Annual Report
2003
NACCO
I N D U S T R I E S ,
I N C .
Managing for long-term profit growth
NACCO Industries, Inc.
5875 Landerbrook Drive • Mayfield Heights, Ohio 44124
An Equal Opportunity Employer
Printed in U.S.A.
NACCO Industries, Inc.
Managing for Long-term Profit Growth
NACCO Materials Handling Group (“NMHG”)
NMHG Wholesale
• NMHG Wholesale designs, engineers, manufac-
tures, sells and services a comprehensive line of
lift trucks and aftermarket parts marketed globally
under the Hyster® and Yale® brand names
NMHG Retail
• NMHG Retail operates a small number of wholly
owned dealers selling and leasing Hyster and Yale
lift trucks and aftermarket parts
NACCO Housewares Group
Hamilton Beach(cid:2)Proctor-Silex (“HB/PS”)
• HB/PS is a leading designer, manufacturer, importer
and marketer of small electric kitchen and house-
hold appliances, as well as commercial products
for restaurants, bars and hotels
Kitchen Collection
• Kitchen Collection is a national specialty retailer
of brand-name kitchenware, small electric appli-
ances and related accessories, operating under
the Kitchen Collection® name in outlet malls and
under the Gadgets & More® name in traditional
enclosed malls
The North American Coal Corporation
• North American Coal mines and markets lignite
coal primarily as fuel for power generation and
provides selected value-added mining services
Table of Contents
Selected Financial and Operating Data . . . . . . . 2
Letter to Stockholders . . . . . . . . . . . . . . . . . . . . 4
NACCO Materials Handling Group . . . . . . . . . 10
NACCO Housewares Group. . . . . . . . . . . . . . . 16
The North American Coal Corporation . . . . . . 24
Supplemental Data. . . . . . . . . . . . . . . . . . . . . . 30
Officers and Directors . . . . . . . . . . . . . . . . . . . 31
for other natural resources companies
Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
In 2002, a year with a difficult market environment, improved net
income and cash flow resulted directly from continuing successful
implementation of long-term profitability and growth programs initiated
in previous years.
In 2003, challenging markets continued. Net income did not reach the
level of our expectations. Importantly, however, the Company demon-
strated its continued commitment to profit improvement and growth
programs by increasing investments in these key change programs.
The objective of these programs is to drive each subsidiary company to
achieve its long-term financial goals by 2008, or sooner, as programs reach
maturity. Further, the Board of Directors demonstrated its confidence in
these programs by increasing the dividend by approximately 50 percent
in 2003.
NACCO’s long-term perspective is reflected in four guiding principles:
• Ensure highly professional management teams
• Attain industry-leading operational effectiveness and efficiencies
• Build industry-leading market positions
• Create sustainable competitive advantage positions
Total Revenues
Diluted Earnings Per Share
in billions
(In billions)
$2.9
$2.6
$2.6
$2.3*
$2.5
$3.0
$2.0
$1.0
$0.0
$8.29
†
$6.51
†
$5.17
$6.44
†
($4.40 )
$10
$5
$0
($5)
1999
2000
2001
2002
2003
1999
2000
2001
2002
2003
* 2002 revenues were restated for the adoption of FIN No. 46 in 2003
retroactive to January 1, 2002. Prior years were not restated. Further
discussion of FIN No. 46 is in the boxes on pages 2 and 25.
† 1999, 2000 and 2001 include goodwill amortization expense. Amortization
of goodwill was discontinued in 2002 with the adoption of SFAS No. 142.
-1-
NACCO Industries, Inc. at a Glance
NACCO Industries, Inc. is an operating holding company with
three principal businesses: lift trucks, housewares and lignite
coal mining. In 2003, total revenues were $2.5 billion and net
income was $52.8 million.
Principal Businesses
NACCO Materials Handling Group (“NMHG”)
Headquarters: Portland, Oregon
NMHG Wholesale designs, engineers, manufactures, sells and services a compre-
hensive line of lift trucks and aftermarket parts marketed globally under the Hyster®
and Yale® brand names. Lift trucks and component parts are manufactured in the
United States, Northern Ireland, Scotland, the Netherlands, China, Italy, Japan,
Mexico, the Philippines and Brazil.
NMHG Retail operates a small number of wholly owned dealers selling and leasing
Hyster and Yale lift trucks and aftermarket parts.
NACCO Housewares Group
Hamilton Beach(cid:2)Proctor-Silex (“HB/PS”)
Headquarters: Richmond, Virginia
HB/PS is a leading designer, manufacturer, importer and marketer of
small electric kitchen and household appliances, as well as commercial
products for restaurants, bars and hotels.
Kitchen Collection
Headquarters: Chillicothe, Ohio
Kitchen Collection is a national specialty retailer of brand-name kitchenware,
small electric appliances and related accessories. The company operates stores
under the Kitchen Collection® name in outlet malls and under the Gadgets &
More® name in traditional enclosed malls.
®
2003
Financial Results
NMHG Wholesale:
Revenues:
$1.6 billion
Operating profit:
$55.5 million
Net income:
$22.4 million
NMHG Retail:
Revenues:
$162.6 million
Operating loss:
$6.7 million
Net loss:
$6.0 million
NACCO
Housewares
Group:
Revenues:
$598.7 million
Operating profit:
$42.0 million
Net income:
$19.5 million
Market Positions
Competitive Advantages
Financial Targets
Key Business Programs
NACCO Materials Handling Group is a
world leader in the lift truck industry with
an estimated 13 percent market share
worldwide, including a leading 27 percent
market share in the Americas market.
Lift trucks are distributed through a
worldwide network of independent
Hyster and Yale dealers and a limited
number of wholly owned dealers.
• Leading market share positions
• #1 market position in North America,
#3 worldwide
• Highly recognized Hyster and Yale
brand names
• Large installed population base of lift
trucks; an estimated 700,000 Hyster and
Yale lift trucks in operation worldwide
• Highly diverse customer base with over
600 different end-user applications in
900 industries
• Comprehensive global product line
• Strong dealer network
• Industry-leading national account
coverage in the Americas
• Globally integrated operations with
significant economies of scale
Minimum operating
profit target of 9
percent at average
pre-recession market
levels
• New product development
• Manufacturing restructuring
and quality improvement
• Global procurement
• Pricing optimization
• National and global accounts
expansion
• Dealer network enhancement
• Aftermarket parts and efficiency
• Wholly owned dealer improve-
ments
Hamilton Beach(cid:2)Proctor-Silex has the
#1 or #2 market share positions in
20 of its 38 product categories in the
United States and has the #1 market
share of commercial blenders and
spindle mixers. HB/PS is the market
share leader in Canada.
HB/PS products are distributed through
mass merchants, national discount
department stores, warehouse clubs
and other retail sales outlets.
Kitchen Collection is the nation’s leading
specialty retailer of kitchen and related
products in factory outlet malls with
180 stores throughout the United States.
HB/PS:
• Strong heritage brands with leading
market shares
• Strong relationships with leading retailers
• Highly professional and experienced
management team
• Successful track record of product line
expansion and new product innovation
• Industry-leading working capital
management
Kitchen Collection:
• Highly analytical merchandising skills
and disciplined operating controls
HB/PS:
Minimum operating
profit target of 10
percent
Kitchen Collection:
Minimum operating
profit target of 5
percent
The North American Coal Corporation
Headquarters: Dallas, Texas
North American Coal mines and markets lignite coal primarily as fuel for power
generation and provides selected value-added mining services for other natural
resources companies.
North American
Coal Corporation
North American Coal operates six surface lignite coal mines and two dragline
mining operations at limerock quarries.
North American
Coal:
Revenues:
$94.1 million
Operating profit:
$27.4 million
Net income:
$14.3 million
North American Coal is the nation’s
largest miner of lignite coal and among
the 10 largest coal producers. Lignite coal
is delivered to power plants adjacent to
mines in North Dakota, Texas, Louisiana
and Mississippi.
Minimum return
on capital employed
of 13 percent and
delivery of substan-
tial cash flow before
financing activities
• Mines provide steady income and cash
flow before financing activities and
high return on equity
• Contracts structured to minimize exposure
to market fluctuations of coal prices
• 2.4 billion tons of lignite coal reserves, of
which 1.1 billion tons are uncommitted
(including unconsolidated project mines
in both cases)
• Outstanding operational and technological
mining skills
• Highly efficient heavy equipment utilization
• Excellent record of environmental
protection and employee safety
HB/PS:
• Product development process
• New product introductions
• Manufacturing cost reduction
• Continuous quality improvement
• Supply chain optimization
• Strategic brand application
• Retailer and channel focus
Kitchen Collection:
• Economic Value Income
• Margin enhancement and
merchandising programs
• Private label programs
• Gadgets & More store expansions
in traditional enclosed malls
• Larger format store testing in
outlet malls
• Internet sales growth
• Employee safety
• Mississippi Lignite Mining
Company efficiency improvements
• San Miguel Lignite Mining
Operations profitability
improvements
• Innovative mining methods
• Environmental commitment
• Value-added mining services for
other natural resources companies
• Lignite coal reserve development
strategies
• Clean coal power generation
technologies
• Limerock projects
Selected Financial and Operating Data
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
Operating Statement Data :
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings of unconsolidated project
mining subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit excluding goodwill amortization . . . . .
Income (loss) before extraordinary gain (loss)
and cumulative effect of accounting changes . . . . . .
Extraordinary gain (loss), net-of-tax . . . . . . . . . . . . . . . .
Cumulative effect of accounting changes, net-of-tax . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Earnings Per Share:
Income (loss) before extraordinary gain (loss)
and cumulative effect of accounting changes . . . . . .
Extraordinary gain (loss), net-of-tax . . . . . . . . . . . . . . . .
Cumulative effect of accounting changes, net-of-tax . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per Share and Share Data:
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market value at December 31 . . . . . . . . . . . . . . . . . . .
Stockholders’ equity at December 31 . . . . . . . . . . . . .
Actual shares outstanding at December 31 . . . . . . . .
Average shares outstanding . . . . . . . . . . . . . . . . . . . .
Balance Sheet Data at December 31:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, excluding project
mining subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2003
2,472.6
31.7
-
117.2
117.2
49.8
1.8
1.2
52.8
6.07
0.22
0.15
6.44
1.260
89.48
77.63
8.206
8.204
1,839.8
363.2
637.0
2002(1) (3)
Year Ended December 31
2001(2)
(In millions, except per share data)
2000(2)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,285.0
30.3
-
115.5
115.5
49.6
(7.2)
-
42.4
6.05
(0.88)
-
5.17
0.970
43.77
68.21
8.201
8.198
1,780.8
416.1
559.4
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,637.9
-
15.9
5.7
21.6
(34.7)
-
(1.3)
(36.0)
(4.24)
-
(0.16)
(4.40)
0.930
56.79
64.58
8.196
8.190
2,161.9
248.1
529.3
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,871.3
-
15.7
117.9
133.6
37.8
29.9
-
67.7
4.63
3.66
-
8.29
0.890
43.69
74.21
8.171
8.167
2,193.9
450.0
606.4
1999(2)
2,635.9
-
15.2
131.3
146.5
54.3
-
(1.2)
53.1
6.66
-
(0.15)
6.51
0.850
55.56
68.92
8.157
8.150
2,013.0
326.3
562.2
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1) During 2003, the Company adopted Financial Accounting Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities,” retroactive to January 1, 2002. As a result, financial
results for 2002 have been restated to reflect the adoption of this Interpretation. (The impact of the adoption of FIN No. 46 is further described in the box at the bottom of this page.)
(2) Selected Financial and Operating Data for 2001, 2000 and 1999 have not been restated to reflect the adoption of FIN No. 46.
(3) On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” The Company discontinued amortization of its goodwill
in accordance with this Statement.
Adoption of FIN No. 46
During the fourth quarter of 2003, NACCO Industries adopted Financial Accounting Standards Board Interpretation No. 46 ("FIN No. 46"), "Consolidation
of Variable Interest Entities," retroactive to January 1, 2002. The adoption of FIN No. 46 significantly changed the presentation of the Company’s financial
statements. As a result of the adoption of FIN No. 46, the Company no longer consolidates the financial statements of three of North American Coal's wholly
owned subsidiaries: The Coteau Properties Company, The Falkirk Mining Company and The Sabine Mining Company (collectively, the "project mines"). The
Company still has a 100 percent equity investment in the project mines; however, the pre-tax earnings are now reported in the 2003 and 2002 Consolidated
Statements of Operations and Comprehensive Income (Loss) as one line item entitled "Earnings of unconsolidated project mining subsidiaries." In addition,
the assets and liabilities of the project mines are no longer consolidated within the Company’s Consolidated Balance Sheets, although the balance sheets
now reflect an investment in the project mines and related income tax obligations.
Since the adoption of FIN No. 46 was made retroactively to January 1, 2002, only the 2002 financial results shown above have been restated to reflect
this new accounting Interpretation. The effect of adopting FIN No. 46 on the 2002 consolidated financial results was to reduce previously reported revenues
by $263.1 million, reduce previously reported operating profit by $16.3 million and reduce previously reported total assets by $343.1 million. Cash flow data
and EBITDA for 2002 were also affected and, thus, restated.
Cash Flow Data:
Operating Activities
NACCO Materials Handling Group . . . . . . . . . . . . .
NACCO Housewares Group . . . . . . . . . . . . . . . . . . .
North American Coal Corporation . . . . . . . . . . . . . .
NACCO and Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provided by operating activities . . . . . . . . . . . . . . . . .
Investing Activities
NACCO Materials Handling Group . . . . . . . . . . . . .
NACCO Housewares Group . . . . . . . . . . . . . . . . . . .
North American Coal Corporation . . . . . . . . . . . . . .
NACCO and Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Used for investing activities . . . . . . . . . . . . . . . . . . . .
Cash Flow before Financing Activities
NACCO Materials Handling Group . . . . . . . . . . . . .
NACCO Housewares Group . . . . . . . . . . . . . . . . . . .
North American Coal Corporation . . . . . . . . . . . . . .
NACCO and Other . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Cash Flow before Financing Activities . . .
Provided by (used for) financing activities . . . . . . . . .
Other Data:
Adjusted EBITDA (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
$
$
Year Ended December 31
2003
2002(1) (3)
2001(2)
2000(2)
1999(2)
(In millions, except employee data)
50.1
41.2
37.3
(5.3)
123.3
(11.1)
(5.8)
(26.0)
0.1
(42.8)
39.0
35.4
11.3
(5.2)
80.5
(71.9)
181.3
$
$
$
$
$
$
$
$
72.1
52.0
36.3
(11.2)
149.2
(7.3)
(3.2)
(6.9)
(0.8)
(18.2)
64.8
48.8
29.4
(12.0)
131.0
(146.8)
179.1
$
$
$
$
$
$
$
$
31.0
28.5
69.5
7.0
136.0
(47.2)
(13.4)
(33.8)
(.7)
(95.1)
(16.2)
15.1
35.7
6.3
40.9
(1.6)
78.3
$
$
$
$
$
$
$
$
62.6
24.4
39.4
6.6
133.0
(59.7)
(19.4)
(156.8)
1.7
(234.2)
2.9
5.0
(117.4)
8.3
(101.2)
98.3
165.1
$
$
$
$
$
$
$
$
79.4
9.3
49.6
(9.2)
129.1
(116.1)
(16.5)
(28.7)
(.1)
(161.4)
(36.7)
(7.2)
20.9
(9.3)
(32.3)
35.3
182.6
Total employees at December 31 (5) . . . . . . . . . . . . . . .
11,600
12,200
13,500
17,200
16,000
(4) Adjusted EBITDA is provided solely as a supplemental disclosure with respect to liquidity because management believes it provides useful information
regarding a company’s ability to service its indebtedness. Adjusted EBITDA does not represent cash flow from operations, as defined by accounting principles
generally accepted in the United States. You should not consider Adjusted EBITDA as a substitute for net income or net loss, or as an indicator of our operating
performance or whether cash flows will be sufficient to fund our cash needs. We define Adjusted EBITDA as income before income taxes, minority interest (income)
expense, extraordinary gain (loss) and cumulative effect of accounting changes plus net interest expense and depreciation, depletion and amortization expense.
However, interest expense, depreciation, depletion, and amortization attributable to the project mining subsidiaries are not included. Adjusted EBITDA is not a
measurement under accounting principles generally accepted in the United States and is not necessarily comparable with similarly titled measures of other
companies. Net cash flows from operating, investing and financing activities as determined using accounting principles generally accepted in the United States
are presented above. A reconciliation of cash flow from operations to Adjusted EBITDA is presented below.
(5) Includes employees of the project mines.
2003
2002(1) (3)
2001(2)
2000(2)
1999(2)
Year Ended December 31
(In millions)
Reconciliation of Cash Flow
From Operations to Adjusted EBITDA (4)
Cash flow from operations . . . . . . . . . . . . . . . . . . . . . . . .
Change in working capital items . . . . . . . . . . . . . . . . . . .
(Loss) gain on sale of assets . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Difference between deferred tax expense and
total tax expense/benefit . . . . . . . . . . . . . . . . . . . . . . .
Other non-cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Project mining subsidiaries’ depreciation,
depletion and amortization . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calculation of Adjusted EBITDA (4)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of accounting changes, net-of-tax . . .
Extraordinary (gain) loss, net-of-tax . . . . . . . . . . . . . . . .
Minority interest (income) expense . . . . . . . . . . . . . . . . .
Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . .
Interest expense
(excluding project mining subsidiaries) . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation, depletion and amortization expense
$
$
$
$
$
$
123.3
14.1
(1.5)
1.2
4.9
(8.6)
47.9
-
181.3
52.8
(1.2)
(1.8)
(0.6)
15.8
51.0
(3.1)
$
$
$
149.2
(10.2)
.4
(12.3)
(6.5)
9.4
49.1
-
179.1
42.4
-
7.2
(1.2)
11.3
52.9
(3.7)
(excluding project mining subsidiaries) . . . . . . . . . . .
Adjusted EBITDA (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
68.4
181.3
70.2
179.1
$
$
136.0
(25.9)
(10.5)
(21.5)
(4.9)
(1.0)
36.7
(30.6)
78.3
(36.0)
1.3
-
(0.8)
(9.9)
40.5
(3.8)
87.0
78.3
$
$
$
$
$
$
133.0
14.0
(1.4)
(15.6)
34.8
1.3
27.7
(28.7)
165.1
67.7
-
(29.9)
(0.1)
22.3
30.2
(2.5)
129.1
31.4
(0.4)
(1.2)
28.4
3.3
20.8
(28.8)
182.6
53.1
1.2
-
0.6
31.7
25.7
(4.9)
77.4
165.1
$
75.2
182.6
$
This Annual Report contains references to non-GAAP financial measures. Presentations of, and quantitative reconciliations to, the most directly comparable
financial measures calculated and presented in accordance with GAAP appear on this page and page 30.
-2-
-2-
-3-
To Our Stockholders
fact, provides a clearer view of North American Coal’s and
achieved slightly improved operating results despite a slower-
NACCO’s operating and financial structure. The boxes on
than-anticipated recovery in lift truck markets and weak
pages 2 and 25 of this Annual Report further discuss FIN No. 46.
housewares and factory outlet mall markets.
Net income for 2003 and 2002 included a $1.8 million
In 2003, each of NACCO’s subsidiary companies generated
after-tax extraordinary gain and a $7.2 million after-tax extraor-
significant cash flow before financing activities: $39.0 million
Economic and Corporate Overview
Reflecting increased confidence in the future potential of
dinary loss, respectively, recorded by Bellaire Corporation,
at NMHG; $35.4 million at NACCO Housewares Group;
In 2003, NACCO Industries had a reasonable year despite
NACCO’s businesses and in their prospects for generating
a wholly owned non-operating subsidiary which manages
and $11.3 million at North American Coal. In total, NACCO
a more gradual economic recovery than expected and the
cash flow before financing activities, as well as in the context
ongoing liabilities related largely to closed Eastern U.S.
generated $80.5 million in consolidated cash flow before
impact of other unfavorable external factors, particularly
of changed dividend taxation laws, the Board of Directors
underground coal mines. These extraordinary items relate to
financing activities in 2003 and $131.0 million in 2002. Both
adverse currency movements. Major change programs put in
approved two dividend increases in 2003 that raised the annual
adjustments to Bellaire’s estimated obligation to the United
2003 and 2002 were significantly above 2001 levels when the
place at each of the subsidiary companies over the last several
dividend by more than 50 percent. The first increase, from
Mine Workers of America Combined Benefit Fund. The 2003
company generated $40.9 million in consolidated cash flow
years continue to affect our view of future prospects positively.
$0.98 to $1.02 per share, was made in May 2003 as part of the
extraordinary gain is due to lower-than-estimated premium
before financing activities.
Overall, we believe these programs will continue to help
Board of Directors’ regular annual consideration of dividend
drive NACCO’s subsidiary companies toward their long-term
rates. The second dividend increase, of approximately 50 percent
minimum financial goals over the next five years.
from $1.02 to $1.52 per share, was approved in August 2003.
The relatively slow pace of the economic recovery in 2003
The discussion that follows is organized in a manner
payments and number of assignees, along with adjustments to
actual mortality rates as compared with previous estimates,
resulting in a decrease in expected future obligations. The 2002
extraordinary loss was primarily the result of an unfavorable
NACCO Maintains a Long-term Perspective
NACCO has consistently maintained a long-term per-
spective with respect to its subsidiary companies, which is
affected all of NACCO’s subsidiary companies. Lift truck
similar to the letters included in last year’s Annual Report, and,
U. S. Supreme Court ruling. In addition, net income for 2003
reflected in four guiding principles:
markets continued to improve worldwide, but not to the levels
in fact, some of the discussion itself is the same. This approach
previously expected. Consumer spending in North America
strengthened in some areas, but both Hamilton Beach(cid:2)
reflects the fact that NACCO’s underlying strategies and key
programs for each of its subsidiary companies are long-term
Proctor-Silex (“HB/PS”) and Kitchen Collection experienced
oriented and constant. We believe this strategic consistency is
weak retail markets for their products. Further, lignite coal
one of NACCO’s core strengths.
demand at North American Coal was not as strong as had
been expected.
Likewise, relative currency values negatively affected
several of NACCO’s subsidiary companies. For example, the
extraordinary strength of the euro and British pound sterling
compared with the U.S. dollar made European- and U.K.-
produced lift trucks less competitive in the U.S. market.
Nevertheless, in the face of these external forces, NACCO’s
subsidiary companies responded commendably. Efforts to
control costs were accelerated and revenue enhancement
programs were pursued with even greater urgency. While
financial results in 2003 were not at the level the Company had
anticipated, each of NACCO’s subsidiary companies emerged
from 2003 strong or stronger relative to its competition, and
each is well positioned to take full advantage of the expected
continued global economic recovery in 2004 and beyond.
Discussion of Results
In 2003, NACCO Industries reported net income of
$52.8 million, or $6.44 per share, compared with net income of
$42.4 million, or $5.17 per share, in 2002. Revenues for 2003
were $2.5 billion compared with $2.3 billion in 2002, an
increase of approximately 9 percent primarily attributable to
increased revenues at NACCO Materials Handling Group
(“NMHG”). Additionally, 2003 and 2002 financial statements
reflect the adoption of Financial Accounting Standards
Board Interpretation No. 46 (“FIN No. 46”),“Consolidation of
Variable Interest Entities,” which requires the deconsolidation
of North American Coal’s three project mining subsidiaries.
The effect of deconsolidation is to decrease reported revenues
while leaving reported net income unchanged. Further, the
assets and liabilities of these project mining subsidiaries are no
longer consolidated. The Company believes this change, in
included a net benefit of $1.2 million, or $0.15 per share,
for the cumulative effect of a change in accounting for mine-
• Ensure highly professional management teams;
• Attain industry-leading operational effectiveness and
closing obligations recognized as a result of the adoption of
efficiencies;
Statement of Financial Accounting Standards (“SFAS”) No. 143,
“Accounting for Asset Retirement Obligations.” This net
benefit consisted of a $2.5 million after-tax gain at Bellaire
and a $1.3 million after-tax charge at North American Coal to
reflect this accounting change.
On a year-over-year comparable basis, income before
extraordinary gain (loss) and cumulative effect of accounting
change for 2003 was $49.8 million, or $6.07 per share, compared
with $49.6 million, or $6.05 per share, in 2002. The Company
• Build industry-leading market positions; and
• Create sustainable competitive advantage positions.
To help achieve these guiding principles, the NACCO
parent company, which consists of a small group of experienced
specialists, plays a significant role through two key functions:
oversight and consulting. As part of its oversight role, the
parent company works closely with subsidiary company
CEOs and senior managers to reinforce a process of con-
structive change designed to enhance long-term, sustainable
Dividends Paid Per Share
$1.5
$1.0
$0.5
$.467
$.515
$.550
$.575
$.595
$.615
$.635
$.655
$.675
$.710
$.743
$.773
$.810
$.850
$.890
$.930
$.970
$1.26
0
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
-4-
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competitive advantage, to ensure that programs are developed
2003. The main objective of these profitability enhancement
At NMHG, specific programs to enhance profitability
• A manufacturing cost reduction program which focuses
to enable each subsidiary company to achieve mutually
programs is to achieve minimum financial targets at each
include the following:
on the company’s evolution toward increased low-cost,
agreed-upon financial targets, and to monitor the disciplined
subsidiary company by 2007-2008 or before.
• A new product development process which is designed to
high-quality sourcing from China. This program will
execution of key programs.
Minimum operating profit targets defined in the 2002
improve product flexibility, increase speed to market,
likely continue through 2005, with the potential for
Through its consulting capabilities, the NACCO parent
NACCO Annual Report remain the same at NMHG and at
enhance quality and reduce costs. Significant investments
implementation of an even more aggressive product
company provides its subsidiary companies with highly
HB/PS. Kitchen Collection’s minimum operating profit target
in this program will continue in 2004, with most of the
sourcing strategy to ensure cost leadership.
analytical, disciplined and dedicated value-added consulting
was adjusted to 5 percent from 5.5 percent to more accurately
resulting new products to be introduced from 2005-2008.
• A continuous quality improvement program encompassing
services. These services include not only business operations
reflect long-term trends in light of what now appears to have
• A manufacturing restructuring and quality improve-
design, engineering, manufacturing and distribution.
and strategy consulting provided by the Company’s internal
been extraordinary results in 2002. North American Coal’s
ment program which is increasing quality, optimizing
Significant expenditures in this program have been incurred
consulting group, but also acquisition and divestiture services;
target was changed, due to the deconsolidation of its project
plant capacity and reducing complexity and costs. Though
and the largest expected gains are currently being realized.
financial, tax and accounting advisory services; and focused
mines, from a target based on operating profit to a minimum
elements of this program will continue for several years,
• A supply chain optimization program which is lowering
legal and compensation services. The parent company’s
target based on return on capital employed.
the most substantial expenditures should be completed
costs while increasing customer service to retailers. This
oversight and consulting roles are reinforced by a stringent
corporate governance program, as outlined in the box below.
NACCO Materials Handling Group
NMHG Wholesale’s objective is to reach a minimum
Key Long-term Programs
operating profit target of 9 percent at the mid-point of the
Consistent with NACCO’s long-term perspective,
market cycle, although minimum operating profit target
key long-term programs are designed both to increase the
expectations will vary appropriately when markets are higher
profitability of each subsidiary company to at least that
or lower. In that regard, NMHG now believes that the
subsidiary’s minimum financial target and to generate growth
mid-point of the market cycle may be reached by 2007-
in each subsidiary company. Following is a brief overview of
2008, rather than in 2006-2007 as stated in last year’s Annual
the Key Programs to Enhance Profitability and the Key Programs
Report, due to the slow pace of market recovery in 2003.
to Generate Growth for each subsidiary company. Additional
NMHG continued the successful implementation of
detail is provided in each subsidiary company’s CEO’s letter in
key programs in 2003, a process which will continue in 2004.
this Annual Report.
Key Programs to Enhance Profitability
Key strategic cost reduction and operational improvement
programs are designed to achieve each subsidiary company’s
long-term minimum financial target. The Company continued
NMHG will incur additional costs in 2004 related to product
development programs as well as to some restructuring
activities. Key programs in place are expected to improve
results increasingly in 2005-2007 and to reach maturity in
2008 when major programs are expected to be largely complete
and the worldwide lift truck market is expected to have
to make progress in implementing these key programs in
returned to average pre-recession levels.
Corporate Governance Program
Parent company oversight and consulting roles are reinforced by a corporate governance structure designed to ensure accountability,
fiscal responsibility and the highest levels of ethical conduct. At NACCO, this corporate governance program has four key elements:
• A strong, independent board of directors to ensure effective board oversight. This oversight is reinforced by our subsidiary company
structures, in which each subsidiary company has its own CEO and its own strong, independent board of directors, each of which
includes, as core board members, the parent company directors.
• A strong nominating and governance committee to ensure continued board independence.
• A strong compensation committee, which will be separated from the nominating and governance committee in the near future, to ensure
responsible compensation levels and no management self-dealing.
• A strong, independent audit review committee to ensure accounting integrity.
NACCO further addresses the issue of corporate governance in a publication entitled CEO Perspectives, which is available on the NACCO
Web site at www.nacco.com.
by the end of 2004.
program is being accomplished through staged, moderate
• A global procurement program which will result in higher
investments with resulting benefits on a continual basis.
quality components procured at lower costs and sourced
more efficiently from a smaller group of highly reliable
Kitchen Collection
suppliers. Many benefits of this program should be realized
with the introduction of new products in 2005-2008.
Kitchen Collection’s objective is to continue to achieve at
least its minimum operating profit target of 5 percent. Specific
• A pricing optimization program which seeks to deliver
programs to enhance profitability include the following:
sound value to customers and more attractive margins to
NMHG and its dealers. This program is largely linked to
the introduction of new products in 2005-2008.
• An aftermarket efficiency program to assist independent
dealers, on an ongoing basis, in optimizing service parts
inventories.
• A NMHG Retail improvement program with an objective
of reaching at least breakeven results for wholly owned
dealers as quickly as possible.
• An Economic Value Income analysis process which is
a highly analytical approach to achieving the greatest
possible return per cubic foot of retail space. The primary
investment in this proprietary tool has already been
incurred and benefits are expected to continue from the
ongoing application of this process.
• Margin enhancement and merchandising programs
which are designed to strengthen key drivers of store
profitability. This is a continuous process which prudently
tests and applies low-risk approaches to improving
Hamilton Beach(cid:2)Proctor-Silex
profitability.
HB/PS’ objective is to achieve a minimum operating profit
• A private label program which leverages use of the
target of 10 percent by 2005-2006, when its key programs are
Hamilton Beach® and Proctor-Silex® brand names on non-
expected to mature.
electric kitchen products. This program requires minimal
At HB/PS, specific programs to enhance profitability
incremental investment and has resulted in product lines
include the following:
that are among the company’s most profitable.
• A new product development process which is resulting
in new products brought to market faster with increased
innovation and lower costs. This program, initiated several
years ago, is an ongoing focus for the company with
both near-term and long-term benefits expected.
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North American Coal
$31.6 million, or $3.85 additional earnings per share. (These
• Retailer and channel focus programs which employ
Throughout this period, NACCO’s objective is to generate
North American Coal’s financial objectives are to earn
calculations are explained on page 30 of this Annual Report.)
in-depth assortment analyses and flexible product
significant cash flow before financing activities. NACCO’s
a return on capital employed in excess of 13 percent and to
Clearly, the stakes involved in executing the Company’s profit
and service solutions in order to maximize retail shelf
intention is to use these cash flows to reduce debt levels unless
deliver substantial cash flow before financing activities.
enhancement and growth generation programs remain very
placements and consumer sales. HB/PS has developed
other strategic opportunities of greater long-term benefit to
Programs with the objective of significant performance
high and continue to have NACCO’s full commitment.
and improved this program over several years with
the Company and its stockholders arise.
improvements are anticipated to mature in 2006-2007.
Specific programs to enhance profitability include the
Key Programs to Generate Growth
increasing effectiveness.
following:
Programs have also been designed to increase revenues
Kitchen Collection
• Aftermarket parts programs building upon important
North American Coal
• Employee safety programs, ongoing at North American
and expand market share at each subsidiary company. These
Coal, which improve productivity and employee retention,
programs supplement profitability enhancement programs
and enhance profitability.
aimed at reaching minimum financial targets. While some of
• A Mississippi Lignite Mining Company optimization
these programs have specific timeframes for maturity, many
program which focuses on attaining full operating
are ongoing programs in which the subsidiary companies
efficiency in the context of higher costs due to mining
invest, and from which they gain benefits, on an ongoing basis.
deeper coal seams until 2006.
• A San Miguel Lignite Mining Operations improvement
program which is intended to return this mine to
profitability by 2006 through a revised mine plan and an
anticipated new contract that is currently in negotiation.
• Innovative mining methods which continue to drive
increased efficiency and effectiveness on an ongoing basis.
• Environmental commitment programs which utilize
highly precise equipment to restore mined land to its
original or improved condition in the most cost-effective
manner.
Summary of Programs to Enhance Profitability
NACCO Materials Handling Group
Specific programs to generate growth include the following:
• New product introductions, including aggressive programs
for all lift truck categories, most of which will be introduced
in 2005-2008.
alliances made in 2002 to increase parts and service
revenues, with benefits realized in 2003 and expected to
increase in the future.
• National and global account programs, including fleet
management, which will extend NMHG’s lead in these
areas and contribute to longer-term market share growth.
Overall, the programs outlined above are designed to
• Dealer network programs to enhance further the
improve performance at each subsidiary company over
industry’s most professional distribution network and
the next few years, with the objectives of achieving both
contribute to long-term market share growth.
minimum financial targets at each subsidiary company by
2007-2008 or earlier and generating substantial cash flow
Hamilton Beach(cid:2)Proctor-Silex
before financing activities.
NACCO Industries reported net income of $52.8 million,
or $6.44 per share, in 2003. Had each of NACCO’s subsidiary
companies achieved its financial targets in 2003, the Company
would have generated additional net income of $82.9 million,
or $10.10 additional earnings per share. Further, assuming
increased cash flow could eliminate debt and thereby interest
costs, the Company could have had additional net income of
Specific programs to generate growth include the following:
• A new product introduction process which is an ongoing
process that aims to increase innovation, improve speed to
market and reduce costs.
• Strategic brand application programs to leverage current
brands and offer creative, new brand options to retailers.
Two new brand concepts are being introduced for the
2004/2005 retail season.
Specific programs to generate growth include the following:
• The Gadgets & More® format, focused on the high-margin
gadget business, is expected to continue in test mode in
2004 and, if successful, will lead to more significant growth
in 2005 and beyond.
• A large store format with increased product offerings, a
new concept which is in testing and, which could, in future
years, create another profitable format in the factory outlet
mall market.
• Internet sales programs to accelerate profitable growth in
this channel in 2004 and beyond.
NACCO’s share price ($82.77 at the close of the financial
markets on March 1, 2004) has begun, we believe, to reflect
better the improved results of 2002 and 2003 and the potential
impact of the profit enhancement and growth programs
underway. If each subsidiary company successfully executes
its programs in place and achieves its long-term objectives, we
are hopeful that the Company will receive a further improved
valuation in the future.
In closing, I would like to thank all NACCO employees
for their continued support, hard work and commitment in
meeting the challenges of 2003 and I look forward to working
together toward a successful 2004.
* * * *
Specific programs to generate growth include the following:
• Reserve development strategies which analyze reserve
potential and help prioritize development efforts for
future growth.
• Clean coal power generation technologies, the adoption
of which could significantly improve reserve develop-
ment potential in future decades.
On a final note, all of us at NACCO are deeply saddened
by the death in 2003 of Frank E. Taplin, Jr., a director from
January 1946 to February 1997, a director emeritus since
then, and the eldest son of our Company’s founder. The
contributions he made to the Company for over half a
century are immeasurable. His wise guidance and sound
counsel were instrumental in transforming a coal company
• Limerock dragline services projects which continue to
with $18 million of sales in 1946 into a diversified company
provide niche contract mining opportunities, and
with $2.5 billion of sales in 2003. We are very grateful for his
could result in benefits in both the short and long term.
extraordinary service.
Outlook
In summary, the Company has comprehensive profit
enhancement and growth programs in place at each of its
subsidiary companies. The results of these programs will be
increasingly visible in 2005-2006 as the Company moves
toward its ultimate objective of reaching minimum financial
targets at each subsidiary company by 2007-2008 or earlier as
programs mature. Financial performance could also benefit
from improved markets as well as the successful implementation
of additional growth programs.
Alfred M. Rankin, Jr.
Chairman, President and
Chief Executive Officer
NACCO Industries, Inc.
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NMHG’s vision is to be the
leading globally integrated designer,
manufacturer and marketer of a complete
range of high-quality lift trucks. Delivering
quality products and services, and increasing
volume growth and market share, are
the company’s top priorities.
NACCO Materials Handling Group
2003 Results – NMHG Wholesale
2003 Results – NMHG Consolidated
NMHG Wholesale reported net income of $22.4 million
NACCO Materials Handling Group (“NMHG”), including
on revenues of $1.6 billion in 2003 compared with net income
NMHG Wholesale and NMHG Retail, generated consolidated
of $21.5 million on revenues of $1.4 billion in 2002. A slightly
cash flow before financing activities of $39.0 million in
increased worldwide lift truck market in 2003 estimated at
2003 and $64.8 million in 2002. In addition, NMHG reduced
577,000 units led to an increase in shipments to 70,406 compared
consolidated debt to $307.7 million at December 31, 2003
with a market of 544,000 and shipments of 64,437 in 2002.
compared with $324.8 million at December 31, 2002. Net
NMHG Wholesale’s 2003 shipments increased approximately
income and consolidated cash flow before financing activities
9 percent over 2002 shipments, exceeding worldwide market
in 2003 were negatively affected by adverse foreign currency
growth of approximately 6 percent. Backlog increased to
movements and, as anticipated, by continued costs for the
19,100 units at December 31, 2003 compared with 18,800
previously announced manufacturing restructuring programs
units at December 31, 2002.
2003 Results – NMHG Retail
and product development activities related to new Hyster® and
Yale® products that will be introduced in 2005 through 2008.
NMHG Retail’s operations (net of eliminations) reported
Vision, Strategy and Core Competencies
a net loss of $6.0 million on revenues of $162.6 million in
NMHG’s vision is to be the leading globally integrated
2003 compared with a net loss of $9.2 million on revenues
designer, manufacturer and marketer of a complete range
of $172.2 million in 2002, demonstrating progress but still
of high-quality lift trucks. Delivering quality products and
a disappointment. Continued execution of NMHG Retail’s
services, and increasing volume growth and market share, are
global restructuring program, as well as an increased focus on
the company’s top priorities.
sales, rental, parts and service, resulted in further improvements
The company’s strategies for achieving its vision include
to financial performance on lower revenues in 2003. NMHG
developing flexible, reliable, end-user-driven products; attaining
Retail’s global restructuring program included the sale of the
low-cost, high-quality manufacturing and procurement;
only U.S. wholly owned dealer at the beginning of 2003, which
providing value-added marketing support services; and
contributed to the decline in revenues.
maintaining and strengthening highly professional dealer
Counter clockwise from top left: Hyster Challenger 25-40XM internal combustion lift truck designed to operate in the tightest of spaces, up to a
capacity of 4,000 pounds. • Yale NTA narrow aisle lift truck offers exceptional performance, ergonomic design and operator comfort for
increased productivity and reliability. • Hyster 36,000-45,000 pound lift truck designed for tough applications ranging from steel to logging
yards, quarries and concrete works. • Yale MPE motorized hand truck provides capacity ranges from 6,000 to 8,000 pounds. • Hyster E70-120 XL3
series electric lift truck available for loads up to 12,000 pounds.
Revenues by Geographic Region
Unit Bookings, Shipments & Backlog
(In millions)
$1,932.1
$1,761.4
$1,672.4
$1,588.4
$1,779.6
1999
2000
2001
2002
2003
$2,000
$1,500
$1,000
$500
$0
25,000
20,000
15,000
10,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q 2 Q3 Q4
2002
2001
2003
(cid:3) Americas (cid:3) Europe, Africa and Middle East (cid:3) Asia-Pacific
(cid:3) Bookings (cid:3) Shipments (cid:3) Backlog
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Above left to right: Yale MPE motorized hand truck is ergonomically designed for reduced operator fatigue and improved productivity.• Yale MPC motorized
pallet truck with capacity ranges from 6,000 to 8,000 pounds and features for enhanced order-picking productivity and improved operator comfort.
distribution. These strategies, which are supplemented
Manufacturing restructuring and quality improvement.
by high relative economies of scale and reinforced by the
NMHG’s manufacturing strategy is guided by a desire for
company’s large global population of lift trucks in use, are
high-quality, low-cost manufacturing with assembly generally
designed to provide NMHG with sustainable competitive
in the market of sale to meet customer needs quickly and
advantage versus its competition.
efficiently. To accomplish these goals, NMHG has been
NMHG’s core competencies supporting these strategies
restructuring its global manufacturing facilities and processes.
include translating end-user needs into globally flexible product
The company is working to optimize capacity among several
designs; adapting operations to changing market conditions;
key plants, including Greenville, North Carolina, and Berea,
managing the growing complexity of customer needs; and
Kentucky, in the United States, and Irvine, Scotland, and
building and sustaining strong dealer partnerships.
Craigavon, Northern Ireland, in Europe. The final phases of
Key Programs to Enhance Profitability
this restructuring are underway and include the closing of
the company’s Lenoir, North Carolina, lift truck component
NMHG is successfully implementing several key programs
facility, which is anticipated to be completed in the second
to enhance long-term profitability.
quarter of 2004. The restructuring of the Irvine, Scotland, lift
New product development process. NMHG has com-
truck assembly plant is underway, with completion expected
pletely re-engineered its process for developing new products.
within the next 18 to 24 months.
Complete ranges of products are being developed simultane-
The continued implementation of a lean manufacturing
ously rather than on a traditional series-by-series approach.
strategy called Demand Flow Technology® (DFT) is reducing
Platforms, modules and components have been designed to be
inventory and manufacturing floor space requirements while
used across a full array of lift trucks. This decreases the overall
improving productivity, lead times and quality. NMHG also
number of components required and permits easier and more
continues to deliver cost reductions and product quality
frequent future upgrades. Finally, design, prototyping and
improvements through its Value Improvement Program (VIP).
testing are guided by a rigorous, staged approval process that
Global procurement. NMHG has a number of procure-
incorporates increasingly reliable engineering while reducing
ment efforts underway to make its supplier base smaller, more
overall cycle time and increasing speed to market. This approach
reliable, faster and lower cost. Non-core components continue
is expected to increase the quality of NMHG’s products, as
to be outsourced to low-cost suppliers around the world,
well as meet end-user requirements more cost effectively.
with increased focus on China and Eastern Europe. NMHG
is implementing new supplier partnerships and quality
programs and setting standards for just-in-time delivery.
These programs, along with global economies of scale, provide
At right: Hyster container handler truck, a solid performer for use at ports and railroad terminals for loading and stacking containers.
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NMHG with leverage to obtain high-quality components at
New product introductions. NMHG continues to move
lower prices and are expected to be an important source of
forward with a significant new product development program
profit improvement in the years ahead.
that is expected to mature in 2005-2008. One program, the
Pricing optimization. The goal of NMHG’s pricing
most comprehensive new product development project in the
optimization program is to establish product pricing that
company’s history, will result in a wide range of new internal
delivers both good value to end users and attractive margins
combustion engine lift trucks in 2005-2007. Extensive use of
to dealers and the company. NMHG is pursuing this goal
interchangeable components and systems will increase flexi-
through implementation of the company’s new product design
bility to tailor these lift trucks to individual customer application
philosophy, which, by incorporating a modular approach
requirements. Additional new product programs employing
using fewer overall components, allows products to be more
the same techniques are underway through 2008 for electric
precisely configured and, therefore, priced to meet specific
counterbalanced lift trucks. Big truck and warehouse lift truck
customer application needs. Product options will be bundled
product development programs are also underway.
as appropriate to address additional application requirements.
Aftermarket parts. In 2003, NMHG continued to leverage
Aftermarket efficiency. NMHG has several projects
an important strategic alliance made in 2002 with a leading
underway to increase aftermarket service efficiencies, including
aftermarket parts provider in the Americas, Europe and Asia-
a program to help manage dealer parts inventories and a program
Pacific. This alliance has enhanced the ability of NMHG’s Yale
to improve the management of after-sale contacts with dealers
and Hyster dealers to expand their parts offerings for com-
and customers.
petitor lift trucks and thereby receive an increasing market
NMHG Retail improvements. NMHG continues to
share of their customers’ parts and service business.
implement cost reduction and revenue enhancement programs
National and global accounts. NMHG has industry-
to improve the performance of its wholly owned retail dealer-
leading fleet management and national account organizations
ships. NMHG Retail reduced its net loss by 35 percent from
and is enhancing its global account capabilities. The goal of
2002 to 2003. The objective of the programs in place is to reach
these programs is to offer superior value and services to large
at least breakeven results as quickly as possible, while still
customers that have centralized purchasing but geographically
strengthening the distribution capability in each area.
dispersed operations in multiple dealer territories around
the world.
Key Programs to Generate Growth
Dealer network. The company’s Anchor Dealer strategy
As discussed in last year’s Annual Report, NMHG’s
continues to strengthen a worldwide network of strong,
programs to enhance growth center on introducing newly
professionally managed, well-capitalized independent dealers.
developed products, increasing sales of aftermarket parts,
NMHG’s experience is that these exclusive Yale and Hyster
expanding fleet management and financial services, increasing
Anchor Dealers gain higher market share, attract higher-quality
national and global accounts, and strengthening the dealer
employees and offer more specialized services to their customers.
network.
Left to right: Hyster 360-450 turbo-charged diesel-powered lift truck designed with a capacity up to 36,000 pounds. • Hyster order picker
for fast and secure picking operations. • The S 80 Odyssey propane cushion tire lift truck handles loads ranging from 7,000 to 12,000 pounds.
®
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Left to right: Yale order selector fills the needs for all mid-range warehouse applications. • Yale cushion tire lift truck has a 7,000 to 12,000
pound capacity. • Yale three wheel stand-up rider lift truck for 3,000 to 4,000 pound applications.
To drive further improvement in the Hyster and Yale
As a result of this delay in achieving efficiencies available at
dealer networks, NMHG is implementing a Dealer Excellence
higher market volumes, and in light of additional new product
Enhancement program, which provides dealers with best-
development programs, NMHG Wholesale’s objective is to
practices manuals and performance assessment tools in the
achieve its long-term operating profit target of 9 percent by
areas of operational and financial management, lift truck sales,
2007-2008, rather than in 2006-2007, as stated last year.
parts sales, service, rental and fleet management. NMHG also
NMHG’s goal is to make increasing progress toward this
offers customized consulting assistance to help dealers imple-
objective in future years, especially in 2006, as programs
ment these programs to drive improved sales and profitability.
begin to mature. During periods of lower or higher industry
Corporate Initiatives
NMHG is improving quality by standardizing global
processes and emphasizing continuous process improvement. In
2003, NMHG achieved ISO 9001-2000 certification. In addition,
NMHG is implementing new tools and systems, which support
parts sales, technicians and knowledge management, in order
to become more responsive and improve service at all points of
dealer and customer contact.
As previously stated, the objective of NMHG’s overall
strategy is to build sustainable competitive advantage versus
its competition through strong market share, a large field
population, which provides ongoing parts revenue, and
significant economies of scale.
Outlook for 2004 and Beyond
In 2004, NMHG expects modest strengthening of lift truck
markets in the Americas and Japan, strong growth in the China
lift truck market and relatively flat lift truck markets in Europe
and the rest of Asia-Pacific. Because U.S. and global market
growth in 2003 was more tempered than widely anticipated a
year ago, NMHG now expects global lift truck markets to gradu-
ally return to average pre-recession levels by 2007-2008, rather
than in 2006-2007 as indicated in last year’s Annual Report.
volumes, minimum operating profit target expectations should
be appropriately scaled.
NMHG Retail’s objective for its wholly owned dealerships
is to reach at least break-even financial performance while
building market position and to attain that goal in the near term.
We believe NMHG is increasingly offering the right products
at the right costs through the right dealers. As a result, NMHG
believes firmly in its prospects for long-term growth in market
share and profitability in an improving market environment.
Finally, I would like to take this opportunity to recognize
the excellent work of all NMHG employees in helping the
company realize improved financial performance in 2003
during a slow recovery period, while continuing to make
progress on initiatives to enhance NMHG’s future prospects.
Reginald R. Eklund
President and Chief Executive Officer
NACCO Materials Handling Group, Inc.
-15-
NACCO Housewares Group
2003 Results
Hamilton Beach(cid:2)Proctor-Silex has a deep understanding
NACCO Housewares Group, which includes Hamilton
Beach(cid:2)Proctor-Silex and Kitchen Collection, reported net
of consumer preferences and product trends within the small
electric kitchen and household appliance marketplace. Kitchen
income of $19.5 million on revenues of $598.7 million in 2003
Collection understands the logic and criteria used by retailers
compared with net income of $17.8 million on revenues of
in allocating limited shelf space among competing housewares
$610.3 million in 2002. Revenues for 2003 decreased primarily
products, brands and vendors.
due to declines in consumer spending both for small electric
In addition to carrying a broad range of Hamilton Beach
kitchen and household appliances at key retail customers
for Hamilton Beach(cid:2)Proctor-Silex, and in the factory outlet
and Proctor-Silex® electric products, Kitchen Collection
licenses these brand names for non-electric products. Products
channel for Kitchen Collection.
ranging from kitchen gadgets to cookware have benefited
Net income increased in 2003 due to continued improve-
substantially from the use of these strong heritage brand names,
ment in manufacturing and sourcing efficiencies and profit
improvement programs at Hamilton Beach(cid:2)Proctor-Silex, as
well as increased sales of innovative products such as the
Hamilton Beach® BrewStation™ coffeemaker.
In 2003, the Housewares Group generated $35.4 million
making these among Kitchen Collection’s most profitable
product lines.
Finally, Kitchen Collection purchases overstocked
merchandise from Hamilton Beach(cid:2)Proctor-Silex. This arrange-
ment helps Hamilton Beach(cid:2)Proctor-Silex manage inventory,
in cash flow before financing activities compared with $48.8
contributing to reductions in inventory and debt levels, and
million in 2002.
helps Kitchen Collection offer a steady stream of higher-
value products to its customers.
Complementary Operations
While the operations of Hamilton Beach(cid:2)Proctor-Silex
and Kitchen Collection are separate, certain aspects of their
businesses are complementary.
NACCO
Housewares Group consists of
Hamilton Beach(cid:2)Proctor-Silex, one of
North America’s leading providers of a full
line of small electric kitchen and household
appliances, and Kitchen Collection, America’s
leading outlet mall retailer of specialty
brand-name kitchenware.
®
Net Income (Loss)
Cash Flow before Financing Activities
(In millions)
(In millions)
$21.2
$17.8
$19.5
$8.8
($12.2)
$30
$20
$10
$0
($10)
($20)
$48.8
$35.4
$50
$40
$30
$20
$10
0
($10)
$15.1
($7.2)
$5.0
1999
2000
2001
2002
2003
1999
2000
2001
2002
2003
-17-
2003 Results
Vision, Strategy and Core Competencies
Hamilton Beach(cid:2)Proctor-Silex (“HB/PS”) had a good
HB/PS’ vision is to be the leading North American
year in 2003, reporting improved net income despite lower
provider of small electric kitchen and household appliances
revenues compared with 2002. Net income benefited from
that are sold under strong heritage brand names and provide
manufacturing, sourcing and distribution efficiencies, increased
consumers with innovative features and superior value.
sales of higher-margin products and reduced expenses.
The company’s strategies for achieving its vision include
Revenues decreased in 2003, despite an increased number
developing innovative, high-quality products; continuously
of HB/PS product placements on major retailers’ shelves,
reducing costs; aligning brands with key consumer segments;
due to continued softness in the retail marketplace for small
and sustaining highly professional sales and marketing programs.
electric kitchen and household appliances and consumer
Core competencies supporting these strategies include
purchases below expectations. Decreased revenues in several
researching, designing and testing new product concepts;
categories were partially offset by increased sales of innovative
driving improvement through detailed value chain analyses;
new products, such as the Hamilton Beach® BrewStation™
understanding end-user buying behavior as a foundation for
coffeemaker (shown at left), which eliminates the need for a
building brands; and matching products and services to specific
carafe by brewing coffee into a built-in thermal container,
retailer assortment needs.
allowing coffee with fresh-brewed flavor to be dispensed
cup-by-cup.
Clockwise from top left: Hamilton Beach(cid:2)Proctor-Silex‘s newest products include: Hamilton Beach BrewStation™ coffeemaker, Hamilton Beach
Stay or Go™ blender, Proctor-Silex® 1.5 qt. slow cooker, TrueAir™ odor eliminator, Hamilton Beach 2-slice toaster.
The Building of HB/PS – NACCO’s Long-term Perspective
The history of the formation and development of HB/PS exemplifies NACCO’s long-term perspective. NACCO acquired WearEver/Proctor-
Silex in 1988. In order to create more focused businesses, Kitchen Collection, which had been purchased along with WearEver/Proctor-Silex,
was established as an independent subsidiary company with dedicated management, and the WearEver cookware business was sold to Newell
Co. In 1990, Hamilton Beach, a company that produced primarily motor-driven small kitchen appliances, was acquired and merged with Proctor-
Silex, a company that produced primarily heat-driven small kitchen and garment care appliances.
In succeeding years, with consulting assistance from NACCO Industries, the company fully integrated the operations of its predecessors,
repositioned the two heritage brands to serve different price-point segments with a broad array of both motor- and heat-driven products, began
producing GE-branded products for Wal-Mart and successfully entered the home health category with the TrueAir™ brand. The company is currently
introducing the Traditions™ by Proctor-Silex and the Hamilton Beach Eclectrics™ lines to serve additional price-point segments.
HB/PS has entered 17 new product categories over the last 14 years, now participates in a total of 38 categories, and has captured a #1
or #2 market share in 20 categories. Today, HB/PS is recognized by retailers for superior products and services and industry-leading category
management capabilities. Other new programs are in development as the company pursues additional product categories, increased market
share and long-term profitable growth.
-19-
A few of the newest products from Hamilton Beach(cid:2)Proctor-Silex also include (from left to right): Hamilton Beach Stay or Go™ coffeemaker,
General Electric® 2-slice toaster, Proctor-Silex 12 cup coffeemaker, Hamilton Beach Professional iron.
Key Programs to Enhance Profitability
implemented quality programs from design and engineering
Product development process. HB/PS’ product develop-
through manufacturing and distribution. As a result, HB/PS
ment process, which has evolved over the last several years,
has achieved significant quality improvements as evidenced by
is designed to increase each product’s probability of market
product return rates, which declined significantly again in 2003.
success. Elements of this approach include a rigorous product
Supply chain optimization. Intense focus on supply
strategy process that includes detailed analysis of consumer
chain management in 2003 resulted in significant performance
preferences, highly efficient design techniques and collabora-
improvements both within the company and for HB/PS’
tive engineering with multiple Chinese partners who often
retailer customers. Process and software enhancements
contribute meaningfully to product development. The goals
helped reduce overall inventory while improving customer
are to deliver high consumer satisfaction at competitive costs
service. Further efficiencies should be gained in 2004 from
on both current and innovative new products, and to enter
implementation of a collaborative planning, forecasting and
new product categories. Because of HB/PS’ up-front attention
replenishment (CPFR) process with some key retailers. HB/PS
to consumer preferences and retailer needs, the company’s
continues to improve distribution performance at its Memphis,
products sell well with lower promotional expenses than many
Tennessee, facility as well as to offer further efficiencies
competitors’ products require.
through direct-ship programs to retailers’ warehouses.
Manufacturing cost reduction. A number of manufac-
turing efficiency programs are contributing to HB/PS’
successful record of continuous cost reduction. Programs
include continued consolidation of Mexican manufacturing
plants and increased low-cost, high-quality sourcing from
China, where HB/PS has established a permanent office.
HB/PS hopes to have these efforts completed by 2005. Also, at
both company-owned and Chinese suppliers’ plants, HB/PS
implements its ongoing Value Improvement Program (VIP),
which seeks to reduce process and component costs while
continuously maintaining high quality.
Continuous quality improvement. Product and service
quality is a top priority at HB/PS. The company is committed
to continuous quality improvement and has successfully
Key Programs to Generate Growth
New product introductions. HB/PS continues to increase
the pace of new product introductions sold under its various
brand names. In-depth consumer research enables the company
to develop products with innovative consumer-preferred features
and high rates of market success. In the company’s consumer
business, the Hamilton Beach BrewStation™ coffeemaker is
an example of a breakthrough new product that has driven
significant growth, with shelf placement in nearly every major
housewares retailer. Sales of home health products continue to
grow under the TrueAir™ brand name, and other new product
areas remain under consideration. In the company’s commercial
business, new blenders, coffeemakers and coffee urns were
The objective of HB/PS’ overall strategy is to grow
successfully introduced in 2003, and more new products are
profitably through increased sales of high-margin, innovative
planned for 2004.
new products sold through a wide range of retailers and
Strategic brand application. HB/PS has developed and
distribution channels.
utilizes a proprietary consumer “value proposition” segmen-
tation analysis that helps the company and retailers apply
Outlook for 2004 and Beyond
brand names most effectively in the marketplace. Proctor-
HB/PS is hopeful that consumer markets will improve in
Silex‚ Hamilton Beach, TrueAir™, and the new Traditions™ by
2004. Since the small electric kitchen and household appliance
Proctor-Silex and Hamilton Beach Eclectrics™ brands will be
market declined more than expected in 2003, it is possible
deployed across multiple retailers to reach specific target
that the pace of recovery through 2004 will be slow. In this
markets. Other brands produced by the company are sold
uncertain and competitive environment, continued product
exclusively at certain retailers, such as the well-known
innovations, reduced costs, strong brands and heightened
General Electric brand at Wal-Mart. Product and service
channel efforts are expected to help HB/PS maintain leading
costs associated with each brand are aligned with the needs
market share positions.
of its target segment through detailed value chain analysis.
The longer-term objective for HB/PS is that the combi-
New brand names and licensing opportunities are constantly
nation of profit improvement programs and some growth
evaluated to generate end-user excitement and fuel growth.
programs move the company to achieve its minimum operating
Retailer and channel focus. HB/PS helps each retailer
profit target of 10 percent in the 2005-2006 time period, as well
develop an optimal product assortment strategy, a process
as to generate significant cash flow before financing activities.
that lies at the heart of HB/PS’ marketing and sales approach.
Additional growth programs are designed to help the company
In-depth analyses are performed for each retailer to help
go beyond its minimum operating profit target and to add
determine the combination of products, features and prices
profitable volume to this enhanced profit base.
most likely to succeed. These detailed analyses drive the
Last year, I extended my gratitude to all Hamilton Beach(cid:2)
product development process,
improve speed-to-market,
Proctor-Silex employees for their contributions in making the
increase retailer acceptance and have resulted in HB/PS being
named category manager at a number of key North American
company successful in a difficult 2002. The market challenges
continued in 2003. Once again, Hamilton Beach(cid:2)Proctor-
accounts. The company applies this approach to strengthen
Silex employees demonstrated creativity, commitment and
current retailer relationships and to pursue new distribution
diligence in helping the company again achieve financial
opportunities throughout North America and other selected
improvement. I continue to be truly thankful for the quality
international markets.
Corporate Initiatives
In addition to profitability and growth programs in specific
areas, HB/PS has two general performance improvement
programs that span all areas of the company. A focused expense
management effort, which helped the company increase net
income despite lower revenue in 2003, will continue in 2004.
The company also utilizes Economic Value Income (EVI)
analyses, a measure of return on invested capital, to identify and
prioritize opportunities for growth and profit improvement.
of our team in this demanding business environment.
Dr. Michael J. Morecroft
President and Chief Executive Officer
Hamilton Beach(cid:4)Proctor-Silex, Inc.
-20-
-21-
concept proves to be adequately profitable, additional larger
a minimum operating profit of 5 percent and to generate
stores could be added, which would contribute to Kitchen
substantial cash flow before financing activities by focusing
Collection’s growth.
on its core programs: optimizing store selling space, enhancing
Internet sales. Sales from the company’s Web site,
store merchandise mix, expanding private label lines, developing
www.kitchencollection.com, although modest, grew by
new store formats and aggressively managing costs.
37.5 percent in 2003 compared with 2002, and this channel is
Last year, the company communicated a long-term
profitable for the company. As marketing activities increase,
minimum operating profit objective of 5.5 percent, a goal that
such as direct e-mail campaigns and Web partner programs,
was set following what, in retrospect, was an extraordinarily
Internet sales are expected to increase further.
strong 2002 as outlined above. Accordingly, the objective has
Corporate Initiatives
now been reduced to a more appropriate level of 5 percent,
which would still permit well-above-average returns on capital.
Kitchen Collection constantly strives to control costs in
Finally, I want to take this opportunity to thank all of our
every area of the company in order to improve store prof-
Kitchen Collection employees for helping the company
itability. Significant store costs, such as rent and labor, are
achieve solid results in 2003, a year in which the company
rigorously analyzed and efforts to reduce further the costs of
faced significant challenges in the retail marketplace.
distributing products to the stores are underway.
The objective of Kitchen Collection’s overall strategy is
to maintain the profitability of the current Kitchen Collection
stores while successfully achieving growth by rolling out
profitable new store formats.
Outlook for 2004 and Beyond
Kitchen Collection expects moderate growth in 2004
from opening new stores and from the continued success of
Internet sales. The company’s objective is to continue earning
Randolph J. Gawelek
President and Chief Executive Officer
The Kitchen Collection, Inc.
Kitchen Collection's Gadgets & More store in the Beachwood Place mall near Cleveland, Ohio, features higher-margin, brand-name kitchen
gadgets, small electric appliances and a variety of other kitchen- and housewares-related products.
2003 Results
company continues to utilize its proprietary Economic Value
Kitchen Collection had a good year in 2003 taking into
Income (EVI) business tool to assist in determining how to
account lower traffic in outlet malls, which led to moderately
achieve the greatest possible return per cubic foot of retail
lower sales and lower net income than in 2002. Comparisons
space. Combined with other revenue and margin enhancement
of 2003 to 2002 require recognition that 2002 was an
programs, EVI assists in optimizing the most profitable mix of
extraordinary year for Kitchen Collection, with unusually
products, the amount of space allocated to each product and
high sales growth of 13.5 percent above 2001 and high levels
the most appropriate store size.
of profitability partly attributable to its major competitor,
Margin enhancement and merchandising programs.
Lechter’s, leaving the outlet mall business. Over the longer
Kitchen Collection continually tests and implements new
term, Kitchen Collection should continue to benefit from the
approaches to increase traffic, to increase the percentage of
closing of the Lechter’s stores in 2001.
individuals who make purchases after they enter a store, to
The modest sales decrease in 2003 was driven by a
encourage customers to purchase higher-margin items and to
reduced number of transactions in comparable stores, offset
increase the average purchase amount of those who buy.
slightly by a small increase in the amount of the average sales
Private label. Kitchen Collection continues to expand its
transaction and sales from new stores. In addition, sales were
lines of sourced private label merchandise featuring the
adversely affected by severe weather in the first and fourth
Hamilton Beach® and Proctor-Silex® brand names, which are
quarters. The number of Kitchen Collection® and Gadgets &
among Kitchen Collection’s most successful and profitable
More® stores increased from 173 in 2002 to 180 in 2003.
product lines. These product lines now feature nearly 400
items, including gadgets, cutlery, cutting boards, barbecue
Vision, Strategy and Core Competencies
tools, bakeware and cookware.
Kitchen Collection’s vision is to be a leading specialty
retailer of housewares, including cookware, bakeware, kitchen
Key Programs to Generate Growth
gadgets and related items, in outlet and traditional malls for
Gadgets & More. The Gadgets & More store format,
consumers seeking outstanding value.
which is still in test mode, continues to represent the company’s
The company’s strategy is to maintain a strong position
most promising driver of future growth. Located primarily in
in the outlet mall channel and to develop complementary
traditional enclosed malls, Gadgets & More stores sell a broad
store formats that can be profitably expanded to large numbers
range of higher-margin kitchen gadgets and other selected
of stores in traditional malls.
housewares products. The company currently has only eight
Core competencies supporting this strategy include
Gadgets & More stores in a potential market of more than 500
analyzing assortment performance to optimize store prof-
traditional enclosed malls. However, Kitchen Collection will be
itability and creating and refining store concepts to ensure
prudent in the pace with which it opens additional stores in
profitable expansion.
order to ensure that sales volumes and profit structure meet
Kitchen Collection’s objectives.
Key Programs to Enhance Profitability
Large store format. In the outlet channel, Kitchen
Kitchen Collection has in place several key programs to
Collection is currently testing a larger format store that
grow profitably in a highly competitive retail environment:
will offer an expanded assortment in several key areas,
Economic Value Income. Kitchen Collection utilizes
including tabletop, dinnerware and glassware items. If this
disciplined operating controls to improve margins. The
-22-
North American Coal’s
vision is to be the leading low-cost miner
of lignite coal used in power generation and
coal gasification plants and to provide
selected value-added mining services
for other natural resources
companies.
The North American Coal Corporation
2003 Results
Also contributing to lower net income was the adoption of
North American Coal operates mines, which, in total,
SFAS No. 143, which requires that future mine closure costs be
delivered 35.5 million tons of lignite coal in 2003 compared
recognized sooner than under North American Coal’s previous
with 34.2 million tons in 2002, maintaining North American
accounting methodology. The effect of this methodology
Coal’s position as the nation’s largest lignite coal producer and
change was a charge of $1.3 million, net of tax, recognized as
among the top 10 coal producers nationwide. The Florida
a cumulative effect of an accounting change. Income before the
dragline operations increased limerock deliveries by approxi-
cumulative effect of an accounting change in 2003 was $15.6
mately 4 percent in 2003 over 2002. The Company’s lignite
million, compared with $19.6 million in 2002.
coal reserve position,
including unconsolidated project
The adoption of Financial Accounting Standards Board
mines, remains strong with a total of 2.4 billion tons of
Interpretation No. 46 (“FIN No. 46”) has dramatically changed
which 1.3 billion tons are committed to current customers.
the presentation of North American Coal’s financial statements.
Unconsolidated project mines account for 1.1 billion tons
For many years, the company has explained the unique financial
of total reserves, all of which are committed to project mine
characteristics of three subsidiaries: The Coteau Properties
customers.
Company, The Falkirk Mining Company and The Sabine
Although North American Coal delivered more tons of
Mining Company (collectively the “project mines”), in which
lignite coal in 2003 than in 2002, net income declined to
ownership of modest equity investments resulted in the con-
$14.3 million in 2003 compared with $19.6 million in 2002.
solidation of the debt obligations of the project mines which
The decrease was primarily the result of losses at North
were fully guaranteed by its customers, and in fact, non-
American Coal’s San Miguel Lignite Mining Operations
recourse to North American Coal. FIN No. 46 requires the
attributable to high operating and maintenance costs of aged
deconsolidation of the project mines from North American
equipment, and receipt in 2002 of the last liquidated damage
Coal’s financial statements. The company believes the resulting
payments related to the delayed start up of the Mississippi
financial statements better reflect the fundamental economics
Lignite Mining Company’s customer’s power plant.
of the project mines. (The adoption of FIN No. 46 is further
described in the boxes at the bottom of this page and page 2.)
Top left: The dragline at The Coteau Properties Company in North Dakota, North American Coal’s largest unconsolidated project mining
operation. Middle: North American Coal’s limerock mining operation at White Rock Quarry in South Florida. During 2003, the contract for
these mining services was extended to 2010. Bottom: North American Coal is committed to protecting the environment by restoring mined
land to its original or better condition. At The Falkirk Mining Company in North Dakota, one of North American Coal’s unconsolidated project
mines, land once used for surface mining now hosts migrating waterfowl in the fall and spring.
Adoption of FIN No. 46
During the fourth quarter of 2003, North American Coal adopted Financial Accounting Standards Board Interpretation No. 46 (“FIN No.
46”), “Consolidation of Variable Interest Entities,” which the company chose to retroactively apply to January 1, 2002. As a result of the adoption
of FIN No. 46, the company no longer consolidates the financial statements of three of its wholly owned subsidiaries: The Coteau Properties
Company, The Falkirk Mining Company and The Sabine Mining Company (collectively, the “project mines”). These project mines sell lignite coal
at a formula price based on actual costs plus an agreed pre-tax profit per ton. These entities are capitalized primarily with debt financing, which
has been arranged and guaranteed by the project mines’ customers.
Previously disclosed financial results for 2002 have been restated to reflect the adoption of FIN No. 46. The effect of deconsolidation was to
decrease previously reported 2002 revenues by $263.1 million, but to leave reported net income unchanged. The company still has a 100 percent
equity investment in the project mines; however, the pre-tax earnings are now included in one line on the statement of operations entitled
"Earnings of unconsolidated project mining subsidiaries." In addition, the assets and liabilities of the project mines are no longer consolidated
within the company’s balance sheet, although the balance sheet now reflects an investment in the project mines and related income tax
obligations. The company’s invested capital in the project mines was $4.9 million at December 31, 2003 and 2002.
-25-
The adoption of FIN No. 46 did not change North
calendar year without incurring a single lost-time accident.
• Utilizing Easi-Miners, equipment resembling road
Limerock projects. The company is increasingly optimistic
American Coal’s reported net income. However, North American
North American Coal continues to believe that its commitment
Coal’s reported revenues from mining operations were reduced
to safety and strong employee relations improves productivity
significantly. In 2002, previously reported revenues were
and employee retention and thereby enhances profitability.
$349.3 million before the adoption of FIN No. 46. After
Mississippi Lignite Mining Company. With this new
the adoption of FIN No. 46, restated 2002 revenues were
mine and its customer’s power plant now fully operational,
$86.2 million. Revenues in 2003 were $94.1 million. North
North American Coal is aggressively focused on achieving
American Coal generated $11.3 million of cash flow before
planned profitability through the application of its extensive
financing activities in 2003 and $29.4 million in 2002.
mining expertise. While mining of deeper coal seams will
increase mining costs in the near term, lower costs are
Vision, Strategy and Core Competencies
expected by 2006, with more profitable mining beginning
North American Coal’s vision is to be the leading low-cost
in 2007.
miner of lignite coal used in power generation and coal gasifi-
San Miguel Lignite Mining Operations. Over the past
cation plants and to provide selected value-added mining
several years, North American Coal has mined more lignite coal
services for other natural resources companies.
at this mine than originally anticipated. While higher volume
North American Coal’s strategy is to leverage low-cost
would normally be desirable, this increased production has
mining expertise at existing mines while pursuing new mining
led to higher mining costs, increased equipment needs and
opportunities.
higher equipment maintenance costs. These cost increases,
Core competencies supporting this strategy include
which are generally not covered by contractual coal price
operating mines in a safe, low-cost and environmentally
increases, resulted in a significant loss at this operation for
responsible manner through disciplined, efficient and respon-
2003. North American Coal is currently renegotiating the
sible processes; fostering successful, long-term partnerships
mining contract with the mine’s customer to take into account
with power generating customers; and analyzing regional
a revised mine plan. The current proposal for these contract
opportunities, understanding new coal-based power generating
revisions, if implemented, is expected to reduce near-term
technologies and identifying potential partners for future
losses in 2004 and 2005, lead to profitability in 2006 and
development.
2007, and enhance the long-term working relationship with
the customer.
Key Programs to Enhance Profitability
Innovative mining methods. North American Coal con-
Employee safety. Employee safety is the number one
tinues to be a leader in developing innovative mining methods,
priority at North American Coal. Each of the mines emphasizes
which have improved mining efficiency and coal recovery,
safety as part of its daily routine and annually conducts extensive
reduced costs, enhanced safety and lessened the environmental
safety training courses. Red River Mining Company has not had
impact of mining. These methods, also described in last year’s
a lost-time accident since it was opened in 1989. In addition,
Annual Report, include:
five of the company’s seven operations worked the entire 2003
Income Before Taxes
Lignite Coal Tons Delivered
(In millions)
$34.6
$22.2
$12.5
$21.8
$18.3
$40
$30
$20
$10
$0
40
30
20
10
0
(In millions)
31.3
31.6
31.4
34.2
35.5
1999
2000
2001
2002
2003
1999
2000
2001
2002
2003
(including project mines)
resurfacers, to extract thinner seams of coal, thereby
that niche growth opportunities to provide high value-added
improving coal recovery and reducing costs.
services for other natural resource mining applications, such
• Designing a unique slurry wall dewatering system at Red
as limerock dragline services, will continue to emerge. The
River Mining Company in Louisiana. This system, derived
contract with White Rock Quarries (“WRQ”), under which
from drainage systems used to keep basements dry in
North American Coal provides dragline mining services to
wet areas, enables workers to mine lignite coal safely and
WRQ at its limerock mining operation in South Florida, was
efficiently in a flood plain.
automatically extended at the end of December 2003 for a
• Developing specialized non-stick linings applied to the
term that ends in 2010. Discussions are currently ongoing with
inside of truck beds and buckets on earth-moving equip-
WRQ about further expansion of its limerock requirements.
ment to improve efficiencies and lower costs.
The company is optimistic these discussions will lead to a
• Using special proprietary software to track equipment
revised contract in 2004.
utilization and optimize service intervals for lower overall
North American Coal also began providing dragline
maintenance costs.
mining services to the Krome Avenue Quarry owned by Rinker
Environmental commitment. North American Coal is
Materials of Florida, Inc. (“Rinker”) in the fourth quarter of
committed to protecting the environment by restoring mined
2003. The company expects to deliver approximately 4.0
land to its original or improved condition. North American
million cubic yards of limerock per year based on the mining
Coal utilizes the latest geological and technological approaches
services agreement, which has a seven-year term ending in
to mining as well as to reclaiming mined land. For instance, the
2010 and includes three one-year extensions. In January 2004,
Company pioneered the use of Global Positioning Systems
North American Coal and Rinker signed a new agreement for
(GPS) on mining equipment to reduce the amount of dirt
the company to provide dragline mining services to Rinker’s
moved, improve efficiencies, lower costs, reduce the environ-
Alico Road Quarry near Ft. Myers, Florida beginning in the
mental impact of mining and improve the precision of land
second quarter of 2004. The company expects to deliver an
reclamation activities.
Key Programs to Generate Growth
additional 3.0 million cubic yards of limerock annually
through 2011 based on this mining services agreement.
Long-term positioning. North American Coal believes
Reserve development strategies. North American Coal
that, in the long term, development of additional coal
owns what it believes is the most extensive bank of geological
reserves in the United States will depend greatly upon the
data on lignite coal reserves in the country, consisting of data on
adoption of new power plant technologies that substantially
its own company-owned lignite coal reserves as well as lignite
lower emissions. One of the most promising new technologies
coal reserves owned or controlled by others. This wealth of
involves gasifying coal to produce synthetic natural gas
data provides a strategic advantage to North American Coal as
(syngas) for power generation. Lignite coal is among the
it works to identify, prioritize and pursue opportunities to
best types of coal to be used for gasification. This process can
develop its own reserves or other new mining opportunities.
reduce overall emissions, allow the complete capture of
The foundation for new mining projects is the ongoing,
mercury and carbon dioxide, and create an opportunity to
in-depth analysis of power generation supply and demand in
produce marketable by-products such as synthetic diesel
each of the regions where North American Coal has reserves.
fuel. This coal gasification process can also extract hydrogen,
In areas where future power generation demand outpaces
which could eventually be used in fuel cells for emission-free
supply, there is potential for the development of new power
power generation or for vehicles. The company continues to
plants, which could utilize lignite coal mined by North
invest significant effort in understanding and promoting these
American Coal. Based on the results of these analyses, North
new technologies and is a member of a national coalition of
American Coal adjusts both its ownership plans for its own
power and mining companies, called FutureGen, organized to
lignite coal reserves as well as the direction of its efforts to
help bring to fruition President Bush’s vision of the coal-fired
develop new mining opportunities.
-26-
-27-
power plant of the future. Concurrently, North American Coal
The company has programs with the objective of sig-
has developed its own vision for a clean, economical and flex-
nificant improvements in return on capital employed by
ible power plant, called FlexGen, which would allow power
2006-2007:
companies to generate power from natural gas, coal-based
• While mine development at Mississippi Lignite Mining
synthetic gas or fuel cells, to produce a variety of by-products,
Company is now complete, higher levels of operating
including hydrogen, and to significantly reduce, or even elim-
costs, including depreciation of higher mine development
inate, many harmful emissions. The company’s hope is that
costs attributable to the customer’s power plant startup
adoption of these new technologies will create new opportu-
delay and other depreciation and amortization, must
nities for lignite coal mining in the long term.
now be expensed. Mississippi Lignite Mining Company,
Corporate Initiatives
like many mining operations, will have lower returns on
capital employed early in the project’s life. Also, reaching
Central to North American Coal’s successes are its efforts
long-term potential operating efficiency following
to minimize exposure to the market price of coal. This goal is
start-up will continue to take time, since some higher-
accomplished through carefully structured long-term mining
cost mining due to deeper coal seams is still required
agreements, which essentially establish the specific mining
until 2006. More profitable mining is expected beginning
services that North American Coal will perform for its customers
in 2007.
and the mechanisms by which it will be compensated for
• Cost pressures will continue at San Miguel Lignite
performing those activities. Because North American Coal is
Mining Operations, although contract provisions under
selling its services in addition to its coal, these agreements
negotiation, if successful, should improve the mine’s
include various cost escalation procedures and often include
operating results, with the greatest benefit occurring in
performance incentives. Through these mining agreements,
2006 and 2007.
North American Coal and its customers share a common goal
• The customer at Red River Mining Company is expected
of minimizing costs. By eliminating speculation on the future
to continue, at least in the immediate future, to elect to
price of coal, this approach allows the company to consistently
take only the contractual minimum number of tons. The
earn sound margins for its services and earn, on a regular
company’s objective is to increase deliveries over the
basis, returns on capital employed substantially in excess of the
longer term, which would add significantly to profitability.
company’s cost of capital.
With implementation of these programs, the company
The objective of North American Coal’s overall strategy is
anticipates improvement in returns on capital employed as
the profitable operation of all current mines coupled with the
well as increased cash flow before financing activities.
development of new mines that utilize the company’s lignite
Finally, on a personal note, I would like to express my
coal reserves or its mining expertise.
gratitude to all North American Coal employees for their
hard work and dedication in making 2003 another safe and
Outlook for 2004 and Beyond
successful year for the company.
North American Coal’s financial objectives are to earn a
minimum return on capital employed of 13 percent and to
deliver substantial cash flow before financing activities. In
light of the company’s deconsolidation of its project mines
pursuant to FIN No. 46 in 2003, the company has moved from
a financial goal based on operating profit to a financial goal
based on return on capital employed.
Clifford R. Miercort
President and Chief Executive Officer
The North American Coal Corporation
Left: The Mississippi Lignite Mining Company uses a variety of heavy-duty equipment to mine lignite coal, including a Marion® 8200
dragline, Huron® 1224 Easi-Miner and Caterpillar® 785 haul trucks.
-29-
Supplemental Data
Officers & Directors
RECONCILIATION OF FINANCIAL TARGETS TO NET INCOME:
Minimum Operating Profit Target, Minimum Return on Capital Employed Target and Interest Expense as of December 31, 2003
Subsidiaries with Minimum Operating Profit Targets
(U.S. dollars in millions, except per share amounts)
Housewares
NMHG
Total
2003 Revenues, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
x Operating profit target percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
= Operating profit at target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1,779.6
9%
160.2
Less: 2003 Operating profit, as reported for NMHG and Housewares . . . . . . . . . . . . . . . . . . . . . .
Difference between 2003 operating profit, as reported, and operating profit target. . . . . . . . . . .
Less: Income tax expense at 38%** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income difference between reported operating profit and operating profit target
$
(48.8)
111.4
(42.3)
for NMHG and Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
69.1
Subsidiaries with Minimum Return on Capital Employed Targets
2003 Average Equity (12/31/2002 and at each of 2003's quarter ends) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 Average Debt (12/31/2002 and at each of 2003's quarter ends). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total 2003 average capital employed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on capital employed target percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on capital employed target = target net income before interest expense, net-of-tax . . . . . . . . . . . . . . . . . .
2003 Net income, as reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: 2003 Interest expense, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Income taxes on 2003 interest expense at 38%** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on capital employed = actual net income before interest expense, net-of-tax . . . . . . . . . . . . . . . . . .
Return on capital employed target = target net income before interest expense, net-of-tax . . . . . . . . . . . . . . . . . .
Actual return on capital employed = actual net income before interest expense, net-of-tax . . . . . . . . . . . . . . . . . .
Return on capital employed difference between actual and target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on capital employed target = target net income before interest expense, net-of-tax . . . . . . . . . . . . . . . . . .
Less: 2003 Interest expense, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: Income taxes on 2003 interest expense at 38%** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Target net income at target return on capital employed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: 2003 Net income, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income difference between reported net income and target net income at target return on
$
$
$
$
$
$
$
$
$
$
$
$
$
598.7
*
9.2%
55.1
(42.0)
13.1
(5.0)
8.1
$
$
$
$
2,378.3
N/A
215.3
(90.8)
124.5
(47.3)
77.2
NACoal
65.5
131.1
196.6
13%
25.6
14.3
9.1
(3.5)
19.9
25.6
(19.9)
5.7
25.6
(9.1)
3.5
20.0
(14.3)
capital employed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5.7
5.7
Total of net income differences from subsidiaries with minimum operating profit targets and minimum return on capital
employed targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share impact at 8.204 million average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
82.9
10.10
Return on capital employed is provided solely as a supplemental disclosure with respect to income generation because management
believes it provides useful information with respect to earnings in a form that is comparable to the Company's cost of capital employed,
which includes both equity and debt securities.
Interest Expense
2003 Interest expense, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Income tax expense at 38%**. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 Interest expense, net-of-tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share impact at 8.204 million average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
51.0
(19.4)
31.6
3.85
* The weighted average minimum operating profit target for the Housewares segment is 9.2% (HB/PS at 10% and Kitchen Collection at 5%).
** Tax rate of 38% represents the Company's marginal tax rate as compared to 2003's effective tax rate of 24.3%.
Officers and Directors of NACCO
Industries, Inc.
Officers:
Alfred M. Rankin, Jr.
Chairman, President
and Chief Executive Officer
Charles A. Bittenbender
Vice President, General Counsel and Secretary
J.C. Butler, Jr.
Vice President-Corporate Development
and Treasurer
Lauren E. Miller
Vice President-Consulting Services
Kenneth C. Schilling
Vice President and Controller
Dean E. Tsipis
Assistant General Counsel
and Assistant Secretary
Directors:
Owsley Brown II
Chairman and Chief Executive Officer,
Brown-Forman Corporation
Robert M. Gates
President, Texas A&M University
Former Director of Central Intelligence
Leon J. Hendrix, Jr.
Chairman, Remington Arms Company, Inc.
David H. Hoag
Retired Chairman and Chief Executive Officer,
The LTV Corporation
Dennis W. LaBarre
Partner, Jones Day
Richard de J. Osborne
Retired Chairman and Chief Executive Officer,
ASARCO Incorporated
Alfred M. Rankin, Jr.
Chairman, President and Chief Executive
Officer, NACCO Industries, Inc.
Ian M. Ross
President Emeritus, AT&T Bell Laboratories
Michael E. Shannon
President, MEShannon & Associates, Inc.
Retired Chairman, Chief Financial and
Administrative Officer, Ecolab, Inc.
Britton T. Taplin
Principal, Western Skies Group, Inc.
David F. Taplin
Self employed (tree farming)
John F. Turben
Chairman of the Board
Kirtland Capital Corporation
Director Emeritus
Thomas E. Taplin
Officers of Subsidiaries
Americas:
Officers of The North American
Coal Corporation
Clifford R. Miercort
President and Chief Executive Officer
Charles B. Friley
Senior Vice President and
Chief Financial Officer
Robert L. Benson
Vice President-Eastern & Southern Operations
Thomas A. Koza
Vice President-Law and Administration,
and Secretary
Clark A. Moseley
Vice President-Business Development
and Engineering
Bob D. Carlton
Controller and Director of Tax
K. Donald Grischow
Treasurer
Officers of NACCO Materials Handling
Group, Inc.
Corporate:
Reginald R. Eklund
President and Chief Executive Officer
Frank G. Muller
Executive Vice President,
Chief Operating Officer
Michael Brogan
Senior Vice President, Product Development
and Procurement
Gregory J. Dawe
Vice President, Manufacturing
and Quality Strategy
James P. Gorzalski
Vice President, Procurement and Supply
Ron J. Leptich
Vice President, Engineering and Big Trucks
Geoffrey D. Lewis
Vice President, Corporate Development,
General Counsel and Secretary
James M. Phillips
Vice President, Human Resources
Victoria L. Rickey
Vice President, Chief Strategy Officer
Michael K. Smith
Vice President, Finance and Information
Systems, and Chief Financial Officer
Gopi Somayajula
Vice President, Counterbalanced Engineering
Daniel P. Gerrone
Controller
Jeffrey C. Mattern
Treasurer
Colin Wilson
Vice President, President, Americas
David Clarke
Vice President, Marketing, Americas
Raymond C. Ulmer
Vice President, Finance and Information
Systems, Americas
Donald L. Chance, Jr.
Vice President, President, Yale Materials
Handling Corporation
David O’Dell
Vice President, President, Hyster Company
Europe:
Richard H. Close
Vice President, Managing Director, Europe,
Africa and Middle East
Stephen R. West
Vice President, Finance and Information
Systems, Europe, Africa and Middle East
Asia-Pacific:
Donna M. Baxter
Vice President, Managing Director, Asia-Pacific
Yoshinori Ohno
Managing Director, Sumitomo NACCO
Materials Handling Co., Ltd.
Officers of Hamilton Beach(cid:2)Proctor-
Silex, Inc.
Dr. Michael J. Morecroft
President and Chief Executive Officer
Charles B. Hoyt
Senior Vice President-Finance and Chief
Financial Officer
Paul C. Smith
Senior Vice President-Sales
Keith B. Burns
Vice President-Engineering and Product
Development
Kathleen L. Diller
Vice President, General Counsel and Secretary
Gregory E. Salyers
Vice President-Operations
W. Lance Servais
Vice President/General Manager-Global
Commercial Products
James H. Taylor
Vice President and Treasurer
Gregory H. Trepp
Vice President-Marketing
Officers of The Kitchen Collection, Inc.
Randolph J. Gawelek
President and Chief Executive Officer
Darlene Denman-Jones
Senior Vice President-General Merchandise
Manager
-30-
-31-
Annual Meeting
Investor Relations Contact
The Annual Meeting of Stockholders of NACCO
Industries, Inc. will be held on May 12, 2004, at 9 a.m.
at the corporate office located at:
5875 Landerbrook Drive
Mayfield Heights, Ohio.
Form 10-K
Additional copies of the Company’s Form 10-K filed with
the Securities and Exchange Commission are available
through NACCO’s Web site (www.nacco.com) or by
request to Investor Relations, NACCO Industries, Inc.,
5875 Landerbrook Drive, Mayfield Heights, Ohio 44124.
Stock Transfer Agent and Registrar
National City Bank
Corporate Trust Operations
P.O. Box 92301, Dept. 5352
Cleveland, Ohio 44193-0900
1-800-622-6757
Legal Counsel
Jones Day
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Independent Auditors
Ernst & Young LLP
1300 Huntington Building
925 Euclid Avenue
Cleveland, Ohio 44115
Investor questions may be addressed to:
Christina Kmetko, Manager-Finance
NACCO Industries, Inc.
5875 Landerbrook Drive
Mayfield Heights, Ohio 44124
(440) 449-9669
E-mail: ir@naccoind.com
Stock Exchange Listing
The New York Stock Exchange
Symbol: NC
Web Sites
The Web sites of NACCO Industries and several Company
subsidiaries and product brands can be found at the
following locations:
NACCO Industries:
www.nacco.com
North American Coal:
www.nacoal.com
NACCO Materials Handling Group:
www.nmhg.com
Hyster North America:
www.hyster.com
Hyster Europe:
www.hyster.co.uk
Hyster Asia-Pacific:
www.hyster.com.au
Yale North America:
www.yale.com
Yale Europe:
www.yale-europe.com
Yale Asia-Pacific:
www.yale.com.au
Hamilton Beach(cid:4)Proctor-Silex:
www.hamiltonbeach.com
www.proctorsilex.com
www.trueair.com
http://commercial.hamiltonbeach.com
Kitchen Collection:
www.kitchencollection.com
[This Page Intentionally Left Blank]
-32-
Annual Report
2003
NACCO
I N D U S T R I E S ,
I N C .
Managing for long-term profit growth
NACCO Industries, Inc.
5875 Landerbrook Drive • Mayfield Heights, Ohio 44124
An Equal Opportunity Employer
Printed in U.S.A.