NACCO Industries
Annual Report 2010

Plain-text annual report

2010 Annual Report . NACCO Industries, Inc. at a Glance Principal Businesses 2010 Financial Results Market Positions NACCO Materials Handling Group (“NMHG”) Headquarters: Cleveland, Ohio NMHG designs, engineers, manufactures, sells and services a comprehensive line of lift trucks and after- market parts marketed globally under the Hyster® and Yale® brand names. Lift trucks and component parts are manufactured in the United States, Northern Ireland, Mexico, Italy, Brazil, The Netherlands, China, Japan, the Philippines and Vietnam. NMHG: Revenues: $1.8 billion Operating profit: $46.1 million *Net income: $32.4 million NMHG: NMHG is a world leader in the lift truck industry with an estimated 12 percent unit market share worldwide, including a 24.7 percent unit market share in the Americas market. Lift trucks are distributed through a worldwide network of independent Hyster® and Yale® dealers. 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. HBB has a broad portfolio of some of the most recognized and respected brands in the small electric appliance industry, including Hamilton Beach®, Proctor Silex®, eclectrics®, Traditions®, TrueAir® and Hamilton Beach® Commercial. HBB: Revenues: $515.7 million Operating profit: $45.9 million *Net income: $24.4 million HBB: HBB is a leading company in retail and commercial small appliances, with strong share positions in many of the categories in which it competes. HBB products are primarily distributed through mass merchants, national department stores, wholesale distributors and other retail sales outlets. 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. Kitchen Collection: Revenues: $219.6 million Operating profit: $5.9 million *Net income: $3.5 million Kitchen Collection: Kitchen Collection is the nation’s leading specialty retailer of kitchen and related products in factory outlet malls with 300 stores throughout the United States in 2010. North American Coal (”NACoal“) Headquarters: Dallas, Texas North American Coal mines and markets coal primarily as fuel for power generation and provides selected value-added mining services for other natural resources companies. North American Coal operates four surface coal mining operations and has four additional coal mines under development. The company also provides dragline mining services operating under the name “North American Mining Company” for independently owned limerock quarries in Florida. NACoal: Revenues: $156.8 million Operating profit: $53.3 million *Net income: $39.6 million NACoal: North American Coal is the nation’s largest miner of lignite coal and among the ten largest coal producers. Coal is delivered from developed mines in Mississippi, North Dakota and Texas to adjacent or nearby power plants. *For purposes of this annual report, discussions about net income refer to net income attributable to stockholders. NACCO Industries, Inc. is an operating holding company with subsidiaries in the following principal industries: lift trucks, small appliances, speciality retail and mining. In 2010, total revenues were $2.7 billion and net income* was $79.5 million. Competitive Advantages Financial Objectives Key Strategies NMHG: Achieve a minimum operating profit margin target of 9 percent at the peak of the market cycle NMHG: • Innovation in our products and services - Lowest cost of ownership - Application-focused solutions • Quality and efficiency NMHG: • 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 773,000 Hyster® and Yale® lift trucks in operation worldwide • Highly diverse customer base with more than 600 different end-user applications in more than 600 industries • Comprehensive global product line • Strong dealer network • Industry-leading national account coverage in the Americas • Globally integrated operations with significant economies of scale HBB: • Strong heritage brands with leading market shares • Strong relationships with leading retailers • Highly professional and experienced management HBB: Achieve a minimum operating profit margin target of 10 percent team • Successful track record of product line expansion and new product innovation • Industry-leading working capital management Kitchen Collection: • Highly analytical merchandising skills and disciplined operating controls • Two well-established, complementary retail store formats–Kitchen Collection® and Le Gourmet Chef® Kitchen Collection: Achieve a minimum operating profit margin target of 5 percent NACoal: • 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 • 2.1 billion tons of lignite coal reserves, of which approximately 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 NACoal: Earn a minimum return on capital employed of 13 percent and attain positive Economic Value Income from all existing consolidated mining operations and any new projects, while maintain- ing or increasing the profitability of all existing unconsolidated mining operations - Improve operational effectiveness while delivering high-quality products - Continually reduce manufacturing and supply chain costs - Manufacturing in market of sale • Sales and service excellence - Independent dealer networks with dual brand representation if dealerships meet criteria - Strong national account direct sales group to support large, geographically dispersed customers • Global coverage with local tailoring of products, services, processes and systems • Organizational excellence - People and processes development HBB: • Innovation in our products - Invest in deep understanding of consumer and customer needs - Leverage engineering expertise worldwide to develop innovative solutions that improve everyday living • Sales and marketing excellence - Professional and efficient sales and marketing teams, processes and systems - Building brand equity of our current brands and increasing the number of brands • Quality and efficiency - Ensure operational excellence while delivering high-quality products - Continually reduce supply chain costs • Partnerships with our customers and suppliers • Organizational excellence - People and processes development Kitchen Collection: • Unique, high-quality, widest variety of affordable products in creative store environments • Store improvement and expansion - Kitchen Collection® outlet and traditional mall expansion - Le Gourmet Chef® outlet mall focus - Internet channel expansion • Cost control - Continually reduce store and warehousing costs - Control capital costs • Partnerships with our suppliers • Organizational excellence - People and processes development NACoal: • Mining and reclamation expertise - Innovative and low cost - Equipment maintenance - Efficient processes and systems • Safety focus • Long-term partnerships with current and future customers • Pursue new business opportunities - Domestic and international - Coal and value-added mining services • Organizational excellence - People development - Highly disciplined mine management teams Selected Financial & Operating Data NACCO Industries, Inc. and Subsidiaries Year Ended December 31 2010(4) 2009(4) 2008(1)(4) 2007 2006 (In millions, except per share data) $ 2,687.5 140.3 $ $ 2,310.6 59.1 $ $ 3,665.1 (389.5) $ $ 3,590.0 139.2 $ $ 3,327.6 171.1 $ Operating Statement Data : Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations . . . . . . . . . . . . . Discontinued operations, net-of-tax(2) . . . . . . . . . . . . . . . . . Extraordinary gain, net-of-tax(3) . . . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net (income) loss attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) attributable to stockholders . . . . . . . . . . Basic Earnings (Loss) per Share: Income (loss) from continuing operations attributable to stockholders . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations, net-of-tax(2) . . . . . . . . . . . . . . . . . Extraordinary gain, net-of-tax(3) . . . . . . . . . . . . . . . . . . . . . . Basic earnings (loss) per share . . . . . . . . . . . . . . . . . . . . . . . Diluted Earnings (Loss) per Share: Income (loss) from continuing operations attributable to stockholders . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations, net-of-tax(2) . . . . . . . . . . . . . . . . . Extraordinary gain, net-of-tax(3) . . . . . . . . . . . . . . . . . . . . . . Diluted earnings (loss) per share . . . . . . . . . . . . . . . . . . . . . $ $ $ $ $ $ $ 79.4 – – 79.4 0.1 79.5 9.55 – – 9.55 9.53 – – 9.53 Per Share and Share Data: Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Market value at December 31 . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity at December 31 . . . . . . . . . . . . . . . . . $ 2.085 $ 108.37 53.69 $ Actual shares outstanding at December 31 . . . . . . . . . . . . Basic weighted average shares outstanding . . . . . . . . . . . . Diluted weighted average shares outstanding . . . . . . . . . . 8.333 8.328 8.344 Balance Sheet Data at December 31: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261.9 $ $ 1,658.3 355.3 $ 447.4 $ $ $ $ $ $ $ $ $ $ $ 8.4 22.6 – 31.0 0.1 31.1 1.03 2.72 – 3.75 1.03 2.72 – 3.75 2.068 49.80 47.82 8.294 8.290 8.296 $ $ $ $ $ $ $ $ $ $ (439.7) 2.3 – (437.4) (0.2) (437.6) (53.12) 0.28 – (52.84) (53.12) 0.28 – (52.84) 2.045 37.41 43.05 8.286 8.281 8.281 $ $ $ $ $ $ $ 89.7 0.6 – 90.3 0.1 90.4 10.87 0.07 – 10.94 10.86 0.07 – 10.93 $ $ $ $ $ $ $ 90.5 2.8 12.8 106.1 0.7 106.8 11.07 0.34 1.56 12.97 11.06 0.34 1.56 12.96 1.980 $ $ 99.69 $ 107.80 $ 1.905 $ 136.60 96.05 $ 8.269 8.263 8.272 8.238 8.234 8.242 256.2 $ $ 1,488.7 377.6 $ 396.6 $ 138.2 $ $ 1,687.9 400.3 $ 356.7 $ 281.2 $ $ 2,427.3 439.3 $ 891.4 $ 196.7 $ $ 2,154.5 359.9 $ 791.3 $ (1) During 2008, NACCO’s stock price significantly declined compared with previous periods and the Company’s market value of equity was below its book value of tangible assets and book value of equity. The Company performed an impairment test, which indicated that goodwill and certain other intangibles were impaired at December 31, 2008. Therefore, the Company recorded a non-cash impairment charge of $435.7 million in 2008. (2) During 2009, the Company’s North American Coal subsidiary completed the sale of certain assets of the Red River Mining Company. The results of operations of Red River for 2009 and all prior periods have been reclassified to reflect Red River’s operating results as discontinued operations. (3) An extraordinary gain was recognized in 2006 as a result of a reduction to Bellaire Corporation’s estimated closed mine obligations relating to amounts owed to the United Mine Workers of America Combined Benefit Fund arising as a result of the Coal Industry Retiree Health Benefit Act of 2006. (4) In 2006, NACCO initiated litigation in the Delaware Chancery Court against Applica Incorporated (“Applica”) and individuals and entities affiliated with Applica’s shareholder, Harbinger Capital Partners Master Fund, Ltd. The litigation alleged a number of contract and tort claims against the defendants related to the failed transaction with Applica, which had been previously announced. On February 14, 2011, the parties to this litigation entered into a settlement agreement. The settlement agreement provides for, among other things, the payment of $60 million to NACCO and dismissal of the lawsuit with prejudice. The payment was received in February 2011. Litigation costs related to the failed transaction with Applica were $18.8 million, $1.1 million and $0.8 million in 2010, 2009 and 2008, respectively. The Company expects to incur additional litigation costs for the first two months of 2011 in the range of approximately $2.5 million to $3.0 million for services rendered prior to entering into the settlement agreement. As a result of the settlement, no further litigation costs in relation to this matter will be incurred. c c c 1 c c c 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provided by (used for) investing activities . . . . . . . . . . . . . . Cash Flow before Financing Activities(5) 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(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total employees at December 31(7) . . . . . . . . . . . . . . . . . . . $ $ $ $ $ $ $ $ 2010(4) 47.5 15.0 6.3 25.9 (31.6) 63.1 (8.5) (2.2) (2.7) 6.9 0.7 (5.8) 39.0 12.8 3.6 32.8 (30.9) 57.3 (43.3) 173.8 8,900 2009(4) Year Ended December 31 2008(1)(4) (In millions, except employee data) 2007 $ $ $ $ $ $ $ $ 115.9 35.5 5.4 42.0 (41.8) 157.0 5.8 (2.1) (1.1) 34.5 (14.0) 23.1 121.7 33.4 4.3 76.5 (55.8) 180.1 (64.1) 111.5 8,600 $ $ $ $ $ $ $ $ (27.3) 18.0 (6.4) 23.2 (2.6) 4.9 (37.5) (5.7) (6.0) (15.9) (6.3) (71.4) (64.8) 12.3 (12.4) 7.3 (8.9) (66.5) (83.2) 106.6 9,500 $ $ $ $ $ $ $ $ 34.6 19.5 (10.9) 44.7 (6.5) 81.4 (33.9) (3.7) (3.9) (18.2) (0.2) (59.9) 0.7 15.8 (14.8) 26.5 (6.7) 21.5 64.4 201.7 10,600 2006 84.8 28.7 17.2 38.7 4.1 173.5 (30.6) 7.2 (16.1) 4.2 – (35.3) 54.2 35.9 1.1 42.9 4.1 138.2 (105.8) 213.8 11,300 $ $ $ $ $ $ $ $ (5) Cash Flow before Financing Activities is equal to net cash provided by operating activities less net cash used for investing activities. (6) 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 goodwill and other intangible assets impairment charges, income taxes, non-controlling interest (income) expense, discontinued operations and extraordinary gain 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 deter- mined using U.S. generally accepted accounting principles are presented above. A reconciliation of cash flow provided by operating activities to Adjusted EBITDA is presented below. (7) Includes employees of the unconsolidated mining subsidiaries and excludes employees of Red River. Reconciliation of cash flow from operations to Adjusted EBITDA(6) Cash flow from operations . . . . . . . . . . . . . . . . . . . . . . . . . . Change in working capital items . . . . . . . . . . . . . . . . . . . . . . Gain (loss) on sale of assets and businesses . . . . . . . . . . . . Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restructuring (charges) reversals . . . . . . . . . . . . . . . . . . . . . Difference between deferred income taxes and total tax provision . . . . . . . . . . . . . . . . . . . . . . . Other non-cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted EBITDA(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Calculation of Adjusted EBITDA(6) Net income (loss) attributable to stockholders . . . . . . . . . . Goodwill and other intangible assets impairment charges . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . Extraordinary gain, net-of-tax . . . . . . . . . . . . . . . . . . . . . . . . Noncontrolling interest (income) loss . . . . . . . . . . . . . . . . . Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation, depletion and amortization expense . . . . . Adjusted EBITDA(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ $ 2010(4) 2009(4) Year Ended December 31 2008(1)(4) (In millions) 2007 2006 63.1 48.9 (5.9) – 1.9 6.9 34.1 24.8 173.8 79.5 – – – (0.1) 17.4 27.4 (2.6) 52.2 173.8 $ $ $ $ 157.0 (114.5) 10.0 8.4 (9.3) (4.2) 35.1 29.0 111.5 31.1 – (22.6) – (0.1) 20.5 32.2 (3.2) 53.6 111.5 $ $ $ $ 4.9 96.6 0.1 (4.6) (9.1) (1.6) (12.7) 33.0 106.6 (437.6) 435.7 (2.3) – 0.2 18.7 40.6 (7.6) 58.9 106.6 $ $ $ $ 81.4 77.2 1.3 (2.0) (8.6) 19.1 4.6 28.7 201.7 90.4 – (0.6) – (0.1) 24.3 40.7 (12.0) 59.0 201.7 $ $ $ $ 173.5 (21.6) 25.6 (4.8) (0.8) 19.4 (11.8) 34.3 213.8 106.8 – (2.8) (12.8) (0.7) 28.5 41.8 (7.5) 60.5 213.8 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. For certain pre-tax disclosures included in the “To Our Stockholders” letter beginning on page 3, the resulting after-tax amount and the related income tax amount have been included. Certain after-tax amounts are considered non-GAAP measures in accordance with Regulation G. Management believes that after-tax information is useful in analyzing the Company’s net income. c c c 2 c c c To Our Stockholders Introduction In 2010, as global markets and consumer significant improvement in limerock yards delivered. However, during the year, particularly the second half confidence improved, NACCO Industries, Inc. and its of 2010, market improvements in all of NACCO’s busi- subsidiaries realized the benefits of its existing long- nesses were accompanied by increasing commodity term programs and the aggressive cost containment costs and, for NMHG and HBB, adverse changes in actions put in place to combat the global recession foreign currency exchange rates. of 2008-09. These programs and actions – along with Overall, in the context of these general economic improvements in volumes at the materials handling conditions, NACCO’s subsidiaries returned to more and housewares subsidiaries resulting from the normal operating levels in 2010 after the deep market Subsidiary Financial Objectives: • NMHG: Achieve an operating profit margin of 9 percent at the peak of the market cycle. • HBB: Achieve a minimum operating profit margin of 10 percent. • Kitchen Collection: Achieve a minimum operating profit margin of 5 percent. • NACoal: Earn a minimum return on capital employed of 13 percent and attain positive Economic Value Income from all existing consolidated mining operations and any new projects while maintaining or increasing the profitability of all existing unconsolidated mining operations • All subsidiaries: Generate substantial cash flow before financing activities. improved markets, and increased deliveries at the Company’s mining operations – led to 2010 financial results which declines of 2008 and 2009. Given 2010 market levels, strong results were achieved at NMHG, HBB and NACoal in 2010 and significant strides were made at Kitchen Collection, where improvement is still necessary at the Le Gourmet Chef® store format. were significantly better Consolidated revenues for NACCO increased to than in 2009. $2.7 billion in 2010 from $2.3 billion in 2009, with the Markets improved at increase primarily driven by volume improvements all of our subsidiaries. At at NMHG. Net income(1) increased substantially to the end of 2009, NACCO $79.5 million, or $9.53 per diluted share, compared Materials Handling Group with net income of $31.1 million, or $3.75 per diluted (“NMHG”) was concerned share, in 2009, which included income from discon- that lift truck markets tinued operations of $22.6 million from the sale of served by NMHG would NACoal’s Red River Mining Company. Income from recover only gradually from continuing operations(1) was $8.5 million, or $1.03 the recession. In fact, beginning early in the second per diluted share, in 2009. quarter of 2010, those markets improved more rapidly. Offsetting these favorable subsidiary results in Consumer markets, which showed improvement at 2010 were costs of $18.8 million ($12.2 million after the end of 2009, continued to improve during 2010. tax of $6.6 million) at NACCO for litigation initiated However, the recovery in the mass consumer market, in 2006 against Applica Incorporated (“Applica”) and where Hamilton Beach Brands (“HBB”) and Kitchen individuals and entities affiliated with Applica’s share- Collection are primarily focused, was not as strong holder, Harbinger Capital Partners Master Fund I Ltd., as in the high-end consumer market. Mass-market related to NACCO’s failed transaction with Applica in consumers continued to struggle with high unemploy- 2006. On February 14, 2011, the parties to the Applica ment rates and financial concerns. Demand for lignite litigation entered into a settlement agreement. The from customers served by The North American Coal settlement agreement provides for, among other Corporation (“NACoal”) remained steady, and the things, the payment of $60 million ($39.0 million after limerock mining market in southern Florida improved taxes of $21.0 million) to NACCO and dismissal of as mining permits, which had been suspended during the lawsuit with prejudice. NACCO expects to incur 2009, were reinstated in early 2010, resulting in a additional litigation costs for the first two months of (1) For purposes of this annual report, discussions about income/loss from continuing operations and net income/loss refer to income/loss from continuing operations attributable to stockholders and net income/loss attributable to stockholders. c c c 3 c c c 2011 in the range of approximately $2.5 million to housing and construction markets. The Company $3.0 million pre-tax for services rendered prior to expects improved earnings at the subsidiaries in light entering into the settlement agreement. The payment of these anticipated market conditions, but at lower was received in February 2011. As a result of the levels than might otherwise be expected due to the settlement, no further litigation costs in relation to full restoration in 2011 of employee compensation this matter will be incurred. and benefits at NACCO and all of its subsidiaries, as In 2008 and 2009, NACCO made capital contribu- well as the non-recurrence in 2011 of favorable foreign tions to several of its subsidiaries to help them navigate currency contracts that benefited NMHG in 2010. the economic downturn. In 2010, only small capital contributions were made to NMHG. During 2010, Subsidiary Financial Objectives both NMHG and Kitchen Collection renegotiated Each of NACCO’s subsidiary companies has certain credit agreements on favorable terms. All specific long-term financial objectives (see sidebar other financing arrangements at the other subsidiaries for specific goals). In 2010, NACoal achieved all of its remain in place with attractive terms. financial targets. HBB had sound operating profit but Importantly, each of NACCO’s subsidiaries fell somewhat short of its long-term operating profit generated strong positive cash flow before financing margin target in 2010. Kitchen Collection made solid activities in 2010 totaling $57.3 million on a consoli- progress in each of its store formats but also fell dated basis. While cash flow before financing activities below its target. At both HBB and Kitchen Collection, was substantial in 2010, it was significantly lower than operating profits declined compared with 2009 as a the $180.1 million generated in 2009 when working result of the full reinstatement of employee benefits capital requirements contracted during the downturn that were suspended in 2009 and restored in 2010. and the Company benefited from asset sales. NACCO Looking forward, HBB is expected to continue to have will continue to focus on maximizing cash flow before sound results but will need additional sales volume financing activities and expects continued strong cash to achieve its target. Kitchen Collection® stores flow generation at all subsidiaries in 2011. operated close to target in 2010 and are expected to Improved market conditions are expected to achieve their operating profit margin goal in 2011, continue into 2011, but all subsidiaries are proceeding but the Le Gourmet Chef® stores are not expected cautiously until market prospects become clearer. to achieve their target objective until sales volumes The global lift truck market is improving, but the pace increase and additional underperforming stores have of recovery is still unclear and periodic supply chain been closed. Improving market conditions in the lift constraints are likely as suppliers work to increase truck market have helped NMHG return to more volume levels. While continued improvement in normal operating levels and allowed the company consumer confidence is expected, selling to the mass- to make substantial progress toward its financial market consumer is expected to remain challenging objectives. Nevertheless, actual results at NMHG until the job market recovers. In addition, rising com- remain well below the target level. Because reaching modity costs are expected to create margin pressures appropriate capacity utilization will require increased at HBB and NMHG since recovering these cost market share and because reaching target margins increases through price increases will be challenging. on certain products is necessary, particularly in Lignite deliveries are expected to remain relatively the smaller internal combustion engine products, stable, but the limerock market in southern Florida is it is difficult to provide a timetable for achieving expected to continue to be depressed by weak local NMHG’s financial target – particularly in the context c c c 4 c c c Left: Yale’s new electric-rider lift truck series, the Yale® ERP-VF four-wheel (left) and ERP-VT three-wheel (right) pneumatic tire series, have lifting capacities of 3,000 to 4,000 pounds. These trucks have been designed for overall productivity at lower costs. of continuing uncertainty regarding the pace and in 2009 to net income of $32.4 million in 2010. While sustainability of the market recovery. However, market NMHG generated strong cash flow before financing improvements, NMHG’s programs and substantial activities of $39.0 million in 2010, the amount was operating leverage have established a strong platform significantly below 2009 since working capital needs for achieving its operating profit margin target when were increasing rather than declining. the market does peak. As each of NACCO’s subsidiaries The market turnaround resulted in a number of proceeds with specific programs designed to achieve other positive developments during the year. In the its targets and market conditions continue to improve, first half of 2010, a substantial backlog developed and the Company expects that its subsidiaries’ operating lead times became longer than normal. In the second fundamentals will position each to achieve its long- half, increases in plant workforce levels and added term financial goals. NACCO Materials Handling Group 2010 Results shifts for certain manufacturing operations increased production, particularly in the fourth quarter, with the result that the backlog and lead times were slightly reduced by the end of the year. Although the company The lift truck market experienced unprecedented continued to exert tight control of expenses and capital declines in 2008 and the first half of 2009. In 2010, expenditures throughout 2010, employees’ salaries, however, the market turned up significantly. While which had been reduced in 2009, were gradually NMHG’s primary markets are still at lower-than- restored during the course of the year. In 2010, NMHG prerecession levels, the upturn occurred earlier and continued to strengthen its distribution network by more vigorously than NMHG expected. The recovery divesting all but one of its remaining owned retail in 2010 resulted in a 22 percent increase in revenues dealerships to independent owners, adding strong from $1.5 billion in 2009 to $1.8 billion, which was independent dealers in the United Kingdom and driven by a 44 percent increase in new unit shipments, Russia and generally consolidating its global distribu- as well as increased part sales. These improved tion network. Major enhancements were also made to volumes, combined with the results of programs put in NMHG’s product lines. All of these factors, combined place to counter the 2008-09 downturn and strategic with NMHG’s aggressive actions to help dealers programs initiated earlier, helped drive the substantial significantly reduce inventories at the beginning of improvement in results from a net loss of $43.1 million the downturn, allowed the company to gain market c c c 5 c c c Left: Hyster’s Yardmaster II HR 45-36 Big Truck transports a windmill blade to a different location. The Yardmaster II has a lifting capacity of 36,000 – 45,000 pounds and is ideal for use in heavy-duty applications. Above from left to right: The new Yale® ESC-AC stand-up three-wheel electric-rider cushion tire lift truck has a lifting capacity of 3,000 to 4,000 pounds. The Hyster® H450HD Big Truck, with lifting capacities up to 45,000 pounds, features a tire handler attachment for lifting and moving oversize tires. The new Hyster® H50CT internal combustion engine lift truck has a lifting capacity of 5,000 pounds and is targeted at the medium-duty market segment. share as orders increased and dealers rebuilt inventory NMHG achieve favorable financial results in 2010. levels as the market improved. However, costs are expected to increase significantly Nonetheless, 2010 was not without its challenges. in 2011 since the company will have a complete year Material costs began increasing due to rising of fully restored compensation and benefits, as well commodity costs in the second half of the year, which as costs of a larger workforce working additional shifts resulted in the implementation of price increases. In to meet market demand. NMHG will continue to addition, currency rates throughout the year became adjust manufacturing levels as needed to respond to less favorable than in the prior year, despite the positive market demand levels and supply chain constraints. effect of certain foreign currency contracts and Overall, NMHG’s product development, supply currently continue to be less favorable. Outlook for 2011 Although the global lift truck market continues to recover, the pace is still unclear in certain parts of the world. Nonetheless, NMHG expects global market demand for units and parts volumes to continue to improve in all markets in 2011 compared with 2010, particularly in the Americas, with more significant growth in the second half of the year. As a result, chain, manufacturing processes and quality and reliability programs are performing at expected levels and are now focused on continuous improvement. NMHG’s greatest challenges in 2011 will be to enhance distribution effectiveness to generate additional market share and to ensure that market applications are properly served with the right products at the right prices to achieve target margins, especially in the new medium-duty internal combustion engine product line and in its existing heavy-duty internal the company expects increased bookings in 2011 combustion engine premier product line. compared with 2010. Unit shipment levels and parts In 2011, NMHG expects to continue its program sales are also expected to increase in 2011. Given this of consolidating and strengthening its dealerships as a market outlook, NMHG is optimistic about recovery key component of its efforts to enhance market share. prospects but continues to move cautiously in bringing In early 2011, the company entered into agreements capacity back online until the pace and sustainability with two dealers in India to enhance distribution and of the recovery is clearer. permit specified Hyster® and Yale® lift trucks to be Actions taken over the past few years to respond manufactured in India under license for the Indian to extremely depressed market conditions helped market. These new dealers and licensing agreements c c c 6 c c c are expected to enhance sales volumes in 2011 and in ownership and providing outstanding sales, parts future years. NMHG also expects to enhance market and service support through an outstanding network share through new product introductions, which of independent dealers. meet key market needs such as launching a low-cost NMHG is well-positioned to maintain its global and performance internal combustion engine lift competitiveness. The company’s product pipeline is truck in developing markets around the world. on track to produce a continuous stream of new In addition to its focus on programs to reach product innovations and product introductions over target margins by ensuring the right products are the next several years, which are expected to enhance offered at the right prices to serve market applications, its competitiveness and market share. During 2010, NMHG expects to continue to increase prices in 2011, NMHG introduced three new electric-rider lift truck as necessary, in response to rising commodity prices series in the Americas and one new electric-rider lift but in a manner that does not erode its competitive truck series in Europe, all of which were well received position. NMHG currently anticipates that material for their improved ergonomics and ability to lower costs, particularly the cost of steel, will continue to operating costs and energy consumption while maxi- increase in 2011 compared with 2010. As a result, mizing productivity. The company plans to introduce price increases on selected models were announced the remainder of its new electric lift truck line in 2011, during 2010 which, in combination with additional with the launch of four additional series of electric- increases as needed during 2011, are expected over rider lift trucks in late 2011. NMHG also introduced time to offset the effect of increased commodity costs. new base-model internal combustion engine lift truck Overall, net income is expected to increase in 2011 models aimed at the medium-duty segment of the compared with 2010. However, significant operating Americas market in July 2010 and expects to introduce profit improvement from increased volume is expected one in Europe in mid-2011. The remaining trucks to be partially offset by increased employee-related in this base-model range are expected to be rolled costs, the absence of foreign currency contracts which out by 2013. Finally, NMHG expects to introduce a favorably affected 2010 results, and by higher effective new 12-ton big truck in mid-2011. To strengthen tax rates, especially in the first half of 2011. Cash flow innovation and execution of advanced product before financing activities in 2011 is expected to be development programs, NMHG has recently set up a higher than in 2010. new Engineering Concept Centre at NMHG’s European Longer-Term Perspective NMHG remains committed to its vision of being a leading globally integrated designer, manufacturer and marketer of a complete range of high-quality lift truck products designed to meet a broad range of market applications by offering the lowest cost of headquarters in the United Kingdom. In the years ahead, the company expects to continue to work aggressively to meet evolving market requirements in all product segments of the market. New diesel emission regulations are currently affecting all lift truck manufacturers. NMHG is working c c c 7 c c c From left to right: Yale’s new electric-rider lift truck series, the Yale® ERC-VA cushion tire series, has lifting capacities of 3,000 to 4,000 pounds. These trucks have been designed for overall productivity at lower costs. The four-wheel truck is shown here. The new Hyster® E30-40XN electric-rider cushion tire lift truck series has lifting capacities of 3,000 to 4,000 pounds. These trucks have been designed for overall productivity at lower costs. The 4,000 pound lift truck model is shown here. Hyster Company’s new Hyster® H50CT internal combustion engine lift truck has a lifting capacity of 5,000 pounds and is targeted at moderate duty applications. The new Yale® MPE Walkie/Rider Motorized Hand Pallet Truck, with a carrying capacity of 6,000 to 8,000 pounds, excels in warehousing applications where throughput and productivity are key considerations. to ensure these requirements are satisfied in a cost- Because of these favorable events, NACoal had net effective manner. However, NMHG expects these income in 2010 of $39.6 million compared with regulations to increase the cost of trucks, which in income from continuing operations in 2009 of $30.6 turn is likely to lead to substantial price increases for million. NACoal also generated strong cash flow before certain trucks beginning with deliveries in 2012. financing activities of $32.8 million, which includes Overall, NMHG believes its products, supply proceeds of $11.2 million from the sale of joint venture chain, manufacturing, quality, pricing, distribution assets in Great American Energy, compared with cash and sales and marketing programs will position the flow before financing activities of $76.5 million in 2009, company well in the global lift truck market. NMHG’s which included proceeds of $41.4 million from the objective is to leverage this position to increase market sale of the assets of the Red River Mining Company. share and improve product margins to target levels. In 2010, NACoal’s subsidiary, Liberty Fuels, These programs are expected to move the company’s finalized a new mining contract to provide approxi- financial performance in the next few years toward its mately 4.2 million tons of lignite coal annually from target level of a minimum operating profit margin of its new Liberty Mine to Mississippi Power Company’s 9 percent at the peak of the market cycle. new Ratcliffe power plant currently being built in North American Coal 2010 Results Mississippi. This project is in the development phase and will not be fully operational for several years. While completion of the project is still contingent on North American Coal’s coal supply agreements, resolving legal challenges to regulatory approvals which are long-term in nature, again helped the being pursued by the Ratcliffe power plant, initial company achieve strong, stable performance and deliveries are expected to commence in late 2013. steady cash flows in 2010. In addition, several positive NACoal also extended its limerock mining contract financial developments occurred during the year. with Cemex S.A.B. de C.V. (“Cemex”) to continue Mississippi Power Company reimbursed NACoal mining at the five Cemex quarries in Florida through for previously recognized costs for pre-development 2018. In December 2010, NACoal’s contract to provide activities related to the new Liberty Mine in Mississippi; mining services to the San Miguel Mine expired and increased earnings at the unconsolidated mines was not renewed. resulted from contractual price escalation and income from the Liberty Mine; deliveries increased at the limerock mining operations due to the reinstatement of customer mining permits in early 2010, which had been suspended during 2009; royalty income increased; and lower costs of sales at the Mississippi Lignite Mining Company all contributed to enhanced results. Outlook for 2011 NACoal remains focused on safety, environmental compliance and continuous improvement programs. These well-established programs provide a solid foundation for relatively stable operations at all of its coal mines in 2011. However, coal tons delivered in c c c 8 c c c Above: Two draglines work through the night at The Sabine Mining Company in Texas. Right: The dragline at Mississippi Lignite Mining Company’s Red Hills Mine. 2011 are expected to be lower than in 2010 as a result although Demery Resources Company is currently in of the expiration and non-renewal of the San Miguel the permitting stage and expects to commence initial Mine contract in 2010 and somewhat lower customer deliveries in late 2011, unfavorable market conditions requirements. Royalty income in 2011 is also expected for its customer are expected to delay reaching full to be lower than in 2010. production of approximately 300,000 to 400,000 tons In 2010, NACoal’s limerock customers in the of coal annually. Lastly, in early 2011, NACoal finalized Florida lake belt region required higher limerock a new agreement to provide services to operate a deliveries as they rebuilt stockpiles that had been refined coal processing facility through 2018. This significantly diminished as a result of an unfavorable agreement and the mines in development are expected legal ruling that set aside their mining permits in 2009. to generate modest income during 2011. With this inventory replenishment now complete, 2011 NACoal is working on several important new customer requirements are expected to be lower as project opportunities in the United States and Asia market conditions in the southern Florida housing and for which it expects to continue to incur additional construction markets remain weak, which is expected expenses in 2011. In the United States, the company to result in lower deliveries in 2011 than in 2010. continues to move forward to gain a permit for its NACoal’s primary focus in 2011 is the execution Otter Creek reserve in North Dakota in preparation and implementation of the projects it currently has for the expected construction of a new mine. The in development. In addition to the new Liberty Mine, permit is anticipated to be issued in the second half NACoal has three other mines in development stages of 2011. NACoal is also performing work under certain that will not be in full production for several years. mining services agreements in Indonesia and India, Caddo Creek Resources Company is in the permitting in which NACoal is assisting other companies in stage of a project which expects to mine approximately setting up and managing their mines. 650,000 tons of coal annually for a customer that Overall, NACoal expects full-year 2011 net income currently purchases its coal from The Sabine Mining to decrease compared with 2010 mainly as a result Company. Initial deliveries are expected to commence of the absence of the reimbursement of previously in 2013. Camino Real Fuels is in the permitting stage expensed costs received in 2010 and reduced royalties of a project which expects to mine approximately in 2011. Cash flow before financing activities in 2011 2.7 million tons of coal annually. Initial deliveries are is expected to be higher than 2010, assuming mine expected to commence in mid- to late 2012. Finally, development activities occur as currently planned. c c c 9 c c c Above left: A truck/shovel operation uncovers coal in the pit of the Red Hills Mine in Mississippi. Above right: An Easi-Miner mines lignite coal from the ground into a Kress haul truck at The Sabine Mining Company in Texas. Bottom right: A Wirtgen coal miner loads coal into a Caterpillar dump truck at the Red Hills Mine in Mississippi. Longer-Term Perspective that coal must remain an integral part of the nation’s NACoal expects to continue its record of total energy mix for the United States to continue operational excellence in safety, environmental to be fully competitive in a global economy. NACoal stewardship and production at each of its mining will also continue to take a leadership role in helping operations and, over time, deliver profits that balance energy needs with environmental responsi- exceed its financial objectives. bility. The company is actively associated with several NACoal’s vision is to continue to be a leading organizations involved in evaluating and studying low-cost miner of coal used in power generation, various clean-coal technologies, some of which are coal-to-liquids, coal gasification and activated carbon funded by the Federal government. Also, one of plants and to provide selected value-added mining NACoal’s customers, Basin Electric, is a pioneer in the services for companies in the aggregates business. carbon capture process, which it employs at its Dakota Over the longer term, NACoal expects to continue its Gasification facility to pipe CO2 to Canada for enhanced efforts to develop new mining projects. The company oil and gas recovery. Further, most of NACoal’s new or is actively pursuing domestic opportunities for new potential coal-fired power plant customers, such as coal mining projects. However, the company also Mississippi Power, include carbon capture in their new expects to strengthen its position in value-added coal project plans. The company continues to believe mining services in the international mining arena that new power plant technologies, such as integrated in future years because of expected rapid growth in gasification, combined cycle power generation and international coal mining activities as developing production of alternative fuels made from coal, will countries expand low-cost coal-fired power generation. provide important opportunities in the future. New U.S. mining opportunities, on the other hand, Overall, NACoal sees sound long-term prospects are expected to be more limited, with any significant for additional mining opportunities. Also, as the growth dependent on the United States adopting a company’s new mines currently under construction balanced energy policy in which coal continues to begin operating, NACoal expects improved profitability play a key role. NACoal actively monitors pending over the long term. This enhanced financial perform- regulations and legislation to try to ensure that ance is expected to provide a solid base for NACoal to reasonable actions are taken. The company believes continue attaining its long-term financial targets. c c c 10 c c c Bottom left: Hamilton Beach® products are designed to fit every kitchen style and lifestyle. Featured - Hamilton Beach® Stay or Go® slow cooker. Bottom right: Hamilton Beach® slow cookers are versatile for everyday meals or for entertaining in the home. Featured - Hamilton Beach® 3-in-One Slow Cooker. At right: Hamilton Beach Brands’s newest products include, clockwise at top: Hamilton Beach® Wave Power® Plus blender, Hamilton Beach® BrewStation® 12-cup dispensing coffeemaker, Hamilton Beach® FashionFirst™ iron, Hamilton Beach® Half Pint™ soft- serve ice cream maker, Melitta® 12 cup coffee brewer. Hamilton Beach Brands 2010 Results Hamilton Beach Brands had strong financial results and solid cash flow before financing activities in 2010. Revenues improved from $497.0 million in 2009 to $515.7 million in 2010 primarily as a result of significantly higher unit sales volumes. However, despite these higher volumes and lower product costs in the first half of the year, net income declined moderately to $24.4 million in 2010 from $26.1 million in 2009. In 2009, margins were unusually strong in the U.S. consumer market and the company had reduced costs as a result of lower employee compensation and benefits, all of which returned to more normal levels in 2010. These factors, along with increased product and transportation costs in the second half of 2010, resulted in the slight decline in 2010 net income. HBB generated cash flow before financing activities of $12.8 million in 2010, down from the prior year amount of $33.4 million as a result of higher finished goods inventory levels at the end of 2010. Outlook for 2011 as mass-market consumers continue to struggle with financial concerns and unemployment rates remain high. International markets and commercial product markets experienced a stronger recovery in 2010 and the momentum seen in these markets is expected to continue into 2011. In 2011, the company will continue to invest in innovative products and value-added services for its key customers to ensure HBB products maintain their current strong market position. HBB continues to focus on strengthening its market position with all retailers through product innovation, promotions, increased placements and branding programs, as well as appropriate levels of advertising for the company’s highly successful Brewstation® coffee maker and Stay-or-Go® slow cooker lines. In addition, the company expects to continue to introduce innovative products in several small appliance categories. In 2011, HBB plans to continue to strengthen its focus on the higher-end U.S. consumer market. The new Melitta-branded beverage appliances, introduced in late 2010, are expected to continue to gain position in 2011. The company also expects to launch the ScoopTM, The small kitchen appliance market in which a single-serve coffee maker, and a new DurathonTM HBB participates has largely recovered. Nonetheless, iron product line. As a result of these new products, although consumer confidence and other key HBB anticipates revenues in 2011 will increase indicators have improved compared with 2009, compared with 2010. the U.S. mass market is expected to remain soft c c c 11 c c c From left to right: Proctor Silex® 1.5 Quart portable oval slow cooker, offered in citrus colors of red, orange, green and yellow; Hamilton Beach Stay-or-Go® Personal Cup™ pod coffeemaker; Hamilton Beach® Commercial Tournant™ high-performance food blender; Hamilton Beach® digital two-slice toaster; Hamilton Beach® Big Mouth® Pro juice extractor. Overall, full-year 2011 net income is expected to to improve revenues. The company expects its product be slightly lower than 2010 due to increased operating pipeline to be at or above historical levels in 2011. expenses and higher income tax expense. Increased HBB is focused on ensuring that the company product and transportation costs in the first half of remains a leading designer, marketer and distributor 2011 are expected to reduce net income in the first of small electric household and commercial products half of 2011 compared with the first half of 2010. The sold worldwide under strong brand names and company will remain focused on adding placements achieves profitable growth from innovative solutions while maintaining or improving product margins. HBB that improve everyday living. Longer term, the continues to monitor commodity costs closely and will company will continue to work to increase revenues adjust product prices and placements as appropriate and profitability by gaining placements, improving if commodity costs continue to increase as expected. efficiencies, reducing costs and pursuing strategic Also, to increase distribution efficiencies, HBB is growth opportunities, including achieving growth for moving its distribution center into a larger facility both the Hamilton Beach® and Proctor Silex® brands, during 2011. HBB expects to incur additional expenses growth in the high-end consumer market, growth in the second quarter related to this relocation. Cash throughout Latin America and growth in global flow before financing activities in 2011 is expected to commercial markets. The company is well-positioned be higher than in 2010. Longer-Term Perspective Product quality, customer service and fact-based professional sales and marketing remain areas of excellence for HBB. Important promotional campaigns designed to support HBB’s brands and new products are expected to continue. The company’s product and placement track record continues to be impressive due to innovation processes centered on understanding and meeting end-user needs. New products introduced in 2010, as well as further new product introductions in the pipeline for 2011 and future years, are expected to continue its leadership position in the small kitchen appliances industry and to move toward achieving its long-term financial objective of a minimum 10 percent operating profit margin in the years ahead. Kitchen Collection 2010 Results Solid strides were made at Kitchen Collection in 2010 to improve operations in both the Kitchen Collection® and Le Gourmet Chef® store formats. While results were encouraging, continued improvement is still necessary, primarily at the Le Gourmet Chef® c c c 12 c c c A layout of products available at Kitchen Collection’s Le Gourmet Chef® stores. Le Gourmet Chef® stores feature higher-margin, brand- name kitchenware and gourmet foods. store format. Despite fewer customer visits and to break-even levels. A new, revitalized store format reduced number of sales transactions at both store and an enhanced website for the Le Gourmet Chef® formats due to weakness in mass-consumer markets, stores, both focused more on food, tabletop and Kitchen Collection was able to increase revenues on-trend merchandise and both fully implemented from $213.9 million in 2009 to $219.6 million in 2010 late in 2009, helped drive an increase in sales volumes and deliver improved gross margins primarily from and improved margins for the Le Gourmet Chef® stores. new store sales and an increase in the average sales transaction value at comparable stores for both store formats. However, net income and cash flow before financing activities declined slightly. Net income decreased to $3.5 million in 2010 from $3.9 million in 2009 largely due to higher employee-related costs, while cash flow before financing activities was $3.6 million in 2010 compared with $4.3 million in 2009. The Kitchen Collection® stores, which sell a wide variety of basic kitchen items, had very strong results in 2010, benefitting from newly opened stores, an increase in the number of seasonal stores, a refreshed store format with improved product assortments, and enhanced merchandising, all of which resulted in improved margins. However, higher employee-related costs and unfavorable comparable store results reduced Kitchen Collection® store income compared with the prior year. The Le Gourmet Chef® stores, which sell higher-end goods focusing on cooking and entertaining themes, achieved a strong turnaround as an increase in sales at comparable stores, lower rent and the closing of unprofitable stores improved results Outlook for 2011 Kitchen Collection expects the economic recovery to continue in 2011, although consumer spending levels are likely to reflect financial concerns and high unemployment rates in Kitchen Collection’s target consumer base. In addition, increasing fuel costs could continue to affect the number of customer visits in 2011. Nevertheless, due to the opening of new Kitchen Collection® stores, enhanced product offerings and the continued strength of the Kitchen Collection® and Le Gourmet Chef ® store formats, Kitchen Collection expects a modest increase in revenue in 2011 compared with 2010. Favorable sales and margin trends that occurred in both store formats during 2010 are expected to continue into 2011. In addition, the company plans to continue to refine its promotional offers and merchandise mix in the Le Gourmet Chef ® stores. Because of Kitchen Collection’s prior actions to improve product selection, the company does not anticipate significant markdowns in 2011. These factors are expected to further enhance sales and margins. c c c 13 c c c Left: The Kitchen Collection® store at Aurora Farms Premium Outlets near Cleveland, Ohio features higher- margin, brand-name kitchen gadgets, small electric appliances and a variety of other kitchen- and housewares-related products. Above: The Le Gourmet Chef® store in Indianapolis, Indiana. The opening of new stores, the renegotiation of Longer-Term Perspective leases and the company’s continuing program of Kitchen Collection’s vision is to be the leading closing underperforming stores are also expected to specialty retailer of kitchen, home entertaining and provide improved results in 2011. As a result of gourmet food products in outlet malls and other retail favorable short-term leasing rates, Kitchen Collection channels for consumers seeking a large selection of was able to increase the number of seasonal stores unique, high-quality products at exceptional value. opened in 2010 and keep some of these seasonal The company has two strong store formats and plans stores open in early 2011. While growth in the number to leverage this strength with strong, separate brand of Le Gourmet Chef® stores continues to be a long- identities for each. term goal, the expected closure of underperforming Overall, the company is in a growth phase. stores in 2011 will result in a near-term reduction in The Kitchen Collection® store format is strong and the number of Le Gourmet Chef® stores. The effect of Le Gourmet Chef ® continues to improve. Going opening new stores and closing unprofitable ones is forward, management plans to focus on revenue and expected to result in a net increase of 17 total stores profitability growth through further strengthening of for the year. its merchandise mix, store displays and appearance, In addition, to increase the efficiency of its distri- while maintaining disciplined cost control. The bution operations, Kitchen Collection is combining its two distribution centers into one larger facility. The company expects to incur some additional expenses in the first quarter of 2011, when the relocation is expected to occur. The company also anticipates increased transportation costs in 2011 but expects to offset these increased costs through pricing and other actions as needed. Overall, Kitchen Collection anticipates an increase in full-year net income and cash flow before financing activities in 2011 compared with 2010. company also plans to expand the number of outlet malls in which Kitchen Collection® and Le Gourmet Chef® operate and to optimize store footprint sizes to enhance its ability to achieve target profit levels. The company also plans to continue to work on refining a traditional mall approach for both store formats which focuses on a smaller store footprint and which takes advantage of open locations and lower rents. In the near term, expansion at both outlet malls and traditional malls will be focused on the Kitchen Collection® format. When adequate profit prospects are demonstrated for the Le Gourmet Chef® format, c c c 14 c c c focus will shift to growth in the number of these expenditures are expected to be modest relative stores. The Le Gourmet Chef® website, which was to cash flow in the years ahead unless new growth updated in 2009, and the Kitchen Collection® website, opportunities develop. which was updated in 2010, are also expected to NACCO continues to have great confidence in provide ongoing revenue growth opportunities. the management teams at each of the Company’s With the improvements made or planned, subsidiaries. The many experienced and capable Kitchen Collection® stores are expected to achieve people who worked together so closely and success- higher margins in 2011 than their long-term operating fully during the steep global downturn have clearly margin target of 5 percent. Le Gourmet Chef® stores been the key to the Company’s remarkably strong are not expected to achieve the target margin until results at each subsidiary company in 2010. sales volumes increase and certain underperforming stores have been closed. s Conclusions and NACCO Outlook In closing, we would like to welcome Richard R. Chene, Jr. as the new President of Kitchen Collection. The economic environment continues to He brings extensive senior-level retail experience to improve, but uncertainties still remain. NACCO’s Kitchen Collection. Rich joined us on February 1, 2011. companies will be managed cautiously until each Finally, we would like to take this opportunity company’s management is more comfortable that a to thank all of our subsidiaries’ customers, retailers, solid, sustainable economic recovery is unfolding. In dealers and suppliers and all NACCO stockholders for 2010, NACCO’s companies benefited from programs their continued support, and to thank all NACCO and put in place prior to and during the downturn. These subsidiary employees most sincerely for their hard programs and improving markets are expected to work, sacrifice and commitment over the past year. lead to solid financial performance in 2011, which will We are pleased with 2010 results and look forward to enable each subsidiary company to continue to move greater achievement in 2011. toward achievement of its minimum financial goals. In 2011, overall consolidated results are expected to improve moderately over 2010. Improvement is expected at NMHG despite anticipated cost increases. We expect continued strong performance from HBB, which continues to operate very well. Improved results are expected at Kitchen Collection as the company focuses on improving the profitability of its Le Gourmet Chef® stores. Finally, while results are expected to decline moderately at NACoal primarily because of the absence of certain non-recurring benefits realized in 2010 and the loss of the San Miguel Mine, ongoing operations are expected to continue to be excellent. NACCO plans to continue to focus on maximizing cash flow before financing activities in 2011 and future years, with an increase in cash flow before financing activities anticipated for 2011 in comparison to 2010. However, capital expenditures are expected to increase at NMHG and NACoal. In general, future capital Alfred M. Rankin, Jr. Chairman, President and Chief Executive Officer, NACCO Industries, Inc. Robert L. Benson President and Chief Executive Officer, The North American Coal Corporation Michael P. Brogan President and Chief Executive Officer NACCO Materials Handling Group, Inc. Gregory H. Trepp President and Chief Executive Officer, Hamilton Beach Brands, Inc. Chief Executive Officer, The Kitchen Collection, LLC Richard R. Chene, Jr. President, The Kitchen Collection, LLC c c c 15 c c c Corporate Information Annual Meeting The Annual Meeting of Stockholders of NACCO Industries, Inc. will be held on May 11, 2011, 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 Computershare 7530 Lucerne Drive, Suite 305 Cleveland, Ohio 44130 1-800-622-6757 Legal Counsel Jones Day North Point 901 Lakeside Avenue Cleveland, Ohio 44114 Independent Registered Public Accounting Firm Ernst & Young LLP 1300 Huntington Building 925 Euclid Avenue Cleveland, Ohio 44115 Stock Exchange Listing The New York Stock Exchange Symbol: NC Investor Relations Contact Investor questions may be addressed to: Investor Relations 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.hysteramericas.com Hyster Europe: www.hyster.co.uk Hyster Asia-Pacific: www.hyster.com.au Hyster China: www.hyster.com.cn Yale North America: www.yale.com Yale Europe: www.yale-forklifts.eu Yale Asia-Pacific: www.yale.com.au Hamilton Beach Brands–U.S.: www.hamiltonbeach.com www.proctorsilex.com www.buytraditions.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 5875 Landerbrook Drive, Suite 300 • Cleveland, Ohio 44124 An Equal Opportunity Employer . 

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