NACCO Industries, Inc. Annual Report 2007

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FY2007 Annual Report · NACCO Industries, Inc.

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NACCO

I N D U S T R I E S ,

I N C .

Managing for long-term profit growth
2007 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, which sell, lease
and service Hyster® and Yale® lift trucks, including sales of related service parts.

NACCO Housewares Group
Hamilton Beach Brands (“HBB”)
Headquarters: Richmond, Virginia

HBB 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.

2007
Financial Results

NMHG Wholesale:
Revenues:

$2.6 billion
Operating profit:
$66.3 million

Net income:

$48.2 million

NMHG Retail:
Revenues:

$137.8 million
Operating loss:
$9.0 million

Net loss:

$8.9 million

HBB:
Revenues:

$540.7 million
Operating profit:
$40.3 million

Net income:

$18.4 million

Kitchen Collection:
Revenues:

$210.0 million
Operating profit:
$0.5 million

Net loss:

$0.9 million

North American Coal (”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:

$137.1 million
Operating profit:
$43.2 million

Net income:

$31.0 million

NACCO Industries, Inc. is an operating holding company with three principal businesses: lift trucks,
housewares and mining. In 2007, total revenues were $3.6 billion and net income was $89.3 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.

• 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 723,000 Hyster® and
Yale® lift trucks in operation worldwide
• Highly diverse customer base with more
than 600 different end-user applications
in more than 900 industries

• Comprehensive global product line
• Strong dealer network
• Industry-leading national account

coverage in the Americas

• Globally integrated operations with

significant economies of scale

Minimum operating
profit margin target of
9 percent

• Manufacturing restructuring
• Quality initiative
• Global supply chain
• Global IT excellence
• New product development
• New product introductions
• Strategic pricing optimization
• National and global accounts
• Dealer structure program
• Aftermarket parts
• NMHG Retail improvements

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

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

HBB:
• 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

HBB:
Minimum operating
profit margin target of
10 percent

HBB:
• Purchasing and supplier product

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 272 stores
throughout the United States in
2007.

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 are structured to minimize
exposure to market fluctuations of
coal prices

• 2.3 billion tons of lignite coal reserves, of
which 1.2 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:
• Corporate expense management
• Store expense management
• Continuous product cost management
• Logistics efficiency
• Innovative products and merchandising
• Hamilton Beach® brand leverage
• Economic Value Income
• Outlet mall format initiatives
• Traditional mall format initiatives
• Internet format initiative

• Employee safety
• Contract structure
• Lignite mining operations
• Limerock dragline mining operations
• Mining and management innovation
• Environmental commitment
• Leveraging NACoal’s lignite coal reserves
• Direct coal-fired power generation
• Coal gasification
• Coal-based energy production
• Utilizing lignite coal beneficiation

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 Brands. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

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

North American Coal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Supplemental Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

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

Front Cover: From left to right: The Hyster® Fortis® H155FT pneumatic tire and Yale® Veracitor® GC155VX cushion tire internal combustion
engine lift trucks are the newest trucks in NMHG’s 1 to 8 ton ICE lift truck series. The lift trucks have lifting capacities of 6 to 7 tons and can be
configured to satisfy multiple customer applications.

Environmental Sustainability
at NACCO Industries

Each of NACCO Industries’ subsidiary companies has programs
and policies in place to reduce the environmental impact of its business.
While many practices have been in place for years, there are a number of
new initiatives under way that not only benefit the environment but can
help secure new business and reduce operating costs. Each subsidiary
will continue to pursue these efforts as NACCO continually strives to be
a good corporate citizen. Following are a few examples of Environmental
Sustainability (“ES”) efforts at each of NACCO’s subsidiaries.

NACCO Materials Handling Group
is actively pursuing alternative
energy capture, storage and delivery
technologies for use in lift trucks. For
example, the company has developed
prototype hydrogen-powered fuel
cell lift trucks, which are successfully
being tested at a number of high-
profile customer sites. In addition, the

company is actively testing and evaluating several breakthrough
battery technologies.

This Annual Report is printed using post-consumer waste recycled paper and vegetable-based inks, and conforms to the standards of the Forest Stewardship Counsel.

In 2006, NACCO Industries had a good year with

In 2008, external factors, including a slowing U.S.

strong overall results, although performance was enhanced

economy, are likely to affect results significantly. Performance

by several one-time events. While many improvement

is anticipated to moderate in some areas according to

programs began to contribute to profitability, our

operational plans, particularly at North American Coal

subsidiary companies faced growing challenges from

and Hamilton Beach Brands. Each subsidiary company

external economic and market factors.

will redouble its efforts to manage costs, drive innovation

In 2007, performance improved in a number

and improve sales and marketing professionalism.

of areas, as planned, although the

one-time events of 2006, of course,

did not recur. In addition, many of

the external factors affecting the

companies intensified rather than

diminished. While the Company fell

short of its plans and we are not

satisfied with the year’s results, we

take a long-term perspective and are

encouraged by the progress we

In 2007, performance
improved in a
number of areas,
although unfavorable
external factors
intensified.

However, in this period of

economic uncertainty, the

subsidiaries will pursue growth

carefully in order to preserve

profitability and cash flow. Overall,

we are hopeful continued success of

key programs will provide benefits

in 2008. However, achieving results

in 2008 comparable to results in

2007 will be difficult if the current

made on our key improvement programs, which continued

economic environment continues. The Company believes

to yield benefits and which helped offset many of the

it is positioned for significant profit improvement in 2009

challenges we faced during the year.

and beyond.

Total Revenues
(In billions)

Net Income
(In millions)

Diluted Earnings Per Share

$.0.0

$1.0

$2.8

$2.5

$2.0

$3.6

$3.3

$3.2

$89.3

$106.2

$62.5

$47.9

$52.8

$3.0

$4.0

$25

$50

$75

$100

$125

■ NMHG ■ Housewares ■ NACoal ■ NACCO & Other

$10.80

$12.89

$7.60

$5.83

$6.44

$10

$15

Hamilton Beach Brands
has established a corpo-
rate-wide Environmental
Sustainability program.
Product development
is now guided by five
Eco-Design criteria:
energy consumption,
packaging, hazardous
substances, recycling and disposal and product
reliability. For example, the True Air® Ecoclean™
Air Purifier features a lifetime HEPA filter and is
Energy Star-rated for its efficient operation.

Kitchen Collection
promotes a number
of environmentally
friendly products in
its stores, including
many made from
fast-growing bamboo
and rubberwood.
New products for
2008 include glassware made from recycled
glass, which will be sold in recycled packaging.
These products carry a special label denoting
they are made with renewable resources.

North American
Coal has been a
leader in environ-
mental reclamation
and safety for
many years, having
won numerous
national and state
awards at its mine

sites. In addition, the company is actively
pursuing clean coal projects that utilize new
technologies to reduce power plant emissions
while increasing efficiency.

[1]

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

NACCO Industries, Inc. and Subsidiaries

2003

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
8.205

1,839.8
363.2
637.0

$
$

$
$
$

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

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

Income before extraordinary gain

and cumulative effect of accounting changes . . . . .
Extraordinary gain, net-of-tax . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of accounting changes, net-of-tax . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Basic Earnings per Share:
Income before extraordinary gain

and cumulative effect of accounting changes . . . . . .
Extraordinary gain, net-of-tax . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of accounting changes, net-of-tax . . .
Net income per basic share . . . . . . . . . . . . . . . . . . . . . .

Diluted Earnings per Share:
Income before extraordinary gain

and cumulative effect of accounting changes . . . . . .
Extraordinary gain, net-of-tax . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of accounting changes, net-of-tax . . .
Net income per diluted share . . . . . . . . . . . . . . . . . . . . .

Per Share and Share Data:

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

$
$

$
$
$

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

2007

3,602.7

37.7
137.4

89.3
–
–
89.3

10.81
–
–
10.81

10.80
–
–
10.80

1.980
99.69
107.88

8.269
8.263
8.272

2006

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

2004

$
$

$
$
$

3,349.0

36.0
172.6

93.4
12.8
–
106.2

11.34
1.56
–
12.90

11.33
1.56
–
12.89

1.905
136.60
96.27

8.238
8.234
8.242

$
$

$
$
$

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
8.226

$
$

$
$
$

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
8.214

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

$
$
$

2,428.2
439.5
892.1

$
$
$

2,156.3
359.9
793.1

$
$
$

2,094.0
406.2
703.3

$
$
$

2,038.6
407.4
688.0

[2]

Cash Flow Data:
Operating Activities

NACCO Materials Handling Group . . . . . . . . . . . . . .
Hamilton Beach Brands . . . . . . . . . . . . . . . . . . . . . . . .
Kitchen Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North American Coal Corporation . . . . . . . . . . . . . .
NACCO and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provided by operating activities . . . . . . . . . . . . . . . . . .

Investing Activities

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

Provided by (used for) financing activities . . . . . . . . . .

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

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

2007

34.6
19.5
(10.9)
44.9
(6.5)
81.6

(33.9)
(3.7)
(3.9)
(18.2)
(0.2)
(59.9)

0.7
15.8
(14.8)
26.7
(6.7)
21.7

64.4

201.8

10,600

2006

Year Ended December 31
2005
(In millions, except employee data)

2004

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

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

2003

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

(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 and businesses . . . . . . . . .
Restructuring (charges) reversals . . . . . . . . . . . . . . . . . . .
Difference between deferred income taxes and

total tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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, net-of-tax . . . . . . . . . . . . . . . . . . . . . . .
Minority interest income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation, depletion and amortization expense
Adjusted EBITDA (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2007

2006

Year Ended December 31
2005
(In millions)

2004

2003

81.6
75.4
1.3
(8.6)

19.0
4.4
28.7
201.8

89.3
–
–
(0.1)
23.1
40.7
(12.0)
60.8
201.8

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

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 42 and 43.

[3]

Managing for long-term profit growth
To Our Stockholders

Introduction

financial targets and generating substantial cash flow before

Key profitability and growth programs in place at NACCO

financing activities. Programs to enhance profitability are

Materials Handling Group (“NMHG”), Hamilton Beach Brands

designed to achieve performance in line with minimum

(“HBB”), Kitchen Collection (“KC”) and North American Coal

financial targets, and programs to generate growth are intended

(“NACoal”) delivered substantial benefits in 2007. However,

to drive long-term profit growth.

this progress was hindered by external forces, including a

The stakes involved in executing the Company’s

slowing U.S. economy, the continued

challenges of higher material costs,

unfavorable shifts in currency

exchange rates and weakening retail

housewares markets. As a result, 2007

income before extraordinary gain,

excluding restructuring charges,

remained comparable to 2006.

Specific action plans have been

put in place to address many of the

external challenges experienced in

2007, including restructuring

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

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 2007, the Company would have

generated additional net income of

$126.7 million, or $15.32 in additional

diluted earnings per share, approxi-

programs at NMHG, so each subsidiary is in a position to

mately 88 percent of which represents improvement at

adapt quickly to changing conditions while continuing to work

NMHG. (See reconciliation of these non-GAAP amounts on

toward ambitious financial goals.

page 42.) In order to realize this significant potential, NMHG

We continue to believe each subsidiary’s core profitability

continues to place an intense focus on profit improvement

and growth programs, combined with longer-term market and

programs and is expected to continue this focus in the coming

economic factors, will, over time, deliver improved financial

months and years.

performance, particularly in 2009 and beyond.

HBB and KC were advancing toward their financial targets

At each subsidiary, strategies and key programs have been

until retail market conditions turned downward. The current

established to address specific industry dynamics and trends,

state of the U.S. consumer markets suggests a period of cautious

with the objective of competing effectively, achieving established

growth in the years ahead, with the possibility of a decline in

Dividends Paid Per Share

$2. 5

$2. 0

$1. 5

$1. 0

$0. 5

$0. 0

$.595 $.615

$.635

$.655

$.675

$.710

$.743 $.773

$.810 $.850

$.890 $.930

$.970

$1.848 $1.905 $1.980

$1.675

$1.260

[4]

2008. This decline could delay the timeframe for reaching those

targets. Nevertheless, HBB is expected to continue to drive

innovation in current and new markets while KC is expected to

focus on improving Le Gourmet Chef (“LGC”) logistics and

profitability in order to meet KC’s LGC acquisition-related targets.

NACoal has also been approaching its financial targets.

This subsidiary has strong operations, although the company

expects to be affected in 2008 by temporarily reduced customer

requirements in both coal and limerock operations. NACoal’s

focus is on continually improving current operations while

aggressively pursuing a variety of new business opportunities.

As profit improvement and growth programs are pursued,

NACCO maintains high expectations for returns on equity and

returns on total capital employed. These financial measures,

which were strong in 2007 at HBB and NACoal but well short

of targets at KC and NMHG, are expected to improve at all

NACCO subsidiaries over time to meet the specific financial

targets established several years ago.

This letter provides a short summary of each subsidiary’s

market situation, strategies, key performance improvement

programs and outlook, and concludes with an overall outlook

for NACCO Industries. The subsidiary letters found later in this

Discussion of Results

In 2007, NACCO’s revenue increased, but net income

decreased compared with 2006. The Company reported net

income of $89.3 million in 2007, or $10.80 per diluted share,

compared with net income of $106.2 million, or $12.89 per

diluted share, in 2006. However, net income for 2006 included

an after-tax extraordinary gain of $12.8 million, which did

not recur in 2007. Revenues for 2007 were $3.6 billion

compared with $3.3 billion for 2006.

NACCO earned income before extraordinary gain in

2007 of $89.3 million, or $10.80 per diluted share, compared

with $93.4 million, or $11.33 per diluted share, in 2006.

Included in the 2007 results were restructuring charges totaling

$8.0 million, or $4.9 million net of taxes of $3.1 million, for

manufacturing restructuring programs implemented at

NMHG. Excluding these restructuring charges, the Company

was able to maintain a consistent level of profitability compared

with the prior year, despite current economic conditions.

Improvements achieved in 2007 were the result of the

continued implementation of key programs, which helped

propel new products into the marketplace, increase production

Annual Report provide greater detail on the objectives and

and supply chain efficiency and, in some cases, lower selling

timing of key programs, which typically remain consistent

and administrative costs. However, these improvements

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

could not offset the effects of a slowing U.S. economy, very

each company’s specific financial and growth objectives.

weak markets for housewares products, increases in material

Certainly the recent developments in the U.S. economy

costs and a weak U.S. dollar.

In 2007, NACCO generated $21.7 million in consolidated

cash flow before financing activities, compared with $138.2

million in 2006. Cash flow before financing activities in

2007 was significantly lower than 2006 as a result of higher

working capital requirements and a lack of proceeds on

asset sales, which occurred in 2006.

In 2007, NACCO planned to spin off its Hamilton Beach

Brands (“HBB”) subsidiary to form a new public company,

Hamilton Beach, Inc. However, due to extreme volatility

and uncertainty in U.S. equity markets, in August 2007 the

Company’s Board of Directors decided not to pursue the

spin-off.

have the potential to affect all of NACCO’s subsidiaries to some

extent in 2008. While each subsidiary’s programs tend to address

key areas of cost reduction and revenue growth, each company

will be closely monitoring market conditions, developing

special contingency plans and taking more aggressive actions

to preserve profitability if required.

NACCO Materials Handling Group

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

committed to building on that success in coming years.

Companies in the global lift truck industry are faced with

increased material costs and unpredictable currency exchange

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

more fully its core manufacturing strategy of assembling lift

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

component sourcing options, particularly as new opportunities

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

manufacturing efficiency and reducing its fixed-cost and overall

[5]

cost structure while maintaining and improving product and

The important North American market contracted in

service quality. Programs aimed at achieving this objective

2007, as anticipated, and is expected to contract again in 2008,

include new, more comprehensive manufacturing improvements

along with other markets in the Americas. The company is

and cost reduction activities, an extensive quality assurance

hopeful sales of new products in 2008, as well as strong overseas

initiative, an aggressive global procurement program and a

markets, will offset the effect of declines in the Americas

new global IT organization initiative.

market, ultimately leading to modestly increased volumes

Market success requires the ability to provide lift trucks

and market share.

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

Overall, NMHG’s results are expected to improve

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

gradually over time as NMHG approaches its financial targets.

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

However, if U.S. economic conditions deteriorate more than

enabling the company to configure lift trucks cost effectively for

expected, sales of units and higher-margin parts could decline

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

in 2008, which would adversely affect revenues and profit

internal combustion engine product line represents the core of

margins. The ongoing launch of newly designed lift trucks is

this new approach, and other new product lines following this

expected to drive performance improvements, although the

approach will begin rolling out in 2008 and 2009. Central to

company expects to incur expenses associated with product

this strategy are a new product development process, a multi-

launches, restructuring of the manufacturing locations and

year plan for new product introductions and a strategic pricing

continued material cost increases. In addition, results in 2008

optimization project. These programs are delivering a more

could be negatively affected if year end 2007 unfavorable

focused product offering for all global markets with what the

currency exchange rates persist. While some programs are

company believes to be the right performance, features and

expected to favorably affect results in 2008, the full impact

price. NMHG is also taking steps to strengthen its Hyster®

of certain programs, such as the transfer of the 2 to 3.5 ton

and Yale® brand names worldwide.

internal combustion engine lift trucks from Craigavon,

Because sales and service needs of lift truck customers are

Northern Ireland, to Berea, Kentucky, is not expected until

intensifying, NMHG is focused on attaining a level of account

2009. Substantial progress toward minimum financial targets

management excellence unmatched in the industry. Several

is expected from 2009 through 2012. In addition, strong cash

projects in place involve enhancing national and global account

flow before financing activities is anticipated in the future.

capabilities, improving many aspects of dealer structure and

performance, adding new aftermarket services and enhancing

Hamilton Beach Brands

the parts offerings for Hyster®, Yale® and other brands of lift

HBB remains an industry leader, with strong market

trucks. Programs have also been put in place to improve the

positions and financial performance. HBB also has excellent

long-term financial performance of NMHG’s owned retail

potential in an industry in which many other companies

operations, particularly in Australia.

struggle financially.

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 and consulting services to its subsidiary

companies. 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]

Because new products drive growth and help sustain

Kitchen Collection

margins, successful housewares companies must repeatedly

KC’s position as the leading kitchenware retailer in the

capture consumers’ attention, as well as their dollars. HBB is

outlet mall channel was maintained in 2007 as the company

aggressively focused on innovation through a unique product

worked to integrate the LGC business, which was acquired in

development process designed to create new products that

2006. LGC provides an additional successful format for outlet

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

malls, as well as a promising platform for expansion into

Utilizing a relatively low-risk, staged assessment and develop-

other channels.

ment process, HBB regularly investigates promising concepts

Consumer visits to outlet malls declined in 2007, while, at

both inside and outside its traditional product scope that have

some outlet malls and in some parts of the country, store rent

the potential to substantially improve results in the longer term.

and labor expenses continued to increase. These pressures,

Strong relationships with leading retailers are vital for

combined with the challenges of integrating LGC’s distribution

success. Shelf placement, brand positioning and promotions

facilities and the time required to implement key product and

with all retailers and channels also are important to sustain and

merchandising programs, led to a net loss at KC in 2007. KC

improve sales volumes. HBB believes it has one of the most

has established programs aimed at achieving cost control

professional sales and marketing organizations in the industry.

through general corporate expense management, highly

The company views this sales and

marketing strength as critical to

optimizing channel performance and

maintaining strong retailer relation-

ships. Efforts supporting this strategy

include specific retailer and channel

focus programs as well as a number of

strategic brand application initiatives.

To help manage ongoing margin

Consolidated Cash Flow
before Financing Activities
(In millions)

$21.7

$18.9

$85.9

$80.5

$138.2

focused store expense management,

continuous product cost management

and an ongoing logistics efficiency

program. KC is still in the process of

applying these programs to the newly

acquired Le Gourmet Chef® stores

(“LGC stores”) and operations.

$20

$40

$60

$80

$100

$120

$140

KC believes there is still significant

growth potential in kitchenware

pressure in the industry, HBB places significant emphasis on

retailing, particularly in the niche between the lowest-priced

continuous cost reduction. Several key profitability programs

discounters and the higher-end chains. One of the keys to

address cost reductions, continuous quality improvement and

capturing that potential is the ability to offer customers unique,

supply chain optimization.

high-quality products at affordable prices. To help accomplish

Housewares markets in the United States were relatively

this goal, KC has established innovative product selection and

weak in 2007, particularly in the important fourth-quarter

merchandising programs, a highly successful Hamilton Beach®

holiday season. Unfortunately, there are no indications these

private label product program and an Economic Value Income

markets will improve in 2008 and HBB expects reduced

program designed to help evaluate SKU assortments by store

results in 2008. As HBB works to maintain and improve sales

type to optimize profit performance.

in this challenging environment, the company will continue

With limited construction of new malls expected in the

to concentrate on further improving margins and efficiencies

outlet mall channel, KC has focused on optimizing Kitchen

as part of its effort to meet its financial targets. The company’s

Collection® store (“KC store”) performance and LGC store

operating profit margin was 7.5 percent in 2007. Going

presence at existing outlet malls as well as expanding this

forward, more innovation, stronger assortments of new

presence into new, high-potential formats and distribution

products and higher sales volume will become more important

channels. The company plans to expand LGC’s national presence

to realizing sustainable profit growth and driving the economies

in outlet malls over time, although the company will be prudent

of scale that are critical to attaining the long-term 10 percent

during this time of uncertain consumer spending. KC has a

minimum operating profit margin target. Significant

number of other initiatives under way related to enhancing

generation of cash flow before financing activities is expected

the KC store outlet mall format, including a segmentation

in future years.

effort designed to enhance performance based on different

[7]

types of outlet malls. The LGC store format will also enable

source of energy. Coal is abundant in the United States, and

KC to expand more effectively in traditional malls, although

the emerging availability of new, environmentally responsible

KC will also be prudent in pursuing this growth until LGC

technologies makes it very attractive. New business

improves profitability further at these mall stores and a more

opportunities, which leverage NACoal’s extensive lignite coal

favorable retail sales environment emerges. KC has also been

reserves, include mining these reserves for direct coal-fired

improving the Internet sales programs for both KC and LGC.

power generation, coal gasification and coal-based energy

The company focused on integrating the LGC stores and

production, utilizing and commercializing lignite coal

operations in 2007 and will continue to do so in 2008. It is

beneficiation technologies and contract mining lignite coal

expected the implementation of key programs will result in

and aggregates for others.

improved operating profit performance over the course of

Central to NACoal’s historical success and future strategy

2008, primarily in the second half, with increasing impact in

is preservation of its unique approach to structuring mining

later years. Key improvement programs, in combination with

contracts to minimize risk – not only from the volatility over

further improved outlet mall traffic, are intended to return KC

time of the market price of coal – but also from the changing

to its 5 percent operating profit margin target. However, since

costs of equipment and supplies required to mine the coal.

outlet mall traffic is not likely to improve dramatically in the

Efficiency is crucial in mining operations, particularly at this

current economic environment, reaching this goal will be very

time of increasing costs for mining supplies and equipment.

challenging to accomplish in the next several years. During this

NACoal has repeatedly demonstrated its ability to leverage its

period, it is KC’s objective to deliver positive cash flow before

low-cost mining expertise to deliver operational improvements

financing activities.

at mining operations facing specific challenges, such as the

Mississippi Lignite Mining Company.

North American Coal

NACoal and its customers strongly believe in continuously

NACoal remains the largest lignite miner in the United

improving mining operations and having superior reclamation

States and among the top ten coal producers nationwide.

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

Future performance of current mines is expected to be enhanced

important in other NACCO businesses, it is also important for

by continuous operational improvements, the potential for

the mining industry. NACoal strives to meet its customers’

additional volume at its Red River Mining Company and,

expectations through mining and management innovation and

over time, increased demand at its Mississippi Lignite Mining

award-winning safety and environmental achievements.

Company operations and the Florida limerock dragline mining

NACoal had a very good year in 2007, considering 2006

operations. In addition, NACoal is encouraged by prospects for

performance was significantly enhanced as the result of pre-tax

new coal mining projects, particularly in the context of the

gains of $21.5 million from selling two electric draglines.

domestic energy challenges and opportunities facing the U. S.

Underlying performance at all of NACoal’s mines was strong,

NACoal is pursuing a number of potential projects that

although negatively affected by customer power plant outages.

reflect lignite coal’s heightened recognition as a domestic

In the near term, further customer power plant outages are

[8]

expected to dramatically affect mining volume and NACoal’s

NACCO’s share price was $81.05 at the close of the

performance in 2008. Over time, further profitability

financial markets on February 29, 2008. The stock market

improvements depend on power plant uptime, coal delivery

has been very volatile in the last year, especially for small-

levels and performance improvements at the Mississippi

capitalization stocks. While we are very disappointed the

Lignite Mining Company, on increased mining volume at Red

share price performance of the last two years was not

River Mining Company and on the state of the housing and

sustained, considerable work has been completed to improve

construction markets in Florida for the limerock dragline

and strengthen each subsidiary. By clearly articulating our

mining operations. More importantly, the company hopes to

understanding of the industries in which we compete and by

undertake several new mining projects over the next few years,

successfully executing our profit improvement and growth

which could add significantly to NACoal’s profitability in the

programs, we are hopeful the Company will receive further

longer term. Cash flow before financing activities is

enhanced valuation in the future.

expected to continue to be very strong.

NACCO Outlook

In summary, the Company has

well-thought-out profit enhancement

and growth programs at each of its

subsidiary companies, and NACCO is

encouraged by the progress achieved

to date. However, external factors,

such as an uncertain U.S. economy,

material cost increases, the effects of

adverse movements in currency

NACCO’s subsidiaries
continually invest in
efficiency, quality,
innovation, building strong
brands & developing lasting
customer relationships.

On the cover of this Annual

Report, we state that we are “managing

for long-term profit growth.” Those

are not just words, but a philosophy

that affects our decision-making day

in and day out. Rather than create

programs for obvious short-term

gain, we take the long-term view

when developing strategies and

implementing tactics. Backed by

strong corporate governance, we

continually invest in efficiency, quality,

exchange rates and weakening consumer retail markets, have

innovation, building strong brands and developing lasting

required adjustments to our programs and the anticipated

customer relationships. We will make no exception to that

timing of achieving target profitability. Although each

approach in 2008 and beyond. As we work to achieve truly

subsidiary will be placing extra focus on current programs and

breakthrough performance in all of our subsidiaries, we will

will certainly develop new programs to address any worsening

work equally hard to guard against potential declines. For those

economic downturn, it will be a very challenging year for

reasons, we believe NACCO Industries represents an excellent

NACCO and it will be difficult to sustain 2007 performance in

investment opportunity.

2008. It is our hope that as improvement programs mature and

Finally, I would like to thank all NACCO stockholders for

markets improve, performance will be enhanced significantly

their continued support and all NACCO employees for their

in 2009 and beyond. Along with this improved profitability, we

hard work and commitment in meeting the challenges of 2007.

expect strong returns on total capital employed.

I look forward to a successful 2008.

NACCO is optimistic about its prospects to generate

strong net income in the long term and anticipates generating

significant cash flow before financing activities. These funds

could be used to fund new coal projects, reduce subsidiary debt

levels or pursue other strategic opportunities of long-term

benefit to the Company and its stockholders. The Company

has also approved a program to use available NACCO funds to

purchase NACCO stock, an action authorized by the Board of

Directors in late 2007.

[9]

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

Managing for long-term profit growth
NACCO Materials Handling Group

2007 Results

compared with shipments of 87,789 units in 2006. Backlog

In 2007, NACCO Materials Handling Group (“NMHG”)

increased to approximately 30,500 units at December 31, 2007

continued to make strides toward achieving its long-term

from approximately 27,200 units at December 31, 2006.

financial objectives. However, the company also faced certain

Net income improved primarily as a result of the absence

market and economic challenges. While European, Chinese

of the charge for the early retirement of debt and lower interest

and South American markets strengthened in 2007, the critical

expense. Also contributing to the improvement were price

North American market declined. Although new product

increases and increased sales volumes of higher-margin lift

programs moved forward successfully, material costs continued

trucks and parts. These improvements were partially offset by

to increase and the U.S. dollar weakened further relative to

higher marketing and employee-related expenses, increased

several key currencies. Consolidated net income increased

material and manufacturing costs and unfavorable foreign

13.6 percent to $39.3 million in 2007. However, 2007 net

currency exchange rates.

income included charges totaling $8.0

million, or $4.9 million net of taxes of

$3.1 million, related to announced

manufacturing restructuring

programs, while 2006 net income

included a charge of $17.6 million, or

$10.7 million net of taxes of $6.9

million, incurred as a result of the

company’s early retirement of its

10% Senior Notes due 2009 and a

reduction in income tax expense of

$7.9 million related to the recognition

NMHG focuses on
long-term performance
in developing durable
lift trucks and in
working to improve
company profitability.

NMHG Retail’s operations (net

of eliminations) reported a net loss of

$8.9 million on revenues of $137.8

million in 2007 compared with a net

loss of $9.1 million on revenues of

$170.6 million in 2006. Programs put

in place in mid-2007, which realigned

activities performed by the Asia-

Pacific Wholesale and Retail groups,

affected operations positively in the

fourth quarter, resulting in significant

progress toward the goal of achieving

of a tax benefit for previously recorded capital losses.

at least break-even results in the Asia-Pacific retail operations

NMHG Wholesale generated net income of $48.2 million

in the latter half of 2007, while building market position.

in 2007 compared with net income of $43.7 million in 2006, a

In 2007, Consolidated NMHG generated cash flow

10.3 percent increase on 11.4 percent sales growth. Revenues

before financing activities of $0.7 million compared with cash

improved to $2.6 billion in 2007 primarily as a result of favorable

flow before financing activities of $54.2 million in 2006. The

foreign currency movements in Europe from a weakening of

decrease between years was mainly a function of higher

the U.S. dollar and an increase in higher-priced unit and

accounts receivable primarily from higher fourth-quarter

parts sales volumes resulting from an increased worldwide

revenues in Europe and an increase in days sales outstanding

lift truck market. Shipments grew to 90,899 units in 2007

due to timing of payments.

Revenues by
Geographic Region
(In millions)

$2,719.7

$2,488.5

$2,399.9

$2,056.9

$1,779.6

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Unit Bookings, Shipments
and Backlog

32,000
30,000
28,000
26,000
24,000
22,000
20,000
18,000

J
J

J J J J

J
J

J J
J

J J

J J
J

J J
J
J J
J J J
J
J

J
J

Net Income
(In millions)

$18.1

$10.7

$16.4

$10

$39.3

$34.6

$20

$30

$40

■ Americas ■ Europe ■ Asia-Pacific

■ Bookings ■ Shipments ■ Backlog

Left: The Yale® Veracitor® GP120VX pneumatic tire internal combustion lift truck, for lifting capacities up to 12,000 pounds, undergoes testing on the stability platform
at NMHG’s Counterbalanced Development Center in Portland, Oregon. The stability platform is a computerized electro-hydraulically controlled variable rate, variable axis
tilting platform, which can hold trucks up to a 65,000 pound lifting capacity. Trucks are tipped to both forward and lateral overturn, to simulate rated and unloaded
conditions in travel and stacking modes. The platform is used to test the tip angle of the lift trucks to verify compliance with internal test requirements and applicable
international design standards.

[11]

In addition, in 2007, Consolidated NMHG delivered return

emerging as more reliable sources for low-cost components,

on equity(1) (“ROE”) of 7.9 percent compared with 7.7 percent

costs for commodities, such as steel, oil, lead, rubber and copper,

in 2006, and a return on total capital employed (“ROTCE”)

continue to rise globally and place pressure on profit margins for

of 6.8 percent in 2007 compared with 6.9 percent in 2006 –

all manufacturers. Lift truck companies also face uncertainties

levels still well below NMHG’s longer-term objectives. (See

in the U.S. economy, which could affect key customers’ capital

reconciliations of non-GAAP ROTCE on page 43.)

equipment purchasing levels and timing. In this environment,

Vision and Goals

continual improvements in manufacturing and supply chain

efficiencies are vital to improve financial performance.

NMHG’s vision is to be a leading globally integrated

In most regions around the world, customers desire

designer, manufacturer and marketer of a complete range of

specialized solutions for their materials handling needs.

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

Manufacturers must strike the right balance between the number

cost of ownership, outstanding parts and service support and

of models and options offered and the volume required to

the best overall value. NMHG Wholesale’s established financial

maintain efficiencies and economies of scale. In addition, newer

objectives are to achieve an operating profit margin of 9 percent

lift trucks must address evolving end-user needs, which have

and to generate substantial cash flow before financing activities.

led, for example, to more environmentally friendly products,

NMHG also remains focused on reaching break-even results

such as lift trucks using fuel cell technology, and increased

in its owned retail operations while developing strengthened

demand for electric-powered lift trucks, especially those for

market positions.

Industry Trends

use in warehousing operations. Since sophisticated customers

increasingly look beyond the initial purchase price of a lift

truck to consider the total cost of operation of the equipment,

Lift truck customers increasingly require more dependable

manufacturers must design and build products that deliver a

lift trucks and greater levels of service and expect manufacturers

low cost of ownership over the life of the product.

and dealers to deliver both at competitive prices. Therefore,

Successful lift truck companies and dealers foster strong,

maintaining low costs as well as outstanding quality, timeliness

lasting customer relationships by utilizing highly professional

and reliability are critical for competitiveness. Because greater

personnel and business processes. As logistics efficiency grows

economies of scale produce lower product costs, the industry is

in importance to end users, the overall product and service

led by large, global manufacturers with an increasingly global

needs of these customers have become more sophisticated.

supply base. While China and other low-cost countries are

Manufacturers face increasing demand for enhanced service

(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).

Below left to right: The Yale® Veracitor® GP 60VX pneumatic tire internal combustion lift truck, with a lifting capacity of up to 6,000 pounds, provides excellent performance
for standard and medium-duty applications. The Yale® MPW 60E Walkie Motorized Hand Pallet Truck, with a carrying capacity up to 6,000 pounds, has ergonomically
designed handles to put full control at the operator’s fingertips and has a tapered fork design that provides excellent pallet entry and exit for low-level warehouse operation.
The Yale® ERC-HH cushion tire electric rider lift truck, for demanding applications in warehouse environments, has lifting capacities from 7,000 to 12,000 pounds and is
extremely maneuverable with high stacking ability.

[12]

offerings, including national and global sales coordination, lift

restructuring its global manufacturing facilities and

truck maintenance programs and parts management services.

processes. The company has placed an intense focus on

In particular, strong financing programs backed by reputable,

further implementation of a lean manufacturing strategy

global companies have become a competitive advantage to

based on Demand Flow Technology, which helps reduce

those manufacturers who offer them.

inventory and manufacturing floor space requirements while

To reach its goals, NMHG has established strategies and

improving productivity, lead times and quality. The company

key improvement programs aimed at addressing current

continues to work to optimize production activities among

industry trends. NMHG’s strategies and key improvement

several key final assembly plants and to eliminate waste

programs can be grouped in three main areas: quality and

through process optimization.

efficiency; flexible, modular products; and sales and service

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

excellence. Each key program is designed to enhance

the euro and British pound sterling has negatively affected

profitability or generate growth, both of which are critical for

NMHG’s net income for the past several years. Unfavorable

achieving NMHG’s goals in this mature industry. Profitability

foreign currency rates have effectively lowered current

programs at NMHG focus mainly on manufacturing and supply

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

chain efficiency, as well as design cost reduction initiatives,

by approximately $72 million more than if the currency rates in

while growth programs focus on increasing country and

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

industry market share positions by addressing user needs with

operating profit margin target was established.

customized packages of products and services.

NMHG took several steps in 2007 to address this currency

challenge. During the first quarter of 2007, NMHG outsourced

Key Programs for Quality and Efficiency

its welding and painting operations at its manufacturing facility

NMHG continually strives to reduce manufacturing and

in The Netherlands to a third-party provider in a lower-cost

supply chain costs and improve operational effectiveness while

country. During the third quarter of 2007, NMHG announced

delivering quality products. NMHG’s proven abilities to

it will phase out production of current products at its facility

re-engineer processes and assemble products efficiently within

in Irvine, Scotland, change the product mix at its Craigavon,

an increasingly complex global operating environment support

Northern Ireland facility and increase production at its Berea,

this strategy. Several key programs aimed at achieving this

Kentucky and Sulligent, Alabama plants in the United States

high-quality/low-cost strategy include:

and at its Ramos Arizpe facility in Mexico. Importantly, the

Manufacturing restructuring. NMHG’s manufacturing

transfer of production of the 2 to 3.5 ton internal combustion

strategy is guided by a commitment to high quality and

engine (“ICE”) pneumatic product for the North America

efficiency. To accomplish these goals, NMHG has been

market from Craigavon to Berea is scheduled to begin in the

Below left to right: The new Yale® AC-Powered Double Reach truck provides unparalleled design, versatility and operator comfort in a narrow aisle lift truck. The Hyster®
Fortis® H80FT internal combustion pneumatic tire lift truck series has lifting capacities up to 8,000 pounds and can be configured to satisfy multiple customer applications.
The new Hyster® H1050HDS fork lift truck series, designed as a sibling series to the Hyster® container handler lift trucks, includes a front-mounted cab designed for fork-tip
visibility, and can be used for tough applications requiring lifting capacities up to 105,000 pounds.

[13]

second quarter of 2008. These actions are expected to reduce

NMHG in 2007. The company implemented the Supplier

purchases of high-cost euro- and British pound sterling-

Relationship Management (“SRM”) module of the SAP

denominated materials and components, reduce freight costs,

software system. The SRM system will enable greater regional

lessen NMHG’s exposure to future currency exchange

and worldwide coordination of purchasing and provide greater

fluctuations, reinforce our strategy to manufacture in the

efficiencies. Supporting the SRM system is a new, centralized

market of sale and provide additional opportunities to source

global procurement organization structure with local

components from lower-cost countries. This manufacturing

capabilities designed to deliver quality parts to plants on time

restructuring program is anticipated to generate savings

for production. The full impact of the program is expected to

beginning in 2008 and improve net results starting in 2009.

be realized in 2008 and beyond.

At maturity, benefits are expected to exceed $20 million in

Concurrently, NMHG is continuing its ongoing efforts to

annual cost savings.

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 eliminating rework.

Nevertheless, warranty expenses

increased in 2007 due, in part, to

several issues relating to specific

components on new products utilized

in unique customer applications. The

optimize its supplier base and lower costs by developing a

NMHG produced nearly
91,000 lift trucks in 2007,
all with attention to quality
and many customized
to meet the unique needs
of key customers.

smaller, more reliable and more

responsive group of vendors. Non-

core components continue to be

outsourced to low-cost suppliers

around the world, with increased

focus on China, India, Mexico and

Eastern Europe. This program to

enhance profitability should produce

benefits in 2008 and 2009.

Global IT excellence. In 2007,

NMHG developed a plan to transform

its information technology (“IT”)

company is working diligently to address these concerns and

staff from a decentralized group to a global, centralized

continues to deliver cost reductions and product quality

organization. When implemented in early 2008, the new

improvements through its Value Improvement Program.

organization will have improved capabilities to understand key

Benefits from these initiatives were realized in 2007 and

functional area IT needs, manage increasingly complex projects

further benefits are expected to be realized in the 2008 to

and transition the company’s hardware and software to fewer,

2009 time frame.

global systems. This program is expected to significantly

Global supply chain. Demands on NMHG’s global

improve the efficiency and effectiveness of the entire NMHG

procurement group were again high in 2007. During the year,

organization over time.

the company continued to be challenged by increases in

material costs, particularly commodities such as steel, lead,

Key Programs for Flexible, Modular Products

copper, rubber and oil. However, broad price increases

A key NMHG strategy is to develop modular products

implemented in 2006 and 2007 have partially offset the effect

that can be flexibly configured to provide unique, tailored

of these increased costs. NMHG adopted a program to pass

solutions that deliver superior value to end users. Supporting

through selected higher commodity costs to its customers

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

during 2007 and expects to continue to do so as needed in 2008

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

and beyond. The company will continue to closely monitor

reliable products. The following programs are focused on

economic conditions and their resulting effects on costs.

achieving these results:

In addition to the short-term actions established to

New product development process. In 2007, NMHG

manage these challenges, a program designed to completely

continued to implement this program to improve profitability

transform the supply chain process was implemented at

through its unique approach to developing new products.

Right: Hyster® trucks at an exclusive Hyster® dealership in Portland, Oregon, ready to be shipped to customers.

[14]

Complete ranges of products are developed simultaneously

the second half of 2008, and lift trucks with over 3 ton capacity

rather than on a traditional series-by-series approach. Platforms,

are scheduled for introduction in 2009.

components and modules have been designed to be used across

NMHG’s warehouse product line offering was significantly

a wide array of lift trucks. This approach decreases the overall

strengthened in 2007 with the introduction of a new Retail

number of components required and permits easier and more

Reach truck in the Americas. In addition, a number of feature

frequent upgrades. In addition, design, prototyping and testing

improvements were introduced in 2007, which allow the

are guided by a rigorous, staged approval process that delivers

warehouse lift trucks to deliver more performance in targeted

higher levels of reliability while increasing speed to market.

applications at key customers. Along with other product and

Increased component commonality, combined with

feature enhancements, an A/C-powered update of the 3-Wheel

engineering techniques designed to deliver a more efficient

Stand-Up warehouse lift truck is planned for 2008.

assembly process, are expected to continue to increase

NMHG’s Big Truck line improved in 2007 with the

labor efficiency and improve product

quality. Lift trucks utilizing

interchangeable components and

systems assembled on computer-aided

assembly lines are increasing NMHG’s

ability to configure and manufacture

lift trucks to individual customer

application requirements.

For newly designed product lines

that have already been introduced,

these product development efforts are

improving the quality of NMHG’s

A concentration at NMHG
on design and durability
assures that our lift trucks
reliably perform the
most demanding tasks day
in and day out.

introduction of an updated 16 to 22

ton forklift truck, a new 44 to 48 ton

forklift truck and an extended

capacity Reachstacker as well as an

upgraded range of 8 to 16 ton Tier III

low-emission models. Additional

capacity models and upgrades to

the Big Truck line, including new

platforms for the 14 to 18 ton and

20 to 32 ton series, are scheduled for

introduction in 2008 and beyond.

The introductions of these newly

products, as well as more cost-effectively meeting end-user

designed products are expected to enhance revenue and margins

requirements. In the long term, improved efficiencies are

as well as absorb unused manufacturing capacity, primarily in

expected to increase individual lift truck profitability as well

2008, as most of these new product introductions are completed.

as overall company profitability. This program is expected

Strategic pricing optimization. With the new modular

to provide further significant benefits in 2008 and 2009.

product design concept, dealers can more accurately configure

New product introductions. Over the next two to three

and price lift trucks in line with customer applications. Linking

years, NMHG expects to deliver a continuous stream of new

prices more closely to product features and performance

product introductions and product improvements covering

delivers value and lower cost of ownership to customers and

the ICE, electric, warehouse and big truck product lines.

enhanced margins to NMHG. In conjunction with the program,

In 2007, NMHG introduced the 6 to 7 ton series of the

the company has made, and will continue to make, selected

1 to 8 ton ICE lift truck line, which includes the Hyster® Fortis®

adjustments to the mix of performance and feature offerings

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

on its lift trucks. Benefits of this program were realized in 2007

early 2009, the final series in the ICE line, a new 8 to 9 ton lift

and are expected to increase during 2008 and beyond.

truck series, is scheduled for introduction.

A completely new line of electric counterbalanced lift

Key Programs for Sales and Service Excellence

trucks, which will benefit from the same design and manu-

NMHG is focused on maintaining and strengthening its

facturing approach as the 1 to 8 ton ICE line, is scheduled to

already highly professional national account direct sales group

roll out in 2008 and 2009. Specifically, new 1 to 3 ton Electric

and independent dealer distribution networks to provide

Rider lift trucks are scheduled for introduction beginning in

superior value-added support to its customers. NMHG’s

Left: A Hyster® Fortis® S80FT internal combustion cushion tire lift truck undergoes testing of its durability to withstand a heavy load falling on the overhead guard at the
drop test stand at NMHG’s Counterbalanced Development Center in Portland, Oregon.

[17]

experience and success in building strong, lasting customer and

sales, service, rental and fleet management. NMHG also offers

dealer partnerships should help the company accomplish this

customized consulting assistance to help dealers implement

strategy. Also supporting this strategy is NMHG’s strong global

these programs to improve sales and profitability. In addition, a

relationship with GE Capital, which, along with other local

number of special initiatives already under way, including order

financing companies, helps provide and manage a significant

and contact management systems, a training knowledge center

portfolio of loans and leases to lift truck customers, dealers

and customer and dealer satisfaction programs, are expected to

and NMHG. Several other programs supporting this service

enhance the strong reputations of Hyster® and Yale® dealers.

strategy include:

Benefits from these growth programs are expected to be

National and global accounts. NMHG has industry-

realized at NMHG and its dealers over the long term.

leading fleet management and national account organizations

Aftermarket parts. NMHG maintains an important

in North America and is developing a stronger national

strategic alliance with a leading aftermarket parts provider

account program in Europe, while continuing to enhance its

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

global account capabilities. NMHG’s goal is to offer superior

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

value and services to large customers that have centralized

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

purchasing but geographically dispersed operations. Benefits

its customers’ parts and service business. NMHG also continues

from this program to generate growth will be gradual, but

to make significant investments in training dealer technicians

increasing over the long term.

in lift truck diagnostics, maintenance and repair procedures to

Dealer structure program. The company continues to

assure highest-quality customer service. Improvements are

strengthen its worldwide network of strong, professionally

being realized and are expected to increase gradually as a result

managed, well-capitalized independent dealers as part of its

of this growth program.

Anchor Dealer efforts. NMHG’s experience is that these

NMHG Retail improvements. NMHG Retail consists of

exclusive Hyster® and Yale® Anchor Dealers can attain higher

Yale® in the United Kingdom, Hyster® in Singapore and

market shares, attract higher-quality employees and offer

Hyster® and Yale® in Australia. During 2007, NMHG sold its

higher-value services to their customers. In addition, dealer

Hyster® dealership that covered part of France and continued

excellence enhancement efforts are designed to drive improve-

to streamline operations at its Yale® dealership in the United

ment at all Hyster® and Yale® dealers, providing dealers with

Kingdom. In its Australian retail operations in 2007, NMHG

best practices and performance assessment tools in the areas of

implemented an important business improvement program.

operational and financial management, lift truck and parts

The company’s lift truck rental business, previously operating

Below left to right: Hyster® and Yale® lift trucks are designed to withstand extreme conditions. Designs are reviewed and rigorously tested at NMHG’s Counterbalanced
Design Center in Portland, Oregon. An engineer does test simulations on a computer program to ensure lift truck specifications are set to withstand various conditions. The
Mustang Dynamometer is used to validate drive axles months or years ahead of truck availability by using fixtures or mule truck chassis in an accelerated testing environment.
A lift truck is tested for durability on a dusty, uneven gravel road.

[18]

as the National Fleet Network, was absorbed into the Hyster®

NMHG Wholesale’s financial objective is to achieve an

and Yale® wholesale and retail sales and services businesses in

operating profit margin of 9 percent by 2011 to 2012. Several

an effort to mirror NMHG’s structure in North America.

key programs are intended to help NMHG reach that

Efforts are also under way to significantly reduce lift truck

goal, particularly focused Value Improvement Programs

inventories in Australia. The overall business improvement

for engineering and manufacturing, the comprehensive

program is intended to enhance the company’s sales, marketing,

manufacturing restructuring program, the implementation

major accounts and services capabilities significantly while

of the SRM supply chain system and related component cost

improving operational effectiveness and efficiency. Some

reductions, and the introduction of new, innovative products

benefits of the program were realized in the latter half of 2007,

priced strategically and sold aggressively.

with the full impact expected to be realized in 2008 and beyond.

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

break-even financial performance while building market

Outlook for 2008 and Beyond

The worldwide lift truck market

grew in 2007 and is expected to

continue growing in 2008. Markets

that are particularly strong and

expected to grow significantly include

Eastern Europe, China and other

developing countries. NMHG’s largest

market, the North American market,

declined in 2007, as expected, due to

the cyclical nature of the industry. The

North American market is forecasted

Continued emphasis on
engineering excellence
and on key programs
is expected to improve
prospects for increased
profitability at NMHG.

position. Improved results are

expected in 2008 and beyond,

particularly in Australia, where a

business improvement program was

implemented in 2007.

Overall, NMHG continues to

believe it will be increasingly well

positioned to offer superior products,

which are efficiently manufactured

and distributed by outstanding dealers.

Key profitability and growth programs,

particularly in the areas of quality and

to decline further in 2008, along with other markets in

efficiency, product flexibility and sales professionalism, are

the Americas. Overall, NMHG Wholesale expects to have

expected to improve prospects for long-term growth in market

moderately higher volumes in 2008 compared with 2007

share and increased profitability.

levels as a result of strong European and Asian markets and

In closing, I want to thank all NMHG employees, as well

the introduction of newly designed products throughout

as our dealers and suppliers worldwide, for their continued

2008. However, if U.S. economic conditions deteriorate more

hard work on behalf of the Hyster® and Yale® brands. And

than expected, sales of units and higher-margin parts could

I would like to thank NMHG’s customers, who remain the

decline in 2008, which would adversely affect revenues and

primary motivation for that hard work. We continue to be

profit margins.

committed both to successful execution of our stated plans as

The company is committed to addressing the critical

well as addressing the challenges and opportunities presented

issue of unfavorable currency exchange rates, as evidenced by

by operating in a complex, global economy. I look forward to

the announcement of its new manufacturing restructuring

working together successfully with all of NMHG’s partners

programs during 2007. Currency hedging positions continued

in 2008.

to mitigate unfavorable currency exchange rate fluctuations

in 2007, although not to the same level as in 2006. NMHG

Wholesale’s operating profit margin was 2.6 percent in 2007.

Assuming 2007 exchange rates for the euro and British pound

sterling had been at early 2002 levels, the year when NMHG’s

profit improvement goal was established, NMHG would have

been significantly closer to attaining its operating profit

margin target.

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

[19]

Managing for long-term profit growth
Hamilton Beach Brands

2007 Results

Results in 2007, in particular during the important fourth-
quarter holiday season, were disappointing for the housewares
industry and Hamilton Beach Brands (“HBB”). Revenue
slipped 1.1 percent to $540.7 million in 2007 from $546.7
million in 2006, and net income decreased 17.1 percent to
$18.4 million in 2007 from $22.2 million in 2006. However,
HBB’s performance could still be considered favorable when
taking into account softer-than-expected retail sales
for the industry, continued pricing
pressures from retailers, rising material
costs and significant competition for
consumers’ discretionary income. The
company delivered a return on equity(1)
(“ROE”) in 2007 of 35.5 percent, up
from 18.0 percent in 2006, as a result
of the recapitalization of the company.
HBB also delivered a solid return on
total capital employed (“ROTCE”) of
14.5 percent in 2007, up from 14.2
percent in 2006. (See reconciliations of
non-GAAP ROTCE on page 43.)

In the intensely competitive
housewares market,
HBB offers a variety of
products that bring
solutions to consumers and
profits to the company.

offset by lower unit sales volumes, higher selling, general
and administrative expenses, and higher interest expense of
$5.3 million pre-tax because of increased borrowings related to
a $110 million special cash dividend paid in May 2007.

In 2007, HBB generated cash flow before financing

activities of $15.8 million compared with $35.9 million in
2006. Included in 2006 were cash proceeds of $11.4 million
from the sale of the company’s Saltillo, Mexico facility.

Proposed Spin-Off and New
Company Name

In April 2007, NACCO

Industries announced a plan to spin
off its Hamilton Beach/Proctor-Silex
business to establish an independent
public company named Hamilton
Beach, Inc. Due to volatility and
uncertainty in capital markets, the
NACCO Board of Directors decided
in late August not to pursue the
proposed spin-off. However, in
September 2007, the company

HBB’s revenue benefited from additional shelf placements

and promotions by retailers in support of direct-response
television advertising, from sales of higher-priced products and
from newly introduced products. Nonetheless, these benefits
could not offset lower unit volumes as a result of reduced sales
to key retailers in a weak U.S. consumer market.

officially changed its name to Hamilton Beach Brands, Inc.,
a name that preserves the heritage of Hamilton Beach, reflects
the company’s current ownership of multiple brand names and
positions the company appropriately for the addition of other
brand names in the future.

Net income benefited from increased sales of higher-margin

Vision and Goals

products and the results of the movement of all production to
third-party manufacturers. However, these benefits were fully

HBB’s vision is to be the leading North American designer,

marketer and distributor of small electric household and

Revenues
(In millions)

Net Income
(In millions)

$540.7

$546.7

$527.7

$507.3

$492.8

$18.4

$22.2

$20.3

$15.2

$16.1

$100

$200

$300

$400

$500

$600

$10

$15

$20

$25

Left clockwise from top: Hamilton Beach Brands’ newest products include: Hamilton Beach® Brewstation® Pro 12 cup coffeemaker (shown in black), Proctor Silex® Space-
Saving Blender, Hamilton Beach® Set ‘n Forget® 6 quart programmable slow cooker, Proctor Silex® auto shutoff iron, Proctor Silex® Belgian waffle baker, Hamilton Beach®
ChefPrep™ 525 watt food processor.

[21]
[21]
[21]

commercial appliances sold under strong brand names and to
achieve profitable growth from innovative solutions that
improve everyday living. HBB’s financial objective is to achieve
a minimum operating profit margin of 10 percent and to
generate substantial cash flow before financing activities.

Industry Trends

Competition in the housewares industry continues to be
intense. Rising costs of transportation and raw materials such
as plastic, copper, aluminum and steel continue to place
significant pressure on margins. To lower costs further and
provide greater value, HBB and other housewares suppliers
have transferred most, if not all, of their manufacturing to
third-party manufacturers located in lower-cost regions,
primarily Asia. Therefore, further dramatic cost reductions are
increasingly difficult to achieve as the outsourcing process is
completed and material and transportation costs rise.

As housewares products face heightened competition for

consumers’ disposable income, new, innovative products
become even more important to driving growth and higher
margins. Several consumer trends are favorable for small
kitchen appliances, including the growing popularity of both
gourmet and on-the-run home cooking. Brands also continue
to be important in this market. However, because barriers to
entry are low, HBB can face challenging competition from new
products with new brand names. Overall, the market growth
rate in small kitchen appliances is likely to be slightly negative
to very low due to economic uncertainties, including a
significantly weakened housing market in the United States.

Strong relationships with the leading retailers are critical

for success. Leading retailers for small kitchen appliances
include mass merchants, warehouse clubs, specialty stores and
Internet sites. Shelf placement is highly competitive and sales

are increasingly driven by promotional activity in the fourth-
quarter holiday season, which delivers a significant portion of
annual sales. The impact of winning or losing a single product
placement or multi-product placement program at specific
retailers is being magnified as certain retailers’ shares of the
overall market grow. Other retailer trends include the increased
offering of private-label versions of small kitchen appliances, as
well as a growing interest in products, packaging and processes
considered to be environmentally sustainable.

To achieve its stated goals, HBB has established strategies

and key programs aimed at responding to these industry trends.
These strategies and programs focus on three fundamental
areas: continuous cost reduction; innovation; and professional
sales and marketing. Each key program is designed to enhance
profitability or generate growth. Profit enhancement programs
focus on efficiencies in product development, purchasing and
the supply chain, while growth programs focus on new
innovative products, branding and distribution channel
optimization. HBB believes these strategies and programs, in
combination with the company’s core competencies, will help
HBB remain competitive in a challenging industry and position
the company for even greater future success.

Key Programs for Continuous Cost Reduction

HBB is focused on driving continuous cost reduction
throughout the entire company and at all of its suppliers. The
goal to achieve a 10 percent operating profit margin has become
part of the company’s culture. The company’s exceptional ability
to identify and eliminate unnecessary costs across the value
chain is a key competitive advantage. Key programs directed at
accomplishing improvements and cost reductions include:

Purchasing and supplier product cost reduction. A shift to

outsourced manufacturing for all consumer and commercial

Below left to right: Proctor Silex® Easy Slice™ electric knife, Hamilton Beach® 3-in-One slow cooker, Hamilton Beach® Commercial drink mixer.

[22]

products is helping HBB reduce product costs. In May 2007,
HBB completed its transition to third-party manufacturing.
The company realized continued improvements in 2007 as a
result of manufacturing restructuring programs implemented
in 2007 and prior years.

Furthermore, HBB’s ongoing Value Improvement
Program seeks to reduce costs of processes, components and
products at suppliers’ plants. The company’s objective is to
maintain a significant competitive advantage by combining
low-cost, third-party manufacturing capabilities with HBB’s
extensive manufacturing experience. This program provided
significant benefits in 2005 through 2007, and additional
incremental gross margin benefits are expected in future years.
Continuous quality improvement. HBB is committed to

continuous quality improvement throughout all areas of the
company. HBB has made quality a significant focus at key
suppliers in China by providing guidance on specific processes
and techniques to ensure high quality, consistency and
efficiency. These efforts should pay off increasingly as expenses
for implementing this program have already been incurred.
Further improvements in already high levels of quality were
realized in 2007 as evidenced by consistently low product
return rates, and these improvements are anticipated to be
maintained in 2008 and beyond.

Supply chain optimization. HBB’s continued focus on
supply chain management in 2007 resulted in performance
improvements for the company and for HBB’s retail customers.
HBB continues to implement improvement projects at its
Memphis, Tennessee distribution facility, and the company is
increasingly offering customers additional efficiencies through
direct-ship programs, where third-party suppliers route products
directly to retailers’ warehouses. HBB expects to further
improve its capabilities in 2008 through implementation of a

new supply chain software system, which is designed to enhance
collaborative planning, forecasting and replenishment processes
with several key retailers. Benefits from this program are
expected to be realized in 2008 and 2009.

Key Programs to Leverage Innovation

HBB relentlessly pursues innovation in its product
categories through its superior ability to research, create, design,
test, package, promote and launch new product concepts. The
company also strives for environmental responsibility across the
entire value chain. Programs supporting this strategy include:

Product development process. HBB’s product development

process is designed to create a steady stream of innovative
products that exceed current market offerings in features,
performance, style and value. HBB’s goal is to deliver the most
innovative products at the most competitive costs possible and
to bring to market products that represent best-in-class
performance. HBB utilizes in-depth consumer research that
enables the company to develop products with consumer-
preferred features and high rates of market acceptance. HBB’s
engineers in both the United States and China, as well as
engineers at the company’s suppliers in China, all contribute to
the process for designing successful new products. This program
to enhance profitability is an ongoing investment that is
expected to bring both short-term and long-term benefits.
New product introductions. Driven by its consumer-
oriented product development process, HBB has demonstrated
a strong track record in new product introductions. Additionally,
patent protection is vigorously pursued and enforced, when
appropriate, for new products, product features or designs.

In 2007, approximately 40 percent of the company’s U.S.

consumer sales were from products introduced in the previous
three years. The revolutionary Hamilton Beach® BrewStation®

Below left to right: Hamilton Beach® professional stainless steel iron, Hamilton Beach® digital 2-slice toaster, Hamilton Beach® 6-speed classic hand mixer.

[23]

[24]

coffeemaker, featuring carafe-less, cup-activated dispensing,
continued to be a leading seller in the United States. Other
examples of innovative new products include the Hamilton
Beach® OpenStation™ Multi-Opener, a can opener with tools
to open jars, bottles and plastic clamshell packaging, and the
Stay or Go™ Slow Cooker, a travel-friendly slow cooker with
full-grip handles, a tight-latch lid and a clip-on serving spoon.
The company introduced several new commercial
blenders in 2007, which were well received by the market, and
plans to introduce a number of other new commercial
products in 2008, including a high-performance blender, a
line of commercial-grade toasters and a line of stainless
steel beverage urns with cup-activated
dispensing inspired by the Hamilton
Beach® BrewStation® coffeemaker.
This growth program is expected to
provide revenue and margin
improvements for the commercial as
well as consumer businesses of HBB.

Key Programs for Professional
Sales and Marketing

HBB also has an ongoing strategy

to develop and sustain the most
professional sales, marketing and
branding programs in the industry. The company has a
proven ability to match products, services and brands to
specific retailer assortment needs. Programs supporting this
strategy include:

Retailer and channel focus. HBB works closely with
retailers to develop product assortment strategies to optimize
category profits. In-depth data analyses are used to recommend
the most profitable combination of products, features and price
points in each product category. In turn, these analyses drive
the HBB product development process, improve speed to

A significant portion of U.S. consumer
sales were from products introduced
in the last three years

2007

18.0%

11.5%

10.0%

60.5%

● 2007 Products ● 2006 Products ● 2005 Products ● Established Products

market and increase the success rate of new products. HBB’s
category management approach is applied across all types of
retail channels, from mass merchants to smaller regional
retailers, and is being applied in the United States, Mexico,
Canada and other selected international markets. This growth
program has helped enhance revenues and margins and is
expected to continue to do so.

Strategic brand application. HBB has a broad complement

of key brand names targeted at distinct consumer segments.
Underlying all brands is a commitment to safety, performance
and reliability. The Hamilton Beach® eclectrics® brand targets
high-end consumers who demand the best in performance

HBB strives for high
performance on the
countertop, at suppliers,
in sales activities, in
marketing activities
and on the bottom line.

and style and are willing to pay more
for those benefits. The Hamilton
Beach® brand targets mid- to higher-
end consumers desiring a strong
brand name, innovative features, great
performance and attractive styling.
The Proctor Silex® and Proctor Silex®
Plus brands target middle-market
consumers who prefer a strong
heritage 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. HBB also
uses its brand names in conjunction with other companies’
brand names. For example, an agreement with Procter & Gamble
(“P&G”) created a successful, co-branded odor eliminator with
P&G’s well-known Febreze® brand.

The Hamilton Beach® Commercial brand targets
restaurants, bars and the hotel amenities markets. The strong
heritage of the Hamilton Beach® Commercial brand name
results from many successful years of producing blenders and
the classic soda fountain-style milkshake mixers that could be
seen on the back counter of almost every soda fountain across
America. Today, the Hamilton Beach® Commercial brand
name is associated with a wide variety of products found in
commercial kitchens, restaurants, bars and hotels. It remains a
leading brand in commercial blenders and spindle mixers in
the United States.

Both the strategic application of its current brands and the
introduction of new brands are expected to benefit HBB on an

Left: Hamilton Beach® Commercial products. Top: Hamilton Beach® Commercial Tempest® high-performance blender. Bottom left to right: Hamilton Beach® Commercial
4-slice heavy-duty toaster, Hamilton Beach® Commercial juicer, Hamilton Beach® Commercial Brewstation® coffeemaker.

[25]

ongoing basis. Specifically, HBB plans to leverage its core
brands, as well as pursue opportunities to build its brand
portfolio. New brand initiatives could enhance HBB’s position
broadly, help HBB target specific markets, such as higher-end
consumers, or help HBB serve specific retailers with key names
that strengthen their brand offerings. Overall, HBB’s brand
programs represent a critically important part of the company’s
growth strategy.

Outlook for 2008 and Beyond

As a result of its ongoing focus on innovative new

products, HBB has a strong assortment of new products
planned for 2008 and 2009. However,
2008 is expected to be a difficult year
for HBB. The company is not
optimistic consumer markets will
improve in 2008, as the effects of high
gasoline prices, depressed home sales,
mortgage debt concerns and worries
of recession all have potential to
further dampen consumer spending.
If consumer spending softens further
and retailers choose to reduce shelf
space for the small electric kitchen
appliance category, it is possible the
overall market for these products in the United States
will decline in 2008. HBB is also concerned about material
cost increases.

The company is closely monitoring material costs and

working to mitigate cost increases through continued
implementation of programs initiated in prior years, as well as
through selective price increases when appropriate. However,
the timing of margin recovery is likely to adversely affect results
in 2008. While the company remains confident it will continue
to see performance improvements from its profitability and
growth programs over the next several years, it will be difficult
to improve net income performance if overall retail sales
decline. Specifically, efforts in product cost reduction, quality
improvement, product innovation, promotions and branding
are all expected to contribute to HBB profitability, although
overall profitability levels for 2008, and possibly beyond, could
fall below the company’s previous expectations.

Considering a challenging economic and retail
environment, HBB is proud of its team’s efforts to reach the

profitability level it did in 2007. As noted earlier, HBB’s goals
are to achieve a 10 percent minimum operating profit margin,
and to generate significant cash flow before financing activities.
While the company’s operating profit margin was 7.5 percent
in 2007 compared with 7.8 percent in 2006, HBB achieved a
high ROE(1) of 35.5 percent in 2007 and ROTCE of 14.5 percent.
(See reconciliations of non-GAAP ROTCE on page 43.) The
company intends to make further strides by placing more
emphasis on increasing overall sales volume and improving
profitability of select products, key customer accounts and

specific regional operations. HBB has programs in place to
improve operating profit in 2008 with a long-term

While breakthrough product
styling can help drive
revenues, constant attention
to costs and quality is critical
to improving profitability
at HBB over time.

objective of attaining a 10 percent
operating profit margin. HBB
generated cash flow before financing
of $15.8 million in 2007 and expects to
continue to generate significant cash
flow before financing in future years.
In summary, HBB is optimistic
about the successful implementation
of its strategic programs and about its
prospects for continued improvement,
although the company is guarded
about the prospects for a rebound in
consumer spending in the near term.

In 2007, the HBB team worked in concert to accomplish
our objectives while putting forth extra effort on a number
of projects including the proposed spin-off. Although the
proposed spin-off did not occur, we do have a new name:
Hamilton Beach Brands. With the new name comes a sense of
pride for what we’ve accomplished in the past, as well as a sense
of enthusiasm for new opportunities ahead of us. I would like
to take this opportunity to thank our employees and suppliers
for their hard work and dedication and a special “thank you”
to our customers for their business. I look forward to our
continued success.

Dr. Michael J. Morecroft
President and Chief Executive Officer
Hamilton Beach Brands, Inc.

(1) ROE = 2007 net income divided by 2007 average equity (a five-point average of equity at December 31, 2006 and each of 2007’s quarter ends).

Left: The new Hamilton Beach® liquid blu® 5-speed blender.

[27]

Managing for long-term profit growth
Kitchen Collection

2007 Results

Kitchen Collection (“KC”) had a challenging year in 2007.
Higher gasoline prices and consumer concern over the economy
and the housing market adversely affected both customer
visits and spending in 2007, particularly during the important
fourth-quarter holiday gift-giving season. In addition, KC spent
much of the year integrating operations, replenishing product
inventory and restoring customer loyalty at its Le Gourmet
Chef® stores (“LGC stores”), a chain of kitchenware and gourmet
food stores acquired out of bankruptcy in August 2006.

18.3 percent in 2006. (See reconciliations of non-GAAP
ROTCE on page 43.)

During 2007, KC generated a negative cash flow before

financing activities of $14.8 million compared with cash flow
before financing activities of $1.1 million for 2006. The change
in cash flow before financing resulted primarily from a decrease
in net income and a decrease in accounts payable between years
as a result of the timing of payments.

Vision and Goals

Revenues increased 23 percent in 2007 primarily because

KC’s vision is to be the leading specialty retailer of

Nearly 300 Kitchen
Collection® and Le Gourmet
Chef® stores bring the best
products, at a great value,
to cooking and food
enthusiasts across the U.S.

of the acquisition of the LGC stores. Sales gains were
partially offset by the effect of closures
of unprofitable stores as the number
of Kitchen Collection® stores (“KC
stores”) decreased to 198 in 2007 from
203 in 2006. The number of LGC stores
also decreased to 74 in 2007 from 77
in 2006, in line with expectations at
the time of the acquisition.

KC generated a net loss of
$0.9 million in 2007 compared with
net income of $3.7 million in 2006,
primarily because KC recognized an
additional eight months of seasonal
operating losses during 2007 for the Le Gourmet Chef (“LGC”)
business of approximately $7.0 million, or $4.3 million net of
taxes of $2.7 million, as a result of owning LGC for a full year in
2007 compared with only the four most profitable months in
2006. Lower-than-expected retail sales, as well as store inventory
fulfillment difficulties at LGC’s third-party warehouse
operations, also contributed to the current year net loss. As a
result, return on equity(1) declined to negative 6.0 percent in
2007 from 28.2 percent in 2006, and return on total capital
employed (“ROTCE”) declined to 0.6 percent in 2007 from

kitchen, home entertaining and gourmet food products in
outlet malls and other retail channels
for consumers seeking a large
selection of unique, high-quality
products at an exceptional value.
KC’s goals are to earn a minimum
operating profit margin of 5 percent
and to generate substantial cash flow
before financing activities.

Industry Trends

The retail environment continues

to be extremely competitive.
Widespread Chinese sourcing allows

many retailers to offer value-priced kitchen products. Labor
and rent costs are rising, and transportation costs are increasing
due to higher fuel prices. To succeed in kitchenware retailing,
costs must be kept to a minimum.

KC believes there is excellent growth potential in
kitchenware retailing, but only through offering unique, high-
quality products at prices affordable to most consumers. While
a number of very low-end and very high-end kitchenware
retailers participate in the marketplace, there is still an excellent
opportunity for stores offering mid-priced, high-quality

Number of Stores

Revenues
(In millions)

Average Sales Transaction

272*

280*

195

188

180

$116.9

$112.3

$110.2

$210.0*

$170.7*

$19.10

$18.58

$18.29

$20.78*

$20.46*

100

150

200

250

300

$25

$50

$75

$100

$125

$150

$175

$200

$225

$16

$17

$18

$19

$20

$21

*Includes acquisition of the Le Gourmet Chef® stores in August 2006.

(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 Kitchen Collection® store in Ellenton, Florida, features higher-margin, brand-name kitchen gadgets, small electric appliances and a variety of other kitchen- and
housewares-related products.

[29]

kitchenware. Consumers remain highly interested in TV celebrity
chefs and in purchasing the kitchen tools they use. However,
the effects of a challenging economy could dampen the demand
for these items.

While the outlet mall industry expanded rapidly during the

1990s, its growth has slowed as consumers began to find great
values in other retail channels, including mass retailers and the
Internet. Consumer traffic at many outlet malls declined in
2007 due, in part, to higher gasoline prices. Traffic and sales
also declined due to a general softness in consumer spending
during the important fourth-quarter holiday season. For store
formats with a widespread presence in existing outlet malls,
such as the KC stores, overall success will require optimizing
performance in each existing store rather than expansion to new
outlet malls. For store formats that have not fully expanded into
the existing outlet mall market, such as the LGC store format,
there is still opportunity for growth. Beyond outlet malls, the
company believes significant growth opportunities exist in other
retail channels, such as traditional malls and lifestyle centers.
To help KC attain its stated goals, the company has
established strategies and key programs geared to these current
industry trends. KC’s strategies and key programs 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 customer traffic in outlet malls.
In addition, programs to develop store formats beyond outlet
malls are increasingly important for generating growth.

Key Programs for Disciplined Cost Control

KC’s proven ability to aggressively manage both vendor and
store costs is accomplished through four established programs.

Corporate expense management. As part of the LGC

integration and synergy plan, KC closed LGC’s existing
headquarters in Shrewsbury, New Jersey in April 2007 and
integrated those operations into the KC headquarters in
Chillicothe, Ohio. In addition, KC is placing significant focus on
maintaining its traditionally lean, efficient corporate operation.
Store expense management. This ongoing program to

enhance profitability relies upon KC’s ability to manage store
rental and labor costs, which are key drivers of profitability.
This program is of particular importance as KC works to
optimize the profitability of the newly acquired LGC stores.
Continuous product cost management. This ongoing
program to enhance profitability draws upon KC’s significant
experience in sourcing and managing vendors. This expertise is
also being applied to the products sold in LGC stores, many of
which are supplied by companies that are relatively new to KC.

Logistics efficiency. While KC continues to improve and
enhance its KC stores’ warehouse operations in Chillicothe, Ohio,
the quality of LGC’s third-party warehouse operations has been
disappointing. KC originally believed third-party warehouse
providers for LGC could adequately satisfy the chain’s logistics
needs in the short term, but the providers did not perform to
KC’s standards, significantly hindering LGC’s store inventory
fulfillment process. KC now expects to bring these operations
in-house in 2008. The company plans to create a new LGC
warehouse operation near the KC headquarters in Chillicothe,
Ohio. The new warehouse is expected to be opened during the
second quarter of 2008, allowing proper flow of product to the
LGC stores for the key fourth-quarter holiday season. In the long
term, further efficiencies could be gained from consolidating
truckload shipments of product bound for KC stores and
LGC stores located in the same outlet malls, as well as from

Below: Le Gourmet Chef® stores feature product sampling and food-tasting stations, key elements for creating an engaging store experience and driving sales.

[30]

consolidated warehousing. The LGC logistics project has top
priority at KC, and benefits are expected to be realized in the
second half of 2008, with full benefits to be realized in 2009.

upscale line of kitchen gadgets featuring the Hamilton Beach®
name is planned for 2008.

Economic Value Income. KC utilizes disciplined operating

Key Programs to Ensure Unique, Affordable Products
Another KC strategy is to provide customers with a
continuous stream of innovative, high-quality products offered
at affordable prices. The company’s strong competency in
providing both analytical rigor and creativity to the product
selection process supports this strategy – for both KC stores
and LGC stores – through the following programs:
Innovative products and merchandising. This

controls to improve margins. The company continues to
use its proprietary Economic Value Income (“EVI”) business
tool to maximize return per cubic foot of retail space. When
combined with other revenue and margin enhancement
programs, EVI assists in optimizing profit from the mix of
products, the amount of space allocated to each product
and the most appropriate store size. As the LGC stores

become more integrated into the company’s operations,
EVI analysis will be utilized in those stores as well.

Gourmet foods and
product demonstrations
engage customers, drive
repeat visits and position
LGC as an exciting, reliable
resource for entertaining.

Key Programs for Store
Improvement and Expansion
KC’s primary strategy for
growth focuses on strengthening its
leadership position in outlet malls
with exciting store environments,
while working to reach customers
through other channels. KC has
developed a particular strength in
analyzing store data and creating
specialized programs for different
types of channels. KC has four

programs aimed at making this strategy successful.

Outlet mall format initiatives. With nearly 250 outlet
mall locations, KC stores and LGC stores can be found in a
variety of outlet mall types. The company utilizes mall profiling
information and segmentation analysis to assess new outlet
mall locations as well as improve profitability at existing outlet
malls. As a result, the company manages its outlet stores
differently depending on whether an outlet mall has high-end
retail tenants, is located near a tourist destination or is located
in an urban or rural area. With the LGC stores, the company
now has a solid complementary retail platform on which to
expand. KC believes there is significant potential for additional
LGC stores, particularly in outlet malls where there is a high-
volume KC store present and in higher-end outlet malls. In
2007, KC closed nine underperforming LGC stores and opened
six new LGC stores, five in outlet malls, four of which also have
KC stores, and one in a new traditional mall. However, KC will
be extremely cautious in opening new KC stores or LGC stores
in 2008 due to uncertainties related to consumer spending.

Traditional mall format initiatives. For some time, the

company has stated its belief that the development and

growth program is designed to ensure
the latest products with the highest
sales potential are found on the
shelves of KC stores and LGC stores,
and the products are displayed in ways
that attract consumer attention. The
company continually tests and
implements new approaches to
increase traffic in its stores, to increase
the percentage of individuals who
make purchases after they enter a
store, to encourage customers to
purchase higher-margin items and to
increase the average purchase amount of those who buy items
in the stores. In fact, although total transactions at KC stores
were down in 2007, the average dollar value per transaction
was up for the year. At KC stores, special brand programs, “as-
seen-on-TV” items and special value close-outs are all part of
this program to increase revenue on an ongoing basis. At the
LGC stores, product demonstrations and sampling of gourmet
food items are particularly effective in driving consumer
interest and increasing sales. In 2008, the company will be
implementing new merchandise selections displayed more
consistently across LGC stores. In addition, the LGC stores have
in place a well-developed customer loyalty program, called
Le Club, which is expected to contribute positively to
performance at those stores.

Hamilton Beach® brand leverage. KC continues to
leverage its lines of sourced private label merchandise featuring
the Hamilton Beach® and Proctor Silex® brand names, which
are among KC’s most successful and profitable product lines.
These private label non-electric product lines, offered at KC
stores, feature nearly 500 items, including cutlery, cutting boards,
barbecue tools, bakeware and cookware. In addition, a new

[31]

With a cooling in
retail traffic at outlet
malls, high-end,
higher-margin cookware
is attractive to KC,
as well as to its customers.

expansion of a traditional mall store format represents the
most promising driver of future growth. This belief was a key
driver in KC’s interest in the LGC acquisition, and the company
sees high-growth potential for the LGC store format in
traditional malls. While KC 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 gifts – is excellently suited for
traditional malls and represented a quicker way for the
company to enter this channel. With the addition of the LGC
concept, the company had 18 permanent LGC traditional
mall stores at the end of 2007 in a potential market of
more than 500 traditional malls
nationwide. Recently, the company
embarked on a new effort to further
improve performance at the LGC mall
stores in order to prepare for future
growth. However, KC has no plans to
open additional traditional mall stores
until the company is confident
potential store profitability can meet
the company’s objectives and an
attractive consumer spending
environment exists.

The company operated 28

seasonal KC stores in traditional malls in November and
December 2007, compared with 23 seasonal stores in 2006.
These profitable stores utilize short-term leases and a quick-to-
set-up temporary store format to take advantage of the holiday
gift-giving season. This program, which can be expanded
modestly, is expected to continue to add revenues and
profitability in coming years.

Internet format initiative. The company believes that

a retail website is an important element of multi-channel
marketing and continues to make improvements to the
Kitchen Collection® and Le Gourmet Chef® websites,
www.kitchencollection.com and www.legourmetchef.com. As
marketing activities increase, such as direct e-mail campaigns
and Web partner programs, sales and profits from both the
KC and LGC websites are expected to grow.

Outlook for 2008 and Beyond

2008 is expected to be another challenging year for KC.
Both KC stores and LGC stores will face uncertain consumer
traffic and spending, especially if gasoline prices remain high.

In addition, weak and uncertain credit markets and concerns
regarding a potential economic recession are likely to continue
to influence retail spending in 2008.

Although the company expected it would not match its
2006 performance in 2007, KC’s net loss of $0.9 million in 2007
fell well below expectations. In 2008, KC is cautiously optimistic
that its programs will improve its financial performance,
resulting in modest increases in revenues and improvements in
operations, primarily in the second half of the year. With the
exception of the warehouse operations, most synergies from
the LGC acquisition have been realized. Therefore, the

company plans to focus efforts on key improvement

programs, especially enhancing the
merchandise mix, optimizing store
selling space and maintaining
disciplined cost controls. Continued
profit improvement is expected in
2009 and succeeding years.

KC’s operating profit margin
was 0.2 percent in 2007, well below
the 4.0 percent operating profit
margin of 2006 and significantly
below the company’s objective of
earning a minimum operating profit
margin of 5 percent. For reasons
explained previously, this operating profit margin objective
could be challenging to achieve in the next few years. However,
with improved consumer traffic at outlet malls, the full
realization of the potential of the LGC acquisition and,
eventually, an increase in the number of stores, KC hopes to
reach its operating profit margin target by 2012. While KC did
not generate positive cash flow before financing activities in
2007, it is the company’s objective to do so in 2008.

In closing, I want to thank all of our employees for their

hard work, exceptional effort and dedication during a very
challenging year. I look forward to working with my entire
team to meet the challenges of 2008 and beyond.

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

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

[33]

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

2007 Results

As a result of this performance, NACoal produced a

North American Coal (“NACoal”) had a very good year

strong return on equity (1) of 46.8 percent and a return on

in 2007, despite slightly lower lignite coal and limerock

total capital employed (“ROTCE”) of 19.9 percent in 2007

deliveries than in 2006. NACoal’s six lignite coal mining

compared with 25.6 percent in 2006, or 18.1 percent without

operations delivered 33.7 million tons of lignite coal in 2007

the impact of the dragline sales. (See reconciliations of

compared with 35.4 million tons in 2006, maintaining

non-GAAP ROTCE on page 43.)

NACoal’s position as the nation’s largest lignite coal producer

NACoal generated cash flow before financing activities

and one of the top ten coal producers nationwide. The

of $26.7 million in 2007 compared with $42.9 million in

company’s lignite coal reserve position remains strong with

2006, or $12.9 million in 2006, excluding proceeds of

a total of 2.3 billion tons, of which 1.2 billion tons are

approximately $30 million from the sale of two draglines.

committed to current customers.

NACoal’s limerock dragline

mining operations delivered 37.6

million cubic yards during 2007

compared with 39.2 million cubic

yards in 2006.

NACoal’s 2007 net income

was $31.0 million compared with

$39.7 million in 2006. However, a

significant portion of 2006 net

income resulted from a gain of

$21.5 million, or $13.1 million net

of taxes of $8.4 million, from the sale

North American Coal
mined over 30 million
tons of lignite coal in 2007,
once again making it
the largest lignite coal
producer in the nation.

Vision and Goals

NACoal’s vision is to be the

leading low-cost miner of lignite coal

used in power generation, coal

gasification and coal-to-liquids plants

and to provide selected value-added

mining services for companies in the

aggregates business. NACoal’s goals

are to earn a minimum ROTCE of 13

percent and deliver positive Economic

Value Income (“EVI”) from all existing

consolidated mining operations and

of two electric draglines. Excluding the dragline sales, 2007

any new projects; maintain or increase the profitability of all

net income improved compared with 2006, mainly from

existing unconsolidated project mining operations; generate

improved results from operations and the receipt of an

substantial consolidated cash flow before financing activities

arbitration award of $3.7 million pre-tax to recover costs

from existing operations; and achieve substantial income

related to a power plant and mine development project in

growth by developing new mining ventures. NACoal is

Turkey, which was undertaken and cancelled several years ago.

making good progress toward achieving all of its goals.

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

Revenues
(In millions)

25.2

18.9

11.0

37.6

33.7

39.2

35.4

34.7

34.4

35.5

$137.1

$149.0

$118.4

$110.8

$94.1

Net Income
(In millions)

$16.2

$18.6

$14.3

$31.0

$39.7*

$20

$40

$60

$80

$100

$120

$140

$160

$10

$20

$30

$40

■ Lignite Coal Tons ■ Limerock Cubic Yards

*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 = 2007 net income divided by 2007 average equity (a five-point average of equity at December 31, 2006 and each of 2007’s quarter ends).

Left: Daybreak across the mining pit at the Sabine Mining Company in Texas.

[35]

Industry Trends

independence have moved to the forefront of national

Safety, protection of the environment and improved

politics. These issues should be considered both a threat and

efficiency continue to be critical to success in the mining

an opportunity to the coal industry. Although a number of

industry. Operating costs are highly sensitive to changes in

alternative energy sources are being actively promoted, many

mining routines. Continued escalation in diesel fuel cost,

energy companies are successfully pursuing environmentally

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

sound coal-based technologies, such as enhanced power

equipment and long lead times and significantly higher

plant efficiency, coal gasification, carbon sequestration and

prices for new mining equipment, such as draglines, have

coal-to-liquids production. NACoal expects to play a

created additional challenges.

leadership role in the evolving energy, environmental and

Lignite coal customers, primarily electric power

national energy policy landscape with the objective of

plants, are under constant pressure from their end

contributing to the further development of these new

users to provide affordable power

in an environmentally sensitive

manner. Successful companies must

continually strive for productivity

improvement.

New opportunities and growth

in the mining industry exist in

traditional coal and aggregates

mining, as well as in new areas, such

as coal-based alternative fuel

production. In certain regions of the

United States, the demand for power

When mining is complete,
NACoal’s award-winning
reclamation activities
return the land to its
previous, and in many
cases improved, condition.

coal-based options.

To reach its goals, NACoal has

established several strategies and

key programs to respond to current

industry trends. The programs,

designed to enhance profitability

and generate growth, can be

classified in three main areas: low-

cost mining expertise; mining and

reclamation innovation; and new

business opportunities.

has increased significantly. Advances in traditional power

Key Programs to Leverage Low-Cost Mining Expertise

generation technology, along with natural gas prices that are

Highly disciplined and experienced management teams

still relatively high, have increased the probability that several

in place at existing mines strive for continuous improvements

new coal-fired power plants could be built over the next few

in safety and mining efficiency. The key projects supporting

years. In addition, the issues of climate change and energy

this mining strategy are:

Left to right: A truck/shovel operation uncovers coal in the pit of the Mississippi Lignite Mining Company’s Red Hills Mine. An electric-loading shovel loads mined lignite
coal into a Kress haul truck at The Falkirk Mining Company in North Dakota. As soon as lignite coal is mined, the reclamation process begins. A look across reclaimed hay
fields to one of the mining pits at The Coteau Properties Company in North Dakota.

[36]

Employee safety. Employee safety is the number-one

contracts are designed to adjust to those changes so NACoal

priority at NACoal. Nine of the company’s 12 locations

neither profits excessively from, nor is unfairly burdened

worked the entire 2007 calendar year without incurring a

by, changes in these operational expenses. In the event a

lost-time accident. NACoal’s incident rate has consistently

situation arises in which a contract is not properly capturing

been well below the national average for surface coal mines.

cost changes, NACoal works closely with the customer to

NACoal firmly believes its commitment to safety and strong

resolve the issue.

employee relations improves productivity and employee

Lignite mining operations. Production and performance

retention, thereby reducing costs and enhancing profitability.

at most NACoal mines in 2007 was comparable to 2006, with

Contract structure. Most of NACoal’s mining contracts

the exception of two mines where special circumstances led

minimize exposure to the market price of coal. These

to lower volumes or higher costs.

carefully structured coal supply

agreements establish the specific

services NACoal will perform for its

customers and the mechanisms by

which NACoal will be compensated.

These agreements are structured such

that NACoal and its customers share

a common goal of minimizing costs.

By eliminating speculation on the

future price of coal, these contracts

are designed to provide customers

with consistent supplies of low-cost

e
t
a
R
t
n
e
d
c
n
I

2.5

2.0

1.5

1.0

0.5

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

J
2.33

2.11
J

J
2.29 1.99
J

1.75
J

1.52
J

1.47 1.49
J

0.79

0.67

0.39

0.33

0.39

0.16

02
■ LTA North American Coal Average
■ LTA National Average for Surface Coal Mines

0.28

0.00
06

*Lower LTA statistics indicate a better safety record as measured
by lost-time accidents in relation to total hours worked.

NACoal had an outstanding

year at Mississippi Lignite Mining

Company (“MLMC”) as mining

efficiency and productivity rates

improved. However, the company

delivered fewer tons of lignite coal

in 2007 compared with 2006 due

to extended, unplanned outages at

the customer’s power plant. Only

moderate increases in lignite

deliveries are anticipated in 2008

due to another planned power plant

fuel and allow the company to consistently earn sound

outage. In addition, higher costs are expected as a result

margins for its services.

of lower production levels. Increased deliveries are expected

These contracts also include various cost escalation

in 2009 and beyond. MLMC has not yet achieved positive

mechanisms and may include performance incentives for

EVI, but with the expected increase in deliveries going

NACoal. As inevitable changes occur in mining costs, such

forward, MLMC should attain that goal in the 2009 to

as the costs of diesel fuel, equipment spare parts or tires,

2010 timeframe.

Left to right: Wheat fields, located on reclaimed land, are harvested at The Falkirk Mining Company in North Dakota. North American Coal returns mined land to its
original or an improved condition. This golf course in North Dakota sits on land previously mined by The Falkirk Mining Company.

[37]

Performance in 2007 at Red River Mining Company, as

Mining and management innovation. NACoal continues

expected, was not as strong as 2006 because of a customer

to develop methods that improve mining efficiency and

power plant outage and planned capital expenditures by

coal recovery, reduce costs, enhance safety and lessen the

NACoal necessary to prepare the mine for possible higher

environmental impact of mining. For example, Geographical

mining volumes in the future. In addition, lignite coal

Interface Systems (“GIS”), which work with existing

deliveries to third-party customers fell below expectations.

computer programs, are now being developed to increase the

While 2008 volume is expected to be above that of 2007,

effectiveness of geographical data management at the mines.

volumes in 2009 and beyond are now forecasted to be at levels

Integrated GIS will allow for timelier and more efficient data

below the company’s previous expectations. It is NACoal’s

analysis, improved permitting and mine planning and

hope that marketing efforts directed beyond NACoal’s

enhanced reclamation. Other computerized tracking systems

current customers will result in new business

in use help measure coal quality, which can improve

opportunities and a return to

previously anticipated mining levels.

Limerock dragline mining

operations. At NACoal’s limerock

mining operations in southeast

Florida, operating results have not

yet been materially affected by an

unfavorable 2007 court ruling that

could limit mining in Miami-Dade

County, where six of the company’s

seven limerock mining operations

are located. However, compliance

At NACoal, people and
equipment work together
as a highly coordinated
team to make mining
operations as efficient and
effective as possible.

power plant efficiency, reduce

emissions and, ultimately, result in

lower-cost electricity to end users.

Environmental commitment.

NACoal is committed to protecting

the environment both in its mining

methods and by restoring mined

land to its original or an improved

condition. The company has been a

prominent recipient of environmental

awards over the years, and in 2007,

NACoal’s Falkirk Mine in North

with the district court ruling and the timing of receiving new

Dakota received a national award from the U.S. Department

permit application approvals indicate reductions in customer

of Interior’s Office of Surface Mining for Re-Mining,

deliveries are likely. NACoal has a relatively low capital

Stabilization and Reclamation of Abandoned Underground

investment in the six operations affected by the litigation,

Coal Mines. NACoal’s careful work transformed previously

and the contracts in place help reduce the financial impact of

unusable land to what is now fertile, productive farmland

lower-than-projected deliveries. As the company awaits

(see photo on page 37 of this Annual Report).

resolution of this matter and as the market for new housing

and construction in the region softens, limerock deliveries are

Key Programs for New Business Opportunities

likely to be lower than previously planned in 2008. NACoal

NACoal’s strategy for growth is focused on understanding

believes the long-term prospects for limerock mining in those

and satisfying the mining and energy needs of each region in

areas, and in Florida in general, are favorable.

which the company operates. NACoal sustains long-term

partnerships in these regions. The company’s intense focus

Key Programs for Mining and Reclamation Innovation

on opportunity analysis, networking and new business

A second key NACoal strategy is to develop and

development activities guide this strategy. Elements of the

implement new mining and reclamation techniques. The

company’s business development opportunities include:

company’s culture of continuous improvement and striving

Leveraging NACoal’s lignite coal reserves. NACoal

for excellence supports this strategy.

either mines, controls or owns data on many lignite reserves

Right: A Le Tourneau front-end loader loads mined lignite coal into a Kress coal haul truck at The Coteau Properties Company’s Freedom Mine in North Dakota.

[38]

in North Dakota, Texas, Mississippi and Louisiana. NACoal

lignite to Dakota Gasification, the only full-scale and fully

has what it believes is the most extensive bank of geological

operational coal-to-synfuel plant in the United States. The

data on lignite coal reserves in the country. This wealth of

plant captures CO2 during the gasification process and pipes

data provides a strategic advantage to NACoal as it works to

it from North Dakota to a customer in Canada, where it is

identify, prioritize and pursue opportunities to develop new

injected into mature oil wells for enhanced oil recovery.

mining operations. Based on results of these ongoing

NACoal is participating in several research projects and is in

analyses, NACoal adjusts its ownership plans for its existing

discussions with potential customers or partners involving

lignite coal reserves as well as its strategies for securing

development of other full-scale coal gasification plants.

ownership or leases for additional reserves. Potential projects

Coal-based energy production. The company continues

in each of these regions include new facilities for traditional

to invest significant resources in understanding and promoting

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

technologies for converting coal to liquid fuels. These

and coal beneficiation. NACoal’s potential involvement in

projects are beginning to be financially attractive in light of

these projects ranges from mining the coal that fuels these

higher sustained prices for natural petroleum products. For

facilities to being a partner in the operation or business

example, NACoal, in partnership with two other industry

venture. The company believes its reserves are well positioned

leaders, has formed a company called American Lignite

for these ventures and is optimistic about the near-term

Energy to explore North Dakota coal-based energy products.

prospects for opportunities in each of the regions.

Utilizing lignite coal beneficiation technologies. Over

Direct coal-fired power generation. The foundation

the past few years, a process to use waste heat from power

for identifying new lignite coal mining projects continues

plants to dry and enhance the value of lignite coal, known as

to be the ongoing analysis of power generation supply and

coal beneficiation, has been developed by Great River Energy’s

demand in each of the regions where NACoal owns or

(“GRE”) Coal Creek Station, with support and participation by

controls reserves. NACoal pursues these new business

The Falkirk Mining Company. In 2007, GRE and NACoal

opportunities as they arise.

formed a 50/50 joint venture company, Great American Energy

Coal gasification. NACoal believes the future development

(“GAE”), to develop, construct, own and operate a lignite coal

of coal reserves in the United States will depend greatly upon

beneficiation plant. The facility is expected to be completed in

the adoption of new technologies. The highly efficient

late 2008 and is expected to supply beneficiated coal to a

process of coal gasification produces an emission stream that

proposed new power plant. GAE also plans to offer the

allows for CO2 (carbon dioxide) capture and sequestration.

technology and enhanced coal to other facilities, both domestic

For example, since 1984, NACoal’s Coteau Mine has supplied

and international. NACoal believes this innovative process will

Below: North American Coal’s Falkirk Mine mines lignite coal for Great River Energy. The two companies have formed a 50/50 joint venture, Great American Energy, to dry
lignite coal to enhance its value.

[40]

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

acquisition and development of additional uncommitted coal

the company’s profitability over time.

reserves in 2007 and expects similar expenditures in 2008.

Contract mining of lignite coal. NACoal, the nation’s

Key programs at NACoal are anticipated to help the

largest miner of lignite coal, is widely regarded as an efficient

company reach or exceed each of its objectives. ROTCE was

and effective mining partner and, as a result, periodically is

19.9 percent in 2007, exceeding NACoal’s goal of 13 percent,

presented with opportunities to act as a contract miner for

and prospects for ROTCE to continue to exceed that goal are

reserves owned by others. NACoal is hopeful that at least one

good for 2008 and 2009. (See reconciliations of non-GAAP

of several projects currently under evaluation will come to

ROTCE on page 43.) EVI at the company’s consolidated

fruition in 2008 and contribute to profit growth in the future.

mining operations, including MLMC, is expected to improve

Contract mining of aggregates. The company is

with increased coal deliveries over the next few years. The

optimistic opportunities for providing high value-added

company’s unconsolidated mining operations are

services for aggregates, such as

limerock dragline mining services,

will continue to emerge. Discussions

are ongoing with NACoal’s existing

limerock customers, as well as other

limerock producers, about providing

additional mining services.

Outlook for 2008 and Beyond

Overall, NACoal anticipates

results for 2008 to be well below

those of 2007, as fewer lignite coal

Along with the traditional
mining business, new
technologies, partners and
business opportunities offer
significant promise for
future growth at NACoal.

consistently performing well. Cash

flow before financing activities at

existing operations, excluding

proceeds from the dragline sales in

2006, was higher in 2007 than in

2006. While cash flow before

financing activities is expected to

decline in 2008 due to expected

mining volume reductions,

prospects are strong for the

following years.

North American Coal marked

deliveries primarily due to increased customer power plant

50 years of lignite production in 2007. Much has changed

outages, lower limerock deliveries and lower royalty income,

over this half-century and the company has demonstrated its

resulting from the completion of third parties mining certain

ability to adapt successfully and responsibly to change. We

reserves during 2007, are all expected to affect NACoal’s 2008

believe our history, our skills and our people make us well

performance. The company also expects higher costs due to

suited to continue to lead the industry over the next 50 years.

lower production levels at MLMC as a result of expected

I want to thank all NACoal employees for their hard

continued lower delivery levels, as well as higher repair and

work and dedication in making 2007 another successful year.

maintenance expenses at Red River Mining Company. In

I look forward to our continued success in 2008.

addition, NACoal benefited in 2007 from an arbitration award

that will not recur in 2008. NACoal expects improved

performance from its current operations over the next few

years. In addition, NACoal is encouraged that more new

project opportunities may become available and will continue

its efforts to develop new coal projects. The company is

pursuing a number of potential opportunities that would add

significantly to the company’s long-term profitability.

Accordingly, the company incurred expenditures for the

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

[41]

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, 2007

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

Subsidiaries with Minimum Operating Profit Targets

2007 revenues, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
x Operating profit target percentage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
= Operating profit at target. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: 2007 operating profit, as reported for NMHG Wholesale, HBB and KC . . . . . . . . . . . .
Difference between 2007 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

2,581.9
9.0%
232.4

(66.3)
166.1
(63.1)

for NMHG Wholesale, HBB and KC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

103.0

Subsidiaries with Break-Even Net Income Targets

NMHG
Retail

Net income at target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 Net loss, as reported - NMHG Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income difference between reported and target for NMHG Retail . . . . . . . . . . . . . . . . .

-
(8.9)
8.9

HBB

Total

540.7
10.0%
54.1

(40.3)
13.8
(5.2)

8.6

210.0
5.0%
10.5

(0.5)
10.0
(3.8)

6.2

Net income difference between reported and target for Consolidated

NMHG, HBB and KC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

111.9

8.6

6.2

Subsidiaries with Minimum Return on Total Capital Employed Targets

NACoal

2007 average equity (12/31/2006 and at each of 2007's quarter ends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 average debt (12/31/2006 and at each of 2007's quarter ends) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total 2007 average capital employed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on total capital employed target percentage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on total capital employed target = target net income before interest expense, after tax . . . . . . . . .

2007 net income, as reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: 2007 interest expense, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Income taxes on 2007 interest expense at 38%*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual 2007 return on total capital employed = actual net income before interest expense, after tax . . . .

Actual 2007 return on total capital employed percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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: 2007 interest expense, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: Income taxes on 2007 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

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

66.3
110.8
177.1
13.0%
23.0

31.0
7.0
(2.7)
35.3

19.9%

23.0
(35.3)
(12.3)

23.0
(7.0)
2.7
18.7

(18.7)

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

Earnings per share impact at 8.263 million basic shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Earnings per share impact at 8.272 million diluted shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,332.6
N/A
297.0

(107.1)
189.9
(72.1)

117.8

8.9

126.7

15.33

15.32

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 as compared to 2007's effective income tax rate of 20.6%.

[42]

RECONCILIATION OF RETURN ON TOTAL CAPITAL EMPLOYED:

NMHG

(U.S. dollars in millions)
HBB

NACoal

2007
2007 average equity (12/31/2006 and each of 2007's quarter ends). . . . . . . . . . . . . . . . .
2007 average debt (12/31/2006 and at each of 2007's quarter ends) . . . . . . . . . . . . . . . .
Total 2007 average total capital employed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2007 net income, as reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: 2007 interest expense, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Income taxes on 2007 interest expense at 38%* . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on total capital employed = actual net income before

497.6
308.6
806.2

39.3
25.4
(9.7)

51.8
118.4
170.2

18.4
10.1
(3.8)

15.0
21.4
36.4

(0.9)
1.8
(0.7)

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

55.0

24.7

0.2

66.3
110.8
177.1

31.0
7.0
(2.7)

35.3

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

6.8%

14.5%

0.6%

19.9%

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

NMHG

HBB

NACoal

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%

* Tax rate of 38% represents the Company's marginal tax rate as compared with 2007’s effective income tax rate of 20.6%.
** Tax rate of 38% represents the Company's marginal tax rate as compared with 2006's effective income tax rate of 23.1%.

[43]

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
Mary D. Maloney
Assistant General Counsel
and Assistant Secretary
Dean E. Tsipis
Assistant General Counsel
and Assistant Secretary

Directors:

Owsley Brown II
Retired 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

Officers of Hamilton Beach
Brands, Inc.

Dr. Michael J. Morecroft
President and Chief Executive Officer
Paul C. Smith
Senior Vice President, Sales
Keith B. Burns
Vice President, Engineering and
Product Development
Kathleen L. Diller
Vice President, General Counsel
and Secretary
Gregory E. Salyers
Vice President, Operations
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
Emil S. Wepprich
Vice President Supply Chain
Arthur A. Dillon
Controller
L.J. Kennedy
Secretary and Treasurer

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 The Falkirk Mining
Company
Lee A. Burton
Controller
K. Donald Grischow
Treasurer

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
Rajiv K. Prasad
Vice President, Global Product
Development
Michael E. Rosberg
Vice President, Global Supply Chain
Gopi Somayajula
Vice President, Counterbalanced
Engineering
Daniel P. Gerrone
Controller
Jeffrey C. Mattern
Treasurer

Americas:

James W. Donoghue
Vice President, Marketing and
Distribution, Americas
Tommy Green
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 Americas

Europe, Africa and Middle East:

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

Asia-Pacific:

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

[44]

Managing for long-term profit growth
Corporate Information

Annual Meeting

The Annual Meeting of Stockholders of
NACCO Industries, Inc. will be held on
May 14, 2008, at 9 a.m. at the corporate
office located at:
5875 Landerbrook Drive
Cleveland, Ohio 44124

Form 10-K

Additional copies of the Company’s Form 10-K filed with
the Securities and Exchange Commission are available
through NACCO’s website (www.nacco.com) or by
request to:

Investor Relations
NACCO Industries, Inc.
5875 Landerbrook Drive, Suite 300
Cleveland, Ohio 44124
(440) 449-9669

Stock Transfer Agent and Registrar

National City Bank
Corporate Trust Operations
P.O. Box 92301, Dept. 5352
Cleveland, Ohio 44193-0900
1-800-622-6757

Legal Counsel
Jones Day
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114

Independent Auditors
Ernst & Young LLP
1300 Huntington Building
925 Euclid Avenue
Cleveland, Ohio 44115

Stock Exchange Listing

The New York Stock Exchange
Symbol: NC

Annual CEO Certification

On May 24, 2007, in accordance with Section 303A.12(a)
of the New York Stock Exchange Listed Company Manual,
our Chief Executive Officer, Alfred M. Rankin, Jr., submitted
his annual certification to the New York Stock Exchange
following our annual stockholders’ meeting, stating that
he is not aware of any violations by NACCO Industries,
Inc. of the NYSE’s Corporate Governance listing
standards as of that date.

Investor Relations Contact

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

NACCO Industries Website

Additional information on NACCO Industries may be found
at the corporate website, www.nacco.com. The Company
considers this website to be one of the primary sources of
information for investors and other interested parties.

Subsidiary Company Websites
The websites of several subsidiary companies and their
brands can be found at the following locations:
NACCO Materials Handling Group:
www.nmhg.com
Hyster North America:
www.hyster.com
Hyster Europe:
www.hyster.co.uk
Hyster Asia-Pacific:
www.hyster.com.au
Yale North America:
www.yale.com
Yale Europe:
www.yale-europe.com
Yale Asia-Pacific:
www.yale.com.au
Hamilton Beach Brands–U.S.:
www.hamiltonbeach.com
www.proctorsilex.com
www.buytraditions.com
www.trueair.com
www.commercial.hamiltonbeach.com
Hamilton Beach Brands–Mexico:
www.hamiltonbeach.com.mx
Kitchen Collection:
www.kitchencollection.com
www.legourmetchef.com
North American Coal:
www.nacoal.com

Environmental Benefits
This Summary Annual Report and Supplemental Package is printed using post-consumer waste recycled paper and vegetable-based inks.
By using this environmental paper, NACCO Industries Inc. saved the following resources:

62,729.93 trees
preserved for
the future

33,441,100 lbs.
water-borne
waste not created

1,202,684 gal.
wastewater
flow saved

Mixed Sources

Product group from well-managed
forests and other controlled sources
www.fsc.org Cert no. SW-COC-002686
© 1996 Forest Stewardship Council

11,726,169
oil saved
(gallons)

1,030,872 lbs. net
greenhouse
gases prevented

70,442,920
KwH energy
not consumed

The FSC Trademark identifies wood fibers coming from forests which have been certified in accordance with the rules of the Forest Stewardship Counsel.

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

Printed in U.S.A.