SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-9172 NACCO Industries, Inc. (Exact name of registrant as specified in its charter) DELAWARE 34-1505819 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5875 LANDERBROOK DRIVE, MAYFIELD HEIGHTS, OHIO 44124 (Address of principal executive offices) Zip code Registrant's telephone number, including area code (440) 449-9600 Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the last 90 days. YES X NO Number of shares of Class A Common Stock outstanding at April 30, 1998: 6,500,429 Number of shares of Class B Common Stock outstanding at April 30, 1998: 1,663,243
NACCO INDUSTRIES, INC. TABLE OF CONTENTS Part I. FINANCIAL INFORMATION Item 1 Financial Statements Page Number Condensed Consolidated Balance Sheets - March 31, 1998 (Unaudited) and December 31, 1997 3-4 Unaudited Condensed Consolidated Statements of Income for the Three Months Ended March 31, 1998 and 1997 5 Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997 6 Notes to Unaudited Condensed Consolidated Financial Statements 7-9 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 10-27 Part II. OTHER INFORMATION Item 1 Legal Proceedings 28 Item 2 Change in Securities and Use of Proceeds 28 Item 3 Defaults Upon Senior Securities 28 Item 4 Submission of Matters to a Vote of Security Holders 28 Item 5 Other Information 28 Item 6 Exhibits and Reports on Form 8-K 28 Signature 29 Exhibit Index 30
PART I Item 1 - Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS NACCO INDUSTRIES, INC. AND SUBSIDIARIES <TABLE> <CAPTION> (Unaudited) (Audited) MARCH 31 DECEMBER 31 1998 1997 ---------- ---------- ASSETS (In millions) <S> <C> <C> Current Assets Cash and cash equivalents $ 15.2 $ 24.1 Accounts receivable, net 255.4 240.8 Inventories 334.4 302.9 Prepaid expenses and other 34.8 31.8 -------- -------- 639.8 599.6 Property, Plant and Equipment, Net 539.7 541.7 Deferred Charges Goodwill, net 445.4 449.3 Deferred costs and other 66.1 63.5 Deferred income taxes 17.2 24.1 -------- -------- 528.7 536.9 Other Assets 52.3 50.9 -------- -------- Total Assets $ 1,760.5 $ 1,729.1 ======== ======== </TABLE> See notes to unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED BALANCE SHEETS NACCO INDUSTRIES, INC. AND SUBSIDIARIES <TABLE> <CAPTION> (Unaudited) (Audited) MARCH 31 DECEMBER 31 1998 1997 ---------- ---------- (In millions) LIABILITIES AND STOCKHOLDERS' EQUITY <S> <C> <C> Current Liabilities Accounts payable $ 253.2 $ 244.7 Revolving credit agreements 48.8 23.5 Current maturities of long-term debt 19.9 18.9 Income taxes 17.7 12.8 Accrued payroll 30.2 36.4 Other current liabilities 170.1 170.2 -------- -------- 539.9 506.5 Long-term Debt - not guaranteed by the parent company 217.3 230.2 Obligations of Project Mining Subsidiaries - not guaranteed by the parent company or its North American Coal subsidiary 320.4 328.0 Self-insurance Reserves and Other 218.7 222.7 Minority Interest 17.4 16.6 Stockholders' Equity Common stock: Class A, par value $1 per share, 6,495,709 shares outstanding (1997 - 6,477,414 shares outstanding) 6.5 6.5 Class B, par value $1 per share, convertible into Class A on a one-for-one basis, 1,667,963 shares outstanding (1997 - 1,676,146 shares outstanding) 1.7 1.7 Capital in excess of par value .9 .1 Retained earnings 435.4 412.9 Foreign currency translation adjustment and other 2.3 3.9 -------- -------- 446.8 425.1 -------- -------- Total Liabilities and Stockholders' Equity $ 1,760.5 $ 1,729.1 ======== ======== </TABLE> See notes to unaudited condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME NACCO INDUSTRIES, INC. AND SUBSIDIARIES <TABLE> <CAPTION> (Unaudited) THREE MONTHS ENDED MARCH 31 ---------------------- 1998 1997 --------- --------- (In millions, except per share data) <S> <C> <C> Revenues $ 599.3 $ 479.7 Cost of sales 480.3 397.6 --------- --------- Gross Profit 119.0 82.1 Selling, administrative and general expenses 66.2 62.2 Amortization of goodwill 3.7 3.9 --------- --------- Operating Profit 49.1 16.0 Other income (expense) Interest expense (8.0) (10.0) Other - net (.9) (.8) --------- --------- (8.9) (10.8) --------- --------- Income Before Income Taxes and Minority Interest 40.2 5.2 Provision for income taxes 15.6 2.3 --------- --------- Income Before Minority Interest 24.6 2.9 Minority interest (.5) (.1) --------- --------- Net Income $ 24.1 $ 2.8 ========= ========= Comprehensive income (loss) $ 22.5 $ (3.7) ========= ========= Net income per share: basic and diluted $ 2.95 $ .35 ========= ========= Dividends per share $ .1950 $ .1875 ========= ========= </TABLE> See notes to unaudited condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NACCO INDUSTRIES, INC. AND SUBSIDIARIES <TABLE> <CAPTION> (Unaudited) THREE MONTHS ENDED MARCH 31 1998 1997 ------- ------- (In millions) <S> <C> <C> Operating Activities Net income $ 24.1 $ 2.8 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 21.6 21.5 Deferred income taxes (1.6) (1.7) Other non-cash items 1.1 (.4) Working Capital Changes: Accounts receivable (12.0) 7.3 Inventories (31.8) (.8) Other current assets 6.7 2.3 Accounts payable and other liabilities 1.4 (1.6) ------- ------- Net cash provided by operating activities 9.5 29.4 Investing Activities Expenditures for property, plant and equipment (17.2) (8.7) Proceeds from the sale of assets 1.1 .8 Investments in unconsolidated affiliates (2.0) (2.5) ------- ------- Net cash used for investing activities (18.1) (10.4) Financing Activities Additions to long-term debt and revolving credit agreements 25.8 18.8 Reductions of long-term debt and revolving credit agreements (12.8) (33.5) Additions to obligations of project mining subsidiaries 14.3 14.8 Reductions of obligations of project mining subsidiaries (22.0) (24.1) Financing of other short-term obligations (3.8) (6.4) Cash dividends paid (1.6) (1.5) Other - net (.3) .1 ------- ------- Net cash used for financing activities (.4) (31.8) Effect of exchange rate changes on cash .1 (1.7) ------- ------- Cash and Cash Equivalents Decrease for the period (8.9) (14.5) Balance at the beginning of the period 24.1 47.8 ------- ------- Balance at the end of the period $ 15.2 $ 33.3 ======= ======= </TABLE> See notes to unaudited condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions) Note 1 - Basis of Presentation NACCO Industries, Inc. ("NACCO") is a holding company with four operating subsidiaries: NACCO Materials Handling Group, Inc. ("NMHG"), Hamilton Beach/Proctor-Silex, Inc. ("HBoPS"), The North American Coal Corporation ("NACoal") and The Kitchen Collection, Inc. ("KCI"). The accompanying unaudited condensed consolidated financial statements include the accounts of NACCO and its majority owned subsidiaries (NACCO Industries, Inc. and Subsidiaries - the "Company"). Intercompany accounts have been eliminated. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company as of March 31, 1998 and the results of its operations and cash flows for the three month periods ended March 31, 1998 and 1997 have been included. Operating results for the three month period ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Certain amounts in the prior periods' unaudited condensed consolidated financial statements have been reclassified to conform to the current period's presentation. Note 2 - Comprehensive Income Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which requires disclosure of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is defined as changes in stockholders' equity from nonowner sources and, for the Company, includes net income, changes in the foreign currency translation adjustment and changes in the minimum pension liability adjustment. Note 3 - Earnings per Share Earnings per share is calculated in accordance with the provisions of SFAS No. 128, "Earnings per Share." For purposes of calculating the basic and diluted earnings per share, no adjustments have been made to the reported amounts of net income. The share amounts used are as follows: <TABLE> <CAPTION> Three Months Ended March 31 ------------------ 1998 1997 ---- ---- <S> <C> <C> Basic common shares (weighted average) 8.159 8.196 Dilutive stock options .018 .009 ----- ----- Diluted common shares 8.177 8.205 ===== ===== </TABLE>
Note 4 - Inventories Inventories are summarized as follows: <TABLE> <CAPTION> March 31 December 31 1998 1997 -------- -------- (Unaudited) (Audited) <S> <C> <C> Manufacturing inventories: Finished goods and service parts- NMHG $ 97.7 $ 86.9 HB/PS 48.4 31.8 -------- -------- 146.1 118.7 -------- -------- Raw materials and work in process- NMHG 133.2 135.6 HB/PS 19.1 15.1 -------- -------- 152.3 150.7 -------- -------- LIFO reserve- NMHG (13.5) (13.4) HB/PS .9 1.1 -------- -------- (12.6) (12.3) -------- -------- Total manufacturing inventories 285.8 257.1 Coal-NACoal 8.9 10.7 Mining supplies-NACoal 19.2 19.2 Retail inventories-KCI 20.5 15.9 -------- -------- $ 334.4 $ 302.9 ======== ======== </TABLE> The cost of manufacturing inventories has been determined by the last-in, first-out (LIFO) method for 69 percent and 70 percent of such inventories as of March 31, 1998 and December 31, 1997, respectively. Note 5 - Restructuring Accrual In the fourth quarter of 1997, NMHG approved and began implementation of a plan to restructure certain activities. As such, the Company recognized an accrual for lease termination costs and for severance payments to be made to certain NMHG employees. The change to this accrual during the first quarter of 1998 is as follows: <TABLE> <CAPTION> Employee Severance Other --------- ----- <S> <C> <C> Balance at December 31, 1997 $ 5.9 $ 1.0 Payments .4 .3 ----------- ---------- Balance at March 31, 1998 $ 5.5 $ .7 =========== ========== </TABLE> Severance payments were made to approximately 25 NMHG employees during the first quarter of 1998. Restructuring activities have proceeded as anticipated. No material expenses were recognized during the first quarter of 1998 as a result of the restructuring plan. Note 6 - Accounting Standards Not Yet Adopted In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which is effective for the Company as of January 1, 1999. This SOP requires capitalization of certain development costs of software to be used internally, i.e., for manufacturing and administrative processes.
Note 6 - Accounting Standards Not Yet Adopted - continued In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities," which is effective for the Company as of January 1, 1999. This SOP requires start-up and organization costs to be expensed as incurred and also requires previously deferred start-up costs to be recognized as a cumulative effect adjustment in the statement of income upon adoption. These SOP's, which the Company plans to adopt as of January 1, 1999, are not expected to have a material effect on the financial statements.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Per Share Data) FINANCIAL SUMMARY - ----------------- NACCO's four operating subsidiaries function in distinct business environments, and the financial condition and results of operations are best discussed at the subsidiary level as presented below. <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31 ------------------ 1998 1997 -------- -------- <S> <C> <C> REVENUES NMHG $ 431.9 $ 333.3 HB/PS 85.5 75.3 NACoal 68.4 58.4 KCI 14.6 14.6 NACCO and Other -- .1 Eliminations (1.1) (1.0) -------- -------- $ 599.3 $ 479.7 ======== ======== GROSS PROFIT NMHG $ 87.4 $ 55.7 HB/PS 11.9 9.2 NACoal 13.8 11.2 KCI 6.1 6.0 NACCO and Other (.2) -- -------- -------- $ 119.0 $ 82.1 ======== ======== SELLING, GENERAL AND ADMINISTRATIVE EXPENSES NMHG $ 43.2 $ 40.6 HB/PS 11.0 10.3 NACoal 2.9 2.2 KCI 6.9 7.0 NACCO and Other 2.2 2.1 -------- -------- $ 66.2 $ 62.2 ======== ======== AMORTIZATION OF GOODWILL NMHG $ 2.9 $ 2.9 HB/PS .8 1.0 -------- -------- $ 3.7 $ 3.9 ======== ======== OPERATING PROFIT (LOSS) NMHG $ 41.3 $ 12.2 HB/PS .1 (2.1) NACoal 10.9 9.0 KCI (.8) (1.0) NACCO and Other (2.4) (2.1) -------- -------- $ 49.1 $ 16.0 ======== ======== OPERATING PROFIT (LOSS) EXCLUDING GOODWILL AMORTIZATION NMHG $ 44.2 $ 15.1 HB/PS .9 (1.1) NACoal 10.9 9.0 KCI (.8) (1.0) NACCO and Other (2.4) (2.1) -------- -------- $ 52.8 $ 19.9 ======== ======== </TABLE>
FINANCIAL SUMMARY - continued <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31 ------------------ 1998 1997 -------- -------- <S> <C> <C> INTEREST EXPENSE NMHG $ (3.4) $ (4.7) HB/PS (1.2) (1.5) NACoal (.2) (.5) KCI (.1) (.1) NACCO and Other (.3) (.6) Eliminations .3 .6 -------- -------- (4.9) (6.8) Project mining subsidiaries (3.1) (3.2) -------- -------- $ (8.0) $ (10.0) ======== ======== OTHER-NET, INCOME (EXPENSE) NMHG $ (.9) $ (.9) HB/PS (.4) -- NACoal .1 .6 NACCO and Other .6 .1 Eliminations (.3) (.6) -------- -------- $ (.9) $ (.8) ======== ======== PROVISION FOR INCOME TAXES NMHG $ 14.7 $ 3.1 HB/PS (.7) (1.6) NACoal 2.2 2.0 KCI (.4) (.4) NACCO and Other (.2) (.8) -------- -------- $ 15.6 $ 2.3 ======== ======== NET INCOME (LOSS) NMHG $ 22.3 $ 3.5 HB/PS (.8) (2.0) NACoal 5.5 3.9 KCI (.5) (.7) NACCO and Other (1.9) (1.8) Minority interest (.5) (.1) -------- -------- $ 24.1 $ 2.8 ======== ======== DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE NMHG $ 9.1 $ 8.2 HB/PS 4.3 4.8 NACoal .7 .6 KCI .3 .3 -------- -------- 14.4 13.9 Project mining subsidiaries 7.2 7.6 -------- -------- $ 21.6 $ 21.5 ======== ======== CAPITAL EXPENDITURES NMHG $ 9.9 $ 1.6 HB/PS 4.7 5.3 NACoal 1.4 .7 KCI .3 .3 -------- -------- 16.3 7.9 Project mining subsidiaries .9 .8 -------- -------- $ 17.2 $ 8.7 ======== ======== </TABLE>
FINANCIAL SUMMARY - continued <TABLE> <CAPTION> MARCH 31 DECEMBER 31 1998 1997 -------- -------- <S> <C> <C> TOTAL ASSETS NMHG $ 983.9 $ 942.4 HB/PS 287.5 290.8 NACoal 54.1 51.5 KCI 27.9 24.9 NACCO and Other 58.2 59.4 -------- -------- 1,411.6 1,369.0 Project mining subsidiaries 414.3 423.4 -------- -------- 1,825.9 1,792.4 Consolidating eliminations (65.4) (63.3) -------- -------- $1,760.5 $1,729.1 ======== ======== </TABLE>
NACCO MATERIALS HANDLING GROUP, INC. ==================================== NMHG, 98 percent-owned by NACCO, designs, manufactures and markets forklift trucks and related service parts under the Hyster(R) and Yale(R) brand names. FINANCIAL REVIEW The results of operations for NMHG were as follows for the three months ended March 31: <TABLE> <CAPTION> 1998 1997 -------- -------- <S> <C> <C> Revenues Americas $ 309.2 $ 220.1 Europe, Africa and Middle East 106.7 93.7 Asia-Pacific 16.0 18.5 -------- -------- $ 431.9 $ 332.3 ======== ======== Operating profit (loss) Americas $ 32.1 $ 10.0 Europe, Africa and Middle East 8.9 3.2 Asia-Pacific .3 (1.0) -------- -------- $ 41.3 $ 12.2 ======== ======== Operating profit (loss) excluding goodwill amortization Americas $ 34.1 $ 12.0 Europe, Africa and Middle East 9.8 4.1 Asia-Pacific .3 (1.0) -------- -------- $ 44.2 $ 15.1 ======== ======== Net income $ 22.3 $ 3.5 ======== ======== </TABLE>
NACCO MATERIALS HANDLING GROUP, INC. - continued FINANCIAL REVIEW - continued First Quarter of 1998 Compared With First Quarter of 1997 The following schedule identifies the components of the changes in revenues, operating profit and net income for the first quarter of 1998 compared with 1997: <TABLE> <CAPTION> Operating Net Revenues Profit Income -------- ------ ------ <S> <C> <C> <C> 1997 $ 332.3 $ 12.2 $ 3.5 Increase (decrease) in 1998 from: Unit volume 94.2 14.7 9.6 Sales mix 4.6 6.4 4.2 Average sales price .8 .8 .5 Service parts 9.6 1.7 1.1 Foreign currency (9.6) (4.7) (3.1) Manufacturing cost -- 13.6 8.8 Other operating expense -- (3.4) (2.2) Other income and expense -- -- .5 Differences between effective and statutory tax rates -- -- (.6) -------- ------- -------- 1998 $ 431.9 $ 41.3 $ 22.3 ======== ======= ======== </TABLE> Operating results at NMHG improved primarily due to a 36 percent increase in worldwide unit volume to 19,757 units sold in the first quarter of 1998 from 14,529 units sold in the first quarter of 1997. Increased demand in the North American market significantly contributed to this unit volume growth. European unit volume also increased for the first quarter of 1998 due to stronger demand in countries with improved economies. Asia-Pacific experienced a slight decline in unit volume due to the weakened economies in that region. NMHG's worldwide backlog at the end of the first quarter of 1998 was 22,700 units, compared with 16,500 units at the end of the first quarter of 1997 and 22,100 units at the end of the fourth quarter of 1997. Foreign currency negatively affected operating results primarily due to the strengthening of the pound sterling against other European currencies which caused price and margin pressure on sterling-based lift trucks. The impact on operating profit from the strengthened pound sterling was partially offset by reduced cost of yen-based materials caused by the weakening of the yen against the U.S. dollar. Reduced manufacturing costs as a result of product re-engineering and increased overhead absorption from unit volume growth also contributed to improved operating results. NMHG's restructuring plan, which began in the fourth quarter of 1997, continued during the first quarter of 1998 as anticipated.
NACCO MATERIALS HANDLING GROUP, INC.- continued FINANCIAL REVIEW - continued Other Income and Expense and Income Taxes The components of other income (expense) and the effective tax rate are as follows for the three months ended March 31: <TABLE> <CAPTION> 1998 1997 ------ ------ <S> <C> <C> Interest expense $ (3.4) $ (4.7) Other-net (.9) (.9) ------ ------ $ (4.3) $ (5.6) ====== ====== Effective tax rate 39.7% 48.0% </TABLE> The decrease in interest expense reflects lower borrowing levels in the first quarter of 1998 compared with the same period in 1997. The decrease in the effective tax rate primarily results from a determination made in the fourth quarter of 1997 to reinvest earnings of foreign operations in such foreign operations for the foreseeable future. Accordingly, NMHG no longer provides for taxes on unremitted foreign earnings. Also contributing to the decrease in the effective tax rate is the effect of a constant level of nondeductible goodwill amortization on a higher comparable level of pre-tax income. LIQUIDITY AND CAPITAL RESOURCES Expenditures for property, plant and equipment were $9.9 million during the first three months of 1998. It is estimated that NMHG's capital expenditures for the remainder of 1998 will be approximately $65.0 million. These planned expenditures relate to the centralization of NMHG's marketing and engineering organizations, investments in manufacturing facilities, including plant expansions in Mexico and China, worldwide information systems and tooling for new products. The principal sources of financing for these capital expenditures are internally generated funds and bank borrowings. At March 31, 1998, NMHG had available $224.7 million of its $350.0 million revolving credit facility. The expiration date of the NMHG facility, which is currently June 2002, may be extended, on an annual basis, for one additional year upon the mutual consent of NMHG and the bank group. In addition, the NMHG facility has performance-based pricing which sets interest rates based upon the achievement of certain financial performance targets. NMHG also has separate facilities totaling $43.4 million, of which $28.2 million was available at March 31, 1998. NMHG believes it can meet all of its current and long-term commitments and operating needs from operating cash flows and funds available under revolving credit agreements.
NACCO MATERIALS HANDLING GROUP, INC.- continued LIQUIDITY AND CAPITAL RESOURCES - continued NMHG's capital structure is presented below: <TABLE> <CAPTION> MARCH 31 DECEMBER 31 1998 1997 -------- ----------- <S> <C> <C> Total net tangible assets $ 208.6 $ 188.3 Goodwill at cost 447.7 447.8 -------- -------- Total assets before goodwill amortization 656.3 636.1 Accumulated goodwill amortization (97.4) (94.4) Total debt (153.3) (156.8) -------- -------- Stockholders' equity $ 405.6 $ 384.9 ======== ======== Debt to total capitalization 27% 29% </TABLE> The increase in total net tangible assets is due to an increase in accounts receivable and inventory, partially offset by a decrease in cash and cash equivalents and an increase in accounts payable and accrued income taxes. The increases in accounts receivable, inventory and accounts payable reflect an increase in sales volume for the first quarter of 1998 compared with the fourth quarter of 1997, as well as a slight increase in the aging of receivables and the number of days supply of inventory on hand. The decrease in cash and cash equivalents results from capital expenditures and debt payments, partially offset by positive cash flows from operations for the first quarter of 1998. Increased accrued income taxes is due to the timing of tax payments and an increase in pre-tax income.
HAMILTON BEACH/PROCTOR-SILEX, INC. ================================== HB/PS, wholly owned by NACCO, is a leading manufacturer of small electric appliances. Because the housewares business is seasonal, a majority of revenues and operating profit is earned in the second half of the year when sales of small electric appliances increase significantly for the fall holiday selling season. FINANCIAL REVIEW The results of operations for HB/PS were as follows for the three months ended March 31: <TABLE> <CAPTION> 1998 1997 ---- ---- <S> <C> <C> Revenues $ 85.5 $ 75.3 Operating profit (loss) $ .1 $ (2.1) Operating profit (loss) excluding goodwill amortization $ .9 $ (1.1) Net loss $ (.8) $ (2.0) </TABLE> First Quarter of 1998 Compared With First Quarter of 1997 The following schedule identifies the components of the changes in revenues, operating profit (loss) and net loss for the first quarter of 1998 compared with 1997: <TABLE> <CAPTION> Operating Profit Net Revenues (Loss) Loss ------------ ------------ --------- <S> <C> <C> <C> 1997 $ 75.3 $ (2.1) $ (2.0) Increase (decrease) in 1998 from: Unit volume and sales mix 11.3 3.0 2.0 Average sales price (1.1) (1.1) (.7) Manufacturing cost --- .8 .5 Other operating expense --- (.5) (.3) Other income and expense --- --- (.4) Differences between effective and statutory tax rates --- --- .1 --------- -------- ------- 1998 $ 85.5 $ .1 $ (.8) ========= ======== ======= </TABLE> Operating results at HB/PS improved primarily due to a 20 percent increase in unit volume to 7.1 million units sold in the first quarter of 1998 from 5.9 million units sold in the first quarter of 1997. Increased demand from key mass merchants, specifically for blenders, toasters, irons and coffeemakers, significantly contributed to this unit volume growth. The positive impact from increased unit volume was partially offset by a decline in the average sales price of irons, toasters, can openers and blenders due to competition, especially from Chinese imports. Manufacturing costs declined from the prior year due to increased overhead absorption from unit volume growth, partially offset by additional start-up costs for the new manufacturing facility in Saltillo, Mexico. Operating and other expenses increased during the first quarter of 1998 as compared with the first quarter of 1997, primarily due to annual wage increases and costs of additional advertising activities in 1998.
HAMILTON BEACH/PROCTOR-SILEX, INC. - continued FINANCIAL REVIEW - continued Other Income and Expense and Income Taxes The components of other income (expense) and the effective tax rate are as follows for the three months ended March 31: <TABLE> <CAPTION> 1998 1997 ---- ---- <S> <C> <C> Interest expense $ (1.2) $ (1.5) Other-net (.4) -- -------- -------- $ (1.6) $ (1.5) ======== ======== Effective tax rate 46.7% 44.1% </TABLE> LIQUIDITY AND CAPITAL RESOURCES Expenditures for property, plant and equipment were $4.7 million during the first three months of 1998 and are estimated to be $11.3 million for the remainder of 1998. The primary purpose of these expenditures is to increase manufacturing capacity and efficiency and to acquire tooling for new and existing products. These expenditures are funded primarily from internally generated funds and short-term borrowings. HB/PS's credit agreement provides for a revolving credit facility that permits advances up to $160.0 million. At March 31, 1998, HB/PS had $82.5 million available under this facility, which expires in May 2003. The HBoPS 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 March 31, 1998, HB/PS also had $10.7 million available under separate facilities. HB/PS's capital structure is presented below: <TABLE> <CAPTION> MARCH 31 DECEMBER 31 1998 1997 -------- ----------- <S> <C> <C> Total net tangible assets $ 128.6 $ 115.5 Goodwill at Cost 118.9 118.9 -------- -------- Total assets before goodwill amortization 247.5 234.4 Accumulated goodwill amortization (27.3) (26.5) Total debt (95.1) (80.8) -------- -------- Stockholder's equity $ 125.1 $ 127.1 ======== ======== Debt to total capitalization 43% 39% </TABLE> Because of the seasonal nature of the housewares business, HB/PS's inventory and debt levels begin increasing in the first quarter and reach seasonal peaks in the second and third quarters. These balances typically reach seasonal lows by the end of the fourth quarter.
THE NORTH AMERICAN COAL CORPORATION =================================== NACoal mines and markets lignite for use primarily as fuel for power generation by electric utilities. The lignite is surface mined in North Dakota, Texas and Louisiana. Total coal reserves approximate 2.0 billion tons with 1.2 billion tons committed to electric utility customers pursuant to long-term contracts. NACoal operates five lignite mines, including three project mining subsidiaries (Coteau, Falkirk and Sabine), a NACoal division (San Miguel) and a joint venture (Red River). NACoal also provides dragline mining services ("Florida dragline operations") for a limerock quarry near Miami, Florida. The operating results for the Florida dragline operations are included in other mining operations. FINANCIAL REVIEW NACoal's three project mining subsidiaries (Coteau, Falkirk and Sabine), which represent a significant portion of NACoal's operations, mine lignite for utility customers pursuant to long-term contracts at a price based on actual cost plus an agreed pretax profit per ton. Due to the cost-plus nature of these contracts, revenues and operating profits are affected by increases and decreases in operating costs, as well as by tons sold. Net income of these project mines, however, is not significantly affected by changes in such operating costs, which include costs of operations, interest expense and certain other items. Because of the nature and significance of the contracts at these mines, operating results are best analyzed in terms of lignite tons sold, income before taxes and net income. Lignite tons sold by NACoal's five operating mines were as follows for the three months ended March 31: <TABLE> <CAPTION> 1998 1997 ---- ---- <S> <C> <C> Coteau Properties 4.2 3.9 Falkirk Mining 2.0 1.5 Sabine Mining .5 1.0 San Miguel .8 -- Red River Mining .2 .2 --- --- Total Lignite 7.7 6.6 === === </TABLE> The Florida dragline mined 1.9 million cubic yards of limerock in the first quarter of 1998 versus 1.8 million cubic yards in the first quarter of 1997.
THE NORTH AMERICAN COAL CORPORATION - continued FINANCIAL REVIEW - continued Revenues, income before taxes, provision for taxes and net income were as follows for the three months ended March 31: <TABLE> <CAPTION> 1998 1997 ---- ---- <S> <C> <C> Revenues Project mines $ 57.0 $ 52.8 Other mining operations 9.4 4.6 -------- -------- 66.4 57.4 Royalties and other 2.0 1.0 -------- -------- $ 68.4 $ 58.4 ======== ======== Income before taxes Project mines $ 6.4 $ 5.7 Other mining operations 1.4 .7 -------- -------- Total from operating mines 7.8 6.4 Royalty and other income, net 1.8 .8 Other operating expenses (1.9) (1.3) -------- -------- 7.7 5.9 Provision for taxes 2.2 2.0 -------- -------- Net income $ 5.5 $ 3.9 ======== ======== </TABLE> First Quarter of 1998 Compared with First Quarter of 1997 The following schedule identifies the components of the changes in revenues, income before taxes and net income for the three months ended March 31: <TABLE> <CAPTION> Income Before Net Revenues Taxes Income ---------- --------- --------- <S> <C> <C> <C> 1997 $ 58.4 $ 5.9 $ 3.9 Increase (decrease) in 1998 from: Project mines Tonnage volume 1.6 .5 .3 Agreed profit per ton .3 .2 .1 Pass-through costs 2.3 --- --- Other mining operations Tonnage volume 4.8 4.6 3.0 Operating costs --- (3.9) (2.5) -------- ------- ------- Changes from operating mines 9.0 1.4 .9 Royalties and other income, net 1.0 1.0 .7 Other operating expenses --- (.6) (.4) Differences between effective and statutory tax rates --- --- .4 -------- ------- ------- 1998 $ 68.4 $ 7.7 $ 5.5 ======== ======= ====== </TABLE> Operating results from project mines improved due to increased tonnage volume at Coteau and Falkirk, slightly offset by decreased tonnage volume at Sabine due to a customer's planned power plant outage. Year over year comparability is affected by reduced tonnage volume in the first quarter of 1997 due to adverse winter weather conditions and a customer's unplanned power plant outage.
THE NORTH AMERICAN COAL CORPORATION - continued FINANCIAL REVIEW - continued Operating results from other mining operations benefited from the results of the San Miguel lignite mining operation. NACoal began providing mining services at San Miguel Electric Cooperative, Inc.'s lignite mine in July 1997. Increased royalty income also contributed to operating results, whereas increased operating costs due to ongoing growth initiatives negatively affected first quarter 1998 net income slightly, as compared with the first quarter of 1997. Other Income and Expense and Income Taxes Items of other income (expense) and the effective tax rate for the three months ended March 31: <TABLE> <CAPTION> 1998 1997 ---- ---- <S> <C> <C> Interest expense Project mining subsidiaries $ (3.1) $ (3.2) Other mining operations (.2) (.5) -------- -------- $ (3.3) $ (3.7) ======== ======== Other-net Project mining subsidiaries $ .1 $ .4 Other mining operations -- .2 -------- -------- $ .1 $ .6 ======== ======== Effective tax rate 28.6% 34.6% </TABLE> The decrease in the effective tax rate results from additional percentage depletion eligible to reduce NACoal's effective tax. LIQUIDITY AND CAPITAL RESOURCES Expenditures for property, plant and equipment were $2.3 million during the first quarter of 1998. It is estimated that NACoal's capital expenditures for the remainder of 1998 will be $26.8 million, of which $23.3 million relates to the development, establishment and improvement of the project mining subsidiaries' mines and are financed or guaranteed by the utility customers. Also during the remainder of 1998, NACoal anticipates investing approximately $11.0 million in a joint venture with Phillips Coal Company to develop a new lignite mine in Mississippi. NACoal has in place a $50.0 million revolving credit facility. The expiration date of this facility, which currently is September 2002, can be extended one additional year, on an annual basis, upon the mutual consent of NACoal and the bank group. NACoal had $36.0 million of its revolving credit facility available at March 31, 1998. A portion of the outstanding balance is attributable to funds loaned to NACCO to partially finance NACCO's Class A common stock repurchase program. The financing of the project mining subsidiaries, which is either provided or guaranteed by the utility customers, includes long-term equipment leases, notes payable and non-interest-bearing advances from customers. The obligations of the project mining subsidiaries do not affect the short-term or long-term liquidity of NACoal and are without recourse to NACCO or NACoal. These arrangements allow the project mining subsidiaries to pay dividends to NACCO in amounts equal to their retained earnings.
THE NORTH AMERICAN COAL CORPORATION - continued LIQUIDITY AND CAPITAL RESOURCES - continued NACoal's capital structure, excluding the project mining subsidiaries, is presented below: <TABLE> <CAPTION> MARCH 31 DECEMBER 31 1998 1997 -------- ----------- <S> <C> <C> Investment in project mining subsidiaries $ 2.4 $ 4.3 Other net tangible assets 6.7 3.4 -------- -------- Total tangible assets 9.1 7.7 Advances to parent company 20.0 21.9 Debt related to parent advances (14.0) (14.4) Other debt -- (.1) -------- -------- Total debt (14.0) (14.5) -------- -------- Stockholder's equity $ 15.1 $ 15.1 ======== ======== Debt to total capitalization 48% 49% </TABLE>
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 First Quarter of 1998 Compared With First Quarter of 1997 The following schedule identifies the components of the changes in revenues, operating loss and net loss for the first quarter of 1998 compared with 1997: <TABLE> <CAPTION> Operating Net Revenues Loss Loss ------------- --------- -------- <S> <C> <C> <C> 1997 $ 14.6 $ (1.0) $ (.7) Increase (decrease) in 1998 from: Stores opened in 1997 .1 .2 .1 Comparable stores (.1) (.2) (.1) Other --- .2 .2 --------- --------- ------- 1998 $ 14.6 $ (.8) $ (.5) ========= ========= ======= </TABLE> KCI operated 142 stores on March 31, 1998 compared with 144 stores on March 31, 1997. Since March 31, 1997, KCI has closed 12 stores operated mainly under the Hearthstone(TM) store format and opened 10 Kitchen Collection(R) stores. Operating results in the first quarter of 1998 improved over the first quarter of 1997 when margins were negatively affected by store closing costs and clearance actions taken on discontinued product lines. Although the average dollar value of each sales transaction rose 9.5 percent in the first quarter of 1998, the number of customer sales transactions decreased 9.9 percent, compared with the first quarter of 1997, because of reduced customer traffic at factory outlet malls. Consequently, the net loss for the first quarter of 1998 was $0.5 million compared with $0.7 million for the comparable period of the prior year. Provision for Income Taxes KCI's effective tax rate for the three months ended March 31, 1998 and 1997 was 42.0 percent. LIQUIDITY AND CAPITAL RESOURCES Expenditures for property, plant and equipment were $0.3 million during the first three months of 1998. Estimated capital expenditures for the remainder of 1998 are $0.6 million. These expenditures are funded primarily from internally generated funds and short-term borrowings. At March 31, 1998, KCI had available $1.9 million of its $5.0 million line of credit. This line of credit has performance-based pricing which provides for reduced interest rates based on the achievement of certain financial performance measures. The expiration date of KCI's revolving credit facility is May 2000 and may be extended, on an annual basis, for one additional year upon the mutual consent of KCI and the bank.
THE KITCHEN COLLECTION, INC. - continued LIQUIDITY AND CAPITAL RESOURCES - continued KCI's capital structure is presented below: <TABLE> <CAPTION> MARCH 31 DECEMBER 31 1998 1997 -------- -------- <S> <C> <C> Total net tangible assets $ 14.9 $ 12.3 Goodwill at cost 4.6 4.6 -------- -------- Total assets before goodwill amortization 19.5 16.9 Accumulated goodwill amortization (1.1) (1.1) Total debt (8.1) (5.0) -------- -------- Stockholder's equity $ 10.3 $ 10.8 ======== ======== Debt to total capitalization 44% 32% </TABLE>
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 immaterial, it has significant long-term liabilities related to closed mines, primarily from former eastern U.S. underground coal-mining activities. Cash payments related to Bellaire's obligations, net of internally generated cash, are funded by NACCO and are anticipated to be $2.7 million for the remainder of 1998. The results of operations at NACCO and Other were as follows for the three months ended March 31: <TABLE> <CAPTION> 1998 1997 -------- ------- <S> <C> <C> Revenues $ -- $ .1 Operating loss $ (2.4) $ (2.1) Other income-net $ .6 $ .1 Net loss $ (1.9) $ (1.8) </TABLE> LIQUIDITY AND CAPITAL RESOURCES Although the subsidiaries have entered into substantial borrowing agreements, NACCO has not guaranteed the long-term debt or any borrowings of its subsidiaries. The borrowing agreements at NMHG, HB/PS and KCI allow for the payment to NACCO of dividends and advances under certain circumstances. There are no restrictions on the transfer of assets from NACoal. Dividends and advances from its subsidiaries are the primary sources of cash for NACCO. NACCO's consolidated capital structure is presented below: <TABLE> <CAPTION> MARCH 31, DECEMBER 31 1998 1997 --------- ----------- <S> <C> <C> Total net tangible assets $ 367.2 $ 328.4 Goodwill at cost 571.2 571.3 -------- -------- Total assets before goodwill amortization 938.4 899.7 Accumulated goodwill amortization (125.8) (122.0) Total debt, excluding current and long-term portion of obligations of project mining subsidiaries (270.5) (257.0) Closed mine obligations, (Bellaire), including the United Mine Worker retirees' medical fund, net-of-tax (77.9) (79.0) Minority interest (17.4) (16.6) -------- -------- Stockholders' equity $ 446.8 $ 425.1 ======== ======== Debt to total capitalization 37% 37% </TABLE>
NACCO AND OTHER - continued The Company believes it can adequately meet all of its current and long-term commitments and operating needs. This outlook stems from amounts available under revolving credit facilities and the utility customers' funding of the project mining subsidiaries. INTEREST RATE PROTECTION NMHG, HB/PS, NACoal and KCI have entered into interest rate swap agreements for portions of their floating rate debt. These interest rate swaps provide protection against significant increases in interest rates and have terms ranging from one to six years, with the counterparty's option to extend certain contracts to eight years. The Company evaluates its exposure to floating rate debt on an ongoing basis. EFFECTS OF FOREIGN CURRENCY NMHG and HB/PS operate internationally and enter into transactions denominated in foreign currencies. As a result, the Company is subject to the transaction exposures that arise from exchange rate movements between the dates foreign currency transactions are committed and the dates they are consummated. The effects of foreign currency on revenues, operating income and net income at NMHG are disclosed above. At HB/PS, foreign currency effects had an immaterial impact on operating results between comparable periods of 1998 and 1997. NMHG and HB/PS use forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies. These contracts usually have maturities of one to twelve months and generally require the companies to buy or sell Japanese yen, Australian dollars, Canadian dollars or various European currencies for the functional currency in which the applicable subsidiary operates at rates agreed to at the inception of the contracts. YEAR 2000 The Company has developed an action plan and identified the resources needed to convert the majority of its computer systems and software applications to achieve a year 2000 date conversion with no effect on customers or disruption to business operations. Implementation of the plan has begun, and the Company anticipates completion of testing of mission critical systems by the end of 1998. The Company estimates that the cost to complete these efforts, which primarily includes the purchase of software upgrades under normal maintenance agreements with third party vendors, will not be material and will be expended primarily in 1998. The Company is currently evaluating its computer-controlled machinery and equipment for year 2000 compliance. Although the Company does not anticipate the cost to convert, or failure to convert, this machinery and equipment to be material to the Company's operating results, the ultimate impact is unknown. In addition, the Company has discussed with its vendors and customers the need to be year 2000 compliant. Although the Company has no reason to believe that its vendors and customers will not be compliant by the year 2000, the Company is unable to determine the extent to which year 2000 issues will effect its vendors and customers. The Company continues to discuss with its vendors and customers the need for implementing procedures to address this issue.
OUTLOOK NMHG: Given NMHG's current worldwide backlog of 22,700 units, NMHG expects lift truck shipments in North America and Europe to remain strong in 1998. Shipments in the Asia-Pacific region, which represents less than 5 percent of NMHG's worldwide sales, are expected to decline because of weaker economies. NMHG's cost reduction programs, including Value Improvement, Demand Flow Technology and infrastructure reorganization, are expected to have an increasing positive impact on NMHG's operating results throughout 1998. HB/PS: HB/PS's transition to the Saltillo manufacturing facility will continue through 1998. HBoPS expects increasing cost-savings from Saltillo to benefit operations in 1998 as production capacity increases. The full cost-savings impact of Saltillo is expected to be realized in 1999 and 2000. NACoal: NACoal's mining operations are expected to continue to provide a steady volume of lignite deliveries in 1998. NACoal will have a full year of lignite deliveries from its San Miguel mine in 1998, compared with six months of operations in 1997. The statements contained in this Form 10-Q that are not historical facts are "forward -looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are made subject to certain risks and uncertainties which could cause actual results to differ materially from those presented in those forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Such risks and uncertainties with respect to each subsidiary's operations include without limitation: NMHG: (1) changes in demand for forklift trucks and related service parts on a worldwide basis, (2) changes in sales prices, (3) delays in delivery or increased costs of raw materials or sourced products and labor, (4) delays in manufacturing and delivery schedules, (5) exchange rate fluctuations, changes in foreign import tariffs and monetary policies and other changes in the regulatory climate in the foreign countries in which NMHG operates and/or sells products, (6) product liability or other litigation, warranty claims or other returns of products and (7) delays or increased costs of employee relocations and/or in the execution of the restructuring program. HB/PS: (1) delays or increased costs in the start-up of the operations in Saltillo, (2) bankruptcy of or loss of major retail customers, (3) changes in the sales price, product mix or levels of consumer purchasing of small electric appliances, (4) exchange rate fluctuations, changes in foreign import tariffs and monetary policies and other changes in the regulatory climate in the foreign countries in which HB/PS operates and/or sells products and (5) product liability or other litigation, warranty claims or other returns of products. NACoal: (1) weather conditions and other events that would reduce the level of customers' fuel requirements and (2) weather or equipment problems that could affect lignite deliveries to customers. KCI: (1) weather conditions which would affect the number of customers visiting the stores, (2) changes in the sales price, product mix or level of consumer purchasing of kitchenware and small electric appliances and (3) delays in the opening of proposed new stores.
Part II Item 1 - Legal Proceedings None Item 2 - Change in Securities and Use of Proceeds None Item 3 - Defaults Upon Senior Securities None Item 4 - Submission of Matters to a Vote of Security Holders None Item 5 - Other Information None Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits. See Exhibit Index on page 29 of this quarterly report on Form 10-Q. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the first quarter of 1998.
Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NACCO Industries, Inc. (Registrant) Date May 13, 1998 /s/ Kenneth C. Schilling ----------------------------- -------------------------- Kenneth C. Schilling Vice President and Controller (Principal Financial and Accounting Officer)
Exhibit Index Exhibit Number* Description of Exhibit (10) Material Contracts (cxxi) Amendment No. 4 dated as of April 22, 1998 to the Second Amended and Restated Credit Agreement dated as of October 11, 1990, amended and restated as of April 18, 1995, among Hamilton Beach/Proctor Silex, Inc., Proctor-Silex Canada Inc., Proctor-Silex S.A. de C.V., as Obligors, the Banks signatory thereto and the Chase Manhattan Bank NA, as U.S. Agent, and The Chase Manhattan Bank of Canada, as Canadian agent, is attached hereto as Exhibit 10(cxxi). (27) Financial Data Schedule (99) Other Exhibits Not Required To Otherwise Be Filed (I) Comments of Alfred M. Rankin, Jr., Chairman, President and Chief Executive Officer, At the NACCO Industries, Inc. Annual Meeting of Stockholders May 13, 1998, is attached hereto as Exhibit 99.1. *Numbered in accordance with Item 601 of Regulation S-K.