NACCO Industries, Inc. Annual Report 2004

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FY2004 Annual Report · NACCO Industries, Inc.

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NACCO

I N D U S T R I E S ,

I N C .

Annual Report
Annual Report
2004
2004

Managing for long-term profit growth
Managing for long-term profit growth

NACCO INDUSTRIES, INC. AT A GLANCE

Principal Businesses

NACCO Materials Handling Group (“NMHG”)
Headquarters: Portland, Oregon

NMHG Wholesale designs, engineers, manufactures and sells a comprehensive 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, leasing and
servicing Hyster® and Yale® lift trucks, including sales of related service parts.

NACCO Housewares Group
Hamilton Beach/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 Kitchen
Collection® and Gadgets & More® names in enclosed malls.

2004
Financial Results

NMHG Wholesale:
Revenues:

$1.9 billion
Operating profit:
$39.1 million

Net income:

$22.3 million

NMHG Retail:
Revenues:

$195.2 million
Operating loss:
$4.1 million

Net loss:

$7.2 million

NACCO
Housewares
Group:
Revenues:

$614.8 million
Operating profit:
$31.9 million

Net income:

$17.2 million

North American
Coal Corporation

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 operates six surface lignite coal mines and provides
dragline mining services at three limerock quarries.

North American
Coal:
Revenues:

$110.8 million
Operating profit:
$30.3 million

Net income:

$18.6 million

NACCO Industries, Inc. is an operating holding company with three principal businesses: lift trucks, housewares and
mining. In 2004, total revenues were $2.8 billion and net income was $47.9 million.

Market Positions

Competitive Advantages

Financial Objectives

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.

Hamilton Beach/Proctor-Silex has the
#1 or #2 market share positions in the
majority 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
188 stores throughout the United States.

• 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 750,000 Hyster® and
Yale® lift trucks in operation worldwide
• Highly diverse customer base with more
than 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

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

Minimum operating
profit target of 9 percent
by 2007-2008

HB/PS:
Minimum operating
profit target of 10 percent
by 2006-2007

Kitchen Collection:
Minimum operating
profit target of 5 percent
by 2008

• Material cost recovery
• Pricing optimization
• New product development

and introduction

• Manufacturing restructuring
• Global procurement
• Aftermarket parts and efficiency
• Administrative efficiency
• National and global accounts

expansion

• Dealer excellence enhancement

program

• NMHG retail improvements
• Anchor Dealer program

HB/PS:
• Product development
• Continuous quality improvement
• Manufacturing cost reduction
• Supply chain optimization
• Corporate reorganization
• New product introductions
• Strategic brand application
• Retailer and channel focus

Kitchen Collection:
• Warehouse efficiency
• Economic Value Income
• Margin enhancement and
merchandising programs

• Private label programs
• Internet sales growth
• Enclosed mall stores
• Large store format

North American Coal is the nation’s
largest miner of lignite coal and among
the ten largest coal producers. Lignite coal
is delivered to power plants adjacent to
mines in North Dakota, Texas, Louisiana
and Mississippi.

• Lignite coal 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 1.3 billion tons are committed to
current customers

• Outstanding operational and technological

mining skills

• Highly efficient heavy equipment utilization
• Excellent record of environmental
protection and employee safety

Minimum return on
capital employed of
13 percent and attain
positive Economic Value
Income from all existing
consolidated mining
operations as well as
any new projects, and
maintain or increase
profitability of all existing
unconsolidated project
mining operations

• Employee safety
• Mississippi Lignite Mining Company

efficiency improvements

• San Miguel Lignite Mining Operations

profitability improvements
• Innovative mining methods
• Environmental commitment
• Lignite coal reserve development

strategies

• Limerock dragline mining projects

NACCO INDUSTRIES, INC.

NACCO Materials Handling Group (“NMHG”)
NMHG Wholesale
• NMHG Wholesale designs, engineers, manufactures and sells 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, leasing and servicing

Hyster® and Yale® lift trucks, including sales of related service parts.

NACCO Housewares Group
Hamilton Beach/Proctor-Silex (“HB/PS”)
• 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
• Kitchen Collection is a national specialty retailer of brand-name kitchenware, small electric

appliances and related accessories, operating under the Kitchen Collection® name in outlet malls
and under the Kitchen Collection® and Gadgets & More® names in 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 for other natural resources companies.

Table of Contents

Selected Financial and Operating Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Letter to Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

NACCO Materials Handling Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

NACCO Housewares Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

The North American Coal Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Supplemental Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

MANAGING FOR LONG-TERM
PROFIT GROWTH

In 2003, NACCO pledged its commitment to profit improvement

and growth programs intended to help each subsidiary company achieve

challenging long-term financial goals.

In 2004, NACCO not only continued to implement these important

programs, but also strengthened and enhanced them to further assure

success in achieving the Company’s objectives. Benefits directly derived from

these profitability and growth programs mitigated the negative impact of

external factors, such as high material costs, adverse currency movements and

certain weaker-than-expected markets, which reduced profits in 2004. Still,

the subsidiary companies remained very strong relative to their competitors

and the Board of Directors once again demonstrated its confidence in the

Company’s businesses by increasing the dividend.

In 2005, a number of existing programs are expected to continue to

deliver results, several key programs should begin to provide benefits, other

programs will require further investment and additional new programs will

be developed to address changing economic and market conditions. Though

the pace may adjust as we respond to changes in external conditions, the basic

landscape is the same: it is NACCO’s objective that with continued intense

focus on these profit improvement and growth programs, each subsidiary

company will achieve its long-term financial goals within an increasingly

near-term time horizon.

$2.9*

$3.0

Total Revenues
(In billions)

$2.8

$2.6*

$2.5

$2.3

$2.0

$1.0

* Effective January 1, 2002, NACCO
adopted FIN No. 46. Revenues for
2000 and 2001 were not restated
for this adoption. Further discussion
of FIN No. 46 is in Note 2 of the
Consolidated Financial Statements.

Earnings Per Share

$6.44

$5.83

$5.17

$10

$8.29†

($5)

$(4.40)†

† 2000 and 2001 include goodwill

amortization expense. Amortization
of goodwill was discontinued in 2002
with the adoption of SFAS No. 142.

•1•

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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Earnings Per Share:
Income (loss) before extraordinary gain (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$
$
$

$
$
$

$
$

2004

2,782.6

31.5
–
88.0
88.0

47.4
0.5
–
47.9

5.77
0.06
–
5.83

1.675
105.40
83.76

8.214
8.212

2,038.6

407.4
688.0

Year Ended December 31
2003
2002(1)
(In millions, except per share data)

2001(2)

$
$
$
$

$
$
$

$
$

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

$
$
$
$

$
$
$

$
$

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

2000(2)

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

$
$
$
$

$
$
$

$
$

(1) 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.

(2) Selected Financial and Operating Data for 2001 and 2000 have not been restated to reflect the adoption of Financial Accounting Standards Board Interpretation

No. 46 (“FIN No. 46”), “Consolidation of Variable Interest Entities,” which was adopted in 2003, retroactive to January 1, 2002.

•2•

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 (3)

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) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2004

80.0
17.1
41.1
(12.0)
126.2

(17.3)
(7.7)
(15.3)
–
(40.3)

62.7
9.4
25.8
(12.0)
85.9

(4.1)

160.4

Year Ended December 31

2003
(In millions, except employee data)

2002(1)

2001(2)

50.1
41.2
36.1
(3.8)
123.6

(11.1)
(5.8)
(26.3)
0.1
(43.1)

39.0
35.4
9.8
(3.7)
80.5

(71.9)

181.3

72.1
52.0
36.6
(11.2)
149.5

(7.3)
(3.2)
(7.2)
(0.8)
(18.5)

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)
(0.7)
(95.1)

(16.2)
15.1
35.7
6.3
40.9

(1.6)

78.3

2000(2)

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

Total employees at December 31(5) . . . . . . . . . . . . . . .

11,600

12,200

13,500

17,200

(3) Cash Flow before Financing Activities is equal to net cash provided by operating activities less net cash used for investing activities.
(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 U.S. generally accepted
accounting principles. 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. NACCO defines 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 U.S. generally accepted accounting principles and is not necessarily comparable with similarly titled measures of other companies. Net cash
flows from operating, investing and financing activities as determined using U.S. generally accepted accounting principles are presented above. A reconciliation
of cash flow from operations to Adjusted EBITDA is presented below.
(5) Includes employees of the unconsolidated project mining subsidiaries.

2004

Year Ended December 31
2002(1)

2003

(In millions)

2001(2)

2000(2)

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 income taxes and

total tax provision (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 . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . .
Interest expense

(excluding project mining subsidiaries) . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation, depletion and amortization expense

126.2
0.6
(0.6)
(7.6)

7.2
(10.6)
45.2

–

160.4

47.9
–
(0.5)
(0.4)
5.3

47.4
(2.2)

123.6
14.1
(1.5)
1.2

4.9
(8.9)
47.9

–

181.3

52.8
(1.2)
(1.8)
(0.6)
15.8

51.0
(3.1)

149.5
(10.3)
0.4
(12.3)

(6.5)
9.1
49.2

–

179.1

42.4

–

7.2
(1.2)
11.3

52.9
(3.7)

(excluding project mining subsidiaries) . . . . . . . . . . .
Adjusted EBITDA(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

62.9
160.4

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)

77.4
165.1

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 38.

•3•

TO OUR STOCKHOLDERS

In 2004, NACCO’s subsidiary companies maintained strong competitive
positions and are poised to capitalize on improved economic conditions

Economic and Corporate Overview

NACCO Industries faced a demanding year
in 2004, both externally and internally. Externally,
certain sectors of the economy recovered more
gradually than anticipated and material costs
surged. Internally, each of the subsidiary companies
worked hard to implement significant change
programs to enhance profitability and growth.
While the programs put in place at each of the
subsidiary companies over the past several years
continued to deliver substantial benefits, these
programs were unable to offset the effects of
substantial increases in material costs at NACCO
Materials Handling Group (“NMHG”) and
continued weak retail sales in the Housewares

Dividends Paid Per Share

$1.675

$1.26

$.930 $.970

$.595 $.615 $.635 $.655 $.675 $.710 $.743 $.773 $.810 $.850 $.890

$.467 $.515 $.550

$.575

sector. While many programs positively influenced
profitability in 2004, others will require continued
investment and commitment to assure success
in achieving the Company’s objectives over the
next several years. NACCO continues to have
confidence that these programs will help drive
each subsidiary company and NACCO Industries
to meet long-term financial goals over the next
several years. Furthermore, in August 2004, the
Board of Directors once again demonstrated its
confidence in the Company’s businesses by
increasing the annual dividend rate 19 percent
to $1.81 per share.

The most significant external factor
influencing 2004 performance was the limited
availability of and unprecedented cost increases in
raw materials, which affected each of NACCO’s
subsidiary companies in some way. Dramatic steel
price increases particularly affected lift truck costs
at NMHG, but also had an impact on the cost of
aluminum and stainless steel at Hamilton Beach/
Proctor-Silex (“HB/PS”) and the cost of heavy
equipment parts at North American Coal
(“NACoal”). Petroleum price increases affected the
cost of diesel fuel used by NACoal, increased prices
on petroleum-based plastic resin used in HB/PS’

$2.0

$1.5

$1.0

$0.5

•4•

small kitchen appliances and resulted in reduced
customer visits at Kitchen Collection (“KCI”) stores
in outlet malls. Subsidiary companies, particularly
NMHG, increased prices when possible to help
cover these higher material costs, and further price
increases are planned for 2005. The importance of
future price increases is discussed later in this letter
and in the separate NMHG subsidiary letter.
Currency exchange rates continued to
challenge NMHG in particular. The Euro and
British Pound Sterling grew even stronger
compared with the U.S. dollar, causing European
and U.K.- produced lift trucks to have higher
costs and lower margins in the United States.
Global lift truck markets exceeded the
Company’s expectations in 2004 by rebounding
to approximately the mid-point of the lift truck
market cycle, although they have not yet reached
peak cyclical volume levels. Housewares markets
were mixed, with consumer spending in North
America strengthening in some areas, but were
negatively affected overall by high gasoline prices,
inclement weather and economic uncertainty.

Faced with these difficult external forces, the
subsidiary companies responded commendably.
Increased focus was placed on cost reduction and
revenue enhancement programs. While financial
results in 2004 were not at the level the Company
had anticipated, each of the subsidiary companies
maintained a strong competitive position, and
each is better poised to capitalize on improved
economic conditions in 2005 and beyond.

This letter’s discussion is organized in a
manner similar to the letters included in the prior
two Annual Reports. We believe that this consistent
approach best portrays the key elements of
continuity in NACCO’s business philosophy of
managing for long-term profit growth and is
helpful to investors in reviewing our progress.

Discussion of Results

In 2004, NACCO Industries reported net
income of $47.9 million, or $5.83 per share,
compared with net income of $52.8 million, or
$6.44 per share, in 2003. Revenues in 2004 were
$2.8 billion compared with $2.5 billion in 2003,

an increase of 12 percent. This revenue increase
resulted primarily from increased unit and parts
volumes at NMHG and a favorable shift in mix
to higher-priced lift trucks.

Net income in 2004 and 2003 included a $0.5
million and a $1.8 million after-tax extraordinary
gain, respectively, recorded by Bellaire Corporation
(“Bellaire”), a wholly owned non-operating
subsidiary which manages ongoing liabilities related
primarily to closed Eastern U.S. underground
coal mines. These extraordinary items relate to
adjustments to Bellaire’s estimated obligation to
the United Mine Workers of America Combined
Benefit Fund. In addition, net income for 2003
included a net benefit of $1.2 million for the
cumulative effect of a change in accounting for
mine-closing obligations recognized as a result
of the adoption of Statement of Financial
Accounting Standards No. 143, “Accounting for
Asset Retirement Obligations.”

Income before extraordinary gain and
cumulative effect of accounting change in 2004
was $47.4 million, or $5.77 per share, compared
with $49.8 million, or $6.07 per share in 2003.
During 2004, the Company recognized $9.4
million in pre-tax charges ($6.1 million after a tax
benefit of $3.3 million) related to a restructuring
program currently being implemented at HB/PS’
manufacturing and distribution facilities. In
addition, current year operations were negatively
affected by significantly higher raw material costs,
a continuing weak U.S. dollar and significant
product development and marketing costs at
NMHG. Furthermore, the Company faced a
continued weak market for housewares products
and reduced customer visits at factory outlet malls.

In 2004, NACCO generated $85.9 million

in consolidated cash flow before financing
activities, compared with $80.5 million in 2003
and $131.0 million in 2002. Each of NACCO’s
subsidiary companies generated significant
cash flow before financing activities in 2004:
$62.7 million at NMHG; $9.4 million at NACCO
Housewares Group; and $25.8 million at NACoal.

•5•

NACCO Maintains a Long-term Perspective
NACCO has consistently maintained a
long-term perspective with respect to its subsidiary
companies, which is reflected in four guiding
principles: secure highly professional management
teams; build industry-leading market positions;
create sustainable competitive advantage positions;
and attain industry-leading operational effective-
ness and efficiencies.

To help achieve these guiding principles, the
NACCO parent company plays a significant role
by providing oversight to reinforce the process of
constructive change by ensuring that programs
are developed to achieve sustainable, long-term
competitive advantage and mutually agreed upon
financial targets, and to monitor the execution of
key programs. Consulting services are provided in
areas such as strategy development and acquisition
and divestiture support. Further information
on these oversight and consulting roles, as well
as on NACCO’s strong corporate governance
program, outlined in a publication entitled
CEO Perspectives, is available on the NACCO
website, www.nacco.com.

Key Long-term Programs

Consistent with NACCO’s long-term
perspective, key long-term programs are designed
both to increase the profitability of each subsidiary
company to at least its minimum financial target
and to generate growth. Following is an overview
of the Key Programs to Enhance Profitability and
the Key Programs to Generate Growth. Additional
detail is provided in each subsidiary company’s
letter in 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 targets. Performance in 2004 was, as
in 2003, helped by continued progress in imple-
menting these key programs. In fact, without
the positive impact of certain of these programs,
the negative effects of outside factors, such as
increased material costs, adverse currency move-

ments and weak markets, would have been much
more pronounced. The main objective of these
profitability enhancement programs is to achieve
defined minimum financial targets at each
subsidiary company by 2007-2008 or before.
Minimum financial targets defined in the 2003
NACCO Annual Report remain the same at all
subsidiary companies. However, due primarily
to external economic conditions, the pace for
attaining these objectives has been modestly
adjusted in some cases.

NACCO Materials Handling Group

NMHG’s objective was to reach a minimum

operating profit target of 9 percent at the mid-
point of the market cycle. However, while global
lift truck markets exceeded the company’s expec-
tations in 2004 by rebounding to approximately
the mid-point of the lift truck market cycle, key
programs to enhance profitability, which are
designed to deliver minimum operating profits
at target levels, have not yet reached maturity.

While NMHG faced significant challenges

from external factors in 2004, the continued
implementation of key programs further
strengthened NMHG’s solid foundation for profit
improvement in future years. In 2004, NMHG
incurred additional costs related to product
development programs, as well as additional
restructuring-related costs, some of which will
continue into future years. Key programs in place
are expected to improve results gradually through
2006 and to reach full maturity in 2007-2008,
when major programs are expected to be largely
complete. In particular, the launch of a completely
new line of lift trucks from 2005-2007 is intended
to significantly benefit overall performance over
the next several years.

At NMHG, specific projects to enhance

profitability include:

• A material cost recovery program intended
to increase lift truck prices aggressively to
recover the record increases in material costs,
particularly steel, which NMHG incurred
in 2004 and may continue to incur in the
future. This is an effort that began in early

•6•

2004, continued during the year and will
likely continue in 2005. Similar price increases
have been implemented successfully by
numerous heavy equipment manufacturers
worldwide and the Company believes that
this program, in conjunction with programs
to reduce these costs as supply and demand
conditions warrant, is critical to achieving
the target margins necessary for NMHG to
meet short- and long-term financial goals.
• A pricing optimization program, unrelated
to pricing programs designed to recover
increases in material costs, that seeks to realize
full value for NMHG’s products, features and
services. This program, which is linked to

substantial restructuring-related expenditures
completed in 2004 and early 2005 in the
Americas and through 2006 in Europe,
benefits should occur toward the end of
2005 in the U.S. and in 2007 in Europe.
• A global procurement program that will
result in higher-quality and lower-cost
components and assemblies, sourced more
efficiently from a smaller group of highly
reliable suppliers. Many benefits of this
program, which will impact gross margin
and SG&A, should be realized with the
introduction of new products in 2005-2007.

• An aftermarket efficiency program to
optimize parts availability and dealer

Benefits from the continued implementation of key internal programs
helped mitigate the impact of challenging external forces

the introduction of new products in 2005-
2007, will primarily affect gross margin, and
the benefits are expected to occur during
the 2005-2008 time frame, particularly in
2006-2008.

• A new product development process

designed to improve product flexibility,
increase speed to market, reduce costs through
common components and enhance quality
through reliability engineering. Significant
investments in this program continued in
2004, particularly for the new products to
be introduced in 2005-2007. This program
will primarily affect gross margin, and
the benefits are expected to occur during
the 2005-2008 time frame, particularly in
2006-2008.

• A manufacturing restructuring program
which has and will continue to optimize
capacity, reduce complexity and increase
efficiency. This program will help reduce
manufacturing variances and selling, general
and administrative expenses (“SG&A”) and
increase operating margins. With the most

customer service levels. These programs
primarily affect SG&A and operating margin
with benefits realized on an ongoing basis.

• Administrative efficiency programs to

streamline the organization and processes.
These programs primarily affect SG&A and
operating margin, with benefits realized
on an ongoing basis.

• A NMHG retail improvement program
that aims at reaching at least break-even
results and improved market position for
wholly owned dealers. This program’s goal
is to further intensify efforts to realize the
benefits by 2006.

Hamilton Beach/Proctor-Silex

HB/PS’ objective was to achieve a minimum

operating profit target of 10 percent by the
2005-2006 period, when its key programs were
expected to mature. However, due to continued
weak retail sales in the Housewares sector and
some modest delays in implementing further
product sourcing from China, the company has
adjusted the timing of the objective to the
2006-2007 time period.

•7•

At HB/PS, specific projects to enhance

• A corporate reorganization program

profitability include:

• A product development process which is
resulting in products coming to market
faster with increased innovation and lower
costs. This program, which impacts gross
margin and SG&A, is an ongoing investment
for the company, with both immediate and
long-term benefits expected.

• A continuous quality improvement program
encompassing design, engineering, manu-
facturing and distribution. The objective of
this program is to lower return rates and
increase customer satisfaction. Significant
expenditures for this program have been
incurred, and increased revenue and improved
gross margins are currently being realized.

implemented in 2004 simplified the manage-
ment structure in the company and integrated
a variety of responsibilities into fewer
centers of oversight. As relatively sluggish
consumer demand continues, these proactive
actions are required to size the organization
appropriately to attain short- and long-term
profitability goals, particularly within the
context of reduced manufacturing directly
by the company as sourcing of products
from China increases.

Kitchen Collection

KCI’s objective is to earn at least a minimum

operating profit target of 5 percent, which the
company had met consistently over the last several

The stakes involved in executing the Company’s profit enhancement
programs remain very high and have NACCO’s full commitment

• A manufacturing cost reduction program

which is designed to lower product costs and
increase flexibility through increased sourcing
from China. These actions, including those
related to the 2004 restructuring, are vital to
meeting the company’s financial goals as well
as maintaining a leadership position with
demanding retail customers. Significant focus
on this program will continue through 2005,
with the goals of reducing manufacturing
variances in North America to nominal levels
and lowering direct and indirect product
costs through low-cost sourcing from China.
Some benefits were realized in 2004 and more
significant benefits are expected to be realized
in 2005 and 2006.

• A supply chain optimization program

which is lowering costs while increasing
customer service to retailers. Benefits are
being realized on a continual basis and
include increased revenue, improved gross
margin and reduced SG&A.

years. However, 2004 was a difficult year for the
outlet mall channel, with traffic falling significantly
for many retailers, partially as the result of higher
gasoline prices, but also due to an above-average
number of disruptive storms, such as hurricanes
and blizzards, during peak selling seasons.
Outlet malls also face growing competition from
other retail channels, such as big-box retailers,
the Internet and new mixed-use specialty malls.
KCI’s programs are designed to return the
company to its 5 percent operating profit by
2008, or sooner if a more robust recovery in
the outlet mall channel occurs.

At KCI, specific projects to enhance

profitability include:

• A warehouse efficiency program which

resulted in a reorganization of the
Chillicothe, Ohio warehouse in order to
increase capacity and throughput and
decrease overall operating costs. The
investment in this program has already
been incurred and benefits are being
realized on an ongoing basis.

•8•

• An Economic Value Income program which
is a highly analytical program designed to
achieve the greatest possible return per cubic
foot of retail space.

through a new contract. Benefits include
improved operating margins, which are
expected to be realized increasingly in
2006-2007.

• Margin enhancement and merchandising

• Innovative mining methods which

programs which are designed to improve key
drivers of store profitability. This is a contin-
uous program that prudently tests and applies
low-risk approaches to improving key drivers
of profitability.

• A private label program which leverages
use of the Hamilton Beach® and Proctor
Silex® brand names on non-electric kitchen
products. This program requires little
incremental investment and has produced
what is now among the company’s most
profitable product lines.

North American Coal

NACoal’s objective is to earn a minimum
return on capital employed of 13 percent and
attain positive Economic Value Income from any
new projects and from existing consolidated
mining operations. In addition, the objective is to
maintain or increase profitability of all existing
project mining operations. Several challenges arose
in 2004, including higher fuel and parts costs,
and certain adverse geological conditions which
temporarily affected mining efficiency. However,
improvement programs remain largely on track
to help attain profitability goals.

At NACoal, specific projects to enhance

profitability include:

• Employee safety programs which improve
productivity and employee retention, thereby
lowering SG&A and enhancing operating
margins. Benefits are currently being realized
through these ongoing programs.

• A Mississippi Lignite Mining Company

improvement program which focuses on
attaining full operating efficiency and
improved mining conditions. The primary
impact of this program will be improved
operating margins. Benefits are expected
to be realized beginning in 2007.

• A San Miguel Lignite Mining Operations
improvement program which is an effort
intended to return San Miguel to profitability

continue to drive increased efficiency and
effectiveness on an ongoing basis. Benefits,
including improved operating margins
and lower SG&A, are being realized on an
ongoing basis.

• Environmental commitment programs

which utilize highly efficient equipment to
restore mined land to original or improved
condition in the most cost-effective manner.

Summary of Programs to Enhance
Profitability

Overall, the programs outlined above
are designed to improve performance at each
subsidiary company over the next few years with
the objective of achieving minimum financial
targets at each subsidiary company by 2008 or
earlier. During this period, the Company also
has an objective of generating substantial cash
flow before financing activities.

NACCO Industries reported net income of
$47.9 million, or $5.83 per share, in 2004. Had each
of NACCO’s subsidiary companies achieved its
minimum financial targets in 2004, the Company
would have generated additional net income of
$110.3 million, or $13.43 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 $29.4 million, or $3.58 additional earnings per
share. These non-GAAP calculations are explained
in more detail on page 38 of this Annual Report.
Clearly, the stakes involved in executing the
Company’s profit enhancement programs remain
very high and have NACCO’s full commitment.

Key Programs to Generate Growth

Each subsidiary company has important
programs under way to increase revenues and
expand market share. Programs to increase
revenues at each subsidiary company have been
designed to supplement programs aimed at
reaching minimum financial targets. While some

•9•

of these programs have specific time frames for
maturity, many are ongoing programs in which
the subsidiary companies invest, and from
which they gain benefits on an ongoing basis.

NACCO Materials Handling Group

Specific programs to generate growth include:
• New product introductions, which include
aggressive programs for all lift truck categories,
have the objective of gaining market share
by providing a superior ability to tailor
products to specific customer applications.
Early 2005 marked the beginning of the
launch of the new Hyster® Fortis™ and Yale®
Veracitor™ lines of lift trucks. These programs
are expected to help enhance revenue and
margins as well as absorb unused capacity,
primarily in the 2005-2008 time frame as
these new products roll out in the market.
• National and global accounts programs,
including fleet management, seek to
increase market share and increase sales of
both lift trucks and parts. These programs
will also help enhance revenues and margins
and absorb unused capacity. Benefits are
ongoing, long-term and gradual.

• An Anchor Dealer program designed to
further enhance the industry’s most
professional distribution network and
contribute continually to NMHG’s market
share growth. This program has helped and
is expected to continue to help enhance
revenues and margins and absorb unused
capacity. Benefits are ongoing, long-term
and gradual.

• A dealer excellence enhancement program
which includes a team of NMHG professionals
to assist independent dealers in attaining
best practice metrics in all aspects of their
businesses. This program is expected to
help enhance revenues and margins on
an ongoing basis.

• Aftermarket parts programs aim to increase
market share by enhancing the parts offerings
for Hyster®, Yale® and other brands of lift
trucks. Revenue and margin improvements
are being realized and benefits are expected
to continue to increase gradually over time.

Hamilton Beach/Proctor-Silex

Specific programs to generate growth include:

• New product introductions that aim to

increase innovation, improve speed to market
and reduce costs, with the ultimate objective
of gaining additional retailer placements and
increasing customer loyalty. Revenue and
margin improvements are being delivered
on an ongoing basis.

• Strategic brand application programs to

leverage current brands and offer new brand
options, such as the new Hamilton Beach®
Eclectrics™ and Traditions by Proctor Silex™
brands, to retailers. Revenue and margin
enhancements are expected to occur in 2005
and beyond.

• Retailer and channel focus programs

which employ in-depth data analyses and
flexible product and service solutions in
order to maximize retail shelf placements
and consumer sales. Revenues and margins
have been and are expected to continue
to be enhanced on an ongoing basis.

Kitchen Collection

Specific programs to generate growth include:

• Internet sales programs which are expected

to accelerate profitable growth in this channel
in 2005 and beyond.

• Enclosed mall stores, focused on the

high-margin gadget business, will continue
in test mode in 2005 and are currently
expected to expand in 2006 and beyond.
• A large-store format program focused on
an expanded product assortment in the
factory outlet mall market.

North American Coal

Specific programs to generate growth include:
• Lignite coal reserve development strategies
with the objectives of developing unutilized
NACoal-owned lignite coal reserves for power
companies and gas users and providing
mining services to others.

• Limerock dragline mining projects which
continue to provide niche contract mining
opportunities and are expected to enhance
revenues in both the short and long term.

•10•

Outlook

In summary, the Company has profit
enhancement and growth programs at each of its
subsidiary companies. Many programs contributed
significantly to performance in 2004, but many
will also require continued investment. Results
of the most significant programs are expected to
become increasingly visible in 2006 and 2007, and
ultimately to reach maturity by 2008. In particular,
the launch of the new line of lift trucks at NMHG
is intended to provide significant long-term
benefits to performance, although the precise
timing of those benefits will depend on a number
of factors, including product cost improvement,
pricing, demand and a production ramp-up
schedule designed to assure the highest-quality
product. The pace of attaining long-term financial
goals could also be affected, either favorably or
unfavorably, by certain external economic factors,
such as speed of market recovery, material costs

and achieving our long-term objectives, we are
hopeful that the Company will receive a further
improved valuation in the future.

In closing, I would like to recognize, with

sadness, the passing of David H. Hoag, who
contributed significantly to the NACCO Board of
Directors beginning in 1999, and of Ward Smith,
who was a Director of the Company from 1980 to
1994, serving as President and CEO from 1986 to
1991 and Chairman from 1987 to 1994. Under
Ward’s leadership, NACCO grew from a $600
million company to a more diversified $1.9 billion
operating holding company. His contribution to
both our Company and to the broader Cleveland
business and arts community will be greatly missed.
I would also like to take this opportunity to
welcome Dr. Eugene Wong to the NACCO Board
of Directors. Dr. Wong is currently an Emeritus
Professor at the University of California at
Berkeley, where he was a member of the faculty

The most significant programs are expected to deliver benefits
increasingly in 2006 and 2007

and currency exchange rates. Although the timing
may be adjusted as the Company responds to these
conditions, NACCO is committed to achieving
its long-term financial goals at each subsidiary
company. These goals are being pursued with the
utmost determination through continued intense
focus on the companies’ profitability and growth
programs.

Throughout this period, NACCO’s additional
objective is to generate significant cash flow before
financing activities. NACCO’s intention is to use
this cash flow to reduce debt levels, unless other
strategic opportunities of greater long-term benefit
to the Company and its stockholders arise.

NACCO’s share price was $111.20 at the close

of the financial markets on February 28, 2005.
We believe the share price performance during
the year has recognized work completed to
improve and strengthen each subsidiary. By
successfully executing the programs in place

of the Department of Electrical Engineering and
Computer Sciences from 1962 to 1994, and
Chairman of the Department from 1985 to 1989.
Dr. Wong has also served as Associate Director
of the Office of Science and Technology Policy
for the Executive Office of the President of the
United States. We are privileged to have him
join us as a Director.

Finally, I would like to thank all NACCO
employees for their continued support, hard work
and commitment in meeting the challenges of
2004, and I look forward to working together for
a successful 2005.

Alfred M. Rankin, Jr.
Chairman, President and Chief Executive Officer
NACCO Industries, Inc.

•11•

2004 Results – NMHG Wholesale

2004 Results – NMHG Retail

In a demanding year for the lift truck industry,

NMHG Retail’s operations (net of elimina-

NACCO Materials Handling Group (“NMHG”)
Wholesale generated net income of $22.3 million
on revenues of $1.9 billion in 2004 compared
with net income of $22.4 million on revenues of
$1.6 billion in 2003. This 15 percent increase in

tions) reported a net loss of $7.2 million on
revenues of $195.2 million in 2004 compared
with a net loss of $6.0 million on revenues of
$162.6 million in 2003. Favorable foreign
currency movements and improved unit sales in

NACCO MATERIALS HANDLING GROUP

Growth in worldwide lift truck markets led to increased NMHG
shipments of 77,493 units in 2004 compared with 70,406 units in 2003

revenues was driven by increased unit volumes,
favorable foreign currency movements, a shift in
mix to higher-priced lift trucks in the Americas,
increased parts volume and the effect of price
increases implemented during 2004. Growth
in worldwide lift truck markets led to increased
NMHG shipments of 77,493 units in 2004
compared with shipments of 70,406 units in
2003. Backlog increased to 25,700 units at
December 31, 2004 compared with 19,100
units at December 31, 2003.

Net income for 2004 was comparable to
2003. In 2004, NMHG Wholesale net income
benefited from increased volumes, a shift in mix
to higher-margin lift trucks, lower restructuring-
related expenses than in 2003, the receipt of a
$6.7 million pre-tax anti-dumping settlement
award from U.S. Customs and favorable income
tax settlements. However, these benefits were
completely offset by increased material costs of
$48.3 million pre-tax, primarily due to increased
costs for steel and adverse currency movements
of $13.0 million pre-tax. These increased material
costs significantly decreased NMHG Wholesale’s
profitability even though some of these cost
increases were offset by the benefits of product
price increases implemented throughout the year.

Europe accounted for the increase in revenues.
Nevertheless, NMHG Retail experienced an
increase in its net loss primarily as a result of
the absence of a $2.8 million favorable tax
adjustment recognized in 2003 as compared with
a $0.8 million favorable tax adjustment in 2004.
This reduced tax benefit was partially offset by
an increase in profit due to higher service revenues
in Europe and lower operating and rental costs
in Asia-Pacific.

Continued execution of NMHG Retail’s

strategic plan as well as a heightened focus on
rentals, parts and service resulted in improvements
to operations in 2004.

2004 Results – NMHG Consolidated

NMHG Consolidated, which includes
NMHG Wholesale and NMHG Retail, generated
consolidated cash flow before financing activities
of $62.7 million in 2004 and $39.0 million in 2003.
In addition, NMHG reduced net debt (total debt
less cash and cash equivalents) to $193.1 million at
December 31, 2004 compared with $246.4 million
at December 31, 2003. In 2004, consolidated cash
flow before financing activities significantly bene-
fited from improved working capital management
despite the negative effects of programs and costs
for product development activities related to the
roll-out of a new range of Hyster® and Yale® lift
trucks being introduced in 2005 through 2007.

Revenues by
Geographic Region
(In millions)

$1,932.1

$2,000

$2,056.9

$1,779.6

$1,672.4

$1,588.4

$1,500

$1,000

$500

(cid:2) Asia-Pacific
(cid:2) Europe, Africa and Middle East
(cid:2) Americas

Unit Bookings, Shipments
and Backlog

28,000

26,000

24,000

22,000

20,000

18,000

16,000

14,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
03
(cid:2) Bookings (cid:2) Shipments (cid:2) Backlog

Left: The new Hyster® Fortis™ S50FT counterbalanced internal combustion lift truck can be configured to provide the appropriate lift truck for
each user’s application.

•13•

Vision, Strategy and Core Competencies

NMHG’s vision is to be the leading globally
integrated designer, manufacturer and marketer
of a complete range of high-quality lift trucks.
Delivering application-tailored, quality products
and services, and increasing value to the customer
are the company’s top priorities.

The company’s strategies for reaching its
vision include developing innovative, reliable and
customer-driven products; attaining low-cost,
high-quality manufacturing and procurement;
providing comprehensive marketing support
services; and maintaining and strengthening
highly professional dealer distribution. These
strategies, which are supplemented by economies
of scale and reinforced by the company’s large
global population of lift trucks in use, are
designed to provide NMHG with a sustainable
competitive advantage.

NMHG’s core competencies supporting
these strategies include translating end-user needs
into globally flexible product designs, adapting
operations to changing market conditions,
satisfying the growing complexity of customer
needs and building and sustaining strong dealer
partnerships.

Key Programs to Enhance Profitability

NMHG has implemented a number of key
programs to improve both short- and long-term
profitability. The company firmly believes that
without these important profitability programs, the
impact of external factors such as unprecedented

increases in material costs and adverse currency
movements would have been considerably more
severe. Some of these programs include:

Material cost recovery program. During

2004, NMHG’s material costs increased by
$48.3 million compared with 2003, primarily as
a result of increased costs for steel. As material
cost trends became apparent early in 2004, NMHG
implemented price increases in response to these
material cost increases, as did numerous heavy
equipment manufacturers worldwide. NMHG’s
price increases produced benefits totaling $11.4
million in 2004. Price increases implemented in
2004 are expected to offset increasingly the effect
of increased material costs, although the company
does not anticipate full cost recovery in 2005.
The company continues to monitor material cost
increases on a regular basis and evaluate the need
and potential for future price increases. While
challenging to achieve, NMHG believes that these
pricing actions are critical to attaining its short-
and long-term financial goals.

Pricing optimization. NMHG believes it will
be able to deliver the lowest total cost of lift truck
ownership to customers while delivering improved
margins on new unit sales to both dealers and the
company. This goal is being pursued through
implementation of a new product design philosophy
which, by incorporating a modular approach
using fewer overall components, allows products
to be more precisely configured and priced to meet
specific customer application needs.

Top to bottom: The new Yale ERC electric truck series is designed for productivity and provides capacity ranges from 3,000-4,000 pounds; the new Hyster
Fortis™ S50FT lift truck; the Yale MPE motorized hand truck provides capacity ranges from 6,000-8,000 pounds; the new Yale Veracitor™
GC-VX lift truck is designed with component modularity for customization.
Right: The Hyster 36,000-45,000 pound lift truck is designed for tough applications ranging from steel to logging yards, quarries and concrete works.

•14•

New product development process. In
2004, NMHG continued to implement its
completely re-engineered approach to developing
new products. Complete ranges of products are
being developed simultaneously rather than on a
traditional series-by-series approach. Platforms,
modules and components have been designed
to be used across a wide array of lift trucks.
This approach decreases the overall number of
components required and permits easier and
more frequent upgrades. Increased component
commonality, combined with engineering
techniques designed to deliver a more efficient
assembly process, will increase labor efficiency

Manufacturing restructuring. NMHG’s
manufacturing strategy is guided by a commitment
to high-quality, low-cost manufacturing, with
assembly generally in the market of sale.
To accomplish these goals, NMHG has been
restructuring its global manufacturing
facilities and processes. The company
is working to optimize capacity
among several key final assembly
plants, including Greenville, North
Carolina and Berea, Kentucky in the United
States, and Irvine, Scotland and Craigavon,
Northern Ireland in Europe. In addition, NMHG
continues to redesign the layout of its production

Increased component commonality and advanced assembly techniques
are expected to increase efficiency and improve product quality

and result in improved quality of our products.
In addition, design, prototyping and testing are
guided by a rigorous, staged approval process
that delivers increased levels of reliability while
increasing speed to market. This approach will
improve the quality of NMHG’s products, while
more cost effectively achieving end-user require-
ments. In the long term, these efficiencies are
expected to increase the products’ and the
company’s profitability. This new approach is
being introduced in conjunction with the launch
of new internal combustion engine (“ICE”) lift
trucks with lifting capacity ranges from 1 to 8 tons.
These products, along with other new products
that are scheduled to be introduced, will be rolled
out from 2005 through 2008. A massive sales
and technical training program supporting this
new application-focused product range was
successfully introduced and implemented in
2004 in preparation for the introduction of the
first wave of these products in 2005. Dealer and
customer responses to these new products have
been very positive.

lines to improve productivity and reduce costs.
The final phases of this restructuring are well under
way and included the closing of the company’s
Lenoir, North Carolina lift truck component
facility in 2004.

NMHG is also employing advanced assembly

line technology in its Berea, Kentucky plant,
which produces the new 1 to 8 ton ICE lift truck.
On this new line, automated guided vehicles move
trucks through key assembly stages only after
quality is assured using the latest computer-aided
testing and control equipment. NMHG plans to
expand the use of these advanced assembly lines
in the future.

The continued implementation of a lean

manufacturing strategy based on Demand
Flow Technology is reducing inventory and
manufacturing floor space requirements while
improving productivity, lead times and quality.
NMHG also continues to deliver cost reductions
and product quality improvements through its
Value Improvement Program. These activities,
coupled with a corporate-wide emphasis on
quality, contributed to a significant reduction in
warranty costs per truck in 2004.

$30

$20

$10

($10)

($20)

($30)

($40)

($50)

$70

$60

$50

$40

$30

$20

$10

($10)

($20)

Net Income (Loss)
(In millions)

$21.3

$16.4

$15.1

$12.3

$(49.4)

Cash Flow before
Financing Activities
(In millions)

$64.8

$62.7

$39.0

$2.9

$(16.2)

•15•

Global procurement. Demands on NMHG’s

global procurement group were significantly
intensified in 2004 as the result of raw material
shortages and record cost increases. In addition to
the short-term programs established to manage
these challenges, NMHG has embarked on an effort
to optimize its supplier base, making it smaller,
more reliable, faster and lower-cost. Non-core
components continue to be outsourced to low-
cost suppliers around the world, with increased
focus on China and Eastern Europe. NMHG is
implementing new supplier partnerships, and a
complete supply chain process enhancement
effort is under way. These programs, along with
global economies of scale, provide NMHG with
leverage to obtain high-quality components at
lower prices, an important part of maintaining
profitability in the near term and increasing
profitability in the long term.

performance of its wholly owned retail dealerships.
NMHG Retail reduced its operating loss by
39 percent in 2004 compared with 2003. NMHG
Retail’s objective is to reach at least breakeven
results by 2006, while still strengthening NMHG’s
distribution capability in each geographic area.

Key Programs to Generate Growth

New product introductions. In 2004, NMHG

successfully launched a new line of electric lift
trucks featuring AC electric motors and a new
heavy-duty container handler. Most importantly,
NMHG continues to move forward with the
launch of the 1 to 8 ton ICE lift truck line, which
represents the most significant new product launch
in the history of the company. This momentous
launch began early in 2005 with the introduction
of the new Hyster® Fortis™ series and the Yale®
Veracitor™ series of lift trucks. The new line will

The introduction of the 1 to 8 ton ICE lift truck line represents the
most significant new product launch in the history of the company

Aftermarket efficiency. Several projects
are under way to increase aftermarket service
efficiencies, including programs to improve the
ability of NMHG and its dealers to capture
parts sales, manage parts inventories and enhance
the training and electronic connectivity of
service technicians.

Administrative efficiencies. During 2004,

NMHG implemented a new web-based Contact
Management System designed to improve customer
support and yield a more cost-effective customer
response system. Also, NMHG began the expansion
of its Transaction Processing Center organization
to include Europe. NMHG will continue to expand
its use of web-based technology with an extension
of this concept to include marketing and logistics
transactions.

NMHG Retail improvements. NMHG
continues to implement cost reduction and
revenue enhancement programs to improve the

be introduced in phases over three years, with
completion of the rollout expected in 2007. Lift
trucks utilizing interchangeable components
and systems assembled on highly automated,
computer-controlled assembly lines will increase
NMHG’s flexibility to tailor lift trucks to individual
customer application requirements. Additional
new product lines using the same re-engineered
full range development processes employed for
the 1 to 8 ton ICE line are under way through
2008 for electric counterbalanced lift trucks,
warehouse lift trucks and big trucks.

National and global accounts. NMHG has
industry-leading fleet management and national
account organizations in North America and is
enhancing its global account capabilities. NMHG’s
goal is to offer superior value and services to large
customers that have centralized purchasing but
geographically dispersed operations.

Above: A few of the many ergonomic
features added to the new Hyster®
Fortis™ and Yale® Veracitor™ lift
truck series for operator comfort;
Top to bottom: rear driving comfort,
on-board diagnostics and ergonomic
hydraulic controls.
Right: The new Yale® Veracitor™
GC-VX internal combustion lift
trucks provide capacity ranges from
4,000-7,000 pounds and have been
designed with component common-
ality for simplified maintenance and
customizable productivity packages
for specific application needs.

•16•

Anchor Dealer program. The company’s

Anchor Dealer strategy continues to strengthen
a worldwide network of strong, professionally
managed, well-capitalized independent dealers.
NMHG’s experience is that these exclusive Hyster®
and Yale® Anchor Dealers attain higher market
shares, attract higher-quality employees and
offer higher-value services to their customers
than other dealers.

Dealer excellence enhancement program.

This program, designed to drive improvement at
the company’s dealers, provides dealers with best
practices and performance assessment tools in the
areas of operational and financial management,
lift truck and parts sales, service, rental and fleet
management. NMHG also offers customized
consulting assistance to help dealers implement
these programs to drive improved sales and
profitability.

Aftermarket parts. In 2004, NMHG continued

to leverage an important strategic alliance made
in 2002 with a leading aftermarket parts provider
in the Americas, Europe and Asia-Pacific. This
alliance has enhanced NMHG’s Hyster® and Yale®
dealers’ competitive lift truck parts offering to
help increase NMHG’s share of its customers’
parts and service business.

Outlook for 2005 and Beyond

Global lift truck markets exceeded NMHG’s

expectations in 2004 by rebounding to approxi-
mately the mid-point of the lift truck market cycle,
although they have not yet reached peak cyclical
volume levels. The company is hopeful that these
increased levels will be sustained and will continue
to improve going forward.

The company expects stronger lift truck
markets in 2005 in the Americas and Asia-Pacific
and relatively flat lift truck markets in Europe
compared with 2004. Fourth-quarter backlog
rose significantly compared with a year ago and
orders are anticipated to remain strong. As a
result, NMHG Wholesale expects to have increased
volumes in 2005 in comparison with 2004 levels.
However, NMHG anticipates that its unit shipment
levels for 2005 will increase at controlled rates
to accommodate the phase-in of newly designed

products at its manufacturing facilities throughout
2005. Costs associated with the phase-in of the
1 to 8 ton ICE product line are expected to place
limitations on profitability in the near term, with
profitability improving as the phase-in is completed
and the company’s manufacturing locations move
into full production. As lift truck markets grow,
NMHG expects to increase unit shipments in the
coming years.

NMHG’s financial objective is to achieve
its operating profit target of 9 percent by 2007-
2008. Given unprecedented increases in material
costs, continued fluctuations in foreign currency
exchange rates and continuation of established
product development and manufacturing restruc-
turing projects, attainment of the target in this
time frame is still the company’s objective but
will be challenging. The timing of reaching the
company’s objective could be adjusted in the
future if some of these external factors cannot
be overcome in the near term.

NMHG’s objective for its wholly owned
retail dealerships continues to be reaching at
least break-even financial performance while
building market position, a goal which is expected
to be reached by 2006.

The company continues to believe it is offering

the right products, manufactured at the right
costs and sold by the right dealers. The company
believes firmly in its prospects for long-term growth
in market share and profitability in an improving
market and global economic environment.

Finally, I would like to take this opportunity

to recognize the excellent work of all NMHG
employees in executing the biggest product launch
in the company’s history, implementing many
vital programs and sustaining profitability levels
in 2004 amid extremely challenging conditions.
I look forward to working together to successfully
meet the challenges of 2005.

Reginald R. Eklund
President and Chief Executive Officer
NACCO Materials Handling Group, Inc.

Left: Hyster container handler truck, a solid performer for use at ports and railroad terminals for loading and stacking containers.

•19•

NACCO HOUSEWARES GROUP

Revenues improved in 2004 as HB/PS increased sales of higher-
priced products and KCI increased its number of stores

2004 Results

NACCO Housewares Group, which includes

Hamilton Beach/Proctor-Silex (“HB/PS”) and
Kitchen Collection, reported net income of $17.2
million on revenues of $614.8 million in 2004
compared with net income of $19.5 million on
revenues of $598.7 million in 2003. Revenues
increased in 2004 compared with 2003 primarily
as a result of an improved mix of higher-priced
products, especially new product introductions,
increased volumes at HB/PS and an increase in sales
at Kitchen Collection as a result of increases in the
number of stores and the amount of the average
sales transaction. This revenue increase was achieved
despite overall declines in consumer spending for
small electric kitchen and household appliances
and reduced customer visits to outlet malls.

Net income declined in 2004 primarily due
to $9.4 million in pre-tax restructuring charges
recognized at HB/PS ($6.1 million after a tax benefit
of $3.3 million). However, significantly offsetting
this charge were continued improvements in man-
ufacturing and sourcing efficiencies and increased
sales of higher-margin, innovative products such as
the Hamilton Beach® BrewStation™ coffeemaker,
the number-one-selling product family in America.

In 2004, the Housewares Group generated

$9.4 million in cash flow before financing activities
compared with $35.4 million in 2003.

Complementary Operations

While the operations of HB/PS and Kitchen
Collection are separate, certain aspects of their
businesses are complementary. While both are
consumer goods businesses, they operate at
opposite ends of the retail industry. HB/PS develops
products using a deep understanding of consumer
preferences and product trends within the small
electric kitchen and household appliance market-
place. Kitchen Collection, on the other hand, is a
retailer focused on optimal allocation of limited
shelf space among competing housewares products,
brands and vendors.

Further, while Kitchen Collection carries a
broad range of HB/PS electric products, it also
licenses the Hamilton Beach® and Proctor Silex®
brand names for use on non-electric products.
These strong heritage brand names have allowed
products ranging from kitchen gadgets to cookware
to achieve substantial margin and sales volume
increases.

Finally, Kitchen Collection purchases

overstocked merchandise from HB/PS. This
arrangement helps HB/PS manage inventory,
contributing to reductions in inventory and
debt levels, and helps Kitchen Collection offer
a steady stream of higher-value offerings to
its customers.

Clockwise from top left: Hamilton Beach® cookware set with two-quart sauce pan, three-quart sauce pan, eight-quart stock pot, eight-inch fry pan
and ten-inch fry pan; Hamilton Beach® insulated mug; Hamilton Beach® silicone high-temperature spatulas; Proctor Silex® 24-cup mini-muffin and
crisping pans; Hamilton Beach® stainless steel garlic press; Hamilton Beach® stainless steel measuring spoons; Hamilton Beach® rosewood handled
knife set containing a chef knife, carving knife and paring knife; Hamilton Beach® cutting board; Hamilton Beach® stainless steel barbeque tools:
turner, grill brush and basting brush.

Net Income (Loss)
(In millions)

$19.5

$17.8

$17.2

$8.8

$(12.2)

Cash Flow before
Financing Activities
(In millions)

$48.8

$35.4

$15.1

$5.0

$9.4

$20

$15

$10

($5)

($10)

($15)

$50

$40

$30

$20

$10

•21•

HAMILTON BEACH/PROCTOR-SILEX

HB/PS’ performance in 2004 was very strong, especially when
compared with its competition

2004 Results

Hamilton Beach/Proctor-Silex (“HB/PS”) had
a good year in 2004, though it reported only slightly
higher revenues and lower net income compared
with 2003. HB/PS’ performance was very strong,
particularly when compared with its competition,
within the context of overall weaker retail markets
for housewares products, continued price pressure
from large retailers and rising material costs.

Revenues increased in 2004 primarily as the
result of a shift in sales mix to newer, higher-priced
products. In addition, HB/PS revenue benefited
from a high number of store shelf placements
and promotions by retailers in support of fourth-
quarter direct-response television advertising,
specifically for newly introduced products.

The decline in 2004 net income compared
with 2003 net income is primarily attributable to
$9.4 million in pre-tax charges ($6.1 million after a
tax benefit of $3.3 million) related to a restructuring
program currently being implemented at HB/PS’
manufacturing and distribution facilities. Also
affecting net income were unfavorable material
cost increases as a result of higher petroleum-based
plastic resin and other raw material costs. These
unfavorable items were partially offset by gross

margin improvements resulting from a shift in
mix to higher-margin and sourced products, and
reduced manufacturing costs as a result of the
restructuring program.

Vision, Strategies and Core Competencies
HB/PS’ vision is to be the leading North
American provider of small electric kitchen and
household appliances sold under strong heritage
brand names and to provide profitable growth from
innovative solutions that improve everyday living.
The company’s strategies for achieving its
vision include developing innovative, high-quality
products, continuously reducing costs, aligning
brands with key consumer segments, sustaining
highly professional sales and marketing programs,
and developing and recruiting professional
employees.

Core competencies supporting these strategies

include researching, designing and testing new
product concepts; driving improvement through
detailed value chain analyses; understanding
consumer buying behavior as a foundation for
developing meaningful product solutions and
for building brands; and matching products and
services to specific retailer assortment needs.

Left: Clockwise from top: Hamilton Beach/Proctor-Silex’s newest products include: True Air® Air Purifier, Hamilton Beach® Classic Stainless
coffeemaker, Proctor Silex® iron with retractable cord, Proctor Silex® iron, Traditions by Proctor Silex™ electric knife, General Electric two-slice
toaster, Hamilton Beach® indoor grill with removable grids.

$600

$550

$500

$450

$400

$350

$300

$20

$15

$10

($5)

($10)

($15)

Revenues
(In millions)

$561.9

$539.5

$503.9 $492.8

$507.3

Net Income (Loss)
(In millions)

$16.1

$15.2

$13.4

$6.8

$(14.4)

•23•

Key Programs to Enhance Profitability

Product development process. HB/PS’ product
development process is designed to increase each
product’s probability of market success. As it
enters 2005, the company continues to use its
extensive experience in bringing innovative,
successful products to market. A key focus now will
be for HB/PS to share its wealth of experience in
manufacturing with its key Chinese partners
which produce products for the company. As
HB/PS continues to perform high-value functions
such as market research, idea generation and
market testing, the company’s manufacturing
sources are increasingly able to contribute to the
design and engineering process, thereby further
reducing costs. HB/PS’ goal is to deliver the most
innovative, consumer-preferred quality products
at the most competitive costs possible.

Continuous quality improvement. HB/PS is
committed to quality improvement and continues
to implement quality programs throughout all areas
of the company. HB/PS’ reputation for superior
quality was demonstrated again in 2004 by
product return rates that remained at relatively low
levels. Product quality also has become a significant
focus at HB/PS’ key suppliers in China. HB/PS is
actively transferring specific quality manufacturing
processes and techniques to its key suppliers in
China to assure quality, consistency and efficiency.

It is expected that these efforts will contribute to
further improvement in already very high levels
of quality performance.

Manufacturing cost reduction. A number of

manufacturing efficiency programs are helping
HB/PS continuously reduce delivered product
costs. One key program is designed to reduce
manufacturing inefficiencies to minimal levels in
2005 by focusing owned manufacturing for retail
products in a single plant in Mexico, and increasing
low-cost, high-quality sourcing from China.
Activities related to this program resulted in the
recognition of a $9.4 million pre-tax restructuring
charge in 2004. The company expects continued
margin improvements from increased sourcing
of products from China, including improved
margins on commercial products that have been
transferred from an owned factory in the United
States to high-quality, strategic sources in China.
As manufacturing in China increases, HB/PS is
working with its key supplier partners to share
plant efficiency, technical and management
expertise. Also, at both company-owned and
Chinese suppliers’ plants, HB/PS is implementing
its ongoing Value Improvement Program, which
seeks to reduce process, component and product
costs while continuously maintaining high quality.
The company’s objective is to maintain important
competitive advantages by combining China’s
high-volume, low-cost manufacturing capabilities
with HB/PS’ deep manufacturing experience.

Top to bottom: Hamilton Beach® has created a full line of Eclectrics™ all-metal appliances in intrigue blue, apple, Moroccan red, licorice, pineapple
and sugar. The full line of products includes: Eclectrics™ coffeemaker (shown in intrigue blue), Eclectrics™ stand mixer (shown in apple), Eclectrics™
toaster (shown in Moroccan red), Eclectrics™ blender (shown in licorice).
Right: Eclectrics™ drink mixer (shown in pineapple).

•24•

Supply chain optimization. HB/PS’ continued

intense focus on supply chain management in
2004 resulted in performance improvements for
the company and for HB/PS’ retail customers.
HB/PS continues to implement improvement
projects at its Memphis, Tennessee distribution
facility, including the introduction of new
Transport Management System software that
enables the company to better track merchandise
from the point of its initial entry into the United
States to its final destination. The company is
increasingly offering customers additional
efficiencies through direct-ship programs, which
route products directly from suppliers to retailers’
warehouses. Also, HB/PS is expected to benefit
from continued implementation of a collaborative
planning, forecasting and replenishment process
with several key retailers.

sales were from products introduced in the last
three years. The revolutionary Hamilton Beach®
BrewStation™, featuring carafe-less cup-activated
dispensing, is the number-one-selling coffeemaker
product family in America. Other examples include
strongly performing indoor grills, the Hamilton
Beach® Big Mouth™ food processor and the
Hamilton Beach® Stay or Go™ coffeemaker, which
brews coffee into a carafe for home use or into
one or two thermal “to-go” cups. In addition, in
2004, HB/PS successfully introduced a complete
line of higher-end, color-coordinated, die-cast
kitchen appliances under the new Hamilton
Beach® Eclectrics™ brand name. All product areas
within the company have aggressive new product
introduction schedules, including small electric
kitchen and household appliances, commercial
products, home health products and new product

The new Hamilton Beach® Eclectrics™ brand targets a higher-end
consumer who demands the best in performance and style

Corporate reorganization effort. In 2004, the
company implemented a program to significantly
reduce overhead costs. The intent of this program
is to simplify the management structure of the
company and integrate a variety of responsibilities
into fewer centers of oversight in the context
of increased sourcing of products from China.
The company believes that by streamlining its
operations to capitalize on current sourcing
patterns and technologies, it will improve the
likelihood of delivering future potential volumes
at appropriate profit levels.

Key Programs to Generate Growth

New product introductions. HB/PS strives to
develop and market a steady stream of innovative
products which exceed current offerings in features,
performance, style and value. HB/PS utilizes in-
depth consumer research that enables the company
to develop products with consumer-preferred
features and high rates of market success. HB/PS
believes it has an excellent track record in this area.
In 2004, approximately half of the company’s net

areas under exploration by HB/PS. Additionally,
patent protection is always sought, when appro-
priate, for new products, product features or
designs.

Strategic brand application. HB/PS now has

a full complement of key brand names designed
to target distinct consumer segments. The new
Hamilton Beach® Eclectrics™ brand targets a
higher-end consumer who demands the best in
performance and style and is willing to pay more
for those benefits. The Eclectrics™ launch was
well received, inspiring high levels of national
and local media coverage about the product line’s
colorful, stylish appearance and the products’
ability to help people “counterscape” their kitchens.
Hamilton Beach® branded products target a mid-
to-higher-end consumer desiring a strong brand
name, innovative features and style. Additionally,
HB/PS produces products under the General
Electric brand name for Wal-Mart, which also
target this consumer segment. Proctor Silex®
branded products target the middle-market
consumer who prefers a strong, heritage brand

•25•

name with good features and appearance at a
reasonable price. The new Traditions by Proctor
Silex™ brand targets the entry-level consumer with
basic, lower-featured, lower-priced products. The
TrueAir™ brand, used for home health products,
continues to demonstrate strong appeal, as does the
Hamilton Beach® Commercial brand, which targets
restaurants, bars and the hotel amenities market.

Retailer and channel focus. HB/PS works
closely with retailers to develop product assortment
strategies to optimize category profits. In-depth
data analyses are used to recommend the most
profitable combination of products, features and
price points in each product category. These
analyses also drive the HB/PS product development
process, improve speed to market and increase the
success rate of new products. The HB/PS category
management approach is applied across all types

Outlook for 2005 and Beyond

HB/PS is hopeful that consumer markets will

improve in 2005. However, regardless of market
conditions, product innovations, strong brands,
heightened channel efforts and reduced costs will
continue to be HB/PS’ focus in 2005.

The longer-term objectives for HB/PS are

to achieve its minimum operating profit target of
10 percent, as well as generate significant cash flow
before financing activities. Additional growth
programs are designed to help the company go
beyond its minimum operating profit target and
to add profitable volume to this enhanced profit
base in the future.

In last year’s Annual Report, HB/PS

communicated its objective of reaching its
minimum operating profit target in the 2005-2006
time period. While HB/PS will continue to work

Product innovations, strong brands, heightened channel efforts
and reduced costs will continue to be HB/PS’ focus in 2005

toward its 10 percent minimum operating profit
target, a slower-than-expected market recovery
and some modest delays in implementing further
sourcing of products from China have led the
company to adjust the timing of this objective
to the 2006-2007 time period.

In 2004, a team of highly motivated profes-
sionals at HB/PS worked together to accomplish
our objectives. While the pace for reaching our
long-term goals has been slightly delayed, I believe
our team has made very significant accomplish-
ments and has set the standard for our industry
in many ways. My thanks go out to every one of
the company’s employees for sustained effort in a
difficult retail environment.

of retailers, from the largest mass merchants to
smaller regional retailers, and is being applied
in the United States, Mexico, Canada and other
selected international markets.

Corporate Initiatives

HB/PS’ overall strategy is to grow profitably

through increased sales of innovative new
products sold through a wide range of retailers
and distribution channels. With markets for
small electric kitchen and household appliances
remaining relatively weak, 2004 was very
challenging. However, HB/PS has maintained its
market position compared with its competition
by relentlessly pursuing excellence in all areas of
the company. Specifically, the Economic Value
Income program measures the return on invested
capital to identify and prioritize opportunities for
growth and profit improvement. Also, an expense
reduction program covering all functional areas
within the company is expected to help HB/PS
move toward its financial objectives.

Left: The Hamilton Beach® Commercial Tempest™ blender features a high-torque motor, high-performance blades and a patented, durable 32-ounce
polycarbonate container.

•27•

Dr. Michael J. Morecroft
President and Chief Executive Officer
Hamilton Beach/Proctor-Silex, Inc.

KITCHEN COLLECTION

The number of Kitchen Collection’s outlet and enclosed mall
stores increased to 188 in 2004 from 180 in 2003

Above: Kitchen Collection’s store at Aurora Farms Premium Outlets near Cleveland, Ohio features higher-margin, brand-name kitchen gadgets, small
electric appliances and a variety of other kitchen- and housewares-related products.

2004 Results

Kitchen Collection had a challenging year in
2004. Sales increased slightly despite significantly
reduced customer visits to outlet malls. However,
additional profits from the modest sales increase
were not enough to offset fixed operating costs and
slightly lower gross margins, resulting in a decline
in net income compared with 2003. Nevertheless,
Kitchen Collection remains very strong compared

with its competitors in the outlet mall channel. In
2004, the company delivered a solid return on
equity(1) (“ROE”) of 19.4 percent, demonstrated
solid growth in Internet sales and continued to
explore promising formats in enclosed malls.

The modest sales increase in 2004 was driven

by increased sales from new permanent and
temporary store locations as well as an increase
in the amount of the average sales transaction.

(1) ROE = 2004 net income divided by 2004 average equity (a five-point average of equity at December 31, 2003 and each of 2004’s quarter ends).

•28•

The number of transactions per store declined
2 percent as a result of a decrease in outlet mall
traffic, primarily driven by record gasoline prices,
which reduced the number of customers willing
to drive significant distances to outlet mall
destinations. Hurricanes in the Southeastern
United States in the third quarter and blizzards in
the Midwest during the year-end holiday season
also negatively affected sales and, ultimately,
profitability. The number of Kitchen Collection®
outlet and enclosed mall stores increased to 188 in
2004 from 180 in 2003. In addition, the company
operated 16 temporary stores in traditional
enclosed malls during the 2004 fourth-quarter
holiday season.

Vision, Strategy and Core Competencies
Kitchen Collection’s vision is to be the
leading specialty retailer of housewares, including
cookware, bakeware, kitchen gadgets and
related items, in outlet and traditional malls
for consumers seeking outstanding value.

The company’s strategy is to maintain a
strong position in the outlet mall channel and to
develop complementary store formats that can be
profitably expanded to large numbers of stores in
traditional malls.

Core competencies supporting this strategy

include analyzing assortment performance to
optimize store profitability and creating and
refining store concepts to ensure profitable
expansion.

Key Programs to Enhance Profitability

Kitchen Collection has in place several key

programs to enhance profitability in a highly
competitive retail environment:

Warehouse efficiency program. In 2004,
Kitchen Collection reorganized its warehouse
in Chillicothe, Ohio to increase capacity and
throughput and decrease overall operating costs.
The warehouse was reconfigured, new rack and
conveyor systems were installed and new lift trucks
were incorporated into streamlined processes.

Specifically, this program increased warehouse
capacity by 40 percent, increased store shipment
accuracy by 10 percent and reduced labor costs.

Economic Value Income. Kitchen Collection
utilizes disciplined operating controls to improve
margins. The company continues to use its
proprietary Economic Value Income (“EVI”)
business tool to assist in determining how to
maximize its return per cubic foot of retail space.
When combined with other revenue and margin
enhancement programs, EVI assists in optimizing
the most profitable mix of products, the amount
of space allocated to each product and the most
appropriate store size.

Margin enhancement and merchandising
programs. Kitchen Collection continually tests
and implements new approaches to increase
traffic in its stores, to increase the percentage of
individuals who make purchases after they enter
a store, to encourage customers to purchase
higher-margin items and to increase the average
purchase amount of those who buy.

Private label. Kitchen Collection continues

to expand its lines of sourced private label
merchandise featuring the Hamilton Beach®
and Proctor Silex® brand names, which are
among Kitchen Collection’s most successful
and profitable product lines. These private label
non-electric product lines now feature nearly
400 items, including gadgets, cutlery, cutting
boards, barbecue tools, bakeware and cookware.

Key Programs to Generate Growth

Internet sales. Sales from the company’s
website, www.kitchencollection.com, although
still modest, grew by 39 percent in 2004 compared
with 2003, making this channel profitable for the
company. As marketing activities such as direct
e-mail campaigns and Web partner programs
increase, sales and profits from this channel are
expected to rise significantly.

Revenues
(In millions)

$111.1 $110.2

$112.3

$97.9

$92.2

Net Income
(In millions)

$4.4

$3.5

$2.3

$2.0

$120

$110

$100

$90

$80

$70

$60

$50

•29•

Enclosed mall stores. The enclosed mall
store format, which continues to operate in test
mode, still represents the company’s most
promising driver of future growth. Located in
traditional enclosed malls, Gadgets & More® and
Kitchen Collection® stores sell a broad range of
higher-margin kitchen gadgets and other selected
housewares products. The company currently has
only 18 permanent enclosed mall stores in a
potential market of more than 500 traditional
enclosed malls. The company continues to gain
important insight from those currently operating
stores focused on the mid-market consumer.
However, Kitchen Collection remains prudent
in the pace with which it opens additional stores
to ensure that potential sales volumes and profit
structures meet Kitchen Collection’s objectives.

has made this objective challenging in the near
term, though efforts to realize profitable growth
in other channels continue to show promise.

Outlook for 2005 and Beyond

Kitchen Collection expects growth in 2005
from improving markets, the addition of new stores
and continued growth of Internet sales. Kitchen
Collection achieved a sound ROE in 2004, and
that level of performance is expected to continue.
However, the company’s objectives are to earn a
minimum operating profit of 5 percent and to
generate substantial positive cash flow before
financing activities. In 2004, Kitchen Collection
fell well below its operating profit target and is
not likely to reach its goal in the next few years
unless outlet mall traffic returns to previous levels.

Kitchen Collection expects growth in 2005 from improving markets,
the addition of new stores and continued growth of Internet sales

Large store format. Kitchen Collection has

selectively introduced a larger store format in the
outlet mall channel. These stores offer an expanded
assortment in several key areas, including tabletop,
dinnerware and glassware items. Larger stores will
be used where cost of space can be justified.

Corporate Initiatives

Should low traffic levels persist, the company’s
operating profit goal may not be attained until
2008. In the meantime, Kitchen Collection will
continue to work hard to reach its objectives by
focusing on its core programs: optimizing store
selling space, enhancing store merchandise mix,
expanding private label lines, developing new
store formats and aggressively managing costs.

In 2004, as always, Kitchen Collection strived

In closing, I want to thank all of our Kitchen

Collection employees for their hard work and
determination during a difficult year for the out-
let mall industry. I look forward to working with
this extraordinary team of people as we dedicate
ourselves to a successful 2005.

to control costs in every area of the company to
improve store profitability. Significant store costs,
such as rent and labor, are rigorously monitored
and efforts to reduce the costs of distributing
products to the stores are ongoing.

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. Lower traffic in the outlet mall channel

Randolph J. Gawelek
President and Chief Executive Officer
The Kitchen Collection, Inc.

Right: Kitchen Collection’s store at Aurora Farms Premium Outlets near Cleveland, Ohio.

•30•

2004 Results

North American Coal (“NACoal”) operates
six surface lignite coal mining operations which
delivered 34.4 million tons of lignite coal in 2004
compared with 35.5 million tons in 2003, main-
taining NACoal’s position as the nation’s largest
lignite coal producer and among the top ten coal
producers nationwide. Lignite coal deliveries

recognized in 2003. However, these favorable results
were partially offset by increased employee-related
costs and increased costs at the Mississippi Lignite
Mining Company.

During 2004, NACoal was awarded an
investment-grade rating (BBB low) by Dominion
Bond Rating Services, an accredited rating
agency with expertise in the mining industry,

THE NORTH AMERICAN COAL CORPORATION

NACoal’s limerock dragline mining operations had an excellent
year in 2004, with deliveries 72 percent higher than in 2003

decreased primarily due to reduced customer fuel
requirements caused by an increase in scheduled
and unscheduled customer power plant outages.
The company’s lignite coal reserve position,
including reserves related to unconsolidated project
mining operations, remains strong with a total
of 2.4 billion tons, of which 1.3 billion tons are
committed to current customers.

in conjunction with the company’s private
placement of $35 million of unsecured senior
notes in October 2004. An additional placement
of $10 million in January 2005 increased the
total amount funded to $45 million. The company
believes it is the only operating coal company in
the United States with an investment-grade rating.

NACoal’s limerock dragline mining operations

Vision, Strategy and Core Competencies

had an excellent year, with limerock deliveries
72 percent higher in 2004 compared with 2003.
Deliveries were 18.9 million cubic yards of lime-
rock during 2004 compared with 11.0 million
cubic yards during 2003. Increased limerock
deliveries in 2004 were primarily attributable to
the start-up of new limerock dragline mining
operations in the fourth quarter of 2003 and the
second quarter of 2004.

NACoal had a strong year in 2004, with

net income increasing 30 percent over 2003. Net
income in 2004 was $18.6 million compared
with $14.3 million in 2003. This increase resulted
primarily from the addition of new limerock
dragline mining operations, better performance at
the San Miguel Lignite Mining Operations (“San
Miguel”), increased royalty income, lower interest
expense and the absence of a $1.3 million charge
for the cumulative effect of an accounting change

NACoal’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.

NACoal’s strategy is to leverage low-cost
mining expertise at existing mines while pursuing
new mining opportunities.

Core competencies supporting this strategy

include operating mines in a safe, low-cost and
environmentally responsible manner through
disciplined, efficient and responsible processes;
fostering successful, long-term partnerships with
power generating customers; and analyzing
regional opportunities, understanding new
coal-based power generating technologies and
identifying potential partners for future
development.

Left: North American Coal's limerock dragline mining operation at the Krome Quarry in South Florida.

Income Before Taxes
(In millions)

$34.6

$12.5

$40

$30

$20

$10

$22.6

$21.8

$18.3

Lignite Coal Tons Delivered
(In millions)

34.2

35.5

34.4

31.6

31.4

(Including project mines)

•33•

Key Programs to Enhance Profitability

Employee safety. Employee safety is the
number-one priority at NACoal. Each of the mines
emphasizes safety as part of its daily routine. Red
River Mining Company (“Red River”) has not
had a lost-time accident since it began operations
in 1989. In addition, five of the company’s seven
operations worked the entire 2004 calendar year
without incurring a single lost-time accident.
NACoal continues to believe that its commitment
to safety and strong employee relations improves
productivity and employee retention and thereby
enhances profitability.

Mississippi Lignite Mining Company. Because

this mine and its customer’s power plant were
fully operational for all of 2004, NACoal was
able to aggressively focus on achieving planned
profitability through the application of its extensive
mining expertise. In 2004, the mine gained
efficiencies by using power plant ash, a waste
product from the process of burning coal, on its
roads to significantly enhance the productivity of
trucks used to haul lignite coal. However, mining
efficiency was affected in 2004 by certain adverse
geological conditions in the current mining area
and by mining through a hill, which required the
removal of an unusually large amount of soil to
reach the lignite coal below. Mining efficiency
is expected to continue to be affected by these
factors in 2005. Improvements in mining efficiency
and profitability are expected during 2006.

San Miguel Lignite Mining Operations.
NACoal continues to mine more lignite coal at
this mine than originally anticipated, which has
positively affected volume but resulted in higher
mining costs, increased equipment needs and
higher equipment maintenance costs. These
growing cost pressures were not covered by
contractual cost escalators, which historically
resulted in significant losses at this operation. In
early 2004, NACoal renegotiated the contract
with the operation’s customer in order to reduce
near-term losses. This amended contract also is
expected to continue to solidify a strong working
relationship with the customer. Because of this
amended contract, results at San Miguel
improved significantly in 2004 compared with

2003. The company currently anticipates that
San Miguel will return to profitability by 2007, the
final year of the contract.

Innovative mining methods. NACoal
continues to be a leader in developing innovative
mining methods, which have improved mining
efficiencies and coal recovery, reduced costs,
enhanced safety and lessened the environmental
impact of mining. These methods, also described
in previous Annual Reports, include:

• Utilizing Easi-Miners, equipment resembling
road resurfacers, to extract thinner seams of
coal, thereby improving coal recovery and
reducing costs.

• Designing a unique slurry wall dewatering

system at Red River in Louisiana. This system
enables workers to mine lignite coal safely
and efficiently in flood plain areas.

• Developing specialized non-stick linings
for the inside of truck beds and buckets
on earth-moving equipment to improve
efficiencies and lower costs.

• Using special proprietary software to track
equipment utilization and optimize service
intervals for lower overall maintenance costs.

Environmental commitment. NACoal is
committed to protecting the environment by
restoring mined land to its original or an
improved condition. The company has been a
prominent recipient of environmental awards
over the years.

Key Programs to Generate Growth

Lignite coal reserve development strategies.

The foundation for new lignite coal mining
projects continues to be the ongoing, in-depth
analysis of power generation supply and demand
in each of the regions where NACoal has reserves.
In areas where future power generation demand
outpaces supply, there is potential for the develop-
ment of new power plants, which could utilize
lignite coal owned or controlled by NACoal. Based
on results of this ongoing analysis, NACoal adjusts
ownership plans for existing lignite coal reserves
as well as strategies to secure ownership or leases
for additional reserves which offer potential for
future development. In addition, NACoal owns

•34•

NACoal continues to be a leader in developing innovative mining
methods, which have improved mining efficiencies and reduced costs

Above: At The Sabine Mining Company's South Hallsville #1 Mine in Texas, an Easi-Miner loads lignite coal into a 160-Ton Capacity
Bottom Dump Truck, which will deliver the lignite coal to the customer’s power generation facility adjacent to the mine.

what it believes is the most extensive bank of
geological data on lignite coal reserves in the
country, consisting of data on company-owned
reserves as well as lignite coal reserves owned or
controlled by others. This wealth of data provides
a strategic advantage to NACoal as it works to
identify, prioritize and pursue opportunities to
develop its own reserves as well as other new
contract mining opportunities utilizing lignite
coal reserves owned by others.

Limerock dragline mining projects. The
company continues to be very optimistic that
niche growth opportunities to provide high-
value-added services for other natural resource
mining applications, such as limerock dragline
mining services, will continue to emerge.
Discussions are ongoing with NACoal’s existing
limerock customers, as well as other potential
new customers, about their future increased
limerock requirements.

NACoal provided dragline mining services

at Rinker Materials of Florida Inc.’s (“Rinker”)
Krome Quarry for its first full year in 2004, with
the company delivering more limerock than
expected. That mining service agreement has a
seven-year term that ends in 2010 and includes
three potential one-year extensions. In addition,
mining commenced at Rinker’s Alico Quarry in the
third quarter of 2004. This contract runs through
2011. In 2004, NACoal signed new agreements
with White Rock Quarries (“WRQ”) for the

expansion of limerock dragline mining services at
the current White Rock Quarry location and new
locations at that same quarry beginning in 2005.
These agreements extend through 2020 and 2009,
respectively. Finally, in early 2005, NACoal signed
agreements with Rinker to start mining at Rinker’s
FEC Quarry in late 2005 and with WRQ to start
mining at WRQ’s new quarry, White Rock Quarry
South, in late 2006 or early 2007. These agreements
run through 2013 and 2016, respectively. All of
these operations are located in Florida.

Corporate Initiatives

Central to NACoal’s successes are its efforts

to minimize exposure to the market price of
coal. This goal is accomplished through carefully
structured coal supply agreements, which essentially
establish the specific mining services that NACoal
will perform for its customers and the mechanisms
by which it will be compensated for performing
those activities. Because NACoal is selling its
services in addition to its coal, these agreements
include various cost escalation mechanisms and
may include performance incentives. Through
these mining agreements, NACoal and its
customers share a common goal of minimizing
costs. By eliminating speculation on the future
price of coal, these contracts allow the company to
consistently earn sound margins for its services
and earn, on a regular basis, returns on capital
employed substantially in excess of the company’s
cost of capital.

Cash Flow before
Financing Activities*
(In millions)

$35.7*

$29.4

$25.8

$9.8

$(117.4)*†

$40

$20

($20)

($40)

($60)

($80)

($100)

($120)

* Cash Flow before Financing Activities
for 2000 and 2001 has not been restated
to reflect the 2003 adoption of FIN
No. 46 retroactive to January 1, 2002.

† Includes the Phillips Coal asset

acquisition

•35•

The expected outcome of NACoal’s overall
strategy is the profitable operation of all existing
mines coupled with the development of new mines
that utilize the company’s lignite coal reserves or
its mining experience.

Outlook for 2005 and Beyond

NACoal’s financial objectives are to earn

a minimum return on capital employed of
13 percent, attain positive Economic Value Income
from all existing consolidated mining operations
as well as any new projects, maintain or increase
the profitability of all existing unconsolidated
project mining operations and deliver substantial
consolidated cash flow before financing activities.
In addition to key programs outlined
previously, NACoal is working to improve
profitability at Red River. Certain adverse
geological conditions have recently contributed
to slightly higher mining costs than anticipated,

technologies involves gasifying coal, which can
significantly reduce key emissions, such as SO2
(sulfur dioxide), NOx (nitrous oxides), particulate
matter and mercury, and create an opportunity to
produce marketable byproducts, such as synthetic
diesel or jet fuel. This highly efficient process of
coal gasification also produces lower levels of CO2
(carbon dioxide) and allows for CO2 separation
and sequestration. This process can also extract
hydrogen, which can be used in fuel cells to
produce emission-free power generation.

The company continues to invest significant
effort in understanding and promoting these new
clean coal power technologies. In fact, NACoal
has developed its own flexible power plant
vision, called FlexGen, which would allow power
companies to generate power from natural gas,
coal-based synthetic gas or fuel cells to produce a
variety of byproducts, including hydrogen, and
to significantly reduce, or even eliminate, many

As NACoal implements its programs, the company anticipates further
improvement in return on capital employed, particularly in 2006–2007

and the customer continues to take only the
contractual minimum number of tons. The
company is working to develop a solution to its
temporary mining challenges in the near term and
expects that the mine will experience improved
geological mining conditions in the long term.
The company’s objective is to work with the
customer to increase deliveries over the long term,
which would add significantly to profitability.
With implementation of all of NACoal’s

programs, the company anticipates further
improvement in return on capital employed,
particularly in 2006 and 2007, as well as increased
cash flow before financing activities.

NACoal believes that in the long term, future
development of coal reserves in the United States
will depend greatly upon the adoption of newer
power plant technologies that substantially lower
emissions. One of the most promising new

harmful emissions, including CO2. In the context
of sustained, relatively high natural gas prices in
the United States, it is the company’s hope that
adoption of new coal-based technologies will
create new lignite coal mining opportunities.
Finally, I would like to thank all NACoal
employees for their hard work and dedication in
making 2004 another safe and successful year for
the company. I look forward to working with all
of our employees to accomplish our goals in 2005.

Clifford R. Miercort
President and Chief Executive Officer
The North American Coal Corporation

•36•

Right: At The Coteau Properties Company’s Freedom Mine in North Dakota, an Electric Shovel loads overburden,
or soil that must be removed to mine the lignite coal below, into a Caterpillar End Dump Truck.

SUPPLEMENTAL DATA

RECONCILIATION OF FINANCIAL TARGETS TO NET INCOME:

Minimum Operating Profit Target, Minimum Return on Capital Employed Target and Interest Expense as of December 31, 2004

Subsidiaries with Minimum Operating Profit Targets

(U.S. dollars in millions, except per share amounts)
Housewares

NMHG

Total

2004 revenues, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
x Operating profit target percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
= Operating profit at target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,056.9
9%
185.1

Less: 2004 operating profit, as reported for NMHG and Housewares . . . . . . . . . . . . . . . . . . . . . .
Difference between 2004 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

(35.0)
150.1
(57.0)

for NMHG and Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93.1

Subsidiaries with Minimum Return on Capital Employed Targets

2004 average equity (12/31/2003 and at each of 2004's quarter ends). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 average debt (12/31/2003 and at each of 2004's quarter ends) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total 2004 average capital employed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on capital employed target percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on capital employed target = target net income before interest expense, net-of-tax . . . . . . . . . . . . . . . . . .

2004 net income, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: 2004 interest expense, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Income taxes on 2004 interest expense at 38%** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual 2004 return on capital employed = actual net income before interest expense, net-of-tax . . . . . . . . . . . . .

Actual 2004 return on capital employed percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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: 2004 interest expense, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: Income taxes on 2004 interest expense at 38%** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Target net income at target return on capital employed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: 2004 net income, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income difference between reported net income and target net income at target return on

614.8
*
9.2%
56.6

(31.9)
24.7
(9.4)

15.3

2,671.7
N/A
241.7

(66.9)
174.8
(66.4)

108.4

NACoal

74.9
119.9
194.8
13%
25.3

18.6
7.8
(3.0)
23.4

12%

25.3
(23.4)
1.9

25.3
(7.8)
3.0
20.5

(18.6)

capital employed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.9

Total of net income differences from subsidiaries with minimum operating profit targets and minimum return

on capital employed targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Earnings per share impact at 8.212 million average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

110.3

13.43

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

2004 interest expense, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Income tax expense at 38%** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 interest expense, net-of-tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Earnings per share impact at 8.212 million average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

47.4
(18.0)
29.4

3.58

* 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 with 2004's effective tax rate of 10.1%.

•38•

OFFICERS AND DIRECTORS

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.
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
Eugene Wong
Emeritus Professor at the
University of California at Berkeley

Director Emeritus
Thomas E. Taplin

Officers of Subsidiaries

Asia-Pacific:

Officers of NACCO Materials Handling
Group, Inc.
Corporate:

Reginald R. Eklund
President and Chief Executive Officer
Michael P. Brogan
Senior Vice President, International
Operations and Development
James P. Gorzalski
Vice President, Procurement and Supply
Ron J. Leptich
Vice President, Engineering and Big Trucks
James M. Phillips
Vice President, Human Resources
Seppo O. Saarinen
Vice President, Global Product Development
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

Americas:

Colin Wilson
Vice President; President, Americas
David Clarke
Vice President, Marketing, Americas
Gregory J. Dawe
Vice President, Manufacturing, 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:

Victoria L. Rickey
Vice President, Marketing and Retail
Operations, Europe, Africa and Middle East
Stephen R. West
Vice President, Finance and Information
Systems, Europe, Africa and Middle East

Donna M. Baxter
Vice President, Managing Director, Asia-Pacific
Nobuo Kimura
President, Sumitomo NACCO Materials
Handling Co., Ltd.

Officers of Hamilton Beach/
Proctor-Silex, Inc.

Dr. Michael J. Morecroft
President and Chief Executive Officer
Paul C. Smith
Senior Vice President-Sales
Keith B. Burns
Vice President-Engineering and
New Product Development
Kathleen L. Diller
Vice President, General Counsel and
Human Resources
Gregory E. Salyers
Vice President-Operations and
Information Services
James H. Taylor
Vice President-Finance 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

Officers of The North American
Coal Corporation
Clifford R. Miercort
President and Chief Executive Officer
Robert L. Benson
Vice President-Eastern & Southern Operations
Bob D. Carlton
Vice President-Financial Services,
and Controller
Thomas A. Koza
Vice President-Law and Administration,
and Secretary
Clark A. Moseley
Vice President-Business Development
and Engineering
K. Donald Grischow
Treasurer

•39•

[This Page Intentionally Left Blank]

•40•

Annual Meeting

The Annual Meeting of Stockholders of
NACCO Industries, Inc. will be held on
May 11, 2005, at 9 a.m. at the corporate
office located at:
5875 Landerbrook Drive, Suite 300
Cleveland, 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
website (www.nacco.com) or by request to
Investor Relations, NACCO Industries, Inc.,
5875 Landerbrook Drive, Suite 300
Cleveland, 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

Stock Exchange Listing

The New York Stock Exchange
Symbol: NC

Annual CEO Certification

On June 1, 2004, in accordance with Section
303A.12(a) of the New York Stock Exchange Listed
Company Manual, our Chief Executive Officer,
Alfred M. Rankin, Jr., submitted his annual
certification to the New York Stock Exchange
following our annual stockholders’ meeting
stating, that he is not aware of any violations by
NACCO Industries, Inc. of the NYSE’s Corporate
Governance listing standards as of that date.

Investor Relations Contact

Investor questions may be addressed to:
Christina Kmetko, Manager-Finance
NACCO Industries, Inc.
5875 Landerbrook Drive, Suite 300
Cleveland, Ohio 44124
(440) 449-9669
E-mail: ir@naccoind.com

NACCO Industries Website

Additional information on NACCO Industries
may be found at the corporate website,
www.nacco.com. The Company considers
this website, which was significantly updated in
January 2005, to be one of the primary sources
of information for investors and other interested
parties. Recent enhancements to the website include:
• Historical timeline charting NACCO’s evolution
• In-depth background data on each subsidiary

company

• Investor Relations section with detailed

financial data

• Specific section on Corporate Governance
• News room section with archived news releases
• Calendar of events with e-mail alert sign-up

Subsidiary Company Websites
The websites of several subsidiary companies
and their brands can be found at the following
locations:

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/Proctor-Silex–U.S.:
www.hamiltonbeach.com
www.proctorsilex.com
www.hbeclectrics.com
www.buytraditions.com
www.trueair.com
http://commercial.hamiltonbeach.com
Hamilton Beach/Proctor-Silex–Mexico:
www.hamiltonbeach.com.mx
www.proctorsilex.com.mx
www.trueair.com.mx
Kitchen Collection:
www.kitchencollection.com
North American Coal:
www.nacoal.com

NACCO Industries, Inc.
5875 Landerbrook Drive • Cleveland, Ohio 44124
An Equal Opportunity Employer

Printed in U.S.A.