NACCO Industries, Inc. Annual Report 2006

← All annual reports

FY2006 Annual Report · NACCO Industries, Inc.

Loading PDF…

NACCO

I N D U S T R I E S ,

I N C .

Managing for long-term profit growth
2006 Annual Report

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 and rental
companies, which sell, lease and service 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, marketer and distributor of small electric 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 kitchenware and gourmet
foods operating under the Kitchen Collection® and Le Gourmet Chef® store
names in outlet and traditional malls throughout the United States.

2006
Financial Results

NMHG Wholesale:
Revenues:

$2.3 billion
Operating profit:
$76.5 million

Net income:

$43.7 million

NMHG Retail:
Revenues:

$170.6 million
Operating loss:
$9.0 million

Net loss:

$9.1 million

HB/PS:
Revenues:

$546.7 million
Operating profit:
$42.5 million

Net income:

$22.2 million

Kitchen Collection:
Revenues:

$170.7 million
Operating profit:
$6.8 million

Net income:

$3.7 million

The North American Coal Corporation (”NACoal“)
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 in the United States.

North American Coal operates six surface lignite mines. The company also provides
dragline mining services operating under the name “North American Mining
Company” for independently owned limerock quarries in Florida.

North American
Coal:
Revenues:

$149.0 million
Operating profit:
$61.5 million

Net income:

$39.7 million

NACCO Industries, Inc. is an operating holding company with three principal businesses: lift trucks,
housewares and mining. In 2006, total revenues were $3.3 billion and net income was $106.2 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 12 percent market
share worldwide, including a
26 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.

HB/PS is one of the leading
companies in small appliances,
with strong share positions in
many of the categories in which
it competes.

HB/PS products are primarily
distributed through mass
merchants, national discount
department stores, warehouse
clubs and other retail sales outlets.

• Leading market share positions in the

Americas and worldwide

• Highly recognized Hyster® and Yale®

brand names

• Large installed population base of lift

trucks; an estimated 790,000 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

Minimum operating
profit margin target of
9 percent

• Manufacturing restructuring
• Quality initiative
• Global supply chain
• New product development
• New product introductions
• SPED (Customization) strategy
• Strategic pricing optimization
• Industry marketing strategy
• National and global accounts
• Anchor Dealer program
• Dealer excellence enhancement
• Aftermarket parts
• NMHG Retail improvements

HB/PS:
Minimum operating
profit margin target of
10 percent

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

Kitchen Collection is the nation’s
leading specialty retailer of kitchen
and related products in factory
outlet malls with 280 stores
throughout the United States in
2006.

Kitchen Collection:
• Highly analytical merchandising skills

and disciplined operating controls
• Two well-established, complementary

retail formats –Kitchen Collection® and
Le Gourmet Chef®

Kitchen Collection:
Minimum operating
profit margin target of
5 percent

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

• 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

• 2.2 billion tons of lignite coal reserves, of
which 1.1 billion tons are committed to
current customers

• Outstanding operational and technological

mining skills

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

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

Kitchen Collection:
• Continuous product cost management
• Store expense management
• Logistics efficiency
• Innovative products and merchandising
• Hamilton Beach/Proctor-Silex

brand leverage

• Economic Value Income
• Outlet mall format initiatives
• Traditional mall format initiatives
• Vanity Fair initiative
• Internet format initiative

• Employee safety
• Contract structure
• Mississippi Lignite Mining Company

improvement

• Red River Mining Company improvement
• Limerock dragline mining operations
• Mining and management innovation
• Environmental commitment
• Leveraging NACoal’s lignite coal reserves
• Mining NACoal reserves for direct

coal-fired power generation

• Mining NACoal reserves for coal

gasification

• Mining NACoal reserves for coal-based

energy production

• Utilizing lignite coal enhancement

technologies

• Contract mining of lignite coal
• Contract mining of aggregates

Managing for long-term profit growth
NACCO Industries, Inc.

Table of Contents

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

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

NACCO Materials Handling Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Hamilton Beach/Proctor-Silex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Kitchen Collection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

The North American Coal Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Supplemental Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside Back Cover

Front Cover: Two draglines work through the night at The Sabine Mining Company in Texas.

In 2006, NACCO had a number of significant achievements and
realized substantially improved financial performance.

N A C C O I n d u s t r i e s ,

I n c .

In 2005, key performance improvement programs began to produce positive

results at each subsidiary company, enhancing overall profit performance. As

each subsidiary company moved further along in implementing programs,

ground work was laid for additional progress in future years.

In 2006, NACCO realized significantly improved performance as several

key performance improvement programs matured. Net income increased at

all subsidiary companies and overall results were strong, although enhanced

by one-time events. Performance met or exceeded 2006 expectations at

Hamilton Beach/Proctor-Silex, Kitchen Collection and North American Coal,

while results fell short of 2006 expectations at NACCO Materials Handling

Group due, in part, to external factors.

In 2007, each subsidiary company, and more importantly NACCO

Materials Handling Group, remains committed to its performance improve-

ment programs. Meaningful actions are being taken to address key issues such

as managing costs, driving innovation and improving sales and marketing

professionalism with a goal of achieving NACCO’s performance and growth

objectives. Returns on total capital employed are expected to remain strong as

the subsidiary companies make progress toward their established financial goals.

Total Revenues
(In billions)

$3.3

$3.2

$2.8

$2.5

$2.3

$3.5

$3.0

$2.5

$2.0

$1.5

$1.0

Net Income
(In millions)

$106.2

$62.5

$52.8

$47.9

$42.4

$120

$105

$90

$75

$60

$45

$30

$15

Diluted Earnings Per Share

$12.89

$7.60

$6.44

$5.83

$15

$10

$5.17

(cid:2) NMHG (cid:2) Housewares
(cid:2) NACoal (cid:2) NACCO & Other

[1]

Managing for long-term profit growth
Selected Financial and Operating Data

NACCO Industries, Inc. and Subsidiaries

Operating Statement Data :
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings of unconsolidated project

mining subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted Earnings per Share:
Income 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Per Share and Share Data:

Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market value at December 31 . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity at December 31 . . . . . . . . . . . . . .

Actual shares outstanding at December 31 . . . . . . . . . .
Diluted weighted average shares outstanding . . . . . .

Balance Sheet Data at December 31:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

$
$
$

2006

3,349.0

36.0
172.6

93.4
12.8
–
106.2

11.33
1.56
–
12.89

1.905
136.60
96.27

8.238
8.242

2,156.3
359.9
793.1

Year Ended December 31
2003
2004
2005
(In millions, except per share data)

$
$

$
$
$

3,157.4

33.8
108.0

57.8
4.7
–
62.5

7.03
0.57
–
7.60

1.848
117.15
85.50

8.226
8.223

2,094.0
406.2
703.3

$
$

$
$
$

2,782.6

31.5
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

$
$

$
$
$

2,472.6

31.7
117.2

49.8
1.8
1.2
52.8

6.07
0.22
0.15
6.44

1.260
89.48
77.63

8.206
8.204

1,839.8
363.2
637.0

2002

2,285.0

30.3
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]

N A C C O I n d u s t r i e s ,

I n c .

Year Ended December 31

Cash Flow Data:
Operating Activities

NACCO Materials Handling Group . . . . . . . . . . . . . .
Hamilton Beach/Proctor-Silex . . . . . . . . . . . . . . . . . .
Kitchen Collection . . . . . . . . . . . . . . . . . . . . . . . . . . .
North American Coal Corporation . . . . . . . . . . . . . .
NACCO and Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provided by operating activities . . . . . . . . . . . . . . . . .

Investing Activities

NACCO Materials Handling Group . . . . . . . . . . . . .
Hamilton Beach/Proctor-Silex . . . . . . . . . . . . . . . . . .
Kitchen Collection . . . . . . . . . . . . . . . . . . . . . . . . . . .
North American Coal Corporation . . . . . . . . . . . . . .
NACCO and Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Used for investing activities . . . . . . . . . . . . . . . . . . . .

Cash Flow before Financing Activities (1)

NACCO Materials Handling Group . . . . . . . . . . . . . .
Hamilton Beach/Proctor-Silex . . . . . . . . . . . . . . . . . .
Kitchen Collection . . . . . . . . . . . . . . . . . . . . . . . . . . .
North American Coal Corporation . . . . . . . . . . . . . . .
NACCO and Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Cash Flow before Financing Activities . . . .

Used for financing activities . . . . . . . . . . . . . . . . . . . . .

Other Data:
Adjusted EBITDA(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total employees at December 31(3) . . . . . . . . . . . . . . . .

2006

84.8
28.7
17.2
38.7
4.1
173.5

(30.6)
7.2
(16.1)
4.2
–
(35.3)

54.2
35.9
1.1
42.9
4.1
138.2

(105.8)

217.5

11,300

2005
(In millions, except employee data)

2004

2003

11.9
31.8
0.1
26.4
5.0
75.2

(30.1)
(3.8)
(1.0)
(21.4)
–
(56.3)

(18.2)
28.0
(0.9)
5.0
5.0
18.9

(1.8)

177.7

11,100

80.0
17.7
(0.6)
41.1
(12.0)
126.2

(17.3)
(5.5)
(2.2)
(15.3)
–
(40.3)

62.7
12.2
(2.8)
25.8
(12.0)
85.9

(4.1)

160.4

11,600

50.1
34.7
6.5
36.1
(3.8)
123.6

(11.1)
(4.5)
(1.3)
(26.3)
0.1
(43.1)

39.0
30.2
5.2
9.8
(3.7)
80.5

(71.9)

181.3

11,600

2002

72.1
45.3
6.7
36.6
(11.2)
149.5

(7.3)
(1.9)
(1.3)
(7.2)
(0.8)
(18.5)

64.8
43.4
5.4
29.4
(12.0)
131.0

(146.8)

179.1

12,200

(1) Cash Flow before Financing Activities is equal to net cash provided by operating activities less net cash used for investing activities.
(2) 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.
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.

(3) Includes employees of the unconsolidated project mining subsidiaries.

Reconciliation of Cash Flow

From Operations to Adjusted EBITDA:(2)

Cash flow from operations . . . . . . . . . . . . . . . . . . . . . . . .
Change in working capital items . . . . . . . . . . . . . . . . . . .
Gain (loss) on sale of assets . . . . . . . . . . . . . . . . . . . . . .
Restructuring (charges) reversals . . . . . . . . . . . . . . . . . .
Difference between deferred income taxes and

total tax provision (benefit) . . . . . . . . . . . . . . . . . . . . .
Other non-cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Calculation of Adjusted EBITDA: (2)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of accounting changes, net-of-tax . . .
Extraordinary (gain) loss, net-of-tax . . . . . . . . . . . . . . . . .
Minority interest income . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation, depletion and amortization expense
Adjusted EBITDA (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2006

Year Ended December 31
2004

2005

(In millions)

2003

2002

173.5
(22.4)
25.6
(0.8)

19.1
(11.8)
34.3
217.5

106.2
–
(12.8)
(0.7)
27.8
41.8
(7.5)
62.7
217.5

75.2
45.5
0.6
(2.7)

20.7
(4.9)
43.3
177.7

62.5
–
(4.7)
(0.1)
13.1
47.5
(4.2)
63.6
177.7

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)
62.9
160.4

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)
68.4
181.3

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)
70.2
179.1

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 pages 44 and 45.

[3]

Managing for long-term profit growth
To Our Stockholders

A letter from Alfred M. Rankin, Jr., Chairman, President
and Chief Executive Officer of NACCO Industries, Inc.

Introduction

While key profitability and growth programs in place at

In 2006, NACCO Industries, Inc. had a number of

North American Coal (“NACoal”), Hamilton Beach/Proctor-

significant achievements and produced very strong financial

Silex (“HB/PS”) and Kitchen Collection (“KCI”) delivered

results, including substantial increases in net income, cash flow

substantial benefits, progress toward financial goals was slower

before financing activities and return on equity. Specifically, net

than expected at NACCO Materials Handling Group

income at NACCO increased by 70 percent in 2006 over 2005

(“NMHG”), the largest of NACCO’s subsidiary companies.

as a result of improved performance at all of our subsidiary

Strategic actions have been identified so that NMHG can adapt

companies, although several events affecting 2006’s net income

to changing conditions while continuing to work toward its

are unlikely to reoccur.

ambitious financial goals. However, we continue to believe that

$2.0

$1.5

$1.0

$0.5

Dividends Paid Per Share

$1.848

$1.905

$1.675

$1.260

$.595

$.615

$.635

$.655

$.675

$.710

$.743

$.773

$.810

$.850

$.890

$.930

$.970

[4]

N A C C O I n d u s t r i e s ,

I n c .

Discussion of Results

In 2006, NACCO’s net income and revenues increased
compared with 2005. The Company reported significantly
higher net income of $106.2 million in 2006, or $12.89 per
diluted share, compared with net income of $62.5 million,
or $7.60 per diluted share, in 2005. Revenues for 2006 were
$3.3 billion compared with $3.2 billion for 2005.

Net income in both 2006 and 2005 included after-tax

extraordinary gains of $12.8 million and $4.7 million,
respectively, recorded by Bellaire Corporation (“Bellaire”),
a wholly owned non-operating subsidiary which manages
ongoing liabilities related largely to closed Eastern U.S. coal
mines. These extraordinary items relate to reductions in
Bellaire’s payment obligation to the United Mine Workers of
America Combined Benefit Fund (the “Combined Fund”).
As a result of the Coal Industry Retiree Health Benefit Act of
2006 (the “2006 Act”), Bellaire’s obligation to the Combined
Fund will be phased out over a three-year period beginning on
October 1, 2007. After October 1, 2010, no further payments
to the Combined Fund are expected.

Income before extraordinary gain was $93.4 million, or

$11.33 per diluted share, in 2006 compared with $57.8 million,
or $7.03 per diluted share, in 2005. In 2006, NACoal recognized
a gain of $21.5 million, $13.1 million after taxes of $8.4 million,
from the sale of two electric draglines. Also in 2006, NMHG
redeemed its 10% Senior Notes due in 2009. As a result, the
Company recognized a charge to earnings for the early retire-
ment of debt of approximately $17.6 million, or $10.7 million
after a tax benefit of $6.9 million.

In addition, NACCO was unsuccessful in its attempts
to combine its HB/PS subsidiary with Applica Incorporated.
As a result, NACCO received a $6 million termination fee
from Applica and expensed $11.2 million in transaction costs
for a net pre-tax expense of $5.2 million, which is included
in the 2006 results.

Excluding the effects of these unusual items, consolidated

operations continued to improve in 2006 as a result of the
continued implementation of key programs, which successfully
increased selling prices and unit volumes at NMHG, increased
deliveries and led to a favorably amended mining contract at
NACoal, increased sales of higher-margin kitchen appliances
at both HB/PS and KCI, and led to the acquisition of a
complementary business by KCI. In addition, favorable
product liability and tax adjustments at NMHG contributed
to improved earnings. These improvements occurred despite
relatively weak markets for housewares products, increases in
material costs and a weak U.S. dollar.

In 2006, NACCO generated $138.2 million in consolidated

cash flow before financing activities, compared with $18.9
million in 2005. Cash flow before financing activities in 2006
improved significantly as a result of improved financial results
at each of the subsidiary companies and from proceeds on
the sale of two draglines at NACoal, net of cash paid of
approximately $14 million for the acquisition of LGC.

NMHG’s core profitability and growth programs, combined

with positive market and economic factors, will, over time,

deliver improved financial performance, particularly in 2008

and beyond.

During 2006, two of NACCO’s subsidiaries pursued

strategic combinations with other companies. KCI successfully

purchased certain assets of Le Gourmet Chef, Inc. (“LGC”), a

chain of 77 kitchen stores which had been in bankruptcy. HB/PS

pursued a strategic combination with Applica Incorporated,

which ended unsuccessfully in January 2007 when a rival bidder

acquired all of Applica’s outstanding shares for cash. NACCO

is currently pursuing litigation against Applica and its acquirer

and has reserved all of its rights in relation to this matter.

At each subsidiary, strategies and key programs have been

established to address specific industry dynamics and trends,

with the objective of achieving established financial targets and

generating substantial cash flow before financing activities.

Programs to enhance profitability are designed to achieve

performance in line with minimum financial targets, and

programs to generate growth are intended to drive long-term

profit growth.

The stakes involved in executing the Company’s profit

enhancement and growth programs remain high, particularly

at NMHG, where substantial improvement in operating profit

margin is still required to meet financial targets. Assuming

NACCO’s subsidiary companies had achieved at least their

minimum financial targets in 2006, the Company would have

generated additional net income of $99.5 million, or $12.07 in

additional diluted earnings per share, approximately 90 percent

of which would have been generated by improvement at NMHG.

(See reconciliations of these non-GAAP amounts on page 44.)

In order to realize this significant potential, an intense focus on

profit improvement programs is expected at NMHG in the

coming months and years.

As HB/PS, KCI and NACoal approach all of their financial

targets, a greater emphasis on programs to build profitable

growth is planned. HB/PS will continue to drive innovation in

current and new markets, KCI will work to realize synergies

from its combination with LGC, as well as open new stores in

outlet and traditional malls, and NACoal will work to improve

[5]

N A C C O I n d u s t r i e s ,

I n c .

current operations, particularly at Mississippi Lignite Mining

cost structure while maintaining and improving product and

Company, while aggressively pursuing a variety of new business

service quality. Programs aimed at achieving this objective

opportunities.

include new, more comprehensive manufacturing improvements

As profit improvement and growth programs are pursued,

and cost reduction activities, an extensive quality assurance

NACCO maintains high expectations for returns on equity

initiative and an aggressive global procurement program.

and returns on total capital employed. These financial measures

Market success requires the ability to provide lift trucks

were strong in 2006 and are expected to remain healthy at all

appropriate for a wide range of end-user needs at competitive

NACCO subsidiaries, indicating that each subsidiary company

prices. NMHG has, for the last few years, been developing what

is performing well, even though they have yet to reach the

it believes is the most flexible product line in the industry,

specific financial targets established several years ago.

enabling the company to configure lift trucks cost effectively for

This letter provides a short summary of each subsidiary’s

individual end-user requirements. The company’s new 1 to 8

market situation, strategies, key performance improvement

ton internal combustion engine product line represents the

programs and outlook, and concludes with an overall outlook

core of this new approach. Several programs linked to this

for NACCO Industries. The subsidiary letters found later in this

strategy include a new product development process, a multi-

Annual Report provide much greater detail on the objectives

year plan for new product introductions, a strategic pricing

and timing of key programs, which typically remain consistent

optimization project and the development of specific industry

from year to year, and on progress being made toward reaching

marketing strategies.

each company’s specific financial and growth objectives.

Because the sales and service needs of lift truck customers

are intensifying, NMHG is focusing on attaining a level of

NACCO Materials Handling Group

account management excellence unmatched in the industry.

NMHG is a leader in the global lift truck industry and is

Several projects related to this strategy involve enhancing

committed to building on that success in coming years.

national and global account capabilities, expanding and

Companies in the global lift truck industry are faced with

improving the anchor dealer network, adding new aftermarket

increased material costs and unpredictable currency exchange

services and enhancing the parts offerings for Hyster®, Yale®

rates. As a result, NMHG believes it is highly beneficial to more

and other brands of lift trucks. Programs are also being put in

fully execute its core manufacturing strategy of assembling lift

place to improve the performance of NMHG’s owned retail

trucks in the market of sale and to consider a variety of low-cost

operations, particularly in Australia.

component sourcing options, particularly as new opportunities

The Company is hopeful that its traditionally cyclical lift

arise in lower-cost regions. NMHG is also focused on increasing

truck markets will remain strong globally and grow in most

manufacturing efficiency and reducing its fixed-cost and overall

geographic regions and that NMHG’s market share will increase

NACCO Continues to Maintain 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:

• Ensure highly professional management teams;
• Attain industry-leading operational effectiveness and efficiencies;
• Build industry-leading market positions; and
• Create sustainable competitive advantage positions.

In support of these guiding principles and to enhance stockholder value, NACCO provides oversight to its subsidiary companies with

respect to processes, controls, key improvement programs and finances, as well as consulting services in areas such as strategy and tax. Further
information on these oversight and consulting roles, as well as on NACCO’s strong corporate governance program, is outlined in a publication
entitled CEO Perspectives, which is available on the NACCO website, www.nacco.com.

[6]

N A C C O I n d u s t r i e s ,

I n c .

further, driving an increase in NMHG’s lift truck volumes.

process, HB/PS regularly investigates promising concepts both

However, the Americas market is expected to contract in 2007

inside and outside its traditional product scope that have the

and NMHG shipments of certain products will remain at

potential to substantially improve results in the longer term.

controlled levels in 2007 as factories ramp up production of

Strong relationships with leading retailers are vital for

new products.

success. Shelf placement, brand positioning and promotions

Overall, NMHG’s profitability is expected to improve,

with all retailers and channels also are important to sustain and

though more slowly than previously anticipated. Outperforming

improve sales volumes. HB/PS believes that it has one of the

2006 in 2007 is expected to be challenging. The ongoing launch

most professional sales and marketing organizations in the

of newly designed lift trucks is expected to drive performance

industry. The company views this sales and marketing strength

improvements, though the company expects continued phase-in

as critical to optimizing channel performance and maintaining

costs as a result of the product launches and

continued material cost increases. In addition,

without the benefit in 2007 of currency hedges

that NMHG had in place in 2006, the company

is expecting a negative impact on 2007 results

if certain unfavorable currency exchange rates

persist. Further, the company is unlikely to have

additional favorable product liability and tax

adjustments in 2007. On the other hand, expenses

related to NMHG’s early redemption of its 10%

Senior Notes will not reoccur, effective interest

Consolidated Cash Flow
before Financing Activities
(In millions)

strong retailer relationships. Efforts supporting

this strategy include specific retailer and channel

focus programs as well as a number of strategic

$131.0

$138.2

brand application initiatives.

$85.9

$80.5

To help manage ongoing margin pressure in

the industry, HB/PS places significant emphasis

on continuous cost reduction. Several key

profitability programs address manufacturing

cost reductions, continuous quality improvement

$18.9

and supply chain optimization.

NACCO is moderately optimistic that

$150

$125

$100

$75

$50

$25

rate costs are expected to be lower and other

housewares markets will improve in 2007 as

programs are expected to enhance 2007 profit prospects.

HB/PS continues to concentrate on further improving margins

Following 2007, the implementation of focused profitability

and efficiencies as part of its effort to meet its 10 percent

enhancement programs is anticipated to lead to substantial

minimum operating profit margin target. The operating profit

progress toward minimum financial targets from 2008 through

margin was 7.8 percent in 2006. As programs to improve

2011. In addition, strong cash flow before financing activities

profitability fully mature in 2007 and 2008, more focus will be

is anticipated to continue.

Hamilton Beach/Proctor-Silex

placed on programs to generate growth. Driving even more

innovation and introducing even stronger assortments of new

products will become more important to realize sustainable

HB/PS remains an industry leader with excellent market

profit growth and drive the economies of scale that are also

and financial performance and potential in an industry in which

critical to attaining the 10 percent minimum operating profit

many other companies struggle financially.

margin target in 2009 or sooner. Significant generation of cash

Because new products drive growth and help sustain

flow before financing activities is expected in future years.

margins, successful housewares companies must repeatedly

capture consumers’ attention, as well as their dollars. HB/PS is

Kitchen Collection

aggressively focused on innovation through a unique product

KCI’s position as the leading kitchenware retailer in the

development process designed to create new products that meet

outlet mall channel was advanced further in 2006 through its

consumers’ current needs, as well as to improve profitability.

acquisition of LGC, which complements the Kitchen Collection®

Utilizing a relatively low-risk, staged assessment and development

store format by offering a more upscale product assortment.

[7]

N A C C O I n d u s t r i e s ,

I n c .

This acquisition provides an additional successful format for

focused on its growth initiatives. These programs, in combination

outlet malls, as well as a promising platform for expansion into

with further improved outlet mall traffic, are intended to return

other channels.

KCI to its 5 percent minimum operating profit margin target

Though consumer visits to outlet malls improved in 2006,

by 2008. Cash flow before financing activities is expected to

store rent and labor expenses continue to increase, making

continue to be strong particularly after 2007, when LGC will

disciplined cost control essential to maintaining and improving

be mostly integrated into the KCI business.

profitability. KCI has established programs aimed at achieving

cost control through continuous product cost management,

North American Coal

highly focused store expense management and an ongoing

NACoal is well positioned at its current mining operations

logistics efficiency program. KCI will also apply these programs

to maintain, and to a degree improve, its financial and growth

to the newly acquired Le Gourmet Chef® stores and operations.

performance through continuous operational enhancements,

KCI believes there is still significant growth potential in

the potential for additional volume at its Red River Mining

kitchenware retailing, particularly in the niche between the

Company and increased maturity of Mississippi Lignite Mining

lowest-priced discounters and the higher-end chains. One

Company operations and its Florida limerock dragline mining

of the keys to capturing that potential is the ability to offer

operations. In addition, NACoal, as the nation’s largest lignite

customers unique, high-quality products at affordable prices.

coal miner, is encouraged by prospects for new coal mining

To help accomplish that goal, KCI has established innovative

projects, particularly in the context of the domestic energy

product selection and merchandising programs, a highly

challenges and opportunities facing the United States.

successful Hamilton Beach® private label product program and

NACoal is pursuing a number of potential projects, which

an Economic Value Income program designed to help select

reflect lignite coal’s heightened recognition as an attractive

SKU assortments by store type to optimize profit performance.

domestic source of energy as a result of its abundance in the

With limited construction of new malls expected in the

United States and the availability of new, environmentally

outlet mall channel, KCI has focused on optimizing Kitchen

responsible technologies. New business opportunities, which

Collection® store performance and Le Gourmet Chef® store

leverage NACoal’s extensive lignite coal reserves, include mining

presence at existing outlet malls while expanding into new,

these reserves for direct coal-fired power generation, coal

high-potential formats and distribution channels. The company

gasification and coal-based energy production, utilizing and

plans to substantially expand LGC’s national presence in outlet

commercializing lignite coal enhancement technologies, and

malls over time and has a number of other initiatives under

contract mining of lignite coal and aggregates for others.

way related to enhancing Kitchen Collection® stores’ outlet

Central to NACoal’s historical success and future strategy

mall format, including a large store format and a segmentation

is preservation of its unique approach to structuring mining

effort designed to enhance performance based on different types

contracts to minimize risk – not only from the changing market

of outlet malls. The LGC format will also enable KCI to expand

price of coal – but also from the changing costs of equipment

more effectively in traditional malls, a largely untapped channel

and supplies required to mine the coal. Efficiency is crucial in

for the mid-range kitchenware category. KCI also has plans to

mining operations, particularly at this time of increasing costs

improve the Internet sales programs for both KCI and LGC.

for mining supplies and equipment. NACoal has repeatedly

The company will focus on integrating the Le Gourmet

demonstrated its ability to leverage its low-cost mining expertise

Chef® stores and operations in 2007 with the expectation that

to deliver operational improvements at mining operations

realization of planned synergies will significantly boost economies

facing specific challenges, such as the Mississippi Lignite

of scale and result in improved operating profit performance

Mining Company.

beginning in 2008. In 2007 and beyond, the company will be

[8]

N A C C O I n d u s t r i e s ,

I n c .

NACoal and its customers strongly believe in continuously

NACCO is optimistic about its prospects to generate

improving mining operations and having superior reclamation

strong net income and anticipates generating significant cash

programs in place at each of the mines. Just as innovation is

flow before financing activities, excluding any acquisitions and

important in other NACCO businesses, it is also important

new coal projects. NACCO’s intention is to use this cash flow

for NACoal in the mining industry. NACoal strives to meet its

to reduce debt levels unless other strategic opportunities of

customers’ expectations through mining and management

greater long-term benefit to the Company and its stockholders

innovation and award-winning safety and environmental

arise, such as the Le Gourmet Chef acquisition in 2006.

achievements.

NACCO’s share price was $143.22 at the close of the

NACoal’s performance was significantly enhanced in

financial markets on March 1, 2007. We believe the increased

2006 as the result of pre-tax gains of $21.5 million from selling

share price performance over the last few years recognizes the

two electric draglines. Underlying performance of all NACoal’s

work that has been done to improve and strengthen each

mines was strong and largely at target levels. However, over time,

subsidiary. By clearly articulating our understanding of the

further profitability improvements are expected at Mississippi

industries in which we compete and by successfully executing

Lignite Mining Company, Red River Mining Company and the

our profit improvement and growth programs, we are

Florida limerock dragline mining operations. More importantly,

hopeful that the Company will receive further enhanced

the company hopes to undertake several new mining projects

valuation in the future.

over the next few years, which could add significantly to

In closing, I would like to take this opportunity to express

NACoal’s profitability in the longer term. Cash flow before

my sincere thanks to Bob Gates and Bill Hendrix, who left

financing activities is expected to continue to be very strong.

NACCO’s Board of Directors in 2006. Bill decided not to stand

NACCO Outlook

for re-election in 2006 after serving on NACCO’s Board for

11 years, from 1995 through 2006. Bob served on the Board for

In summary, the Company has well-thought-out profit

13 years, from 1993 through 2006. He left the Board in early

enhancement and growth programs at each of its subsidiary

December 2006 following his confirmation as United States

companies. These programs are expected to continue to deliver

Secretary of Defense. Bill and Bob added extremely valuable

enhanced sales and income over time. NACCO is encouraged

perspectives and insight to the NACCO Board, and their

by the progress achieved to date. However, external factors, such

contributions will be missed.

as material cost increases and the effects of adverse movements

Finally, I would like to thank all NACCO employees for

in currency exchange rates, have required adjustments to our

their continued support, hard work and commitment in meeting

programs and the anticipated timing of achieving target

the challenges of 2006. I look forward to a successful 2007.

profitability. Each of NACCO’s subsidiaries will be placing extra

effort on actions designed to manage these program areas in

2007. Results of improvement programs are expected to help

sustain profitability in 2007 after extraordinarily strong results

in 2006, with greater effects becoming increasingly visible in

2008 and beyond.

NACCO is committed to achieving its long-term financial

goals at each subsidiary company. These goals are being pursued

with the utmost determination. As each subsidiary company

moves toward its goals, we expect improving profitability and

strong returns on total capital employed.

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

[9]

Managing for long-term profit growth
NACCO Materials Handling Group

Hyster® Container Handling Lift Trucks serve the most demanding
port operations around the world.

N A C C O I n d u s t r i e s ,

I n c .

2006 Results

NMHG Retail’s operations (net of eliminations) reported

In 2006, NACCO Materials Handling Group (“NMHG”)

a net loss of $9.1 million on revenues of $170.6 million in 2006

made strides toward achieving its long-term financial objectives

compared with a net loss of $7.9 million on revenues of $185.8

and improving operations. Consolidated net income increased

million in 2005.

91 percent to $34.6 million in 2006 despite a pre-tax charge of

In 2006, Consolidated NMHG generated cash flow before

$17.6 million, or $10.7 million after a tax benefit of $6.9 million,

financing activities of $54.2 million, a significant improvement

that was incurred as a result of the company’s early retirement

from the negative cash flow before financing activities of $18.2

of its 10% Senior Notes due 2009. However, the year was not

million in 2005. In addition, in 2006, Consolidated NMHG

without some disappointment as NMHG’s results were reduced

delivered an improved return on equity(1) (“ROE”) of 7.7 percent,

by underperforming retail operations and higher-than-expected

up from 4.2 percent in 2005, and an improved return on total

initial costs on newly introduced products, both of which

capital employed (“ROTCE”) of 6.9 percent in 2006, up from

reduced consolidated net income.

5.3 percent in 2005 – levels still well below NMHG’s longer-term

NMHG Wholesale generated net income of $43.7 million

objectives. (See reconciliations of non-GAAP ROTCE on page 45.)

in 2006 compared with $26.0 million in 2005, a 68 percent

increase on revenue growth of five percent. Revenues increased

Vision and Goals

to $2.3 billion in 2006 as a result of increased unit and parts

NMHG’s vision is to be the leading globally integrated

volumes and price increases implemented in 2006 and prior

designer, manufacturer and marketer of a complete range

years. In addition, an increased worldwide lift truck market

of high-quality, application-tailored lift trucks, offering the

led to increased shipments of 87,789 units in 2006 compared

lowest cost of ownership, outstanding parts and service

with shipments of 83,361 units in 2005. Backlog increased to

support and the best overall value. To accomplish this vision,

approximately 27,200 units at December 31, 2006 compared

NMHG has rededicated itself to becoming a more unified,

with approximately 23,500 units at December 31, 2005. Net

global organization. NMHG Wholesale’s established financial

income improved as a result of increases in price and volumes,

objectives are to achieve a minimum operating profit margin

favorable product liability adjustments, a reduction in interest

of 9 percent and to generate substantial cash flow before

expense and favorable tax adjustments. These improvements were

financing activities. NMHG also remains focused on reaching

partially offset by an unfavorable shift in mix to lower-margin

break-even results in its owned retail operations while

lift trucks and increased material and manufacturing costs.

developing strengthened market positions.

Revenues by
Geographic Region
(In millions)

$2,400

$2,488

$2,057

$1,780

$1,588

$2,500

$2,000

$1,500

$1,000

$500

(cid:2) Asia-Pacific (cid:2) Europe (cid:2) Americas

28,000

26,000

24,000

22,000

20,000

18,000

16,000

14,000

Unit Bookings, Shipments
and Backlog

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
05
(cid:2) Bookings (cid:2) Shipments (cid:2) Backlog

Net Income
(In millions)

$34.6

$16.4

$18.1

$12.3

$10.7

$35

$30

$25

$20

$15

$10

(1) ROE = The respective year’s net income divided by that year’s average equity (a five-point average of equity at December 31 of the previous year and each of the respective
year’s quarter ends).

Left: The newest Hyster® Container Handling lift truck operating at a container terminal in New York.

[11]

N A C C O I n d u s t r i e s ,

I n c .

Industry Trends

To reach its goals, NMHG has established strategies and

Lift truck customers increasingly require more dependable

key improvement programs aimed at addressing current

lift trucks and greater levels of service and expect manufacturers

industry trends. NMHG’s strategies

and dealers to deliver both at competitive prices. Therefore,

and key programs can be grouped

maintaining low costs as well as maintaining outstanding

in three main areas: quality and

quality, timeliness and reliability are critical for competitiveness.

efficiency; flexible and modular

Because greater economies of scale produce lower product

products; and sales and service

costs, the industry is led by large, global manufacturers with an

excellence. Each key program is

increasingly global supply base. While China and other low-cost

designed to enhance profitability

countries are emerging as more reliable sources for low-cost

or generate growth, both of which

components, costs for commodities, such as steel, oil, lead,

are critical for achieving NMHG’s

rubber and copper, continue to rise globally and place pressure

goals in this mature

on profit margins for all competitors. In this environment,

industry. Profitability programs at NMHG focus mainly on

continual improvements in manufacturing and supply chain

manufacturing and supply chain efficiency, while growth

efficiencies are vital to success.

programs focus on increasing country and industry share

While costs and dependability are

positions by addressing customer needs with customized

important, customers increasingly

packages of products and services.

desire specialized solutions for their

materials handling needs, and the market is

Key Programs for Quality and Efficiency

demanding a more rapid product

NMHG continually strives to reduce manufacturing and

development cycle. Manufacturers

supply chain costs and improve operational effectiveness while

must strike the right balance between

delivering quality products. NMHG’s proven abilities to

the number of models and options

re-engineer processes and assemble products efficiently within

offered and the volume required to

an increasingly complex global operating environment support

maintain efficiencies and economies

this strategy. Several key programs aimed at achieving this

of scale. In addition, newer lift trucks

high-quality/low-cost strategy include:

must address evolving end-user needs,

Manufacturing restructuring. NMHG’s manufacturing

which have led, for example, to more environmentally friendly

strategy is guided by a commitment to high quality and

products, such as lift trucks using fuel cell technology, and

efficiency. To accomplish these goals, NMHG has been

increased demand for electric-powered lift trucks, especially

restructuring its global manufacturing facilities and processes.

those for use in warehousing operations.

The company has placed an intense focus on further

Successful lift truck companies and dealers foster strong,

implementation of a lean manufacturing strategy

lasting customer relationships by utilizing highly professional

based on Demand Flow Technology,

personnel and business processes. As logistics efficiency grows

which helps reduce inventory and

in importance to end users, the overall product and service

manufacturing floor space

needs of these customers have become more sophisticated.

requirements while improving

Manufacturers face increasing demand for enhanced service

productivity, lead times and quality.

offerings, including national and global sales coordination, a

The company continues to work to

full range of financing options, maintenance programs and

optimize production activities

parts management services.

among several

Top to bottom: The new Hyster® FortisTM S120FT internal combustion cushion tire lift truck series has lifting capacities up to 12,000 pounds and can be configured to satisfy multiple
customer applications. The new Yale® AC-Powered Reach truck provides unparalleled design, versatility and operator comfort in a narrow aisle lift truck. The new Hyster® B60ZAC
Walkie/Rider Motorized Hand Pallet Truck, with a carrying capacity of 6,000 pounds, excels in warehousing applications where space utilization is a consideration.

[12]

key final assembly plants, including Greenville, North Carolina

and Berea, Kentucky in the United States, and Irvine, Scotland

and Craigavon, Northern Ireland in Europe.

The sustained weakness of the U.S. dollar compared with

the British pound sterling and euro has negatively affected

NMHG’s net income for the last few years. Unfavorable foreign

currency rates since 2002 have effectively lowered current

annualized pre-tax profitability, excluding the effects of hedges,

by approximately $70 million more than if the currency rates in

early 2007 had been the same as early 2002, which is when

NMHG’s operating profit margin target was established. NMHG

is currently evaluating actions more consistent with its stated

long-term strategy to manufacture products in the market of

sale, which has the added benefit of minimizing unfavorable

currency exposures. For example, several lift truck models

serving the United States market are currently manufactured in

the United Kingdom and Europe, and NMHG also purchases

many components in British pound sterling and euro currencies.

Several scenarios being considered, including the possibility of

changing the sourcing and assembly locations to more favorable

regions, would significantly lessen NMHG’s exposure to

fluctuating currency exchange rates. Decisions will not be made

or announced until thorough analyses and discussions are

completed. The impact of any actions, which would primarily

affect gross profit, is expected to occur in 2008 and beyond.

Quality initiative. A number of programs within NMHG

are part of a corporate-wide emphasis on quality and an

initiative to further reduce overall defect rates. These programs

focus on reducing warranty costs per truck and lowering

product liability claims. NMHG also continues to deliver cost

reductions and product quality improvements through its

Value Improvement

Program. Further

benefits of these initiatives

are expected to be

realized in the 2007

to 2008 time frame.

N A C C O I n d u s t r i e s ,

I n c .

Global supply chain. Demands on NMHG’s global

procurement group were high in 2006 as a result of continued

raw materials shortages, material cost increases and continued

high energy costs. From 2004 to 2006, NMHG faced cumulative

material cost increases totaling approximately $108 million,

primarily as a result of increased steel, lead, copper and energy

costs. In response, NMHG has worked closely with suppliers

to control costs and has implemented selective price increases,

which produced cumulative benefits from 2004 to 2006

totaling approximately $98 million. In 2007 and beyond,

NMHG plans to continue to actively monitor material costs

and make corresponding price adjustments to offset higher

costs when appropriate.

In addition to the short-term actions established to manage

these challenges, a program that is designed to completely

transform the supply chain process made significant progress at

NMHG in 2006. The program includes the implementation of

a new software system that is expected to enable greater regional

and worldwide coordination of purchasing and provide greater

efficiencies. Included in this program is the implementation of

a new, centralized global procurement organization structure

with local capabilities designed to deliver quality parts to plants

on time for production. This new structure will permit plant

management to spend less time planning parts deliveries and

to focus more on manufacturing operations. This program is

scheduled to be implemented during the first half of 2007, and

the benefits from the program are expected to be realized, to

some extent, in the second half of 2007, with the full impact

in 2008 and beyond.

Concurrently, NMHG is continuing its ongoing efforts to

optimize its supplier base and lower costs by making that group

Top to bottom: The Hyster® YardMaster® II ReachStacker lift truck, for high productivity applications at ports and railroad terminals, is used for loading and stacking containers and
has a lifting capacity up to 115,000 pounds. The new Yale® VeracitorTM 50VX counterbalanced internal combustion engine cushion tire lift truck with lifting capacity up to 12,000 pounds.

[13]

N A C C O I n d u s t r i e s ,

I n c .

smaller, more reliable and more responsive. Non-core

efficiencies are expected to increase individual lift truck

components continue to be outsourced to low-cost suppliers

profitability as well as overall company profitability. This

around the world, with increased focus on China, Mexico and

program will primarily affect gross profit, and the most

Eastern Europe. These programs to enhance profitability are

significant benefits are expected to be realized increasingly in

intended to improve gross profits and decrease selling, general

the 2007 to 2009 period.

and administrative expenses (“SG&A”) and working capital

New product introductions. Over the next two to three

requirements and should be realized with the introduction of

years, NMHG expects to deliver a continuous stream of new

newly designed products in 2007 to 2008.

product introductions and product improvements covering the

ICE, electric, warehouse and big truck product lines.

Key Programs for Flexible, Modular Products

In 2006, NMHG introduced the 4 to 5.5 ton ICE lift truck

A key NMHG strategy is to develop modular products

series, the next series in the continued rollout of the 1 to 8 ton

that can be flexibly configured to provide unique, tailored

ICE lift truck line, which includes the Hyster® Fortis™ and

solutions that deliver superior value to end users. Supporting

Fortens™ and the Yale® Veracitor™ series of lift trucks. In 2007,

this strategy is NMHG’s well-developed and recognized ability

the company plans to introduce the 6 to 7 ton ICE lift truck

to translate end-user needs into global, adaptable and highly

series and in early 2009, the final series in the ICE line, a new

reliable products. The following programs are focused on

8 to 9 ton lift truck series, is scheduled for introduction.

achieving these results:

A completely new line of electric counterbalanced lift trucks,

New product development process. In 2006, NMHG

which will benefit from the same design and manufacturing

continued to implement this program to improve profitability

approach as the 1 to 8 ton ICE line, is scheduled to roll out in

through its unique approach to developing new products.

2008 and 2009.

Complete ranges of products are developed simultaneously

NMHG’s warehouse product line offering was significantly

rather than on a traditional series-by-series approach, including

strengthened in 2006 with the introduction of a new Reach truck

the new 1 to 8 ton internal combustion engine (“ICE”) lift truck

and End-Rider Pallet truck in the Americas, a new Low Level

line. Platforms, components and modules have been designed

Order Picker in Europe and a new Very Narrow Aisle truck in

to be used across a wide array of lift trucks. This approach

both the Americas and Europe. Additional new warehouse

decreases the overall number of components required and

products are scheduled for introduction in 2007, including a new

permits easier and more frequent upgrades. In addition, design,

Retail Reach truck in the Americas. A number of feature improve-

prototyping and testing are guided by a rigorous, staged

ments are also planned in 2007 to allow the warehouse lift trucks

approval process that delivers higher levels of reliability while

to perform better in targeted applications at key customers.

increasing speed to market.

NMHG’s Big Truck line improved in 2006 with the

Increased component commonality, combined with

introduction of a new Reach Stacker, a new Container Handler

engineering techniques designed to deliver a more efficient

and new forklift trucks in the 16 to 22 and 40 to 48 ton capacities.

assembly process, are expected to continue to increase labor

In addition, three new engines were introduced in 2006 to meet

efficiency and improve product quality. Lift trucks utilizing

new emissions requirements. Additional capacity models and

interchangeable components and systems assembled on

upgrades to the Big Truck line are scheduled for introduction

computer-aided assembly lines are increasing NMHG’s ability

in 2007 and 2008.

to configure and manufacture lift trucks to individual customer

The introductions of these newly designed products are

application requirements.

expected to enhance revenue and margins as well as absorb

For newly designed product lines that have already been

unused manufacturing capacity, primarily in the 2007 to 2008

introduced, these product development efforts are improving

time frame as these new product introductions are completed.

the quality of NMHG’s products, as well as more cost-effectively

SPED Strategy. The company has the ability to create

meeting end-user requirements. In the long term, improved

truly customized features or configurations when customer

Right: The Yale® AC-Powered Narrow Aisle Reach truck with lifting capacities from 3,000 to 4,500 pounds.

[14]

The new Yale® AC-Powered Reach Trucks deliver great advances in
ergonomics and productivity within a warehouse environment.

Hyster® prototype Hydrogen-Powered Fuel Cell lift trucks are
successfully being tested at a number of high-profile customer sites.

N A C C O I n d u s t r i e s ,

I n c .

applications require highly specific solutions. This process,

through a strong global relationship with GE Capital, should

known internally as SPED, or Special Product Engineering

help the company accomplish this strategy. Several programs

Design, allows NMHG to respond to the unique needs of

supporting this service strategy include:

customers, particularly national account customers with large

National and global accounts. NMHG has industry-

lift truck fleets and specialized needs. In 2006, the company

leading fleet management and national account organizations in

implemented procedures to make the SPED process more

North America and is developing a national account program

effective for customers, yet more efficient for NMHG to

in Europe, while enhancing its global account capabilities.

administer. As a result, this profitability program is now viewed

NMHG’s goal is to offer superior value and services to large

as a continuous improvement process and is expected to provide

customers that have centralized purchasing but geographically

benefits to improve gross profit and

reduce SG&A gradually over the next

few years.

Strategic pricing optimization.

With the new modular product design

concept, dealers can more accurately

configure and price lift trucks to

customer applications. Linking prices

more closely to product features and

performance delivers value and lower

cost of ownership to customers and

enhanced margins to NMHG. In

conjunction with the program, the

company may also make selected

dispersed operations. This program to

generate growth is expected to increase

revenues and margins. The benefits

from this program will be gradual, but

increasing over the long term.

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

adjustments to the mix of performance and feature offerings

and offer higher-value services to their customers. This growth

on its lift trucks. The benefits of this program are expected to

program is expected to continue to enhance revenues and

occur increasingly during the 2007 to 2008 time frame.

margins and improve utilization of manufacturing capacity.

Industry Marketing Strategy. In another effort to serve

Benefits are expected to gradually increase over the long term.

customer needs more specifically and effectively, NMHG has

Dealer excellence enhancement program. This program,

embarked on an effort to tailor products, services and sales

designed to drive improvement at all Hyster® and Yale®

approaches to targeted industry segments. This growth program

dealers, provides dealers with best practices and performance

is expected to enhance revenue, in combination with other

assessment tools in the areas of operational and financial

programs, over the next several years.

management, lift truck and parts sales, service, rental and

fleet management. NMHG also offers customized consulting

Key Programs for Sales and Service Excellence

assistance to help dealers implement these programs to improve

NMHG is focused on maintaining and strengthening

sales and profitability. In addition, a number of special

its already highly professional direct and independent dealer

initiatives are under way at NMHG to improve the company’s

distribution networks to provide superior value-added support

ability to communicate with and provide services to the dealer

to its customers and market segments. NMHG’s experience

distribution network. These initiatives include order and

and success in building strong, lasting customer and dealer

contact management systems, a training knowledge center and

partnerships, as well as providing competitive financing

customer and dealer satisfaction programs. As NMHG helps

Left: A Hyster® Fuel Cell lift truck refuels at a hydrogen dispenser. This innovative lift truck was developed in partnership with Hydrogenics®, a leading Canadian company in the fuel
cell industry.

Above: The new Yale® VeracitorTM 50VX internal combustion lift truck series has been designed with a high degree of component commonality for simplified maintenance and
easy configurability.

[17]

dealers enhance their capabilities, dealers can be more responsive

to end users. These programs to generate growth are expected

to enhance dealer and NMHG revenues over the long term.

Aftermarket parts. In 2006, NMHG continued to leverage

an important strategic alliance with a leading aftermarket parts

provider in the Americas, Europe and Asia-Pacific. This alliance

has enhanced Hyster® and Yale® dealers’ offerings of competitive

lift truck parts as part of an effort to increase NMHG’s share

of its customers’ parts and service business. NMHG has also

made significant investments in training dealer technicians in

lift truck diagnostics, maintenance and repair procedures to

assure highest-quality customer service. Revenue and margin

improvements are being realized and are expected to continue

to increase gradually as a result of this growth program.

NMHG Retail improvements. NMHG Retail consists of

three dealer operations: Yale® in the United Kingdom, Hyster®

in part of France and Hyster® and Yale® in Australia. Other

operations have been sold in 2006 and prior years. NMHG

Retail has streamlined activities in its French and U.K. operations

to reduce costs, improve operational effectiveness and enhance

customer service to these markets, ultimately improving the

long-term financial performance of these operations. Efforts

to improve long-term financial performance are expected to be

implemented in Australia in 2007. These programs are expected

to have an impact in 2008.

Outlook for 2007 and Beyond

Global lift truck markets expanded again in 2006. The

company expects continued growth in many lift truck markets

in 2007, particularly in Eastern Europe, Asia and China. The

Americas market, which is NMHG’s largest market and which

has been growing for the last several years, is projected to be

slightly lower in 2007, a contraction that has been expected

due to the cyclical nature of the industry. As a result, NMHG

Wholesale expects to have only slightly higher volumes in 2007

in comparison with 2006 levels, with unit shipments of certain

newly designed products increasing at controlled rates to

accommodate the phase-in of these products at manufacturing

facilities throughout 2007.

The Yale® man-up turret lift trucks are designed for high-density warehouse applications
in aisles as narrow as five feet and provide capacity ranges up to 3,000 pounds.

Yale® Very Narrow Aisle Warehouse Trucks are designed for
maneuverability and ease of use for greater productivity.

N A C C O I n d u s t r i e s ,

I n c .

Costs associated with the phase-in of the 6 to 8 ton series

NMHG Retail’s objective continues to be to reach at least

of the new 1 to 8 ton ICE lift truck line are expected to temper

break-even financial performance while building market position.

that product line’s profitability in the near term with profitability

Improved results are expected in 2007 and 2008, particularly in

improving as the phase-in is completed and the company’s

Australia, where a number of restructuring actions are being

manufacturing locations move into full production. Improved

considered for implementation in 2007, with benefits from

price realization is expected to offset continued material cost

those actions anticipated for 2008 and beyond.

increases in 2007.

NMHG continues to believe it will be increasingly well

The company is committed to addressing the critical issue

positioned to offer superior products, efficiently manufactured

of unfavorable currency exchange rates. NMHG believes it must

and distributed by outstanding dealers. Key profitability and

respond to the continued weakening of the U.S. dollar and the

growth programs, particularly in the areas of quality and

effect of currency movements, which could have a further

efficiency, product flexibility and sales professionalism, are

negative impact on results in 2007 compared with 2006. In 2006,

expected to improve prospects for long-term growth in market

unfavorable currency fluctuations were mitigated as a result of

share and increased profitability.

favorable currency hedging positions established in early 2006.

In closing, I would like to give a special acknowledgment

Although the company continues to hedge its foreign currency

to Reg Eklund, who retired in June 2006 as President and Chief

exposures, more recent currency movements have prevented

Executive Officer of NMHG. During Reg’s 40-year career with the

the company from sustaining its previously favorable hedging

company, he set an outstanding example in both his responsible

position, leaving NMHG more exposed in 2007. NMHG

leadership and his personable style. This style was most evident

Wholesale’s operating profit margin was 3.3 percent in 2006.

during the last 14 years when Reg led NMHG. We all thank Reg

Assuming 2006 exchange rates for the euro and British pound

for his efforts and wish him the very best in his retirement.

sterling had been at early 2002 levels, the year when the timing

As I complete the first months in my new role, I want to

for NMHG’s profit improvement goal was established, NMHG

thank all NMHG employees and our dealers and suppliers

would have been significantly closer to attaining its operating

worldwide for their continued commitment to implementing

profit margin target.

vital programs and helping to improve profitability levels

NMHG Wholesale’s financial objective has been to achieve

while executing many simultaneous product launches. We are

an operating profit margin of 9 percent by 2007-2008. Over

committed both to successful execution of our stated plans as

the past several years, NMHG has successfully implemented

well as addressing the difficult challenges presented by operating

a number of performance improvement projects aimed at

in a complex, global economy. I would also like to thank

achieving this goal. Overall, NMHG Wholesale’s investment in

NMHG’s customers, whose needs we are dedicated to serving

long-term programs, particularly its significant new product

with our most intense energy. I look forward to working

development and manufacturing programs, are expected to

together with all of NMHG’s partners to meet the challenges

continue to affect results positively in 2007 and 2008, but adverse

and opportunities of 2007.

currency exchange rates are expected to extend the period of

time necessary to achieve the 9 percent operating profit margin

goal by roughly two years to 2010 or 2011. The company is

disappointed that it will not reach its goal in the time frame

previously announced, but rather than lower expectations for

profitability, NMHG remains committed to its goal and will

adapt its operational programs to the current business

environment. New, aggressive programs will be aimed at

improving profitability and, ultimately, reaching the operating

profit goal.

Michael P. Brogan
President and Chief Executive Officer
NACCO Materials Handling Group, Inc.

[19]

Managing for long-term profit growth
Hamilton Beach/Proctor-Silex

HB/PS continues to bring to market successful new products, such as
the innovative Toastation® combination toaster and toaster oven.

N A C C O I n d u s t r i e s ,

I n c .

2006 Results

Net income increased to $22.2 million in 2006 from

The past year was a significant one for Hamilton Beach/

$20.3 million in 2005. Net income benefited from several factors,

Proctor-Silex (“HB/PS”). The company maintained its solid

including increased sales of higher-margin products and the

revenue and earnings growth with a four percent increase in

recognition of lower restructuring charges in 2006 compared

revenues and a nine percent improvement in net income in

with 2005 associated with the Mexican facility restructuring.

2006 compared with 2005, despite activities associated with

These benefits were partially offset by increases in environmental

an unsuccessful attempt to acquire Applica Incorporated.

reserves of $2.2 million pre-tax and employee-related costs.

HB/PS’ performance was particularly strong taking into

In 2005, HB/PS recognized a pre-tax charge of $3.8 million

account relatively low-growth retail markets for housewares

associated with a restructuring program at the Saltillo, Mexico

products and in the context of continued pricing pressures from

manufacturing facility for the transfer of production of blenders

retailers, rising material costs and significant competition for

and coffeemakers for the U.S. and Canadian markets to third-

consumers’ discretionary income. In addition, the company

party Chinese manufacturers. In the fourth quarter of 2006,

delivered a favorable return on equity(1) (“ROE”) in 2006 of

the company recognized an additional charge of $1.5 million

18.0 percent up from 15.3 percent in 2005, and a solid return

pre-tax associated with the transfer of production of blenders

on total capital employed (“ROTCE”) of 14.2 percent in

and coffeemakers for the Mexican and Latin American markets

2006, up from 12.5 percent in 2005. (See reconciliations of

to third-party manufacturers. HB/PS will not have any

non-GAAP ROTCE on page 45.)

manufacturing operations following the closure of the Saltillo

HB/PS’ revenue, which increased to $546.7 million in

facility in mid-2007.

2006 from $527.7 million in 2005, benefited from additional

In 2006, HB/PS generated cash flow before financing

shelf placements and promotions by retailers in support of

activities of $35.9 million compared with $28.0 million in 2005.

direct-response television advertising, from increased sales of

Included in 2006 were cash proceeds of $11.4 million from the

higher-priced products and from newly introduced products.

sale of the Saltillo facility. Excluding this sale, cash flows were

Revenues
(In millions)

$546.7

$527.7

$503.9 $492.8 $507.3

$600

$500

$400

$300

$200

still very strong in 2006.

Net Income
(In millions)

$22.2

$20.3

$25

$20

$16.1

$15.2

$15

$13.4

$10

Left clockwise from top: Hamilton Beach/Proctor-Silex’s newest products include: Hamilton Beach® Brewstation® Plus 12 cup coffeemaker (shown in black), Proctor Silex®
12 cup coffeemaker (shown in white), eclectrics® all-metal kettle, Hamilton Beach® Custom GrindTM Deluxe 15 Cup Coffee Grinder, Hamilton Beach® Toastation® combination toaster
and toaster oven, TrueAir® Allergen Reducer.

[21]

N A C C O I n d u s t r i e s ,

I n c .

Applica Transaction

New, innovative products tend to drive growth and higher

Based on an evaluation of brand fit

margins in the marketplace. Against a backdrop of continued

and expected high synergy value, NACCO

interest in home cooking, many new products aimed at this

and HB/PS pursued an acquisition of

market, particularly those promoted on television, have been

Applica Incorporated in 2006. The proposed

well received by consumers. Brand names continue to be

transaction ended unsuccessfully in January

important in small kitchen appliances, with the importance of

2007 when a rival bidder acquired all of Applica’s

these names varying across consumer segments and markets.

outstanding shares for cash. NACCO believes

However, the overall market growth rate in

the original merger agreement was breached

small kitchen appliances

by Applica. NACCO is currently pursuing

is relatively low, with

litigation against Applica and its acquirer and

products facing increasing

has reserved all of its rights in relation to this matter. In 2006,

competition for consumers’

HB/PS incurred transaction expenses of $0.7 million, net of its

disposable income from

portion of the merger termination fee.

consumer electronics and

other gift items.

Vision and Goals

Strong relationships with the leading retailers, which

HB/PS’ vision is to be the leading North American

continue to grow in size, are critical for success. Shelf placement

designer, marketer and distributor of small electric household

is highly competitive and sales are increasingly driven by

and commercial appliances sold under strong brand names and

promotional activity in the fourth-quarter holiday season,

to achieve profitable growth from innovative solutions that

which delivers a significant portion of annual sales. In addition,

improve everyday living. HB/PS’ financial objective is to achieve

the impact of winning or losing a single product placement or

a minimum operating profit margin of 10 percent and to

multi-product placement program at specific retailers is being

generate substantial cash flow before financing activities.

magnified as certain retailers’ shares of the overall market grow.

Industry Trends

To achieve its stated goals, HB/PS has established strategies

and key programs aimed at responding to these industry trends.

Competition in the housewares industry continues to be

These strategies and programs focus on three fundamental areas:

intense as costs for freight and raw materials such as plastic,

continuous cost reduction; innovation; and professional sales

copper, aluminum and steel continue to place further

and marketing. Each key program is designed to enhance

pressure on margins. Competitors continue to

consolidate, which can provide them with greater

scale and efficiencies. To further lower costs

and provide greater value, HB/PS and other

housewares suppliers have transferred a

significant portion of their manufacturing to

third-party manufacturers located in lower-cost

profitability or generate growth. Profit enhancement

programs focus on efficiencies in product development,

manufacturing and the supply chain, while growth

programs focus on new innovative products,

branding and distribution channel optimization.

Key Programs for Continuous Cost Reduction

regions, primarily Asia. As a result, further dramatic cost

HB/PS is focused on driving continuous cost

reductions may be difficult to achieve in the near future and,

reduction throughout the entire company and at all of its

in fact, supplier costs are expected to increase in 2007 in order

suppliers. Achieving the 10 percent operating profit margin

to cover higher material costs and transportation expenses.

target has become part of the company’s culture. The company’s

Above top to bottom: Hamilton Beach® EnsembleTM red 14 speed blender, Hamilton Beach® Stay or GoTM 6 quart slow cooker, Hamilton Beach® classic stainless extra-wide slot toaster.

Right top to bottom: Hamilton Beach® 3-piece Party CrockTM cookset, Hamilton Beach® Big Mouth® Juice Extractor, Hamilton Beach® stainless steel kettle, Proctor Silex® auto shutoff iron.

[22]

N A C C O I n d u s t r i e s ,

I n c .

exceptional ability to identify and eliminate unnecessary costs

2006 as evidenced by lower product return rates, and further

across the value chain is a key competitive advantage. Three key

improvements are anticipated in 2007 and beyond.

programs directed at accomplishing improvements and cost

Supply chain optimization. HB/PS’ continued focus on

reductions include:

supply chain management in 2006 resulted in

Manufacturing cost reduction. A shift to outsourcing, as

performance improvements for the

well as a number of manufacturing efficiency programs, are

company and for HB/PS’

helping HB/PS reduce product costs. HB/PS

retail customers. HB/PS

essentially completed these programs in 2006

continues to implement

and expects by mid-2007 to be using third-

improvement projects at

party manufacturers to produce all of its

its Memphis, Tennessee

products. The company expects continued

distribution facility, and the company is

margin improvements in 2007 as a result

increasingly offering customers additional

of the manufacturing restructuring

efficiencies through direct-ship programs, which route products

programs implemented in 2006 and

directly to retailers’ warehouses from third-party suppliers.

prior years, with the full impact realized

HB/PS is expected to improve its capabilities in 2007 through

in 2008.

implementation of a new supply chain software system, which

The company also expects improved margins on

is designed to enhance collaborative planning, forecasting and

commercial products and consumer blenders for the U.S. and

replenishment processes with several key retailers. Benefits from

Canadian markets that were transferred from owned factories

this program are expected to be realized in 2007 and 2008.

in the United States and Mexico to third-party suppliers in

China during 2006. The full impact of these programs is

Key Programs to Leverage Innovation

expected in 2008 and beyond.

Furthermore, HB/PS is implementing its

HB/PS relentlessly pursues innovation in its

product categories through its superior ability to

ongoing Value Improvement Program, which seeks to

research, design and test new product concepts.

reduce costs of processes, components and products,

Two programs supporting this strategy include:

at its suppliers’ plants. The company’s objective is to

Product development process. HB/PS’ product

maintain a significant competitive advantage by

development process is designed to create a steady

combining low-cost, third-party manufacturing

stream of innovative products that exceed current market

capabilities with HB/PS’ extensive manufacturing

offerings in features, performance, style and value. HB/PS’

experience. This program provided significant benefits in 2005

goal is to deliver the most innovative products at the most

and 2006, and additional incremental gross margin benefits are

competitive costs possible and to bring to market products that

expected in 2007 and beyond.

represent best-in-class performance. HB/PS utilizes in-depth

Continuous quality improvement. HB/PS is committed

consumer research that enables the company to develop

to continuous quality improvement throughout all areas of the

products with consumer-preferred features and high rates of

company. HB/PS has made quality a significant focus at key

market acceptance. HB/PS’ engineers in both the United

suppliers in China by providing guidance on specific processes

States and China, as well as engineers at the company’s

and techniques to ensure high quality, consistency and efficiency.

key partners in China, all contribute to the

These programs should pay off increasingly as expenses for

process for designing successful new

implementing this program have already been incurred. Further

products. This program to enhance

improvements in already high levels of quality were realized in

profitability is designed to improve

[23]

The Hamilton Beach® eclectrics® new Sterling line combines the best
of performance and styling for a higher-end consumer market.

N A C C O I n d u s t r i e s ,

I n c .

gross margin and decrease selling, general and administrative

Key Programs for Professional Sales and Marketing

expenses, and is an ongoing investment that is expected to

HB/PS also has an ongoing strategy to develop and sustain

bring both near-term and long-term benefits.

the most professional sales, marketing and branding programs

New product introductions. Backed by its consumer-

in the industry. The company has a proven ability to match

oriented product development process, HB/PS has demonstrated

products, services and brands to specific retailer assortment

a strong track record in new product introductions. Additionally,

needs. Programs supporting this strategy include:

patent protection is vigorously pursued and enforced, when

Retailer and channel focus. HB/PS works closely with

appropriate, for new products, product features or designs.

retailers to develop product assortment strategies to optimize

In 2006, more than 40 percent of the company’s U.S.

category profits. In-depth data analyses are used to recommend

consumer sales were from products introduced in the previous

the most profitable combination of products, features and price

three years. The revolutionary Hamilton Beach® BrewStation®

points in each product category. In turn, these analyses drive

coffeemaker, featuring carafe-less cup-activated dispensing,

the HB/PS product development process, improve speed to

continued to be the number-one-selling coffeemaker product

market and increase the success rate of new products. HB/PS’

family in the United States. Other examples of innovative new

category management approach is applied across all types of

products include the Toastation® toaster, which can be used as

retail channels, from mass merchants to smaller regional

both a front-load toaster oven and a top-load traditional toaster

retailers, and is being applied in the United States, Mexico,

and the Stay or GoTM Slow Cooker, which features full-grip

Canada and other selected international markets. This growth

handles and a secured lid with lid locks for spill-resistant

program has helped enhance revenues and margins and is

transportation. In addition, in 2006, HB/PS continued to roll

expected to continue to do so.

out new colors in the Hamilton Beach® eclectrics® line, a

Strategic brand application. HB/PS has a broad

higher-end, color-coordinated line of die-cast kitchen appliances.

complement of key brand names targeted at distinct consumer

The company introduced several new commercial blenders

segments. The Hamilton Beach® eclectrics® brand targets

in 2006, which were well received by the market, and plans to

high-end consumers who demand the best in performance

introduce a number of other new commercial products in 2007

and style and are willing to pay more for those benefits. The

and 2008. HB/PS is optimistic that these new products will

Hamilton Beach® brand targets mid- to higher-end consumers

have a significant impact on the revenues and profitability of

desiring a strong brand name, innovative features, great

its commercial business. This growth program is expected to

performance and attractive styling. The Proctor Silex® brand

provide revenue and margin improvements for the commercial

targets middle-market consumers who prefer a strong heritage

as well as consumer markets.

More than 40% of U.S.
Consumer Sales were from Products
Introduced in the Last Three Years

2006

6.2%

22.6%

56.7%

14.5%

(cid:2) 2006 Products (cid:2) 2005 Products
(cid:2) 2004 Products

(cid:2) Established Products

brand name and good performance with good features and

appearance at a reasonable price. The Traditions by Proctor

Silex® brand targets entry-level consumers with basic, lower-

priced products. The TrueAir® brand, used for home health

products, continues to demonstrate strong appeal in its market

segment. HB/PS may also use its brand names in conjunction

with other companies’ brand names. For example, an agreement

with Procter & Gamble (“P&G”) created a co-branded odor

eliminator with P&G’s well-known Febreze® brand. Overall,

strategically applying this range of targeted brands is expected

to continue to benefit HB/PS on an ongoing basis.

Left: The Hamilton Beach® eclectrics® all-metal product line in the new sterling color. Clockwise from the top: eclectrics® all-metal blender, eclectrics® all-metal coffeemaker,
eclectrics® all-metal toaster, eclectrics® all-metal stand mixer, eclectrics® all-metal drink mixer.

[25]

Hamilton Beach® Commercial remains a leading brand name in
blenders and drink mixers for restaurants and bars.

N A C C O I n d u s t r i e s ,

I n c .

The Hamilton Beach® Commercial brand targets

and achieving a high ROE(1) of 18.0 percent. However, increases

restaurants, bars and the hotel amenities markets. The strong

in raw material and supplier costs, continued moderate industry

heritage of the Hamilton Beach® Commercial brand name

growth and the timing of completing specific improvement

results from many successful years of producing blenders and

projects are likely to delay target timing for reaching this

the classic soda fountain-style milkshake mixers that could be

operating profit goal. HB/PS expects to continue to approach

seen on the back counter of almost every soda fountain across

this goal during 2007 and 2008, with the objective of attainment

America. Today, the Hamilton Beach® Commercial brand

in 2009. HB/PS generated cash flow before financing of $35.9

name is associated with a wide variety of products found in

million in 2006 and expects to continue to generate significant

commercial kitchens, restaurants, bars and hotels. It remains a

cash flow before financing in future years.

leading brand in commercial blenders and

spindle mixers in the United States.

Outlook for 2007 and Beyond

As a result of its ongoing focus on

innovative new products, HB/PS has a

strong assortment of new products

planned for 2007 and 2008. HB/PS is

moderately optimistic that raw material

costs will stabilize. However, the company

will closely monitor material costs and

work to mitigate any increased costs

In summary, the company is optimistic

about the successful implementation of its

strategic programs and about its prospects

for continued performance improvement.

In 2006, everyone at HB/PS worked as

a team to accomplish our objectives while

putting forth extraordinary effort related

to the Applica transaction. HB/PS achieved

significant success as we worked together

to control costs, bolster brands and further

enhance professionalism. HB/PS is

becoming increasingly agile and innovative,

through continued implementation of programs initiated in

yet remains highly analytical and fiscally responsible. Most

prior years, as well as through price increases when appropriate.

importantly, HB/PS is a company that listens, with the utmost

HB/PS is also hopeful that consumer markets will improve in

consideration, to our end users and retail customers. My thanks

2007 and beyond and that it will continue to see performance

go out to every one of the company’s employees for sustained

improvements from its profitability and growth programs over

excellence in this competitive yet exciting environment. I look

the next several years. Specifically, efforts in corporate cost

forward to our continued success in 2007.

reduction, quality improvement, product innovation, promotions

and branding are all expected to help sustain or improve

profitability in 2007 and 2008.

Overall, HB/PS is proud of its record of profit improvement

and intends to make further strides. As noted earlier, HB/PS’

goals have been to achieve a 10 percent minimum operating

profit margin, as well as to generate significant cash flow before

financing activities. The company made significant progress

toward its operating profit margin goal by reaching 7.8 percent

in 2006, up from 7.0 percent in 2005 and 5.6 percent in 2004,

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

(1) ROE = 2006 net income divided by 2006 average equity (a five-point average of equity at December 31, 2005 and each of 2006’s quarter ends).

Left: New Hamilton Beach® Commercial bar blenders for use in bars and restaurants include from left to right: Hamilton Beach® Commercial Rio® bar blender, Hamilton Beach®
Commercial single spindle drink mixer, Hamilton Beach® Commercial 908® bar blender.

Top: The new Hamilton Beach® Commercial triple spindle drink mixer.

[27]

Managing for long-term profit growth
Kitchen Collection

In 2006, Kitchen Collection acquired the assets of Le Gourmet Chef, which
provides an exciting growth platform in outlet and traditional malls.

N A C C O I n d u s t r i e s ,

I n c .

2006 Results

2005, and a solid return on total capital employed (“ROTCE”)

Kitchen Collection (“KCI”) had an excellent year in 2006.

of 18.3 percent in 2006, up from 6.9 percent in 2005. (See

The 2006 results include the operations of Le Gourmet Chef

reconciliations of non-GAAP ROTCE on page 45.)

(“LGC”), a chain of 77 kitchenware stores, which were acquired

KCI generated cash flow before financing activities of

in August 2006. Sales increased 46 percent in 2006 due to the

$1.1 million in 2006, a significant achievement considering the

addition of four months’ revenue from the Le Gourmet Chef®

relative size of the LGC acquisition. In 2005, KCI had negative

stores (“LGC stores”) and as a result of a significant turn-

cash flow before financing activities of $0.9 million.

around in the outlet mall business driven by a stabilization of

gasoline prices during the last half of 2006 and favorable weather

Le Gourmet Chef Transaction

patterns. A corresponding rise in customer visits and an increase

On August 28, 2006, KCI acquired certain assets of

in the number of transactions produced improvements at

Le Gourmet Chef, Inc., after LGC had entered bankruptcy.

Kitchen Collection® stores (“KCI stores”). Improvements to

The assets acquired included 77 retail kitchenware stores

product offerings and the merchandising approach at KCI

across the United States, including 53 stores located in factory

stores also helped produce higher average sales transactions.

outlet malls and 24 stores in traditional malls. KCI currently

Overall, KCI store sales increased 9.4 percent in 2006 from

anticipates keeping open all but approximately eight LGC

2005. Excluding the acquisition of LGC, the number of KCI

stores. KCI will continue to operate the stores under the

stores increased to 203 in 2006 from 195 in 2005. The company

Le Gourmet Chef® name, utilizing its successful format

also operated 23 seasonal stores in traditional malls during the

and product offerings, which feature gourmet foods, home

fourth-quarter holiday season compared with 21 in 2005.

entertainment products and electric and non-electric kitchen

Net income increased substantially to $3.7 million in

items. KCI is in the process of closing LGC’s headquarters in

2006 from $1.0 million in 2005. In addition, as a result of

Shrewsbury, New Jersey, and integrating those operations into

improvements at KCI stores and inclusion of the operations of

the KCI headquarters in Chillicothe, Ohio. KCI believes that

the LGC stores late in the third quarter of 2006, which allowed

LGC’s formats are complementary to the KCI stores’ format

KCI to benefit from those stores’ operations during the most

and that the LGC acquisition will provide significant synergy

profitable part of the year, KCI achieved a very strong return

and growth opportunities for the company in both the short

on equity(1) of 28.2 percent in 2006, up from 8.7 percent in

and long term.

Number of Stores

280*

188

195

180

173

300

250

200

150

100

Revenues
(In millions)

$170.7*

$116.9

$111.1 $110.2 $112.3

$180

$160

$140

$120

$100

$80

*Includes acquisition of 77
Le Gourmet Chef® stores.

*Includes the sales of Le Gourmet Chef®
stores beginning on August 28, 2006.

Average Sales Transaction

$21

$20

$19

$18.04

$18

$20.46

$19.10

$18.58

$18.29

$17

$16

(1) Return on equity = The respective year’s net income divided by that year’s average equity (a five-point average of equity at December 31 of the previous year and
each of the respective year’s quarter ends).

Left: The Le Gourmet Chef® store in Paramus, New Jersey, features higher-margin, brand-name kitchenware and gourmet foods.

[29]

Kitchen Collection’s highly efficient warehousing operations are an
important competitive advantage for the company.

Vision and Goals

KCI believes there is excellent growth potential in

KCI’s vision is to be the leading specialty retailer of kitchen,

kitchenware retailing, but only through offering unique,

home entertaining and gourmet food products in outlet malls

high-quality products at prices affordable to most consumers.

and other retail channels for consumers seeking a large selection

Despite a challenging economy and high interest in consumer

of unique, high-quality products at an exceptional value.

electronics items, the continued popularity of cooking shows

KCI’s goals are to earn a minimum operating profit margin of

is evidence of consumers’ heightened interest in home

5 percent and to generate substantial cash flow before financing

cooking. While a number of very low-end and very high-end

activities. The advances made in 2006, as well as the addition

kitchenware retailers participate in the marketplace, there is

of the LGC format, are expected to significantly improve KCI’s

still an excellent opportunity for stores offering mid-priced,

progress toward those goals over the next few years.

high-quality kitchenware.

Industry Trends

While the outlet mall industry expanded rapidly during

the 1990s, its growth has now slowed as consumers find great

The retail environment has become increasingly

values in many channels, including mass retailers and the

competitive over the past several years. Widespread Chinese

Internet. Consumer traffic at many outlet malls improved in

sourcing has increasingly leveled the playing field, allowing

2006 due, in part, to stabilization of gasoline prices. For store

many retailers to offer value-priced kitchen products. To succeed

formats with a widespread presence in existing outlet malls,

in kitchenware retailing, costs must be kept to a minimum.

such as KCI, overall success will require optimizing performance

Above and right: To replenish inventory, items within Kitchen Collection’s warehouse are selected, bar coded in real time and placed on conveyors. The conveyor system moves items
to the shipping area where they are automatically sorted by store location and loaded onto trucks for regional distribution.

[30]

N A C C O I n d u s t r i e s ,

I n c .

in each existing store rather than expansion to new outlet

initial integration of LGC’s logistics and warehousing

malls. For store formats that have not fully expanded into the

operations will continue in 2007, complete integration and

existing outlet mall market, such as the LGC format, there is

further enhancement of the combined LGC-KCI supply chain

still opportunity for growth. Beyond outlet malls, the company

operations will take place in 2008.

believes that significant growth opportunities exist in other

channels, such as traditional malls and lifestyle centers.

Key Programs to Ensure Unique, Affordable Products

To help KCI attain its stated goals, the company has

Another KCI strategy is to provide customers with a

established strategies and key programs geared to these

continuous stream of innovative, quality products offered at

current industry trends. KCI’s strategies and key programs

affordable prices. The company’s strong competency in

are focused on three main program

areas: disciplined cost control;

unique, affordable products; and

store improvement and expansion.

Programs designed to enhance

profitability are especially important

in periods of reduced traffic in outlet

malls. In addition, programs to expand

store formats outside of outlet malls

are increasingly important for

generating growth.

providing both analytical rigor and

creativity to the product selection

process supports this strategy – for

both KCI and LGC stores – through

the following programs:

Innovative products and

merchandising. This growth program

is designed to ensure that the latest

products with the highest potential

are found on the shelves of KCI

and LGC stores, and that products

are displayed in ways that attract

Key Programs for Disciplined Cost Control

consumer attention. The company continually tests and

KCI’s proven ability to aggressively manage both vendor

implements new approaches to increase traffic in its stores, to

and store costs is accomplished through three established

increase the percentage of individuals who make purchases

programs.

after they enter a store, to encourage customers to purchase

Continuous product cost management. This ongoing

higher-margin items and to increase the average purchase

program to enhance profitability draws upon KCI’s significant

amount of those who buy items in the stores. At KCI stores,

experience in sourcing and managing vendors. This expertise

special brand programs, “as-seen-on-TV” items and special

will also be applied to the products sold in LGC stores, some

value close-outs are all part of this program to increase revenue

of which are supplied by companies with whom KCI already

on an ongoing basis. At the LGC stores, product demonstrations

does business, but most of which are unique to LGC. KCI

and sampling of gourmet food items are particularly effective

management views this as an area of opportunity.

in driving consumer interest and increasing sales. In addition,

Store expense management. This ongoing program to

the LGC stores have in place a well-developed customer loyalty

enhance profitability relies upon KCI’s ability to manage store

program, called Le Club, which is expected to contribute

rental and labor costs, which are key drivers of profitability.

positively to performance at those stores.

This program is of particular importance as KCI works to

Hamilton Beach/Proctor-Silex brand leverage. KCI

optimize the profitability of the newly acquired LGC stores.

continues to leverage its lines of sourced private label

Logistics efficiency. In 2006, KCI continued to improve its

merchandise featuring the Hamilton Beach® and Proctor Silex®

warehouse operations in Chillicothe, Ohio, to increase capacity

brand names, which are unique to KCI and among KCI’s most

and throughput and decrease overall operating costs. While

successful and profitable product lines. These private label

[31]

Food sampling and appealing tabletop décor are key elements for
creating an engaging Le Gourmet Chef ® store experience.

N A C C O I n d u s t r i e s ,

I n c .

non-electric product lines, offered at KCI stores, feature nearly

The company has selectively introduced a larger store

400 items, including gadgets, cutlery, cutting boards, barbecue

format for KCI stores in the outlet mall channel. These stores

tools, bakeware and cookware.

offer an expanded assortment in several key areas, including

Economic Value Income. KCI utilizes disciplined operating

tabletop, dinnerware and glassware items. LGC stores are

controls to improve margins. The company continues to use its

already generally larger than typical KCI stores. Larger KCI or

proprietary Economic Value Income (“EVI”) business tool to

LGC stores will be used where the additional cost of space can

maximize return per cubic foot of retail space. When combined

be justified.

with other revenue and margin enhancement programs,

Traditional mall format initiatives. For some time,

EVI assists in optimizing profit from the mix of products, the

the company has stated its belief that the development and

amount of space allocated to each

product and the most appropriate

store size. As the LGC stores become

integrated into the company’s

operations, EVI analysis will be utilized

in those stores as well.

Key Programs for Store
Improvement and Expansion

KCI’s primary strategy for growth

focuses on strengthening its leadership

position in outlet malls, while working

expansion of a traditional mall store

format represents the most promising

driver of future growth. This belief

was a key driver in KCI’s interest in

the LGC acquisition, and the company

sees high-growth potential for the

LGC format in traditional malls.

While KCI developed and tested

several formats of its own for use in

this segment, the LGC store format –

with its higher-end offerings, gourmet

foods, home entertaining products and

to reach customers through other channels. KCI has developed

gifts – is excellently suited for traditional malls and represents a

a particular strength in analyzing store data and creating

quicker way for the company to enter this channel. With the

specialized programs for different types of channels. KCI has

addition of LGC, the company has 39 permanent, traditional

four programs aimed at making this strategy successful.

mall stores in a potential market of more than 500 traditional

Outlet mall format initiatives. With nearly 250 outlet

malls nationwide. The company continues to gain important

mall locations, KCI and LGC stores can be found in a variety

insight from its KCI stores and the newly acquired LGC stores

of outlet mall types. The company utilizes mall profiling

located in traditional malls. However, KCI will remain prudent

information and segmentation analysis to assess new outlet

regarding the pace at which it opens additional stores to ensure

mall locations as well as improve profitability at existing outlet

that store profits meet the company’s objectives.

malls. As a result, the company manages its outlet stores

The company operated 23 seasonal KCI stores in traditional

differently depending on whether an outlet mall has high-end

malls in November and December 2006. These profitable stores

retail tenants, is located near a tourist destination or is located

utilize short-term leases and a quick-to-set-up temporary store

in an urban or rural area. With the acquisition of the LGC

format to take advantage of the holiday gift-giving season. This

stores, the company now has a solid complementary retail

program, which can be expanded, is expected to continue to

platform on which to expand. Initial analysis indicates

add revenues and profitability in coming years.

significant potential for additional LGC stores, particularly in

Vanity Fair initiative. KCI is currently taking part in a test

higher-end outlet malls, even when there is a KCI store present

program in which Vanity Fair Corporation rents large retail

in the same outlet mall.

spaces, formerly occupied by large big-box retailers such as

Left and above: Le Gourmet Chef® stores are separated into sections featuring Spices, Barbeque, Cookware, Snacks, Tex-Mex, Baking, Breakfast and Seafood. Featured at left is a product
sampling and food-tasting station and above is the Barbeque section of the Paramus, New Jersey store.

[33]

KCI stores create effective regional assortments, such as Ohio State
Buckeyes merchandise offered in KCI’s flagship store in Chillicothe, Ohio.

N A C C O I n d u s t r i e s ,

I n c .

K-Mart, and converts them into “mini-malls” with a substantial

KCI’s operating profit margin, including LGC, was

number of discount retailers inside. These stores previously

4 percent in 2006, which was below the company’s objective

operated under the Outlet MarketPlace name, but will operate

of earning a minimum operating profit margin of 5 percent.

under the Vanity Fair name going forward. Vanity Fair provides

For reasons explained previously, this operating profit margin

all labor related to store operations, with KCI responsible only

could be challenging to reach again in the next few years.

for stocking its assigned space. To date, the test stores have

However, with sustained strong consumer traffic at outlet

operated below KCI’s expectations. KCI will continue to evaluate

malls, the full realization of planned synergies from the LGC

this novel approach and work to improve profitability. Any

acquisition and an increase in the number of stores, particularly

future growth of this concept will be considered judiciously

LGC stores, KCI hopes to reach the operating profit margin

by KCI based on profit prospects.

target by 2008. KCI generated positive cash flow before

Internet format initiative. Sales from the company’s

financing activities in 2006, even after the cash outlay for the

website, www.kitchencollection.com, decreased slightly in

LGC acquisition. This is an outstanding result given the relative

2006 compared with 2005; however, this channel remains

size of the acquisition. However, at the end of 2006, KCI was

profitable for the company. Current sales on the LGC website,

still in the process of restoring LGC’s depleted inventory to

www.legourmetchef.com, are minimal. Efforts are under way

normal levels to ensure product availability.

to improve the LGC website and drive increased traffic and

In summary, KCI will continue to pursue its objectives by

sales based on KCI’s experience and knowledge. As marketing

maintaining disciplined cost control, offering unique products

activities increase, such as direct e-mail campaigns and Web

at great values and balancing its outlet mall stores with stores

partner programs, sales and profits from both the KCI and

in traditional malls. KCI’s acquisition of LGC represents a key

LGC websites are expected to increase.

element of pursuing these objectives. The integration and

Outlook for 2007 and Beyond

optimization of the LGC stores and operations will be a main

focus of the company’s efforts in the coming months and years.

Overall, KCI believes it has managed costs well through

In closing, I want to thank all of our employees – both our

challenging times in the marketplace and these efforts are

existing KCI employees as well as our new employees from LGC

delivering higher profits as sales have begun to rebound. Under

– for their hard work and dedication, particularly those that

these conditions, and with the beneficial timing of the LGC

dedicated a substantial amount of extra time and energy to the

acquisition, KCI’s 2006 net income increased significantly over

acquisition and initial integration of LGC. I look forward to

the prior year to $3.7 million. The company expects modest

working with everyone on our newly expanded team in 2007.

increases in sales in 2007 from new store openings, particularly

new LGC stores in outlet malls, new product offerings and

continued success of other key growth programs. In addition,

with a majority of the integration programs of the LGC

operations scheduled to occur in 2007, KCI expects to realize

many of the projected synergies in 2007. However, sustaining

2006 results in 2007 will be challenging because, in 2006, KCI

only owned LGC from September through December, the

most profitable four months of the year. Accordingly, KCI did

not recognize the eight months of pre-acquisition normal

operating results for LGC.

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

[35]

Managing for long-term profit growth
The North American Coal Corporation

North American Coal conducts highly coordinated operations 24 hours
a day, 365 days a year at most of its mines.

N A C C O I n d u s t r i e s ,

I n c .

2006 Results

18.1 percent without the impact of the dragline sales, compared

North American Coal (“NACoal”) had an excellent year

with 10.6 percent in 2005. (See reconciliations of non-GAAP

in 2006 with significant increases in both revenues and net

ROTCE on page 45.)

income. NACoal’s six lignite coal mining operations delivered

NACoal also generated very strong cash flow before

35.4 million tons of lignite coal in 2006 compared with 34.7

financing activities of $42.9 million, which includes proceeds of

million tons in 2005, maintaining NACoal’s position as the

approximately $30 million from the sale of two draglines. This

nation’s largest lignite coal producer and one of the top ten

compares with cash flow before financing activities of $5.0 million

coal producers nationwide. The company’s lignite coal reserve

in 2005.

position remains strong with a total of 2.2 billion tons, of which

1.1 billion tons are committed to current customers.

Vision and Goals

NACoal’s limerock dragline mining operations had strong

NACoal’s vision is to be the leading low-cost miner of

growth with limerock deliveries 56 percent higher than in 2005.

lignite coal used in power generation, coal gasification and

Limerock deliveries totaled 39.2 million cubic yards during

coal-to-liquids plants and to provide selected value-added

2006 compared with 25.2 million cubic yards during 2005.

mining services for companies in the aggregates business.

NACoal’s net income in 2006 increased to $39.7 million

NACoal’s goals are to earn a minimum ROTCE of 13 percent,

compared with $16.2 million in 2005. A significant portion of

deliver positive Economic Value Income (“EVI”) from all existing

this increase resulted from a gain of $21.5 million pre-tax, or

consolidated mining operations and any new projects, maintain

$13.1 million after taxes of $8.4 million, from the sale of two

or increase the profitability of all existing unconsolidated project

electric draglines. Excluding the dragline sales, net income still

mining operations, generate substantial consolidated cash flow

improved more than 60 percent compared with 2005, mainly

before financing activities from existing operations, and achieve

from improved results at all operations.

substantial income growth by developing new mining ventures.

As a result of this excellent year, NACoal produced a strong

NACoal is making good progress toward achieving all of its

return on equity(1) of 60.9 percent and an improved return on

goals and expects further improvement in 2007.

total capital employed (“ROTCE”) of 25.6 percent in 2006, or

Lignite Coal Tons and
Limerock Cubic Yards Delivered
(In millions)

39.2

34.2

35.5

34.4

34.7

35.4

25.2

18.9

10.6

11.0

Revenues
(In millions)

$149.0

$118.4

$110.8

$94.1

$86.2

$160

$120

$80

$40

04
03
(cid:2) Lignite Coal Tons
(cid:2) Limerock Cubic Yards

Net Income
(In millions)

$39.7*

$45

$30

$19.6

$15

$14.3

$18.6

$16.2

*Includes gain on sale of $21.5 million, or
$13.1 million after taxes of $8.4 million,
from the sale of two electric draglines.

(1) Return on equity = 2006 net income divided by 2006 average equity (a five-point average of equity at December 31, 2005 and each of 2006’s quarter ends).

Left: The Red River Mining Company in Louisiana uses a variety of heavy-duty equipment to mine lignite coal, including, from the background forward, a Marion 7820 dragline,
a hydraulic backhoe loading shovel and Caterpillar haul trucks.

[37]

Once coal seams are exposed, lignite is collected efficiently, loaded directly
into haul trucks and delivered immediately to the nearby power plant.

Industry Trends

New opportunities and growth in the mining industry

Safety and efficiency continue to be critical to success in

exist in traditional coal and aggregates mining as well as in new

the mining industry. Operating costs are highly sensitive to

areas, such as coal-based alternative fuel production. In certain

changes in mining routines. Recently, increases in diesel fuel

regions of the United States, the demand for power has increased

cost and the availability and cost of large off-road tires for

significantly over the past few years. Significant advances in

mining equipment have created additional challenges. Long

traditional power generation technology, along with natural gas

lead times and significantly higher prices for new mining

prices that are still relatively high, have increased the probability

equipment, such as draglines, present more challenges. Difficult

that a substantial number of new coal-fired power plants will

mining situations also put pressure on profitability. Successful

be built over the next several years. In addition, many energy

companies must remain vigilant about containing costs.

companies are now considering completely new energy

Lignite coal customers, primarily electric power plants,

technologies, such as coal gasification and coal-to-liquids

are under constant pressure from their end users to provide

production. NACoal expects to continue to play a leadership

affordable power in an environmentally sensitive manner. Since

role in the evolving energy, environmental and national energy

mining is a relatively mature industry, mining companies must

policy landscape with the objective of capitalizing on the

develop innovative processes to remain competitive.

growing need for low-cost, coal-based domestic energy sources.

Above: An Easi-Miner mines lignite coal from the ground into a Kress haul truck at the Sabine Mining Company in Texas.

[38]

N A C C O I n d u s t r i e s ,

I n c .

To reach its goals, NACoal has established several strategies

from, nor is unfairly burdened by, changes in these operational

and key programs to respond to current industry trends. The

expenses. In the event a situation arises in which a contract is

programs, designed to enhance profitability or generate growth,

not properly capturing cost changes, NACoal works closely with

can be classified in three main areas: low-cost mining expertise;

the customer to resolve the issue. Several such circumstances

mining and reclamation innovation; and new business

arose in 2006 and the company is working diligently to address

opportunities.

these issues.

Key Programs to Leverage Low-Cost Mining Expertise

Mining efficiency, productivity rates and profitability all

NACoal leverages its highly disciplined management

improved in 2006 at Mississippi Lignite Mining Company

teams in place at existing mines to maximize efficiencies and

(“MLMC”). Improvements also resulted from deliveries of

Mississippi Lignite Mining Company Improvement.

ensure safety. The key projects supporting

this mining strategy are:

Employee Safety. Ensuring employee

safety is the number-one priority at

NACoal. All of the company’s twelve

locations worked the entire 2006 calendar

year without incurring a single lost-time

accident. NACoal’s incident rate has

consistently been well below the national

average for surface coal mines. NACoal

firmly believes that its commitment to

safety and strong employee relations

Safety Record
(Lost-Time Accident “LTA” Rate)

3.0

2.0

2.33

2.29

2.07

2.11

1.99

1.75

0.94

1.0

0.79

0.67

0.39

0.33

0.39

0.16

(cid:3) LTA North American Coal Average
(cid:2) LTA National Average for Surface Coal Mines

higher quality lignite coal and automatic

contractual adjustments related to coal

quality. NACoal is applying creative

approaches to manage higher costs for

supplies, such as off-road tires. While the

1.52

1.47

company expects further challenges from

certain cost reimbursement issues in 2007

and anticipates slightly lower volumes in

2008 due to a planned power plant outage,

0.00

significantly improved performance is

expected in 2009 and beyond. MLMC

has not yet achieved positive EVI, but

improves productivity and employee retention, thereby reducing

substantial improvements are anticipated in 2007 and 2008

costs and enhancing profitability.

to help attain that goal by 2009-2010.

Contract Structure. Central to NACoal’s strategy are

Red River Mining Company Improvement. 2006 was

mining contracts which minimize exposure to the market price

a solid year for Red River Mining Company, with the mine

of coal. These mining contracts are carefully structured coal

achieving positive EVI. However, 2007 performance is not

supply agreements that establish the specific mining services

expected to be as strong due to a planned power plant outage

that NACoal will perform for its customers and the mechanisms

and planned capital expenditures by NACoal necessary to

by which NACoal will be compensated for performing those

prepare the mine for possible higher mining volumes in the

activities. Through these mining agreements, NACoal and its

future. The mine should return to normal mining volumes in

customers share a common goal of minimizing costs. By

2008, with the potential for substantial volume increases and

eliminating speculation on the future price of coal, these

continued positive EVI in 2009 and beyond as a result of

contracts are designed to provide the customer with low-cost

promising new business opportunities.

fuel and allow the company to consistently earn sound margins

Limerock Dragline Mining Operations. At NACoal’s

for its services.

limerock dragline mining operations in southeast Florida,

These mining contracts also include various cost escalation

future operating results could potentially be reduced as a result

mechanisms and may include performance incentives. As

of a pending federal court decision, which may affect the

inevitable changes occur in mining costs, such as the costs of

customers’ limerock mining permits in Miami-Dade County.

diesel fuel, equipment spare parts or tires, contracts are designed

NACoal’s customers are making every effort to ensure mining

to adjust to those changes so NACoal neither profits excessively

continues in these specific areas, though such a continuation

[39]

N A C C O I n d u s t r i e s ,

I n c .

is not guaranteed. NACoal has a relatively low capital investment

Red Hills Mine received a National Award for Excellence in

in the operations affected by the litigation, and the contracts in

Surface Coal Mining & Reclamation from the U.S. Department

place help protect the company from the financial impact of

of Interior’s Office of Surface Mining.

lower-than-projected delivery quantities. NACoal believes that

the long-term prospects for limerock mining in those areas,

Key Programs for New Business Opportunities

and in Florida in general, remain quite good.

NACoal’s strategy for growth is focused on understanding

Key Programs for Mining and Reclamation Innovation

the company operates. NACoal sustains long-term partnerships

A second key NACoal strategy is to research, develop and

in these regions. The company’s intense focus on opportunity

deploy new mining and reclamation techniques. The company’s

analysis, networking and new business development activities

and satisfying the mining and energy needs of each region where

culture of inquiry, creativity and excellence

along with the following programs support

this strategy:

Mining and Management Innovation.

NACoal continues to be a leader in developing

innovative mining and management methods.

These methods have improved mining

efficiencies and coal recovery, reduced costs,

enhanced safety and lessened the environ-

mental impact of mining. For example,

NACoal is utilizing a computerized tracking

guide this strategy. Elements of the company’s

business development opportunities include:

Leveraging NACoal’s Lignite Coal

Reserves. NACoal either mines, controls or

owns data on many lignite reserves in North

Dakota, Texas, Mississippi and Louisiana.

NACoal has what it believes is the most

extensive bank of geological data on lignite

coal reserves in the country. This wealth of

data provides a strategic advantage to NACoal

as it works to identify, prioritize and pursue

system at certain mines, which allows supervisors to view the

opportunities to develop new mining operations. Based on

locations of a mine’s haul trucks and, based on the locations

results of these ongoing analyses, NACoal adjusts its ownership

from which the coal was mined, the quality of coal being hauled

plans for its existing lignite coal reserves as well as its strategies

in each truck can be estimated as it approaches the power

for securing ownership or leases for additional reserves, which

plant. At other mines, NACoal employs on-line coal analyzers,

offer potential for future development. Potential projects in

which quickly determine a more precise measurement of coal

each of these regions include new facilities for traditional

quality as coal is delivered to the power plants. Both of these

power generation, coal gasification, coal-to-liquids conversion

systems provide power plant operators early knowledge of coal

and coal beneficiation. NACoal’s potential involvement in these

quality, allowing more effective coal blending for optimal plant

projects ranges from mining the coal that fuels these facilities

performance. These systems improve plant efficiency and,

to being a partner in the operation or business venture. The

ultimately, result in low cost electricity to end users.

company believes its reserves are well positioned for these

Environmental Commitment. NACoal is committed to

ventures and NACoal is optimistic about the near-term

protecting the environment by restoring mined land to its original

prospects for opportunities in each of the regions.

or an improved condition. To ensure reclamation accuracy and

Mining NACoal Reserves for Direct Coal-fired Power

effectiveness, the company utilizes innovations such as global

Generation. The foundation for identifying new lignite coal

positioning devices in the earthmoving equipment which link

mining projects continues to be the ongoing analysis of power

to electronic maps. The company has been a prominent recipient

generation supply and demand in each of the regions where

of environmental awards over the years, and in 2006, MLMC’s

NACoal owns or controls reserves. As opportunities arise,

Above: MLMC’s Red Hills Mine received a National Award for Excellence in Surface Coal Mining & Reclamation from the U.S. Department of Interior’s Office of Surface Mining for
establishing reforested areas in a difficult Southern climate.

Right: Three phases of land reclamation at MLMC’s Red Hills Mine from foreground back: reclamation preparation using innovative materials to prevent soil erosion, pine tree seedlings
and new grassy areas and successfully reforested pine trees.

[40]

NACoal applies award-winning approaches to manage soil erosion
during early land reclamation so new trees can take hold faster.

NACoal returns mined land to its original or an improved condition,
often leaving behind beautiful wildlife preserves.

the company actively promotes the use of lignite coal owned

it is injected into mature oil wells for enhanced oil recovery.

or controlled by NACoal as the primary fuel for potential new

NACoal is participating in several research projects and is in

power plants.

discussions with potential customers or partners involving

Mining NACoal Reserves for Coal Gasification. NACoal

development of other full-scale coal gasification plants.

believes that, in the long term, the future development of

Mining NACoal Reserves for Coal-based Energy

coal reserves in the United States will depend greatly upon the

Production. The company continues to invest significant

adoption of new technologies that substantially lower emissions.

resources in understanding and promoting new clean coal

One of the most promising new technologies involves gasifying

energy technologies. NACoal has developed its own vision,

coal, which can significantly reduce key emissions such as SO2

called FlexGen, which, in addition to generating electricity,

(sulfur dioxide), NOx (nitrogen oxide), particulates and mercury.

could produce a variety of marketable by-products, including

The highly efficient process of coal gasification also produces an

synthetic natural gas, synthetic diesel or jet fuel, and petro-

emission stream that allows for CO2 (carbon dioxide) capture

chemical feedstocks. This process also could extract hydrogen

and sequestration. For example, since 1984, NACoal’s Coteau

that can be used in fuel cells to generate emission-free power. In

Mine has supplied lignite to Dakota Gasification, the only full-

addition, the company is studying a number of enhanced coal

scale and fully operational coal-to-synfuel plant in the United

and coal-to-liquids technologies and opportunities, which are

States. The plant captures CO2 during the gasification process

increasingly financially attractive in light of higher sustained

and pipes it from North Dakota to a customer in Canada, where

prices for natural petroleum products.

Above: At The Sabine Mining Company in Texas, land once used for surface mining now hosts migrating waterfowl in the fall and spring.

Right: North American Coal’s limerock dragline mining operation at White Rock Quarry in South Florida.

[42]

N A C C O I n d u s t r i e s ,

I n c .

Utilizing Lignite Coal Enhancement Technologies. NACoal

expenditures for the acquisition and development of additional

and one of its customers have developed a process to use waste

uncommitted coal reserves in 2007.

heat from power plants to dry lignite coal to enhance its value,

Key programs at NACoal are anticipated to help the

a process known as coal beneficiation. NACoal and its customer

company reach or exceed each of its objectives. ROTCE was

expect to apply the technology not only to the customer’s

25.6 percent in 2006, exceeding NACoal’s goal of 13 percent,

facilities, but also to offer the technology to other facilities, both

and prospects for sustaining ROTCE at current levels are good

domestic and international, that utilize lignite coal. NACoal

for 2007 and 2008. (See reconciliations of non-GAAP ROTCE

believes that this innovative coal beneficiation process will add

on page 45.) The company achieved positive EVI in 2006 at

value to its own and others’ operations and contribute to the

Red River Mining Company, the San Miguel Lignite Mining

company’s profitability over time.

Contract Mining of Lignite Coal.

NACoal, the nation’s largest miner of

lignite coal, is widely regarded as an

efficient and effective mining partner, and

as a result, periodically is presented with

opportunities to act as a contract miner

for reserves owned by others. NACoal is

optimistic that at least one of several

projects currently under evaluation, some

with current power generation customers,

will come to fruition and contribute to

profit growth in the future.

Operations and the limerock dragline

mining operations, and EVI at MLMC

is expected to be improving consistently

over the next few years. The company’s

unconsolidated mining operations are

consistently performing well. Cash flow

before financing activities at existing

operations was very good in 2006 and

prospects are very strong for future years.

Finally, growth opportunities from new

ventures are promising.

In closing, I would like to take this

opportunity to extend our special thanks

Contract Mining of Aggregates. The company is

to Cliff Miercort, who retired as President and Chief Executive

optimistic that niche growth opportunities for providing high

Officer of NACoal in March 2006. Cliff worked for NACoal for

value-added services for aggregates, such as limerock dragline

30 years and led the company for the past 17 years. Under Cliff’s

mining services, will continue to emerge. Discussions are

leadership, NACoal expanded its lignite coal mining operations

ongoing with NACoal’s existing limerock customers, as well as

in Texas, Louisiana and Mississippi and expanded its mining

other limerock producers, about NACoal providing additional

services to include the dragline mining of limerock in Florida.

mining services to meet limerock production requirements

Cliff’s guidance and inspiration will be missed, and we wish

not now served by the company.

him all the best in his retirement.

Outlook for 2007 and Beyond

Finally, in reflecting on my first year as President and Chief

Executive Officer, I want to thank all NACoal employees for their

Overall, NACoal expects increasingly enhanced

hard work and dedication in making 2006 another safe and

performance from its current operations, including MLMC,

successful year. I look forward to our continued success in 2007.

over the next few years. In addition, NACoal is encouraged that

more new project opportunities may become available and

expects to continue its efforts to develop new coal projects.

The company is pursuing a number of potential opportunities

which could add significantly to the company’s long-term

profitability. Accordingly, the company expects to incur

Robert L. Benson
President and Chief Executive Officer
The North American Coal Corporation

[43]

Managing for long-term profit growth
Supplemental Data

RECONCILIATION OF FINANCIAL TARGETS TO NET INCOME:

Minimum Operating Profit Target, Break-Even Net Income Target and Minimum Return on Capital Employed Target as of December 31, 2006

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

Subsidiaries with Minimum Operating Profit Targets

2006 revenues, as reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
x Operating profit target percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
= Operating profit at target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: 2006 operating profit, as reported for NMHG Wholesale, HB/PS and KCI . . . . . . . . .
Difference between 2006 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

NMHG
Wholesale

2,317.9
9.0%
208.6

(76.5)
132.1
(50.2)

for NMHG Wholesale, HB/PS and KCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

81.9

Subsidiaries with Break-Even Net Income Targets

NMHG
Retail

HB/PS

KCI

Total

546.7
10.0%
54.7

(42.5)
12.2
(4.6)

7.6

164.8
5.0%
8.2

(6.8)
1.4
(0.5)

0.9

3,029.4
N/A
271.5

(125.8)
145.7
(55.3)

90.4

Net income at target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 Net income, as reported - NMHG Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income difference between reported and target for NMHG Retail . . . . . . . . . . . . . . . .

-
(9.1)

$ 9.1

Net income difference between reported and target for Consolidated

NMHG, HB/PS and KCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

91.0

7.6

0.9

99.5

Subsidiaries with Minimum Return on Total Capital Employed Targets

NACoal

$
2006 average equity (12/31/2005 and at each of 2006's quarter ends) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 average debt (12/31/2005 and at each of 2006's quarter ends) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total 2006 average capital employed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on total capital employed target percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Return on total capital employed target = target net income before interest expense, after tax . . . . . . . . . . .

$
2006 net income, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: 2006 interest expense, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Income taxes on 2006 interest expense at 38%* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Actual 2006 return on total capital employed = actual net income before interest expense, after tax . . . . . .

65.2
107.6
172.8
13.0%
22.5

39.7
7.4
(2.8)
44.3

Actual 2006 return on total capital employed percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25.6%

$
Return on total capital employed target = target net income before interest expense, after tax . . . . . . . . . . .
Actual return on total capital employed = actual net income before interest expense, after tax . . . . . . . . . . .
$
Return on total capital employed difference between actual and target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
Return on total capital employed target = target net income before interest expense, after tax . . . . . . . . . . .
Less: 2006 interest expense, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: Income taxes on 2006 interest expense at 38%* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Target net income at target return on total capital employed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
Less: Target Net income at target return on total capital employed since actual exceeds target . . . . . . . . . . .
Net income difference between reported net income and target net income at target return on

22.5
(44.3)
(21.8)

22.5
(7.4)
2.8
17.9

(17.9)

$
total capital employed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total of net income differences between reported and targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Earnings per share impact at 8.234 million basic shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Earnings per share impact at 8.242 million diluted shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

99.5

12.08

12.07

Return on total 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.

* Tax rate of 38% represents the Company's marginal tax rate compared with 2006's effective tax rate of 23.1%.

[44]

N A C C O I n d u s t r i e s ,

I n c .

RECONCILIATION OF RETURN ON TOTAL CAPITAL EMPLOYED:

NMHG

(U.S. dollars in millions)
HB/PS
KCI

NACoal

2006
2006 average equity (12/31/2005 and each of 2006's quarter ends) . . . . . . . . . . . . . . . .
2006 average debt (12/31/2005 and at each of 2006's quarter ends) . . . . . . . . . . . . . . .
Total 2006 average total capital employed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2006 net income, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: 2006 interest expense, as reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Income taxes on 2006 interest expense at 38%* . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on total capital employed = actual net income before

452.0
332.2
784.2

34.6
31.8
(12.1)

123.2
54.0
177.2

22.2
4.8
(1.8)

13.1
9.3
22.4

3.7
0.7
(0.3)

interest expense, after tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

54.3

25.2

4.1

65.2
107.6
172.8

39.7
7.4
(2.8)

44.3

Actual return on total capital employed percentage. . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.9%

14.2%

18.3%

25.6%

Less: After-tax gain on the sale of draglines at NACoal . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted return on total capital employed = adjusted net income before

interest expense, after tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Adjusted return on total capital employed percentage. . . . . . . . . . . . . . . . . . . . . . . .

(13.1)

31.2

18.1%

2005
2005 average equity (12/31/2004 and each of 2005's quarter ends) . . . . . . . . . . . . . . . .
2005 average debt (12/31/2004 and at each of 2005's quarter ends) . . . . . . . . . . . . . . .
Total 2005 average total capital employed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2005 net income, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: 2005 interest expense, as reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Income taxes on 2005 interest expense at 38%** . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on total capital employed = actual net income before

436.1
315.9
752.0

18.1
34.9
(13.3)

132.6
55.6
188.2

20.3
5.3
(2.0)

11.5
8.8
20.3

1.0
0.6
(0.2)

interest expense, after tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

39.7

23.6

1.4

84.9
117.4
202.3

16.2
8.5
(3.2)

21.5

NMHG

HB/PS

KCI

NACoal

Actual return on total capital employed percentage. . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.3%

12.5%

6.9%

10.6%

* Tax rate of 38% represents the Company's marginal tax rate as compared with 2006’s effective income tax rate of 23.1%.
** Tax rate of 38% represents the Company's marginal tax rate as compared with 2005's effective income tax rate of 18.5%.

[45]

Managing for long-term profit growth
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,
Brown-Forman Corporation
Dennis W. LaBarre
Partner, Jones Day
Richard de J. Osborne
Retired Chairman and Chief Executive
Officer, ASARCO Incorporated
Alfred M. Rankin, Jr.
Chairman, President and Chief
Executive Officer, NACCO Industries, Inc.
Ian M. Ross
President Emeritus, AT&T Bell
Laboratories
Michael E. Shannon
President, MEShannon & Associates, Inc.
Retired Chairman, Chief Financial and
Administrative Officer, Ecolab, Inc.
Britton T. Taplin
Principal, Western Skies Group, Inc.
David F. Taplin
Self employed (tree farming)
John F. Turben
Chairman of the Board,
Kirtland Capital Corporation
Eugene Wong
Emeritus Professor,
University of California at Berkeley

Director Emeritus
Thomas E. Taplin

Officers of Subsidiaries

Officers of NACCO Materials
Handling Group, Inc.
Corporate:

Michael P. Brogan
President and Chief Executive Officer
Colin Wilson
Vice President and Chief Operating
Officer
Victoria L. Rickey
Vice President, Chief Marketing Officer
Michael K. Smith
Vice President, Finance and
Information Systems, and Chief
Financial Officer
James M. Phillips
Vice President, Human Resources
Michael E. Rosberg
Vice President, Global Supply Chain
Gopi Somayajula
Vice President, Counterbalanced
Engineering
Carolyn M. Vogt
Vice President, General Counsel and
Secretary
Daniel P. Gerrone
Controller
Jeffrey C. Mattern
Treasurer

Americas:

James W. Donoghue
Vice President, Marketing and
Distribution, Americas
Gregory J. Dawe
Vice President, Manufacturing,
Americas
Donald L. Chance, Jr.
Vice President; President, Yale Materials
Handling Corporation
D. Paul Laroia
Vice President; President, Hyster
Company
Raymond C. Ulmer
Vice President, Finance and
Information Systems, Americas

Europe, Africa and Middle East:

Ralf A. Mock
Managing Director, Europe, Africa and
Middle East
Stephen R. West
Vice President, Finance and
Information Systems, Europe, Africa
and Middle East

Asia-Pacific:

Nobuo Kimura
President, Sumitomo NACCO Materials
Handling Co., Ltd.

[46]

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, and Secretary
Gregory E. Salyers
Vice President-Operations and
Information Systems
James H. Taylor
Vice President, Chief Financial Officer
and Treasurer
Gregory H. Trepp
Vice President-Marketing

Officers of The Kitchen
Collection, Inc.

Randolph J. Gawelek
President and Chief Executive Officer
Robert O. Strenski
Senior Vice President Merchandising
Emil S. Wepprich
Vice President Supply Chain
L.J. Kennedy
Secretary and Treasurer
Mark A. Kleparek
Vice President General Merchandise
Manager-Le Gourmet Chef
Charles J. LaPlaca
Vice President Supply Chain-
Le Gourmet Chef
Christopher Green
Vice President Product Development-
Le Gourmet Chef

Officers of The North American
Coal Corporation
Robert L. Benson
President and Chief Executive Officer
Bob D. Carlton
Vice President-Financial Services
Douglas L. Darby
Vice President-Engineering and
Eastern Operations
Michael J. Gregory
Vice President-Southern Operations
and Human Resources
Thomas A. Koza
Vice President-Law and Administration,
and Secretary
Dan W. Swetich
Vice President-Northern Operations
and President of Falkirk Mining
Company
Lee A. Burton
Controller
K. Donald Grischow
Treasurer