEFITS. The Excess Profit Sharing Benefit payable to a Participant shall be paid in the form of a single lump sum payment at the time the corresponding Post-1996 Profit Sharing Contributions payable to the Participant under the Savings Plan commence to be paid. (c) EXCESS 401(K) AND MATCHING BENEFITS. (i) TIMING. A Participant's Account shall be paid (or commence to be paid) to the Participant at the time specified in the Participant's Deferral Election Form pursuant to Section 3.2(b). (ii) FORM. A Participant's Account shall be distributed in the form of ten annual installments with each installment being based on the value of the Participant's Account on the Valuation Date immediately preceding the date such installment is to be paid and being a fraction of such value in which the numerator is one and the denominator is the total number of remaining installments to be paid. Notwithstanding the foregoing, the Participant may elect to receive his Account in the form of a single lump sum payment or in annual installments for a period of less than 10 years by filing a notice in writing, signed by the Participant while he is alive and filed with the Plan Administrator at least one year prior to the time he had elected to commence receiving payment of the portion his Account to which his election applies. Any such election of the form of benefit may be changed at any time and from time to time, without the consent of any other person, by filing a later election in writing that is signed by a Participant and filed with the Plan 9 11 Administrator while such Participant is alive and at least one year prior to the time he had elected to commence receiving payment of his Account. (iii) UNFORESEEABLE EMERGENCY DISTRIBUTIONS. Notwithstanding the foregoing, the Company may at any time, upon written request of the Participant cause to be paid to such Participant an amount equal to all or any part of the Participant's Excess 401(k) Sub-Account and/or Excess Matching Sub-Account if the Company determines, in its absolute discretion based on such reasonable evidence that it shall require, that such a payment or payments is necessary for the purpose of alleviating the consequences of an Unforeseeable Emergency occurring with respect to the Participant. Payments of amounts because of an Unforeseeable Emergency shall be permitted only to the extent reasonably necessary to satisfy the emergency need. SECTION 6.2. SMALL SUB-ACCOUNTS. Notwithstanding the foregoing, in the event that the vested portion of a Participant's Account does not exceed $5,000 at the time of such Participant's termination of employment with the Controlled Group, such vested portion of his Account shall automatically be paid to him in a single lump sum payment as soon as practicable following his termination of employment. SECTION 6.3. LIABILITY FOR PAYMENT/EXPENSES. The Company shall be liable for the payment of the Excess Retirement Benefits which are payable hereunder to the Participants. Expenses of administering the Plan shall be paid by the Company. ARTICLE VII BENEFICIARIES ------------- SECTION 7.1. BENEFICIARY DESIGNATIONS. A designation of a Beneficiary hereunder may be made only by an instrument (in form acceptable to the Plan Administrator) signed by the Participant and filed with the Plan Administrator prior to the Participant's death. In the absence of such a designation and at any other time when there is no existing Beneficiary designated hereunder, the Beneficiary of a Participant for his Excess Pension Benefits and/or his Account shall be his Beneficiary under the Cash Balance Plan and the Savings Plan, respectively. A person designated by a Participant as his Beneficiary who or which ceases to exist shall not be entitled to any part of any payment thereafter to be made to the Participant's Beneficiary unless the Participant's designation specifically provided to the contrary. If two or more persons designated as a Participant's Beneficiary are in existence with respect to a single Excess Retirement Benefit the amount of any payment to the Beneficiary under this Plan shall be divided equally among such persons unless the Participant's designation specifically provides for a different allocation. SECTION 7.2. CHANGE IN BENEFICIARY. (a) Anything herein or in the Qualified Plans to the contrary notwithstanding, 10 12 a Participant may, at any time and from time to time, change a Beneficiary designation hereunder without the consent of any existing Beneficiary or any other person. A change in Beneficiary hereunder may be made regardless of whether such a change is also made under the applicable underlying Qualified Plan. In other words, the Beneficiary hereunder need not be the same as under the applicable underlying Qualified Plan. (b) Any change in Beneficiary shall be made by giving written notice thereof to the Plan Administrator and any change shall be effective only if received by the Plan Administrator prior to the death of the Participant. SECTION 7.3. DISTRIBUTIONS TO BENEFICIARIES. (a) AMOUNT OF BENEFITS. (i) AMOUNT OF EXCESS PENSION BENEFIT. The Excess Pension Benefit payable to a Beneficiary under this Plan shall be a monthly benefit equal to the excess, if any, of (A) the amount of the monthly benefit that would be payable to the Beneficiary last effectively designated by the Participant under the Cash Balance Plan (in the form actually paid) if such Plan did not contain the limitations imposed under Sections 401(a)(17) or 415 of the Code and the definition of Compensation under such Plan included any amounts deferred under this Plan OVER (B) the amount of the monthly benefit that is actually paid to such Beneficiary under such Plan. (ii) AMOUNT OF EXCESS PROFIT SHARING BENEFIT. The Excess Profit Sharing Benefit payable to a Participant's Beneficiary under this Plan shall be equal to such Participant's vested Excess Profit Sharing Sub-Account balance on the date of the distribution of the Sub-Account to the Beneficiary. (iii) AMOUNT OF EXCESS 401(K) AND EXCESS MATCHING BENEFITS. The Excess 401(k) and Excess Matching Benefits payable to a Participant's Beneficiary under this Plan shall be equal to such Participant's Excess 401(k) and Excess Matching Sub-Account balances on the date of the distribution of the Sub-Accounts to the Beneficiary. (b) TIME AND MANNER OF PAYMENT. (i) EXCESS PENSION BENEFIT. The Excess Pension Benefit payable to a Beneficiary under this Plan shall be paid at the same time or times and in the same manner as the benefits payable to the Beneficiary last effectively designated by the Participant under the Cash Balance Plan; provided however, that the provisions of Subsection 6.1(a)(ii) shall apply to such 11 13 Benefit, treating the Beneficiary hereunder as if he were the Participant. (ii) EXCESS PROFIT SHARING BENEFIT/EXCESS 401(k) BENEFIT AND EXCESS MATCHING BENEFIT. The Excess Profit Sharing Benefit, Excess 401(k) Benefit and Excess Matching Benefit payable to a Beneficiary under this Plan shall be paid as soon as practicable following the death of the Participant in the form of a lump sum payment. (c) EFFECT OF DIFFERENT BENEFICIARIES UNDER THIS PLAN AND THE CASH BALANCE PLAN. In the event the Beneficiary designated hereunder for the Excess Pension Benefit is different than the Beneficiary under the Cash Balance Plan, (i) if the Beneficiary hereunder dies after the Participant but while the Beneficiary under the Cash Balance Plan is still living, any remaining payments hereunder shall be payable, as they come due, to the estate of the Beneficiary hereunder and (ii) if the Beneficiary hereunder predeceases the Beneficiary under the Cash Balance Plan and the Participant, the Beneficiary hereunder shall revert to the Beneficiary last effectively designated under the Cash Balance Plan unless and until the Participant again makes a change of Beneficiary pursuant to Section 7.2. ARTICLE VIII MISCELLANEOUS ------------- SECTION 8.1. LIABILITY OF COMPANY. Nothing in this Plan shall constitute the creation of a trust or other fiduciary relationship between the Company and any Participant, Beneficiary or any other person. SECTION 8.2. LIMITATION ON RIGHTS OF PARTICIPANTS AND BENEFICIARIES - NO LIEN. The Plan is designed to be an unfunded, nonqualified plan. Nothing contained herein shall be deemed to create a trust or lien in favor of any Participant or Beneficiary on any assets of the Company. The Company shall have no obligation to purchase any assets that do not remain subject to the claims of the creditors of the Company for use in connection with the Plan. No Participant or Beneficiary or any other person shall have any preferred claim on, or any beneficial ownership interest in, any assets of the Company prior to the time that such assets are paid to the Participant or Beneficiary as provided herein. Each Participant and Beneficiary shall have the status of a general unsecured creditor of the Company. SECTION 8.3. NO GUARANTEE OF EMPLOYMENT. Nothing in this Plan shall be construed as guaranteeing future employment to Participants. A Participant continues to be an Employee of the Company solely at the will of the Company subject to discharge at any time, with or without cause. SECTION 8.4. PAYMENT TO GUARDIAN. If a benefit payable hereunder is payable to a minor, to a person declared 12 14 incompetent or to a person incapable of handling the disposition of his property, the Plan Administrator may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or person. The Plan Administrator may require such proof of incompetency, minority, incapacity or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit. SECTION 8.5. ASSIGNMENT. No right or interest under this Plan of any Participant or Beneficiary shall be assignable or transferable in any manner or be subject to alienation, anticipation, sale, pledge, encumbrance or other legal process or in any manner be liable for or subject to the debts or liabilities of the Participant or Beneficiary. SECTION 8.6. SEVERABILITY. If any provision of this Plan or the application thereof to any circumstance(s) or person(s) is held to be invalid by a court of competent jurisdiction, the remainder of the Plan and the application of such provision to other circumstances or persons shall not be affected thereby. ARTICLE IX ADMINISTRATION OF PLAN ---------------------- SECTION 9.1. ADMINISTRATION. (a) IN GENERAL. The Plan shall be administered by the Plan Administrator. The Plan Administrator shall have sole and absolute discretion to interpret where necessary all provisions of the Plan (including, without limitation, by supplying omissions from, correcting deficiencies in, or resolving inconsistencies or ambiguities in, the language of the Plan), to determine the rights and status under the Plan of Participants, or other persons, to resolve questions or disputes arising under the Plan and to make any determinations with respect to the benefits payable under the Plan and the persons entitled thereto as may be necessary for the purposes of the Plan. Without limiting the generality of the foregoing, the Plan Administrator is hereby granted the authority (i) to determine whether a particular Employee is a Participant, and (ii) to determine if an Employee is entitled to Excess Retirement Benefits hereunder and, if so, the amount and duration of such Benefits. The Plan Administrator's determination of the rights of any Employee or former Employee hereunder shall be final and binding on all persons, subject only to the provisions of Sections 9.3 and 9.4 hereof. (b) DELEGATION OF DUTIES. The Plan Administrator may delegate any of its administrative duties, including, without limitation, duties with respect to the processing, review, investigation, approval and payment of Excess Retirement Benefits, to a named administrator or administrators. 13 15 SECTION 9.2. REGULATIONS. The Plan Administrator shall promulgate any rules and regulations it deems necessary in order to carry out the purposes of the Plan or to interpret the provisions of the Plan; provided, however, that no rule, regulation or interpretation shall be contrary to the provisions of the Plan. The rules, regulations and interpretations made by the Plan Administrator shall, subject only to the provisions of Sections 9.3 and 9.4 hereof, be final and binding on all persons. SECTION 9.3. CLAIMS PROCEDURES. The Plan Administrator shall determine the rights of any Employee or former Employee to any Excess Retirement Benefits hereunder. Any Employee or former Employee who believes that he has not received the Excess Retirement Benefits to which he is entitled under the Plan may file a claim in writing with the Plan Administrator. The Plan Administrator shall, no later than 90 days after the receipt of a claim (plus an additional period of 90 days if required for processing, provided that notice of the extension of time is given to the claimant within the first 90 day period), either allow or deny the claim in writing. If a claimant does not receive written notice of the Plan Administrator's decision on his claim within the above-mentioned period, the claim shall be deemed to have been denied in full. A written denial of a claim by the Plan Administrator, wholly or partially, shall be written in a manner calculated to be understood by the claimant and shall include: (a) the specific reasons for the denial; (b) specific reference to pertinent Plan provisions on which the denial is based; (c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (d) an explanation of the claim review procedure. A claimant whose claim is denied (or his duly authorized representative) may within 60 days after receipt of denial of a claim file with the Plan Administrator a written request for a review of such claim. If the claimant does not file a request for review of his claim within such 60-day period, the claimant shall be deemed to have acquiesced in the original decision of the Plan Administrator on his claim. If such an appeal is so filed within such 60 day period, the Company (or its delegate) shall conduct a full and fair review of such claim. During such review, the claimant shall be given the opportunity to review documents that are pertinent to his claim and to submit issues and comments in writing. The Company shall mail or deliver to the claimant a written decision on the matter based on the facts and the 14 16 pertinent provisions of the Plan within 60 days after the receipt of the request for review (unless special circumstances require an extension of up to 60 additional days, in which case written notice of such extension shall be given to the claimant prior to the commencement of such extension). Such decision shall be written in a manner calculated to be understood by the claimant, shall state the specific reasons for the decision and the specific Plan provisions on which the decision was based and shall, to the extent permitted by law, be final and binding on all interested persons. If the decision on review is not furnished to the claimant within the above-mentioned time period, the claim shall be deemed to have been denied on review. SECTION 9.4. REVOCABILITY OF PLAN ADMINISTRATOR/ COMPANY ACTION. Any action taken by the Plan Administrator or the Company with respect to the rights or benefits under the Plan of any Employee or former Employee shall be revocable by the Plan Administrator or the Company as to payments not yet made to such person, and acceptance of any Excess Retirement Benefits under the Plan constitutes acceptance of and agreement to the Plan Administrator's or the Company's making any appropriate adjustments in future payments to such person (or to recover from such person) any excess payment or underpayment previously made to him. SECTION 9.5. AMENDMENT. The Nominating, Organization and Compensation Committee of the Board of Directors of the Company (the "Committee") may at any time amend any or all of the provisions of this Plan, except that (a) no such amendment may adversely affect any Participant's vested Excess Retirement Benefit as of the date of such amendment and (b) no such amendment may suspend the crediting of earnings on the balance of a Participant's Account, until the entire balance of such Account has been distributed, in either case, without the prior written consent of the affected Participant. Any amendment shall be in the form of a written instrument executed by an officer of the Company on the order of the Committee. Subject to the foregoing provisions of this Section, such amendment shall become effective as of the date specified in such instrument or, if no such date is specified, on the date of its execution. SECTION 9.6. TERMINATION. (a) The Committee, in its sole discretion, may terminate this Plan at any time and for any reason whatsoever, except that (i) no such termination may adversely affect any Participant's vested Excess Retirement Benefit as of the date of such termination and (ii) no such termination may suspend the crediting of earnings on the balance of a Participant's Account, until the entire balance of such Account has been distributed, in either case, without the prior written consent of the affected Participant. Any such termination shall be expressed in the form of a written instrument executed by an officer of the Company on the order of the Committee. Subject to the foregoing provisions of this Section, such termination shall become effective as of 15 17 the date specified in such instrument or, if no such date is specified, on the date of its execution. Written notice of any termination shall be given to the Participants as soon as practicable after the instrument is executed. (b) Notwithstanding anything in the Plan to the contrary, in the event of a termination of the Plan (or any portion thereof), the Company, in its sole and absolute discretion, shall have the right to change the time and form of distribution of Participants' Excess Retirement Benefits. Executed, this 23rd day of December, 1996, to be effective January 1, 1997. HAMILTON BEACH/PROCTOR-SILEX, INC. By: /s/ George P. Manson --------------------------------- Title: Vice-President, General Counsel & Secretary 16 18 THE HAMILTON BEACH/PROCTOR-SILEX, INC. UNFUNDED BENEFIT PLAN Notice of Form of Benefit Payment 1. ELECTION OF FORM OF BENEFIT: Pursuant to the provisions of the Hamilton Beach/Proctor-Silex, Inc. Unfunded Benefit Plan (the "Plan"), I hereby elect that the portion of my Account attributable to my Excess 401(k) Benefit and my Excess Matching Benefit be paid in one of the following forms: (Elect One): _____ A lump sum cash payment. _____ Annual Installments over a period of ____ Years (must not exceed 9). I understand that if I fail to make an election or if my election is for any reason not effective, the portion of my Account attributable to my Excess 401(k) Benefit and my Excess Matching Benefit will automatically be paid in the form of annual installments for a period of 10 years. 2. EFFECTIVE DATE: I understand that in order for this election to be effective, it must be received by the Plan Administrator at least one year prior to the date on which I elected to commence payment of the portion of my Account attributable to my Excess 401(k) Benefit and my Excess Matching Benefit. 3. ACKNOWLEDGEMENT: I acknowledge that I have reviewed the Plan and understand that my election will be subject to the terms and conditions contained in the Plan. I understand 19 that I may change this election by filing a new election form with my Employer at least one year prior to the date on which I elected to commence payment of the portion of my Account attributable to my Excess 401(k) Benefit and my Excess Matching Benefit. 4. CONSTRUCTION: Terms used in this Notice of Election with initial capital letters that are defined in the Plan shall have the meanings set forth in the Plan unless a different meaning is clearly required by the context. Executed this day of , 19 . ----- ---------------------- --- ----------------------------------------- Signature ----------------------------------------- Print or Type Name Received by Employer: ----------------------------------------- Signature ----------------------------------------- Date 2 EX-10.CXVII 11 EXHIBIT 10(CXVII) 1 Exhibit 10(cxvii) HAMILTON BEACH/PROCTOR-SILEX, INC. ANNUAL INCENTIVE COMPENSATION PLAN ---------------------------------- GENERAL - ------- Hamilton Beach/Proctor-Silex, Inc. (the "Company") has established an Annual Incentive Compensation Plan (the "Plan") as part of a competitive compensation program for the Officers and key management employees of the Company and its Subsidiaries. PLAN OBJECTIVE - -------------- The Company desires to attract and retain talented employees to enable the Company to meet its financial and business objectives. The objective of the Plan is to provide an opportunity to earn annual incentive compensation to those employees whose performance has a significant impact on the Company's short-term and long-term profitability. ADMINISTRATION AND PARTICIPATION - -------------------------------- The Plan is administered by the Nominating, Organization and Compensation Committee of the Board of Directors of the Company (the "Committee"). The Committee: a. May amend, modify, or discontinue the Plan. b. Will approve participation in the Plan. Generally, participants will include all employees in Hat Salary Jobs Grades 14 and above. Employees who voluntarily terminate their employment prior to year-end are not entitled to an award, and employees joining the Company after August of any year will not be entitled to an award. However, the Committee may select any employee who has contributed significantly to the Company's profitability to participate in the Plan and receive an annual incentive compensation award. c. Will determine the annual performance criteria which generates the incentive compensation pool. d. Will determine the total amount of both the target and actual annual incentive compensation pool. e. Will approve individual incentive compensation awards to Officers and employees above Hay Salary Job Grade 17. f. May delegate to the Chief Financial Officer of the Company the power to approve incentive compensation awards to employees in and below Hay Salary Job Grade 17. g. May consider at the end of each year the award of a discretionary bonus amount to non-participants as an addition to the regular incentive compensation poll on a special one-time basis to motivate individuals not eligible to participate in the Plan. h. May approve a pro rata incentive compensation award for participants in the Plan whose employment is terminated (1) due to death, disability, retirement or facility closure, such award to be determined pursuant to the provisions of subparagraphs e. and f. above or (2) under other circumstances at the recommendation of the Chief Financial Officer of the Company. 2 DETERMINATION OF CORPORATE INCENTIVE COMPENSATION POOL - ------------------------------------------------------ Each participant in the Plan will have an individual target incentive compensation percentage which is determined by the participant's Salary Job Grade. This percentage is multiplied by the midpoint of the participant's Salary Job Grade to determine his individual target incentive compensation award. The total of the target incentive compensation awards of all participants equals the target corporate incentive compensation pool (the "Target Pool"). The Target Pool is approved each year by the Committee. The actual corporate incentive compensation pool (the "Actual Pool") is determined at the end of each year based on the Company's actual performance against specific criteria established in the beginning of the year by the Committee. The Target Pool is adjusted upwards or downwards by corporate performance adjustment factor to determine the Actual Pool. In no event will the Actual Pool exceed 150% of the Target Pool, except to the extent that the Committee elects to increase the Actual Pool by up to 10%, as described below. It is the intent of the Plan that the Actual Pool, as determined above, will by the final total corporate incentive compensation pool. However, the Committee, in its sole discretion, may increase or decrease by up to 10% the Actual Pool or may approve an incentive compensation pool where there would normally be no poll due to Company performance which is below the criteria established for the year. The Actual and Target Pools exclude commission personnel as salespersons, regional general manager and manufacturing representatives. DETERMINATION OF INDIVIDUAL INCENTIVE COMPENSATION AWARDS - --------------------------------------------------------- Salary Job Grades and the corresponding target incentive percentage for each participant in the Plan will be established at the beginning of each year and approved by the Committee. Individual target incentive compensation will then be adjusted by the appropriate pool factor. Such adjusted individual incentive compensation will then be further modified based on a participant's performance as compared to his individual goals for the year. The total of all individual incentive compensation awards must not exceed the Actual Pool for the year. PERFORMANCE TARGETS - See Plan Summary. - ------------------- EX-11 12 EXHIBIT 11 1 EXHIBIT 11 NACCO INDUSTRIES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED DECEMBER 31, 1996 1995 1994 ---- ---- ---- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME: Income before extraordinary items $50,577 $65,506 $45,272 Extraordinary gain, net-of-tax -- 32,333 -- Extraordinary charges, net-of-tax -- (3,399) (3,218) ------- ------- ------- Net income $50,577 $94,440 $42,054 ======= ======= ======= PER SHARE AMOUNTS REPORTED TO STOCKHOLDERS -- Note 1 Income before extraordinary items $ 5.67 $ 7.31 $ 5.06 Extraordinary gain, net-of-tax -- 3.61 -- Extraordinary charges, net-of-tax -- (.38) (.36) ------- ------- ------- Net income $ 5.67 $ 10.54 $ 4.70 ======= ======= ======= PRIMARY: Weighted average shares outstanding 8,920 8,963 8,948 Dilutive stock options -- Note 2 11 12 12 ------- ------- ------- Totals 8,931 8,975 8,960 ======= ======= ======= Per share amounts Income before extraordinary items $ 5.66 $ 7.30 $ 5.05 Extraordinary gain, net-of-tax -- 3.60 -- Extraordinary charges, net-of-tax -- (.38) (.35) ------- ------- ------- Net income $ 5.66 $ 10.52 $ 4.70 ======= ======= ======= FULLY DILUTED: Weighted average shares outstanding 8,920 8,963 8,948 Dilutive stock options -- Note 2 11 12 9 ------- ------- ------- Totals 8,931 8,975 8,957 ======= ======= ======= Per share amounts Income before extraordinary items $ 5.66 $ 7.30 $ 5.05 Extraordinary gain, net-of-tax -- 3.60 -- Extraordinary charges, net-of-tax -- (.38) (.35) ------- ------- ------- Net income $ 5.66 $ 10.52 $ 4.70 ======= ======= =======
Note 1-- Per share earnings have been computed and reported to the stockholders pursuant to APB Opinion No. 15, which provides that "any reduction of less than 3% in the aggregate need not be considered as dilution in the computation and presentation of earnings per share data." Note 2-- Dilutive stock options are calculated based on the treasury stock method. For primary per share earnings the average market price is used. For fully diluted per share earnings the year-end market price, if higher than the average market price, is used. EX-13 13 EXHIBIT 13 1 EXHIBIT 13 ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14(A)(1) AND (2), AND ITEM 14(d) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENTS FINANCIAL STATEMENT SCHEDULES YEAR ENDED DECEMBER 31, 1996 NACCO INDUSTRIES, INC. MAYFIELD HEIGHTS, OHIO F-1 2 FORM 10-K ITEM 14(A)(1) AND (2) NACCO INDUSTRIES, INC. AND SUBSIDIARIES LIST FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements of NACCO Industries, Inc. and Subsidiaries are included in Item 8: Report of Independent Public Accountants--Year ended December 31, 1996, 1995 and 1994. Consolidated Statements of Income--Year ended December 31, 1996, 1995 and 1994. Consolidated Balance Sheets--December 31, 1996 and December 31, 1995. Consolidated Statements of Cash Flows--Year ended December 31, 1996, 1995 and 1994. Consolidated Statements of Stockholders' Equity--Year ended December 31, 1996, 1995 and 1994. Notes to Consolidated Financial Statements. NACCO Industries, Inc. Report of Management The following consolidated financial statement schedules of NACCO Industries, Inc. and Subsidiaries are included in Item 14(d): Schedule I Condensed Financial Information of the Parent Schedule II Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. F-2 3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of NACCO Industries, Inc.: We have audited the accompanying consolidated balance sheets of NACCO Industries, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NACCO Industries, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in Item 14(a)(1) and (2) and Item 14(d) of Form 10-K are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Cleveland, Ohio February 20, 1997 F-3 4 CONSOLIDATED STATEMENTS OF INCOME NACCO INDUSTRIES, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31 ------------------------------------------------ 1996 1995 1994 --------- --------- --------- (In millions, except per share data) Revenues $ 2,273.2 $ 2,204.5 $ 1,864.9 Cost of sales 1,844.2 1,781.1 1,493.0 GROSS PROFIT 429.0 423.4 371.9 Selling, general and administrative expenses 282.4 261.0 228.6 Amortization of goodwill 15.4 13.7 13.7 --------- --------- --------- OPERATING PROFIT 131.2 148.7 129.6 Other income (expense) Interest expense (45.9) (47.2) (53.2) Other - net 1.0 2.0 2.1 --------- --------- --------- (44.9) (45.2) (51.1) --------- --------- --------- INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEMS 86.3 103.5 78.5 Provision for income taxes 34.3 34.7 30.7 --------- --------- --------- INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEMS 52.0 68.8 47.8 Minority interest (1.4) (3.3) (2.5) --------- --------- --------- INCOME BEFORE EXTRAORDINARY ITEMS 50.6 65.5 45.3 Extraordinary items: Extraordinary gain, net-of-tax -- 32.3 -- Extraordinary charges, net-of-tax -- (3.4) (3.2) --------- --------- --------- NET INCOME $ 50.6 $ 94.4 $ 42.1 ========= ========= ========= PER SHARE: Income Before Extraordinary Items $ 5.67 $ 7.31 $ 5.06 Extraordinary items: Extraordinary gain, net-of-tax -- 3.61 -- Extraordinary charges, net-of-tax -- (.38) (.36) --------- --------- --------- Net Income $ 5.67 $ 10.54 $ 4.70 ========= ========= =========
See notes to consolidated financial statements. F-4 5 CONSOLIDATED BALANCE SHEETS NACCO INDUSTRIES, INC. AND SUBSIDIARIES
December 31 -------------------------- 1996 1995 -------- -------- (In millions) ASSETS CURRENT ASSETS Cash and cash equivalents $ 47.8 $ 30.9 Accounts receivable, net of allowance of $12.5 and $11.3 212.2 284.2 Inventories 309.6 388.8 Prepaid expenses and other 22.2 18.1 -------- -------- 591.8 722.0 PROPERTY, PLANT AND EQUIPMENT, NET 550.3 534.4 DEFERRED CHARGES Goodwill, net 461.0 465.1 Deferred costs and other 59.6 56.7 Deferred income taxes 7.9 17.3 -------- -------- 528.5 539.1 OTHER ASSETS 37.5 38.3 -------- -------- TOTAL ASSETS $1,708.1 $1,833.8 ======== ========
F-5 6 CONSOLIDATED BALANCE SHEETS NACCO INDUSTRIES, INC. AND SUBSIDIARIES
December 31 -------------------------- 1996 1995 -------- -------- (In millions) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 186.3 $ 250.7 Revolving credit agreements 45.8 95.7 Current maturities of long-term debt 21.4 19.9 Income taxes 5.9 4.7 Accrued payroll 30.8 29.8 Accrued warranty obligations 21.5 17.7 Other current liabilities 104.3 105.2 -------- -------- 416.0 523.7 LONG-TERM DEBT - not guaranteed by the parent company 333.3 320.2 OBLIGATIONS OF PROJECT MINING SUBSIDIARIES - not guaranteed by the parent company or its subsidiary, The North American Coal Corporation 341.5 346.5 SELF-INSURANCE RESERVES AND OTHER 223.9 229.3 MINORITY INTEREST 14.1 44.0 STOCKHOLDERS' EQUITY Common stock: Class A, par value $1 per share, 6,492,059 shares outstanding (1995 - 7,256,971 shares outstanding) 6.5 7.3 Class B, par value $1 per share, convertible into Class A on a one-for-one basis, 1,694,336 shares outstanding (1995 - 1,709,453 shares outstanding) 1.7 1.7 Capital in excess of par value .1 3.6 Retained earnings 359.2 350.3 Foreign currency translation adjustment and other 11.8 7.2 -------- -------- 379.3 370.1 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,708.1 $1,833.8 ======== ========
See notes to consolidated financial statements. F-6 7 CONSOLIDATED STATEMENTS OF CASH FLOWS NACCO INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended December 31 ---------------------------------------- 1996 1995 1994 ------ ------ ------ (In millions) OPERATING ACTIVITIES Net income $ 50.6 $ 94.4 $ 42.1 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary gain, net-of-tax -- (32.3) -- Extraordinary charges, net-of-tax -- 2.2 1.0 Depreciation, depletion and amortization 85.3 79.3 80.2 Deferred income taxes (3.2) 1.4 4.0 Other non-cash items (3.7) 2.1 (6.2) Working capital changes: Accounts receivable 90.0 (38.6) (31.2) Inventories 87.3 (85.6) (54.8) Other current assets (.6) 2.4 (5.4) Accounts payable and other liabilities (64.3) 6.8 68.1 ------ ------ ------ NET CASH PROVIDED BY OPERATING ACTIVITIES 241.4 32.1 97.8 ------ ------ ------ INVESTING ACTIVITIES Expenditures for property, plant and equipment (79.4) (73.1) (52.6) Proceeds from the sale of other assets 1.1 1.3 11.1 Acquisitions of businesses (45.1) (7.3) -- Other-net .6 .7 1.5 ------ ------ ------ NET CASH USED FOR INVESTING ACTIVITIES (122.8) (78.4) (40.0) ------ ------ ------ FINANCING ACTIVITIES Additions to long-term debt and revolving credit agreements 115.9 328.2 122.1 Reductions of long-term debt and revolving credit agreements (157.4) (276.5) (192.7) Additions to obligations of project mining subsidiaries 68.8 93.0 56.4 Reductions of obligations of project mining subsidiaries (74.5) (102.1) (67.7) Financing of other short-term obligations (10.6) 10.8 11.9 Stock repurchase (40.4) -- -- Cash dividends paid (6.7) (6.4) (6.0) Capital grants 4.2 4.0 1.6 Other-net (2.8) 5.6 3.6 ------ ------ ------ NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (103.5) 56.6 (70.8) ------ ------ ------ Effect of exchange rate changes on cash 1.8 1.1 3.4 ------ ------ ------ CASH AND CASH EQUIVALENTS Increase (decrease) for the year 16.9 11.4 (9.6) Balance at the beginning of the year 30.9 19.5 29.1 ------ ------ ------ BALANCE AT THE END OF THE YEAR $ 47.8 $ 30.9 $ 19.5 ====== ====== ======
See notes to consolidated financial statements. F-7 8 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY NACCO INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended December 31 --------------------------------------- 1996 1995 1994 ------ ------ ------ (In millions) CLASS A COMMON STOCK Beginning balance $ 7.3 $ 7.2 $ 7.2 Purchase of treasury shares (.8) -- -- Other -- .1 -- ------ ------ ------ 6.5 7.3 7.2 ------ ------ ------ CLASS B COMMON STOCK 1.7 1.7 1.7 ------ ------ ------ CAPITAL IN EXCESS OF PAR VALUE Beginning balance 3.6 2.8 2.5 Shares issued under stock option and compensation plans 1.1 .8 .3 Purchase of treasury shares (4.6) -- -- ------ ------ ------ .1 3.6 2.8 ------ ------ ------ RETAINED EARNINGS Beginning balance 350.3 262.3 226.2 Net income 50.6 94.4 42.1 Purchase of treasury shares (35.0) -- -- Cash dividends on Class A and Class B common stock: 1996 $.743 per share (6.7) 1995 $.710 per share (6.4) 1994 $.675 per share (6.0) ------ ------ ------ 359.2 350.3 262.3 ------ ------ ------ FOREIGN CURRENCY TRANSLATION ADJUSTMENT AND OTHER Beginning balance 7.2 5.4 (2.1) Foreign currency translation adjustment and other 4.6 1.8 7.5 ------ ------ ------ 11.8 7.2 5.4 ------ ------ ------ TOTAL STOCKHOLDERS' EQUITY $379.3 $370.1 $279.4 ====== ====== ======
See notes to consolidated financial statements. F-8 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PERCENTAGE DATA) NOTE 1--NATURE OF OPERATIONS The Company has four operating subsidiaries which function in distinct business environments; forklift truck manufacturing and service parts distribution, small electric appliance manufacturing, mining and retail. 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. NMHG's manufacturing plants are located primarily in the United States and Europe. In addition, NMHG has manufacturing facilities in Japan through its 50-percent-owned Japanese joint venture, Sumitomo-NACCO ("S-N"). While NMHG's market position is strongest in North America, it also has a significant presence in Europe and a growing position in Asia-Pacific. Hamilton Beach-Proctor-Silex, Inc. ("HB-PS") designs, manufactures and markets small electric appliances covering approximately 80 percent of the small kitchen electric appliance market. Effective October 18, 1996, HB-PS became a wholly owned subsidiary when NACCO purchased the remaining 20 percent minority interest from the previous minority shareholder. The effect of this transaction was not material to NACCO's financial position or results of operations. HB-PS manufactures the majority of its products at its plants located in North America and also sources some of its products from the Far East. The company primarily sells its products to retailers and distributors in North America. The North American Coal Corporation ("NACoal"), wholly owned by NACCO, mines and markets lignite for use primarily as fuel for power generation by electric utilities. The company operates four surface lignite mines, two in North Dakota and one each in Texas and Louisiana. Each of these lignite mines operates under long-term contracts to sell lignite at a price based on actual costs plus an agreed pretax profit per ton. In addition, NACoal provides dragline mining services at a limerock quarry in Florida. The Kitchen Collection, Inc. ("KCI"), wholly owned by NACCO, is a national specialty retailer of kitchenware and small electric appliances with stores located primarily in factory outlet malls KCI operates stores under the Kitchen Collection(R) and Hearthstone(TM) names and sells brand-name kitchenware, tableware, small electric appliances and related accessories. NOTE 2--ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of NACCO Industries, Inc. ("NACCO," the parent company) and its majority owned subsidiaries (NACCO Industries, Inc. and Subsidiaries - the "Company"). Intercompany accounts and transactions are eliminated. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities (if any) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash in banks and highly liquid investments with original maturities of three months or less. F-9 10 NOTE 2-- ACCOUNTING POLICIES - Continued INVENTORIES: Inventories are stated at the lower of cost or market. Cost is determined under the last-in, first-out (LIFO) method for manufacturing inventories in the United States and under the first-in, first-out (FIFO) method with respect to all other inventories. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are recorded at cost. Depreciation, depletion and amortization are provided in amounts sufficient to amortize the cost of the assets (including assets recorded under capital leases) over their estimated useful lives using the straight-line method. The units-of-production method is used to amortize certain coal-related assets based on estimated recoverable tonnages. GOODWILL: Goodwill represents the excess purchase price paid over the fair value of the net assets acquired. The amortization of goodwill is determined on a straight-line basis over a 40-year period. Accumulated amortization of goodwill was $106.2 million and $90.8 million at December 31, 1996 and 1995, respectively. Management regularly evaluates its accounting for goodwill considering such factors as historical and future profitability and believes that the asset is realizable and the amortization period remains appropriate. REVENUE RECOGNITION: Revenues are recognized when customer orders are complete and shipped. Accruals for the cost of product warranties are maintained for anticipated future claims. ADVERTISING COSTS: Advertising costs are expensed as incurred and amounted to $33.6 million in 1996, $32.6 million in 1995 and $26.2 million in 1994. PRODUCT DEVELOPMENT COSTS: Expenses associated with the development of new products and changes to existing products are charged to expense as incurred. These costs amounted to $27.0 million, $27.5 million and $25.9 million in 1996, 1995 and 1994, respectively. FOREIGN CURRENCY: Assets and liabilities of foreign operations are translated into U.S. dollars at the fiscal year-end exchange rate. The related translation adjustments are recorded as a separate component of stockholders' equity. Revenues and expenses are translated using average exchange rates prevailing during the year. FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS: Financial instruments held by the Company include cash and cash equivalents, accounts receivable, accounts payable, revolving credit agreements, long-term debt, interest rate swap agreements and forward foreign currency exchange contracts. The fair values of these financial instruments have been determined using quoted market sources and management estimates. The Company does not hold or issue financial instruments or derivative financial instruments for trading purposes. The Company enters into forward foreign currency exchange contracts with terms of one to twelve months. These contracts hedge certain foreign currency denominated receivables and payables and foreign currency commitments. Gains and losses on these contracts are deferred and recognized as part of the cost of the underlying transaction being hedged. The Company also enters into interest rate swap agreements with terms ranging from three months to seven years. The difference between the floating interest rate and fixed interest rate which is to be paid or received is recognized in interest expense as the floating interest rate changes over the life of the agreement. EARNINGS PER SHARE: The calculation of net income per share is based on the weighted average number of shares outstanding during each period. F-10 11 NOTE 2-- ACCOUNTING POLICIES - Continued RECENTLY ISSUED ACCOUNTING STANDARD: In October 1996, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 96-1 "Environmental Remediation Liabilities." This statement provides guidance on the recognition and measurement of environmental remediation liabilities incurred as a result of threatened litigation or actual assessment. The Company does not expect the adoption of this statement, which is required in fiscal 1997, to have a material impact on its financial position or results of operations. RECLASSIFICATIONS: Certain amounts in the prior periods' consolidated financial statements have been reclassified to conform to the current period's presentation. NOTE 3--EXTRAORDINARY ITEMS EXTRAORDINARY GAIN - UMWA OBLIGATION The extraordinary gain of $32.3 million recognized in 1995, net of $19.8 million in taxes, relates to a downward revision in the obligation to the United Mine Workers of America Combined Benefit Fund ("UMWA"). This obligation was recognized by The Bellaire Corporation ("Bellaire," a wholly owned non-operating subsidiary of NACCO) as an extraordinary charge in 1992 to accrue for the estimated costs associated with the Coal Industry Retiree Health Benefit Act of 1992 ("Coal Act"), which is discussed in more detail in Note 9 on page F-16. It is the Company's policy to periodically review the estimates and assumptions upon which various liability reserves are based. As a result of a review of the assumptions relating to the number of Company and industry covered beneficiaries ultimately assigned to Bellaire, and the trend of health care costs, the aggregate estimated costs associated with the Coal Act are expected to be lower than originally anticipated. Management believes that the liability, revised to $69.3 million, net of deferred taxes, in 1995, more accurately represents the future cost of this obligation. EXTRAORDINARY CHARGES - EARLY EXTINGUISHMENT OF DEBT The extraordinary charges recognized in 1995 and 1994 relate to the write-off of premiums and unamortized financing fees. The 1995 extraordinary charge includes a $1.3 million charge in the first quarter for unamortized financing fees when NMHG's former revolving credit facility and senior term loan were replaced by a new long-term revolving credit facility. The retirement of $78.5 million and $70.0 million face-value Hyster-Yale 12 3/8% debentures in 1995 and 1994, respectively, resulted in charges of $2.1 million in the third quarter of 1995 and $3.2 million in 1994 due to the write-off of premiums and unamoritized financing fees. These retirements were achieved using internally generated funds of NMHG and equity infusions from existing stockholders. F-11 12 NOTE 4--INVENTORIES Inventories are summarized as follows:
December 31 ----------------------- 1996 1995 ------- ------- Manufacturing inventories: Finished goods and service parts - NMHG $113.6 $117.4 HB-PS 34.1 43.3 ------ ------ 147.7 160.7 ------ ------ Raw materials and work in process - NMHG 120.6 182.0 HB-PS 14.0 15.7 ------ ------ 134.6 197.7 ------ ------ LIFO reserve - NMHG (15.6) (13.3) HB-PS .3 (.3) ------ ------ (15.3) (13.6) ------ ------ Total manufacturing inventories 267.0 344.8 Coal - NACoal 8.3 10.6 Mining supplies - NACoal 18.9 19.1 Retail inventories - KCI 15.4 14.3 ------ ------ $309.6 $388.8 ====== ======
The cost of manufacturing inventories has been determined by the LIFO method for 62 percent and 66 percent of such inventories at December 31, 1996 and 1995, respectively. NOTE 5--PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment includes the following:
December 31 ------------------------ 1996 1995 ------- ------- Coal lands and real estate: NMHG $ 6.6 $ 6.4 HB-PS 1.6 .8 NACoal 16.1 15.3 Project mining subsidiaries (Note 8) 77.9 77.1 KCI -- .1 NACCO and Other .2 .3 ------- ------- 102.4 100.0 ------- ------- Plant and equipment: NMHG 289.3 250.6 HB-PS 123.7 111.7 NACoal 20.7 18.2 Project mining subsidiaries (Note 8) 438.4 428.2 KCI 7.4 7.3 NACCO and Other 4.8 4.1 ------- ------- 884.3 820.1 ------- ------- Property, plant and equipment at cost 986.7 920.1 Less allowances for depreciation, depletion and amortization 436.4 385.7 ------- ------- $ 550.3 $ 534.4 ======= =======
F-12 13 NOTE 5--PROPERTY, PLANT AND EQUIPMENT - Continued Total depreciation, depletion and amortization expense on property, plant and equipment was $67.7 million, $63.9 million and $63.2 million during 1996, 1995 and 1994, respectively. Proven and probable coal reserves approximated 2.1 billion tons at December 31, 1996 and 1995. NOTE 6--REVOLVING CREDIT AGREEMENTS Financing arrangements are obtained and maintained at the subsidiary level. NACCO has not guaranteed the long-term debt or any borrowings of its subsidiaries. The following table summarizes the Company's available and outstanding borrowings. A detail of the agreements at each subsidiary follows this table.
December 31 ------------------------- 1996 1995 ------- ------- Available borrowings: NMHG $ 385.7 $ 380.5 HB-PS 185.0 160.0 NACoal 50.0 50.0 KCI 5.0 5.0 ------- ------- $ 625.7 $ 595.5 ======= ======= Current portion of borrowings outstanding: NMHG $ 7.8 $ 78.6 HB-PS 9.0 17.1 NACoal 29.0 -- KCI -- -- ------- ------- $ 45.8 $ 95.7 ======= ======= Unused availability: NMHG $ 133.9 $ 56.0 HB-PS 96.0 77.9 NACoal 21.0 50.0 KCI 5.0 5.0 ------- ------- $ 255.9 $ 188.9 ======= ======= Weighted average stated interest rate: NMHG 6.0% 6.5% HB-PS 5.8% 6.2% NACoal 6.1% 6.6% KCI 6.0% 6.6%
NMHG: NMHG's credit agreement provides for an unsecured revolving credit facility ("NMHG Facility") that permits advances up to $350.0 million. A portion of the outstanding balance is classified as long-term because it is not expected to be repaid during the subsequent fiscal year. The company entered into the NMHG Facility in 1995 to replace its former bank agreement and to refinance the majority of its previously outstanding long-term debt. The expiration date of the NMHG Facility (which was extended to June 2001 during 1996) may be extended, on an annual basis, for one additional year upon the mutual consent of NMHG and the bank group. In addition, the NMHG Facility has performance-based pricing which sets interest rates based upon achievement of certain financial performance targets. The NMHG Facility currently provides for, at the company's option, Euro-Dollar Loans which bear interest at LIBOR plus 0.3 percent and Money Market Loans which bear interest at Auction Rates (as defined in the agreement) and requires a 0.2 percent fee on the available borrowings. NMHG also has separate facilities totaling $35.7 and $30.5 million at December 31, 1996 and 1995, respectively, of which $27.9 million and $26.5 million was available at December 31, 1996 and 1995, respectively. F-13 14 NOTE 6--REVOLVING CREDIT AGREEMENTS - Continued HB-PS: 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 assets of HB-PS. A portion of the outstanding balance is classified as long-term because it is not expected to be repaid during the subsequent fiscal year. The expiration date of the HB-PS Facility (which was extended to May 1999 during 1996) may be extended, on an annual basis, for one additional year upon the mutual consent of HB-PS and the bank group. In 1995 the HB-PS Facility was amended to provide a lower interest rate if HB-PS achieves a certain interest coverage ratio, and to allow for interest rates quoted under a competitive bid option. The HB-PS Facility currently provides for interest at LIBOR plus 0.3 percent and requires a 0.2 percent facility fee on the available borrowings. At December 31, 1996 and December 31, 1995, HB-PS also had $25.0 million available under separate facilities, of which $23.9 million and $25.0 million was available at December 31, 1996 and 1995, respectively. NACOAL: NACoal has in place a revolving credit facility ("NACoal Facility") that permits advances up to $50.0 million and requires a 0.2 percent commitment and facility fee. The expiration date of the NACoal Facility (which was extended to September 2001 during 1996) may be extended, on an annual basis, for one additional year upon the mutual consent of NACoal and the bank group. Borrowings bear interest at LIBOR plus 0.4 percent. KCI: KCI has in place a revolving credit facility ("KCI Facility") that permits advances up to $5.0 million and requires a 0.2 percent facility fee. The expiration date of the KCI Facility (which was extended to May 1999 during 1996) may be extended, on an annual basis, for one additional year upon the mutual consent of KCI and the bank group. Borrowings bear interest at the bank's prime rate, money market rate or LIBOR rate plus a base rate margin of 0.4 to 1.2 percent, as determined by certain performance measures. NOTE 7--LONG-TERM DEBT Subsidiary long-term debt, less current maturities, is as follows:
December 31 ---------------------- 1996 1995 ------ ------ NMHG - Long-term portion of revolving credit agreement $244.0 $245.9 NMHG - Other 3.7 4.1 ------ ------ 247.7 250.0 HB-PS - Long-term portion of revolving credit agreement 80.0 65.0 HB-PS - Other .5 -- ------ ------ 80.5 65.0 KCI - Term note with a stated interest rate of 6.8% and 6.9% at December 31, 1996 and 1995, respectively, payable 1999 to 2000 5.0 5.0 NACOAL - Other .1 .2 ------ ------ $333.3 $320.2 ====== ======
The maturities of the subsidiary long-term debt for the next five years, including current maturities, are as follows: $1.2 million in 1997, $0.2 million in 1998, $2.5 million in 1999, $2.5 million in 2000 and $0 in 2001. Interest paid was $32.1 million, $38.4 million and $41.2 million during 1996, 1995 and 1994, respectively. F-14 15 NOTE 7--LONG-TERM DEBT - Continued The credit agreements for NMHG, HB-PS, NACoal and KCI contain certain covenants and restrictions. Covenants require, among other things, some or all of the following: maintenance of certain minimum amounts of net worth and certain specified ratios of working capital, debt to capitalization, interest coverage and fixed charge coverage. These ratios are calculated at the subsidiary level. Restrictions include limits on capital expenditures and dividends. At December 31, 1996, the subsidiaries were in compliance with all of the covenants in their credit agreements. NOTE 8--OBLIGATIONS OF PROJECT MINING SUBSIDIARIES NACoal's project mining subsidiaries have entered into long-term contracts with various utility customers to provide lignite at a sales price based on cost plus a profit per ton. The utility customers have arranged and guaranteed the financing for the development and operation of these subsidiary mines. The obligations of these project mining subsidiaries included in the Company's consolidated balance sheets do not affect the short- or long-term liquidity of the Company and are without recourse to NACCO or its NACoal subsidiary. Obligations of project mining subsidiaries, less current maturities, consist of the following at December 31:
1996 1995 ------ ------ Capitalized lease obligations $136.6 $146.4 Non-interest-bearing advances from customers 184.2 176.4 Promissory notes with interest rates ranging from 5.8% to 8.7% during 1996 and 5.0% to 8.7% during 1995 20.7 23.7 ------ ------ $341.5 $346.5 ====== ======
The annual maturities of the promissory notes are: $6.2 million in 1997, $3.2 million in 1998, $3.1 million in 1999, $3.1 million in 2000 and $2.6 million in 2001. Advances from customers are used to develop, operate and provide for the ongoing working capital needs of certain project mining subsidiaries. Interest paid was $13.6 million, $14.3 million and $17.7 million during 1996, 1995 and 1994, respectively. The cost of coal, which is passed through to the utility customers, includes interest expense. The project mining subsidiaries' capital lease obligations for mining equipment have the following future minimum lease payments at December 31, 1996:
1997 $ 22.6 1998 21.9 1999 21.5 2000 20.6 2001 20.3 Subsequent to 2001 120.2 ------- Total minimum lease payments 227.1 Amounts representing interest (78.9) ------- Present value of net minimum lease payments 148.2 Current maturities (11.6) ------- $ 136.6 =======
Interest expense and amortization in excess of annual lease payments are deferred and recognized in years when annual lease payments exceed interest expense and amortization. F-15 16 NOTE 8--OBLIGATIONS OF PROJECT MINING SUBSIDIARIES - Continued Project mining assets recorded under capital leases are included in property, plant and equipment and consist of the following at December 31:
1996 1995 ------- ------- Plant and equipment $ 198.7 $ 201.0 Less accumulated amortization 87.1 78.3 ------- ------- $ 111.6 $ 122.7 ======= =======
During 1996, 1995 and 1994, the project mining subsidiaries incurred capital lease obligations of $1.8 million, $18.0 million and $5.2 million, respectively, in connection with lease agreements to acquire plant and equipment. The above obligations are secured by substantially all owned assets of the respective project mining subsidiary and the assignment of all rights under its coal sales agreement. NOTE 9--SELF-INSURANCE RESERVES AND OTHER Self-insurance reserves and other consisted of the following at December 31:
1996 1995 -------- ------ Present value of closed mine obligations $ 53.1 $ 53.8 Reserve for future interest on obligation to UMWA 61.5 64.2 ------- ------- 114.6 118.0 Other self-insurance reserves 109.3 111.3 ------- ------- $ 223.9 $ 229.3 ======== ========
The closed mine obligations relate to Bellaire's former eastern U.S. underground mining operations and the Indian Head Mine, which ceased operations in 1992. Included in these obligations is the obligation to UMWA which resulted from the Coal Act. The Coal Act requires Bellaire to incur additional costs for retiree medical expenses of certain United Mine Worker retirees. Annual cash payments of up to $3.0 million after tax are expected relating to this obligation and could continue for as long as 40 to 50 years. The Company has recorded this obligation on an undiscounted basis. The reserve for future interest represents the portion of this reserve comprising interest costs. In addition, the closed mine obligations include reserves for land reclamation and site treatment at certain closed eastern underground and western surface mines, as well as reserves for workers compensation and black lung benefit costs. The other self-insurance reserves primarily include product liability reserves, employee retirement benefit obligations and other miscellaneous reserves. NOTE 10--LEASE COMMITMENTS Future minimum operating lease payments, excluding project mining subsidiaries, at December 31, 1996, are as follows: 1997 $ 18.7 1998 17.7 1999 15.3 2000 12.9 2001 10.6 Thereafter 14.0 ------ $ 89.2 ======
Rental expense for all operating leases, excluding project mining subsidiaries, amounted to $23.6 million, $20.7 million and $16.9 million during 1996, 1995 and 1994, respectively. F-16 17 NOTE 11--FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS FINANCIAL INSTRUMENTS A financial instrument is cash or a contract that imposes an obligation to deliver, or conveys a right to receive, cash or another financial instrument. The fair value of financial instruments approximated carrying values at December 31, 1996 and 1995. Financial instruments that potentially subject the Company to concentration of credit risk consist principally of accounts receivable and derivatives. Concentration of credit risk on accounts receivable is mitigated by the large number of customers comprising the Company's customer base and their dispersion across many different industries and geographies. The Company enters into derivative contracts with high-quality institutions and limits the amount of credit exposure to any one institution. DERIVATIVE FINANCIAL INSTRUMENTS INTEREST RATE DERIVATIVES: The Company's operating subsidiaries enter into interest rate swap agreements ("swaps"). These swaps allow the subsidiaries to enter into long-term credit agreements that have performance-based, floating rates of interest and then exchange them for fixed rates, as opposed to entering into higher cost fixed-rate credit arrangements. The following table summarizes the notional amounts, related rates (including applicable margins) and remaining terms on swaps outstanding at December 31, 1996:
Notional Fixed Rate Remaining Amount Paid Term ----------- ---------- ----------- NMHG $310.0 6.4% 1 to 7 Yrs. HB-PS $ 75.0 6.3% 2 to 3 Yrs. NACoal $ 13.9 6.8% 6 Yrs. KC $ 5.0 8.1% 3 to 4 Yrs.
FOREIGN CURRENCY DERIVATIVES: NMHG and HB-PS enter into forward foreign currency exchange contracts for purposes of hedging their exposure to foreign currency exchange rate fluctuations. These contracts hedge primarily firm commitments and, to a lesser degree, forecasted commitments relating to cash flows associated with sales and purchases denominated in foreign currencies. NMHG and HB-PS had forward foreign currency exchange contracts outstanding in the amounts of $61.1 million and $2.7 million, respectively, at December 31, 1996, primarily denominated in Japanese yen, Australian dollars, French francs and Canadian dollars. At December 31, 1995, NMHG and HB-PS had forward foreign currency exchange contracts outstanding in the amounts of $293.2 million and $3.8 million, respectively, primarily denominated in Japanese yen, British pounds sterling, French francs and Canadian dollars. The amount of deferred loss on these contracts at December 31, 1996 was not material. NOTE 12--CONTINGENCIES Various legal proceedings and claims have been or may be asserted against NACCO and certain subsidiaries relating to the conduct of its business, including product liability and environmental claims. These proceedings are incidental to their ordinary course of business. Management believes that it has meritorious defenses and will vigorously defend itself in these actions. Any costs that management estimates will be paid as a result of these claims are accrued when the liability is considered probable and the amount can be reasonably estimated. Although the ultimate disposition of these proceedings is not presently determinable, management believes, after consultation with its General Counsel, that the likelihood that material costs will be incurred in excess of accruals already recognized is remote. NMHG is subject to recourse or repurchase obligations under various financing arrangements for certain independently owned retail dealerships at December 31, 1996. Also, certain dealer loans are guaranteed by NMHG. When NMHG is the guarantor of the principal amount financed, a security interest is usually maintained in certain assets of parties for whom NMHG is guaranteeing debt. Total amounts subject to F-17 18 NOTE 12--CONTINGENCIES - Continued recourse or repurchase obligation at December 31, 1996 and 1995 were $125.6 million and $100.8 million, respectively. Losses anticipated under the terms of the recourse or repurchase obligations are not significant and have been reserved for in the consolidated financial statements. NOTE 13--COMMON STOCK The Class A common stock has one vote per share and the Class B common stock has 10 votes per share. The total number of authorized shares of Class A common stock and Class B common stock at December 31, 1996, was 25,000,000 shares and 6,756,176 shares, respectively. Treasury shares of Class A stock totaling 1,597,447 and 817,418 at December 31, 1996 and 1995, respectively, have been deducted from shares issued. STOCK REPURCHASE PROGRAM: In 1996, the board of directors authorized the repurchase of up to 1.5 million shares of the Company's Class A common stock. Pursuant to this authorization, the Company commenced an issuer tender offer (the "Offer") on November 18, 1996 for the purchase of up to 800,000 Class A common shares at prices of $43.50 to $50.00 per share. The Offer resulted in the repurchase of 800,000 shares on December 23, 1996, at $50.00 per share. The $40.4 million cost of this transaction, including fees and expenses, was financed using cash on hand and the Company's revolving credit facilities. In addition to the Offer, the Company is authorized to purchase up to 700,000 shares of Class A common stock through an open market share repurchase program over the next two fiscal years. The following table summarizes selected unaudited pro forma financial information assuming that the 800,000 share Offer had occurred at the beginning of each period presented:
1996 1995 1994 --------- --------- --------- Operating results - ----------------- Income before extraordinary items $ 49.1 $ 63.9 $ 43.7 Net income $ 49.1 $ 92.8 $ 40.5 Per share - --------- Income before extraordinary items $ 6.00 $ 7.83 $ 5.36 Extraordinary items -- 3.54 (.39) --------- --------- --------- Net income $ 6.00 $ 11.37 $ 4.97 ========= ========= ========= Average shares outstanding (in millions) 8.183 8.163 8.148
STOCK OPTIONS: The 1975 and 1981 stock option plans as amended provide for the granting to officers and other key employees options to purchase Class A and Class B common stock of the Company at a price not less than the market value of such stock at the date of grant. Options become exercisable over a four-year period and expire 10 years from the date of the grant. At December 31, 1996, 1995 and 1994, all stock options outstanding were exercisable. At December 31, 1996, 1995 and 1994, there were 80,701 Class A shares and 80,100 Class B shares available for grant. No options were granted or exercised during 1996 and 1995. In addition, no options were granted during 1994; however, 8,200 Class A shares and 2,700 Class B shares were exercised. At December 31, 1996, 1995 and 1994 there were options outstanding relating to 5,800 Class A shares with an option price of $32.00 that were granted on January 12, 1989, and 25,000 Class A shares at an option price of $35.56 granted on March 1, 1989. The Company does not intend to issue additional stock options. The Company applies AICPA Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for stock options. Since there have been no options granted in fiscal years 1996 and 1995, no additional pro forma disclosures are required as provided in Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation." F-18 19 NOTE 14--INCOME TAXES The components of income before income taxes and provision for income taxes for the year ended December 31 are as follows:
1996 1995 1994 ------ ------ ------ Income before income taxes and extraordinary items - -------------------------------------------------- Domestic $ 73.0 $ 79.3 $ 57.1 Foreign 13.3 24.2 21.4 ------ ------ ------ $ 86.3 $103.5 $ 78.5 ====== ====== ====== Provision for income taxes - -------------------------- Current tax expense: Federal $ 29.0 $ 28.4 $ 24.3 State 6.2 4.9 3.0 Foreign 5.6 4.2 7.8 ------ ------ ------ Total current 40.8 37.5 35.1 ------ ------ ------ Deferred tax expense (benefit): Federal (.3) (3.3) (1.1) State (.9) (.8) (.1) Foreign (5.3) 1.3 (3.2) ------ ------ ------ Total deferred (6.5) (2.8) (4.4) ------ ------ ------ $ 34.3 $ 34.7 $ 30.7 ====== ====== ======
Domestic income before income taxes has been reduced by all of the amortization of goodwill and substantially all interest expense. The Company made income tax payments of $40.2 million, $48.9 million and $29.0 million during 1996, 1995 and 1994, respectively. During the same period, income tax refunds totaled $3.3 million, $3.7 million and $1.2 million, respectively. At December 31, 1996, the Company had cumulative undistributed foreign earnings of $120.7 million, of which the Company intends to permanently reinvest $45.5 million. The Company has determined that it is not practicable to estimate the amount of taxes on these permanently reinvested earnings. It is the Company's policy to provide income taxes on cumulative undistributed foreign earnings where it is anticipated that a distribution of such earnings is likely to occur. The distributable foreign earnings of $75.2 million can be remitted without a material charge to earnings. The amount of withholding taxes imposed by foreign jurisdictions that would be payable upon remittance of all undistributed foreign earnings would be $6.3 million. These withholding taxes, subject to certain limitations, may be used to reduce U.S. income taxes. F-19 20 NOTE 14--INCOME TAXES - Continued A reconciliation of federal statutory and effective income tax for the year ended December 31 follows:
1996 1995 1994 ------- ------- ------- Income before taxes $ 86.3 $ 103.5 $ 78.5 ======= ======= ======= Statutory taxes at 35% $ 30.2 $ 36.2 $ 27.5 Amortization of goodwill 5.1 5.1 5.1 State income taxes 3.3 2.7 1.8 Tax audit settlements (1.2) (3.1) -- Export benefits (1.8) (1.1) (1.0) Percentage depletion (1.6) (1.8) (1.6) Foreign tax items (.5) (2.3) .4 Earnings reported net of taxes (.4) (1.2) (.4) Other-net 1.2 .2 (1.1) ------- ------- ------- Provision for income taxes $ 34.3 $ 34.7 $ 30.7 ======= ======= ======= Effective rate 39.7% 33.5% 39.1% ======= ======= =======
A detailed summary of the total deferred tax assets and liabilities in the Company's consolidated balance sheets at December 31 resulting from differences in the book and tax basis of assets and liabilities follows:
1996 1995 ------- ------- Deferred tax assets - ------------------- Accrued expenses and reserves $ 43.7 $ 38.6 Reserve for UMWA 34.5 35.9 Employee benefits 18.1 18.3 Net operating loss carryforwards 9.3 5.4 ------- ------- Total deferred tax assets 105.6 98.2 ------- ------- Deferred tax liabilities - ------------------------ Depreciation & depletion 46.8 45.3 Unrepatriated earnings 16.7 11.7 Inventories 12.6 16.2 Other 16.1 14.1 ------- ------- Total deferred tax liabilities 92.2 87.3 ------- ------- Net deferred tax asset $ 13.4 $ 10.9 ======= =======
In 1996 and 1995 the Company reached agreements with various tax authorities resulting in non-recurring tax benefits of $1.2 million and $3.1 million, respectively. Additionally, the Company recognized a non-recurring tax benefit of $2.5 million in 1995 from the remittance of earnings of foreign subsidiaries subject to rates of tax in excess of the U.S. statutory rate. The Company and certain of its subsidiaries are currently under examination by various taxing authorities. The Company has not been informed of any material assessment resulting from these examinations and will vigorously contest any material assessment. Management believes that any potential adjustment would not materially affect future earnings. F-20 21 NOTE 15--RETIREMENT BENEFIT PLANS DEFINED BENEFIT PLANS: The Company maintains various defined benefit pension plans covering most of its employees. These plans provide benefits based on years of service and average compensation during certain periods. The Company's policy is to make contributions to fund these plans within the range allowed by the applicable regulations. Contributions to the various plans were $12.6 million in 1996, $5.6 million in 1995 and $6.9 million in 1994. Plan assets consist primarily of publicly traded stocks, investment contracts and government and corporate bonds. Set forth below is a detail of consolidated worldwide net periodic pension expense and the assumptions used in accounting for the United States defined benefit plans for the year ended December 31. The United Kingdom plans used assumptions that are consistent with, but not identical to, those used by the United States plans.
1996 1995 1994 ------- ------- ------- Service cost $ 8.0 $ 7.9 $ 6.6 Interest cost on projected benefit obligation 11.4 10.4 9.4 Actual loss (gain) on plan assets (13.4) (21.2) 1.1 Curtailment gain (1.3) -- -- Net amortization and deferral of actuarial losses (gains) 2.4 11.7 (9.5) ------- ------- ------- Net periodic pension expense $ 7.1 $ 8.8 $ 7.6 ======= ======= ======= Assumptions: Weighted average discount rates 8.0% 7.5% 8.5% Rate of increase in compensation levels 5.0% 4.5-5.0% 5.0-5.5% Expected long-term rate of return on assets 9.0% 9.0% 9.0%
The following sets forth the funded status of the defined benefit plans and amounts recognized in the consolidated balance sheets at December 31:
Partially Fully Funded Plans Funded Plans ------------------------- ------------------------- 1996 1995 1996 1995 ------- ------- ------- ------- Actuarial present value of benefit obligation: Vested accumulated benefit obligation $ 93.6 $ 90.0 $ 30.5 $ 26.3 Non-vested accumulated benefit obligation 6.1 5.8 1.6 1.7 ------- ------- ------- ------- Total accumulated benefit obligation 99.7 95.8 32.1 28.0 Value of future salary projections 15.5 25.5 1.7 1.0 ------- ------- ------- ------- Total projected benefit obligation 115.2 121.3 33.8 29.0 Fair value of plan assets 107.6 91.7 42.6 33.3 ------- ------- ------- ------- Plan assets in excess of (less than) projected benefit obligation (7.6) (29.6) 8.8 4.3 Amounts available to increase (reduce) future pension expense: Unamortized balance of the initial transition amount (1.6) (2.0) (3.3) .1 Unamortized cumulative actuarial loss (gain) (12.4) 4.1 -- -- Unamortized prior service cost 2.0 3.4 1.3 1.3 Adjustment for minimum pension liability (4.7) (8.8) -- -- ------- ------- ------- ------- Pension asset (liability) recognized in consolidated balance sheets $ (24.3) $ (32.9) $ 6.8 $ 5.7 ======= ======= ======= =======
F-21 22 NOTE 15--RETIREMENT BENEFIT PLANS - Continued DEFINED CONTRIBUTION PLANS: NACCO and its subsidiaries have defined contribution plans for substantially all employees. For NACCO and certain subsidiaries, employee contributions are matched by the Company based on plan provisions. In addition, NACCO and certain other subsidiaries have profit sharing plans whereby the subsidiary's contribution is determined annually based on its operating results. Total contributions to these plans were $8.8 million in 1996, $7.3 million in 1995 and $5.9 million in 1994. NOTE 16--BUSINESS SEGMENTS NACCO's four operating subsidiaries function in distinct business environments. Sales between subsidiaries, which are minimal, are eliminated in consolidation. NACCO and Other includes the accounts of the parent company and Bellaire. Information relating to the Company's operations at the subsidiary level is presented below. F-22 23 NOTE 16--BUSINESS SEGMENTS - Continued
1996 1995 1994 -------- -------- -------- REVENUES NMHG $1,560.1 $1,510.1 $1,178.9 HB-PS 395.1 381.4 377.5 NACoal 249.1 248.0 250.2 KCI 74.9 69.6 63.9 NACCO and Other .3 .5 .6 Eliminations (6.3) (5.1) (6.2) -------- -------- -------- $2,273.2 $2,204.5 $1,864.9 ======== ======== ======== AMORTIZATION OF GOODWILL NMHG $ 11.5 $ 10.8 $ 10.8 HB-PS 3.8 2.8 2.8 KCI .1 .1 .1 -------- -------- -------- $ 15.4 $ 13.7 $ 13.7 ======== ======== ======== OPERATING PROFIT NMHG $ 72.5 $ 83.4 $ 64.6 HB-PS 24.3 25.0 25.3 NACoal 40.3 45.8 44.3 KCI 3.1 3.3 5.4 NACCO and Other (9.0) (8.8) (10.0) -------- -------- -------- $ 131.2 $ 148.7 $ 129.6 ======== ======== ======== OPERATING PROFIT EXCLUDING GOODWILL AMORTIZATION NMHG $ 84.0 $ 94.2 $ 75.4 HB-PS 28.1 27.8 28.1 NACoal 40.3 45.8 44.3 KCI 3.2 3.4 5.5 NACCO and Other (9.0) (8.8) (10.0) -------- -------- -------- $ 146.6 $ 162.4 $ 143.3 ======== ======== ======== INTEREST INCOME NMHG $ .5 $ .9 $ .8 NACoal 1.5 2.4 3.0 NACCO and Other -- 1.9 1.1 Eliminations (.5) (3.3) (3.3) -------- -------- -------- $ 1.5 $ 1.9 $ 1.6 ======== ======== ======== INTEREST EXPENSE NMHG $ (25.0) $ (25.9) $ (30.8) HB-PS (6.6) (7.2) (7.5) NACoal (.2) (1.3) (1.3) KCI (.5) (.5) (.3) NACCO and Other (.5) (1.6) (2.3) Eliminations .5 3.3 3.3 -------- -------- -------- (32.3) (33.2) (38.9) Project mining subsidiaries (13.6) (14.0) (14.3) -------- -------- -------- $ (45.9) $ (47.2) $ (53.2) ======== ======== ======== OTHER-NET, INCOME (EXPENSE) NMHG $ (2.0) $ (.2) $ 1.2 HB-PS (.3) (.8) (.3) NACoal 1.1 .5 (1.1) NACCO and Other .7 .6 .7 -------- -------- -------- $ (.5) $ .1 $ .5 ======== ======== ========
F-23 24 NOTE 16-BUSINESS SEGMENTS - Continued
1996 1995 1994 -------- -------- -------- NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS NMHG $ 26.4 $ 36.9 $ 18.7 HB-PS 10.7 11.8 10.2 NACoal 19.2 22.6 21.0 KCI 1.5 1.6 3.1 NACCO and Other (5.8) (4.1) (5.2) Minority interest (1.4) (3.3) (2.5) -------- -------- -------- 50.6 65.5 45.3 Extraordinary gain, net-of-tax -- 32.3 -- Extraordinary charges, net-of-tax -- (3.4) (3.2) -------- -------- -------- $ 50.6 $ 94.4 $ 42.1 ======== ======== ======== TOTAL ASSETS NMHG $ 950.9 $1,052.2 $ 906.2 HB-PS 271.8 288.0 289.6 NACoal 66.5 40.7 49.0 KCI 27.6 25.1 26.0 NACCO and Other 56.7 62.7 92.6 -------- -------- -------- 1,373.5 1,468.7 1,363.4 Project mining subsidiaries 433.6 433.3 412.3 -------- -------- -------- 1,807.1 1,902.0 1,775.7 Consolidating eliminations (99.0) (68.2) (81.4) -------- -------- -------- $1,708.1 $1,833.8 $1,694.3 ======== ======== ======== DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE NMHG $ 33.8 $ 31.8 $ 32.2 HB-PS 19.0 15.8 15.5 NACoal 2.1 1.7 1.6 KCI 1.1 1.0 .9 NACCO and Other .2 .2 .1 -------- -------- -------- 56.2 50.5 50.3 Project mining subsidiaries 29.1 28.8 29.9 -------- -------- -------- $ 85.3 $ 79.3 $ 80.2 ======== ======== ======== CAPITAL EXPENDITURES NMHG $ 42.3 $ 39.4 $ 25.9 HB-PS 15.1 9.7 13.4 NACoal 2.8 3.5 .4 KCI 1.1 1.4 1.0 NACCO and Other 1.4 .1 .2 -------- -------- -------- 62.7 54.1 40.9 Project mining subsidiaries 16.7 19.0 11.7 -------- -------- -------- $ 79.4 $ 73.1 $ 52.6 ======== ======== ========
F-24 25 NOTE 16-BUSINESS SEGMENTS - Continued DATA BY GEOGRAPHIC AREA
Europe, United Africa and States Middle East Other Eliminations Consolidated ------ ----------- ----- ------------ ------------ 1996 - ---- Sales to unaffiliated customers $ 1,560.6 $ 457.5 $ 255.1 $ -- $ 2,273.2 Transfers between geographic areas -- 129.8 53.2 (183.0) -- --------- --------- --------- --------- --------- Total revenues $ 1,560.6 $ 587.3 $ 308.3 $ (183.0) $ 2,273.2 ========= ========= ========= ========= ========= Operating profit $ 93.5 $ 32.7 $ 5.0 $ -- $ 131.2 ========= ========= ========= ========= ========= Total assets $ 1,312.1 $ 336.4 $ 59.6 $ -- $ 1,708.1 ========= ========= ========= ========= ========= 1995 - ---- Sales to unaffiliated customers $ 1,568.3 $ 426.9 $ 209.3 $ -- $ 2,204.5 Transfers between geographic areas -- 156.1 63.7 (219.8) -- --------- --------- --------- --------- --------- Total revenues $ 1,568.3 $ 583.0 $ 273.0 $ (219.8) $ 2,204.5 ========= ========= ========= ========= ========= Operating profit $ 106.0 $ 34.8 $ 7.9 $ -- $ 148.7 ========= ========= ========= ========= ========= Total assets $ 1,395.3 $ 374.4 $ 64.1 $ -- $ 1,833.8 ========= ========= ========= ========= ========= 1994 - ---- Sales to unaffiliated customers $ 1,445.0 $ 294.4 $ 125.5 $ -- $ 1,864.9 Transfers between geographic areas -- 130.6 49.2 (179.8) -- --------- --------- --------- --------- --------- Total revenues $ 1,445.0 $ 425.0 $ 174.7 $ (179.8) $ 1,864.9 ========= ========= ========= ========= ========= Operating profit $ 104.3 $ 15.4 $ 9.9 $ -- $ 129.6 ========= ========= ========= ========= ========= Total assets $ 1,343.6 $ 309.6 $ 41.1 $ -- $ 1,694.3 ========= ========= ========= ========= =========
NACCO parent company expense reduced United States operating profit by $8.9 million, $8.7 million and $9.9 million in 1996, 1995 and 1994, respectively. The Other category above includes Canada, Mexico, South America and Asia-Pacific. This category, however, does not include the operating results or assets of S-N, which is accounted for using the equity method. F-25 26 NOTE 17--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) A summary of the unaudited quarterly results of operations for the year ended December 31 is as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- 1996 - ---- Revenues NMHG $ 420.8 $ 407.6 $ 349.5 $ 382.2 HB-PS 67.9 82.7 109.0 135.5 NACoal 59.1 56.7 61.2 72.1 KCI 12.9 14.6 19.5 27.9 NACCO and Other .1 .1 -- .1 Eliminations (1.3) (.8) (2.2) (2.0) -------- -------- -------- -------- 559.5 560.9 537.0 615.8 -------- -------- -------- -------- Gross profit 106.7 107.6 98.7 116.0 -------- -------- -------- -------- Operating profit NMHG 26.0 24.7 9.4 12.4 HB-PS (1.0) 4.7 7.0 13.6 NACoal 9.8 7.8 10.5 12.2 KCI (1.2) (.6) 1.0 3.9 NACCO and Other (2.5) (2.6) (1.9) (2.0) -------- -------- -------- -------- 31.1 34.0 26.0 40.1 -------- -------- -------- -------- Income before extraordinary items 12.9 14.0 7.6 16.1 Extraordinary items, net-of-tax -- -- -- -- -------- -------- -------- -------- Net income $ 12.9 $ 14.0 $ 7.6 $ 16.1 ======== ======== ======== ======== Per share: Income before extraordinary items $ 1.44 $ 1.56 $ 0.85 $ 1.83 Extraordinary items, net-of-tax -- -- -- -- -------- -------- -------- -------- Net income $ 1.44 $ 1.56 $ 0.85 $ 1.83 ======== ======== ======== ========
F-26 27 NOTE 17--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) - Continued
First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- 1995 - ---- Revenues NMHG $ 363.2 $ 370.2 $ 349.2 $ 427.5 HB-PS 67.0 79.7 110.3 124.4 NACoal 60.5 55.3 62.5 69.7 KCI 12.2 13.5 18.1 25.8 NACCO and Other -- .3 -- .2 Eliminations (.5) (1.4) (1.8) (1.4) -------- -------- -------- -------- 502.4 517.6 538.3 646.2 -------- -------- -------- -------- Gross profit 100.2 99.1 100.7 123.4 -------- -------- -------- -------- Operating profit NMHG 23.2 21.3 14.6 24.3 HB-PS 1.4 3.6 9.5 10.5 NACoal 11.7 9.2 10.8 14.1 KCI (.5) (.4) .9 3.3 NACCO and Other (2.0) (2.1) (2.1) (2.6) -------- -------- -------- -------- 33.8 31.6 33.7 49.6 -------- -------- -------- -------- Income before extraordinary items 12.8 14.7 13.7 24.3 Extraordinary gain, net-of-tax -- -- -- 32.3 Extraordinary charges, net-of-tax (1.3) -- (2.1) -- -------- -------- -------- -------- Net income $ 11.5 $ 14.7 $ 11.6 $ 56.6 ======== ======== ======== ======== Per share: Income before extraordinary items $ 1.43 $ 1.64 $ 1.53 $ 2.71 Extraordinary gain, net-of-tax -- -- -- 3.61 Extraordinary charges, net-of-tax (.14) -- (.24) -- -------- -------- -------- -------- Net income $ 1.29 $ 1.64 $ 1.29 $ 6.32 ======== ======== ======== ========
F-27 28 NOTE 18--PARENT COMPANY CONDENSED BALANCE SHEETS The condensed balance sheets of NACCO, the parent company, at December 31 are as follows:
1996 1995 ------- ------- ASSETS - ------ Current assets $ .3 $ .1 Current intercompany accounts receivable, net 9.1 11.0 Other assets .5 1.6 Investment in subsidiaries NMHG 361.0 330.3 HB-PS 117.8 114.2 NACoal 15.1 15.1 KCI 13.3 11.8 Bellaire .9 .9 ------- ------- 508.1 472.3 Property, plant and equipment, net 2.2 1.1 Deferred income taxes 20.0 22.2 ------- ------- Total Assets $ 540.2 $ 508.3 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities $ 8.8 $ 9.9 Reserve for future interest on UMWA obligation 61.5 64.2 Note payable to Bellaire 40.5 43.3 Notes payable to other subsidiaries 45.6 16.9 Deferred income and other 4.5 3.9 Stockholders' equity 379.3 370.1 ------- ------- Total Liabilities and Stockholders' Equity $ 540.2 $ 508.3 ======= =======
The credit agreements at NMHG, HB-PS and KCI allow the transfer of assets to NACCO under certain circumstances. The amount of NACCO's investment in NMHG, HB-PS and KCI that was restricted at December 31, 1996, totals approximately $455.3 million. There are no restrictions on the transfer of assets from NACoal. Dividends and advances from NACoal, HB-PS and KCI are the primary source of cash for NACCO. F-28 29 NACCO INDUSTRIES, INC. TO THE STOCKHOLDERS OF NACCO INDUSTRIES, INC. The management of NACCO Industries, Inc. is responsible for the preparation, content and integrity of the financial statements and related information contained within this report. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles and include amounts that are based on informed judgments and estimates. The Company's code of conduct, communicated throughout the organization, requires adherence to high ethical standards in the conduct of the Company's business. NACCO Industries, Inc. and each of its subsidiaries maintains a system of internal controls designed to provide reasonable assurance as to the protection of assets and the integrity of the financial statements. These systems are augmented by the selection of qualified financial management personnel. In addition, an internal audit function periodically assesses the internal controls. Arthur Andersen LLP, independent certified public accountants, audits NACCO Industries, Inc. and its subsidiaries' financial statements. Its audits are conducted in accordance with generally accepted auditing standards and provide an objective and independent assessment that helps ensure fair presentation of the Company's operating results and financial position. The independent accountants have access to all financial records and related data of the Company, as well as to the minutes of stockholders' and directors' meetings. The Audit Committee of the Board of Directors, composed of independent directors, meets regularly with the independent auditors and internal auditors to review the scope of their audit reports and to discuss any action to be taken. The independent auditors and the internal auditors have free and direct access to the Audit Committee. The Audit Committee also reviews the financial reporting process and accounting policies of NACCO Industries, Inc. and each of its subsidiaries. /s/ Alfred M. Rankin, Jr. /s/ Kenneth C. Schilling ---------------------------- ------------------------ Alfred M. Rankin, Jr. Kenneth C. Schilling Chairman, President and Controller Chief Executive Officer F-29 30 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF THE PARENT NACCO INDUSTRIES, INC. AND SUBSIDIARIES PARENT COMPANY CONDENSED BALANCE SHEETS
December 31 -------------------------- 1996 1995 -------- -------- (In thousands) Current assets $ 254 $ 99 Net amounts receivable from subsidiaries 9,135 11,035 Other assets 561 1,595 Investment in subsidiaries NMHG 360,964 330,274 HB/PS 117,848 114,239 NACoal 15,125 15,125 KCI 13,261 11,768 Bellaire 872 900 -------- -------- 508,070 472,306 Property, plant and equipment, net 2,217 1,062 Deferred income taxes 19,990 22,241 -------- -------- Total Assets $540,227 $508,338 ======== ======== Current liabilities $ 8,807 $ 9,946 Reserve for future interest on UMWA obligation 61,496 64,248 Note payable to Bellaire 40,589 43,259 Notes payable to other subsidiaries 45,552 16,889 Deferred income and other 4,467 3,869 Stockholders' equity 379,316 370,127 -------- -------- Total Liabilities and Stockholders' Equity $540,227 $508,338 ======== ========
See notes to parent company financial statements. F-30 31 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE PARENT NACCO INDUSTRIES, INC. AND SUBSIDIARIES PARENT COMPANY STATEMENTS OF INCOME
Year Ended December 31 ---------------------------------------------- 1996 1995 1994 -------- -------- -------- (In thousands) Income (expense): Intercompany interest income $ 149 $ 198 $ 1,068 Intercompany interest expense (482) (2,670) (3,510) Other - net 381 2,090 464 -------- -------- -------- 48 (382) (1,978) Administrative and general expenses 8,903 8,713 9,903 -------- -------- -------- Loss before income taxes (8,855) (9,095) (11,881) Income tax benefit (3,072) (4,502) (5,825) -------- -------- -------- Net loss before equity in earnings of subsidiaries and extraordinary items (5,783) (4,593) (6,056) Equity in earnings of subsidiaries before extraordinary items 56,360 70,099 51,328 Extraordinary gain, net-of-tax 32,333 Extraordinary charge, net-of-tax (3,399) (3,218) -------- -------- -------- Net income $ 50,577 $ 94,440 $ 42,054 ======== ======== ======== See Notes to parent company financial statements.
F-31 32 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE PARENT NACCO INDUSTRIES, INC. AND SUBSIDIARIES PARENT COMPANY STATEMENTS OF CASH FLOWS
Year Ended December 31 ------------------------------------- 1996 1995 1994 -------- -------- -------- (In thousands) Operating activities Net income $ 50,577 $ 94,440 $ 42,054 Equity in earnings of subsidiaries (56,360) (70,099) (51,328) Extraordinary gain, net-of-tax -- (32,333) -- Extraordinary charge, net-of-tax -- 3,399 3,218 -------- -------- -------- Parent company only net loss (5,783) (4,593) (6,056) Deferred income taxes 1,897 (23,603) (4,866) Income taxes net of intercompany tax payments (937) (7,120) (3,442) Working capital changes 752 1,145 983 Changes in current intercompany amounts 1,900 2,268 69 Changes in reserve for future interest on UMWA obligation (2,752) 64,486 -- Items of income or expense not requiring cash outlays 10 491 (577) -------- -------- -------- Net cash provided by (used for) operating activities (4,913) 33,074 (13,889) Investing Activities Capital contributions to subsidiaries NMHG (1,805) -- (24,273) Bellaire -- (69,326) -- Dividends and advances received from subsidiaries, net 55,854 10,270 40,009 Note payable to Bellaire (2,670) 27,410 -- Reduction of investment in Hyster-Yale 12 3/8% debentures -- 4,394 3,946 Expenditures for equipment (1,424) (79) (85) -------- -------- -------- Net cash provided by (used for) investing activities 49,955 (27,331) 19,597 Financing Activities Cash dividends (6,671) (6,365) (6,040) Purchase of treasury stock (40,415) Treasury stock sales under stock option and directors' compensation plans - net 1,119 817 251 Other - net 1,163 (194) 38 -------- -------- -------- Net cash used for financing activities (44,804) (5,742) (5,751) -------- -------- -------- Cash and cash equivalents Increase (decrease) for the period 238 1 (43) Balance at the beginning of the period 5 4 47 -------- -------- -------- Balance at the end of the period $ 243 $ 5 $ 4 ======== ======== ======== See Notes to parent company financial statements.
F-32 33 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE PARENT NACCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO PARENT COMPANY FINANCIAL STATEMENTS For The Year Ended December 31, 1996, 1995 and 1994 The notes to consolidated financial statements, included elsewhere in this Form 10-K, are hereby incorporated by reference into these notes to parent company financial statements. NOTE A - LONG-TERM OBLIGATIONS AND GUARANTEES NACCO Industries, Inc. ("NACCO" the parent company) is a holding company which owns four operating subsidiaries. It is NACCO's policy not to guarantee the debt of such subsidiaries. NOTE B - CASH DIVIDENDS AND ADVANCES TO NACCO Dividends received from the subsidiaries were $27.2 million in 1996, $22.6 million in 1995 and $62.7 million in 1994. NOTE C - CAPITAL CONTRIBUTIONS TO SUBSIDIARIES The 1995 capital contribution to Bellaire of $69.3 million includes a note payable of $27.4 million and the assumption of a reserve for future interest on UMWA obligation, net of deferred taxes, of $41.9 million. NOTE D - UNRESTRICTED CASH The amount of unrestricted cash available to NACCO, included in Investment in and advances from subsidiaries, net was $30.1 million at December 31, 1996. F-33 34 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
- ------------------------------------------------------------------------------------------------------------------------------------ COL A. COL B. COL C. COL D. COL E. - ------------------------------------------------------------------------------------------------------------------------------------ Additions ----------------------------- (D) Balance at Charged to Charged to Balance at Beginning of Costs and Other Accounts Deductions End of Description Period Expenses --Describe --Describe Period - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands) 1996 Reserves deducted from asset accounts: Allowance for doubtful accounts $ 4,439 $ 1,864 $ 6 (C) $ 1,306 (A) $ 5,003 Allowance for discounts, adjustments and returns $ 6,878 $ 15,183 $ 14,563 (B) $ 7,498 1995 Reserves deducted from asset accounts: Allowance for doubtful accounts $ 4,472 $ 1,583 $ 148 (C) $ 1,764 (A) $ 4,439 Allowance for discounts, adjustments and returns $ 6,168 $ 17,328 $ 16,618 (B) $ 6,878 1994 Reserves deducted from asset accounts: Allowance for doubtful accounts $ 5,731 $ 1,240 $ 39 (C) $ 2,538 (A) $ 4,472 Allowance for discounts, adjustments and returns $ 5,397 $ 17,878 $ 17,107 (B) $ 6,168
Note A - Accounts receivable balances written off, net of recoveries. Note B - Payments. Note C - Subsidiary's foreign currency translation adjustments and other. Note D - Balances which are not required to be presented and those which are immaterial have been omitted. F-34 EX-21 14 EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF NACCO INDUSTRIES, INC. As of the date of the Annual Report on Form 10-K to which this is an Exhibit, the subsidiaries of NACCO Industries, Inc. were as follows:
NAME INCORPORATION - ---- ------------- Bellaire Corporation Ohio The Coteau Properties Company Ohio The Falkirk Mining Company Ohio Hamilton Beach/Proctor-Silex, Inc. Delaware (1) Hamilton Beach/Proctor-Silex de Mexico, S.A. de C.V. Mexico (1) Housewares Holding Company Delaware (1) HB/PS El Paso Incorporated Delaware (1) HBPS Foreign Sales Corp. Virgin Islands HB-PS Holding Company, Inc. Delaware (1) NMHG, Pty. Ltd. Australia NACCO Materials Handling B.V. Netherlands NACCO Materials Handling, S.r.l. Italy Hyster Europe Limited United Kingdom NMHG (Scotland) Limited United Kingdom NMHG (N.I.) Ltd. Northern Ireland NMHG Ltd. United Kingdom Hyster-Yale Materials Handling, Inc. Delaware (2) The Kitchen Collection, Inc. Delaware NACCO Materials Handling Group, Inc. Delaware The North American Coal Corporation Delaware North American Coal Royalty Company Delaware Powhatan Corporation Delaware Proctor-Silex Canada, Inc. Ontario (Canada) Proctor-Silex, S.A. de C.V. Mexico The Sabine Mining Company Texas Yale Europe Materials Handling Ltd. United Kingdom
The Company has omitted the names of its subsidiaries which, considered in the aggregate as a single subsidiary, would not constitute a "significant subsidiary" within the meaning of Rule 1-02 contained in Regulation S-X. 1. NACCO owns 100% of the voting securities of Housewares Holding Company, Housewares Holding Company owns 100% of the voting securities of HB-PS Holding Company, Inc., HB-PS Holding Company, Inc. owns 100% of Hamilton Beach(/)Proctor-Silex, Inc., Hamilton Beach(/) Proctor-Silex, Inc. S.A. de C.V., Hamilton Beach/Proctor-Silex de Mexico, S.A. de C.V. and HB/PS El Paso Incorporated (except for directors' qualifying shares). 2. NACCO Industries, Inc. owns 98% of the voting securities of Hyster-Yale Materials Handling Group, Inc. EX-23 15 EXHIBIT 23 1 Exhibit 23(i) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Board of Directors of NACCO Industries, Inc. As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement (No. 33-3422) on Form S-4 and Registration Statement (No. 33-52660) on Form S-8. ARTHUR ANDERSEN LLP Cleveland, Ohio March 27, 1997 EX-24 16 EXHIBIT 24 1 Exhibit 24(i) POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of NACCO Industries, Inc. hereby constitutes and appoints Charles A. Bittenbender, Kenneth C. Schilling and Suzanne Schulze Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 1996, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Owsley Brown II ---------------------------------------- Owsley Brown II Date: March 12, 1997 2 Exhibit 24(ii) POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of NACCO Industries, Inc. hereby constitutes and appoints Charles A. Bittenbender, Kenneth C. Schilling and Suzanne Schulze Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 1996, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ John J. Dwyer ----------------------------------------- John J. Dwyer Date: March 12, 1997 3 Exhibit 24(iii) POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of NACCO Industries, Inc. hereby constitutes and appoints Charles A. Bittenbender, Kenneth C. Schilling and Suzanne Schulze Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 1996, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Robert M. Gates ---------------------------------- Robert M. Gates Date: March 12, 1997 4 Exhibit 24(iv) POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of NACCO Industries, Inc. hereby constitutes and appoints Charles A. Bittenbender, Kenneth C. Schilling and Suzanne Schulze Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 1996, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Leon J. Hendrix, Jr. ------------------------------ Leon J. Hendrix, Jr. Date: March 12, 1997 5 Exhibit 24(v) POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of NACCO Industries, Inc. hereby constitutes and appoints Charles A. Bittenbender, Kenneth C. Schilling and Suzanne Schulze Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 1996, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Dennis W. LaBarre ----------------------------- Dennis W. LaBarre Date: March 12, 1997 6 Exhibit 24(vi) POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of NACCO Industries, Inc. hereby constitutes and appoints Charles A. Bittenbender, Kenneth C. Schilling and Suzanne Schulze Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 1996, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Ian M. Ross ---------------------- Ian M. Ross Date: March 12, 1997 7 Exhibit 24(vii) POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of NACCO Industries, Inc. hereby constitutes and appoints Charles A. Bittenbender, Kenneth C. Schilling and Suzanne Schulze Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 1996, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ John C. Sawhill ------------------------- John C. Sawhill Date: March 12, 1997 8 Exhibit 24(viii) POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of NACCO Industries, Inc. hereby constitutes and appoints Charles A. Bittenbender, Kenneth C. Schilling and Suzanne Schulze Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 1996, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Britton T. Taplin ----------------------------- Britton T. Taplin Date: March 12, 1997 9 Exhibit 24(ix) POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of NACCO Industries, Inc. hereby constitutes and appoints Charles A. Bittenbender, Kenneth C. Schilling and Suzanne Schulze Taylor, and each of them, as the true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as Director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 1996, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ David F. Taplin -------------------------- David F. Taplin Date: March 12, 1997 EX-27 17 EXHIBIT 27
5 1,000,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 48 0 212 13 310 592 550 436 1,708 416 0 8 0 0 371 1,708 2,273 2,273 1,844 2,142 0 0 46 86 34 51 0 0 0 51 6 0
EX-99.I 18 EXHIBIT 99(I) 1 Exhibit 99(i) Audited Consolidated Financial Statements THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES As of December 31, 1996 and 1995
Report of Independent Public Accountants...............................1 Consolidated Balance Sheets............................................2 Consolidated Statements of Income......................................4 Consolidated Statements of Stockholder's Equity........................5 Consolidated Statements of Cash Flows..................................6 Notes to Consolidated Financial Statements.............................7
2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of The North American Coal Corporation: We have audited the accompanying consolidated balance sheets of The North American Coal Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholder's equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The North American Coal Corporation and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Arthur Andersen LLP Dallas, Texas, February 4, 1997 3 THIS PAGE INTENTIONALLY LEFT BLANK 4 THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 1996 and 1995 (Amounts in Thousands)
1996 1995 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 4,310 $ 4,700 Note receivable from Parent Company 41,952 14,939 Accounts receivable 27,753 23,156 Inventories 27,204 29,736 Other current assets 1,892 2,002 --------- --------- 103,111 74,533 OTHER ASSETS: Notes receivable 2,621 3,217 Costs recoverable under sales contracts 4,895 5,785 Other investments and receivables 16,485 13,804 --------- --------- 24,001 22,806 PROPERTY, PLANT AND EQUIPMENT--at cost: Coal lands and real estate 94,017 93,052 Plant and equipment 451,774 439,862 Construction in progress 7,346 6,485 --------- --------- 553,137 539,399 Less allowance for depreciation, depletion and amortization (230,453) (208,330) --------- --------- 322,684 331,069 DEFERRED CHARGES: Advance royalties 6,326 5,952 Deferred lease costs 36,516 34,936 Other 7,452 4,654 --------- --------- 50,294 45,542 --------- --------- $ 500,090 $ 473,950 ========= =========
The accompanying notes are an integral part of these statements. -2- 5
1996 1995 -------- -------- LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Accounts payable $ 15,048 $ 19,769 Payable to affiliated companies 556 948 Accrued liabilities 26,585 25,596 Borrowings under revolving credit agreement 29,000 - Current maturities of long-term obligations 17,861 16,489 -------- -------- 89,050 62,802 NON-CURRENT LIABILITIES: Deferred income taxes 19,852 19,156 Pension compensation and other accrued liabilities 29,138 24,955 -------- -------- 48,990 44,111 LONG-TERM OBLIGATIONS: Subsidiaries' liabilities--(not guaranteed by the Company or the Parent Company): Advances from customers 184,234 176,384 Notes payable 20,751 23,872 Notes payable to affiliated company 19 32 Capitalized lease obligations 136,630 146,384 -------- -------- 341,634 346,672 MINORITY INTEREST 5,291 5,240 STOCKHOLDER'S EQUITY: Common stock, par value $1 a share: authorized 750 shares; issued and outstanding 500 shares 1 1 Capital in excess of par value 15,124 15,124 Retained income - - -------- -------- 15,125 15,125 -------- -------- $500,090 $473,950 ======== ========
-3- 6 THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 1996 and 1995 (Amounts in Thousands)
1996 1995 -------- -------- TONS OF COAL SOLD 27,597 26,680 ======== ======== INCOME: Net sales $245,046 $234,354 Royalties, rental and other operating income 4,004 13,632 Interest, gain on sale of assets and miscellaneous income 4,752 4,984 -------- -------- 253,802 252,970 -------- -------- COSTS AND EXPENSES: Cost of sales 166,696 162,377 Depreciation, depletion and amortization 31,162 30,382 Selling, administrative and general expenses 10,961 9,448 Interest expense of subsidiaries 13,832 15,312 -------- -------- 222,651 217,519 -------- -------- Income before income taxes and minority interest 31,151 35,451 INCOME TAXES: Current 8,574 9,150 Deferred 1,312 1,690 -------- -------- 9,886 10,840 Minority interest in income of consolidated subsidiary 2,074 2,018 -------- -------- Net income $ 19,191 $ 22,593 ======== ========
The accompanying notes are an integral part of these statements. -4- 7 THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY For the Years Ended December 31, 1996 and 1995 (Amounts in Thousands)
Capital In Common Excess of Retained Stock Par Value Income Total ------ ------- ---- -------- Balance at January 1, 1995 $ 1 $15,124 $ - $ 15,125 Net income - - 22,593 22,593 Dividends - - (22,593) (22,593) ------ ------- -------- -------- Balance at December 31, 1995 $ 1 $15,124 $ - $ 15,125 Net income - - 19,191 19,191 Dividends - - (19,191) (19,191) ------ ------- -------- -------- Balance at December 31, 1996 $ 1 $15,124 $ - $ 15,125 ====== ======= ======== ========
The accompanying notes are an integral part of these statements. -5- 8 THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1996 and 1995 (Amounts in Thousands)
OPERATING ACTIVITIES: 1996 1995 -------- --------- Net income $ 19,191 $ 22,593 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 31,162 30,382 Gain on sale of assets (84) (279) Costs recovered under sales contracts 890 1,160 Deferred lease costs (1,580) (1,782) Deferred income taxes 1,312 1,690 Pensions and other accruals 3,610 1,280 Other deferred costs (2,495) 208 -------- --------- 52,006 55,252 Working capital changes: (Increase) decrease in accounts receivable and other assets (4,114) 113 (Increase) decrease in inventories 2,532 (2,525) Increase (decrease) in accounts payable and other liabilities (5,538) 10,920 -------- --------- (7,120) 8,508 -------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 44,886 63,760 INVESTING ACTIVITIES: Expenditures for property, plant and equipment (19,534) (22,611) Proceeds from property disposals 171 552 (Additions to) repayment of note receivable from Parent Company, net (27,013) 7,770 Receipt of notes receivable 574 552 Advance royalties (428) (610) Other - net (3,216) (1,841) -------- --------- NET CASH USED BY INVESTING ACTIVITIES (49,446) (16,188) FINANCING ACTIVITIES: Additions to (repayment of) lines of credit, net 29,000 (16,717) Additions to advances from customers, net 7,850 40,411 Additions to long-term obligations 60,979 52,535 Repayment of long-term obligations (74,468) (102,070) Dividends (19,191) (22,593) -------- --------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 4,170 (48,434) -------- --------- DECREASE IN CASH AND CASH EQUIVALENTS (390) (862) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,700 5,562 -------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,310 $ 4,700 ======== =========
The accompanying notes are an integral part of these statements. -6- 9 THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tabular Amounts In Thousands) December 31, 1996 and 1995 NOTE A--ORGANIZATION The North American Coal Corporation ("Company") is a wholly owned subsidiary of NACCO Industries, Inc. ("Parent Company"). The Company is the owner of The Coteau Properties Company ("Coteau"), The Falkirk Mining Company ("Falkirk"), The Sabine Mining Company ("Sabine"), Red River Mining Company, its joint venture, ("Red River Mining"), and North American Coal Royalty Company. The Company is principally engaged in lignite mining through the operation of surface mines in North Dakota, Texas and Louisiana. The Company also operates a dragline at a limestone quarry in Florida. Three of the Company's consolidated coal mining subsidiaries were organized to assume sales agreements with public utilities. All of the coal of these subsidiaries is sold to these public utilities pursuant to long-term contracts with terms up to 20 years and with extensions at the public utilities option. The sales prices provided by such contracts are based on cost, plus a profit per ton. As each mining subsidiary has a contract to provide coal to its customer, a significant portion of their revenue is derived from a single source. The financial position of the mining subsidiary and the Company could be materially impacted if the relationship with the customer was terminated or altered. In December 1996, the Company was the successful bidder for a long-term coal mining project in south Texas, the San Miguel Lignite Project. The Company will provide mining services to San Miguel Electric Cooperative, Inc.'s lignite mine in Texas under a contract for 10.5 years, beginning on July 1, 1997. The Company expects to deliver to San Miguel Electric Cooperative approximately 1.8 million tons in 1997 and approximately 3 million tons annually through 2007. NOTE B--ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its joint venture. Intercompany accounts have been eliminated. CASH AND CASH EQUIVALENTS: Cash equivalents are investments purchased with an original maturity of three months or less. INVENTORIES: Supply inventories are stated at average cost. Coal inventories are stated at the lower of cost or market. COSTS RECOVERABLE UNDER SALES CONTRACTS: The coal sales agreements ("Agreements") of three subsidiaries provided for selling prices which allowed a profit during the defined development period of the mines. Production costs incurred during the development period in excess of the established selling price, as set forth in the Agreements, were deferred and are being recovered as a cost of coal tonnage sold after the development period. Recoveries of these costs amounted to approximately $890,000 and $1,160,000 in 1996 and 1995, respectively, and are included in net sales in the accompanying consolidated statements of income. -7- 10 THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996 and 1995 NOTE B--ACCOUNTING POLICIES --continued DEPRECIATION, DEPLETION AND AMORTIZATION: Depreciation, depletion and amortization are provided in amounts sufficient to amortize the cost of related assets (including assets recorded under capitalized lease obligations) over their estimated range of useful lives and are calculated by either the straight-line method or the units-of-production method based on estimated recoverable tonnage. RECLAMATION COSTS: Under certain federal and state regulations, the Company's subsidiaries are required to reclaim land disturbed as a result of mining. Reclamation of disturbed land is a continuous process throughout the term of the related Agreements. Current reclamation costs are being recovered as a cost of coal tonnage sold. Costs to complete reclamation after mining has been completed are reimbursed under the Agreements. PRIOR YEAR FINANCIAL STATEMENTS: Certain reclassifications have been made to the 1995 consolidated financial statements to conform to the 1996 presentation. FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS: The fair values of financial instruments have been determined through information obtained from quoted market sources and management estimates. The Company does not hold or issue financial instruments or derivative financial instruments for trading purposes. The Company enters into interest rate swap agreements with terms ranging from one to six years. The differential between the floating interest rate and the fixed interest rate which is to be paid or received is recognized in interest expense as the floating interest rate changes over the life of the agreement. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. LONG-LIVED ASSETS: During fiscal year 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement had no material effect on the Company's accompanying financial statements. CHANGE IN ACCOUNTING METHOD: In 1996, the mines converted to a new inventory/purchasing system. The conversion resulted in a change from the first-in, first-out method to the average cost method of the supply inventory valuation. As of December 31, 1996, average cost approximated first-in, first out. The cumulative effect is immaterial to the financial statements. CHANGE IN ACCOUNTING ESTIMATE: Due to the extension of Falkirk's contract with its customers, Falkirk extended the estimated useful lives of preproduction costs and fixed assets. -8- 11 THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996 and 1995 NOTE C--ACCOUNTS RECEIVABLE Accounts receivable are summarized as follows:
December 31, ---------------------- 1996 1995 ------- ------- Accounts receivable $24,648 $18,783 Accounts receivable from affiliated companies 2,327 3,588 Refundable income taxes 778 785 ------- ------- $27,753 $23,156 ======= =======
NOTE D--INVENTORIES Inventories are summarized as follows:
December 31, ---------------------- 1996 1995 ------- ------- Coal $ 8,328 $10,618 Mining supplies 18,876 19,118 ------- ------- $27,204 $29,736 ======= =======
NOTE E--ADVANCES FROM CUSTOMERS Advances from customers represent amounts advanced to Coteau and Falkirk from public utilities to develop, operate and provide working capital for the mines. These advances are secured by all owned assets and assignment of all rights under the Agreements of Coteau and Falkirk, are non interest-bearing, and are without recourse to the Company and the Parent Company. No repayment schedule has been established for the Falkirk advances due to the funding agreement with the customers. Estimated maturities for Coteau for the next five years, including current maturities which are included in accrued liabilities in the accompanying balance sheets, are as follows:
1997 $ 9,079 1998 9,750 1999 9,750 2000 9,750 2001 9,750 Thereafter 72,175 -------- $120,254 ========
-9- 12 THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued December 31, 1996 and 1995 NOTE F--NOTES PAYABLE Notes payable, less current maturities, are summarized in the following table. Neither the Company nor the Parent Company have guaranteed these borrowings. The promissory note for Sabine represents borrowings which the public utility arranged for Sabine.
December 31, 1996 1995 ------- ------- THE COTEAU PROPERTIES COMPANY Mortgage note with no interest. The note requires eight equal quarterly payments, beginning January 5, 1996, and is secured by the related coal lands. $ - $ 3,000 THE SABINE MINING COMPANY Secured note payable due February 20, 2003, with semi-annual payments and an interest rate of LIBOR plus .25% on the unpaid balance (interest rate of 5.75% at December 31, 1996). Under the terms of such agreement, substantially all assets are pledged and all rights under the Agreement are assigned. 11,786 - Promissory note payable to a bank under a revolving agreement providing for borrowings up to $10 million in 1996 and $25 million in 1995. Interest is based on the bank's daily cost of funds plus .45% (6.75% and 6.45% interest rate as of December 31, 1996 and 1995, respectively). Under the terms of such agreement, substantially all assets are pledged and all rights under the Agreement are assigned. 5,298 16,172 Secured note payable due June 1, 2001, with semi-annual payments and a fixed interest rate of 8.65% per annum on the unpaid balance. Under the terms of such agreement, substantially all assets are pledged and all rights under the Agreement are assigned. 3,500 4,500 OTHER 167 200 ------- ------- $20,751 $23,872 ======= =======
Note maturities for the next five years, including current maturities, are as follows:
1997 $ 6,310 1998 3,310 1999 3,143 2000 3,143 2001 2,643 Thereafter 8,512 ---------------- $ 27,061 ================
-10- 13 THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued December 31, 1996 and 1995 NOTE F--NOTES PAYABLE--continued Commitment fees paid to banks were approximately $18,000 and $46,000 in 1996 and 1995, respectively, and are included in interest expense in the accompanying consolidated statements of income. NOTE G--REVOLVING CREDIT AGREEMENT During 1996, the Company had a revolving credit agreement with a financial institution which is summarized as follows:
Amount of revolving credit agreement $50,000,000 Amount available at December 31, 1996 $21,000,000 Stated interest rate LIBOR + .4375% Interest rate at December 31, 1996 6.06% Commitment and facility fee .20% per annum Expiration date (with annual renewal option) September 27, 2001
The Company's revolving credit agreement includes certain financial covenants. The Company was in compliance with such covenants at December 31, 1996. The Company enters into interest rate swap agreements which allow the Company to enter into long-term credit arrangements that have performance based, floating rates of interest and then swap them into fixed rates as opposed to entering into higher cost fixed-rate credit arrangements. These agreements are with major commercial banks; therefore, the risk of credit loss from nonperformance by the banks is minimal. The Company evaluates its exposure to floating rate debt on an ongoing basis. The following table summarizes the notional amount and related rate on the interest rate swap agreement outstanding at December 31, 1996:
Variable Fixed Notional Rate Rate Amount Received Paid -------- -------- ---- $13,929 5.75% 6.85%
NOTE H--POSTRETIREMENT PLANS The Company and its affiliates, representing the mining operations of the Parent Company, sponsor defined benefit pension plans which cover substantially all salaried employees of the Company and its subsidiaries. Benefits under the plans are based on years of service and average compensation during certain periods. The Company's funding policy is to contribute within the range allowed by the applicable regulations. Plan assets are primarily listed stocks and U.S. bonds. -11- 14 THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued December 31, 1996 and 1995 The following is a detail of net periodic pension expense for all mining operations of the Parent Company:
December 31, ----------------------- 1996 1995 ------- ------- Service cost $ 2,192 $ 1,805 Interest cost on projected benefit obligation 2,808 2,414 Actual return on plan assets (2,697) (6,891) Net amortization and deferral (71) 4,538 ------- ------- Net periodic pension expense $ 2,232 $ 1,866 ======= =======
The following sets forth the funded status of the plans:
Actuarial present value of benefit obligation December 31, ------------------------- 1996 1995 -------- -------- Vested accumulated benefit obligation $ 20,086 $ 19,034 Nonvested accumulated benefit obligation 2,780 3,313 -------- -------- Total accumulated benefit obligation 22,866 22,347 Value of future salary projections 14,948 17,738 -------- -------- Total projected benefit obligation 37,814 40,085 Fair value of plan assets 34,473 30,622 -------- -------- Projected benefit obligation in excess of plan assets (3,341) (9,463) Amounts not recognized: Unrecognized net transition asset (670) (838) Unrecognized net gain (15,288) (6,578) Prior service cost 646 705 -------- -------- Pension obligation recognized $(18,653) $(16,174) ======== ========
-12- 15 THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued December 31, 1996 and 1995 NOTE H--POSTRETIREMENT PLANS--continued Assumptions used in accounting for the defined benefit plans:
December 31, ------------------ 1996 1995 ---- ---- Weighted average discount rates 8.00% 7.50% Rate of increase in compensation levels 5.00% 4.50% Expected long-term rate of return on assets 9.00% 9.00%
The Company and its subsidiaries participate in a defined contribution plan sponsored by the Company which covers substantially all salaried employees. The plan provides for employee contributions to be matched, by the respective company, up to a limit of 5% of the employee's salary. Company contributions to the plan were approximately $2,773,000 and $2,515,000 in 1996 and 1995, respectively. NOTE I--OTHER POSTRETIREMENT BENEFITS The expected cost of retirement benefits other than pensions is charged to expense during the years that the employees render service. Under the provisions of the Agreements of three subsidiaries, costs will be recovered as a cost of coal tonnage sold. Because SFAS 106 is not material to the Company's results of operations and financial condition, the detailed disclosures required by SFAS 106 have not been presented. Coteau and Sabine established Voluntary Employees' Beneficiary Association (VEBA) trusts in 1993 to provide for such future retirement benefits. Coteau and Sabine made cash contributions to the VEBA trusts of approximately $364,000 and $462,000 in 1996 and 1995, respectively. Contributions made to an IRS approved VEBA trust are irrevocable and must be used for employee benefits. NOTE J--COMMITMENTS Certain mining equipment leased by Coteau, Falkirk, and Sabine is capitalized for financial statement purposes. Under the provisions of the Agreements, the customer is required to pay, as part of the cost of coal purchased, an amount equal to the annual lease payments. Interest expense and amortization in excess of annual lease payments are deferred and are recognized in years when annual lease payments exceed interest expense and amortization. Interest paid on notes and capitalized lease obligations amounted to approximately $13,775,000 and $15,841,000 in 1996 and 1995, respectively. Assets recorded under capitalized lease obligations are included with property, plant and equipment and consist of the following: -13- 16 THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued December 31, 1996 and 1995 NOTE J--COMMITMENTS--continued
December 31, --------------------------- 1996 1995 --------- --------- Plant and equipment $ 198,744 $ 201,048 Accumulated amortization (87,077) (78,291) --------- --------- $ 111,667 $ 122,757 ========= =========
Capitalized lease obligations are renewable for additional periods at terms based upon fair market value of the leased items at the renewal dates. During 1996 and 1995, subsidiaries of the Company incurred capitalized lease obligations of approximately $1,839,000 and $17,985,000, respectively, in connection with lease agreements to acquire plant and equipment. Future minimum lease payments as of December 31, 1996, for all capitalized lease obligations are as follows:
1997 $ 22,624 1998 21,918 1999 21,518 2000 20,609 2001 20,342 Thereafter 120,061 --------------- Total minimum lease payments 227,072 Amounts representing interest (78,891) --------------- Present value of net minimum lease payments 148,181 Current maturities (11,551) --------------- $ 136,630 ===============
The Company is committed under non cancelable operating leases, The Parent Company is not obligated under operating lease agreements of the Company. Minimum lease payments as of December 31, 1996, as follows:
1997 $ 2,710 1998 1,788 1999 1,225 2000 1,074 2001 1,074 Thereafter 4,295 ---------- $ 12,166 ==========
-14- 17 THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued December 31, 1996 and 1995 Rental expenses for all operating leases amounted to approximately $2,000,000 and $992,000 during 1996 and 1995, respectively. At December 31, 1996, the unexpended portion of capital expenditures authorized by the respective boards of directors, and customers where required, of the Company and its subsidiaries approximated $54,188,000, of which $49,361,000 is being financed under the arrangements with public utilities served by the subsidiaries. NOTE K--INCOME TAXES The Company and its subsidiaries are included in the consolidated federal income tax return filed by the Parent Company. The Company and each of its subsidiaries entered into a tax-sharing agreement with the Parent Company under which federal income taxes are computed by the Company and each of its subsidiaries on a separate return basis. The current portion of such tax is paid to the Parent Company. During 1996 and 1995, the federal and state income taxes paid by the Company were approximately $8,464,000 and $12,122,000, respectively. The Company's effective tax rate differs from the federal statutory rate primarily due to state income taxes and percentage depletion. Provision for income taxes consists of the following:
Year Ended December 31, ----------------------- 1996 1995 Federal $ 7,278 $8,795 State 1,296 355 ------- ------ Total current tax expense $ 8,574 $9,150 ======= ====== Federal $ 1,401 $1,399 State (89) 291 ------- ------ Total deferred tax expense $ 1,312 $1,690 ======= ======
A summary of components of the net deferred tax assets (liabilities) included in the accompanying consolidated balance sheets resulting from differences in the book and tax bases of assets and liabilities are as follows: -15- 18 THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued December 31, 1996 and 1995 NOTE K--INCOME TAXES--continued
December 31, ------------------------ 1996 1995 -------- -------- Current portion: Accrued expenses and reserves $ 521 $ 448 Inventory (40) (37) -------- -------- Total current $ 481 $ 411 ======== ======== Long-term portion: Depreciation, depletion and amortization $(23,379) $(19,522) Pensions 5,527 5,714 Installment sales (1,211) (928) Partnership investment (1,796) (1,811) Deferred compensation 1,700 1,327 Other - net (693) (3,936) -------- -------- Total long-term $(19,852) $(19,156) ======== ========
The current portion of deferred income taxes shown above, a net deferred tax asset, is included in other current assets in the accompanying consolidated balance sheets. NOTE L--DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments", requires disclosure about the fair value of financial instruments. Carrying amounts for cash and cash equivalents and revolving credit approximate fair value. The fair value of notes receivable and payable is estimated based on the discounted value of the future cash flows using borrowing rates currently available to the Company for bank loans with similar terms and average maturities. The fair value compared to the carrying value are summarized as follows:
December 31, ---------------------- 1996 1995 ---- ---- FAIR VALUE: Notes receivable $ 3,906 $ 5,023 Notes payable $27,176 $29,367 CARRYING VALUE: Notes receivable $ 2,621 $ 3,790 Notes payable $27,061 $29,053
-16- 19 THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued December 31, 1996 and 1995 NOTE M--TRANSACTIONS WITH AFFILIATED COMPANIES Costs and expenses include net receipts from the Parent Company and other subsidiaries of the Parent Company. These receipts approximated $1,185,000 in 1996 and $1,150,000 in 1995 for administrative and other services. The note receivable from Parent Company of $41,952,000 in 1996 and $14,939,000 in 1995 is a demand note, with interest of 5.94% at December 31, 1996, and 5.78% at December 31, 1995. -17- EX-99.II 19 EXHIBIT 99(II) 1 Exhibit 99(ii) HAMILTON BEACH/PROCTOR-SILEX, INC., AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995 TOGETHER WITH AUDITORS' REPORT 2 HAMILTON BEACH/PROCTOR-SILEX, INC., AND SUBSIDIARIES TABLE OF CONTENTS
PAGE REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 FINANCIAL STATEMENTS Consolidated Balance Sheets as of December 31, 1996 and 1995 2 Consolidated Statements of Operations for the Years Ended December 31, 1996 and 1995 3 Consolidated Statements of Changes in Stockholder's Equity for the Years Ended December 31, 1996 and 1995 4 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996 and 1995 5 Notes to Consolidated Financial Statements as of December 31, 1996 and 1995 6 - 17
3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Hamilton Beach/Proctor-Silex, Inc.: We have audited the accompanying consolidated balance sheets of Hamilton Beach/Proctor-Silex, Inc. (a Delaware corporation), and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in stockholder's equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hamilton Beach/Proctor-Silex, Inc., and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. Arthur Andersen, LLP Richmond, Virginia, January 31, 1997 - -1- 4 HAMILTON BEACH/PROCTOR-SILEX, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995 (Dollars in Thousands)
ASSETS 1996 1995 ---- ---- CURRENT ASSETS: Cash and cash equivalents $ 359 $ 308 Accounts receivable, net 60,054 70,193 Inventories, net 48,326 58,727 Deferred income taxes 2,368 2,085 Prepaid expenses and other 6,721 6,776 --------- --------- Total current assets 117,828 138,089 PROPERTY, PLANT, AND EQUIPMENT, NET 52,592 51,039 DEFERRED CHARGES AND INTANGIBLE ASSETS, NET 96,679 95,750 DEFERRED INCOME TAXES 4,729 3,122 OTHER ASSETS 14 27 --------- --------- Total assets $ 271,842 $ 288,027 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Current maturities of long-term obligations $ 9,211 $ 17,226 Accounts payable 21,388 21,616 Other current liabilities 33,253 27,744 --------- --------- Total current liabilities 63,852 66,586 --------- --------- OTHER LIABILITIES 9,695 13,565 --------- --------- LONG-TERM OBLIGATIONS: Revolving credit agreements 80,000 65,000 Capital leases 449 542 --------- --------- Total long-term obligations 80,449 65,542 --------- --------- STOCKHOLDER'S EQUITY: Common stock and paid-in capital, 100 shares authorized, issued, and outstanding at $0.01 par value 155,609 149,268 Retained deficit (35,739) (2,816) Minimum pension liability (393) (2,521) Cumulative translation adjustment (1,631) (1,597) --------- --------- Total stockholder's equity 117,846 142,334 --------- --------- Total liabilities and stockholder's equity $ 271,842 $ 288,027 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. - -2- 5 HAMILTON BEACH/PROCTOR-SILEX, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (Dollars in Thousands)
1996 1995 -------- -------- NET SALES $395,046 $381,356 COST OF SALES 326,146 318,968 -------- -------- Gross profit 68,900 62,388 SELLING, ADMINISTRATIVE, AND GENERAL EXPENSES 39,502 34,293 -------- -------- Operating profit 29,398 28,095 OTHER EXPENSE: Interest 5,959 6,573 Amortization 5,715 3,683 Other, net 345 813 -------- -------- Total other expense 12,019 11,069 -------- -------- Income before income taxes 17,379 17,026 PROVISION FOR INCOME TAXES 6,696 5,274 -------- -------- Net income $10,683 $11,752 ======== ========
The accompanying notes are an integral part of these consolidated statements. - -3- 6 HAMILTON BEACH/PROCTOR-SILEX, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (Dollars in Thousands, Other Than Par Value)
COMMON STOCK COMMON -------------------- STOCK AND MINIMUM CUMULATIVE TOTAL SHARES PAR PAID-IN RETAINED PENSION TRANSLATION STOCKHOLDER'S OUTSTANDING VALUE CAPITAL DEFICIT LIABILITY ADJUSTMENT EQUITY ------------- ----- --------- -------- --------- ----------- ------------- BALANCES, December 31, 1994 100 $1 $149,268 $(14,568) $(2,357) $(1,974) $130,369 Minimum pension liability - - - - (164) - (164) Net income - - - 11,752 - - 11,752 Translation adjustment - - - - - 377 377 --- -- -------- -------- ------- ------- -------- BALANCES, December 31, 1995 100 1 149,268 (2,816) (2,521) (1,597) 142,334 Minimum pension liability - - - - 2,128 - 2,128 Dividend paid for acquisition of Glen Dimplex shares - - 6,341 (33,606) - - (27,265) Dividend - - - (10,000) - - (10,000) Net income - - - 10,683 - - 10,683 Translation adjustment - - - - - (34) (34) --- -- -------- -------- ------- ------- -------- BALANCES, December 31, 1996 100 $1 $155,609 $(35,739) $ (393) $(1,631) $117,846 === == ======== ======== ======= ======= ========
The accompanying notes are an integral part of these consolidated statements. - -4- 7 HAMILTON BEACH/PROCTOR-SILEX, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (Dollars in Thousands)
1996 1995 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $10,683 $11,752 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation 13,263 12,156 Loss on disposal of fixed assets 224 599 Amortization 5,715 3,683 Deferred income taxes (3,226) 38 Changes in assets and liabilities- Decrease (increase) in: Accounts receivable, net 10,139 6,086 Inventories, net 10,401 (9,670) Prepaid expenses and other 55 (665) Deferred charges and intangible assets (315) (2,067) (Decrease) increase in: Accounts payable (228) (10,219) Other liabilities 5,118 (2,569) ------- ------- Net cash provided by operating activities 51,829 9,124 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Glen Dimplex shares (33,606) - Capital expenditures (15,129) (9,549) Proceeds from sale of fixed assets 41 115 Acquisition of supplier - (1,508) Other 58 - ------- ------- Net cash used in investing activities (48,636) (10,942) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Reduction of long-term obligations (59,937) (42,741) Borrowings under long-term obligations 66,829 42,183 Dividend paid (10,000) - ------- ------- Net cash used in financing activities (3,108) (558) ------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (34) 377 ------- ------- Net increase (decrease) in cash and cash equivalents 51 (1,999) CASH AND CASH EQUIVALENTS, beginning of year 308 2,307 ------- ------- CASH AND CASH EQUIVALENTS, end of year $ 359 $ 308 ======= =======
The accompanying notes are an integral part of these consolidated statements. - -5- 8 HAMILTON BEACH/PROCTOR-SILEX, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995 (Dollars in Thousands) 1. ORGANIZATION AND BUSINESS: Hamilton Beach/Proctor-Silex, Inc., and its wholly owned subsidiaries in Canada and Mexico (the "Company"), design, manufacture, and sell small consumer electric appliances. The principal markets for the Company's products are the United States and Canada. The Company's products are sold primarily to retailers and distributors. The Company is a wholly owned subsidiary of HB/PS Holdings, Inc. ("Holdings"). Through October 17, 1996, Holdings was owned 80 percent by NACCO Industries, Inc. ("NACCO"), and 20 percent by Glen Dimplex. Effective October 18, 1996, Holdings became a wholly owned subsidiary of NACCO (see Note 3). 2. SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash in banks and highly liquid investments with initial maturities of three months or less. INVENTORIES, NET Inventories are stated at the lower of cost or market. Cost has been determined by the last-in, first-out ("LIFO") method for substantially all inventories accounted for in the United States and under the first-in, first-out method for all other inventories. - -6- 9 PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment is stated at cost. All property, plant, and equipment is depreciated on a straight-line basis over estimated useful lives of up to 40 years for buildings and 4 to 6 years for machinery and equipment. Assets recorded under capital leases and leasehold improvements are amortized over the lesser of their estimated useful lives or remaining lease terms on a straight-line basis. GOODWILL Goodwill is being amortized on a straight-line basis over periods up to 40 years. The Company continually evaluates whether events and circumstances have occurred subsequent to its acquisitions that indicate the remaining estimated useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. When factors indicate that goodwill should be evaluated for possible impairment, the Company uses an estimate of the Company's undiscounted cash flow over the remaining life of the goodwill in measuring whether the goodwill is recoverable. PRODUCT DEVELOPMENT COSTS Costs associated with the development of new products and changes to existing products are charged to operations as incurred. These costs amounted to $3,690 and $3,304 in 1996 and 1995, respectively. ADVERTISING COSTS Promotional or advertising costs associated with customer support programs are accrued when the related revenues are recognized. All other costs incurred in producing media advertising are expensed at the time the advertising takes place. Promotional and advertising costs charged to expense were $26,270 and $26,465 in 1996 and 1995, respectively. FOREIGN CURRENCY TRANSLATION Assets and liabilities of the Company's foreign subsidiaries are translated at current exchange rates, while income and expense items are translated at average rates for the period. Translation gains and losses associated with the Company's Canadian subsidiary are reported as a component of stockholder's equity. Translation gains and losses related to the Company's subsidiaries located in Mexico are reported in the accompanying consolidated statements of operations. PRODUCT LIABILITY The Company is insured for product liability claims for amounts in excess of established self-insured retention limits. Costs estimated to be incurred with respect to product liability claims are accrued based on experience factors. - -7- 10 SELF-INSURANCE The Company maintains a self-insurance program for health claims and a high deductible insurance program for workers' compensation claims of all covered employees. Losses are accrued based on the Company's estimate of future costs that will be incurred for employee losses incurred prior to the balance sheet date. FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS The Company's financial instruments include cash, accounts receivable, payables, debt, interest rate agreements, and foreign currency contracts. The estimated fair values of the Company's financial instruments at December 31, 1996 and 1995, approximate their carrying value as reflected in the consolidated balance sheets (see Note 10). The estimated fair values of financial instruments have been determined through information obtained from quoted market sources and management estimates. The Company does not hold or issue financial instruments or derivative financial instruments for trading purposes. The Company enters into forward foreign exchange contracts in order to hedge certain foreign currency commitments. Gains and losses from these contracts are deferred and are recognized as part of the cost of the underlying transaction being hedged. The Company also enters into interest rate swap agreements with various terms and maturity dates. The differential between the floating interest rate and the fixed interest rate that is to be paid or received is recognized in interest expense on a current basis. 3. ACQUISITION OF SHAREHOLDER INTEREST: On October 18, 1996, Holdings, through its parent company, Housewares Holding Company ("Housewares"), purchased Glen Dimplex's 20 percent ownership interest in Holdings for $33,606. The purchase was established based upon provisions included in the Shareholder Agreement dated October 11, 1990, among Housewares, Holdings, and Hamilton Beach, Inc. The purchase of the Glen Dimplex shares was effected via a dividend by the Company to Holdings in the amount of the purchase price. The effect of this transaction on the financial statements of the Company was an increase to retained deficit of $33,606, and an increase to goodwill and additional paid-in capital of $6,341. The addition to goodwill is being amortized on a straight-line basis over the remaining life of the goodwill acquired upon the formation of the Company. 4. ACQUISITION: On November 30, 1995, the Company acquired all the outstanding stock of Plasticos Sotec, S.A de C.V. ("Sotec"), a Mexican supplier of molded plastic parts, under the purchase method of accounting. The Company paid net cash of $1,508 and assumed other liabilities of $350 for the stock and certain assets of Sotec, plus acquisition costs. Prior to the acquisition, the Company paid $2,650 to terminate the supplier manufacturing arrangement. The goodwill associated with the acquisition of $2,129 and the amount paid to terminate the supplier manufacturing arrangement are being amortized over a 25 month period. - -8- 11 5. ACCOUNTS RECEIVABLE, NET: At December 31, accounts receivable consist of the following.
1996 1995 ------- ------- Accounts receivable $68,479 $77,716 Less- Allowance for returns, discounts, and adjustments (7,498) (6,878) Allowance for doubtful accounts (927) (645) ------- ------- Accounts receivable, net $60,054 $70,193 ======= =======
6. INVENTORIES, NET: At December 31, inventories consist of the following.
1996 1995 ------- ------- Raw materials $10,915 $12,458 Work in process 3,061 3,196 Finished goods 34,078 43,323 LIFO allowance 272 (250) ------- ------- Inventories, net $48,326 $58,727 ======= =======
As a result of changes in prices, and liquidation of certain LIFO inventories in 1996, operating profit increased $522 and decreased $141 for 1996 and 1995, respectively. The cost of inventories stated under the LIFO method was 91 percent of the value of total inventories at December 31, 1996 and 1995. 7. PROPERTY, PLANT, AND EQUIPMENT, NET: At December 31, property, plant, and equipment (including capital leases) consists of the following.
1996 1995 --------- --------- Land, buildings, and improvements $ 17,971 $ 17,862 Machinery and equipment 97,746 89,344 Construction work in process 9,542 5,231 --------- --------- 125,259 112,437 Less- Accumulated depreciation and amortization (72,667) (61,398) --------- --------- Property, plant, and equipment, net $ 52,592 $ 51,039 ========= =========
8. DEFERRED CHARGES AND INTANGIBLE ASSETS, NET: Goodwill amounted to $96,460 and $93,649 at December 31, 1996 and 1995, respectively, net of accumulated amortization, and is being amortized over periods up to 40 years on a straight-line basis. Goodwill amortization expense amounted to $3,844 and $2,816 for 1996 and 1995, respectively. Patents, trademarks, and other at December 31, 1996 and 1995, amounted to $25 and $1,323, respectively, net of accumulated amortization, and are being amortized on a straight-line basis over their remaining lives. Total amortization for 1996 and 1995 amounted to $1,287 and $284, respectively. Deferred financing costs at December 31, 1996 and 1995, amounted to $194 and $778, respectively, net of accumulated amortization, and are being amortized on a straight-line basis over the life of the amended and restated credit agreement (see Note 9). Amortization expense related to deferred financing costs for 1996 and 1995 was $584 and $583, respectively. 9. REVOLVING CREDIT AGREEMENTS: The Company has a bank credit facility (the "Agreement"), which includes a revolving credit line and a letter-of-credit facility of up to $160,000 through May 1999. In April 1995, the Agreement was amended to provide a lower interest rate and facility fee if the Company achieves certain interest coverage ratios and to allow for interest rates to be quoted under a competitive bid option. In October 1996, the Agreement was amended to accommodate the dividend for the purchase of the Glen Dimplex shares (see Note 3). This amendment increased the amount available under the Agreement by $25,000 and modified certain required ratios. The maturity date of the Agreement may, upon mutual consent, be extended annually for an additional year. As amended, the Agreement allows borrowings to be made at either (i) the lender's prime rate plus 0.25 percent or (ii) LIBOR plus 0.75 percent. Additionally, a facility fee of 0.50 percent per annum times the committed amount of the credit facility is paid to the lender. The borrowing margins and facility fee rates are subject to reductions based upon the Company achieving certain predetermined interest coverage ratios. During 1996, the Company received an average reduction of 0.79 basis points on the combined borrowing margin plus a facility fee resulting in an average margin over LIBOR paid of 0.29 percent and an average facility fee paid of 0.17 percent. - -9- 12 The Agreement is secured by substantially all the Company's assets. The Agreement includes certain covenants requiring, among other things, maintenance of certain levels of (i) net worth, (ii) debt to total capital, and (iii) interest coverage. At December 31, 1996, the Company was in compliance with all the financial covenants of the Agreement. The Company also has in place uncommitted credit lines, which are secured through and subject to the Agreement, and which allow for borrowings of up to $20,000 on a daily basis. In addition, the Company has an unsecured, uncommitted credit line of $5,000. During 1996 and 1995, total average borrowings outstanding under all debt and credit agreements were $94,762 and $99,724, at a weighted-average interest rate of 6.12 percent and 6.58 percent, respectively. At December 31, 1996 and 1995, the weighted average interest rate on all borrowings outstanding was 6.11 percent and 6.23 percent, respectively. In addition, at December 31, 1996 and 1995, outstanding obligations under letters of credit were $4,797 and $4,312, respectively. At the option of Housewares, a wholly owned subsidiary of NACCO, the Company may, subject to certain terms and conditions of the Agreement, borrow up to $35,000 from Housewares. No borrowings were outstanding during 1996 or 1995 under this agreement. 10. FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS: INTEREST RATE DERIVATIVES The primary objective of interest rate risk management is to minimize the impact of interest rate fluctuations on the Company's cash flow and financial results. The Company has entered into certain interest rate swap agreements to swap floating rate for fixed rate interest payments. At December 31, 1996, the notional amount on interest rate swap agreements in effect and expiring on various dates from March 1999 through November 1999 was $75 million, with the average variable rate received and the average fixed rate paid during 1996 being 5.96 percent and 6.22 percent, respectively. At December 31, 1996, the aggregate fair market value of the Company's interest rate swap agreements was $342, based on quoted market prices received from the Company's swap agreement counter parties. FOREIGN CURRENCY DERIVATIVES The Company enters into forward foreign exchange contracts for purposes of hedging its exposure to foreign currency exchange rate fluctuations. These contracts hedge primarily firm commitments and relate to the Canadian dollar. At December 31, 1996, the Company had foreign currency contracts totaling $2,700, with various expiration dates through March 10, 1997. The amount of deferred gain associated with these contracts was not material. All interest rate and foreign currency derivative agreements are with major commercial banks; therefore, the risk of credit loss from nonperformance by the banks is minimal. The Company evaluates its exposure to credit loss on an ongoing basis. 11. CONCENTRATION OF CREDIT RISK: The Company sells its products to retailers and distributors located primarily in North America and, as a result, maintains significant receivable balances with its major customers. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral from its customers. In addition, the Company maintains allowances for potential credit losses. The Company's five largest customers accounted for approximately 48.6 percent and 46.4 percent of net sales in 1996 and 1995, respectively, and approximately 48.4 percent and 47.0 percent of net accounts receivable at December 31, 1996 and 1995, respectively. 12. LEASES: The Company leases certain facilities under noncancelable leases expiring at various dates through 2021. Plant and equipment under capital leases has been recorded as property, plant, and equipment in the consolidated balance sheets, and the related amortization is included with depreciation expense. At December 31, property, plant, and equipment includes the following amounts relating to capital leases.
1996 1995 ------ ------ Plant and equipment $9,303 $9,323 Less- Accumulated amortization (4,282) (3,829) ------ ------ $5,021 $5,494 ====== ======
Future minimum lease payments for capital leases as of December 31, 1996, are as follows: 1997 - $143; 1998- $91; 1999 - $79; 2000 - $74; 2001 - $72; and thereafter - $688, and have a net present value of $587. Future minimum lease payments for operating leases are as follows: 1997 - $3,751; 1998 - $3,424; 1999 - $2,673; 2000 - $1,978, 2001 - $1,781; and thereafter - $2,155. Rental expense for operating leases amounted to $5,593 and $5,140 for 1996 and 1995, respectively. 13. INCOME TAXES: The Company is included in the consolidated Federal income tax return filed by NACCO. The Company's tax sharing agreement with NACCO provides that Federal income taxes are computed by the Company on a separate return basis, - -10- 13 except that net operating loss and tax credit carryovers that benefit the consolidated tax return are advanced to the Company and are repaid as utilized on a separate return basis. To the extent that these carryovers are not used on a separate return basis, the Company is required, under conditions pursuant to the tax sharing agreement, to refund to NACCO the balance of carryovers advanced and not used by the Company. The provision for income taxes consists of the following amounts.
1996 1995 ---- ---- Current: Federal $8,208 $5,287 State 1,143 644 Foreign 538 470 ------ ------ Total current provision 9,889 6,401 ------ ------ Deferred: Federal (2,663) (1,551) State (250) 308 Foreign (280) 116 ------ ------ Total deferred benefit (3,193) (1,127) ------ ------ Total provision for income taxes $6,696 $5,274 ====== ======
A reconciliation of Federal statutory to effective income tax provision follows.
1996 1995 ---- ---- Statutory taxes at 35% $6,083 $5,959 Effect of: State taxes 580 619 Foreign taxes 131 182 Acquisition accounting adjustments 1,028 964 Foreign tax credit (615) (2,784) Other (511) 334 ------ ------ Provision for income taxes $6,696 $5,274 ====== ====== Effective rate 38.5% 31.0% ====== ======
- -11- 14 The foreign tax credit of $615 realized in 1996 resulted from repatriation of virtually all prior earnings of a Mexican subsidiary, and additional foreign tax credit realized from the 1995 repatriation of earnings of the Canadian subsidiary. Such benefit is not expected to recur in 1997. The foreign tax credit of $2,784 realized in 1995 resulted from repatriation of virtually all prior earnings of the Canadian subsidiary. A summary of the deferred tax assets and (liabilities) that comprise the net deferred tax balances in the accompanying consolidated balance sheets resulting from differences in the book and tax bases of assets and liabilities is as follows.
1996 1995 ---- ---- Deferred tax assets: Employee benefits $ 2,848 $ 3,065 Plant restructuring reserve 517 530 Environmental reserve 2,195 2,288 Product liability reserve 1,906 1,786 Net operating loss and tax credit carryovers 5,289 6,041 Other 344 213 -------- -------- Total deferred tax assets 13,099 13,923 -------- -------- Deferred tax liabilities: Advertising, sales, and inventory related reserves (2,428) (3,120) Accelerated depreciation (2,462) (4,007) Other (1,112) (1,589) -------- -------- Total deferred tax liabilities (6,002) (8,716) -------- -------- Net deferred tax assets $ 7,097 $ 5,207 ======== ========
As of December 31, 1996, the Company had Federal net operating loss carryovers of approximately $7,236, related to Hamilton Beach, Inc., and foreign tax credit carryovers of $2,705. For Federal tax purposes, the utilization of acquired net operating loss carryovers is limited to $1,953 on an annual basis, with any unused limitation available for carryover to subsequent years. The Company utilized $1,953 of the net operating loss carryovers related to Hamilton Beach, Inc., in 1996. Loss carryovers are scheduled to expire in the years 2002 and 2003, and foreign tax credit carryovers are scheduled to expire in the years 1997 to 2000. As of December 31, 1996, the Company has recorded a deferred tax asset of $5,238 associated with these carryforwards. Realization of the asset is dependent on generating sufficient taxable and foreign source income prior to expiration of the carryforwards. The amount of the deferred tax asset considered realizable could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. Although realization is not assured, the Company fully expects to realize its deferred tax assets. As a result, the Company has no valuation allowances as of December 31, 1996 and 1995. No provision has been made for Federal income taxes on undistributed earnings of foreign subsidiaries of approximately $945 as of December 31, 1996, as any future remittances are expected to be substantially tax free. - -12- 15 14. RETIREMENT BENEFIT PLANS: The Company sponsors a defined benefit plan, the Hamilton Beach/Proctor-Silex, Inc., Profit Sharing Retirement Plan (the "Plan"). All full-time hourly and salaried U.S. employees are eligible to participate in the Plan. The Plan provides that participants accrue benefits annually based on age and annual earnings. Upon retirement, participants receive their vested account balances under the Plan plus all vested accrued benefits earned under prior frozen benefit plans. Benefits will be paid upon normal retirement at age 65 or early retirement after age 55. Participants become fully vested after five years of service. The Company's funding policy is to contribute each year an amount that satisfies the minimum required contribution but does not exceed the maximum tax deductible contribution. Also, the Company may make additional contributions to the Plan, dependent upon the Company achieving certain profit and performance objectives. In 1996 and 1995, the Company accrued $413 and $433, respectively, representing the estimated amount of profit sharing to be contributed to the Plan in the subsequent year. The Company contributed $2,693 and $1,658 to the Plan for the plan years ended December 31, 1996 and 1995, respectively. Assets held by the Plan consist mainly of common stocks, corporate and government bonds, and cash and cash equivalents. Effective December 31, 1996, the Company froze benefit accruals under the Plan and established a new participant retirement account under the HBPS Employees Retirement Savings Plan (401k) effective January 1, 1997. Accordingly, all benefits accrued and obligations recorded under the Plan were frozen as of December 31, 1996. The details of the components of net pension expense for the years ended December 31, 1996 and 1995, are as follows.
1996 1995 ------ ------ Service cost $1,373 $1,179 Interest cost on projected benefit obligation 2,595 2,597 Actual return on assets (2,299) (5,373) Net amortization and deferral (287) 3,036 ------ ------ Net pension expense $1,382 $1,439 ====== ======
Actuarial factors used in accounting for the Plan as of December 31, 1996 and 1995, are as follows.
1996 1995 ------ ------ Weighted-average discount rate 8.0% 7.5% Long-term rate of return on assets 9.0% 9.0% Rate of increase in compensation levels: Salaried 5.0% 4.5% Hourly 5.0% 4.5%
- -13- 16 The funded status of the Plan and amounts recognized in the Company's consolidated balance sheets as of December 31, 1996 and 1995, are as follows.
1996 1995 -------- -------- Actuarial present value of benefit obligation: Vested accumulated benefit obligation $32,015 $33,329 Nonvested accumulated benefit obligation 1,823 1,346 -------- -------- Total accumulated benefit obligation 33,838 34,675 Value of future salary projections 145 976 -------- -------- Total projected benefit obligation 33,983 35,651 Fair value of plan assets 33,059 29,570 -------- -------- Projected benefit obligation in excess of plan assets (924) (6,081) Unrecognized net transition asset (6) (6) Unrecognized net loss 539 4,882 Unrecognized prior service cost 23 10 Additional minimum liability (652) (4,116) -------- -------- Pension liability recognized in consolidated balance sheets at December 31, 1996 and 1995 $ (1,020) $ (5,311) ======== ========
Statement of Financial Accounting Standards No. 87 ("SFAS 87"), "Employers' Accounting for Pensions", requires the Company to recognize a minimum pension liability equal to the unfunded accumulated benefit obligation ("ABO"). At December 31, 1996 and 1995, the cumulative unfunded ABO was $1,020 and $5,311, respectively. The Company recorded an adjustment that recognized an additional minimum liability equal to the unfunded ABO. In accordance with SFAS 87, the portion of the unfunded ABO in excess of unrecognized prior service cost was charged directly to stockholder's equity and is separately presented in the consolidated statements of changes in stockholder's equity. The Company also sponsors the HBPS Employees Retirement Savings Plan (401k), a defined contribution retirement savings plan covering substantially all of its full-time United States employees. Under the plan, employees may defer up to 15 percent of pay on a pre-tax basis. Effective July 1, 1995, the Company began matching employee contributions to the plan at the rate of 50 percent, up to the first 2 percent of employee contributions. Effective January 1, 1997, the employer match was increased to match 50 percent of the first 4 percent of employee contributions. Employee pre-tax and employer matching contributions are immediately 100 percent vested. Effective January 1, 1997, the Company added a profit sharing feature to the plan. Under the plan, participants receive an automatic contribution based on age, ranging between 2 percent and 6.33 percent of annual pay. The Company may also make additional profit sharing contributions to participant accounts dependent upon the Company's achievement of certain profit and performance goals. Profit sharing contributions vest on a 20 percent, five year graded schedule. - -14- 17 The Company maintains a postretirement health care plan for all retirees who retired prior to October 1, 1992. In addition, the Company provides life insurance benefits to all retirees who retired prior to October 1, 1992, assuming they reached certain age and service requirements while working for the Company. Under the Company's current policy, plan benefits are funded at the time they are due to participants. The plan has no assets. 15. RELATED-PARTY TRANSACTIONS: The Company sells merchandise to The Kitchen Collection, Inc. ("Kitchen Collection"), a wholly owned subsidiary of Housewares. The Company's sales to Kitchen Collection were $6,201 and $5,030 for 1996 and 1995, respectively. Accounts receivable due from Kitchen Collection at December 31, 1996 and 1995, amounted to $146 and $361, respectively, and are included in accounts receivable. NACCO incurs certain administrative and other expenses directly related to the operation of the Company. These expenses are reimbursed to NACCO. The Company expensed and paid $743 and $627 of these administrative expenses to NACCO in 1996 and 1995, respectively. The related payable to NACCO was $48 and $73 at December 31, 1996 and 1995, respectively. 16. CONTINGENCIES: Various legal proceedings and claims have been or may be asserted against the Company relating to the conduct of its business, including product liability and environmental claims. These proceedings and claims are incidental to the Company's ordinary course of business. Management believes that it has meritorious defenses and will vigorously defend itself in these actions. Any costs that management estimates may be paid as a result of these proceedings or claims are accrued when the liability is considered probable and the amount can be reasonably estimated. Although the ultimate disposition of these proceedings and claims is not presently determinable, management believes, after consultation with its general counsel, the likelihood that material costs will be incurred in excess of accruals already recognized is remote. 17. INDUSTRY SEGMENT AND FOREIGN OPERATIONS: The Company designs, manufactures, and sells small consumer electric appliances. Net sales to one major customer totaled 27.5 percent in 1996 and 22.5 percent in 1995. The Company has operations in the United States, Mexico, and Canada. Products are transferred between these geographic areas at the market value of the products. Identifiable assets are those assets identified with the operations in each geographic area at year-end. All deferred charges and intangible assets are attributed to the United States. Eliminations include amounts for intercompany sales, intercompany profits in inventory, and intercompany investments. - -15- 18 The following table presents sales, operating profit, and other financial information by geographic area for 1996 and 1995.
UNITED STATES CANADA MEXICO ELIMINATIONS CONSOLIDATED ------ ------ ------ ------------ ------------ 1996: Net sales $376,982 $38,349 $14,389 $(34,674) $395,046 Sales and transfers between geographic areas 21,220 - 13,454 (34,674) - Operating profit 28,998 424 120 (144) 29,398 Depreciation 9,351 69 3,843 - 13,263 Identifiable assets 252,438 11,927 16,347 (8,870) 271,842 Capital expenditures 6,341 180 8,608 - 15,129 1995: Net sales $361,749 $41,795 $ 9,508 $(31,696) $381,356 Sales and transfers between geographic areas 22,608 - 9,088 (31,696) - Operating profit 27,195 1,230 167 (497) 28,095 Depreciation 8,932 32 3,192 - 12,156 Identifiable assets 270,333 13,625 7,266 (3,197) 288,027 Capital expenditures 7,732 109 1,708 - 9,549
18. SUPPLEMENTAL CASH FLOW INFORMATION: Cash payments during 1996 and 1995 included interest of $5,588 and $6,762 and income taxes of $4,656 and $11,771, respectively. 19. RECENTLY ISSUED ACCOUNTING STANDARDS: In 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 121 establishes accounting standards for the impairment of long-lived assets, certain intangibles, and goodwill related to those assets. SFAS 121 provides, among other things, that impairment losses be recognized when expected future cash flows are less than the related assets' carrying value. Impairment is recorded based on an estimate of expected future discounted cash flows. There was no material effect on the Company's consolidated financial statements as a result of its adoption of SFAS 121. - -16- EX-99.III 20 EXHIBIT 99(III) 1 Exhibit 99(iii) THE KITCHEN COLLECTION, INC. ---------------------------- FINANCIAL STATEMENTS -------------------- AS OF DECEMBER 31, 1996 AND 1995 -------------------------------- TOGETHER WITH AUDITORS' REPORT ------------------------------ 2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Board of Directors and Stockholder of The Kitchen Collection, Inc.: We have audited the accompanying balance sheets of THE KITCHEN COLLECTION, INC. (a Delaware corporation) as of December 31, 1996 and 1995, and the related statements of income, changes in stockholder's equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Kitchen Collection, Inc. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Arthur Andersen, LLP Columbus, Ohio, January 29, 1997. 3 THE KITCHEN COLLECTION, INC. ---------------------------- BALANCE SHEETS -------------- AS OF DECEMBER 31, 1996 AND 1995 --------------------------------
ASSETS 1996 1995 ------ ---- ---- Current assets: Cash $ 140,235 $ 130,405 Miscellaneous receivables 131,723 175,179 Accounts receivable - affiliate 3,600,000 1,950,000 Inventories 14,915,677 14,124,708 Import inventories in-transit 480,255 145,447 Prepaid expenses and other 1,886,586 1,608,637 ------------ ------------ Total current assets 21,154,476 18,134,376 ------------ ------------ Property, plant and equipment: Land -- 61,300 Building and leasehold improvements 276,446 866,459 Furniture and fixtures 7,158,482 6,376,292 Construction in progress -- 77,500 ------------ ------------ 7,434,928 7,381,551 Less: Accumulated depreciation and amortization (4,559,945) (4,142,388) ------------ ------------ Property, plant and equipment, net 2,874,983 3,239,163 Goodwill, net of accumulated amortization 3,616,425 3,731,536 ------------ ------------ Total assets $ 27,645,884 $ 25,105,075 ============ ============ LIABILITIES AND STOCKHOLDER'S EQUITY ------------------------------------ Current liabilities: Accounts payable and miscellaneous accrued liabilities $ 6,300,484 $ 5,253,026 Accounts payable - affiliates 23,884 151,330 Income taxes payable to affiliate 864,576 1,015,720 Accrued salaries and benefits 1,378,280 1,183,603 Other accrued taxes 817,521 733,632 ------------ ------------ Total current liabilities 9,384,745 8,337,311 Long-term debt 5,000,000 5,000,000 ------------ ------------ Total liabilities 14,384,745 13,337,311 ------------ ------------ Stockholder's equity: Common stock; $.01 par value; 100,000 shares authorized; 10,500 shares issued and outstanding 105 105 Additional paid-in capital 4,999,890 4,999,890 Retained earnings 8,261,144 6,767,769 ------------ ------------ Total stockholder's equity 13,261,139 11,767,764 ------------ ------------ Total liabilities and stockholder's equity $ 27,645,884 $ 25,105,075 ============ ============
The accompanying notes to financial statements are an integral part of these balance sheets. 4 THE KITCHEN COLLECTION, INC. ---------------------------- STATEMENTS OF INCOME -------------------- FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 ----------------------------------------------
1996 1995 ----------- ----------- Net sales $74,921,070 $69,588,640 Cost of sales 43,306,213 40,048,483 ----------- ----------- Gross margin 31,614,857 29,540,157 Selling, general, administrative and other expenses 28,361,721 26,102,350 ----------- ----------- Operating income 3,253,136 3,437,807 Interest expense 511,051 505,848 Amortization expense 136,710 131,183 ----------- ----------- Income before provision for income taxes 2,605,375 2,800,776 Provision for income taxes 1,112,000 1,174,000 ----------- ----------- Net income $ 1,493,375 $ 1,626,776 =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 5 THE KITCHEN COLLECTION, INC. ---------------------------- STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY --------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 ----------------------------------------------
Additional Total Number Common Paid-in Retained Stockholder's of Shares Stock Capital Earnings Equity --------- ----- ------- -------- ------ Balance, December 31, 1994 10,500 $105 $4,999,890 $5,140,993 $10,140,988 Net income -- -- -- 1,626,776 1,626,776 ------ ---- ---------- ---------- ----------- Balance, December 31, 1995 10,500 105 4,999,890 6,767,769 11,767,764 Net income -- -- -- 1,493,375 1,493,375 ------ ---- ---------- ---------- ----------- Balance, December 31, 1996 10,500 $105 $4,999,890 $8,261,144 $13,261,139 ====== ==== ========== ========== ===========
The accompanying notes to financial statements are an integral part of these statements. 6 THE KITCHEN COLLECTION, INC. ---------------------------- STATEMENTS OF CASH FLOWS ------------------------ FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 ----------------------------------------------
Increase (Decrease) in Cash --------------------------- 1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,493,375 $ 1,626,776 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,100,430 1,025,093 Loss on the disposal of assets 10,398 26,090 Decrease in miscellaneous receivables 43,456 52,527 (Increase) decrease in inventories (1,125,777) 119,050 Increase in prepaid expenses and other (277,949) (174,545) Increase (decrease) in accounts payable and miscellaneous accrued liabilities 1,047,458 (2,312,501) Decrease in accounts payable - affiliates (127,446) (55,891) Decrease in income taxes payable to affiliate (151,144) (61,640) Increase in accrued salaries and benefits 194,677 35,305 Increase (decrease) in other accrued taxes other than income 83,889 (37,938) ----------- ----------- Net cash provided by operating activities 2,291,367 242,326 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property, plant and equipment (1,058,127) (1,459,676) Proceeds from disposal of assets 426,590 2,450 ----------- ----------- Net cash used in investing activities (631,537) (1,457,226) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (advances to) repayments on loan to affiliate (1,650,000) 1,175,000 ----------- ----------- Net cash provided by (used in) financing activities (1,650,000) 1,175,000 ----------- -----------
(Continued on next page) 7 THE KITCHEN COLLECTION, INC. ---------------------------- STATEMENTS OF CASH FLOWS ------------------------ FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 ---------------------------------------------- (Continued)
Increase (Decrease) in Cash --------------------------- 1996 1995 ---------- ----------- NET INCREASE (DECREASE) IN CASH $ 9,830 $ (39,900) CASH, beginning of the year 130,405 170,305 ---------- ----------- CASH, end of the year $ 140,235 $ 130,405 ========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: - ------------------------------------------------- Cash paid during the year for: Interest $ 463,689 $ 560,133 Income taxes $1,253,554 $ 1,446,353
The accompanying notes to financial statements are an integral part of these statements. 8 THE KITCHEN COLLECTION, INC. ---------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 1996 AND 1995 -------------------------- (1) ORGANIZATION ------------ The Kitchen Collection, Inc. (the Company) is a specialty retailer of kitchenware, tableware, small electrical appliances and related accessories. The Company operates a chain of 144 retail and factory outlet stores throughout the United States and is a wholly-owned subsidiary of NACCO Industries, Inc. (NII). (2) SIGNIFICANT ACCOUNTING POLICIES ------------------------------- USE OF ESTIMATES ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INVENTORIES ----------- Inventories are stated at the lower of cost or market as determined by the retail inventory method. LEASEHOLD IMPROVEMENTS, FURNITURE AND FIXTURES ---------------------------------------------- Leasehold improvements, furniture and fixtures are stated at cost. Expenditures for maintenance and repairs are charged to operations as incurred. For financial reporting purposes, depreciation and amortization is provided using the straight-line method based upon the estimated useful lives of the related assets, as follows: Leasehold improvements 5 years Furniture and fixtures 5 years 9 GOODWILL -------- Goodwill is associated with the purchase of the Company by NII and is being amortized over forty years on a straight-line basis. Accumulated amortization was $988,045 and $872,934 at December 31, 1996 and 1995, respectively, with related amortization expense of $115,111 for each of the years ended December 31, 1996 and 1995. Management regularly evaluates its accounting for goodwill considering such factors as historical and future profitability and believes that the asset is realizable and the amortization period remains appropriate. INCOME TAXES ------------ Deferred tax assets or liabilities are based on the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate. Deferred income tax expense or benefit is based on the changes in the assets or liabilities from period to period, refer to Note 5 "Income Taxes" for additional information. ADVERTISING ----------- The Company incurs advertising costs in the form of radio, newspaper and other print ads. Such costs are expensed as incurred. Advertising expense was $250,455 and $204,879 in 1996 and 1995, respectively. FAIR VALUE OF FINANCIAL INSTRUMENTS ----------------------------------- The Company enters into interest rate swap agreements with terms that run concurrent with the related debt. The differential between the floating interest rate and the fixed interest rate, which is to be paid or received, is recognized in interest expense as interest rates change over the life of the related debt agreement. The fair values of financial instruments have been determined through information obtained from quoted market sources and management estimates. The fair value of the financial instruments approximated their carrying values at December 31, 1996 and 1995. The Company does not hold or issue financial instruments or derivative financial instruments (interest rate swap agreements) for trading purposes. RECLASSIFICATIONS ----------------- Certain reclassifications have been made to 1995 amounts to conform to 1996 presentation. 10 (3) LINE-OF-CREDIT AGREEMENT ------------------------ The Company has an unsecured revolving line-of-credit agreement with a commercial bank for $5,000,000. Interest accrues at the bank's prime rate, money market rate or LIBOR rate plus a base rate margin of .425% to 1.25%, as determined by certain performance measures. The Company had no funds drawn against the available balance at December 31, 1996 or 1995. As of December 31, 1996, the Company had letters of credit outstanding totaling $71,736, which reduces the available balance to $4,928,264. The credit agreement expires on May 31, 1999. (4) LONG-TERM DEBT -------------- Long-term debt consists of the following, as of December 31:
1996 1995 ---------- ---------- Note payable to bank at 8.06% at December 31, 1996 and 7.81% at December 31, 1995 $5,000,000 $5,000,000 ========== ==========
On May 10, 1994, the Company entered a term note agreement with a commercial bank for $5,000,000. Interest is payable quarterly at 6.81%, plus a base rate margin between .75% and 1.75%, determined by certain performance measures. The note is unsecured and annual principal payments are due on January 15 of the following years:
Year Amount -------- ------------ 1997 $ - 1998 - 1999 2,500,000 2000 2,500,000 ------------ $ 5,000,000 ============
The note contains restrictive covenants regarding maintenance of minimum net worth, interest coverage and leverage. The Company was in compliance with all covenants as of December 31, 1996 and 1995. 11 The Company entered into an interest rate swap agreement with a six year term during 1994. The use of this agreement allowed the Company to enter into a long-term credit agreement with a performance based, floating rate of interest and then swap it for a fixed rate as opposed to entering into a higher cost fixed-rate credit agreement. This agreement is with a major commercial bank; therefore, the risk of credit loss from nonperformance by the bank is minimal. The following summarizes the notional amount and related rates on this interest rate swap agreement at December 31, 1996:
Notional amount $5,000,000 Average variable rate received 6.81% Average fixed rate paid 8.00% (8.06% at December 31, 1996)
(5) INCOME TAXES ------------ The provision for income taxes consists of the following:
1996 1995 ------------ ------------- Currently payable: Federal $ 882,000 $ 988,000 State and local 244,000 234,000 ------------ ------------- 1,126,000 1,222,000 ------------ ------------- Deferred: Federal (18,000) (32,000) State and local 4,000 (16,000) ------------ ------------- (14,000) (48,000) ------------ ------------- $1,112,000 $1,174,000 ============ =============
The components of the net deferred income tax benefit are as follows:
1996 1995 ------------ ------------- Inventory uniform capitalization and volume discounts $ 84,000 $ (36,000) Tax over book depreciation 5,000 7,000 Vacation pay (18,000) (19,000) Medical cost (6,000) (47,000) State income taxes (44,000) 63,000 Other (35,000) (16,000) ============ ============= Total deferred income tax benefit, net $ (14,000) $ (48,000) ============ =============
12 Reconciliation of the Federal statutory and effective income tax rates is as follows:
1996 1995 --------- --------- Federal statutory rate 35.0% 35.0% Amortization of goodwill 1.5 1.4 State and local income tax, net of Federal income tax effect 6.2 5.8 Other - (0.3) --------- --------- Effective tax rate 42.7% 41.9% ========= =========
A summary of the components of the net deferred tax asset balances, included in the accompanying balance sheet in prepaid expenses and other, are as follows:
1996 1995 -------- -------- Inventories $140,000 $224,000 Accrued expenses and reserves 366,000 230,000 State income taxes (18,000) (62,000) Depreciation (226,000) (220,000) ======== ======== Deferred tax asset, net $262,000 $172,000 ======== ========
(6) RELATED PARTY TRANSACTIONS -------------------------- Net purchases of inventories from Hamilton Beach<>Procter Silex (HBPS), a related company, during the years ended December 31, 1996 and 1995, were $6,080,255 and $5,467,375, respectively. The purchase price of this inventory is determined by negotiations between the two companies and is comparable to market. Related inventory levels at December 31, 1996 and 1995, were approximately $1,682,000 and $2,359,000, respectively. At December 31, 1996 and 1995, the Company owed HBPS $415 and $126,179, respectively, for these purchases. The Company incurred $79,138 and $87,913 for miscellaneous services provided by NII for the years ended December 31, 1996 and 1995, respectively. The Company had payables for such services at December 31, 1996 and 1995, of $23,469 and $25,151, respectively. The Company has an agreement with NII to loan NII up to $15,000,000. Outstanding amounts are collectible on demand. Interest is payable quarterly at the applicable short-term Federal rate. The Company has a receivable due from NII at December 31, 1996 and 1995 of $3,600,000 and $1,950,000, respectively. The Company recorded related interest income of $14,184 during 1996 and $20,209 during 1995. 13 The Company has a tax sharing agreement with NII, as NII and the Company are included in the same consolidated group for Federal tax purposes. The Company files separate tax returns for state and local tax purposes. The Company has recorded taxes payable to NII at December 31, 1996 and 1995, of $864,576 and $1,015,720, respectively. (7) LEASES ------ The Company leases its home office, retail stores, warehouse space and equipment under noncancellable operating leases which expire at various dates through 2006. Future minimum lease payments are as follows:
1997 $ 5,844,388 1998 5,263,029 1999 4,324,017 2000 3,206,764 2001 1,452,642 Thereafter 1,269,623 ----------- Total minimum payments $21,360,463 ===========
The Company has leases with percentage of sales clauses in all but two of its retail store locations. Percentage of sales rent expense amounted to $552,036 for the year ended December 31, 1996 and $375,144 for the year ended December 31, 1995. The Company's total rent expense for the years ended December 31, 1996 and 1995, was $8,631,686 and $7,759,326, respectively. (8) RETIREMENT INCOME PLANS ----------------------- The Company maintains a defined contribution savings plan for employees, who have completed one year of service and are at least 21 years of age. Employees can elect to defer and contribute a portion of their salary, following the guidelines established in the plan. The Company makes matching contributions of 50% of the employee's contribution, limited to 3% of the employee's compensation. In addition, the Company can make an annual profit sharing contribution at its discretion. Effective January 1, 1995, the Company established a deferred compensation plan for management employees. The purpose of the plan is to provide for certain employees of the Company benefits they would have received under the retirement savings plan but for certain limitations imposed by the INTERNAL REVENUE CODE. The plan is administrated and the related assets are held by the Company. Earnings are accrued by the Company based upon return on equity, as defined by the plan. The assets of the plan are unsecured. 14 The Company's matching contribution, profit sharing contribution and earnings accrued on the plans described above was $267,443 and $317,613 for the years ended December 31, 1996 and 1995, respectively. Effective December 20, 1995, the Company established a deferred compensation plan for participants in the retirement savings plan not included in the deferred compensation plan for management employees. The purpose of the plan is to provide for certain employees of the Company benefits they would have received under the retirement savings plan but for certain limitations imposed by the INTERNAL REVENUE Code. The plan is administrated and the related assets are held by the Company. Earnings shall be accrued by the Company based upon the earnings of the retirement savings plan, as defined by the plan. The assets of the plan shall be unsecured. As of December 31, 1996, there are no participants nor has the Company incurred any expense with relation to this plan. (9) SELF INSURANCE COVERAGE ----------------------- The Company is self insured for health insurance with stop loss coverage for claims which exceed $45,000 per incident. Total expense for 1996 and 1995 was approximately $558,000 and $649,000, respectively. (10) SUBSEQUENT EVENTS ----------------- Through January 29, 1997, the Company made additional advances to NII of $400,000 and received payments of $2,530,000, for a net receivable balance of $1,470,000 at January 29, 1997. EX-99.IV 21 EXHIBIT 99(IV) 1 Exhibit 99(iv) NACCO MATERIALS HANDLING GROUP, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995 TOGETHER WITH AUDITORS' REPORT 2 Report of Independent Public Accountants To the Board of Directors and Stockholders of NACCO Materials Handling Group, Inc.: We have audited the accompanying consolidated balance sheets of NACCO Materials Handling Group, Inc. (an indirect majority-owned subsidiary of NACCO Industries, Inc.) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NACCO Materials Handling Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Portland, Oregon Arthur Andersen LLP February 3, 1997 3 NACCO MATERIALS HANDLING GROUP, INC. AND SUBSIDIARIES ----------------------------------------------------- CONSOLIDATED BALANCE SHEETS --------------------------- AS OF DECEMBER 31, 1996 AND 1995 -------------------------------- (in thousands of dollars except share amounts)
ASSETS ------ 1996 1995 --------- --------- CURRENT ASSETS: Cash and cash equivalents $ 42,789 $ 25,777 Accounts receivable, net 126,663 194,406 Inventories 218,644 286,085 Prepaid expenses and other 5,221 5,338 Deferred income taxes 5,390 2,714 --------- --------- 398,707 514,320 --------- --------- OTHER ASSETS 12,556 13,360 PROPERTY, PLANT AND EQUIPMENT, net 169,687 148,347 DEFERRED CHARGES: Goodwill, net 360,882 367,670 Other 9,054 8,462 --------- --------- 369,936 376,132 --------- --------- Total assets $ 950,886 $1,052,159 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 148,283 $ 212,164 Short-term obligations 7,772 78,621 Current maturities of long-term obligations 3,433 3,265 Accrued expenses 91,292 89,028 Accrued income taxes 801 2,197 Deferred income taxes -- 1,793 --------- --------- 251,581 387,068 --------- --------- LONG-TERM OBLIGATIONS, net of current maturities 247,717 250,000 OTHER LIABILITIES 64,443 56,293 DEFERRED INCOME TAXES 17,385 17,844 STOCKHOLDERS' EQUITY: Common stock, par value $1 per share; 10,000 shares authorized; 5,599 shares outstanding 6 6 Capital in excess of par value 198,205 198,205 Retained income 158,330 131,887 Foreign currency translation adjustment 15,006 12,810 Pension liability adjustment and other (1,787) (1,954) --------- --------- 369,760 340,954 --------- --------- Total liabilities and stockholders' equity $ 950,886 $1,052,159 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. 4 NACCO MATERIALS HANDLING GROUP, INC. AND SUBSIDIARIES ----------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME --------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 ---------------------------------------------- (in thousands of dollars)
1996 1995 ----------- ----------- NET SALES $ 1,560,092 $ 1,510,106 COST OF SALES 1,283,012 1,234,050 ----------- ----------- Gross profit 277,080 276,056 ----------- ----------- OPERATING EXPENSES: Selling, administrative and general expenses 193,049 181,754 Goodwill amortization 11,517 10,844 ----------- ----------- 204,566 192,598 ----------- ----------- Operating profit 72,514 83,458 OTHER INCOME (EXPENSE): Interest income 590 923 Interest expense (24,994) (25,840) Other, net (2,088) (160) ----------- ----------- (26,492) (25,077) ----------- ----------- Income before income taxes and extraordinary charge 46,022 58,381 PROVISION FOR INCOME TAXES 19,579 21,490 ----------- ----------- INCOME BEFORE EXTRAORDINARY CHARGE 26,443 36,891 EXTRAORDINARY CHARGE, NET OF TAX -- (3,399) ----------- ----------- NET INCOME $ 26,443 $ 33,492 =========== ===========
The accompanying notes are an integral part of these consolidated statements. 5 NACCO MATERIALS HANDLING GROUP, INC. AND SUBSIDIARIES ----------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 ---------------------------------------------- (in thousands of dollars)
1996 1995 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 26,443 $ 33,492 Adjustments to reconcile net income to net cash provided by (used for) operating activities- Extraordinary charge, net of tax -- 2,161 Depreciation and amortization 33,785 31,791 Deferred income taxes (5,089) (1,162) Other 2,766 5,944 Changes in working capital: Accounts receivable 82,029 (48,642) Inventories 75,540 (73,543) Prepaid expenses and other 404 5,381 Accounts payable and accrued expenses (65,274) 29,332 Accrued income taxes (1,594) (9,147) --------- --------- Net cash provided by (used for) operating activities 149,010 (24,393) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property, plant and equipment (42,294) (39,432) Acquisition of subsidiary (11,537) (5,780) Proceeds from sale of assets 407 650 Other 2,239 1,097 --------- --------- Net cash used for investing activities (51,185) (43,465) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Additions to long-term obligations 1,880 2,529 Reduction of long-term obligations (2,533) (219,650) Revolving credit facility, net (4,378) 212,935 Short-term obligations, net (72,465) 73,060 Working capital financing, net (10,603) 10,805 Capital grants 4,154 4,017 Other 1,274 (1,567) --------- --------- Net cash provided by (used for) financing activities (82,671) 82,129 --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,858 743 --------- --------- CASH AND CASH EQUIVALENTS: Increase for the year 17,012 15,014 BALANCE AT THE BEGINNING OF THE YEAR 25,777 10,763 --------- --------- BALANCE AT THE END OF THE YEAR $ 42,789 $ 25,777 ========= =========
The accompanying notes are an integral part of these consolidated statements. 6 NACCO MATERIALS HANDLING GROUP, INC. AND SUBSIDIARIES ----------------------------------------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ----------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 ---------------------------------------------- (in thousands of dollars)
1996 1995 --------- --------- COMMON STOCK $ 6 $ 6 --------- --------- CAPITAL IN EXCESS OF PAR VALUE 198,205 198,205 --------- --------- RETAINED INCOME: Beginning balance 131,887 98,395 Net income 26,443 33,492 --------- --------- 158,330 131,887 --------- --------- FOREIGN CURRENCY TRANSLATION ADJUSTMENT: Beginning balance 12,810 10,511 Foreign currency translation adjustment 2,196 2,299 --------- --------- 15,006 12,810 --------- --------- PENSION LIABILITY ADJUSTMENT AND OTHER (1,787) (1,954) --------- --------- TOTAL STOCKHOLDERS' EQUITY $ 369,760 $ 340,954 ========= =========
The accompanying notes are an integral part of these consolidated statements. 7 NACCO MATERIALS HANDLING GROUP, INC. AND SUBSIDIARIES ----------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1996 AND 1995 -------------------------- 1. ACCOUNTING POLICIES: -------------------- Basis of Presentation - --------------------- The accompanying consolidated financial statements of NACCO Materials Handling Group, Inc. and subsidiaries include the accounts of NACCO Materials Handling Group, Inc. and subsidiaries and its parent Hyster-Yale Materials Handling, Inc., a holding company (collectively, the Company). Hyster-Yale Materials Handling, Inc. is a 98% owned subsidiary of NACCO Industries, Inc. (NACCO). NACCO Materials Handling Group, Inc. and subsidiaries is the primary operating business. Principles of Consolidation - --------------------------- The consolidated financial statements include the accounts of Hyster-Yale Materials Handling, Inc. and NACCO Materials Handling Group, Inc. and its majority-owned domestic and international subsidiaries except for Companhia Hyster, a Brazilian subsidiary. Income from this Brazilian subsidiary is recognized when cash is received in the form of a dividend. Investments in Sumitomo-Yale Company, Ltd. (S-Y), a 50% owned joint venture, and Yale Financial Services, Inc. (YFS, Inc.), a 20% owned joint venture, are accounted for by the equity method. All significant intercompany accounts and transactions among the consolidated companies are eliminated in consolidation. Cash and Cash Equivalents - ------------------------- The Company considers cash equivalents to be investments with a maturity of three months or less. Inventories - ----------- Inventories are stated at the lower of cost or market. Cost has been determined under the last-in, first-out (LIFO) method for domestic inventories and under the first-in, first-out (FIFO) method with respect to all other inventories. Costs for inventory valuation include labor, material and manufacturing overhead. Property, Plant and Equipment - ----------------------------- Property, plant and equipment are recorded at cost. Depreciation, including amortization of equipment acquired under capital leases, is computed using the straight-line method over the estimated useful service lives for purposes of financial reporting. For tax purposes, an accelerated method is generally used. Maintenance and repairs are expensed as incurred. Advertising Costs - ----------------- Advertising costs are expensed as incurred and reported in selling, general and administrative expenses. 8 -2- Goodwill - -------- Goodwill, the excess of the purchase price paid over the fair value of the net assets acquired, relates primarily to the 1989 acquisition of Hyster Company and is amortized on a straight-line basis over 40 years. Amortization was $11.5 million and $10.8 million in 1996 and 1995 respectively. Accumulated amortization was $82.7 million and $71.2 million at December 31, 1996 and 1995, respectively. Management regularly evaluates its accounting for goodwill considering such factors as historical and future profitability and believes that the asset is realizable and the amortization period is still appropriate. Product Development Costs - ------------------------- Expenditures associated with the development of new products and improvements to existing products are expensed as incurred. These costs amounted to $23.3 and $24.2 million in 1996 and 1995, respectively. Foreign Currency - ---------------- The financial statements for the Company's foreign operations are translated into United States dollars at year-end exchange rates as to assets and liabilities and at weighted average exchange rates as to revenues and expenses. Gains and losses that do not impact cash flows are excluded from net income. Effects of changes in exchange rates on the translated financial statements are designated as "foreign currency translation adjustment," a separate component of stockholders' equity. Financial Instruments and Derivative Financial Instruments - ---------------------------------------------------------- The fair values of financial instruments have been determined through information obtained from quoted market sources and management estimates. The Company does not hold or issue financial instruments or derivative financial instruments for trading purposes. The Company enters into forward foreign exchange contracts with terms of one to twelve months. These contracts hedge certain foreign currency denominated receivables and payables and foreign currency commitments. Gains and losses on contracts which do not hedge firm commitments are reported currently in income, while gains and losses from contracts related to firm commitments are deferred and recognized as part of the cost of the underlying transaction being hedged. The Company also enters into interest rate swap agreements with terms ranging from eighteen months to seven years. The differential between the floating interest rate and the fixed interest rate which is to be paid or received is recognized in interest expense as the floating interest rate changes over the life of the agreement. Long-Lived Assets - ----------------- During fiscal year 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement had no material effect on the Company's accompanying financial statements. Reclassifications - ----------------- Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current period's presentation. 9 -3- 2. RISKS AND UNCERTAINTIES: ------------------------ Nature of Operations - -------------------- The Company designs, manufactures and markets material handling machinery and equipment. Its product offerings cover all categories of forklift trucks, with electric rider and internal combustion engine (ICE) forklift trucks being the major product lines. The Company also derives significant revenue from the sale of service parts for its own and competitors' forklift trucks. The Company's manufacturing operations are primarily located in the United States and Europe. Products are differentiated between the Hyster(R) and Yale(R) brands and each brand is distributed worldwide through separate dealer networks. Both brands are also sold directly to certain national account customers. The Company's market position is strongest in North America; it also has significant presence in Europe although its competitive position varies from country to country. The Company's market share in Asia-Pacific is relatively low. The forklift truck industry is highly competitive and the Company has established alliances with a limited number of suppliers to secure sources of competitively priced materials and components. If the supply of key components or materials were disrupted, or if major price increases were imposed that could not be passed onto end customers, there could be an adverse impact on the Company's operating results. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. 3. EXTRAORDINARY CHARGES: ---------------------- The 1995 extraordinary charge of $3.4 million, net of $2.2 million in tax benefits, represents premiums and write-off of unamortized debt issuance costs associated with the retirement of approximately $78 million of 12-3/8% subordinated debentures. The Company retired these debentures in August 1995 utilizing proceeds from the Credit Agreement, as discussed in Note 10. 4. SUPPLEMENTAL CASH FLOW INFORMATION: ----------------------------------- Supplemental cash flow information is as follows:
Year Ended December 31, ----------------------- 1996 1995 -------- -------- (in thousands) Interest paid $25,794 $29,553 Income taxes paid 32,900 30,239 Income tax refunds received 6,152 2,213
10 -4- 5. ACCOUNTS RECEIVABLE: -------------------- Allowances for doubtful accounts of $4.1 million and $3.8 million at December 31, 1996 and 1995, respectively, were deducted from accounts receivable. The Company has agreements which allow for the sale, without recourse, of undivided interests in revolving pools of its trade accounts receivable. The maximum allowable amount of receivables to be sold was $75.6 million at December 31, 1996 and $25.0 million at December 31, 1995. The amount sold at any measurement date varies based upon the level of eligible receivables. Under these agreements, $56.3 million and $23.2 million were sold as of December 31, 1996 and 1995, respectively. The sales are reflected as reductions of accounts receivable in the accompanying Consolidated Balance Sheets. The costs of these programs, which were $1.8 million in 1996 and $1.6 million in 1995, are charged to other expense in the accompanying Consolidated Statements of Income. 6. INVENTORIES: ------------ Inventories are summarized as follows:
December 31, ---------------------- 1996 1995 ------- ------- (in thousands) Finished goods and service parts $113,644 $117,393 Raw materials and work in process 120,620 182,032 LIFO reserve (15,620) (13,340) -------- -------- $218,644 $286,085 ======== ========
The cost of inventories has been determined by the last-in first-out (LIFO) method for 55% of such inventories as of December 31, 1996 and 61% as of December 31, 1995. 11 -5- 7. INVESTMENTS: ------------ The Company owns a 50% interest in S-Y. The joint venture operates a facility in Japan from which the Company purchases certain components, internal combustion engines and electric forklift trucks. Following is S-Y's unaudited condensed financial information on a separate company basis, before elimination of intercompany profits.
November 30, ----------------------- Condensed Balance Sheets 1996 1995 - ------------------------ -------- ------- (in thousands) (unaudited) Assets: Current assets $122,333 $144,966 Other assets 49,922 57,209 -------- -------- $172,255 $202,175 ======== ======== Liabilities and stockholders' equity: Notes payable $ 73,121 $ 55,700 Other current liabilities 59,484 95,898 -------- -------- Total current liabilities 132,605 151,598 Other liabilities 26,551 36,320 Stockholders' equity 13,099 14,257 -------- -------- $172,255 $202,175 ======== ========
Twelve Months Ended November 30, ---------------------- Condensed Statements of Income 1996 1995 - ------------------------------ -------- ------ (in thousands) (unaudited) Net sales $221,160 $280,853 Gross profit 54,115 71,322 Net income 1,554 4,865
The Company's purchases from S-Y in 1996 and 1995 were $108.3 million and $134.4 million, respectively. Trade terms on certain payables to S-Y range from 180 to 210 days and the Company pays interest at market rates on all amounts owing after 60 days. Payables to S-Y with terms greater than 60 days are shown as working capital financing in the consolidated statements of cash flows. The Company's accounts receivable and accounts payable balances with S-Y are as follows:
December 31, --------------------- 1996 1995 ------- ------- (in thousands) Accounts receivable $ 578 $ 895 Accounts payable 32,398 51,696
The Company reimbursed S-Y $1.2 million and $1.4 million for engineering assistance during 1996 and 1995, respectively. 12 -6- 8. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment includes the following:
December 31, --------------------------- 1996 1995 --------- --------- (in thousands) Land $ 6,546 $ 6,421 Buildings 70,496 58,503 Machinery, tools and equipment 218,780 192,137 --------- --------- 295,822 257,061 Less- Accumulated depreciation (126,135) (108,714) --------- --------- $ 169,687 $ 148,347 ========= =========
Depreciation charged to income was $22.0 and $20.2 million in 1996 and 1995, respectively. 9. ACCRUED EXPENSES: ----------------- The components of accrued expenses are summarized as follows:
December 31, ---------------------- 1996 1995 -------- ------- (in thousands) Wages, commissions and bonuses $13,417 $13,105 Interest 2,307 3,107 Warranty 21,506 16,708 Self insurance 8,000 8,000 Sales discounts 10,605 12,104 Other 35,457 36,004 ------- ------- $91,292 $89,028 ======= =======
10. SHORT-TERM AND LONG-TERM OBLIGATIONS: ------------------------------------- On February 28, 1995 the Company entered into a long-term financing agreement (the Credit Agreement) to refinance the majority of its previously outstanding long-term debt. The Credit Agreement provides the Company with an unsecured $350 million revolving line of credit with a five year maturity and an extension option. It is the Company's intention to exercise the extension option at maturity. The Credit Agreement also provides the Company with reduced interest rates upon achievement of certain financial performance targets. The Credit Agreement allowed the Company to redeem the $78 million of 12-3/8% subordinated debentures outstanding at December 31, 1994. This redemption caused the Company to record an extraordinary charge of $3.4 million, net of tax, in 1995 to write off the unamortized debt issuance costs and premiums as discussed in Note 3. 13 -7- Borrowings under the Credit Agreement were $230 million at December 31, 1996 and are classified as a long-term obligation. Borrowings were $275 million at December 31, 1995 of which $246 million is classified as long-term and the remainder as short-term obligation. A facility fee, which is based upon the total $350 million commitment of the Credit Agreement, is currently 0.2% per annum. This facility bears interest under a variety of borrowing options with premiums on each option subject to reductions based on favorable performance. The weighted average effective interest rates on the revolving credit facility, including interest rate swaps, was 6.68% and 6.25% during 1996 and 1995, respectively. The weighted average interest rate, including interest rate swaps, at December 31, 1996 and 1995 was 6.50% and 6.68%, respectively. The Credit Agreement contains covenants related to minimum net worth, debt to capitalization ratios and debt of subsidiaries. In addition, the Credit Agreement limits capital spending, investments and dividends. As of December 31, 1996, the Company was in compliance with all the covenants in the Credit Agreement. In addition to the Credit Agreement, the Company has arrangements with lenders that allow for borrowings on an uncommitted basis at current market rates. At December 31, 1996, borrowings under these arrangements amounted to $14 million and are classified as long-term obligations. At December 31, 1995, these borrowings were classified as short-term obligations and amounted to $43.4 million. The weighted average interest rate on these borrowings at December 31, 1996 and 1995 was 6.875% and 6.41%, respectively. As further discussed in Note 15 to the consolidated financial statements, the Company has entered into unsecured interest rate swap agreements. The interest rate swap agreements mature at varying lengths from eighteen months to seven years and effectively changes the majority of the Company's floating interest rate exposure on the Credit Agreement to a fixed rate. The Company evaluates its exposure to floating rate debt on an ongoing basis. Long-term obligations, exclusive of current maturities, consists of the following:
December 31, ----------------------- 1996 1995 -------- -------- (in thousands) Revolving lines of credit $244,000 $245,935 Other, including capital leases 3,717 4,065 -------- -------- Total long-term obligations $247,717 $250,000 ======== ========
Maturities on long-term obligations excluding capital lease obligations for the next five years are as follows (Note 16):
Year Ending December 31, Amount ------------ -------------- (in thousands) 1997 $1,095 1998 51 1999 - 2000 - 2001 -
14 -8- To the extent allowed under the restrictive covenants of the Credit Agreement, foreign subsidiaries had credit lines at December 31, 1996 with an unused amount of $27.9 million. Borrowings under these credit lines are classified as short-term and amounted to $7.8 million and $6.2 million at December 31, 1996 and 1995, respectively. These credit lines are in various currencies and bear interest at an average rate of 8.8% and 8.4% at December 31, 1996 and 1995, respectively. 11. INCOME TAXES: ------------- The Company is included in the consolidated federal income tax return of NACCO. The Company and NACCO are parties to an income tax sharing agreement providing for the allocation of federal income tax liabilities. Under this arrangement, the Company will pay to NACCO an amount equal to the income taxes that would be payable by the Company if it were a corporation filing a separate return. Therefore, the currently payable federal portion of the provision for income taxes is payable to NACCO. The Company files separate state income tax returns. Components of income before income taxes and extraordinary charge are as follows:
Year Ended December 31, ----------------------- 1996 1995 --------- --------- (in thousands) Domestic $32,635 $35,305 International 13,387 23,076 ------- ------- $46,022 $58,381 ======= =======
Income tax expense (credit) consists of the following:
Year Ended December 31, ---------------------- 1996 1995 -------- -------- (in thousands) Current: Federal $18,494 $17,814 State 3,489 3,650 Foreign 5,073 3,767 ------- ------- 27,056 25,231 ------- ------- Deferred: Federal (1,883) (3,570) State (571) (1,394) Foreign (5,023) 1,223 ------- ------- (7,477) (3,741) ------- ------- $19,579 $21,490 ======= =======
The Company has provided for estimated United States and foreign income taxes, less available tax credits and deductions, which would be incurred on the remittance of undistributed earnings in its foreign subsidiaries in excess of earnings deemed to be indefinitely reinvested. It is the Company's policy to provide income taxes on all future accumulations of undistributed earnings for those foreign subsidiaries where it is anticipated that distribution of earnings is likely to occur. 15 -9- Accumulated earnings at December 31, 1996 of international subsidiaries which have been deemed to be indefinitely reinvested totaled $45.5 million. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable. The amount of withholding taxes that would be payable upon remittance of all undistributed foreign earnings would be $6.3 million. These withholding taxes, subject to certain limitations, may be used to reduce U.S. income taxes. A reconciliation of the provisions for income taxes at the federal statutory income tax rate to income taxes as reported is as follows:
Year Ended December 31, ------------------- 1996 1995 ------- ------- (in thousands) Income before tax and extraordinary item $46,022 $58,381 Statutory rate 35% 35% ------- ------- Tax at statutory rate 16,108 20,433 Effect of: Amortization of goodwill 4,085 4,085 State income taxes 1,638 1,391 Export benefit (1,670) (969) Income recorded net of tax (404) (1,174) Tax authorities settlement (1,288) (1,792) Other differences 1,110 (484) ------- ------- Tax Provision $19,579 $21,490 ======= =======
A summary of the components of the net deferred tax balance in the Company's consolidated balance sheets resulting from differences in the book and tax basis of assets and liabilities follows: Deferred Tax Asset (Liability) at December 31, 1996 (in thousands) - ------------------------------------------------------------------
Current Noncurrent --------------------- ----------------------- Domestic Foreign Domestic Foreign -------- ------- -------- ------- Inventories $(13,161) $ 373 $ - $ - Accrued expenses and reserves 13,397 1,446 - - Pension - - (876) (2,454) Net operating loss carryforwards 67 - - 6,690 Product liability 3,112 - 15,795 - Tax credit carryforwards 436 - - - Unrepatriated earnings - - (16,663) - Depreciation - - (13,871) (6,367) Other 37 (317) (86) 447 -------- ------ -------- ------- $ 3,888 $1,502 $(15,701) $(1,684) ======== ====== ======== =======
16 -10- Deferred Tax Asset (Liability) at December 31, 1995 (in thousands) - ------------------------------------------------------------------
Current Noncurrent ---------------------- ------------------------ Domestic Foreign Domestic Foreign -------- ------- -------- ------- Inventories $(17,775) $ 1,058 $ - $ - Accrued expenses and reserves 12,594 1,737 - - Pension - - (1,158) (2,427) Net operating loss carryforwards 460 1,723 - - Product liability 3,112 14,717 - Tax credit carryforwards 56 - - - Unrepatriated earnings - - (11,642) - Depreciation - - (13,267) (5,247) Other (240) (1,804) 1,210 (30) -------- ------- -------- ------- $ (1,793) $ 2,714 $(10,140) $(7,704) ======== ======= ======== =======
12. POSTRETIREMENT BENEFITS: ------------------------ The Company maintains a variety of postretirement plans covering a majority of its employees. A portion of the employees are participants in the defined benefit plans discussed below. Most of the remaining covered employees participate in the profit sharing portion of the Company's defined contribution plan also described below. In addition, all eligible employees are included in the 401(k) portion of the defined contribution plan. Total postretirement expense for the Company was $11.0 million and $12.1 million for the years 1996 and 1995, respectively. Included in these amounts is the expense associated with government sponsored plans in which the Company's international subsidiaries participate. Cash contributions under the above plans were $16.5 million in 1996 and $7.8 million in 1995. During 1996, the Company recognized a curtailment gain of $1.3 million which is included in postretirement expense for the year. This gain resulted from the suspension of a U.S. defined benefit plan effective December 31, 1996. Future benefits to the participants of this plan will be earned under the profit sharing portion of the Company's defined contribution plan described below. This change is not expected to have a material impact on future annual pension costs. The Company participates in the combined defined benefit plan of NACCO for certain employee groups. The Company also maintains a defined benefit plan for those employees that are covered under collective bargaining agreements. Each defined benefit plan has a formula which is used to determine benefits upon retirement. Most formulas take into account age, compensation, and success of the Company in meeting certain goals, although certain hourly employees' formulas are based primarily on years of service. The Company's current funding policy is to contribute annually the minimum contribution calculated by the independent actuaries. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. 17 -11- The components of periodic pension cost and actuarial assumptions for the Company's principal defined benefit plans for the years ended December 31, 1996 and 1995 are as follows:
1996 1995 ------- ------- (in thousands) UNITED STATES PLANS: Interest accrued on projected benefit obligation $ 3,633 $ 3,098 Service cost-benefits earned during the year 2,892 3,693 Actual return on plan assets, net of plan expense (2,284) (5,333) Net amortization and deferral 27 3,622 Curtailment gain (1,288) -- ------- ------- Net periodic pension cost $ 2,980 $ 5,080 ======= ======= Assumed discount rate 8.0% 7.5% Rate of compensation increase (where applicable) 5.0% 4.5% Expected long-term rate of return on plan assets 9.0% 9.0% UNITED KINGDOM PLANS: Interest accrued on projected benefit obligation $ 2,279 $ 2,122 Service cost-benefits earned during the year 1,081 1,256 Actual return on plan assets, net of plan expense (5,959) (3,397) Net amortization and deferral 2,869 648 ------- ------- Net periodic pension cost $ 270 $ 629 ======= ======= Assumed discount rate 8.5% 8.0% Rate of compensation increase (where applicable) 5.5% 5.0% Expected long-term rate of return on plan assets 9.5% 9.5%
18 -12- The following schedule reconciles the funded status of the Company's principal defined benefit plans with amounts reported in the consolidated balance sheets at December 31, 1996 and 1995:
December 31, ----------------------------------------------------------------- 1996 1995 --------------------------- --------------------------- United United United United States Kingdom States Kingdom Plans Plans Plans Plans -------- -------- -------- -------- (in thousands) Projected benefit obligation, based on employment service to date and current salary levels: Vested accumulated benefit obligation $ 40,517 $ 30,547 $ 34,912 $ 26,261 Nonvested accumulated benefit obligation 1,382 1,614 1,027 1,758 -------- -------- -------- -------- Total accumulated benefit obligation 41,899 32,161 35,939 28,019 Additional amounts related to projected salary increase 133 1,724 6,781 978 -------- -------- -------- -------- Total projected benefit obligation 42,032 33,885 42,720 28,997 Fair value of plan assets 39,197 42,636 29,533 33,286 -------- -------- -------- -------- Plan assets in excess of (less than) projected benefit obligation (2,835) 8,751 (13,187) 4,289 Unrecognized net loss (gain) from past experience different from that assumed 2,799 (2,803) 6,323 661 Unrecognized prior service cost 1,340 1,311 2,685 1,312 Unrecognized net transition obligation -- (548) -- (552) Additional minimum liability (4,006) -- (4,523) -- -------- -------- -------- -------- Prepaid (accrued) pension cost recognized $ (2,702) $ 6,711 $ (8,702) $ 5,710 ======== ======== ======== ========
The Company maintains a defined contribution retirement plan for U.S. employees which includes a profit sharing portion and a 401(k) portion. Contributions to the profit sharing plan are based on a formula which takes into account age, compensation, and success of the Company in meeting certain goals. Contributions vest over a five-year period. Under the 401(k) portion, eligible employees may contribute up to 17% of their compensation and the Company matches an amount equal to 66-2/3% of the participants' initial 3% before tax contribution. Participants are at all times fully vested in their contributions and those made by the Company. 13. OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS: ------------------------------------------------- The Company maintains health care and life insurance plans which provide benefits to eligible retired employees. The Company funds these benefits on a "pay as you go" basis, with the retirees paying a portion of the costs. 19 -13- Summary information on the Company's plans is as follows:
December 31, -------------------- 1996 1995 ------- ------- (in thousands) Accumulated postretirement benefit obligation (APBO): Retirees $ 4,639 $ 4,452 Fully eligible active plan participants 395 326 Other active plan participants 5,188 5,577 ------- ------- 10,222 10,355 Unrecognized net loss (2,587) (2,483) ------- ------- Accrued postretirement benefit $ 7,635 $ 7,872 ======= =======
The components of net periodic other postretirement benefit cost are as follows:
Year Ended December 31, ------------------ 1996 1995 ------ ------ (in thousands) Service cost of benefits earned $ 190 $ 167 Interest cost on accumulated postretirement benefit obligation 814 790 Amortization of unrecognized loss 163 74 ------ ------ $1,167 $1,031 ====== ======
The assumed health care cost trend rate for measuring the postretirement benefit cost was 8.5% in 1996 and 9.0% in 1995, gradually reducing to 5.25% in years 2003 and after. The weighted average discount rate used to determine the benefit obligation was 8.0% in 1996 and 7.50% in 1995. If the assumed health care trend rate were increased by one percentage point, the effect on the APBO and expense would be immaterial. 14. LONG-TERM INCENTIVE COMPENSATION PLAN: -------------------------------------- The Company has a Long-Term Incentive Compensation Plan for officers and key management employees of the Company and its subsidiaries. Awards under this plan represent book value appreciation units and entitle the recipient, subject to vesting and other restrictions, to receive cash equal to the difference between the base period price for the units and the book value price as of the quarter date coincident to or immediately preceding the date of disbursement. Awards vest and are payable ten years from date of grant or earlier under certain conditions. As of December 31, 1996, 1.7 million units have been awarded to key employees and officers. The amount charged to expense was $2.4 million and $3.2 million in 1996 and 1995, respectively. The total amount accrued at December 31, 1996 and 1995 for these awards was $6.8 million and $5.2 million, respectively, and was recorded as a long-term liability. 20 -14- 15. FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS: ----------------------------------------------------------- Financial Instruments - --------------------- A financial instrument is a contract that imposes or conveys a contractual obligation, or right, to deliver or receive cash or another financial instrument. The fair value of financial instruments approximated their carrying values at December 31, 1996 and 1995. Interest Rate Derivatives - ------------------------- The Company has entered into interest rate swap agreements. The use of these agreements allows the Company to enter into long-term credit arrangements that have performance based floating rates of interest and swap them into fixed rates, as opposed to entering into higher cost fixed-rate credit arrangements. These agreements are with major commercial banks; therefore, the risk of credit loss from nonperformance by the banks is considered minimal. As of December 31, 1996 the Company had $310 million notional principal amount of interest rate swaps with an average effective fixed rate of 6.4%, although $135 million of the swaps are delayed to start in 1997 and later. The carrying amount of the interest rate swaps is $0 and the fair value is $4.7 million, which reflects the net amount the Company would pay to terminate the contracts at December 31, 1996. Foreign Currency Derivatives - ---------------------------- The Company enters into forward foreign exchange contracts for purposes of hedging exposure to foreign currency exchange rate fluctuations. These contracts are with major financial institutions and the risk of credit loss from nonperformance by these institutions is considered minimal. These contracts hedge primarily firm commitments and, to a lesser degree, anticipated commitments relating to cash flows associated with sales and purchases denominated in foreign currencies. The Company enters into foreign exchange contracts in a variety of foreign currencies with maturities not exceeding one year. At December 31, 1996 the Company had $61.1 million contract value of forward foreign exchange contracts. 16. LEASES: ------- Future minimum annual lease payments under noncancelable lease obligations as of December 31, 1996 are as follows:
Capital Operating Leases Leases ------- ------- (in thousands) 1997 $ 2,338 $ 7,079 1998 2,130 6,913 1999 1,351 6,576 2000 761 6,047 2001 259 5,855 Subsequent to 2001 - 6,349 ------- ------- Total Future Minimum Lease Payments 6,839 $38,819 ======= Less- Amount representing interest (835) ------- Present value of net minimum lease payments 6,004 Less- Current maturities (2,338) ------- $ 3,666 =======
21 -15- Capital leases are for manufacturing equipment. Amounts included in property, plant and equipment are as follows:
December 31, ------------------ 1996 1995 ------ ------ (in thousands) Plant and equipment $18,152 $12,884 Less- Accumulated amortization (9,251) (7,626) ------ ------ Net leased property, plant and equipment $ 8,901 $ 5,258 ====== ======
Aggregate rental expense for operating leases included in the consolidated statements of income was $7.1 and $6.5 million in 1996 and 1995, respectively. 17. CONTINGENCIES: -------------- The Company is subject to recourse or repurchase obligations under various financing arrangements for certain independently owned retail dealerships. Also, certain dealer loans are guaranteed by the Company. Total amounts subject to recourse, guarantee or repurchase obligation at December 31, 1996 and 1995 were $125.6 million and $100.8 million, respectively. When the Company is the guarantor of the principal amount financed, a security interest is usually maintained in assets of the parties for whom the Company is guaranteeing debt. Losses anticipated under the terms of the recourse or repurchase obligations have been provided for and are not significant. The Company is the defendant in various product liability and other legal proceedings incidental to its business. The majority of this litigation involves product liability claims. The Company has recorded a reserve for potential product liability losses at December 31, 1996 of $48.6 million, of which $8.0 million is estimated to be payable in 1997. While the resolution of litigation cannot be predicted with certainty, management believes that the reserves are adequate and no material adverse effect upon the financial position or results of operations of the Company will result from such legal actions. 18. SEGMENT INFORMATION: -------------------- The Company's business consists of the engineering, manufacturing and marketing of materials handling machinery and equipment, under the Hyster(R) and Yale(R) trade names. The Company's products are manufactured in plants at five locations in the United States and eight international plants located in Scotland, Northern Ireland, The Netherlands, Italy, Brazil, Australia and Japan. Service parts are distributed through parts depots located in the United States, Europe, Australia and Brazil. Generally, products assembled abroad are comprised of parts and components manufactured or purchased locally and from U.S. plants at established transfer prices. The transfer price of production parts and completed units is established by a procedure designed to equate to an arm's-length price. However, for purposes of the following financial statement disclosure, transfers between geographic areas are presented at standard cost. 22 -16-
Europe, Africa & Middle Asia 1996 Americas East Pacific Eliminations Consolidated ------------------------- ---------- -------- ------- --------- ---------- (in thousands) Sales to unaffiliated customers $ 908,793 $451,776 $ 92,863 $ - $1,453,432 Export sales to unaffiliated customers 106,660 - - - 106,660 Transfers between geographic areas 53,214 129,779 - (182,993) - ---------- -------- ------- --------- ---------- Total net sales $1,068,667 $581,555 $92,863 $(182,993) $1,560,092 ========== ======== ======= ========= ========== Depreciation and amortization expense $ 20,860 $ 12,522 $ 403 $ - $ 33,785 ========== ======== ======= ========= ========== Capital expenditures $ 23,177 $ 18,728 $ 389 $ - $ 42,294 ========== ======== ======= ========= ========== Research and development costs $ 21,318 $ 1,940 $ - $ - $ 23,258 ========== ======== ======= ========= ========== Operating profit (loss) $ 44,043 $ 32,307 $(3,836) $ - $ 72,514 ========== ======== ======= ========= ========== Identifiable assets $ 570,044 $335,493 $45,349 $ - $ 950,886 ========== ======== ======= ========= ==========
In 1996, the Company had sales to a single affiliated group of customers which represented 10.3% of worldwide net sales. 23 -17-
Europe, Africa & Middle Asia 1995 Americas East Pacific Eliminations Consolidated ------------------------- ---------- -------- ------- --------- ---------- (in thousands) Sales to unaffiliated customers $ 936,600 $422,308 $85,136 $ - $1,444,044 Export sales to unaffiliated customers 66,062 - - - 66,062 Transfers between geographic areas 63,653 156,050 - (219,703) - ---------- -------- ------- --------- ---------- Total net sales $1,066,315 $578,358 $85,136 $(219,703) $1,510,106 ========== ======== ======= ========= ========== Depreciation and amortization expense $ 19,791 $ 11,661 $ 339 $ - $ 31,791 ========== ======== ======= ========= ========== Capital expenditures $ 24,011 $ 15,031 $ 390 $ - $ 39,432 ========== ======== ======= ========= ========== Research and development costs $ 21,986 $ 2,233 $ - $ - $ 24,219 ========== ======== ======= ========= ========== Operating profit $ 48,780 $ 34,437 $ 241 $ - $ 83,458 ========== ======== ======= ========= ========== Identifiable assets $ 630,583 $373,437 $48,139 $ - $1,052,159 ========== ======== ======= ========= ==========
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